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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 333-42975
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RMX REIT, INC.
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(Exact name of registrant as specified in its charter)
WASHINGTON 91-1869110
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(State or other jurisdiction of incorporation or organization)(I.R.S. Employer
Identification No.)
4720 200th St SW, Suite 200, Lynnwood, WA 98036
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(Address of principal executive offices) (Zip Code)
(425) 744-0386
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. /X/Yes / /No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K (X)
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RMX REIT, INC.
ANNUAL REPORT OF FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999
TABLE OF CONTENTS
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PART I
Item 1: Description of Business 4
Item 2: Description of Property 4
Item 3: Legal Proceedings 4
Item 4: Submission of Matters to Security Holders 5
PART II
Item 5: Market for Common Equity & Related Stockholders 5
Matters
Item 6: Management Discussion & Analysis 5
Item 7: Financial Statements 8
Item 8: Changes in & Disagreements with Accountants on 12
Accounting & Financial Disclosure
PART III
Item 9: Directors & Executive Officers 12
Item 10: Executive Compensation 14
Item 11: Security Ownership of Certain Beneficial Owners and 14
Management
Item 12: Certain Relationships and Related Transactions 14
Item 13: Exhibits and Reports on 8-K 15
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PART I
ITEM 1 DESCRIPTION OF BUSINESS
Business Development and Description
RMX REIT, Inc., is a Washington State Corporation (referred to as the
"company") incorporated June 19, 1997. The company has not issued any stock
prior to December 31, 1999. Subsequent to December 31, 1999, the minimum
offering was sold in the first quarter of 2000. The company intends to
acquire, manage and dispose of rental property and mortgage-collateralized
financial instruments with the objectives of earning current income and
obtaining capital appreciation. As of December 31, 1999 no properties or
financial instruments had been acquired.
Security
There were no loans as of December 31, 1999.
Borrowers and Competition
The primary competition in the Pacific Northwest for income producing
properties ranges from very large corporations to individuals. There is no
shortage of investors who will purchase income producing property. In
addition, loans of this type contemplated to be purchased are also available
from a large number of Mortgage Companies and investment groups; several
finance companies, e.g. Associates Financial Services, Beneficial Financial
Services and Quality Mortgage, ITT Financial Services etc, and individual
investors who actively purchase interests in what is commonly referred to as
Mortgage Paper Securities. The yield expectation of these lenders is similar
to the yield expectations of the company. The competition is financially
strong, stable and well funded. The company believes it can effectively
compete because of its management team, and their experience in the industry.
ITEM 2 DESCRIPTION OF PROPERTY
The company's property is expected to be loans receivable secured by real
property, also referred to as mortgage paper securities. The company plans tp
acquire mortgage paper securities that will yield annual interest between 10%
to 14%, in the range of between $25,000 to $150,000, amortized over 15 to 20
years with a balloon payment due in 5 to 7 years, with an loan to value of not
more than 70% of appraised value.
The company also plans to acquire a portfolio of income producing property
that will yield a net return of between 14% to 18% yield to the investors.
The company plans to leverage its capital by borrowing at more favorable
rates, thus increasing the net yield to the investors. As of this date, no
property has been purchased.
ITEM 3 LEGAL PROCEEDINGS
The company is not presently involved, nor does it expect to be involved, in
any legal proceedings, except eviction and collection action. Since the
company will be involved in renting property and purchasing loans secured by
real property, it will, by its very nature, always be involved in activities
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to enforce collection against tenants who fail to pay the rent and borrowers
who fail to make payments when due. Counsel for the company is of the opinion
that collection actions against tenants who are in default and on delinquent
loan accounts does not constitute pending or threatening litigation under
Financial Accounting Standards Board Opinion Number 5 (FASB 5) and is properly
categorized as routine litigation incidental to its business.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The company will hold quarterly meetings and will provide quarterly reports to
shareholders no later than thirty days after the quarter end. No matters were
submitted for a vote to security holders in 1999 as the minimum
of stock was not sold until the first quarter of 2000.
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no public market for the shares and such a market is not expected to
develop. Investors have no right of redemption from the company and can not
expect the company to repurchase their stock. The company will attempt,
however, to assist the shareholder in their attempts to sell their stock by
providing the selling shareholder with the existing shareholder list and
advising the selling shareholder of any existing shareholders who have
expressed a desire to purchase more shares. The company intends to require
existing shareholders to sell the shares at the offering price of $5.00 per
share.
The company can delay the acceptance of new investor's funds as frequently as
necessary in the event of more funds coming in from new investors or loans
being paid off than loans available to purchase or income producing properties
available to purchase. Also, no individual may own more than 9.8% of the
shares issued by the company without the written authorization from the
Secretary and an opinion of Counsel.
As of December 31, 1999 there were no shareholders of record. The company
plans to issue stock in the first and second quarter of 2000 to shareholders.
The company allows shareholders to receive cash dividends or elect to reinvest
their quarterly dividends into new shares of stock and compound their
investment. The shareholder may elect to change this election at any time
prior to the end of the quarter. There is no policy that would prohibit a
shareholder from changing the election on a quarterly basis.
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND
RESULTS OF OPERATIONS
Plan of Operation and Liquidity
Revenue from the sale of stock, principal payments, rents and loan payoffs
will provide the company with the source of funds to invest in income
producing property and to purchase new loans. The company believes that real
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estate agencies operating in the market will be able to provide the company
with sufficient income producing property to meet the company investment
objectives. In addition, the company expects that CLS will be able to provide
sufficient loans that meet the company's investment objectives now and in the
future.
The rents and interest paid on loans will provide the funds necessary to pay
the expenses and make dividend distributions to the shareholders. The company
manages its cash by not investing property or loans toward the end of the
quarter in order to provide the necessary funds to pay the cash dividends as
authorized by the Board of Directors shortly after the end of each calendar
quarter. The company expects to continue this type of cash management
procedure for the foreseeable future.
In order to pass through income to its shareholders without being taxed at the
company level, the company will comply with the REIT provisions of the
Internal Revenue Code. The company's first year of operation will be in 2000,
and the first year that it will have to meet REIT provisions of the Internal
Revenue Code will be in tax year 2001.
Results of Operations and Financial Conditions
As of December 31, 1999 the company had not yet begun operations and therefore
results of operations and financial conditions will be reported in subsequent
filings to the Securities and Exchange Commission.
Return on Assets, Equity, and Equity to Assets Ratio
As of December 31, 1999 the company had not yet begun operations and therefore
the ratios will be reported in subsequent filings.
Plan of Operation for Next Twelve Months
The company is committed to offer its stock for sale to the public for the
foreseeable future. The company expects to fully invest all available funds
through the purchase of real estate and loans. At present and in the
foreseeable future, the economy in the Pacific Northwest continues to expand.
Real estate values are increasing and therefore, the value of real estate
security remains strong. The company forecasts a stable demand for services,
since the economy in the Puget Sound area remains strong.
The company expects that all of the proceeds from this offering will be
absorbed into property and loans. In the unlikely event the amount received
from investors as a result of this offering exceeds the ability of the company
to purchase loans, the Board of Directors has directed the Secretary to delay
acceptance of new investor's funds as necessary.
The company projects that investors will purchase, on average, five hundred
thousand dollars ($500,000) monthly, after the minimum offering is sold and
then continuing until the offering is sold out. The company intends to
initiate future offerings on a two year cycle.
The company has limited debt and is entirely capitalized through the sale of
its stock on the basis of $5.00 per share.
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Uncertainties
Investment in the shares of the Company is subject to certain risks,
including, but not limited to, the fact the company has just begun operations
and has no operating results. There is no assurance that the company can
purchase suitable income producing property to meet the investment guidelines.
Market interest rates may rise and fall inconsistent with the company's
investment policy and objectives. The result of the company operations will
depend on the availability of income producing real property and mortgage
backed securities to purchase. There is no assurance that company will be
able to purchase an adequate number of qualified real estate secured loans.
The gross income will depend upon the nature, terms and conditions in
the rental and financial markets, which is impacted by the fiscal and monetary
policies of the United States Government and the Federal Reserve Board,
competition, regulation and other factors, none of which can be predicted with
any certainty.
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ITEM 7 FINANCIAL STATEMENTS
Index to Financial Statements as of June 30, 1999
Page
Independent Auditor's Report 9
Balance Sheet 10
Notes to Balance Sheet 11
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(Letterhead)
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
RMX Reit, Inc
Lynnwood, Washington
We have audited the accompanying balance sheet of RMX Reit, Inc., as a
Washington Corporation as of June 30, 1999. This financial statement is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of RMX Reit, Inc. as of June 30,
1999, in conformity with generally accepted accounting principles.
/s/ Peterson Sullivan PLLC
July 20, 1999
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RMX Reit, Inc
Balance Sheet
June 30, 1999
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Assets
Deferred Costs of raising Capital $30,128
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Liabilities and Stockholders Equity
Due to CLS $30,128
Common Stock, 2,400,000 shares authorized,
no shares issued and outstanding -
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$30,128
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See Notes to Balance Sheet
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Notes to Balance Sheet
June 30, 1999
Note 1. Organization and Significant Accounting Policies
Organization
RMX Reit, Inc. ("RMX") is incorporated under the laws of the State of
Washington. RMX plans to operate as a real estate investment trust. As of
June 30, 1999, RMX has no operations.
Deferred Costs of Raising Capital
As of June 30, 1999, RMX has paid $30,128 in costs associated with raising
capital. Management believes all of these costs are costs associated with
raising capital (preparation of prospectus and related printing costs).
In 1998, the American Institute of Certified Public Accountants issue
Statement of Position 98-5 ("Reporting on the Costs of Start-Up Activities").
This statement requires costs associated with start-up activities and
organization costs be expenses as incurred. It does not require costs of
raising capital to be expended. It became effective December 15, 1998.
Related Parties
RMX has common officers with CLS Financial Services, Inc. ("CLS") and other
affiliates. CLS and these other affiliates are active in the real estate
industry. CLS provides facilities and certain office support functions to RMX
at no charge. In addition, as of June 30, 1999, CLS has advanced RMX $30,128.
This advance has no set repayment terms.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
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ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT
The following persons are officers of the company and are also members
of the Board of Directors.
Name Age Title City/State
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Gerald C. Vanhook* 51 President Mill Creek, WA
Melvin L. Johnson* 42 Secretary Edmonds, WA
Dr. Joseph Zimmer** 49 Director Seattle, WA
Sue Cooper** 54 Director Everett, WA
Dr. G. Gordon Benjamin** 35 Director Gig Harbor, WA
*Denotes Officer who is a Director
**Denotes Outside Director
Gerald C. Vanhook is the President and Chief Executive Officer of the company.
He is also the president of CLS. He is and has been president of CLS since
its inception in 1990. Prior to that, Mr. Vanhook worked for CLS Mortgage,
Inc., in Spokane from February 1984 until November 1989, in which he was
responsible for acquiring and selling similar securities. He has been
employed in several management positions with Consumer Financial Companies,
Mortgage Banks, and Credit Unions since 1969.
Melvin L. Johnson, is the Secretary and Chief Financial Officer of the
company. He was formerly the Secretary. He has been employed in a variety of
banking positions with First Interstate Bank from 1981 to 1989. He graduated
with a degree in Education from Central Washington University in 1980. He
presently is the Vice President and a shareholder in CLS Financial Services,
Inc., the management company. He has been with CLS since 1990. He is also a
officer and shareholder of Puget Sound Investment Group, Inc., an affiliated
company.
Dr. Joseph Zimmer is an Outside Director. He is a Seattle dentist and in
addition he teaches at the University of Washington. He is an experienced
real estate investor and he is also experienced in other types of securities
such as stocks, bonds and limited partnerships. Dr. Zimmer is married and has
resided in Seattle for most of his life.
Sue Cooper is an Outside Director. She has nearly two decades of experience
in real estate backed securities and has been purchasing mortgage paper
securities for nearly ten years. Ms. Cooper represents a number of retirement
plans for the purposes of investing capital. She currently serves on the
Everett School Board and also holds a variety of leadership positions in
Seattle area charitable organizations. Ms. Cooper graduated from the College
of Wooster in Wooster, Ohio and received her M.A. from Eastern Michigan
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University. Ms. Cooper is married and resides in Everett, Washington.
Dr. G. Gordon Benjamin is an Outside Director. He is a graduate of Washington
State University and the Wauwatosa School of Medicine in Wauwatosa, Wisconsin.
He practices medicine as a cardiovascular radiologist with the firm of Tacoma
Radiology. He is an experienced securities investor. He is married and
resides in Tacoma, Washington.
Director Responsibilities
The company has incorporated the NASAA Statements of Policy regarding the
management of REITs into its bylaws. Board members are referred to as
Trustees in the NASAA section regarding REITs. The company and this
disclosure document interchangeably refer to the Trustees as Board Members. A
Board Member must have at lease three years of experience in financial
markets. The Bylaws require that a majority of the Board consist of
independent directors. A director is independent if he is not, directly or
indirectly, employed by the company or in any way affiliated with CLS.
Independent Director Responsibilities
The independent directors are required to monitor the relationship of the
company with the management, to review and approve all forms of compensation
paid to subcontractors, to review the company's portfolio to insure all loans
and real estate comply with the company's investment objectives, to declare
quarterly dividends, to provide annual reports to the shareholders and provide
management direction regarding day to day operations of the company.
Board Member Compensation
The board of directors is expected to be compensated for attending regular
quarterly meetings at an amount deemed appropriate by the Board of Directors.
The Directors are not prohibited from being paid for attending meetings or
being reimbursed for out of pocket expenses provided the payments are
approved by the full Board of Directors.
No Employees
There are no employees other than the President and the Secretary. However,
the company expects to hire additional staff as necessary.
Involvement in Certain Legal Proceedings
The company, its officers and directors, its advisors and affiliates have not
filed a Petition in Bankruptcy or Insolvency of any kind. No officer or
director has been convicted in a criminal proceeding or is subject of a
pending criminal proceeding (excluding traffic violations and other minor
offenses). No officer or director is subject to any order, judgement or
decree that would limit his or her involvement in any type of business,
securities or banking activity. No officer of director has been found to
have violated any federal or state securities or commodities law. The
Securities Division of the Department of Financial Institutions in and for the
State of Washington did issue a Consent Order SDO 99-10 in Case Number 99-02-
045 revoking the effectiveness of a permit issue to CLS Financial Services to
sell debentures and suspending the Broker Dealer License to CLS and Gerald C.
Vanhook's securities salesperson license and conditioning exemptions on March
1, 1999. The Department reissued a Broker Dealer permit to CLS on October 1,
1999, along with the salesperson license to Mr. Vanhook, subsequent to the
Consent Order. The Washington Securities Division has further issued a permit
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to sell these securities in 1999, permit Q03792, under its registration by
coordination, which expires on October 1, 2000 and is expected to be renewed.
ITEM 10 EXECUTIVE COMPENSATION
The company's compensation of the officers and board of directors will be
discussed in the next board meeting. At present, no officer or director is
compensated.
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
As of December 31, 1999, no stock had been issued.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
General
The company officers are also officers with CLS and its affiliates. The
company also is co-located with CLS and its affiliates. The company will
initially rely on CLS to provide sufficient staffing to perform administration
duties as needed.
Management Relationships
Property managers will be paid a fee from the collected rents on a contract by
property basis. PSIG may also be paid such a fee. Property managers are
generally paid 4% to 8% of the collected rents, depending on the property.
The company expects to retain the services of several property management
companies initially. On loans originated by the company, CLS is paid a loan
acquisition fee from the loan proceeds that the borrower is responsible to
pay. CLS is also paid a rate split and its affiliate PSRESG, is paid a
servicing fee to service the portfolio and collect on delinquent accounts.
PSIG is expected to manage some properties and any foreclosure process
involving company interests.
Legal Counsel and Other Experts
The legality of the stock issued herein and certain securities and income tax
matters have been passed on to Douglas M. O'Coyne, Sr., Attorney at Law.
Counsel is paid on an hourly basis.
The financial statements of the company will be audited by the accounting firm
of Peterson, Sullivan PLLC. The auditors will be paid on an hourly basis.
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ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
The following exhibits are filed as part of this report. Exhibits
previously filed are incorporated by reference as noted.
Exhibit
Number Exhibit Page
2 Plan of acquisition, reorganization, arrangement, liquidation, or
succession*
3 Articles of incorporation, by-laws*
4 Instruments defining the rights of security holders, including
indentures*
9 Voting Trust agreement*
10 Material contracts*
11 Statement recomputation of per share earnings*
12 Statement recomputation of ratios*
13 Annual report to security holders, Form 10-Q or quarterly report to
security holders*
16 Letter change in certifying accountant*
18 Letter change in accounting principles*
21 Subsidiaries of the registrant*
22 Published report regarding matters submitted to vote of security
holders*
23 Counsel of experts and counsel*
24 Power of Attorney*
27 Financial Data Schedule*
28 Information from reports furnished to state insurance regulatory
authorities*
99 Additional exhibits
* Items denoted by an asterisk have either been omitted or are not applicable.
Reports on Form 8-K
The company did not file any reports on Form 8-K in the year 1999.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, hereunto
duly authorized.
/s/
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Gerald C. Vanhook, President Date
/s/
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Melvin L. Johnson, Secretary Date
/s/
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Dr. Joseph Zimmer, Outside Director Date
/s/
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Sue Cooper, Outside Director Date
/s/
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Dr. G. Gordon Benjamin, Outside Director Date
