<PAGE> 1
UNITED STATES
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition Period from ________________ to ________________
Commission file number 000-24057
Rushmore Financial Group, Inc.
---------------------------------------
(Exact name of registrant as specified in its charter)
Texas 75-2375969
------------------------ --------------------------------------
(State of Incorporation) (I. R. S. Employer Identification No.)
13355 Noel Road, Suite 650, Dallas, Texas 75240
-------------------------------------------------------------
972-450-6000
-----------------------------------------------------------
(Issuer's telephone number, including area code)
Check whether the issuer filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by the court.
Yes ______ No ______
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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.
Yes XXX No ____
State the number of shares outstanding of each of the issuer's classes
of common equity as of March 31, 2000: 3,713,593 shares of common stock, $0.01
par value.
Transitional Small Business Disclosure Format;
Yes ____ No XXX
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
2
<PAGE> 3
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
-------------- --------------
<S> <C> <C>
ASSETS
Investments:
Cash and cash equivalents $ 227,218 $ 490,401
Certificates of deposit 200,000 200,000
Amounts on deposit with reinsurer 4,708,545 4,645,073
Equity securities available for sale -- 50,000
-------------- --------------
Total investments 5,135,763 5,385,474
-------------- --------------
Deferred policy acquisition costs 13,291 25,700
Accounts receivable and due from reinsurers 914,732 848,961
Prepaid expenses and deposits 367,228 245,862
Equipment, net of accumulated depreciation 1,413,149 1,465,672
Goodwill 3,536,339 3,597,683
Other assets 176 229
-------------- --------------
Total assets $ 11,380,678 $ 11,569,581
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Future policy benefits $ 5,222 $ 5,100
Universal life contract liabilities 4,662,072 4,607,416
Notes payable 228,086 272,385
Due to reinsurers 104,421 83,537
Accrued expenses & other liabilities 534,447 606,176
-------------- --------------
Total liabilities 5,534,248 5,574,614
-------------- --------------
Shareholders' Equity:
Preferred stock-9% cumulative preferred stock, $10 par value, 2,000 shares
issued and outstanding at March 31, 2000 and December 31, 1999 20,000 20,000
Preferred stock-Series A cumulative preferred stock, $10 par value;
13,687 shares issued and outstanding at March 31, 2000 and
December 31, 1999 136,870 136,870
Preferred stock-Series B convertible cumulative preferred stock:
$10 par value; 8,000 shares issued and outstanding at March 31, 2000;
no shares issued and outstanding at December 31, 1999 80,000 --
Preferred stock subscribed-1,760 shares at $10 par value at March 31, 2000; 17,600 --
no shares at December 31, 1999
Common stock-$0.01 par value, 10,000,000 shares authorized;
3,803,066 shares issued at March 31, 2000; 3,789,544 shares issued 38,031 37,895
at December 31, 1999
Common stock subscribed-5,138 shares at $0.01 at March 31, 2000; 51 81
8,138 shares at $0.01 at December 31, 1999
Additional paid in capital 10,064,306 9,851,128
Treasury stock-89,473 shares at cost (116,345) (116,345)
Accumulated deficit (4,349,583) (3,901,222)
Shareholder/subscription receivables:
Common and preferred stock subscriptions receivable (44,500) (33,440)
-------------- --------------
Total shareholders' equity 5,846,430 5,994,967
-------------- --------------
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 11,380,678 $ 11,569,581
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 4
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31, 2000 and 1999
(unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Revenue:
Revenue from Insurance Services:
Insurance policy income $ 381,952 $ 128,313
Net investment income 78,666 92,991
Agency management fee 112,413 40,238
Gain on sale of insurance block -- 1,016,268
Revenue from Investment Services:
Commissions and fees 780,526 680,263
Asset management 683,158 65,622
Other 8,544 11,320
----------- -----------
Total revenues 2,045,259 2,035,015
----------- -----------
Expenses:
Insurance Services Expenses:
Other insurance services expenses 299,619 133,630
Policyholder benefits 87,817 68,100
Amortization of deferred policy
acquisition costs 35,811 92,864
Investment services expenses:
Commission expense 583,588 603,393
Other investment services expenses 200,075 43,739
General and administrative 1,295,577 711,784
----------- -----------
Total expenses 2,502,487 1,653,510
----------- -----------
Operating income (loss) (457,228) 381,505
Interest expense 11,790 171
----------- -----------
Income (loss) before income taxes (469,018) 381,334
Income tax expense (benefit) (20,657) 163,383
----------- -----------
Net income (loss) $ (448,361) $ 217,951
=========== ===========
Net income (loss) applicable to common shareholders $ (451,891) $ 214,422
=========== ===========
Basic:
Net income (loss) per share of common stock,
after dividends on preferred stock $ (0.12) $ 0.07
=========== ===========
Weighted average common shares outstanding 3,710,324 3,004,659
=========== ===========
Diluted:
Net income (loss) per share of common stock,
after dividends on preferred stock $ (0.12) $ 0.07
=========== ===========
Weighted average common shares outstanding 3,710,324 3,078,359
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
RUSHMORE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (448,361) $ 217,951
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Gain on sale of insurance block net of federal income tax -- (1,016,268)
Realized gains (net) -- (3,933)
Depreciation and amortization 146,180 29,680
Expenses paid by issuance of common stock 82,238 --
CHANGE IN ASSETS AND LIABILITIES, NET OF EFFECTS OF SALE OF
INSURANCE BLOCK IN 1999:
(Increase) decrease in assets:
Accounts receivable and due from reinsurers (65,771) (102,618)
Prepaid expenses and deposits (121,366) 7,708
Deferred policy acquisition costs 12,409 85,878
Amounts on deposit with reinsurer (63,472) (112,914)
Net deferred federal income taxes -- (9,652)
Other assets -- 1,755
Increase (decrease) in liabilities:
Accrued expenses and other liabilities (71,729) 334,086
Due to reinsurers 20,884 114,483
Future policy benefits 122 499
Universal Life liabilities 54,656 22,261
----------- -----------
Net cash flows used in operating activities (454,210) (431,084)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (32,260) (86,206)
Sale (purchase) of equity securities available for sale 50,000 (50,000)
Purchases of certificates of deposit -- 298,714
Sales of bonds available for sale -- 207,816
Cash received on sale of insurance block -- 500,000
----------- -----------
Net cash flows provided by investing activities 17,740 870,324
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in loans to officers and affiliate -- 44,759
Proceeds from sale of Common Stock 21,116 34,679
Proceeds from sale of Preferred Stock 200,000 --
Preferred Stock dividends paid (3,530) (3,529)
Payments on notes payable (44,299) (7,242)
Proceeds from notes payable -- 35,260
----------- -----------
Net cash flows provided by financing activities 173,287 103,927
----------- -----------
Change in cash and cash equivalents (263,183) 543,167
Cash and cash equivalents at beginning of period 490,401 613,814
----------- -----------
Cash and cash equivalents at end of period $ 227,218 $ 1,156,981
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 11,790 $ 822
Cash paid for income taxes $ -- $ --
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The financial statements included herein have been prepared by Rushmore
Financial Group, Inc. ("Company") without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures contained herein are adequate to make the information
presented not misleading. In the opinion of management, the information
furnished in the unaudited consolidated financial statements reflects all
adjustments which are ordinary in nature and necessary to present fairly the
Company's financial position, results of operations and changes in financial
position for such interim period. These interim financial statements should be
read in conjunction with the Company's financial statements and the notes
thereto as of December 31, 1999, included in the Company's annual report on Form
10-KSB for the year ended December 31, 1999.
Rushmore Insurance Services, Incorporated ("Rushmore Agency") is an insurance
agency and an affiliate of the Company by means of service agreements. The
Company has entered into an administrative services agreement whereby net
revenues and expenses are charged via a management fee to the Company. Rushmore
Agency has been consolidated in the accompanying consolidated financial
statements.
2. Industry Segment Information
The following summarizes the Company's identifiable assets by industry segment
as of March 31, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Insurance Agency $ 408,344 $ 388,750
Insurance Company 5,115,769 5,839,908
Securities Brokerage 1,397,273 338,229
Advisory Services 3,745,382 10,712
Corporate 713,910 1,282,881
----------- -----------
Total $11,380,678 $ 7,860,480
=========== ===========
</TABLE>
The following summarizes the Company's operating income (loss) by industry
segment as of March 31, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
--------- ---------
<S> <C> <C>
Insurance Agency $ 90,001 $ (115,745)
Insurance Company (16,772) 796,980
Securities Brokerage (191,787) (59,278)
Advisory Services 130,533 (32,106)
Corporate (460,336) (371,900)
----------- -----------
Total $ (448,361) $ 217,951
=========== ===========
</TABLE>
3. Related Party Transactions
On August 27, 1999 the Company agreed to loan John A. Vann ("Vann") the sum of
$360,000. Vann is President of Rushmore Investment Advisors, Inc. and Director
and Chief Investment Officer of the Company. The principal amount of the loan is
being advanced in monthly increments of $30,000 that bear interest at 9%.
Principal is due eighteen months from the date of the note. Interest is due in
two installments on twelve and eighteen months from the date of the note. The
note is secured by 500,000 shares of Vann's common stock of the Company.
6
<PAGE> 7
4. Comprehensive Income (Loss)
Comprehensive income (loss) for the periods ending March 31, 2000 and 1999
consists of:
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
----------- -----------
<S> <C> <C>
Net income (loss) $ (448,361) $ 217,951
Other comprehensive income (loss), net of tax
Unrealized gains (losses) on securities, net
of reclassification adjustment -- (758)
----------- -----------
Comprehensive income (loss) $ (448,361) $ 217,193
=========== ===========
</TABLE>
5. Earnings (Loss) Per Share
Earnings (loss) per share for the periods ending March 31, 2000 and 1999 are as
follows:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Net income (loss) $ (448,361) $ 217,951
Less dividends on preferred stock (3,530) (3,529)
----------- -----------
Net income (loss) applicable to common shareholders $ (451,891) $ 214,422
=========== ===========
Weighted average common shares outstanding 3,710,324 3,004,659
Dilutive Potential Common Shares -- 73,700
Net income (loss) per common share
Basic $ (0.12) $ 0.07
Diluted $ (0.12) $ 0.07
</TABLE>
6. Subsequent Events
On May 5, 2000 the Company entered into a memorandum of agreement with Spectrum
Insurance, Inc., involving capital investments, technology assistance, and
cross-marketing of insurance products between the companies. This relationship
is subject to the negotiation and delivery of definitive agreements between
Rushmore and Spectrum.
As part of the new relationship, Spectrum intends to make a series of capital
investments in Rushmore. The Company intends to use these investments for the
development and rollout of its on-line trading system software. In addition to
the cash investment, technical assistance in the development of this software
will be provided by Spectrum's parent company, WinkWorx, an Illinois-based
Internet technology incubator.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Three Months Ended March 31, 2000 and 1999
Revenues
7
<PAGE> 8
The following table sets forth the components of the Company's revenues for the
periods indicated:
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
---------- ----------
<S> <C> <C>
Insurance Agency $ 465,676 $ 141,601
Insurance Company 107,355 1,136,209
Securities Brokerage 780,526 679,993
Advisory Services 683,158 65,892
Corporate 8,544 11,320
---------- ----------
Total $2,045,259 $2,035,015
========== ==========
</TABLE>
Total revenue increased from $2,035,015 in 1999 to $2,045,259 in 2000. In 1999,
the Company recorded pre-tax revenue of $1,016,268 as the result of the
execution of a termination and recapture agreement with Conseco Life Insurance
Company, by which all reinsurance is terminated and all risks formerly assumed
by Conseco were recaptured. Excluding that revenue, all other revenues increased
$1,026,512, or 101%.
The increase in insurance agency revenue was generally the result of an increase
in sales of life and health insurance products, resulting in an increase of
$251,841 in related insurance commission revenue, plus an increase of $56,329 in
Health Association management fees.
Insurance company revenue decreased $1,028,854 from the first quarter of 1999 to
the first quarter of 2000, with the Conseco revenue discussed above accounting
for nearly all the decrease.
The increase in securities brokerage revenue consists mainly of an increase of
$204,964 in brokerage commission revenue, plus an increase of $88,978 in
RushTrade internet-based on-line brokerage revenue, offset by decreases of
$126,906 in variable annuity commissions and $49,907 in mutual fund commissions.
In July 1999, the Company acquired 100% of the stock of The John Vann Company,
an investment management firm. The increase of $617,266 in advisory services
revenue is attributable to fees generated by this acquisition.
Expenses
The following table sets forth the components of the Company's expenses for the
periods indicated:
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
---------- ----------
<S> <C> <C>
Insurance Agency $ 375,675 $ 257,346
Insurance Company 144,784 175,846
Securities Brokerage 972,313 739,271
Advisory Services 552,625 97,998
Corporate 457,090 383,049
---------- ----------
Total $2,502,487 $1,653,510
========== ==========
</TABLE>
Insurance Agency expenses increased from $257,346 in 1999 to $375,675 in 2000.
Commission expense rose to $260,142 in 2000 from $50,386 in 1999 as the result
of the increase in life and health insurance product sales. Expenses to acquire
sales leads decreased to $12,137 in 2000 from $51,132 in 1999. Other
administrative costs associated with the Insurance Agency decreased from
$155,828 in 1999 to $103,396 in 2000 as a result of a decrease in compensation
expense and implementation of several cost-cutting measures.
Insurance Company expenses decreased from $175,846 in 1999 to $144,784 in 2000.
Securities Brokerage expenses increased from $739,271 in 1999 to $972,313 in
2000. Commission expense decreased from $557,793 in 1999 to $491,561 in 2000,
primarily as the result of a lower average commission payout rate. Legal and
professional fees increased from $20,480 in 1999 to $78,731 in 2000 generally as
a result of $20,555 in arbitration and settlement costs on two arbitration
actions and $49,272 in litigation costs. Increased corporate focus on the
RushTrade internet-based on-line brokerage division caused several expense
categories for
8
<PAGE> 9
that division to increase over their 1999 levels: depreciation expense
increased from zero in 1999 to $44,890 in 2000, payroll expense increased from
$65,928 in 1999 to $146,798 in 2000, quotation fees increased from $25,380 in
1999 to $81,385 in 2000, and marketing expenses increased from $918 in 1999 to
$49,073 in 2000.
Advisory Services expenses increased from $97,998 in 1999 to $552,625 in 2000.
This increase is due to the staffing, administrative and trade-related expenses
associated with acquisition of the John Vann Company. Commissions rose from
$47,600 in 1999 to $92,027 in 2000, quotation and transaction fees increased
from $688 in 1999 to $80,799 in 2000, and depreciation rose from zero in 1999 to
$10,991 in 2000. Compensation expense increased from $34,694 in 1999 to $141,291
in 2000, and goodwill amortization of $61,562 was recorded in 2000 versus none
in 1999. The remaining expense increases are attributable to the increased level
of administrative and office expenses related to the above-mentioned
acquisition.
Corporate expenses increased from $383,049 in 1999 to $457,090 in 2000. This
increase is mainly due to recording $82,238 in litigation settlement costs
discussed in Part II, Item 1 of this document.
Operating income (loss)
The following table sets forth the components of the Company's net income (loss)
for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
--------- ---------
<S> <C> <C>
Insurance Agency $ 90,001 $(115,745)
Insurance Company (16,772) 796,980
Securities Brokerage (191,787) (59,278)
Advisory Services 130,533 (32,106)
Corporate (460,336) (371,900)
--------- ---------
Total $(448,361) $ 217,951
========= =========
</TABLE>
The Company had a net loss of $448,361 for the first quarter of 2000, as opposed
to net income of $217,951 for the first quarter of 1999. The net loss applicable
to common shareholders for the first quarter of 2000 was $451,891, or ($0.12)
per share (basic and diluted). The net income applicable to common shareholders
for the first quarter of 1999 was $214,422, or $0.07 per share (basic and
diluted). A major component of the change from 1999 to 2000 was the gain of
$1,016,268 (offset by an increase in the provision for income taxes of $163,383)
on the disposition of the block of reinsurance policies in 1999 by Rushmore Life
Insurance Company. Although the Company has significant net operating loss
deductions available, it is unable to consolidate Rushmore Life Insurance
Company for tax purposes until the year 2003.
Liquidity
Registrant's requirements for normal cash expenditures will be met through cash
flow from operations. Additional costs to further develop the proprietary
software to be used in Registrant's on-line trading service are expected to be
funded through the private placement of convertible preferred stock and through
additional capital provided by Spectrum Insurance, Inc., as discussed in
Footnote 6.
Forward looking statements
This document includes statements that may constitute "forward-looking"
statements, usually containing the words "believe", "estimate", "project",
"expect", or similar expressions. These statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements inherently involve risks and uncertainties that could
cause actual results to differ materially from the forward-looking statements.
Factors that would cause or contribute to such differences include, but are not
limited to, continued acceptance of the Company's products in the marketplace,
competitive factors, changes in regulatory environments, and other risks
detailed in the Company's periodic report filings with the Securities and
Exchange Commission. By making these forward-looking statements, the Company
undertakes no obligation to update these statements for revisions or changes
after the date of this filing.
9
<PAGE> 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Neither Rushmore Financial Group, Inc. nor its subsidiaries is a party to any
pending legal proceedings which management believes would have a material effect
upon the operations or financial condition of Rushmore Financial Group, Inc.
Two lawsuits filed in the District Courts of Dallas County, Texas, against the
Company and its Chief Executive Officer in 1999, brought by U.S. Teachers
Insurance Agency, Inc., who at one time attempted to do business with the
Company, have now been settled, under the terms of which the suits will be
dropped in consideration for the Company's issuing (i) 5,000 shares of common
stock on or before July 1, 2000, and (ii) warrants to purchase 35,000 shares of
the Company's common stock for $2.25 per share, which warrants will expire in
five years and three months. Although non-cash, the Company recorded a charge to
earnings of approximately $82,000 with a corresponding credit to
paid-in-capital, resulting in no impact to shareholders equity.
The Company's brokerage subsidiary, Rushmore Securities Corporation, has had
claims made against it by three customers in Florida resulting from investments
in financial instruments placed through Rushmore Securities Corporation in a
company that declared bankruptcy and in a company that has failed to make
payments on its debt obligations. The first claim for $257,000 resulted in an
arbitration award for $50,000, which the Company paid in 1999. Other threatened
claims totaling $382,000 have not been filed.
On November 3, 1999, the former president of Rushmore Securities Corporation and
former director of the Company filed suit in the District Courts of Dallas
County, Texas, alleging breach of contract arising out of his termination by the
Company and requests damages in excess of $389,000. The Company has denied that
any amounts are owed under the agreement. The Company and Rushmore Securities
Corporation have been successful in stopping the State Court litigation, and the
dispute is now the subject of a NASD Arbitration hearing. Rushmore Securities
Corporation has also filed a counter-claim in relation to this matter.
Item 2. Defaults Upon Senior Securities - None
10
<PAGE> 11
Item 3. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of shareholders on May 5, 2000.
PROPOSAL 1 - ELECTION OF DIRECTORS
The following table provides information as of May 5, 2000, with respect to each
of the Company's directors continuing in office and nominees for director.
<TABLE>
<CAPTION>
NAME AGE SERVED AS DIRECTOR SINCE
----------------------------------- ------ ------------------------
<S> <C> <C>
DIRECTOR NOMINEES
CLASS OF NOMINEES FOR TERMS EXPIRING IN 2003
Mark S. Adler 46 1997
W. Thomas Fraser, III 52 2000
Gayle C. Tinsley 69 1998
DIRECTORS CONTINUING IN OFFICE
CLASS OF DIRECTORS WITH TERMS EXPIRING IN 2001
John A. Vann 52 1999
CLASS OF DIRECTORS WITH TERMS EXPIRING IN 2002
D. M. (Rusty) Moore, Jr. 50 1990
Timothy J. Gardiner 45 1997
James M. Fehleison 41 1998
</TABLE>
PROPOSAL 2 - RATIFICATION OF APPOINTMENT OF AUDITORS
The holders of Common Stock were also asked to ratify the Board of Directors
appointment of Grant Thornton, LLP as the Company's independent auditors for the
year ending December 31, 2000.
The following table summarizes the votes cast regarding these proposals.
<TABLE>
<CAPTION>
Delivered, Exception
Proposal For Against Abstain Not Voted & No Vote
- ----------- ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1
Adler 2,309,345 724,200 27,289 0 652,759
Fraser 2,322,550 724,200 14,084 0 652,759
Tinsley 2,322,050 724,200 14,584 0 652,759
2 2,324,450 724,500 11,884 0 652,759
</TABLE>
11
<PAGE> 12
Item 4. Exhibits and Reports on Form 8K
(a) Exhibits. Exhibit 10.14 - Vann Loan Agreement
Exhibit 10.15 - Vann Promissory Note
Exhibit 10.16 - Vann Collateral Transfer
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8k. - None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Rushmore Financial Group, Inc.
Dated: May 12, 2000 By /s/ Howard M. Stein
-----------------------------------
Howard M. Stein
12
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
10.14 Vann Loan Agreement
10.15 Vann Promissory Note
10.16 Vann Collateral Transfer
27 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 10.14
LOAN AGREEMENT
1. PARTIES.
The parties to this Loan Agreement are:
1.1 John A. Vann ("Vann"), whose address is 1800 Preston Road, Suite
101, Dallas, Texas 75093; and
1.2 Rushmore Financial Group, Inc. ("Rushmore"), a Texas corporation
whose address is 13355 Noel Road, Suite 650, Dallas, Texas 75240.
2. LOAN; COLLATERAL
2.1 Rushmore agrees to loan Vann the sum of $30,000 upon the execution
hereof.
2.2 Subject to receiving the approval of the Board of Directors of
Rushmore, Rushmore agrees to loan Vann up to an additional $330,000 (the full
$360,000 comprising the "Principal Amount of the Loan").
2.3 The Principal Amount shall be advanced in monthly advances
("Advances") of $30,000 each on the 27th day of each month beginning with August
1999 and continuing thereafter through and including July 27, 2000. The
Principal Amount shall bear interest and be repayable as provided in the
promissory note (the "Note") attached hereto as Exhibit A.
2.4 Repayment of the Loan shall be secured by the collateral pledge
(the "Collateral Pledge") of 500,000 shares (the "Pledged Shares") of Rushmore
common stock. The form and terms of the Collateral Pledge shall be in accordance
with Exhibit B attached hereto. The Collateral Pledge shall be executed and
delivered along with Pledged Shares only following the receipt of Board of
Directors approval.
2.5 The Executive Committee of Rushmore has approved the Loan and will
recommend it to the full Board of Directors of Rushmore for approval at a
meeting to be held on or before September 1, 1999.
3. CONDITIONS PRECEDENT.
3.1 Rushmore's obligation to fund each Advance is subject to and
contingent upon "Cash Availability" as defined below.
3.2 "Cash Availability" means that at the time of the funding of each
Advance, the amount of cash and cash equivalents available to Rushmore
Investment Advisors, Inc. ("RIA") exceeds the RIA estimated cash disbursements
for the following month. In estimating the cash disbursements for the following
month, Rushmore
<PAGE> 2
shall not include any prepayment of capital or operating expenditures except
those (such as equipment leases and the like) which RIA is presently
contractually obligated to make, or which Vann approves in writing.
4. REPLACEMENT FINANCING
4.1 Rushmore and Vann shall have the right and option to replace the
loan with a "Reasonably Equivalent Loan" as defined below.
4.2 A Reasonably Equivalent Loan shall mean and consist of:
4.2.1 a loan of not less than $360,000;
4.2.2 made by an FDIC-insured institution or, if not an
FDIC-insured institution, then a lender reasonably acceptable to Vann;
4.2.3 secured by the collateral pledge of Vann's stock in Rushmore
upon terms substantially equivalent to the Collateral Pledge, except as may
otherwise be acceptable to Vann;
4.2.4 bearing interest at not more than 200 basis points over the
New York prime lending rate as published in the Wall Street Journal; and
4.2.5 with principal and interest being due and payable not less
than twelve months after funding.
4.3 Vann will not pledge, hypothecate or encumber his stock in Rushmore
(other than the Pledged Shares) prior to September 24, 1999. If Rushmore has not
provided Vann with a firm commitment for a Reasonably Equivalent Loan issued by
the prospective lender by that date, Vann will be free to pledge, hypothecate or
encumber other Rushmore stock not included in the Pledged Shares to secure a
loan from any other source.
4.4 In the event that the Loan is replaced with a Reasonably Equivalent
Loan, Vann will pay off the Loan out of the funding of the Reasonably Equivalent
Loan at the time of funding.
4.5 Vann will cooperate with Rushmore in its effort to obtain a
Reasonably Equivalent Loan.
5. DEFAULT
5.1 Vann and Rushmore each acknowledge that they have and each has
exercised best efforts to secure a loan for Vann from other sources and that
they have been unable to do so.
<PAGE> 3
5.2 Recognizing that alternative sources for such a loan may not be
available, in the event Rushmore fails to make any Advance when due and when all
conditions to making such Advance have been satisfied, Vann shall have the right
to accelerate the unfunded Advances and demand that they be made immediately. If
the unfunded Advances are not made on demand, then Vann will be entitled to
enforce all legal rights available to him for such breach and to an immediate
release of all shares of Rushmore common stock held as collateral.
5.3 In the event that Vann employs an attorney to enforce his rights
under this agreement or to defend any claims asserted against him by Rushmore
arising hereunder, and in the event that Vann is the prevailing party, Vann
should be entitled to recover, in addition to all other relief, his reasonable
attorneys fees and expenses.
6. REPRESENTATION
Vann represents that the Loan will provide adequate funds for Vann to
meet all current and expected financial obligations, such that he will refrain
from further discussions with Company personnel regarding filing of actions for
bankruptcy or recision of the acquisition of The John Vann Company.
Executed at Dallas, Texas this 27th day of August, 1999.
RUSHMORE FINANCIAL GROUP, INC.
By: /s/ D.M. Moore
D.M. Moore, President
/s/ John A. Vann
John A. Vann
<PAGE> 1
Exhibit 10.15
PROMISSORY NOTE
$360,000.00 Dallas, Texas August 27, 1999
FOR VALUE RECEIVED, the undersigned, JOHN A. VANN ("MAKER"), promises
to pay to the order of RUSHMORE FINANCIAL GROUP, INC ("NOTEHOLDER"), the
principal balance hereof with interest thereon as set forth below. All sums
hereunder are payable at the office of Noteholder in Dallas, Dallas County,
Texas.
The "principal balance" means the above sum or so much thereof as shall
be advanced by Noteholder to Maker under and pursuant to that certain Loan
Agreement (herein so called) of even date herewith by and between Maker and
Noteholder.
1. INTEREST RATE:
1.1 Subject to the provisions of Article 7 hereof, Maker agrees to pay
interest on the unpaid principal balance hereof, from the dates of advances
comprising same, as hereinafter provided, to maturity at the greater rate of:
(a) 9% per annum; or (b) the minimum interest rate which Noteholder may charge
on loans to officers, directors or shareholders of Noteholder secured by the
collateral pledge of stock in Noteholder, as determined by any applicable
governmental regulation.
1.2 Interest shall be computed on a daily basis. Noteholder's records
shall be prima facie evidence of the amount of interest accrued.
1.3 Matured principal and interest shall bear interest until paid at
the greater of: (a) the rate provided in Section 1.1 above, or (b) 18% per
annum.
2. PAYMENT OF PRINCIPAL AND INTEREST:
2.1 Unless renewed and extended as provided in Article 3 hereof,
principal shall be due and payable eighteen months after the date hereof.
2.2 Interest shall be due in two installments on twelve and eighteen
months from the date hereof.
2.3 Maker shall have the right to prepay this Note, in whole or in
part, at any time and from time to time. Partial prepayments shall be applied
first to accrued interest, then to principal.
<PAGE> 2
3. RENEWAL AND EXTENSION:
3.1 Maker shall have the option, exercisable as hereinafter provided,
to renew and extend maturity of this Note for six months provided that the
conditions precedent to its exercise and to the obligation of Noteholder to
renew and extend set forth below are satisfied.
3.2 Such option must be exercised, if at all, by written notice to
Noteholder (sent in accordance with the "Notice" provisions of the Collateral
Transfer and Security Agreement securing payment hereof) which must be actually
received by Noteholder not more than sixty (60) nor less than thirty (30) days
prior to the expiration of the original term hereof.
3.3 Exercise of such option and the obligation of Noteholder to renew
and extend pursuant thereto, are hereby conditioned upon: (a) the giving of
notice as provided above; (b) the execution and delivery of such documents
evidencing the renewal and extension as Noteholder may require; (c) the absence
of any uncured event of default, or condition or event which, with the passage
of time, the giving of notice, or both, would constitute an event of default
hereunder or under any lien instrument securing payment hereof; (d) payment to
Noteholder of accrued, unpaid interest then outstanding hereon; and (e) payment
to Noteholder of any and all costs and expenses, including attorney's fees,
incurred or paid by Noteholder in connection with such extension.
4. SECURITY FOR NOTE:
This Note is secured by a Collateral Transfer and Security Agreement
(the "Collateral Transfer") of even date herewith.
5. WAIVER:
5.1 Maker, and any sureties, guarantors or endorsers hereof, and each
successor in interest to any of them, severally waive demand, presentment,
notice of dishonor, diligence in collecting, grace, notice of protest and notice
of acceleration.
5.2 Acceptance by Noteholder, whether before or after acceleration of
amounts less than the entire amount due, or of performance of less than the
entire obligation to be performed shall be deemed on account only, and shall not
constitute a waiver of any action theretofore taken by Noteholder, or in any
manner preclude any further action by Noteholder hereunder or under the
Collateral Transfer.
<PAGE> 3
6. ATTORNEY'S FEES:
If this Note is not paid at maturity and is placed in the hands of an
attorney for collection, or if it is collected through a bankruptcy, a probate
or any other court after maturity, the Noteholder shall be entitled to recover
its reasonable attorney's fees as a part if the principal amount due hereunder.
7. RECEIPT OF INTEREST:
7.1 All agreement between Maker and Noteholder are hereby expressly
limited so that in no contingency or event whatsoever, shall the amount paid or
agreed to be paid to Noteholder for the use, forbearance or detention of the
money to be loaned hereunder exceed the maximum amount permissible under
applicable law. If, from any circumstances whatsoever, fulfillment of any
provision hereof, at the time performance of such provision shall be due, shall
involve transcending the limit of validity, and, if from any circumstances,
Noteholder should ever receive as interest an amount that would exceed highest
lawful rate, such amount that would be excessive interest shall be applied to
the reduction of principal owing hereunder and not to the payment of interest.
7.2 In determining the rate of interest applicable hereto, all interest
and any other fees, charges expenses or amounts paid or contracted to be paid
for the use, forbearance or detention of money shall be amortized, prorated,
allocated and spread in equal parts during the period of the full stated term
hereof. However, in the event this Note is paid in full by Maker prior to the
end of the full stated term, and the interest received by Noteholder for the
actual period of existence of the debt exceeds the maximum lawful rate,
Noteholder shall refund to Maker the amount in excess or shall credit the amount
of the excess against the amounts owing hereinunder.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the
day and year first written above.
/s/ JOHN A. VANN
----------------
JOHN A. VANN
<PAGE> 1
Exhibit 10.16
COLLATERAL TRANSFER AND SECURITY AGREEMENT
STATE OF TEXAS )
)
COUNTY OF DALLAS )
1. PARTIES:
This Security Agreement and Collateral Transfer, as security for the
hereinafter described indebtedness, is made this 27th day of August, 1999, by
and between JOHN A. VANN ("Debtor"), 1800 Preston Road, Suite 101, Dallas,Texas
75093, and RUSHMORE FINANCIAL GROUP, INC., Attn. D.M. Moore, Jr., 13355 Noel
Road, Suite 650, Dallas, Texas, 75240 herein called "Secured Party."
2. CONSIDERATION:
This Collateral Transfer and Security Agreement is made for a valuable
and sufficient consideration consisting of the extension of credit to Debtor
evidenced by a promissory note of even date herewith.
3. TRANSFER:
Debtor hereby collaterally transfers and assigns to Secured Party and
grants to Secured Party a security interest in 500,000 shares of common stock,
par value $0.01, of Secured Party (the "Collateral"). The Collateral shall also
consist of (a) any additional shares or securities innuring to the owner of the
Collateral including, but not limited to, stock dividends, stock "splits," or
securities issued in redemption of the Schedule 1 securities or as a result of
the merger or its consolidation of the Schedule 1 securities issuer or its
successor, (b) any dividends or other distributions inuring to the owner of the
Collateral paid in cash or other property, and (c) the proceeds of the
Collateral: as herein defined.
4. PURPOSE:
The purpose of this transfer is to secure payment if that one certain
promissory note even date herewith, in the maximum principal sum of $360,000,
executed by Debtor, payable to the order if Secured Party (the "Secured
Obligation").
<PAGE> 2
5. RE-TRANSFER OF THE COLLATERAL:
On full payment of the Secured Obligation, this transfer shall be null
and void, and the Collateral shall, at the Debtor's expense, be re-transferred,
without warranty or recourse except against prior transfer or encumbrance, to
Debtor by Secured Party.
6. DEFAULT; APPLICATION OF COLLATERAL THEREUPON:
Upon default in the payment of the Secured Obligation when due or
declared due pursuant to any power to accelerate, Secured Party shall have the
right, without further notice or demand (same being hereby waived), to apply the
Collateral, as follows:
6.1 First toward the payment of the principal, interest and attorney's
fees due and unpaid on the Secured Obligation, in such a manner as Secured Party
may determine; and
6.2 the balance, if any, to the person(s) legally entitled thereto
under Uniform Commercial Code of Texas; or 6.3 if any deficiency remains, Debtor
shall be liable therefore.
7. NOTICE AND COMMERCIALLY REASONABLE SALE REQUIREMENTS:
7.1 The requirements of reasonable notice to Debtor of the time after
which any intended disposition of the Collateral is to be made shall be met if
such notice is mailed, postage prepaid, "certified - return receipt requested"
to the undersigned at the address set forth in Article 1 hereof, at least five
business days before the date any disposition is to be made.
7.2 If the collateral, or any part thereof, consists of securities that
may be publicly-traded through any exchange or other recognized market, then
disposition must be made through such exchange or other market and must be
conducted in an orderly manner so as to realize a fair price under normal market
conditions. Secured Party shall dispose of only so much of the Collateral as may
be necessary to pay off the Secured Obligation through an orderly market
liquidation.
7.3 If the collateral cannot be disposed of pursuant to ss. 7.2, then
Secured Party shall dispose if the Collateral in any manner provided by the UCC.
<PAGE> 3
8. COVENANTS AND WARRANTIES OF DEBTOR:
Debtor covenants and warrants:
8.1 that he is the legal and equitable owner and holder of the
Collateral, and has good right transfer and encumber same, free and clear of any
liens, encumbrances or adverse claims (legal or equitable);
8.2 that the securities comprising the Collateral are duly authorized,
issued and outstanding and registered in his name on the books of the issuer,
and are fully paid and non-assessable; and
8.3 that this pledge if the Collateral does not, nor will a transfer of
the Collateral pursuant to foreclosure of this collateral pledge, violate (a)
any applicable state or federal law (including judicial interpretations and
implementing administrative regulations), (b) any charter or by-law provision of
the issuer, or (c) any agreement creating a "right-of-first-refussal" or other
agreement or identive to which he or the issuer is a party.
9. NO WAIVER OF DEFAULT:
Secured Party shall remedy any default without waiving the default or
may waive the default hereunder without waiving any prior or subsequent default.
10. CONSTRUCTION OF SECURITY INTEREST:
The security interest herein created shall not be affected by, and
shall not affect any other security taken for the Secured Obligation or any part
thereof and any extension may be make of the Secured Obligation without
affecting the priority of this security interest or its validity with reference
to any third party.
11. RIGHTS OF PARTIES TO CONTROL COLLATERAL:
11.1 Except as expressly provided herein, until full and final payment
of the Secured Obligation, Secured Party shall have the right to hold and
control the Collateral; provided, however, Debtor shall have the right, in
person or proxy, to exercise any voting rights conferred by any of the
securities comprising the Collateral.
11.2 Any cash distributions comprising the Collateral shall be held by
Secured Party as a part of the Collateral, and Debtor shall be entitled to
interest thereon at the same rate as the Secured Obligation. Any non-cash
distributions shall be held by Secured Party as part of the Collateral and shall
in all things be subject to this collateral pledge s though originally listed on
Schedule 1.
<PAGE> 4
12. MISCELLANEOUS:
12.1 PARTIES BOUND. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns
where permitted by this Agreement.
12.2 LEGAL CONSTRUCTION. In case any one or more of the provisions
contained int his Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions had never been contained herein.
12.3 DEFINITIONS. All terms used herein which are defined in the
Uniform Commercial Code of Texas shall have the same meaning as in said Code.
EXECUTED ON THE 27th day of August, 1999, at Dallas, Texas.
RUSHMORE FINANCIAL GROUP, INC,
By: /s/ D.M Moore, Jr.
---------------------------
D.M.Moore, Jr., President
/s/ John A. Vann
---------------------------
JOHN A. VANN
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0
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