UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K/A
                                (Amendment No. 1)

|X|   ANNUAL REPORT  PURSUANT TO SECTION 13OR 15(d) OF THE  SECURITIES  EXCHANGE
      ACT OF 1934

For the fiscal year ended June 30, 2004            Commission file number 1-8662

                           RCG Companies Incorporated
                           ---------------------------
             (Exact name of registrant as specified in its charter)

<TABLE>
<CAPTION>

                          DELAWARE                                          23-2265039
--------------------------------------------------------------   ----------------------------------
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
<S>                                                              <C>

  6836 MORRISON BLVD, SUITE 200, CHARLOTTE, NC                               28211-2668
--------------------------------------------------------------   -----------------------------------
             (Address of principal executive offices)                        (Zip Code)

Registrant's telephone number (704) 366-5054
Securities registered under Section 12(b) of the Exchange Act:

                Title of each class                    Name of each  exchange  on which  registered
          Common Stock, par value, $0.04                        American Stock Exchange
--------------------------------------------------    -----------------------------------------------

</TABLE>

Securities registered under Section 12(g) of the Exchange Act: NONE

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. YES |X| 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 amendments to this Form 10-K. YES |X| NO [ ]

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Exchange Act Rule 12 b-2). YES [ ] NO |X|

As of December 31,  2003,  which was the last  business day of the  registrant's
most  recently   completed  second  quarter,   18,461,790   common  shares  were
outstanding, and the aggregate market value of the common shares (based upon the
closing  price  of  these  shares  on  the  American  Stock  Exchange)  held  by
nonaffiliates  was  approximately  $33  million.  Shares of Common  Stock  held,
directly or indirectly,  by each director and executive  officer of the Company,
have been excluded in that such persons are deemed to be affiliated.

Documents Incorporated by Reference - None.
<PAGE>


EXPLANATORY NOTE

This amendment on Form 10-K/A  (Amendment No. 1) amends the Registrant's  annual
report on Form 10-K for the fiscal year ended June 30,  2004,  as filed with the
Securities  and  Exchange  Commission  and is being filed  primarily  to include
information  that is  required  in Part III of Form 10-K,  which was  originally
incorporated by reference;  reclassifications of certain amounts from continuing
to discontinued  operations in the Consolidated  Statements of Cash Flow for the
three years ended June 30,  2004;  and other minor  typographical  and  drafting
errors. The filing of this Form 10-K/A shall not be deemed an admission that the
original  filing,  when made,  included any untrue statement of material fact or
omitted to state a material fact necessary to make a statement not misleading.


                                       2
<PAGE>

<TABLE>
<CAPTION>

                                       TABLE OF CONTENTS


                                             PART I
                                                                                                  Page
<S>      <C>                                                                                      <C>
Item 1.  Business....................................................................................4
Item 2.  Properties.................................................................................11
Item 3.  Legal Proceedings..........................................................................12
Item 4.  Submission of Matters to a Vote of Security Holders........................................12

                                            PART II

Item 5.  Market for the Registrant's Common Equity, Related Stockholder Matters, and Issuer
         Purchases of Equity Securities.............................................................13
Item 6.  Selected Financial Data....................................................................15
Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations......16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................................20
Item 8.  Financial Statements and Supplementary Data................................................21
Item 9.  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.......50
Item 9A. Controls and Procedures....................................................................50
Item 9B. Other Information..........................................................................50

                                            PART III

Item 10. Directors and Executive Officers of the Registrant.........................................51
Item 11. Executive Compensation.....................................................................53
Item 12. Security Ownership of Certain Beneficial Owners and Management.............................57
Item 13. Certain Relationships and Related Transactions.............................................57
Item 14. Principal Accountant Fees and Services.....................................................58

                                            PART IV

Item 15. Exhibits, Financial Statement Schedules....................................................59
         Signatures
</TABLE>


                                       3
<PAGE>

--------------------------------------------------------------------------------
                                     PART I
--------------------------------------------------------------------------------

"SAFE HARBOR"  STATEMENT UNDER THE PRIVATE  SECURITIES  LITIGATION REFORM ACT OF
1995

Certain  statements  contained in this report,  including,  without  limitation,
statements containing the words "believes",  "anticipates",  "expects" and words
of similar import, constitute  forward-looking  statements within the meaning of
the  Private  Securities  Litigation  Reform Act of 1995.  Such  forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results,  performance or  achievements  of the Company,  or
industry  results,   to  be  materially   different  from  any  future  results,
performance  or  achievements  expressed  or  implied  by  such  forward-looking
statements.  Such factors include,  among others, the following:  international,
national and local general  economic and market  conditions;  the ability of the
Company to sustain, manage or forecast its growth; the ability of the Company to
successfully make and integrate acquisitions;  existing governmental regulations
and changes in or the failure to comply with, governmental regulations;  adverse
publicity;  competition;  changes in  business  strategy or  development  plans;
business disruptions; the ability to attract and retain qualified personnel; and
other factors referenced in this report.  Certain of these factors are discussed
in more detail elsewhere in this report. Given these  uncertainties,  readers of
this report and  investors  are  cautioned  not to place undue  reliance on such
forward-looking  statements.  The Company disclaims any obligation to update any
such factors or to publicly  announce the result of any  revisions to any of the
forward-looking   statements  contained  herein  to  reflect  future  events  or
developments.

ITEM 1.         BUSINESS

RCG Companies  Incorporated and its subsidiaries  ("RCG", "We" or the "Company")
is a network of travel and technology  services companies brought together under
one operating company to benefit from synergistic relationships and the infusion
of intellectual and capital  resources.  The Company is engaged in the operation
of travel services and technology  solutions  businesses.  Incorporated in 1982,
RCG is a Delaware corporation  headquartered in Charlotte,  North Carolina.  The
Company's fiscal year ends on June 30.

On November 14, 2003, the Company changed its name from eResource Capital Group,
Inc. to RCG Companies Incorporated to better reflect the nature and evolution of
the Company's business strategy. In fiscal year 2001, the Company brought in new
executive  management  and modified its business  plan to focus on acquiring and
enhancing travel and technology services companies.  The Company also brought in
new  management to its aviation  business and completed  the  acquisition  of an
aviation  services  company that,  together,  have expanded that business into a
highly  specialized  travel  organization  that  delivers a unique  turnkey  air
service.  The Company has  increased its focus on the travel sector and plans to
continue to operate,  enhance and acquire substantial  interests in the value of
expansion phase companies operating in the travel sector.

Through  its wholly  owned  subsidiary,  Flightserv,  Inc.  ("Flightserv"),  RCG
concluded the acquisition of substantially  all of the assets and liabilities of
VE Holdings,  Inc.  ("Vacation  Express") and SunTrips,  Inc.  ("SunTrips") (the
"Acquired Companies"), effective October 31, 2003. These acquired companies were
integrated into Flightserv,  the Company's existing travel services business, to
form its largest operating segment. The Company had previously provided services
to the Acquired Companies.

The  Acquired  Companies  provide  specialized  distribution  of leisure  travel
products and services.  Vacation Express,  based in Atlanta,  Georgia, sells air
and hotel packages to Mexican and Caribbean destinations. SunTrips, based in San
Jose,  California,  sells air and  hotel  packages  for  Mexico,  the  Dominican
Republic,  Costa Rica, Hawaii and the Azores.  The flights originate in Oakland,
California and/or Denver, Colorado.


                                       4
<PAGE>


Logisoft  Corp.  ("Logisoft"),  the  Company's  technology  solutions  business,
provides  integrated  products and services to assist customers in meeting their
strategic technology initiatives. Our products and services include distribution
of  third-party-published   software  titles  for  the  educational  market  and
corporate  customers,  full-service  Internet  development,  Internet  Web  site
hosting and co-location, and Internet business development services encompassing
partner-site  management and marketing. In our Internet business development and
marketing  services  business,  we generally  participate in the development and
implementation  of the  business  plan in exchange  for  revenue-sharing  and/or
equity-based arrangements.

On November 5, 2003, Logisoft completed the acquisition of SchoolWorld Software,
a Pittsburgh, Pennsylvania-based educational software company.

During the third quarter of 2004, the Company's Board of Directors (the "Board")
authorized the disposition of the Company's investment in Lifestyle Innovations,
Inc. ("LFSI"), a full-service home technology integration company.  Accordingly,
the operations of LFSI were  reclassified to  "discontinued  operations" for all
periods  presented.   During  the  fourth  quarter,   the  Company   contributed
approximately 4 million shares to the treasury of LFSI, a substantial portion of
which were  reissued to certain  LFSI  investors  to settle  certain  contingent
claims. LFSI also issued other shares,  which resulted in RCG's interest in LFSI
being  reduced to an  effective  45.5%  beneficial  ownership.  Considering  the
substantial  reduction  in  ownership  and the lack of control  over  LFSI,  the
investment  in LFSI is now recorded  using the equity  method and is no longer a
consolidated  subsidiary.  The change  resulted in RCG  restoring  its  negative
carrying value during the forth quarter.

FACTORS AFFECTING FUTURE RESULTS AND FORWARD-LOOKING STATEMENTS

The  Company's  business,  results of  operations  and  financial  condition are
subject to many risks, including those set forth below. The following discussion
highlights  some of these risks;  others are  discussed  elsewhere  herein or in
other documents filed with the United States Securities and Exchange  Commission
("SEC") by the  Company.  In  addition,  statements  in this report  relating to
matters that are not historical  facts are  forward-looking  statements based on
management's  belief and  assumptions  using  currently  available  information.
Although  the  Company  believes  that  the   expectations   reflected  in  such
forward-looking  statements are  reasonable,  it cannot give any assurances that
these expectations will prove to be correct. Such statements involve a number of
risks and uncertainties, including, but not limited to, those set forth below.

   WE RECEIVED A GOING CONCERN OPINION FROM OUR INDEPENDENT REGISTERED PUBLIC
                                ACCOUNTING FIRM.

We received from our independent  registered public accounting firm and included
in this report an opinion on our consolidated  financial  statements that raises
substantial  doubt as to our ability to continue as a going  concern as a result
of recurring  losses from operations and a deficiency in working capital at June
30, 2004.

 WE MAY NEED TO RAISE ADDITIONAL FUNDS IN ORDER TO CONTINUE TO OPERATE AND GROW
                                 OUR BUSINESS.

If we are unable to grow our  business  or improve our  operating  cash flows as
expected;  if we  suffer  significant  losses on our  investments;  or if we are
unable to realize adequate proceeds from those investments, we will then need to
secure  alternative  equity or debt  financing  to  provide  us with  additional
working  capital.  However,  there can be no  assurance  that we will be able to
complete such financing if required.  If we raise funds through debt  financing,


                                       5
<PAGE>


then we will  incur  additional  interest  expense  going  forward.  If we raise
additional funds by issuing  additional equity  securities,  then the percentage
ownership of our current stockholders will be diluted. We cannot be certain that
additional financing will be available when and to the extent required, or that,
if  available,  it will be on  acceptable  terms.  In  addition,  our ability to
complete  future  financings  may be affected by the market  price of our Common
Stock. If adequate funds are not available on acceptable  terms, then we will be
unable to continue to fund our existing businesses or planned expansion, or take
other steps necessary to enhance our business or continue our operations.

          WE HAVE INCURRED OPERATING LOSSES; THERE CAN BE NO ASSURANCE
                 THAT WE WILL ACHIEVE OR SUSTAIN PROFITABILITY.

We  have  incurred  operating  losses  since  inception.  Certain  of our  other
operating  businesses have incurred and continue to incur operating  losses.  We
expect to continue to incur  significant  operating costs in connection with our
efforts to expand our existing businesses and to grow through acquisitions. As a
result of these costs and uncertain  revenue  growth,  there can be no assurance
that we will achieve or sustain profitability.

  THE PRICE OF OUR COMMON STOCK HAS BEEN VOLATILE; IF THE MARKET PRICE OF OUR
 COMMON STOCK DECREASES, STOCKHOLDERS MAY BE UNABLE TO SELL THEIR COMMON SHARES
                                  AT A PROFIT.

Both the stock  market in general  and the  market  for  travel  and  technology
services companies have recently experienced extreme volatility.  Similarly, the
per-share trading price of our Common Stock during the year ended June 30, 2004,
as reported by the American Stock Exchange (the  "Exchange"),  fluctuated from a
high of $3.16 to a low of $0.46.  Fluctuations  in the price of our Common Stock
may occur, among other reasons, in response to:

o     Operating results;

o     Regulatory changes;

o     Economic changes;

o     Market valuation of firms in related businesses; and

o     General market conditions.

In  addition,  the volume of shares of our Common  Stock  bought and sold on any
trading day has been subject to wide  fluctuations,  which also  contributes  to
fluctuations in the trading price of our Common Stock.  The trading price of our
Common Stock could  continue to be subject to wide  fluctuations  in response to
these or other factors, many of which are beyond our control.

    WE MAY BE UNABLE TO MAINTAIN OUR LISTING ON THE AMERICAN STOCK EXCHANGE;
  IF WE ARE DELISTED, THE TRADING OF OUR COMMON STOCK COULD BE MORE DIFFICULT.

Our Common Stock is presently listed and trading on the American Stock Exchange.
The Company believes that it meets the standards for continued  listing but such
a  determination  is subjective  and no assurance can be given that the Exchange
will agree or that our Common  Stock will be trading on the Exchange at the time
that the stockholders are able to sell shares under applicable  securities laws.
If our Common Stock is delisted  from the  Exchange,  trading in our  securities
could be more difficult, and trading of our Common Stock could be subject to the
"penny-stock" rules.

            IF WE CANNOT INTEGRATE OUR RECENT OR FUTURE ACQUISITIONS,
             WE MAY BE UNABLE TO SUCCESSFULLY EXECUTE OUR STRATEGY.


                                       6
<PAGE>


We anticipate that a portion of our future growth will be  accomplished  through
acquisitions.  The success of this plan  depends upon our ability to:

o     Identify suitable acquisition opportunities;

o     Effectively  integrate  acquired  personnel,   operations,   products  and
      technologies into our organization;

o     Retain and motivate the personnel of acquired businesses;

o     Retain customers of acquired businesses; and

o     Obtain  necessary  financing on acceptable  terms or use our securities as
      consideration for acquisitions.

Turbulence  in financial  markets and the current  U.S.  economy may result in a
diminished pool of companies that meet our criteria for acquisition.  Even if we
are successful in acquiring  companies,  we may be unable to integrate them into
our business model or achieve the expected synergies.

      OUR ACQUISITION STRATEGY HAS AND WILL CONTINUE TO DILUTE OUR CURRENT
                            STOCKHOLDERS' OWNERSHIP.

Our acquisition  strategy  contemplates that we will continue to issue shares of
our securities to make strategic  acquisitions and attempt to grow our business.
Each of the  acquisitions  that we complete in the future involving the issuance
of securities will further dilute our current  stockholders'  ownership interest
in the Company.

             WE FACE COMPETITION FROM OTHER ACQUIRORS AND INVESTORS,
          WHICH MAY PREVENT US FROM REALIZING STRATEGIC OPPORTUNITIES.

We plan to acquire or invest in existing companies to fulfill our business plan.
In  pursuing  these  opportunities,  we  face  competition  from  other  capital
providers and  operators of  companies,  including  publicly  traded  companies,
venture capital companies and large corporations. Some of these competitors have
greater financial,  operational and human resources than we do. This competition
may limit our  opportunity  to acquire  interests in  companies  that we believe
could help us fulfill our business plan and increase our value.

OUR GROWTH PLACES STRAIN ON OUR MANAGERIAL, OPERATIONAL AND FINANCIAL RESOURCES.

Our growth has placed,  and is expected  to  continue  to place,  a  significant
strain on our managerial,  operational and financial  resources.  Further growth
will  increase  this  strain  on  our  managerial,   operational  and  financial
resources,  which may inhibit our ability to successfully implement our business
plan.

                    WE DEPEND ON CERTAIN IMPORTANT EMPLOYEES;
            THE LOSS OF ANY OF THOSE EMPLOYEES MAY HARM OUR BUSINESS.

Our performance is  substantially  dependent on the performance of our Executive
Officers and other key  employees.  The  familiarity of these key employees with
their  respective  industries makes those employees  especially  critical to our
success. In addition, our success is dependent on our ability to attract, train,
retain and motivate high quality personnel,  especially for our management team.
The loss of the services of any of our  Executive  Officers or key employees may
harm our  business.  Our  success  also  depends  on our  continuing  ability to
attract,  train,  retain and  motivate  other  highly  qualified  technical  and
managerial personnel.  Competition for such personnel is intense and our limited
resources are likely to make it more difficult for us to attract and retain such
personnel.

                     WE DEPEND ON CERTAIN AIRLINE CONTRACTS.

                                       7
<PAGE>


The Company's travel services business  generally  contracts with three carriers
for charter tour operator contracts.  While this concentration generally reduces
the costs of the carrier service, if one or more of these carriers are unable to
perform under its contract,  our travel services business may experience service
interruptions that could reduce its revenue.  Additionally, the Company's travel
services business may be forced to replace such a carrier, which could result in
higher operating costs for the carrier services, thereby reducing profitability.

FUTURE EVENTS SIMILAR TO THOSE OF SEPTEMBER 11, 2001 MAY HAVE AN ADVERSE EFFECT
                               ON OUR BUSINESSES.

The  terrorist  attack  against the United States on September 11, 2001 produced
great  uncertainty  in the  economy in general and in the  aviation  industry in
particular.  Industry  reports  indicate  that these  events are still  having a
negative impact on the air travel industry.  These events may drastically  alter
the long-term demand for charter  services.  In addition,  these events may lead
the Federal Aviation  Administration to place additional restrictions on charter
flight operators,  which may increase the cost of private charter services.  The
long-term  impact of these  events on the aviation  industry  and the  chartered
services  segment of that  industry  are not known.  These  events  could have a
material adverse effect on our travel services business  including the operation
of our charter hub service through Atlanta, Georgia.

Also,  additional  terrorist  attacks  against the United  States could  produce
uncertainty in the financial  markets,  which could  negatively  affect economic
performance  of the  United  States.  These  events  could  also have a material
adverse effect on our businesses.

     INCREASES IN FUEL COSTS AFFECT OUR OPERATING COSTS AND COMPETITIVENESS.

Fuel  is a  major  component  of our  operating  expenses.  Both  the  cost  and
availability  of fuel are influenced by many economic and political  factors and
events occurring in oil producing countries throughout the world, and fuel costs
fluctuate widely.  Recently, the price per barrel of oil has reached an all-time
high; this has significantly  impacted our results of operations.  Affecting our
ability to compete is the fact that we cannot predict the future availability of
fuel and its monetary cost to us. The  unavailability  of adequate fuel supplies
could have a material  adverse effect on our operations  and  profitability.  In
addition,  larger  airlines may have a  competitive  advantage  because they pay
lower prices for fuel. We generally  follow  industry  trends by imposing a fuel
surcharge in response to significant fuel price increases.  However, our ability
to pass  on  increased  fuel  costs  is  limited  by  economic  and  competitive
conditions.

                 TRAVEL SERVICES CONTRACTS MAY RESULT IN LOSSES.

The Company  actively  pursues  opportunities  to operate  scheduled  and ad-hoc
charter service outside of its two primary travel services  contracts with major
tour  operators,  in order to utilize  capacity  on  aircraft  that it has under
contract.  These programs often require the Company to provide such services for
a fixed fee or with limited  ability to pass along  increases in operating costs
over the amounts estimated during the bid process. If actual operating costs are
higher than  forecast,  the Company  may lose money on such  programs  and these
losses  may exceed the  operating  profit  generated  on other  travel  services
contracts. Management believes that passenger demand was significantly adversely
affected  by the war in Iraq,  which  coincided  with the startup of some of the
scheduled Interstate Jet service.

 GOVERNMENT REGULATION OF THE TRAVEL INDUSTRY COULD IMPACT OUR TRAVEL SERVICES'
                              BUSINESS OPERATIONS.

Certain  segments of the travel  industry  are  regulated  by the United  States
Government and, while we are not currently  required to be certified or licensed
under such regulation,  certain services offered by our travel services business
are  affected by such  regulation.  Charter  flights  operators,  upon which our
travel  services  business  depends,  are  subject to  vigorous  and  continuous
certification  requirements by the Federal Aviation  Administration.  Changes in
the regulatory  framework for charter aviation travel could adversely affect our
travel services business' operations and financial condition.


                                       8
<PAGE>


OUR TRAVEL SERVICES BUSINESS FACES INTENSE COMPETITION FROM THE TRAVEL INDUSTRY.

We provide  leisure  vacation  packages  and charter jet travel and face intense
competition from commercial  airlines for the potential  customers who travel to
these  locations  and other  locations  that we may serve in the  future.  These
commercial  airlines have greater resources,  marketing efforts and brand equity
than we do and they offer a potential  customer more flights to these locations.
Furthermore,  travelers have numerous  choices of location when choosing  travel
destinations.  Since we offer only limited travel destinations,  we face intense
competition from travel agents,  commercial airlines,  hotels, resorts,  casinos
and other  organizations  in the travel industry that offer  alternative  travel
destinations  to those  offered by us.  Such  competitors  possess  far  greater
capital and human resources,  marketing  efforts and brand equity than we do. If
we are  unable to compete  effectively  with these  various  competitors  in the
travel industry, we may not be able to maintain profitability.

 OUR TECHNOLOGY SOLUTIONS BUSINESS GENERALLY DOES NOT HAVE LONG-TERM CONTRACTS.

The clients of our  technology  solutions  business  are  generally  retained on
project-by-project  basis,  rather than  pursuant to long-term  contracts.  As a
result, a client may or may not engage us for further services once a project is
completed  or may  unilaterally  reduce  the scope of,  or  terminate,  existing
projects.  The  absence of  long-term  contracts  creates an  uncertain  revenue
stream,  which could negatively affect the financial condition of our technology
solutions business.

     THE DEVELOPING MARKET FOR STRATEGIC INTERNET SERVICES AND THE LEVEL OF
   ACCEPTANCE OF THE INTERNET AS A BUSINESS MEDIUM WILL AFFECT OUR TECHNOLOGY
                              SOLUTIONS BUSINESS.

The market for strategic  Internet  services is  relatively  new and is evolving
rapidly.  The future growth of our  technology  solutions  business is dependent
upon the ability of such business to provide  strategic  Internet  services that
are accepted by existing and future  clients.  Demand and market  acceptance for
recently  introduced  services are subject to a high level of  uncertainty.  The
level of demand and acceptance of strategic  Internet services is dependent upon
a number of factors, including:

o     The  growth  in  consumer  access  to and  acceptance  of new  interactive
      technologies such as the Internet;

o     Companies adopting Internet-based business models;

o     The development of  technologies  that  facilitate  two-way  communication
      between companies and targeted audiences;

o     The level of capital spending on Internet,  technology and  communications
      initiatives; and

o     The extent and  nature of any  domestic  or  international  regulation  of
      e-business or uses of the Internet.

Significant issues concerning the commercial use of these  technologies  include
security,  reliability,  cost, ease of use and quality of service.  These issues
remain unresolved and may inhibit the growth of Internet business solutions that
utilize these technologies.

Industry  analysts  and others  may have made many  predictions  concerning  the
growth of the  Internet  as a  business  medium.  You should not rely upon these
predictions.  Recently, the market for strategic Internet services in particular
has contracted.  If the market for strategic Internet services fails to develop,
or develops  more  slowly  than  expected,  or if the  services  provided by our
technology solutions business do not achieve market acceptance, then revenue and
operating results of such business may be volatile and our technology  solutions
business may be unable to achieve or sustain operating profits.


                                       9
<PAGE>


           OUR TECHNOLOGY SOLUTIONS BUSINESS MAY BE UNABLE TO KEEP UP
             WITH THE CONTINUOUS TECHNOLOGICAL CHANGE IN ITS MARKET.

The success of our technology  solutions  business will depend,  in part, on its
ability  to  respond  to  technological  advances.  This  business  may  not  be
successful in responding  quickly,  cost-effectively  and  sufficiently to these
developments.  Many of the competitors of our technology  solutions business are
larger than we are and have significantly more financial  resources to invest in
advances in technology, products, engagement methodology and other areas central
to  providing  technology  and  Internet  solutions.  Our  technology  solutions
business will not be able to compete  effectively or meet its growth  objectives
if it is unable, for technical, financial or other reasons, to adapt in a timely
manner in  response  to  technological  advances.  In  addition,  employee  time
allocated to  responding  to  technological  advances  will not be available for
client engagements.

 THE SUCCESS OF OUR TECHNOLOGY SOLUTIONS BUSINESS IS LARGELY DEPENDENT UPON ITS
ABILITY TO RETAIN ITS MANUFACTURER AUTHORIZATIONS THAT ALLOW IT TO SELL SOFTWARE
                TO EDUCATIONAL CUSTOMERS AT DISCOUNTED PRICING.

Our technology solutions business has been accumulating  authorizations from key
software  manufacturers that allow it to sell products to educational facilities
at deep  discounts.  If our  technology  solutions  business were to lose any of
these  authorizations,  its ability to sell  computer  products  to  educational
customers would be adversely impacted,  which could have a similar impact on its
sales,  profitability  and  ability to expand  within  this  business  line.  In
addition,  this  business  uses credit  lines  extended by software and hardware
manufacturers  and  distributors.  The loss of any of these  credit  lines would
limit the ability of our technology  solutions business to meet customer demand,
thereby reducing sales and profits.

 THE EXERCISE OF OUTSTANDING OPTIONS, WARRANTS AND CONVERTIBLE PREFERRED STOCK
   COULD SUBSTANTIALLY DILUTE EXISTING STOCKHOLDERS AND COULD HAVE A NEGATIVE
                           EFFECT ON OUR STOCK PRICE.

We have adopted the RCG  Companies  Incorporated  Stock Option Plan (the "Plan")
and our  stockholders  have  authorized the issuance of options to acquire up to
20,000,000  shares of Common Stock under the Plan.  As of June 30, 2004, we have
outstanding options for 2,261,657 shares,  under the Plan that have been granted
to our  officers,  directors,  employees  and other  service  providers of which
options for 1,820,229 shares are vested.  There have been zero options exercised
for  fiscal  year  2004 of Common  Stock  that were  issued  under the Plan.  In
addition  to  options  issued  under the Plan,  we  currently  have  outstanding
warrants as of June 30, 2004 for  6,421,963  shares,  including  6,000 that were
exercised  during this fiscal year.  Our  outstanding  options and warrants have
exercise  prices  ranging  from  $0.28 to  $28.00.  As of the  filing  date,  we
currently have outstanding  convertible preferred shares for 4,574,468.09 common
shares at a conversion price of $.94 per share, none of which has been converted
as of the filing  date.  The  exercise of these  options,  warrants or preferred
shares will dilute the percentage  ownership of our current stockholders and the
potential sale of shares issued upon the exercise of these warrants,  options or
preferred  shares could have a negative impact on the market price of our Common
Stock.

 THE FUTURE SALES OF RESTRICTED SECURITIES COULD HAVE A NEGATIVE EFFECT ON OUR
                                  STOCK PRICE.

The market price of our Common Stock could be negatively  affected by the future
sale of shares of restricted Common Stock, including shares of restricted Common
Stock underlying options and warrants that have been or will be issued by us. As
of June 30, 2004 and June 30, 2003,  approximately  4,800,000 of our 21,289,004,
and 2,100,000 of our 13,948,160,  respectively, issued and outstanding shares of
Common Stock are  believed to be  restricted  securities  as defined in Rule 144
promulgated  under the  Securities Act or otherwise not available for trading by
the public. Rule 144 provides generally that restricted  securities must be held


                                       10
<PAGE>


for  a  one-year  period  prior  to  resale  and  provides  certain   additional
limitations on the sale of such shares,  including  limitations on the volume of
such  shares  that  a  beneficial  owner  may  sell  in any  three-month  period
thereafter.  Generally,  non-affiliated  stockholders may sell restricted shares
that have been held for at least two years without any limitations. In addition,
Rule 145 permits the sale by non-affiliates  of restricted  securities issued in
connection  with certain  business  combinations  one year after such shares are
issued.  As restricted shares become eligible for resale pursuant to Rule 144 or
Rule 145, the number of sellers of our Common Stock could increase significantly
and, as a result, the market price of our Common Stock could decrease.

INABILITY TO PROTECT INTELLECTUAL PROPERTY RIGHTS

We rely primarily on a combination of intellectual property laws and contractual
provisions to protect our proprietary rights and technologies,  brand and marks.
These  laws and  contractual  provisions  provide  only  limited  protection  of
proprietary  rights  and  technology.   If  we  are  not  able  to  protect  our
intellectual  property,  proprietary rights and technology,  we could lose those
rights and incur  substantial  costs  policing and defending  those rights.  Our
means of protecting our intellectual property, proprietary rights and technology
may not be adequate.

EMPLOYEES

At June 30, 2004,  the Company had 347  full-time  employees  in its  continuing
businesses as follows.

Travel Services...............................................         307
Technology Solutions..........................................          34
Corporate.....................................................           6
                                                                  ---------
Total.........................................................         347
                                                                  =========

The Company has no collective bargaining agreements with any unions and believes
that overall relations with its employees are good.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2003, the SEC issued SAB 104, "Revenue Recognition", which codifies,
revises and rescinds  certain  sections of SAB 101,  "Revenue  Recognition",  in
order to make this interpretive  guidance consistent with current  authoritative
accounts and audit guidance and SEC rules and regulations.  The changes noted in
SAB 104 did not have a material effect on the Company's  consolidated results of
operations, financial position or cash flows.

ITEM 2.  PROPERTIES

At June 30, 2004, the Company's  continuing  businesses  leased  office-building
space as follows.

<TABLE>
<CAPTION>

        Business Segment                                   Locations              Sq. Ft.         Annual Rent         Termination
        ----------------                                   ---------              ----------  ------------------      -----------
<S>                               <C>                                             <C>         <C>                     <C>
Travel Services                   Atlanta, GA; San Jose, CA; Honolulu, HI             48,116  $        1,034,148       Aug. 2010
Technology Solutions              Fairport, NY; Charlotte, NC; West Mifflin, PA       13,310  $          158,274       Dec. 2009
Corporate                         Charlotte, NC                                        3,304  $           68,062       Sept. 2005
</TABLE>


Management   believes  that  all  property  occupied  by  the  Company  and  its
subsidiaries are adequately covered by insurance.


                                       11
<PAGE>


ITEM 3.  LEGAL PROCEEDINGS

In the  ordinary  course of  business,  the  Company  and its  subsidiaries  are
involved from time to time in various claims and legal  actions.  In the opinion
of  management,  the Company is not party to any legal  proceedings  the adverse
outcome of which would have any material  adverse  effect on its  business,  its
assets, or results of operations.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No  matters  were  submitted  to a vote of  security  holders  during the fourth
quarter ended June 30, 2004.


                                       12
<PAGE>

--------------------------------------------------------------------------------
                                     PART II
--------------------------------------------------------------------------------

ITEM 5.  MARKET   FOR  THE   REGISTRANT'S  COMMON  EQUITY,  RELATED  STOCKHOLDER
         MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION

The  Company's  $.04 par value  Common Stock  ("Common  Stock") is listed on the
American Stock Exchange under the symbol "RCG". The prices reflect  inter-dealer
prices,  without  retail  markup,  markdown or commission  and may not represent
actual  transactions.  The following table shows the high and low trading prices
of the  Common  Stock  during  the last two  fiscal  years  as  reported  on the
Exchange.

<TABLE>
<CAPTION>

                                Fiscal Year 2004                                        High           Low
--------------------------------------------------------------------------------    -----------    -----------
<S>                                                                                 <C>           <C>
First Quarter...................................................................    $     2.23      $    0.46
Second Quarter..................................................................          3.16           1.40
Third Quarter...................................................................          2.15           1.50
Fourth Quarter..................................................................          2.40           1.64

                                Fiscal Year 2003                                        High           Low
--------------------------------------------------------------------------------    -----------    -----------

First Quarter...................................................................    $     1.50      $    0.66
Second Quarter..................................................................          0.93           0.35
Third Quarter...................................................................          0.65           0.26
Fourth Quarter..................................................................          0.70           0.27
</TABLE>


The closing price of the Company's Common Stock on June 30, 2004 by the Exchange
was $2.10 per share.

DIVIDENDS

The Company has never paid cash  dividends and  currently  intends to retain any
future earnings to expand its operations. Therefore, it is not contemplated that
cash  dividends  will be paid on the Company's  Common Stock in the  foreseeable
future.

RECORDHOLDERS

The approximate number of recordholders of the Company's Common Stock as of June
30, 2004 was 5,000.


                                       13
<PAGE>


SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The  following  table  summarizes  certain  information  as of  the  end  of the
Company's  fiscal  year 2004  with  respect  to  compensation  plans  (including
individual  compensation  arrangements)  under which Common Stock of the Company
are authorized for issuance.

<TABLE>
<CAPTION>

                                                                                                               Number of
                                                   Number of securities to be   Weighted average exercise      securities
                                                     issued upon exercise of       price of outstanding         remaining
                                                      outstanding options,        options, warrants and       available for
Plan category                                          warrants and rights                rights             future issuance
------------------------------------------------------------------------------- --------------------------- ------------------
<S>                                                <C>                          <C>                         <C>
Equity compensation plans
  approved by security holders...............                    2,261,657      $              2.20                 17,738,343
Equity compensation plans not
  approved by security holders...............                    6,421,963                     4.91                         --
                                                   ---------------------------- --------------------------- ------------------
Total........................................                    8,683,620      $              4.20                 17,738,343
                                                   ============================ =========================== ==================
</TABLE>

SALES OF UNREGISTERED SECURITIES

The  following is a summary of Common Stock  activity  during the quarter  ended
June 30, 2004.

<TABLE>
<CAPTION>
                                                                                       Common Stock
                                                                                          Issued
                                                                                  ------------------------
<S>                                                                               <C>
Balance at March 31, 2004.......................................................               19,289,004
      Shares issued for debt conversion at $1.67 per share......................                  450,000
      Private placement at $.25 per share to an accredited investor*............                  250,000
      Shares issued for SchoolWorld acquisition.................................                   50,000
      Private placement at $.80 per share to an accredited investor**...........                1,250,000
                                                                                  ------------------------
Balance at June 30, 2004........................................................               21,289,004
                                                                                  ========================

*    Shares  issued  pursuant to an agreement  dated April 2003.  As of June 30,
     2004,  this  private  placement  is closed and  $62,500  was  recorded as a
     receivable. This amount was received on July 28, 2004.
**  Strategic transaction concerning the substitution of a letter of credit

In fiscal year 2004,  the Company issued options to purchase its Common Stock to
employees and directors. Following is a summary of options issued in fiscal year
2004.
</TABLE>

<TABLE>
<CAPTION>
     Number of                       Exercise                                                                            Vesting
    Purchasable                      Price Per                     Grant                        Term                       Period
      Shares                           Share                       Date                        (Years)                    (Months)
      ------                           -----                       ----                        -------                    --------
<S>                                    <C>                        <C>                         <C>                         <C>
        85,000.........................$0.55.......................7/1/2003....................10...........................12
        75,000.........................$0.60......................7/14/2003.....................7...........................48
        50,000.........................$1.90.......................1/4/2004.....................7...........................48
        30,000.........................$1.84......................2/10/2004.....................7............................4
        50,000.........................$1.84......................2/10/2004.....................7...........................48
      --------
       290,000
      ========
</TABLE>


                                       14
<PAGE>


All of the options indicated in the table above were granted under the Company's
option plan,  which was  registered on Form S-8. The options were issued without
registration under the Securities Act, in reliance upon the exemption in Section
4(2) of the Securities Act.

ITEM 6.         SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>

Financial Highlights                                                    Year Ended June 30
                                     2004 (1)             2003              2002(2)              2001(2)             2000(2)
                                ------------------- ------------------ ------------------- -------------------- -------------------
<S>                             <C>                 <C>                <C>                 <C>                  <C>
Revenues......................  $     180,807,076   $     73,609,775   $      37,846,061   $       12,632,491   $          10,040
Loss from continuing
   operations.................         (8,521,522)          (709,651)         (2,994,372)         (19,592,208)        (56,874,317)
Basic and fully diluted
   loss per share -
   continuing operations......              (0.51)             (0.06)              (0.26)               (2.53)             (12.60)
Weighted average shares
   outstanding..........               16,799,540         12,661,743          11,520,096            7,740,503           4,513,792
Total assets..................         84,294,008         27,098,092          26,598,415           18,139,782           8,315,477
Working capital (deficit).....        (11,121,088)        (6,721,362)         (1,438,818)           1,286,120           4,451,007
Long-term liabilities.........          9,176,861            616,080           1,290,648              179,046                  --
Cash dividends                                 --                 --                  --                   --                  --
</TABLE>


----------
(1)   Includes  the  operations  of  recent  acquisitions  (See  Note  1 to  the
      financial statements in Item 8.)
(2)   Restated for discontinued operations.


                                       15
<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

Management's  Discussion  and  Analysis  should  be read  with the  Consolidated
Financial Statements.

OVERVIEW

RESULTS OF CONTINUING OPERATIONS

The following  table  summarizes  results of  continuing  operations by business
segment for each of the three fiscal years in the period ended June 30, 2004.

<TABLE>
<CAPTION>

                                                                         Year Ended June 30, 2004
                                                                                                          Loss from
                                                                                                         Continuing
                                                         Revenue               Gross Profit              Operations
                                                   --------------------     --------------------     --------------------
<S>                                                <C>                      <C>                      <C>
Travel Services..................................  $       165,394,996      $        10,842,456      $       (4,680,596)
Technology Solutions.............................           15,412,080                1,908,737                (587,893)
Corporate........................................                   --                       --              (3,253,033)
                                                   --------------------     --------------------     --------------------
                                                   $       180,807,076      $        12,751,193      $       (8,521,522)
                                                   ====================     ====================     ====================

                                                                         Year Ended June 30, 2003
                                                                                                        Profit (Loss)
                                                                                                       from Continuing
                                                         Revenue               Gross Profit               Operations
                                                   --------------------     --------------------     --------------------
Travel Services..................................  $        62,607,443      $         3,545,793      $          887,882
Technology Solutions.............................           11,001,598                1,546,162                (340,172)
Corporate........................................                  734                      734              (1,257,361)
                                                   --------------------     --------------------     --------------------
                                                   $        73,609,775      $         5,092,689      $         (709,651)
                                                   ====================     ====================     ====================

                                                                         Year Ended June 30, 2002
                                                                                                          Loss from
                                                                                                         Continuing
                                                         Revenue               Gross Profit              Operations
                                                   --------------------     --------------------     --------------------
Travel Services..................................  $        27,272,819      $           971,926      $         (945,862)
Technology Solutions.............................           10,294,141                1,922,854                (609,099)
Corporate........................................              279,101                  279,101              (1,439,411)
                                                   --------------------     --------------------     --------------------
                                                   $        37,846,061      $         3,173,881      $       (2,994,372)
                                                   ====================     ====================     ====================
</TABLE>


FISCAL YEAR 2004 COMPARED WITH FISCAL YEAR 2003

The Company's revenue in the year ended June 30, 2004 was $180,807,076  compared
to $73,609,775 in 2003. The  acquisitions by the travel service business and the
technology   solutions  business  accounted  for  $105,755,169  and  $3,032,993,
respectively,  of the  increase.  The  revenues of the existing  travel  service
business  decreased  $2,967,616,  while the revenues of the existing  technology
solutions business increased $1,377,489.

Gross profit in 2004 was  $12,751,193  compared to $5,092,689 in the prior year,
an increase of $7,658,504.  The  acquisitions by the travel service business and
the  technology  solutions  business  accounted  for  $8,369,679  and  $416,543,
respectively,  of the increase.  The gross profit of the existing travel service
and   technology   solution   businesses   decreased   $1,073,016  and  $53,968,
respectively.  The Company  reported a 7.1% overall  gross profit  percentage in
2004 as compared to 6.9% in 2003, which is not a substantial change.


                                       16
<PAGE>


Selling, general and administrative expenses in the year ended June 30, 2004 was
$18,636,833  compared  with  $5,709,547  in fiscal  year 2003,  an  increase  of
$12,927,286.  This increase is due to expenses of the newly acquired  businesses
and  increased  staff in the travel  services  business to support its  expanded
charter operations, and partially offset by lower marketing expenses, due to the
termination of the jet shuttle service and reduced corporate expenses.  Selling,
general and administrative expenses as a percentage of revenue increased from 8%
to 10% of revenue in 2004.

The Company's  depreciation and amortization  expense in the year ended June 30,
2004 was $809,680 as compared with  $363,852 in the prior year.  The increase is
primarily due to the acquisitions.

In fiscal year 2004, the Company  incurred  $841,642 of net interest  expense as
compared to $194,230 in the prior year.  The  increase is  primarily  due to the
acquisition of the debt issued with the travel services business.

In the years ended June 30, 2004 and June 30, 2003,  the Company  recorded a net
gain on  investments  of $119,682  and  $277,268,  respectively.  These  amounts
consist of $0 and $89,604, respectively,  relating to net losses on market value
adjustments of stock purchase warrants offset by a net realized gain of $119,682
and $366,872,  respectively,  on sales of securities. These results are reported
primarily in the corporate segment results.  The Company's operating results for
2003 also  include a loss of $54,195,  primarily on the sale of two office units
by the technology solutions business.

The Company's operating segments were tested for impairment at the end of fiscal
year 2004. The fair value of the reporting  units were estimated  based upon the
expected present value of future cash flows and comparison to similar companies.

The Company evaluates goodwill throughout the fiscal year and made an adjustment
of  $1,199,690  to write down the goodwill  associated  with its  corporate  and
technology solutions segments.  The decline in the fair value is attributed to a
decrease in the forecasted profitability in the technology solutions segment and
the corporate segment no longer performing investment advisory services.

The Company  experiences  significant  seasonality  in its travel  services  and
limited seasonality in its technology solutions  businesses.  The seasonality in
the travel services  business is due to the higher level of vacation and charter
travel to Caribbean and Mexican  destinations during the vacation season,  which
coincides  with the Company's  first and fourth fiscal  quarters.  The Company's
technology solutions business generally  experiences higher revenue in the first
and fourth  fiscal  quarters,  with the largest  amount being  recognized in the
fourth  quarter,  due to the fact that the  Company's  fiscal year end coincides
with the year end of many schools and universities.  These customers are tied to
strict  budgets and normally  purchase more software at the start and the end of
their fiscal years.

FISCAL YEAR 2003 COMPARED WITH FISCAL YEAR 2002

The Company's  revenue in the year ended June 30, 2003 was $73,609,775  compared
to  $37,846,061 in 2002. The increase of $35,763,714 or 94% in 2003 is primarily
due to the  travel  services  significant  expansion  of  its  charter  aviation
business  as  well as a 7%  increase  in  technology  solutions  revenue.  These
increases  were  partially  offset by  corporate  not earning  fees for business
advisory services in 2003.


                                       17
<PAGE>


Gross profit in 2003 was $5,092,689 compared to $3,173,881 in the prior year, an
increase of  $1,918,808  or 60%. The increase in 2003 is due to the gross profit
generated by the expanded charter  aviation  business and elimination of the jet
shuttle business, which operated at a gross margin deficit. The Company reported
a 6.9% overall gross margin in 2003 as compared to 8.4% in 2002. The decrease in
margin was due to travel services  increase in the dollar amount as a proportion
of consolidated gross profit.

Selling, general and administrative expenses in the year ended June 30, 2003 was
$5,709,547  compared with $5,865,540 in fiscal year 2002.  Selling,  general and
administrative expenses as a percentage of revenue were significantly reduced to
8% of revenue from 15% of revenue in 2002.

The Company's  depreciation and amortization  expense in the year ended June 30,
2003 was $363,852 as compared with  $320,362 in the prior year.  The increase is
due primarily to the continuing expansion of the travel services segment.

In fiscal year 2003, the Company  incurred  $194,230 of net interest  expense as
compared to $128,345 in the prior year.

In the years ended June 30, 2003 and June 30, 2002,  the Company  recorded a net
gain on  investments  of $277,268  and  $146,475,  respectively.  These  amounts
consist of $89,604 and $476,185, respectively,  relating to net losses on market
value  adjustments of stock purchase  warrants  offset by a net realized gain of
$366,872 and $622,660,  respectively,  on sales of securities. These results are
reported  primarily in the corporate  segment results.  The Company's  operating
results for 2003 also  include a loss of $54,195 on the sale of two office units
by the technology solutions business.

The  Company  realized  a gain  of  $575,824  on the  sale  of its  discontinued
commercial real estate business in the quarter ended September 30, 2001.

The Company's operating segments were tested for impairment at the end of fiscal
year 2003. The fair value of the reporting  units were estimated  based upon the
expected present value of future cash flows and comparison to similar companies.

In fiscal year 2002, the Company  recorded the cumulative  effect of a change in
accounting principle of $693,000, increasing the Company's reported net loss, as
a result of its  implementation  of FAS 142. This  adjustment was recorded as of
July 1, 2001.

The Company  experiences  some seasonality in its travel services and technology
solutions businesses.  The seasonality in the travel services business is due to
the higher level of charter travel to Caribbean and Mexican  destinations during
the vacation season,  which coincides with the Company's first and fourth fiscal
quarters.  The Company's  technology  solutions business  generally  experiences
higher revenue in the first and fourth fiscal quarters,  with the largest amount
being recognized in the fourth quarter,  due to the fact that the Company's year
end  coincides  with  the  year  end of many  schools  and  universities.  These
customers are tied to strict budgets and normally  purchase more software at the
start and the end of their fiscal years.

LIQUIDITY AND CAPITAL RESOURCES

The accompanying  financial  statements have been prepared  assuming the Company
will continue as a going concern. The Company has suffered recurring losses from
operations and as of June 30, 2004 had a working capital deficit of $11,121,088.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern.  Management  recognizes  that in order to meet the Company's
capital requirements,  and continue to operate, additional funding is necessary.
The Company is  exploring  additional  sources of  liquidity,  through  debt and


                                       18
<PAGE>


equity financing alternatives and potential sales of its Common Stock in private
placement transactions.  Additionally the Company is negotiating the restructure
of its  long-term  debt.  If the  Company is (i) unable to grow its  business or
improve its operating cash flows as expected,  (ii)  unsuccessful in extending a
substantial  portion of the debt repayments  currently past due, or (iii) unable
to raise additional  funds through private  placement sales of its Common Stock,
then the Company may be unable to continue as a going  concern.  There can be no
assurance  that  additional  financing  will be  available  when  needed  or, if
available,  that  it  will  be  on  terms  favorable  to  the  Company  and  its
stockholders.  If the Company is not  successful in generating  sufficient  cash
flows from  operations,  or in  raising  additional  capital  when  required  in
sufficient amounts and on terms acceptable to the Company,  these failures would
have a material adverse effect on the Company's business,  results of operations
and financial condition.  If additional funds are raised through the issuance of
equity   securities,   the  percentage   ownership  of  the  Company's   current
shareholders would be diluted.  These consolidated  financial  statements do not
include any adjustments that may result from the outcome of these uncertainties.

Cash and cash equivalents were $6,596,076 and $807,834 at June 30, 2004 and June
30,  2003,  respectively.  At June 30, 2004,  the Company had current  assets of
$57,806,513 as compared to $68,927,601 of total current  liabilities,  resulting
in a working capital  deficit of  $11,121,088.  At June 30, 2003, we had current
assets of $8,492,428 as compared to  $15,213,790  of total current  liabilities,
resulting in a working capital deficit of $6,721,362.

Cash  and  cash  equivalents  increased  by  $5,788,242  during  2004.  Cash  of
$5,404,877, primarily from the sale of Common Stock, was provided from financing
operations and $1,272,269 from operating activities,  offset by $888,904 used in
investing activities.

Cash of $1,272,269  was provided from  operating  activities  during fiscal year
2004.  The net loss of  $12,112,568  for the year was offset by non-cash  losses
from discontinued operation of $3,591,046,  other non-cash charges of $1,362,253
and an increase of $8,431,538 from the net operating assets and liabilities.

Non-cash  charges  of  $1,362,253  consist  primarily  of  $1,199,690   goodwill
impairment,  $809,680 in depreciation  an  amortization  charges and issuance of
Common  Stock for  services  and  contract  settlement  of  $773,106,  offset by
$2,184,773 of amortization of an unfavorable airline contract.

The net increase in  operating  assets and  liabilities  of  $8,431,538  was due
significantly  to the increase in unearned  income of  $12,985,949  and accounts
payable and accrued expenses of $14,216,839, offset by an increase in restricted
cash of $19,356,089.

The following table summarizes  contractual  obligations as of June 30, 2004 (in
thousands).

<TABLE>
<CAPTION>

                                  Total           Prior to             July 1, 2005        July 1, 2007          July 1, 2009
                                                June 30, 2005        to June 30, 2007     to June 30, 2009       and thereafter
                               ------------- -------------------- -------------------- ----------------------- ------------------
<S>                            <C>           <C>                  <C>                  <C>                     <C>
Purchase obligations.......... $     60,154  $            30,865  $            18,868  $               10,421  $              --
Long-term notes payable.......       11,250                   --                3,463                   1,500              6,287
Operating and capital-
lease obligations.............       18,424                9,162                6,278                   2,440                544
                               ------------- -------------------- -------------------- ----------------------- ------------------
                               $     89,828  $            40,027  $            28,609  $               14,361  $           6,831
                               ============= ==================== ==================== ======================= ==================
</TABLE>


                                       19
<PAGE>



CRITICAL ACCOUNTING POLICIES

Determination of certain amounts in the Company's financial  statements requires
the use of estimates.  These  estimates are based upon the Company's  historical
experiences  combined  with  management's  understanding  of  current  facts and
circumstances.  Although the estimates are considered reasonable, actual results
could differ from the estimates.  Discussed  below are the  accounting  policies
considered  by management to require the most judgment and to be critical in the
preparation of the financial statements.

Allowance  for  Doubtful  Accounts - The  Company  maintains  an  allowance  for
customer  accounts that reduces  receivables  to amounts that are expected to be
collected.  In estimating the allowance,  management  considers  factors such as
current overall  economic  conditions,  industry-specific  economic  conditions,
historical and  anticipated  customer  performance,  historical  experience with
write-offs and the level of past-due  amounts.  Changes in these  conditions may
result in  additional  allowances.  The  allowance  for  doubtful  accounts  was
$331,690 and $111,824 at June 30, 2004 and June 30, 2003, respectively.

Goodwill - Goodwill  is tested for  impairment  annually or more  frequently  if
changes in circumstances or the occurrence of events suggest  impairment exists.
The test for  impairment  requires the Company to make several  estimates  about
fair  value,  most of which  are  based on  projected  future  cash  flows.  The
estimates  associated with the goodwill impairment tests are considered critical
due to the  judgments  required in  determining  fair value  amounts,  including
projected  future  cash  flows.  Changes  in these  estimates  may result in the
recognition of an impairment loss.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market  risk  generally  represents  the risk of loss that may  result  from the
potential change in value of a financial  instrument as a result of fluctuations
in  interest  rates and market  prices.  We do not  currently  have any  trading
derivatives  nor do we expect  to have any in the  future.  We have  established
policies and internal processes related to the management of market risks, which
we use in the normal course of our business operations.

INTANGIBLE ASSET RISK

We have a substantial  amount of intangible  assets.  We are required to perform
goodwill  impairment  tests at least on an annual basis and  whenever  events or
circumstances  indicate  that the  carrying  value may not be  recoverable  from
estimated  future  cash  flows.  As a result of our  annual  and other  periodic
evaluations,  we may  determine  that the  intangible  asset  values  need to be
written down to their fair values,  which could result in material  charges that
could be adverse to our operating  results and financial  position.  Although at
June 30, 2004, we believe our intangible assets are recoverable,  changes in the
economy, the business in which we operate and our own relative performance could
change the assumptions  used to evaluate  intangible  asset  recoverability.  We
continue  to  monitor  those  assumptions  and  their  consequent  effect on the
estimated recoverability of our intangible assets.

COMMODITY PRICE RISK

We do not enter into  contracts  for the purchase or sale of  commodities.  As a
result, we do not currently have any direct commodity price risk.


                                       20
<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following financial statements are contained in this Item 8.

o     Report of Independent Registered Public Accounting Firm.

o     Consolidated Balance Sheets as of June 30, 2004 and June 30, 2003.

o     Consolidated  Statements of Operations  for the years ended June 30, 2004,
      June 30, 2003 and June 30, 2002.

o     Consolidated  Statements of Changes in Shareholders' Deficit for the years
      ended June 30, 2004, June 30, 2003 and June 30, 2002.

o     Consolidated  Statements  of Cash Flows for the years ended June 30, 2004,
      June 30, 2003 and June 30, 2002.

o     Notes to the Consolidated Financial Statements.


                                       21
<PAGE>


            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors and Stockholders
RCG Companies Incorporated and Subsidiaries
Charlotte, North Carolina

We have audited the  accompanying  consolidated  balance sheets of RCG Companies
Incorporated and Subsidiaries (The Company) as of June 30, 2004 and 2003 and the
related consolidated  statements of operations,  shareholders'  deficit and cash
flows for each of the three  years in the  period  ended  June 30,  2004.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.  We did not audit the financial  statements of a subsidiary for 2004
and 2003, which statements  reflect total assets of $0 and $7,753,042 as of June
30, 2004 and 2003,  respectively,  and losses from  discontinued  operations  of
$3,591,046,  $4,541,141  and  $607,939  for the three years ended June 30, 2004.
Those  statements  were  audited  by other  auditors  whose  reports  have  been
furnished to us, and our opinion,  insofar as it relates to the amounts included
for the subsidiary, is based solely on the reports of the other auditors.

We conducted  our audits in  accordance  with  standards  of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of RCG Companies Incorporated and
Subsidiaries  at June 30, 2004 and 2003,  and the results of its  operations and
its cash flows for the three  years  ended June 30,  2004,  in  conformity  with
accounting principles generally accepted in the United States.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial statements,  the Company has suffered recurring losses from operations
and at June 30, 2004 had a deficiency in working capital that raise  substantial
doubt about its ability to continue as a going  concern.  Management's  plans in
regard to these matters are also  described in Note 1. The financial  statements
do not  include  any  adjustments  that might  result  from the  outcome of this
uncertainty.

/s/ BDO Seidman
BDO Seidman, LLP
Charlotte, North Carolina

October 8, 2004, except for Note 16,
which is dated October 27, 2004


                                       22
<PAGE>


                   RCG COMPANIES INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                          June 30,
                                                                                                 2004                  2003
                                                                                           -----------------     ------------------
<S>                                                                                        <C>                   <C>
ASSETS
Cash and cash equivalents...............................................................   $      6,596,076      $         807,834
Restricted cash.........................................................................         40,387,429              2,655,126
Accounts receivable, net of allowance for doubtful accounts of $331,690 and $111,824,
 respectively...........................................................................          4,531,918              1,966,094
Due from affiliates                                                                                  68,500                     --
Inventory...............................................................................             71,970                 44,893
Investments.............................................................................            326,911                376,945
Prepaid expenses........................................................................          5,823,709              2,641,536
                                                                                           -----------------     ------------------
                     Total current assets...............................................         57,806,513              8,492,428

Deferred costs and other assets.........................................................            508,342                413,364
Property and equipment, net.............................................................          1,526,746                797,887
Net non-current assets of discontinued operations.......................................                 --              7,753,042
Goodwill and other intangible assets, net...............................................         24,452,407              9,641,371
                                                                                           -----------------     ------------------
                     Total assets.......................................................   $     84,294,008      $      27,098,092
                                                                                           =================     ==================

LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable and other obligations - current portion...................................         $1,941,918               $818,790
Notes payable and amounts due to related parties........................................                 --                495,563
Accounts payable and accrued expenses...................................................         28,466,748              5,109,880
Net current liabilities of discontinued operations......................................                 --              4,780,902
Unearned income                                                                                  38,518,935              4,008,655
                                                                                           -----------------     ------------------
                     Total current liabilities..........................................         68,927,601             15,213,790

Warrant obligation                                                                                1,520,000                     --
Notes payable and other obligations.....................................................          7,656,861                 16,080
Notes payable and amounts due to related parties........................................                 --                600,000
                                                                                           -----------------     ------------------
                     Total liabilities..................................................         78,104,462             15,829,870
                                                                                           -----------------     ------------------
Minority interest.......................................................................                 --                314,464
                                                                                           -----------------     ------------------
Shareholders' equity:
      Common stock, $0.04 par value, 200,000,000 shares authorized, 21,289,004 and
      13,948,160 issued, 21,157,790 and 13,816,946 outstanding, respectively............            849,561                557,927
      Preferred stock, $0.01 par value, 10,000,000 shares authorized, none                               --                     --
        outstanding
      Additional paid-in capital........................................................        121,385,825            114,329,103
      Accumulated deficit...............................................................       (115,137,478)          (103,024,910)
      Accumulated other comprehensive loss..............................................           (276,347)              (276,347)
      Treasury stock at cost (131,214 shares)...........................................           (632,015)              (632,015)
                                                                                           -----------------     ------------------
                     Total shareholders' equity.........................................          6,189,546             10,953,758
                                                                                           -----------------     ------------------
                     Total liabilities and shareholders' equity.........................   $     84,294,008      $      27,098,092
                                                                                           =================     ==================
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                       23
<PAGE>
<TABLE>
<CAPTION>


                                             RCG COMPANIES INCORPORATED AND SUBSIDIARIES
                                                CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                                    For the Years Ended June 30,
                                                                       2004                      2003                  2002
                                                                --------------------      -------------------   -------------------
<S>                                                             <C>                       <C>                   <C>
Revenues:
      Services................................................  $       165,764,601       $       63,424,156    $      28,827,495
      Product sales...........................................           15,042,475               10,185,619            9,018,566
                                                                --------------------      -------------------   -------------------
           Total revenue......................................          180,807,076               73,609,775           37,846,061
                                                                --------------------      -------------------   -------------------
Cost of revenues:
      Services................................................          154,812,412               59,536,123           26,872,970
      Product sales...........................................           13,243,471                8,980,963            7,799,210
                                                                --------------------      -------------------   -------------------
           Total cost of revenue..............................          168,055,883               68,517,086           34,672,180
                                                                --------------------      -------------------   -------------------
           Gross profit.......................................           12,751,193                5,092,689            3,173,881

Selling, general and administrative expenses..................           18,636,833                5,709,547            5,865,540
Depreciation and amortization.................................              809,680                  363,852              320,362
Goodwill impairment...........................................            1,199,690                        -                    -
                                                                --------------------      -------------------   -------------------
           Operating costs and expenses.......................           20,646,203                6,073,399            6,185,902
                                                                --------------------      -------------------   -------------------

           Loss from operations...............................           (7,895,010)                (980,710)          (3,012,021)

Interest expense, net.........................................              841,642                  194,230              128,345
Other income..................................................             (100,262)                (238,905)                   -
Equity in earnings of joint ventures..........................              (14,067)                  (3,311)                   -
Loss on sale of assets........................................               18,881                   54,195                  481
Gain on investments, net......................................             (119,682)                (277,268)            (146,475)
                                                                --------------------      -------------------   -------------------
           Loss from continuing operations....................           (8,521,522)                (709,651)          (2,994,372)

Loss from discontinued operations, net........................           (3,591,046)              (4,541,141)          (1,183,763)
Gain on disposal of discontinued operations...................                    -                        -              575,824
                                                                --------------------      -------------------   -------------------
           Loss before cumulative effect of
             change in accounting principle                             (12,112,568)              (5,250,792)          (3,602,311)

Cumulative effect of change in accounting principle...........                    -                        -            (693,000)
                                                                --------------------      -------------------   -------------------

           Net loss...........................................  $       (12,112,568)       $     (5,250,792)    $      (4,295,311)
                                                                ====================      ===================   ===================

Basic and diluted net loss per share:
      Loss from continuing operations.........................  $             (0.51)       $           (0.06)   $           (0.26)
      Loss from discontinued operations.......................                (0.21)                   (0.36)               (0.10)
      Gain (loss) on disposal of discontinued operations......                    -                        -                 0.05
      Cumulative effect of change in accounting principle.....                    -                        -                (0.06)
                                                               --------------------      -------------------    -------------------

           Net loss...........................................  $             (0.72)       $           (0.42)   $           (0.37)
                                                                ====================      ===================   ===================

Weighted average shares outstanding...........................           16,799,540               12,661,743           11,520,096
                                                                ====================      ===================   ===================
Weighted average shares outstanding, assuming dilution........           16,799,540               12,661,743           11,520,096
                                                                ====================      ===================   ===================

</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                       24
<PAGE>
<TABLE>
<CAPTION>
                                             RCG COMPANIES INCORPORATED AND SUBSIDIARIES
                                     CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
                                               FOR THE THREE YEARS ENDED JUNE 30, 2004

                                                                                             Accumulated Other
                                 Common Stock            Additional        Accumulated     Comprehensive     Treasury
                              Shares       Amounts     Paid-In Capital       Deficit        Income (Loss)     Stock          Total
                              ----------- -----------  ---------------- ------------------ ------------- ------------- -------------
<S>                           <C>         <C>          <C>              <C>                <C>           <C>           <C>
Balance at July 1, 2001.....  10,833,390  $ 433,335    $   111,957,090  $     (93,478,807) $    87,634   $    (11,333) $ 18,987,919
                              ----------- -----------  ---------------- ------------------ ------------- ------------- -------------

Comprehensive loss:
Net loss June 30, 2002......           -           -                 -         (4,295,311)            -             -    (4,295,311)
Unrealized loss on
  investments available for
  sale......................           -           -                 -                  -      (139,127)            -      (139,127)
                              ----------- -----------  ---------------- ------------------ ------------- ------------- -------------
      Comprehensive loss....           -           -                 -         (4,295,311)     (139,127)            -    (4,434,438)

Sale of Common Stock........   1,251,429      50,057           808,443                  -             -             -       858,500
Purchase of Business........     172,103       6,884           767,075                  -             -             -       773,959
Issuance of Common Stock for
  services..................      53,112       2,124           178,163                  -             -             -       180,287
Issuance of Common Stock for
  loan fee..................      71,429       2,859           129,340                  -             -             -       132,199
Issuance of treasury stock
  for services..............           -           -                 -                  -             -         3,604         3,604
Capital contribution........           -           -           200,000                  -             -             -       200,000
Return of shares pursuant to
  contract settlement.......           -           -                 -                  -             -      (711,360)     (711,360)
                              ----------- -----------  ---------------- ------------------ ------------- ------------- -------------

Balance at June 30, 2002....  12,381,463     495,259       114,040,111        (97,774,118)      (51,493)     (719,089)   15,990,670
                              ----------- -----------  ---------------- ------------------ ------------- ------------- -------------

Comprehensive loss:
Net loss June 30, 2003......           -           -                 -         (5,250,792)            -             -    (5,250,792)
Unrealized loss on
  investments available for
  sale......................           -           -                 -                  -      (224,854)            -      (224,854)
                              ----------- -----------  ---------------- ------------------ ------------- ------------- -------------
      Comprehensive loss....           -           -                 -         (5,250,792)     (224,854)            -    (5,475,646)

Issuance of treasury stock
  for services..............                                  (97,288)                                        110,859        13,571
Issuance/cancellation of
  Common Stock for services.      89,554       3,582             1,368                  -             -             -         4,950
Return of treasury stock for
  loan fee settlement.......           -           -                 -                  -             -      (23,785)       (23,785)
Sale of Common Stock........   1,477,143      59,086           384,912                  -             -             -       443,998
                              ----------- -----------  ---------------- ------------------ ------------- ------------- -------------
Balance at June 30, 2003....  13,948,160     557,927       114,329,103       (103,024,910)     (276,347)     (632,015)   10,953,758
                              ----------- -----------  ---------------- ------------------ ------------- ------------- -------------
Comprehensive and net loss
  June 30, 2004.............           -           -                 -       (12,112,568)             -             -   (12,112,568)
Issuance of Common Stock for
  debt and accounts payable
  conversions...............   1,149,103      45,964         1,583,816                  -             -             -      1,629,780
Issuance of Common Stock for
  services..................     440,000      17,600           755,506                  -             -             -        773,106
Issuance of Common Stock for
  business acquisitions.....     224,312       8,972           371,028                  -             -             -        380,000
Sale of Common Stock........   5,527,429     219,098         4,346,372                  -             -             -      4,565,470
                              ----------- -----------  ---------------- ------------------ ------------- ------------- -------------
Balance at June 30, 2004....  21,289,004  $  849,561   $   121,385,825   $   (115,137,478)  $  (276,347)  $  (632,015)  $  6,189,546
                              =========== ===========  ================ ================== ============= ============= =============

</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                       25
<PAGE>
<TABLE>
<CAPTION>
                                             RCG COMPANIES INCORPORATED AND SUBSIDIARIES
                                                CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                            For the Years Ended June 30,
                                                                       2004                 2003                 2002
                                                                -------------------    ----------------    -----------------
<S>                                                             <C>                    <C>                 <C>
Cash flows from operating activities:
    Net loss................................................    $     (12,112,568)      $  (5,250,792)      $    (4,295,311)
    Change in accounting principle..........................                    -                   -               693,000
    Loss from discontinued operations.......................            3,591,046           4,541,141               607,939
                                                                -------------------    ----------------    -----------------
    Loss from continuing operations.........................           (8,521,522)           (709,651)           (2,994,372)
    Adjustments to reconcile net loss to net
      cash provided by
      (used in) operating
     activities:
       Depreciation and amortization........................              809,680             363,852               320,362
       Bad debt expense.....................................              157,087               5,917               209,497
       Common stock issued for services and settlement
        of contract.........................................              541,000              (5,264)              180,207
       Stock purchase warrants issued for services..........              232,106                   -                     -
       Gain on sale of investments..........................            (119,682)            (238,905)                    -
       Equity in earning of joint venture...................             (14,067)              (3,311)                    -
       (Gain) loss on sale of assets........................               18,881              54,195                   481
       Compensation expense related to stock options
        and warrants........................................                    -                   -                     -
       Goodwill impairment..................................            1,199,690                   -                     -
       Deferred debt cost amortization......................              722,331              53,289                     -
       Amortization of unfavorable airline contract.........          (2,184,773)                   -                     -
       Changes in operating assets and liabilities:
          Restricted cash...................................         (19,356,089)         (1,679,168)              (493,062)
          Accounts receivable...............................            (994,955)             663,986            (1,299,834)
          Inventory.........................................             (27,077)              45,006               (51,879)
          Prepaid expenses..................................            1,702,637             223,458            (1,036,967)
          Deferred costs and other assets...................             (27,266)           (166,414)               (52,038)
          Accounts payable and accrued expenses.............           14,216,839             217,057              (353,733)
          Due to/from affiliates............................             (68,500)                   -                    -
          Unearned income...................................           12,985,949             762,315             2,669,751
                                                                -------------------    ----------------    -----------------
          Net cash provided by (used in) continuing
           operating activities.............................            1,272,269            (413,638)           (2,901,587)
          Net cash used in discontinued operating
            activities......................................             (574,422)         (1,746,926)              (60,869)
                                                                -------------------    ----------------    -----------------
          Net cash provided by (used in) operating
           activities.......................................              697,847          (2,160,564)           (2,962,456)
Cash flows from investing activities:
    Purchase of property and equipment......................             (732,603)           (271,336)              (89,000)
    Sale of investments.....................................              183,600             428,763               664,253
    Sale of assets..........................................               22,892             257,881               (44,859)
    Cash paid in connection with business
     acquisitions, net......................................             (362,793)           (439,107)              (21,392)
                                                                -------------------    ----------------    -----------------
       Net cash provided by (used in) continuing
         investing activities...............................             (888,904)            (23,799)              509,002
       Net cash used in discontinued investing activities...                 (523)           (681,339)             (583,994)
                                                                -------------------    ----------------    -----------------
       Net cash used in investing activities................             (889,427)           (705,138)              (74,992)
Cash flows from financing activities:
       Notes payable proceeds...............................                    -             330,000             1,466,000
       Principal debt repayments............................             (840,097)           (325,301)             (210,320)
       Net change in line of credit.........................              159,504             273,307                     -
       Sale of RCG Common Stock.............................            6,085,470             443,998               858,500
                                                                -------------------    ----------------    -----------------
          Net cash provided by continuing
            financing activities............................            5,404,877             722,004             2,114,180
          Net cash provided by discontinued
            financing activities............................              574,945           2,428,265               644,863
                                                                -------------------    ----------------    -----------------
          Net cash provided by financing activities.........            5,979,822           3,150,269             2,759,043
                                                                -------------------    ----------------    -----------------
Net increase (decrease) in cash and cash equivalents........            5,788,242             284,567              (278,405)
Cash and cash equivalents at beginning of period............              807,834             523,267               801,672
                                                                -------------------    ----------------    -----------------
Cash and cash equivalents at end of period..................    $       6,596,076      $      807,834      $        523,267
                                                                ===================    ================    =================
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                       26
<PAGE>
<TABLE>
<CAPTION>
                                             RCG COMPANIES INCORPORATED AND SUBSIDIARIES
                                          CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                                Supplemental Cash Flow Information                    Years Ended June 30,
                                                                                2004            2003          2002
                                                                          ----------------- ------------- --------------
<S>                                                                       <C>               <C>           <C>
Cash paid during the period for:
      Interest........................................................... $        493,161   $   135,853   $     74,975
      Income taxes.......................................................                -             -              -

Non-cash investing and financing activities:
Common stock issued for acquired business................................          380,000             -        773,959
Note and Service Agreement Obligation issued for
  acquired business......................................................        9,067,964             -              -
Fixed assets acquired of new businesses..................................          643,275             -              -
Common stock and warrants issued for conversion of debt..................        1,517,500             -              -
Common stock and warrants issued for conversion of accounts
  payable and accrued expenses...........................................          112,280             -              -
Conveyance of RCG's LFSI Common Stock for services.......................          118,800             -              -
Issuance of compensatory stock purchase warrants in
 connection with strategic alliances and other services..................                -             -         94,900
Payment for services with Common Stock...................................                -             -         85,387
Unrealized loss on available for sale investments........................                -       224,854        139,127
Issuance of Common Stock and warrants for loan origination fees..........                -             -        132,199

</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                       27
<PAGE>

                   RCG COMPANIES INCORPORATED AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These financial statements include the operations of RCG Companies  Incorporated
("RCG") and its subsidiaries (collectively the "Company"). At June 30, 2004, the
Company  operated  businesses in the travel  services and  technology  solutions
segments in the United  States.  On November 14, 2003,  the Company  changed its
name from eResource Capital Group, Inc. to RCG Companies  Incorporated.

Operations and Liquidity

The accompanying  financial  statements have been prepared  assuming the Company
will continue as a going concern. The Company has suffered recurring losses from
operations and as of June 30, 2004 had a working capital deficit of $11,121,088.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern.  Management  recognizes  that in order to meet the Company's
capital requirements,  and continue to operate, additional funding is necessary.
The Company is  exploring  additional  sources of  liquidity,  through  debt and
equity financing alternatives and potential sales of its Common Stock in private
placement transactions.  Additionally the Company is negotiating the restructure
of its  long-term  debt.  If the  Company is (i) unable to grow its  business or
improve its operating cash flows as expected,  (ii)  unsuccessful in extending a
substantial  portion of the debt repayments  currently past due, or (iii) unable
to raise additional  funds through private  placement sales of its Common Stock,
then the Company may be unable to continue as a going  concern.  There can be no
assurance  that  additional  financing  will be  available  when  needed  or, if
available,  that  it  will  be  on  terms  favorable  to  the  Company  and  its
stockholders.  If the Company is not  successful in generating  sufficient  cash
flows from  operations,  or in  raising  additional  capital  when  required  in
sufficient amounts and on terms acceptable to the Company,  these failures would
have a material adverse effect on the Company's business,  results of operations
and financial condition.  If additional funds are raised through the issuance of
equity   securities,   the  percentage   ownership  of  the  Company's   current
shareholders would be diluted.  These consolidated  financial  statements do not
include any adjustments that may result from the outcome of these uncertainties.

Consolidation

The Company's consolidated financial statements include the assets,  liabilities
and results of operations of RCG and each business acquired by RCG from the date
of its acquisition through June 30, 2004. All significant  intercompany balances
and transactions  have been  eliminated.  Certain prior period amounts have been
reclassified to conform to the fiscal year 2004 presentation.

Cash and Cash Equivalents

The Company classifies as cash equivalents any investments that have an original
maturity of less than three months.  At times cash and cash equivalent  balances
are at a limited  number  of banks and  financial  institutions  and may  exceed
insurable  amounts.  The Company  believes it mitigates  its risks by depositing
cash or investing in cash equivalents in major financial institutions.


                                       28
<PAGE>

                   RCG COMPANIES INCORPORATED AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Restricted Cash

All cash  received  from  customers  in  advance  of  flight  departure  must be
deposited into escrow accounts in accordance  with Department of  Transportation
regulations.  Withdrawals from such escrow accounts are allowed in order to make
required  payments  to air  carriers  at least 15 days in advance of  departure.
Hotels may be paid from  escrow  after air  carriers  have been paid.  Remaining
funds are  released  from  escrow 48 hours  after  departure  date.  The Company
classifies  these escrow  accounts as restricted  cash. All escrow  accounts are
maintained in one financial institution and balances exceed insurable limits.

Concentration of Credit Risk

Financial  instruments that potentially subject the Company to concentrations of
credit risk consist  principally of cash, accounts  receivable,  investments and
notes  payable.  The Company  places its temporary cash with high credit quality
principal institutions.  The Company performs periodic credit evaluations of its
customers'  financial  condition  and  generally  does not  require  collateral.
Although due dates of receivables  vary based on contract  terms,  credit losses
have been within  management's  estimates in determining  the level of allowance
for doubtful accounts. Overall financial strategies are reviewed periodically.

The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial  instruments:

o     Cash and cash  equivalents:  The carrying  amount  reported in the balance
      sheet for cash approximates its fair value.

o     Accounts receivable and accounts payable:  Due to their short term nature,
      the carrying amounts reported in the balance sheet for accounts receivable
      and accounts  payable  approximate  their fair value. The Company provides
      for any losses through its allowance for doubtful accounts.

o     Investments:  The fair values for available-for-sale equity securities are
      based on estimated market prices.

o     Notes  Payable:  The  carrying  amount  of  the  Company's  notes  payable
      approximate their fair value.

During fiscal years 2003 and 2002, sales to Vacation  Express,  a MyTravel Group
company, a customer of the Company's travel services  business,  represented 73%
and 63%, respectively, of the Company's consolidated revenue. This concentration
of revenue with Vacation Express, and its sister company, SunTrips, both part of
the MyTravel Group, increased in July 2002 with the beginning of a new scheduled
charter program for SunTrips.

Trade Accounts Receivable

Accounts  receivable  from the sale of products or services  are recorded at net
realizable  vale and the Company  grants  credit to  customers  on an  unsecured
basis. The Company provides an allowance for doubtful  collections that is based
upon a review of outstanding receivables,  historical collection information and
existing  economic  conditions.  Normal trade  receivables are due from 15 to 30
days after the issuance of an invoice.  Receivables  past due more than 120 days
are  considered  delinquent.  Delinquent  receivables  are  written off based on
individual credit evaluation and specific circumstances of the customer.

The Company  computes finance charges on accounts that are 30 days past due. The
finance  charges are recognized  into income when accrued  unless  collection is
doubtful.


                                       29
<PAGE>

                   RCG COMPANIES INCORPORATED AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Inventory

Inventory  consists  mainly of computer  software for the  technology  solutions
segment.  Inventory  is  recorded at the lower of cost or market with cost being
determined on a first-in, first-out basis.

Investments

Investments,  including  certificates of deposit with maturities of greater than
three months,  not readily  marketable  equity  securities and other  marketable
securities, are classified as available for sale. Investment securities that are
not readily  marketable include securities (a) for which there is no market on a
securities exchange or no independent publicly quoted market, (b) that cannot be
publicly  offered  or sold  unless  registration  has been  effected  under  the
Securities  Act of 1933,  or (c) that cannot be offered or sold because of other
arrangements,  restrictions,  or conditions  applicable to the securities or the
Company.  Certificates  of deposit are recorded at cost plus  accrued  interest.
Marketable  equity  securities are recorded at estimated  values based on quoted
market values for  marketable  securities of the issuer,  discounted for trading
restrictions.  If there is no quoted market value, the recorded values are based
on the  most  recent  transactions  in the  securities  discounted  for  lack of
marketability.  Investment securities  transactions are recorded on a trade date
basis. The difference between cost and fair value is recorded as unrealized gain
or loss on available for sale securities as a component of comprehensive income.

Investments also include stock purchase warrants, which the Company periodically
receives as part of its compensation for services.  Stock purchase warrants from
companies  with  publicly  traded  Common Stock are  considered  derivatives  in
accordance  with SFAS 133  "Accounting  for Derivative  Investments  and Hedging
Activities".  The  Company  recognizes  revenue  at the fair value of such stock
purchase  warrants when earned based on the  Black-Scholes  valuation model. The
Company  recognizes  unrealized  gains or losses in the  statement of operations
based on the changes in value in the stock  purchase  warrants as  determined by
the Black-Scholes valuation model subsequent to the date received.

Prepaid Expenses

Prepaid expenses include  insurance,  deferred costs,  certain taxes and charter
flight costs.  Depending upon the volume and timing of charter flight  activity,
the amount of prepaid charter flight costs can fluctuate significantly.

Property and Equipment

Property  and  equipment  are  stated at cost,  less  accumulated  depreciation.
Depreciation is computed on the  straight-line  basis over the assets' estimated
useful lives. Expenditures for maintenance and repairs are expensed as incurred.
Expenditures  for  improvements  that extend the useful life or add value to the
asset are capitalized and then expensed over that asset's remaining useful life.

Sales and  disposals  of assets are  recorded by removing  the related  cost and
accumulated  depreciation  amounts with any resulting  gain or loss reflected in
the statement of operations.

The  carrying  value of  property  and  equipment  and  predevelopment  costs is
reviewed for impairment  whenever  events or changes in  circumstances  indicate
that such amounts may not be recoverable. If such an event occurred, the Company
would prepare  projections  of future  results of  operations  for the remaining
useful lives of such assets.  If such  projections  indicated  that the expected
future net cash flows  (undiscounted  and  without  interest)  are less than the
carrying amounts of the property and equipment and the predevelopment costs, the
Company  would record an  impairment  loss in the period such  determination  is
made.


                                       30
<PAGE>

                   RCG COMPANIES INCORPORATED AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Goodwill and Intangible Assets

The Company  records  goodwill  and  intangible  assets  arising  from  business
combinations in accordance with Financial  Accounting  Standards Board Statement
("FASB") No. 141 "Business  Combinations"  ("FASB 141") which  requires that the
purchase  method of accounting be used for all business  combinations  initiated
after  June 30,  2001.  FASB 141  also  specifies  the  criteria  applicable  to
intangible  assets  acquired in a  purchase-method  business  combination  to be
recognized and reported apart from goodwill.

The Company accounts for goodwill and intangible  assets in accordance with FASB
No. 142 "Goodwill and Other Intangible Assets" ("FASB 142"). The Company adopted
FASB 142 effective  July 1, 2001.  In  completing  the adoption of FASB 142, the
Company has allocated its previously existing goodwill as of July 1, 2001 to its
reporting  units,  as defined in FASB 142,  and  performed  an initial  test for
impairment as of that date.

In accordance with FASB 142, the Company no longer amortizes goodwill.  FASB 142
requires that goodwill and  intangible  assets with  indefinite  useful lives no
longer be  amortized,  but instead be tested at least  annually for  impairment.
FASB 142 also requires  that  intangible  assets with  definite  useful lives be
amortized  over  their  respective  estimated  useful  lives to their  estimated
residual values, and be reviewed for impairment.

Goodwill,  which  represents  the cost in  excess  of fair  value of net  assets
acquired,  is subject to an impairment test on an annual basis, or when there is
reason to believe that the value has been diminished or impaired. The fair value
of the Company's  identified  reporting  units was estimated  using the expected
present value of corresponding future cash flows and market values of comparable
businesses where available.  The Company  evaluated  goodwill  throughout fiscal
year  2004 and made an  adjustment  of  $1,199,690  to write  down the  goodwill
associated with its corporate and technology solutions segments.  The decline in
the fair value is attributed to a decrease in the  forecasted  profitability  in
the technology  solutions segment and the corporate segment no longer performing
investment advisory services.

Imputed Interest

Long-term  obligations  that do not state an interest rate are discounted to net
present value using the Company's  estimated  incremental  borrowing  rate.  The
discount is amortized over the life of the obligation.

Warrant Obligation

In  accordance  with  Emerging  Issues  Task Force Issue  00-19,  or EITF 00-19,
"Accounting  for Derivative  Financial  Instruments  Indexed to, and Potentially
Settled in, a Company's Own Stock", the fair value of warrants issued in certain
private placements have been initially  accounted for as a liability because the
Company  will  incur  a  substantial  penalty  if  it  cannot  comply  with  the
warrantholders'  registration rights or have other net-cash settlement features.
The fair  value of the  warrants  was  calculated  utilizing  the  Black-Scholes
option-pricing model.


                                       31
<PAGE>

                   RCG COMPANIES INCORPORATED AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Stock-Based Compensation

In December  2002, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards ("SFAS") No. 148,  "Accounting for
Stock-Based Compensation - Transition and Disclosure". SFAS 148 amends SFAS 123,
"Accounting for Stock-Based  Compensation",  to provide  alternative  methods of
transition  for a voluntary  change to the fair value based method of accounting
for  stock-based  employee  compensation.  In  addition,  SFAS  148  amends  the
disclosure  requirements  of SFAS  123 to  require  disclosures  that  are  more
prominent  in both annual and interim  financial  statements,  in regards to the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The additional disclosure  requirements of SFAS
148 were  effective for fiscal years ending after December 15, 2002. The Company
has elected to continue to follow the  intrinsic  value method of  accounting as
prescribed by Accounting  Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees"  ("APB 25"), to account for employee stock  options.  Under
APB 25, no compensation  expense is recognized  unless the exercise price of the
Company's employee stock options is less than the market price of the underlying
stock on the date of grant.

The  Company's pro forma net loss and net loss per share  assuming  compensation
cost was  determined  under  FASB No.  123 for all  options  would have been the
following for the years ended June 30, 2004, June 30, 2003 and June 30, 2002.

<TABLE>
<CAPTION>

                                                          2004                       2003                     2002
                                                   --------------------       -------------------      --------------------
<S>                                                <C>                        <C>                      <C>
Net loss, as reported.........................           $(12,112,568)              $(5,250,792)              $(4,295,311)
Stock-based employee compensation credit
 included in reported net loss................                      -                    49,920                     2,700
                                                   --------------------       -------------------      --------------------
                                                          (12,112,568)               (5,200,872)               (4,292,611)
Deduct: Stock-based compensation expense
  determined under FAS 123....................               (179,855)                 (334,278)               (1,326,211)
                                                   --------------------       -------------------      --------------------
Pro forma net loss............................           $(12,292,423)              $(5,535,150)              $(5,618,822)
                                                   ====================       ===================      ====================
Earnings per share:
Basic and diluted loss per share, as reported.                 $(0.72)                   $(0.42)                   $(0.37)
                                                   ====================       ===================      ====================
Basic and diluted loss per share, pro forma...                 $(0.73)                   $(0.44)                   $(0.49)
                                                   ====================       ===================      ====================
</TABLE>

Unearned Income and Revenue Recognition

Travel Services

Revenue from the sale of tour  packages  either to travel  agents or directly to
passengers is recognized on the departure date of the trip. Direct air and hotel
costs,  other  related  direct costs and  commissions  associated  with the tour
package are also  recognized on the departure  date. Cash received in advance of
the departure  date is deposited  into escrow  accounts and recorded as unearned
income.  Substantially all of the unearned income on the Company's balance sheet
is from the travel services business.

Technology Solutions

Internet  Web site  development  services  project  revenue is  recognized  on a
percentage of completion  basis for fixed fee  contracts,  based on the ratio of
costs  incurred to total  estimated  costs for individual  projects.  Revenue is
recognized  as services are  performed  for time and  material  contracts at the
applicable billing rates.


                                       32
<PAGE>

                   RCG COMPANIES INCORPORATED AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


The Company provides e-commerce  marketing and business  development services to
clients  pursuant to  contracts  with varying  terms.  The  contracts  generally
provide for monthly payments and, in some cases,  advance  deposits.  Revenue is
recognized over the respective contract period as services are provided.

Revenue from uncollateralized e-commerce sales or sales of hardware and software
is recognized upon passage of title of the related goods to the customer.

Net Loss Per Share

The  Company  computes  net loss per  share in  accordance  with  FASB No.  128,
"Earnings  per Share" which  requires  dual  presentations  of basic and diluted
earnings per share.

Basic  earnings per share are  computed  using the  weighted  average  number of
common  shares  outstanding  during the period.  Diluted  earnings per share are
computed  using the weighted  average  number of common shares  outstanding  and
potentially dilutive shares outstanding during the period.  Options and warrants
to purchase  8,683,620 and 3,763,392  shares of Common Stock were outstanding at
June 30, 2004, June 30, 2003 and June 30, 2002,  respectively.  Such outstanding
options and warrants could  potentially  dilute earnings per share in the future
but have not been included in the  computation  of diluted net loss per share in
2003 and 2002 as the impact would have been anti-dilutive.

Advertising

The  Company  expenses  advertising  costs  as  incurred.   Advertising  expense
aggregated $1,054,234,  $109,477 and $255,624 for the years ended June 30, 2004,
June 30, 2003 and June 30 2002, respectively.

Income Taxes

The Company accounts for income taxes in accordance with the liability method as
provided  under  FASB No.  109,  "Accounting  for  Income  Taxes".  Accordingly,
deferred  income taxes are  recognized for the tax  consequences  of differences
between the financial  statement  carrying amounts and the tax bases of existing
assets and  liabilities.  The measurement of deferred tax assets is reduced,  if
necessary,  by the amount of any benefits that, based on available evidence, are
not expected to be realized.

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States  requires  management to make estimates
and  assumptions  that affect the  reported  amounts of assets and  liabilities,
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements and the reported  amounts of revenues and expenses during the period.
Actual results could differ from those estimates.

Reclassifications

Certain  reclassifications  have been made to data from the  previous  period to
conform to the presentation of the current period.


                                       33
<PAGE>

                   RCG COMPANIES INCORPORATED AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Recent Accounting Pronouncements

In December 2003, the SEC issued SAB 104, "Revenue Recognition", which codifies,
revises and rescinds  certain  sections of SAB 101,  "Revenue  Recognition",  in
order to make this interpretive  guidance consistent with current  authoritative
accounts and audit guidance and SEC rules and regulations.  The changes noted in
SAB 104 did not have a material effect on the Company's  consolidated results of
operations, financial position or cash flows.

NOTE 2.  BUSINESS ACQUISITIONS AND DISCONTINUED OPERATIONS

Acquisitions

Through  its wholly  owned  subsidiary,  Flightserv,  Inc.  ("Flightserv"),  RCG
concluded the acquisition of substantially  all of the assets and liabilities of
VE Holdings,  Inc.  ("Vacation  Express") and SunTrips,  Inc.  ("SunTrips") (the
"Acquired Companies"), effective October 31, 2003. These acquired companies were
integrated  into the Company's  existing  travel  services  business to form its
largest operating segment.  The Company had previously  provided services to the
acquired companies.

The  Acquired  Companies  provide  specialized  distribution  of leisure  travel
products and services.  Vacation Express based in Atlanta, Georgia sells air and
hotel packages to Mexico and Caribbean  destinations and SunTrips,  based in San
Jose,  California,  sells air and hotel packages to Mexico,  Dominican Republic,
Costa Rica,  Hawaii and the Azores out of  Oakland,  California  and/or  Denver,
Colorado.

In  connection  with  the   acquisition,   the  Company  issued  a  $10  million
non-interest  bearing  seven-year  promissory note discounted to $5.3 million at
12.00% per annum for imputed interest (the  "Promissory  Note") from Flightserv,
secured by certain RCG investment holdings. Additionally, the Acquired Companies
entered  into  a  three-year  agreement  with  MyTravel  Canada  Holidays,  Inc.
("MyTravel  Canada") for certain  services,  including  the  purchasing of hotel
accommodations on an exclusive basis. MyTravel Canada will be paid approximately
$4.5 million over three years under this agreement discounted to $3.8 million at
12.00% per annum for imputed interest (the "Service Agreement Obligation").

The  acquisition  was accounted  for under the purchase  method of accounting in
accordance with Statement of Financial  Accounting  Standards  ("SFAS")  No.141,
"Business  Combinations".  The  purchase  price was  allocated to the net assets
acquired,  including the liabilities  assumed as of October 31, 2003, based upon
their estimated fair values as of that date with the remainder being recorded as
goodwill,  which  is  deductible  for tax  purposes.  The  consideration,  which
included acquisition costs of $314,091, was allocated as follows.

Current assets............................     $         25,115,629
Property and equipment....................                  628,775
Goodwill..................................               15,050,524
Other intangible assets...................                  702,000
                                               ---------------------
      Total assets acquired...............               41,496,928
Current liabilities.......................               32,646,344
                                               ---------------------
      Net assets acquired.................     $          8,850,584
                                               =====================


                                       34
<PAGE>

                   RCG COMPANIES INCORPORATED AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


On November 5, 2003, the technology solutions business completed the acquisition
of SchoolWorld Software, a Pittsburgh,  Pennsylvania-based  educational software
company. The consideration,  which included acquisition costs of $48,702 and the
issuance of 224,312  shares  valued at  $380,000,  was  allocated as follows (in
thousands).

Property and equipment....................     $             14,500
Goodwill and other intangible assets......                  414,202
                                               ---------------------
      Total assets acquired...............     $            428,702
                                               =====================

Operations of the acquired businesses are included in the consolidated financial
statements from the date of acquisition.  The following sets forth unaudited pro
forma consolidated  financial information as if the acquisitions had taken place
at the beginning of the periods presented (in thousands, except per share data).

                                                   Years Ended June 30,
                                                        (unaudited)
                                                  2004               2003
                                            ------------------ -----------------

Revenues..................................  $     234,972      $     218,884
Net loss..................................        (23,991)           (33,139)
Basic and diluted loss per share..........          (1.43)             (2.62)

Discontinued Operations

During the third quarter of 2004, the Board  authorized  the  disposition of the
Company's  investment  in  LFSI.  Accordingly,   the  operations  of  LFSI  were
reclassified to discontinued  operations for all periods  presented.  During the
fourth quarter,  the Company  contributed  approximately 4 million shares to the
treasury of LFSI, of which a substantial  portion of the contributed shares were
reissued to certain LFSI investors to settle  certain  contingent  claims.  LFSI
also issued other shares, which resulted in RCG's interest in LFSI being reduced
to  an  effective  45.5%  beneficial  ownership.   Considering  the  substantial
reduction in ownership and the lack of control over LFSI, the investment in LFSI
is now  recorded  using  the  equity  method  and is no  longer  a  consolidated
subsidiary.  The change  resulted in RCG restoring its negative  carrying  value
during the fourth quarter,  which was recognized as a gain on deconsolidation of
LFSI.

The loss from  discontinued  operations at June 30, 2004, June 30, 2003 and June
30, 2002 is summarized as follows.

<TABLE>
<CAPTION>
                                                                              Years Ended June 30,
                                                           2004                        2003                      2002
                                                   ---------------------       ---------------------      --------------------
<S>                                                <C>                         <C>                        <C>
Gross revenues..................................   $         2,426,307         $         4,611,235        $        2,886,074
Cost of revenues and operating expenses.........             2,521,350                   8,128,127                 4,069,837
Goodwill impairment.............................             6,899,454                   2,577,047                         -
                                                   ---------------------       ---------------------      --------------------
Net loss per LFSI financials....................            (6,994,497)                 (6,093,939)               (1,183,763)
Minority interest...............................               314,281                   1,552,798                         -
Gain on deconsolidation of LFSI.................             3,089,170                           -                         -
Gain on disposal of discontinued operations.....                     -                           -                   575,824
                                                   ---------------------       ---------------------      --------------------
Loss from discontinued operations...............   $        (3,591,046)        $        (4,541,141)        $        (607,939)
                                                   =====================       =====================      ====================
</TABLE>


                                       35
<PAGE>

                   RCG COMPANIES INCORPORATED AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Net non-current assets of LFSI at June 30, 2003 consisted of the following.

<TABLE>
<CAPTION>

<S>                                                                  <C>
Goodwill...........................................................  $            9,282,251
Property and equipment, net........................................                 591,514
Deferred costs and other assets....................................                  56,829
                                                                     -----------------------
      Non-current assets...........................................               9,930,594
Long-term debt and capital leases, less current portion............              (2,177,552)
                                                                     -----------------------
                                                                     $            7,753,042
                                                                     =======================

Net current liabilities of LFSI at June 30, 2003 consisted of:
Accounts payable and accrued expenses..............................  $           (4,209,645)
Current portion of long-term debt and capital leases...............              (2,463,242)
                                                                     -----------------------
      Non-current assets...........................................              (6,672,887)
Cash                                                                                167,293
Accounts receivable, net...........................................                 893,698
Prepaid expenses and other assets..................................                  12,087
Inventories........................................................                 818,907
                                                                     -----------------------
                                                                     $           (4,780,902)
                                                                     =======================
</TABLE>


NOTE 3.  INVESTMENTS

Investments at June 30, 2004 and June 30, 2003 consisted of the following.

<TABLE>
<CAPTION>
                                              2004 Net                                                2003 Net
                        -----------------------------------------------------   --------------------------------------------------
                             Cost            Unrealized            Fair              Cost            Unrealized         Fair
                                               (Loss)             Value                                (Loss)          Value
                        ---------------   -----------------   ---------------   ----------------  -----------------  -------------
<S>                     <C>               <C>                 <C>                <C>              <C>              <C>
Equity securities......       $585,298          $(276,347)          $308,951           $585,298         $(276,347)       $308,951
Private joint ventures.         17,960                  -             17,960             67,994                 -          67,994
                        ---------------   -----------------   ---------------   ----------------  -----------------  -------------
                              $603,258          $(276,347)          $326,911           $653,292         $(276,347)       $376,945
                        ===============   =================   ===============   ================  =================  =============
</TABLE>


The  unrealized  loss on equity  securities  at June 30,  2004 and June 30, 2003
consists of  unrealized  accumulated  losses of $321,000,  offset by  unrealized
accumulated gains of $45,000.

NOTE 4.  PREPAID EXPENSES

Prepaid expenses at June 30, 2004 and June 30, 2003 consisted of the following.

                                         2004                      2003
                                    ----------------          ----------------
Flight and vacation costs.........  $    5,410,527            $    2,375,919
Other.............................         413,182                   265,617
                                    ----------------          ----------------
                                    $    5,823,709            $    2,641,536
                                    ================          ================


                                       36
<PAGE>

                   RCG COMPANIES INCORPORATED AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 5.  PROPERTY AND EQUIPMENT, NET

Property and equipment,  net at June 30, 2004 and June 30, 2003 consisted of the
following.

                                                2004                2003
                                          ------------------  ------------------
Land, buildings and improvements........  $         316,311   $          78,418
Furniture and fixtures..................            384,658             287,255
Computers and office equipment..........          1,870,302           1,237,349
Software................................            571,052             248,749
                                          ------------------  ------------------
                                                  3,142,323           1,851,771
Accumulated depreciation................         (1,615,577)         (1,053,884)
                                          ------------------  ------------------
                                          $       1,526,746   $         797,887
                                          ==================  ==================

NOTE 6.  GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets, by business segment,  for the fiscal years
ended June 30, 2004 and June 30, 2003 are as follows.

<TABLE>
<CAPTION>

                                                Travel            Technology
                                               Services           Solutions           Corporate           Total
                                          ------------------- -------------------  ----------------- -----------------
<S>                                       <C>                 <C>                  <C>               <C>
Balance at July 1, 2002.................  $         939,088   $       7,630,675    $     1,000,000   $     9,569,763
Goodwill acquired during period.........                                 74,580                               74,580
Other goodwill adjustments..............                  -              (2,972)                 -            (2,972)
                                          ------------------- -------------------  ----------------- -----------------
Balance at June 30, 2003................            939,088           7,702,283          1,000,000         9,641,371
Goodwill and other intangible
  assets acquired during period, net
  of $156,000 amortization..............         15,596,524             414,202                           16,010,726
Goodwill impairment.....................                  -            (199,690)        (1,000,000)       (1,199,690)
                                          ------------------- -------------------  ----------------- -----------------
Balance at June 30, 2004................  $      16,535,612   $       7,916,795    $             -   $    24,452,407
                                          =================== ===================  ================= =================
</TABLE>

During fiscal year 2004, goodwill increased by $15,050,524 and other intangibles
by $702,000  as a result of the travel  services  acquisition  (see Note 2). The
$546,000 of remaining  other  intangible  assets is estimated to be amortized in
2005 at $234,000,  and in 2006 at $234,000.  Goodwill was reduced by  $1,199,690
associated with the corporate and technology solutions segments.  The decline in
the fair value is attributed to a decrease in the  forecasted  profitability  in
the technology  solutions segment and the corporate segment no longer performing
investment advisory services.


                                       37
<PAGE>

                   RCG COMPANIES INCORPORATED AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 7.         NOTES PAYABLE AND OTHER OBLIGATIONS

Notes payable and other obligations  consisted of the following at June 30, 2004
and June 30, 2003.

<TABLE>
<CAPTION>

                                                                                                 June 30,
                                                                                         2004                 2003
                                                                                   ------------------    ----------------
<S>                                                                                <C>                   <C>
Note payable - due in August 2003 with interest at 10% and unsecured (1)........   $               -     $       200,000
Note payable - due July 27, 2003 and unsecured (2)..............................             160,000             250,000
Revolving credit facility (maximum borrowing $1 million)-
  secured by substantially all assets of the
   technology solutions business with interest at
   prime-plus-2% (6.25% at June 30, 2004).......................................             433,311             273,807
Capital lease obligations at various interest rates due
   in monthly installments through November 2007................................             152,713              31,063
Note payable - unsecured and due on demand (3)..................................                   -              80,000
Service agreement obligation - in the amount of
   $3,562,500, less unamortized discount of $433,737
   imputed at 12% and unsecured (4).............................................           3,128,763                   -
Note payable - in the amount of $9,850,000, less
   unamortized discount of $4,126,008 imputed at 12%,
   secured by certain RCG investment holdings (5)...............................           5,723,992                   -
                                                                                   ------------------    ----------------
                                                                                           9,598,779             834,870
Less current maturities, including demand notes.................................          (1,941,918)           (818,790)
                                                                                   ------------------    ----------------
Long-term portion...............................................................   $       7,656,861     $        16,080
                                                                                   ==================    ================
</TABLE>


----------
(1)  The principal and accrued  interest on this note payable are convertible to
     shares of Common  Stock at the greater  of: (i) $1.12 per share,  or (ii) a
     20% discount to the average  closing price of the Common Stock for the five
     days  immediately  preceding the conversion date. The two debts referred to
     above,  plus  accrued  interest,  were  converted  into RCG Common Stock on
     August 21, 2003 in accordance with above terms.
(2)  On October 1, 2003 and  November 25,  2003,  $25,000 each of principal  was
     paid; on April 6, 2004 and June 9, 2004, $30,000 and $10,000, respectively,
     of principal were paid. The Company  currently is negotiating with the debt
     holder to extend the term or agree on a payment schedule.
(3)  RCG repaid in October 2003.
(4)  On October  31,  2003,  Flightserv  agreed to pay $4.5  million to MyTravel
     Canada for certain services over a three-year period beginning  November 1,
     2003.
(5)  On October 31, 2003, Flightserv purchased two businesses (see Note 2) for a
     $10  million   non-interest  bearing  seven-year  note.  Payments  commence
     quarterly beginning June 30, 2004.

Future maturities of the debt and notes payable are as follows at June 30, 2004.


Fiscal Year
2005................................................      $         1,941,918
2006................................................                1,517,867
2007................................................                  606,408
2008................................................                   91,788
2009................................................                  101,562
Thereafter..........................................                5,339,236
                                                          --------------------
                                                          $         9,598,779
                                                          ====================


                                       38
<PAGE>

                   RCG COMPANIES INCORPORATED AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8.  NOTES PAYABLE AND AMOUNTS DUE TO RELATED PARTIES

Notes payable and amounts due to related  parties  consisted of the following at
June 30, 2004 and June 30, 2003.

<TABLE>
<CAPTION>
                                                                   June 30,
                                                              2004          2003
                                                          ------------- -------------
<S>                                                       <C>           <C>
Notes payable - due in August 2003 with
  interest imputed at 8% and unsecured (1)..............  $          -  $    267,500
Note payable - $150,000 due December 31, 2003
  and $600,000 due December 31, 2004 with
  interest at 12% and collateralized by certain
  aviation travel service business assets (2)...........             -       750,000
Note payable - unsecured and due on demand (3)..........             -         5,000
Other advances..........................................             -        73,063
                                                          ------------- -------------
                                                                     -     1,095,563
Less current maturities, including demand notes.........             -      (495,563)
                                                          ------------- -------------
Long-term portion.......................................  $          -  $    600,000
                                                          ============= =============
</TABLE>

----------
(1)  The principal and accrued  interest on this note payable is  convertible to
     shares of Common Stock at the greater of (i) $1.12 per share, or (ii) a 20%
     discount to the average closing price of the Common Stock for the five days
     immediately   preceding  the  conversion  date.  This  debt,  plus  accrued
     interest,  was  converted  into RCG  Common  Stock on  August  21,  2003 in
     accordance with terms above.
(2)  In  connection  with  this  note,  the  Company  issued  71,429  shares  of
     restricted  stock and 42,857  warrants  to purchase  its Common  Stock at a
     price of  $2.45  and for a term of three  years,  both as loan  origination
     fees.  This note is  convertible  into the  Company's  Common  Stock at the
     option of the debt  holder at a per share price of the lesser of $2.10 or a
     25% discount to the market. Under certain conditions, the Company can force
     the debt holder to convert to stock at $7.00 per share. On May 4, 2004, all
     of the $750,000 debt was  converted to 450,000  shares ($1.67 per share) of
     Common Stock.
(3)  RCG repaid in October 2003.

NOTE 9.  INCOME TAXES

Deferred  income tax assets and  (liabilities)  consisted of the following as of
June 30, 2004 and June 30, 2003.

<TABLE>
<CAPTION>
                                                                   June 30,
                                                         2004                     2003
                                                 ---------------------     --------------------
<S>                                              <C>                       <C>
Deferred income tax assets:
Warrants and stock options.....................  $            305,816      $                 -
Net operating loss carry-forwards..............            18,969,514               19,575,969
Other                                                         166,777                  327,735
                                                 ---------------------     --------------------
      Total deferred income tax assets.........            19,442,107               19,903,704
Deferred income tax liabilities:
Property and equipment.........................              (167,057)                (167,057)
Intangible assets..............................              (248,660)                       -
                                                 ---------------------     --------------------
Net deferred income tax assets.................            19,026,390               19,736,647
Deferred income tax asset valuation allowance..           (19,026,390)             (19,736,647)
                                                 ---------------------     --------------------
      Net deferred income tax assets...........  $                  -      $                 -
                                                 =====================     ====================
</TABLE>


                                       39
<PAGE>

                   RCG COMPANIES INCORPORATED AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


A  reconciliation  of the  Company's  effective  income  tax rate  (-0-%) to the
statutory income tax rate (34%) is as follows.

<TABLE>
<CAPTION>

                                                                           Year Ended June 30,
                                                             2004                  2003                 2002
                                                      --------------------  -------------------- --------------------
<S>                                                   <C>                   <C>                  <C>
Federal tax benefit at statutory rate...............  $        (3,982,412)  $        (1,744,099)  $       (1,460,406)
State tax benefit, net of federal...................             (343,639)             (150,497)            (214,766)
Permanent differences...............................              963,659               700,579              303,672
IRS examination settlement..........................            2,303,175                     -                    -
Other...............................................              348,960            (3,541,172)             891,286
Elimination of warrants and stock options...........                    -            18,957,496                    -
Change in deferred tax asset valuation allowance....              710,257           (14,222,307)             480,214
                                                      --------------------  -------------------- --------------------
Income tax expense, actual..........................  $                 -   $                 -  $                 -
                                                      ====================  ==================== ====================
</TABLE>

As of June 30, 2004, the Company had approximately  $51,000,000 of net operating
loss carry-forwards (NOLs) for federal income tax purposes, which expire between
2020 through  2024. A deferred  income tax asset  valuation  allowance  has been
established against all deferred income tax assets, as management is not certain
that the  deferred  income tax assets  will be  realized.  In  addition,  due to
substantial  limitations  placed  on the  utilization  of net  operating  losses
following a change in control, utilization of such NOLs could be limited.

NOTE 10. COMMON STOCK AND PAID IN CAPITAL

In fiscal year 2004, in connection with the acquisition of Vacation  Express and
SunTrips,  the Company  issued  2,500,000  shares of restricted  Common Stock at
$1.60 per share.

In fiscal year 2004, in connection  with the  acquisition  of  SchoolWorld,  the
Company issued 224,312 shares of restricted Common Stock at $1.69 per share.

In fiscal year 2004,  the Company  issued  440,000  shares of restricted  Common
Stock in payment of services for investor relations.

In fiscal  year 2004,  the  Company  issued an  aggregate  of 700,000  shares of
restricted  Common Stock in connection with the Company's  fourth quarter fiscal
year 2003 private placement sale of Common Stock at $0.25 per share.

In fiscal year 2004,  the Company  issued an aggregate  of  1,071,428  shares of
restricted  Common Stock in connection with the Company's private placement sale
of Common Stock at $1.60 per share.

In fiscal year 2004,  the Company  issued an aggregate  of  1,250,000  shares of
restricted  Common Stock in connection with the Company's private placement sale
of Common Stock at $0.80 per share.

In fiscal year 2004,  the Company  issued an aggregate  of  1,149,103  shares of
restricted Common Stock in connection with the Company's  conversion of debt and
accounts payable.

In fiscal year 2004,  previously  issued  warrants were exercised by a vendor in
the amount of 6,000 Common Stock shares at $0.50 per share.


                                       40
<PAGE>

                   RCG COMPANIES INCORPORATED AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


In fiscal year 2003, the Company issued 89,554 shares of restricted Common Stock
in payment of certain services.

In  fiscal  year  2003,  the  Company  terminated  an  agreement  with a service
provider.  The Company had granted  warrants to the service provider that vested
over a year  resulting  in  additional  paid-in  capital  of  $98,000.  Upon the
cancellation  of the  agreement,  the Company  reversed  the  unvested  warrants
resulting in a reduction of additional paid-in capital of $45,200.

In the first  quarter of fiscal year 2003,  the Company  issued an  aggregate of
177,143  shares of  restricted  Common Stock in  connection  with the  Company's
private placement sale of Common Stock at $0.70 per share.

In the fourth  quarter of fiscal year 2003,  the Company  issued an aggregate of
1,300,000  shares of restricted  Common Stock in  connection  with the Company's
private placement sale of Common Stock at $0.25 per share.

In fiscal year 2002,  the Company  issued an aggregate  of  1,251,429  shares of
restricted  Common Stock in connection with this private  placement at $0.70 per
share.

In July 2002, the Company  issued 14,286 shares of restricted  Common Stock from
treasury stock with the termination of a contract with a service provider.

In fiscal year 2002,  the Company  issued  139,365  shares of restricted  Common
Stock in connection with the acquisition of LSTA and 32,738 shares of restricted
Common Stock to management of Logisoft in exchange for Logisoft reaching certain
performance criteria set forth in the purchase agreement governing the Company's
acquisition of Logisoft.

During  the year  ended June 30,  2002,  the  Company  issued  53,112  shares of
restricted  Common Stock in exchange for  consulting and legal services and as a
reimbursement  of expenses for one employee.  Included in this amount are 10,884
shares issued to two directors of the Company as reimbursement for their service
to the Company as directors.

On June 17, 2002, the Company  implemented a reverse stock split  exchanging one
share of Common Stock for every seven shares held by the Company's  stockholders
as of the close of business on June 14, 2002.  As a result,  an  adjustment  was
recorded to reduce the recorded  amount of Common Stock and increase  additional
paid in capital, each by $2,600,014. The reverse stock split was approved by the
Company's  shareholders  at its annual  meeting held on May 17, 2002. All of the
share amounts in these financial  statements have been adjusted for this reverse
stock split.

During fiscal year 2002, the Company received a capital contribution of $200,000
in connection with the launch of its national  franchising  program for its home
technology business.

During  fiscal year 2002,  the Company  terminated a public  relations  contract
pursuant to which it had issued 132,000 shares of restricted Common Stock during
fiscal year 2001.  Pursuant to the terms of the  settlement,  89,143 shares were
returned to the Company and were placed in treasury stock as of June 30, 2002.


                                       41
<PAGE>

                   RCG COMPANIES INCORPORATED AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 11. STOCK OPTIONS AND WARRANTS

The Company  accounts for stock option grants in accordance with APB Opinion No.
25,  "Accounting  for Stock Issued to Employees" and options and warrants issued
to non-employees under FASB No. 123, "Accounting For Stock-Based  Compensation".
For the options and  warrants  issued to  non-employees,  the fair value of each
award has been calculated using the Black-Scholes  Model in accordance with FASB
No. 123.

At the July 11, 2000 meeting, the shareholders approved the Company's 2000 Stock
Option Plan (the "Option  Plan").  The  Company's  Option Plan  provides for the
granting of either incentive stock options or non-qualified  options to purchase
shares  of the  Company's  Common  Stock to  provide  incentives  to  employees,
directors and other individuals or companies at the discretion of the Board. The
Plan allows  participants  to purchase Common Stock of the Company at prices set
by the Board,  but in the case of incentive  stock options,  at a price not less
than fair market  value at the date the option is granted.  Unexercised  options
expire 10 years or less after the date of grant  unless  otherwise  specified by
the Board. At the January 10, 2001 annual shareholders meeting, the shareholders
increased  the number of shares  available  for the granting of incentive  stock
options under the Option Plan from  10,000,000 to  20,000,000  shares,  of which
17,738,343 shares are still available for future awards at June 30, 2004.

Stock option and warrant activity was as follows.

<TABLE>
<CAPTION>

                                                    Options                                      Warrants
                                     ---------------------------------------      ---------------------------------------
                                         Number           Weighted Average            Number           Weighted Average
                                                           Exercise Price                               Exercise Price
                                     ----------------     ------------------      ---------------      ------------------
<S>                                  <C>                  <C>                     <C>                  <C>
Outstanding-June 30, 2001..........        1,394,754      $            3.48            2,238,589       $            7.09
      Granted......................          255,715                   0.56              203,571                    0.56
      Canceled or expired..........          329,237                   0.71                    0                       -
                                     ----------------     ------------------      ---------------      ------------------
Outstanding-June 30, 2002..........        1,321,232                   4.20            2,442,160                    9.00
      Granted......................        1,372,500                   0.34                    0                       -
      Canceled or expired..........          283,982                   4.75              112,500                    6.65
                                     ----------------     ------------------      ---------------      ------------------
Outstanding-June 30, 2003..........        2,409,750                   2.10            2,329,660                    9.31
      Granted......................          290,000                   1.15            4,135,803                    1.52
      Exercised....................                0                      -                6,000                    0.50
      Canceled or expired..........          438,093                   0.80               37,500                    0.95
                                     ----------------     ------------------      ---------------      ------------------
Outstanding-June 30, 2004..........        2,261,657      $            2.22            6,421,963       $            4.91
                                     ================     ==================      ===============      ==================
</TABLE>


                                       42
<PAGE>

The  following  summarizes  the range of  exercise  prices and  weighted-average
remaining contractual life of outstanding options at June 30, 2004.

<TABLE>
<CAPTION>

                                                         Options Outstanding                            Options Exercisable
                                       ---------------------------------------------------------  ----------------------------------
                                                                  Weighted         Weighted                            Weighted
                                              Number              Average           Average           Number           Average
                                            Outstanding          Remaining         Exercise        Exercisable         Exercise
           Range of Exercise Prices        June 30, 2004            Life             Price        June 30, 2004         Price
-------------------------------------- ---------------------- ----------------- ----------------  ------------------ ---------------
<S>                                    <C>                    <C>               <C>               <C>                <C>
$    0.55  -    1.26..................             1,198,857              7.30  $          0.60             860,138  $         0.60
     1.75  -    1.90..................               550,000              6.30             1.78             450,000            1.76
     4.90  -    5.25..................               385,714              4.70             5.03             385,714            5.03
     5.95  -    5.95..................                23,514              3.10             5.95              21,996            5.95
     7.00  -   10.06..................                85,715              1.10             9.55              84,524            9.59
    21.00  -   21.00..................                17,857              3.50            21.00              17,857           21.00
                                       ---------------------- ----------------- ----------------  ------------------ ---------------
$    0.55  -   21.00..................             2,261,657              6.30  $          2.20           1,820,229  $        2.51
                                       ====================== ================= ================  ================== ===============
</TABLE>

The  following  summarizes  the range of  exercise  prices and  weighted-average
remaining contractual life of outstanding warrants at June 30, 2004.

<TABLE>
<CAPTION>

                                                          Warrants Outstanding                        Warrants Exercisable
                                            --------------------------------------------------  ---------------------------------
                                                                   Weighted       Weighted                            Weighted
                                                 Number            Average         Average           Number           Average
                                               Outstanding        Remaining       Exercise         Exercisable        Exercise
       Range of Exercise Prices               June 30, 2004          Life           Price         June 30, 2004        Price
------------------------------------------  ------------------  --------------- --------------  ------------------  -------------
<S>                                         <C>                 <C>             <C>             <C>                 <C>
$     0.28  -    0.50.....................            817,768             0.60  $        0.29             817,768   $       0.29
      1.60  -    2.45.....................          4,148,660             1.50           2.40           4,048,660           2.42
      3.50  -    5.67.....................            750,535             1.50           5.12             746,963           5.12
      7.00  -    7.70.....................              8,571             0.00           7.58               8,571           7.58
     12.25  -   12.25.....................             96,429             4.70          12.25              89,287          12.25
     21.00  -   28.00.....................            600,000             2.60          27.04             600,000          27.04
                                            ------------------  --------------- --------------  ------------------  -------------
$     0.28  -   28.00.....................          6,421,963             1.60  $        4.91           6,311,249   $       4.95
                                            ==================  =============== ==============  ==================  =============
</TABLE>

Pro forma information regarding net loss is required by FASB No. 123, which also
requires that the  information be determined as if the Company had accounted for
its employee  stock  options  granted  subsequent to July 1, 1996 under the fair
value method of that  statement.  The fair value for these options was estimated
at the date of grant using the Black-Scholes  Model with the following  weighted
average assumptions for fiscal year 2004; risk-free interest rate range of 2.72%
to 4.76%; no dividend yield;  volatility  factor of the expected market price of
the Company's  Common Stock for 2004 and 2003 of $0.61 and $1.16,  respectively;
and an expected life of the option of three to five years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options,  which have no vesting  restrictions and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective  assumptions  including the expected stock price volatility.  Because
the  Company's  employee  stock  options  have   characteristics   significantly
different  from those of traded  options and because  changes in the  subjective
input assumptions can naturally affect the fair value estimate,  in management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of the Company's employee stock options.


                                       43
<PAGE>

                   RCG COMPANIES INCORPORATED AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 12. RELATED-PARTY TRANSACTIONS

The Company's travel services  business entered into a one-year public relations
contract  with a company  whose  president's  wife is an  employee of the travel
services  business.  This  contract was  terminated  on August 26, 2004.  During
fiscal year 2004, $19,971 was paid for services rendered.

G. David Gordon, a Company stockholder,  also occasionally acts as legal counsel
to the Company.  In  consideration  of legal fees, the Company issued Mr. Gordon
200,000  warrants  (100,000 with an exercise  price of $1.60 and 100,000 with an
exercise price of $1.85) during the quarter ended  December 31, 2003.  Using the
Black-Scholes  model, the Company valued these warrants at $184,000 and expensed
the entire amount in that quarter.  In the quarter ended September 30, 2003, Mr.
Gordon  converted  $308,738 of debt and accrued  interest into 275,658 shares in
accordance with the note's conversion feature. Prior to June 30, 2004, a company
of which Mr. Gordon is the president and a 65%  shareholder  converted a note in
the amount of $750,000 to 450,000  Common  Stock shares in  accordance  with the
note's conversion feature.

On April 19,  2004,  Robert H.  Brooks,  Chairman of Hooters of  America,  Inc.,
Hooters Air and Pace Airlines,  Inc. joined the Company's Board of Directors. In
addition,  Mr.  Brooks made a $1,000,000  cash  investment  in the Company,  and
provided a waiver of the  requirement  of  delivery of a letter of credit in the
amount of  $1,000,000 to Pace  Airlines,  Inc., a charter  airline  company that
charters planes to the Company's  travel  services  division.  In exchange,  the
Company  issued  1,250,000  restricted  shares of Common  Stock and a warrant to
purchase  1,250,000  restricted  shares of Common Stock at an exercise  price of
$2.44 per share. On August 2, 2004, Mr. Brooks resigned from the Company's Board
of Directors.

During  the  quarter  ended  March 31,  2004,  the  Company  issued to a private
investment  group 50,000 Common Stock warrants at an exercise price of $2.44, in
consideration  for a $2 million credit  facility.  Company Director K. Wesley M.
Jones,  Sr. has a 25%  ownership  stake in this private  investment  group.  The
warrants  were  issued on March 1, 2004 and  expire  in three  years.  Using the
Black-Scholes  Model,  the value of these  warrants was calculated to be $35,000
and was expensed  during the quarter.  In fiscal year 2004, the Company paid the
private  investment  group  interest of $80,000 (12%  interest on the $2 million
credit facility).


                                       44
<PAGE>

                   RCG COMPANIES INCORPORATED AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 13.        BUSINESS SEGMENT INFORMATION

Information related to business segments is as follows (in thousands).

<TABLE>
<CAPTION>
                                                 Aviation
                                                  Travel              Technology
       Year ended June 30, 2004:                 Services              Solutions              Corporate              Total
---------------------------------------------  --------------      ------------------      ----------------      --------------
<S>                                            <C>                 <C>                     <C>                   <C>
Revenue......................................  $     165,395       $          15,412       $             -       $     180,807
Loss from continuing operations (1)..........         (4,681)                   (588)               (3,253)             (8,522)
Identifiable assets..........................         72,258                  11,171                   865              84,294
Capital expenditures.........................            638                      95                     -                 733
Goodwill.....................................         15,990                   7,917                     -              23,907
Interest expense.............................            737                      74                    31                 842
Depreciation and amortization................            591                     204                    15                 810

                                                 Aviation
                                                  Travel              Technology
       Year ended June 30, 2003:                 Services              Solutions              Corporate              Total
---------------------------------------------  --------------      ------------------      ----------------      --------------
Revenue......................................  $      62,607       $          11,002       $             1        $     73,610
Income (loss) from continuing operations.....            888                    (340)               (1,258)               (710)
Identifiable assets (2)......................          7,443                  10,281                 1,621              19,345
Capital expenditures.........................            197                      74                     -                 271
Goodwill.....................................            939                   7,702                 1,000               9,641
Interest expense.............................            117                       1                    76                 194
Depreciation and amortization................            101                     249                    14                 364

                                                 Aviation
                                                  Travel              Technology
       Year ended June 30, 2002:                 Services              Solutions              Corporate              Total
---------------------------------------------  --------------      ------------------      ----------------      --------------
Revenue......................................  $      27,273       $          10,294       $           279        $     37,846
Loss from continuing operations..............           (946)                   (609)               (1,439)             (2,994)
Identifiable assets (2)......................          5,743                  11,197                 1,982              18,922
Capital expenditures.........................             21                      67                     1                  89
Goodwill.....................................            939                   7,631                 1,000               9,570
Interest expense.............................             69                      24                    35                 128
Depreciation and amortization................             76                     229                    15                 320
</TABLE>


----------
(1)   Excludes assets of discontinued operations
(2)   The corporate and technology  solutions segments include impairment losses
      of $1,000,000 and $199,690, respectively, in 2004.


                                       45
<PAGE>

                   RCG COMPANIES INCORPORATED AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 14. CONTINGENCIES AND COMMITMENTS

Commitments

The Company leases office space under  non-cancelable  office leases. The future
minimum  lease  payments  required  under  these  leases at June 30, 2004 are as
follows (in thousands).

    Fiscal Year                                                Total
------------------                                          -----------
2005........................................................$     1,406
2006........................................................      1,355
2007........................................................      1,372
2008........................................................      1,203
2009........................................................      1,227
Thereafter..................................................        544
                                                              ---------
                                                              $   7,107
                                                              =========

Rent expense under operating leases aggregated $1,013,830, $398,960 and $346,983
for  the  years  ended  June  30,  2004,  June  30,  2003  and  June  30,  2002,
respectively.

Guarantee Obligation

The Company's  Travel  Services  segment has certain  guarantees with an airline
provider  that agrees to a minimum  number of hours during each program year and
is required to pay any shortage to the provider. The segment does not anticipate
a shortage and accordingly no amount has been accrued.

Subsequent Events

Termination of Planned Acquisition

On August 17, 2004, the Company  announced that it had terminated its previously
announced  (May 11, 2004)  acquisition of Response  Personnel,  Inc. and certain
related  affiliates.  Response is a leading  provider of  professional  staffing
services.  RCG plans to focus its  future  growth  and  acquisition  initiatives
within the leisure travel and entertainment industry.

Securities Purchase Agreement

The Company entered into a Securities  Purchase  Agreement,  dated September 13,
2004,   with   institutional   and  accredited   investors   (collectively   the
"Investors").  Pursuant to the terms of the Securities Purchase  Agreement,  the
Company is to  initially  issue the  following  securities  to the  Investors in
consideration  for the Investors  making payment to the Company in the aggregate
amount of  $4,300,000:  (i) 4,300  shares of Series A 6%  Convertible  Preferred
Stock,  with a stated  value of $1,000 per  share,  which  shares are  initially
convertible into shares of Common Stock of the Company at a fixed price of $0.94
per share,  subject to adjustment ("Set Price") and that are, subject to certain
conditions,  subject to forced  conversion by the Company at any time the common
shares of the  Company  have a volume  weighted  average  price  ("VWAP")  which
exceeds 200% of the Set Price for the preceding 10 trading  days,  (ii) Warrants
to purchase approximately  1,143,617 shares of Common Stock of the Company at an
exercise  price of $1.20 per share,  exercisable  commencing  6 months after the
closing date until the date that is 3 years after such date, with  anti-dilution


                                       46
<PAGE>

                   RCG COMPANIES INCORPORATED AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


provisions  subject to a $1 floor, and that are, subject to certain  conditions,
callable by the Company at any time the common shares of the Company have a VWAP
which exceeds 200% of the exercise  price for the preceding 20 trading days, and
(iii) Additional Investment Rights to purchase approximately 3,430,851 shares of
Common Stock of the Company at an exercise price of $1.03 per share, exercisable
commencing 6 months after the closing date until the earlier of (a) the later of
the date that is 6 months after the effective date of the registration statement
covering the shares and the date that is 1 year after the closing date,  and (b)
September  13,  2006,  with  standard  anti-dilution,  and that are,  subject to
certain conditions, callable by the Company at any time the common shares of the
Company have a VWAP greater than or equal to 160% of the exercise  price for the
preceding 20 trading days.

The  transaction  was approved by the  Company's  Board on August 25, 2004,  and
closed on September 14, 2004.

On September 14, 2004, the Company filed an amended Certificate of Incorporation
with the Secretary of State of the State of Delaware. The Certificate amends the
Company's  Certificate of  Incorporation  to fix the  preferences,  rights,  and
limitations of the Series A 6% Convertible Preferred Stock, as described above.

In  connection  with  the  aforementioned  Securities  Purchase  Agreement,  the
Exercise Price to holders of 2.5 million Common Stock Purchase  Warrants  (dated
October  31,  2003) has been  reduced  from $2.442 per share to $0.94 per share,
pursuant to the Warrant Agreement.


                                       47
<PAGE>

                   RCG COMPANIES INCORPORATED AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 15. QUARTERLY FINANCIAL DATA


<TABLE>
<CAPTION>
                                                      Quarterly Financial Data (Unaudited)
                                                      (in thousands, except per-share data)
                                                                                                                      Annual
                         Fiscal Year 2004               Sept. 30       Dec. 31        Mar. 31       June 30           Total
----------------------------------------------------  ------------- -------------- -------------- ------------- ------------------
<S>                                                   <C>           <C>            <C>            <C>           <C>
Revenues...........................................   $    19,113   $     38,881   $     52,243   $     70,570  $        180,807
Gross Profit.......................................         1,267          3,289            972          7,223            12,751
Operating income (loss) from continuing operations.          (328)        (2,157)        (6,399)           989            (7,895)
                                                      ------------- -------------- -------------- ------------- ------------------
Income (loss) from continuing operations...........          (160)        (2,386)        (6,623)           647            (8,522)
Income (loss) from discontinued operations.........          (730)        (5,651)        (1,548)         4,338            (3,591)
                                                      ------------- -------------- -------------- ------------- ------------------
Net income (loss)..................................   $      (890)  $     (8,037)  $     (8,171)  $      4,985  $        (12,113)
                                                      ============= ============== ============== ============= ==================

Income (loss) per common share
   from continuing operations:
      Basic........................................         (0.01)        (0.014)         (0.35)          0.04             (0.51)
                                                      ============= ============== ============== ============= ==================
      Diluted......................................         (0.01)        (0.014)         (0.35)          0.03             (0.51)
                                                      ============= ============== ============== ============= ==================

Net income (loss) per common share:
      Basic........................................         (0.06)         (0.46)         (0.43)          0.30             (0.72)
                                                      ============= ============== ============== ============= ==================
      Diluted......................................         (0.06)         (0.46)         (0.43)          0.27             (0.72)
                                                      ============= ============== ============== ============= ==================

                                                                                                                     Annual
                         Fiscal Year 2003               Sept. 30       Dec. 31        Mar. 31       June 30           Total
----------------------------------------------------  ------------- -------------- -------------- ------------- ------------------

Revenues...........................................   $    18,288   $     16,218   $     17,660   $     21,444  $         73,610
Gross Profit.......................................         1,412          1,061          1,084          1,536             5,093
Operating income (loss) from continuing operations.           (25)          (259)          (548)          (149)             (981)
                                                      ------------- -------------- -------------- ------------- ------------------
Income (loss) from continuing operations...........           359           (155)          (592)          (322)             (710)
Income (loss) from discontinued operations.........          (509)          (376)          (802)        (2,854)           (4,541)
                                                      ------------- -------------- -------------- ------------- ------------------
Net income (loss)..................................   $      (150)  $       (531)  $     (1,394)  $     (3,176) $         (5,251)
                                                      ============= ============== ============== ============= ==================

Income (loss) per common share from
   continuing operations:
      Basic........................................   $      0.03   $      (0.01)  $      (0.05)  $      (0.02) $          (0.06)
                                                      ============= ============== ============== ============= ==================
      Diluted......................................   $      0.03   $      (0.01)  $      (0.05)  $      (0.02) $          (0.06)
                                                      ============= ============== ============== ============= ==================
Net income (loss) per common share:
      Basic........................................   $     (0.01)  $      (0.04)  $      (0.11)  $      (0.24) $          (0.42)
                                                      ============= ============== ============== ============= ==================
      Diluted......................................   $     (0.01)  $      (0.04)  $      (0.11)  $      (0.24) $          (0.42)
                                                      ============= ============== ============== ============= ==================
</TABLE>


                                       48
<PAGE>

                   RCG COMPANIES INCORPORATED AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 16. RECLASSIFICATIONS

Certain   reclassifications   were  made  to  the  originally  issued  financial
statements, including the reclassification of certain amounts from continuing to
discontinued  operations  in the  consolidated  statements of cash flows for the
three  years  ended June 30, 2004 and other  minor  typographical  and  drafting
errors.


                                       49
<PAGE>

ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

Forms 8-K confirming the change in the registrant's certifying accountants (Item
4) were filed on March 3, 2004 and April 2, 2004.

ITEM 9A. CONTROLS AND PROCEDURES

The Company's Chief Executive Officer and Chief Financial Officer have concluded
that the Company's  disclosure  controls and procedures  are effective  based on
their evaluation of such controls and procedures as of June 30, 2004. There were
no changes in the Company's internal control over financial reporting identified
in connection with the evaluation that occurred during the fourth quarter of the
Company's  fiscal year ended June 30, 2004 that has materially  affected,  or is
reasonably  likely to materially  affect,  the Company's  internal  control over
financial reporting.

ITEM 9B. OTHER INFORMATION

Not applicable.


                                       50
<PAGE>

--------------------------------------------------------------------------------
                                    PART III
--------------------------------------------------------------------------------

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below for each Executive Officer or Director of the Company is his/her
name,  age (at  October 8,  2004),  position  and  office(s)  held,  and a brief
description of business experience during the past five years.

Michael D. Pruitt, 44, became the RCG's Chief Executive Officer and President on
November 8, 2000.  He has served as a Director of the Company  since  October 3,
2000,  and the Company's  Chairman from July 2001 to February  2003.  Mr. Pruitt
founded Avenel Ventures,  Inc., ("AVI") a business  development company, and has
served as  President,  Chief  Executive  Officer  and  Director of AVI since its
formation in June 2000.  From May 1999 to June 2000,  Mr. Pruitt was involved in
founding Avenel Financial Group, Inc., a financial services firm specializing in
e-commerce  and  technology.  From  October  1997 to May 1999,  Mr.  Pruitt  was
Executive Vice President of Marketers World International. He was an independent
consultant from January 1997 to October 1997, and was Chief Operating Officer of
Ty Pruitt Trucking,  Inc. from January 1992 to January 1997. Mr. Pruitt received
a business degree from Coastal Carolina University in Conway, South Carolina.

Jeffrey F.  Willmott,  56, has served as a Director of the RCG since October 17,
2002, and Chairman of the Board since  February 19, 2003.  From 2001 to 2002, he
was Chairman and Chief Executive Officer of EKN Asset  Management,  a registered
investment  advisory  firm in New York  City.  From 1999 to 2000,  Mr.  Willmott
served  as  the  managing  director  of  Trenwith  Securities,  a  middle-market
investment  bank,  where he was responsible for the origination and execution of
corporate finance engagements. From 1991 to 1999, he was a Senior Vice President
at Warburg Dillon Read (now UBS Warburg),  where he was responsible for business
development.  From  1983 to  1990,  he was a  regional  director  of  sales  and
marketing at  Westinghouse  Broadcasting.  Mr.  Willmott  holds  Bachelor's  and
Master's degrees in Business Administration.

Melinda  Morris  Zanoni,  35,  joined RCG in  November  2000 as  Executive  Vice
President.  She leads  mergers and  acquisitions,  investments,  partner-company
relationships  and joint  ventures  for the  Company.  Prior to joining RCG, Ms.
Zanoni  founded  AVI in June 2000 with  Michael  Pruitt.  Formerly an Of Counsel
attorney with Nelson Mullins Riley & Scarborough,  LLP, Ms. Zanoni  concentrated
in corporate,  mergers and acquisitions,  venture capital and commercial finance
law.  She  represented  public and private  Internet and  technology  companies,
participating in the negotiating, structuring and closing of transactions valued
in excess of $21  billion.  Prior to her  employment  with Nelson  Mullins,  Ms.
Zanoni was a corporate  attorney  with Fagel & Haber in Chicago.  She earned her
Bachelor's  Degree in Economics and Business from the  University of Illinois at
Champaign-Urbana  and her law degree from the University of Illinois  College of
Law.

William W. Hodge, CPA, 52, joined RCG's executive  management team in January of
2004 as Chief Financial Officer.  He is a seasoned financial executive with over
25 years of experience in various financial and accounting roles. Before joining
RCG, Mr. Hodge spent three years as Chief Financial Officer for Hampshire Group,
Limited  (NASDAQ:   HAMP),   where  he  was  responsible  for  establishing  and
maintaining  Hampshire's financial policies and procedures.  Prior to Hampshire,
Mr. Hodge spent approximately 16 years at American Fast Print, beginning as Vice
President, Finance, and eventually being promoted to Chief Financial Officer. He
also spent 10 years as Audit Manager at Ernst & Young LLP,  where he provided an
array of audit, tax and business advisory services to a variety of clients.  Mr.
Hodge earned a Bachelor of Science degree from Mars Hill College near Asheville,
North Carolina.


                                       51
<PAGE>

Dr. James A.  Verbrugge,  64, has served as a Director of RCG since  January 11,
1999.  Dr.  Verbrugge is a Professor  Emeritus of Finance at the  University  of
Georgia  where he has been  employed  since 1968. He is also the Director of the
Center for  Strategic  Risk  Management  in the Terry College of Business at the
University of Georgia and is actively involved in executive  education programs.
He has been a director of Crown Crafts,  Inc. since July 2001, and of InterCept,
Inc.  since  February  2004.  Dr.  Verbrugge  holds a Ph.D.,  and  Master's  and
Bachelor's degrees.

P. Roger Byer,  CPA,  59, has served as a Director of RCG since June 2003.  From
May 2001 to  September  2002,  Mr.  Byer served as Chief  Executive  Officer and
President of Stellex  Aerostructures,  Inc., a  manufacturer  of commercial  and
defense  radio  frequency   electronics  and  military  machined   aerostructure
components.  From July 1997 to September  2000, Mr. Byer was the Chief Operating
Officer of Mentmore Holdings  Corporation,  a New York based private equity firm
with aggregate portfolio companies  generating over $1 billion in revenues.  Mr.
Byer  also  served as Chief  Financial  Officer  for  several  of the  portfolio
companies.  From  1986 to 1997,  he  served  as Vice  President  and CFO for KDI
Corporation.  Mr. Byer holds Bachelor's Degrees in Economics and Accounting, and
a Master's  Degree in Business  Administration  in  Accounting  from the Wharton
School at the  University of  Pennsylvania.  He is also an alumnus of the Darden
School at the University of Virginia.

Wesley M. Jones,  47, was  appointed to the Board in April 2004.  He is Managing
Partner of Charlotte-based Five Oaks Capital Partners,  LLC, which he founded in
2001. Prior to founding his company,  Mr. Jones was employed by  Charlotte-based
First Union Corp. (now Wachovia Corp.) for approximately  ten years,  eventually
becoming  Managing  Director of the Fixed Income  Trading  department  and First
Union's Conduit  Programs.  Prior to working at First Union, Mr. Jones served as
Senior Vice President with Interstate Securities. He began his investment career
in the investment-banking  group of Union Planters Corp. in 1982. Mr. Jones is a
Board member and investor in Newgame Communications, Inc. and Ocean Broadcasting
Inc.,  as well as the  managing  member of Shetland  Investment  Group,  LLC. He
attended the  University  of  Tennessee  and the College of  Engineering  at the
University of Memphis.

J. Michael  Carroll,  56, has served as a Director of RCG since January 2004. He
currently  owns and  operates  a sales and  training  consulting  firm  based in
Richmond,  Virginia.  Mr. Carroll  previously spent 22 years in the distribution
business; 19 of those years were in computer products distribution. From 1997 to
1999,  he was a division  president  at  Corporate  Express,  a publicly  traded
business-to-business  office products and service provider. In 1978, Mr. Carroll
founded MicroMagnetic, Inc., a computer-supply distribution company that he sold
to Corporate  Express in 1997. Mr. Carroll holds a Bachelor's Degree in Business
Management from The College of William & Mary in Williamsburg,  Virginia,  and a
Master's   Degree  in  Business   Administration   from  Virginia   Commonwealth
University.

There  are no  family  relationships  among  any of the  Executive  Officers  or
Directors of the Company.  No  arrangement or  understanding  exists between any
executive  officer or any other person  pursuant to which any executive  officer
was selected as an executive officer of the Company.  Executive  officers of the
Company  are  elected or  appointed  by the Board and hold  office  until  their
successors are elected or until their death, resignation or removal.

AUDIT COMMITTEE FINANCIAL EXPERT

The Board of Directors has determined that P. Roger Byer is an "audit  committee
expert"  as  defined in Item  401(h) of  Regulation  S-K.  Mr.  Byer's  relevant
experience is noted in the previous  section.  RCG has and will continue to have
three Audit Committee members, each of whom satisfies the independence standards
specified in Amex Section 121A and Rule 10A-3 of the Securities  Exchange Act of
1934.


                                       52
<PAGE>

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities  and Exchange Act of 1934, as amended,  requires
the  following  person(s)  to file with the SEC any and all  initial  reports of
ownership and reports of changes in ownership of such securities of the Company:
Directors,  Executive  Officers  and persons who own  beneficially  more than 10
percent of a registered  class of the Company's  equity  securities.  Directors,
Executive Officers and greater-than-10-percent  stockholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) reports they
file. To the Company's  knowledge,  based solely on review of the copies of such
reports  furnished  to  the  Company,  all  Directors,  Executive  Officers  and
greater-than-10-percent beneficial owners complied with applicable Section 16(a)
filing requirements during the fiscal year ended June 30, 2004.

CODE OF BUSINESS CONDUCT AND ETHICS

The Company has  adopted a Code of Business  Conduct and Ethics that  applies to
the Company's Directors,  Officers and employees.  This Code of Business Conduct
and Ethics is  attached  as an exhibit to this  filing and is  published  on the
Company's  Web site.  Upon request,  the Company will provide any  stockholder a
copy of its Code of Ethics.  Requests should be sent in writing to RCG Companies
Incorporated,   6836  Morrison  Boulevard,   Suite  200,  Charlotte,  NC  28211.
Attention: Secretary.


                                       53
<PAGE>

ITEM 11.        EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

For the fiscal years ended 2004,  2003 and 2002, the following  table sets forth
the cash and non-cash compensation awarded, earned or paid by the Company to all
individuals serving as Chief Executive Officer of the Company at any time during
fiscal year 2004 and all Executive  Officers of the Company who received  salary
and bonuses in excess of $100,000  during  fiscal year 2004  (collectively,  the
"Named Executives").

<TABLE>
<CAPTION>
                                                                                           Long-Term
                                                                                          Compensation
                           Name and               Fiscal                                     Stock               Other Annual
                      Principal Position           Year       Salary        Bonus          Options (1)           Compensation
------------------------------------------------ --------- -------------  ----------- ---------------------  ---------------------
<S>                                              <C>       <C>            <C>          <C>                   <C>
Jeffrey F. Willmott, Chairman (2)...............   2004    $    120,000   $        -                     -   $                  -
                                                   2003          40,000            -               175,000                      -
                                                   2002               -            -                     -                      -

Michael D. Pruitt, President & CEO (3)..........   2004    $    180,000   $        -                     -   $                  -
                                                   2003          30,000            -               175,000                      -
                                                   2002               -            -                     -                      -

Melinda Morris Zanoni, Executive
   Vice President (4)...........................   2004    $    160,000   $        -                     -   $                  -
                                                   2003         160,000            -               125,000                      -
                                                   2002         147,167            -                     -                      -
</TABLE>


----------
(1)   The stock options listed above are fully vested and have an exercise price
      at or above the fair market value of the Common Stock on the date of grant
      of such options, unless otherwise noted.
(2)   Mr.  Willmott's  employment  contract dated April 15, 2003 provides for an
      annual base salary of $120,000.  During fiscal year 2003,  the Company did
      not pay any cash compensation to Mr. Willmott,  but rather accrued $40,000
      for services  rendered  from March 2003 through June 2003.  During  fiscal
      year 2004, the Company accrued an additional $20,000 and paid Mr. Willmott
      $21,500, leaving a balance owed of $38,500. The Company anticipates paying
      this  compensation  to Mr.  Willmott  during  fiscal year 2005.  Beginning
      September 1, 2003, Mr. Willmott has been paid the salary stipulated in his
      employment contract.
(3)   Mr.  Pruitt's  employment  contract dated November 7, 2002 provides for an
      annual base salary of $180,000.  Mr. Pruitt agreed to forego his salary in
      fiscal year 2002 and elected to receive only a portion of his 2003 salary,
      which  was paid  directly  to Mr.  Pruitt  and to a  Company  owned by Mr.
      Pruitt.
(4)   Ms. Zanoni's employment contract,  dated November 7, 2002, provides for an
      annual base salary of $160,000.


                                       54
<PAGE>

The following table sets forth information  regarding the grant of stock options
to the Named Executives during the fiscal year ended June 30, 2004.

<TABLE>
<CAPTION>
                                                                                                   Potential realizable value
                                                                                                     at assumed annual rates
                                                                                                    of stock price appreciation
                                                                                                          for option term
                                                                                                ----------------------------------
                                     Number of           Percent of
                               Securities Underlying   Total Options   Exercise     Expiration    Five Percent      Ten Percent
     Employee Name & Title        Options Granted         Granted        Price         Date           (5%)             (10%)
---------------------------  ----------------------- ---------------- ----------  ------------- ----------------- ----------------
<S>                          <C>                     <C>              <C>         <C>           <C>               <C>
William W. Hodge, CFO                 50,000               28.6%         $1.90       1/5/2011       $38,675           $90,128
</TABLE>



----------
(1)   The above  information  concerning  five- and  ten-percent  assumed annual
      rates of compounded stock price appreciation is mandated by the Securities
      and Exchange  Commission.  There is no assurance provided to any Executive
      Officer or other  Optionee  that there will be  appreciation  of the stock
      price over the option term,  or that the  Optionee  will realize any gains
      with respect to the options.

The following table sets forth  information  concerning each exercise of options
during the last  completed  fiscal year by each of the Named  Executives and the
value of unexercised options held by the Named Executives as of June 30, 2004.

<TABLE>
<CAPTION>

                                                                Number of Securities                   Value of Unexercised
                               Shares                          Underlying Unexercised                      In-the-Money
                              Acquired        Value              Options at 6/30/04                     Options at 6/30/04
            Name            on Exercise    Realized (1)      Exercisable/Unexercisable            Exercisable/Unexercisable (2)
------------------------  -------------  --------------  -----------------------------------  ----------------------------------
<S>                       <C>            <C>             <C>                                  <C>
Jeffrey F. Willmott.....         0              0                  175,000/-0-                               -0-/-0-
Michael D. Pruitt.......         0              0                  246,428/-0-                               -0-/-0-
Melinda Morris Zanoni...         0              0                  210,714/-0-                               -0-/-0-
</TABLE>


----------
(1)   Calculated by determining the difference  between the fair market value of
      the shares of Company Common Stock underlying this option and the exercise
      price of such option on the date of exercise.
(2)   The  dollar  values of the  Company's  stock  options  are  calculated  by
      determining the difference  between the fair market value of the shares of
      the Company's Common Stock underlying the options at June 30, 2004 and the
      exercise price of such options.

COMPENSATION OF DIRECTORS

Directors  of  the  Company  who  are  not  employees  of  the  Company  receive
compensation  of $1,000 per regular Board  meeting,  $750 per  telephonic  Board
meeting, and $500 per Committee meeting not held on the same day as a regular or
telephonic  Board  meeting.  The Board  expects to meet at least on a  quarterly
basis in fiscal  year 2005.  Directors  are also  entitled to  reimbursement  of
reasonable  out-of-pocket expenses incurred by them in attending Board meetings.
In  fiscal  year  2004 and 2003,  the  Company  expensed  $16,250  and  $21,250,
respectively, for Director fees.

In  October  2002,  the  Board of  Directors  approved  stock  options  for each
independent  Director to purchase  85,000  shares of Common Stock at an exercise
price of $0.55,  vesting  quarterly  over one year.  Dr.  Verbrugge  received an
additional  15,000  options for serving as the Chairman of the Audit  Committee.
Mr. Byer was awarded  85,000 options at an exercise price of $0.55 in July 2003.
These  options vest  quarterly  over one year.  At the dates these option grants
occurred,  the fair market value of Company  Common Stock was at or below $0.55.
In February 2004, Mr. Carroll was awarded 30,000 options at an exercise price of
$1.84. These options were fully vested in June 2004.


                                       55
<PAGE>

EMPLOYMENT CONTRACTS

On November 7, 2002,  the Company  entered an employment  agreement (the "Pruitt
Agreement") with Michael D. Pruitt to serve as the Company's President and Chief
Executive  Officer.  The Pruitt Agreement  provides for an annual base salary of
$180,000  and an initial  term of two (2) years.  After the  initial  term,  the
Pruitt Agreement renews automatically for one (1) year unless either party gives
60 days' written notice.  Mr. Pruitt is also entitled to receive an annual bonus
in the amount and manner approved by the Board (or by the Compensation Committee
thereof).  Upon a termination  following a change of control,  resignation  with
cause, termination without cause or termination for disability,  Mr. Pruitt will
be entitled to severance equal to 12 months' salary and health benefits.

On April 15, 2003,  the Company  entered an employment  agreement (the "Willmott
Agreement")  with Jeffrey F. Willmott to serve as the Company's  Chairman of the
Board. The Willmott Agreement provides for an annual base salary of $120,000 and
an initial term of one (1) year. After the initial term, the Willmott  Agreement
renews automatically for one (1) year unless either party gives 30 days' written
notice.  Mr.  Willmott is also entitled to receive an annual bonus in the amount
and manner  approved by the Board (or by the  Compensation  Committee  thereof).
Upon a  termination  following  a change of  control,  resignation  with  cause,
termination  without cause or termination for  disability,  Mr. Willmott will be
entitled to severance equal to one (1) month's salary and health benefits.

On November 7, 2002,  the Company  entered an employment  agreement (the "Zanoni
Agreement") with Melinda Morris Zanoni to serve as the Company's  Executive Vice
President.  The Zanoni Agreement  provides for an annual base salary of $160,000
and an  initial  term of two (2)  years.  After the  initial  term,  the  Zanoni
Agreement  renews  automatically  for one (1) year unless  either party gives 60
days' written notice.  Ms. Zanoni is also entitled to receive an annual bonus in
the amount and manner  approved by the Board (or by the  Compensation  Committee
thereof).  Upon a termination  following a change of control,  resignation  with
cause, termination without cause or termination for disability,  Ms. Zanoni will
be entitled to severance equal to 12 months' salary and health benefits.


                                       56
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

With respect to the  beneficial  ownership of the  Company's  Common Stock as of
October 8, 2004, the following table sets forth certain information by: (i) each
person  known by the Company to  beneficially  own more than five percent of the
outstanding shares of Common Stock; (ii) each of the Company's Directors;  (iii)
each  of  the  Company's  named  Executive  Officers  included  in  the  Summary
Compensation  Table  included  elsewhere  herein;  and (iv) all of the Company's
current directors and executive officers as a group.  Except as otherwise noted,
the person or entity named has sole voting and investment  power over the shares
indicated.

                                                      Shares of Common Stock
                                                       Beneficially Owned (1)
Name                                                  Number         Percent (2)
------------------------------------------------   -------------    ------------
Michael D. Pruitt +++(3)........................       1,565,191         7.3%
Melinda Morris Zanoni +(4)......................         496,428         2.3
Wesley M. Jones ++(5)...........................         260,777         1.2
P. Roger Byer ++(6).............................         218,929         1.0
Jeffrey F. Willmott +++(7)......................         216,000         1.0
Dr. James A. Verbrugge ++(8)....................         201,547          *
J. Michael Carroll ++(9)........................          33,000          *
                                                   -------------    ------------
All Current Executive Officers and
   Directors as a Group (Seven Persons).........       2,991,872        13.5%
                                                   =============    ============

----------

+     Executive Officer of the Company
++    Director of the Company
*     Less than 1%
(1)   Information as to beneficial  ownership of Common Stock has been furnished
      to the Company either by or on behalf of the indicated  person or is taken
      from reports on file with the SEC.
(2)   As of October  8,  2004,  there  were  21,170,290  shares of Common  Stock
      outstanding.
(3)   Includes 989,565 shares of Common Stock and 246,428 options owned directly
      by Mr. Pruitt.  Includes 318,142 owned by Avenel  Financial  Group,  Inc.,
      which is 100% owned by Mr.  Pruitt.  Includes 8,871 shares of Common Stock
      owned by The  Housman  Foundation,  of which Mr.  Pruitt  is the  trustee.
      Includes 2,185 shares owned by Mr.  Pruitt's  spouse.  Mr. Pruitt does not
      have voting or  investment  power with  respect to the shares owned by his
      spouse.  Includes 8,871 shares in three separate custodian accounts in the
      names of Mr. Pruitt's three children. Mr. Pruitt is the trustee of each of
      these custodian accounts.
(4)   Consists of 285,714  shares of Common  Stock and 210,714  shares  issuable
      upon exercise of options.
(5)   Includes 248,277 shares of Common Stock. Represents 12,500 shares issuable
      upon exercise of warrants.
(6)   Includes  133,929  restricted  shares of Common  Stock and  85,000  shares
      issuable upon exercise of options.  Mr. Byer  purchased the 133,929 shares
      of restricted Common Stock in a September/October  2003 private placement.
      The purchase price of the Common Stock was $1.12.
(7)   Represents  175,000  shares  issuable upon  exercise of options.  Includes
      41,000  shares  of  Common  Stock,  of which  25,000  shares  owned by Mr.
      Willmott's  spouse.  Mr. Willmott has neither voting nor investment  power
      over the shares owned by his spouse.
(8)   Consists of 15,833 shares of Common Stock and 185,714 shares issuable upon
      exercise of options.
(9)   Represents 30,000 shares issuable upon exercise of options. Includes 3,000
      shares of Common Stock.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company's travel services  business entered into a one-year public relations
contract  with a company  whose  president's  wife is an  employee of the travel
services  business.  This  contract was  terminated  on August 26, 2004.  During
fiscal year 2004, $19,971 was paid for services rendered.


                                       57
<PAGE>

G. David Gordon, a Company stockholder,  also occasionally acts as legal counsel
to the Company.  In  consideration  of legal fees, the Company issued Mr. Gordon
200,000  warrants  (100,000 with an exercise  price of $1.60 and 100,000 with an
exercise price of $1.85) during the quarter ended  December 31, 2003.  Using the
Black-Scholes  model, the Company valued these warrants at $184,000 and expensed
the entire  amount in that  quarter.  Prior to June 30, 2004, a company of which
Mr. Gordon is the president and a 65% shareholder converted a note in the amount
of  $750,000  to  450,000  Common  Stock  shares in  accordance  with the note's
conversion feature.

On April 19,  2004,  Robert H.  Brooks,  Chairman of Hooters of  America,  Inc.,
Hooters Air and Pace Airlines,  Inc. joined the Company's Board of Directors. In
addition,  Mr.  Brooks made a $1,000,000  cash  investment  in the Company,  and
provided a waiver of the  requirement  of  delivery of a letter of credit in the
amount of  $1,000,000 to Pace  Airlines,  Inc., a charter  airline  company that
charters planes to the Company's  travel  services  division.  In exchange,  the
Company  issued  1,250,000  restricted  shares of Common  Stock and a warrant to
purchase  1,250,000  restricted  shares of Common Stock at an exercise  price of
$2.44 per share. On August 2, 2004, Mr. Brooks resigned from the Company's Board
of Directors.

During  the  quarter  ended  March 31,  2004,  the  Company  issued to a private
investment  group 50,000 Common Stock warrants at an exercise price of $2.44, in
consideration  for a $2 million credit  facility.  Company Director K. Wesley M.
Jones,  Sr. has a 25%  ownership  stake in this private  investment  group.  The
warrants  were  issued on March 1, 2004 and  expire  in three  years.  Using the
Black-Scholes  Model,  the value of these  warrants was calculated to be $35,000
and was expensed  during the quarter.  In fiscal year 2004, the Company paid the
private  investment  group  interest of $80,000 (12%  interest on the $2 million
credit facility).

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The  following  is a summary of the fees billed to RCG by BDO  Seidman,  LLP and
Crisp Hughes Evans LLP for fiscal years ended June 30, 2004 and June 30, 2003:

                                               Year Ended June 30,
                                           2004                 2003
                                      ----------------     ----------------
Audit fees (1)...................     $       289,495      $       120,000
Audit-related fees (2)...........             354,980                    -
Tax fees (3).....................              40,000               68,930
All other fees (4)...............               4,475                3,500
                                      ----------------     ----------------
Total fees.......................     $       688,950      $       192,430
                                      ================     ================

----------
(1)   Consists of charges  billed for  professional  services  that are normally
      provided by our auditors.  In  connection  with  statutory and  regulatory
      filings or  engagements,  such  services are rendered for the audit of the
      Company's  consolidated  financial  statements  and review of the  interim
      consolidated  financial  statements  included  in  quarterly  reports  and
      services.
(2)   Consists  of fees  billed  for  due  diligence, audits of acquisitions and
      prior year audits.
(3)   Consists  of fees billed for  professional  services  for tax  compliance,
      advice and planning.  These services include assistance regarding federal,
      state and  international  tax  compliance,  assistance  with tax reporting
      requirements  and audit  compliance,  and  mergers  and  acquisitions  tax
      compliance.
(4)   Consists of fees for products and services  other than the  aforementioned
      services. There were no management consulting services provided.

In accordance with Section 10A(i) of the Securities Exchange Act of 1934, before
the Company  engages its registered  public  accounting  firm to render audit or
permitted non-audit services, the engagement is approved by the Audit Committee.
The Audit Committee approved all of the aforementioned fees.


                                       58
<PAGE>

--------------------------------------------------------------------------------
                                     PART IV
--------------------------------------------------------------------------------

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)   (1) Financial Statements

      The  following  consolidated  financial  statements  are  incorporated  by
      reference in Part II, Item 8:

      o     Report of Independent Registered Public Accounting Firm;

      o     Consolidated Balance Sheets as of June 30, 2004 and June 30, 2003;

      o     Consolidated  Statements of Operations  for the years ended June 30,
            2004, June 30, 2003 and June 30, 2002;

      o     Consolidated  Statements of Changes in Shareholders'  Equity for the
            years ended June 30, 2004, June 30, 2003 and June 30, 2002;

      o     Consolidated  Statements  of Cash Flows for the years ended June 30,
            2004, June 30, 2003 and June 30, 2002; and

      o     Notes to the Consolidated Financial Statements.

(a)   (2) Financial Statement Schedules

      o     Report of Independent Registered Public Accounting Firm on Financial
            Statement Schedules

      o     Schedule II - Valuation and Qualifying Accounts

      All other financial  statement  schedules are omitted for the reasons that
      they are either not applicable or not required or because the  information
      required is contained in the  consolidated  financial  statements or notes
      thereto which are incorporated by reference in Part II, Item 8.

(a)   (3) Exhibits

          Exhibit
          Number                        Exhibit Description
          -------    -----------------------------------------------------------

              2.1    Stock  Purchase  Agreement  dated  as of  August  16,  2000
                     between the Company,  Michael  Pruitt,  and Darek Childress
                     (incorporated  by reference to Exhibit 2.1 to the Company's
                     Current Report on Form 8-K filed on (September 22, 2000).

              2.2    Stock  Purchase  Agreement  dated  as of  August  11,  2000
                     between the Company and Caliente  Consulting  (incorporated
                     herein by reference to Exhibit 2.1 to the Company's Current
                     Report on Form 8-K filed on September 22, 2000).

              2.3    Share Exchange  Purchase  Agreement dated as of November 8,
                     2000  between  the  Company  and  Avenel  (incorporated  by
                     reference to Exhibit 2.2 to the Company's Current Report on
                     Form 10-QSB for the quarter  ended  December 31, 2000 filed
                     on February 14, 2001).

              2.4    Stock  Purchase  Agreement  between  the  Company  and  the
                     majority of the stockholders of Lifestyle  (incorporated by
                     reference to the Company's Current Report on Form 8-K filed
                     on April 18, 2001).


                                       59
<PAGE>

          Exhibit
          Number                        Exhibit Description
          -------    -----------------------------------------------------------

              2.5    Stock Purchase Agreement dated as of March 16, 2001 between
                     the  Company  and  Glenn  Barrett,   Jr.  (incorporated  by
                     reference to Exhibit 2.2 to the Company's Current Report on
                     Form 8-K filed on April 18, 2001).

              2.6    Stock Purchase Agreement dated as of March 31, 2001 between
                     the Company and Brandon  Holdings,  Inc.  (incorporated  by
                     reference to Exhibit 2.3 to the Company's Current Report on
                     Form 8-K filed on April 18, 2001).

              2.7    Agreement  and  Plan of  Merger  dated  as of June 5,  2001
                     between the Company,  Logisoft Acquisition  Corporation and
                     the individuals  listed on Exhibit A thereto  (incorporated
                     by reference to Exhibit 2.1 the Company's Current Report on
                     Form 8-K filed on June 13, 2001).

              2.8    Joinder  to  the  Merger  Agreement  executed  by  Logisoft
                     (incorporated  by  reference  to Exhibit 2.2 the  Company's
                     Current Report on Form 8-K filed on June 13, 2001).

              2.9    Asset Purchase  Agreement dated as of June 20, 2001, by and
                     among Greater  Atlanta Alarm  Services,  Inc., the Company,
                     Glenda Watson and David Watson  (incorporated  by reference
                     to Exhibit 2.1 to the Company's  Current Report on Form 8-K
                     filed on August 14, 2001).

              2.10   Stock Purchase  Agreement  dated as of May 15, 2001 between
                     the Company and Brikor, Inc.  (incorporated by reference to
                     Exhibit  2.1 to the  Company's  Current  Report on Form 8-K
                     filed on September 17, 2001).

              2.11   Agreement  and Plan of Merger  dated as of August 30,  2002
                     among the Company, LST, Inc., Lifestyle  Innovations,  Inc.
                     and LFSI Merger  Corporation  (incorporated by reference to
                     Exhibit  2.1 of the  Company's  Current  report on Form 8-K
                     filed on September 20, 2002).

              3.1    Restated  Certificate of Incorporation of the Company dated
                     as of  January  19,  2001  (incorporated  by  reference  to
                     Exhibit  3.1 to the  Company's  Quarterly  report  on  Form
                     10-QSB for the  quarter  ended  December  31, 2000 filed on
                     February 14, 2001).

              3.2    Amended and Restated Bylaws of the Company (incorporated by
                     reference to the  Company's  Annual Report on Form 10-K for
                     the year ended June 30, 2000 filed on September 28, 2000).

              3.3    Certificate   of  Amendment  of  Restated   Certificate  of
                     Incorporation of eResource  Capital Group,  Inc. dated June
                     17, 2002

              4.1    Registration  Rights  Agreement  between  the  Company  and
                     Worldspan,  L.P. dated as of June 26, 2000 (incorporated by
                     reference to the  Company's  Annual Report on Form 10-K for
                     the year ended June 30, 2000 filed on September 28, 2000).

              4.2    Registration  Rights  Agreement  between the Company,  Four
                     Corners Capital,  LLC and DC Investment  Partners  Exchange
                     Fund,  L.P. dated as of January 23, 2001  (incorporated  by
                     reference to Exhibit 4.1 of the Company's  Quarterly Report
                     on Form  10-QSB for the  quarter  ended  December  31, 2000
                     filed on February 14, 2001).


                                       60
<PAGE>

          Exhibit
          Number                        Exhibit Description
          -------    -----------------------------------------------------------

              4.3    Registration Rights Agreement between the Company and Acqua
                     Wellington  Value Fund,  Ltd.  Dated as of January 23, 2001
                     (incorporated  by reference to exhibit 4.2 of the Company's
                     Quarterly  Report  on Form  10-QSB  for the  quarter  ended
                     December 31, 2000 filed on February 14, 2001).

              4.4    flightserv.com  2000 Stock  Option  Plan  (incorporated  by
                     reference to exhibit B to the  Company's  Definitive  Proxy
                     Statement on Schedule 14A filed on June 19, 2000).

              4.5    Registration  Rights Agreement between the Company and each
                     of the stockholders of Lifestyle (incorporated by reference
                     to Exhibit 4.2 to the Company's  Current Report on Form 8-K
                     filed on April 18, 2001).

              10.1   Form of  Officer/Director  Non-Qualified  Option  Agreement
                     dated as of July 2,  1999  (incorporated  by  reference  to
                     Exhibit 10.9 to the  Company's  Annual  Report on Form 10-K
                     for the year ended June 30,  1999  filed on  September  28,
                     1999).

              10.2   Schedule of Option  Agreements  granted in February,  April
                     and July 1999  (incorporated  by reference to Exhibit 10.10
                     to the  Company's  Annual  Report on Form 10-K for the year
                     ended June 30, 1999 filed on September 28, 1999).

              10.3   Form of  Officer/Director  Non-Qualified  Option  Agreement
                     dated  December  2,  1999  (incorporated  by  reference  to
                     Exhibit  10.1 to the  Company's  Quarterly  Report  on Form
                     10-QSB for the  quarter  ended  December  31, 1999 filed on
                     February 14, 2000).

              10.4   Schedule  of Option  Agreements  granted  December  2, 1999
                     (incorporated by reference to Exhibit 10.2 to the Company's
                     Quarterly  Report  on Form  10-QSB  for the  quarter  ended
                     December 31, 1999 filed on February 14, 2000).

              10.5   Employment  Agreement between the Company and Todd Bottorff
                     (represents   a   compensatory    plan   or    arrangement)
                     (incorporated by reference to Exhibit 10.3 to the Company's
                     Annual Report on Form 10-K for the year ended June 30, 2000
                     filed on September 28, 2000).

              10.6   Agreement  between the Company and Arthur G. Weiss dated as
                     of  July  27,  2000  (represents  a  compensatory  plan  or
                     arrangement) (incorporated by reference to Exhibit 10.14 to
                     the Company's Annual Report on Form 10-K for the year ended
                     June 30, 2000 filed on September 28, 2000).

              10.7   Agreement between the Company and C. Beverly Lance dated as
                     of  July  27,  2000  (represents  a  compensatory  plan  or
                     arrangement) (incorporated by reference to Exhibit 10.15 to
                     the Company's Annual Report on Form 10-K for the year ended
                     June 30, 2000 filed on September 28, 2000).

              10.8   Consulting  Agreement between the Company and Todd Bottorff
                     dated as of January 17, 2001  (incorporated by reference to
                     Exhibit  10.1 to the  Company's  Quarterly  Report  on Form
                     10-QSB for the  quarter  ended  December  31, 2000 filed on
                     February 14, 2001).

              10.9   Employment  Agreement  between  the  Company and Michael D.
                     Pruitt  dated  as  of  November  8,  2000   (represents   a
                     compensatory plan  arrangement)  (incorporated by reference
                     to Exhibit 10.2 to the Company's  Quarterly  Report on Form
                     10-QSB for the  quarter  ended  December  31, 2000 filed on
                     February 14, 2001).


                                       61
<PAGE>

            Exhibit
            Number                        Exhibit Description
            -------  -----------------------------------------------------------

              10.10  Employment Agreement between the Company and Ms. Melinda
                     Morris Zanoni dated as of November 8, 2000 (represents a
                     compensatory plan or arrangement) (incorporated by
                     reference to Exhibit 10.3 to the Company's Quarterly Report
                     on Form 10-QSB for the quarter ended December 31, 2000
                     filed on February 14, 2001).

              10.11  General Release and Settlement Agreement between the
                     Company and Four Corners Capital, LLC and DC Investment
                     Partners Exchange Fund, L.P. dated as of January 23, 2001
                     (incorporated by reference to Exhibit 10.4 to the Company's
                     Quarterly Report on Form 10-QSB for the quarter ended
                     December 31, 2000 filed on February 14, 2001).

              10.12  General  Release  and  Settlement   Agreement  between  the
                     Company and Acqua  Wellington  Value Fund, Ltd. dated as of
                     January 23, 2001 (incorporated by reference to Exhibit 10.5
                     to the  Company's  Quarterly  Report on Form 10-QSB for the
                     quarter  ended  December  31,  2000 filed on  February  14,
                     2001).

              10.13  Employment  Agreement  between  the  Company and Michael D.
                     Pruitt  dated  as  of  November  7,  2002   (represents   a
                     compensatory plan  arrangement)  (incorporated by reference
                     to Exhibit 10.2 to the Company's  Quarterly  Report on Form
                     10-QSB for the quarter  ended  December 31, 2002,  filed on
                     February 14, 2003).

              10.14  Employment  Agreement  between the Company and Ms.  Melinda
                     Morris  Zanoni dated as of November 7, 2002  (represents  a
                     compensatory   plan  or   arrangement)   (incorporated   by
                     reference to Exhibit 10.3 to the Company's Quarterly Report
                     on Form  10-QSB for the  quarter  ended  December  31, 2002
                     filed on February 14, 2003).

              10.15  Employment  Agreement  between  the  Company and Jeffery F.
                     Willmott   dated  as  of  April  15,  2003   (represents  a
                     Compensatory plan arrangement (incorporated by reference to
                     Exhibit  10.2 of the  Company's  Quarterly  Report  on Form
                     10-QSB for the quarter  ended March 31, 2003,  filed on May
                     15, 2003).

              10.16  Amendment to Employment  Agreement  between the Company and
                     Michael D. Pruitt  dated as of April 2, 2003  (incorporated
                     by reference to the Company's  Annual Report on Form 10-KSB
                     for the year  ended  June 30,  2003  filed on  October  14,
                     2003).

              10.17  Amendment to Employment  Agreement  between the Company and
                     Melinda   Morris   Zanoni   dated  as  of  April  2,   2003
                     (incorporated  by reference to the Company's  Annual Report
                     on Form  10-KSB for the year  ended June 30,  2003 filed on
                     October 14, 2003).

              10.18  Asset  purchase  agreement by and among VE Holdings,  Inc.,
                     SunTrips,  Inc., FS Tours, Inc. and FS SunTours, Inc. dated
                     as of  October  17,  2003  (incorporated  by  reference  to
                     exhibit 10.1 to the  Company's  current  report on Form 8-k
                     filed on October 20, 2003).

              10.19  amended and restated asset purchase  agreement by and among
                     VE Holdings,  Inc.,  SunTrips,  Inc., FS Tours, Inc. and FS
                     SunTours,  Inc. dated as of October 31, 2003  (incorporated
                     by  reference  to  Exhibit  10.1 to the  Company's  Current
                     Report on Form 8-K filed on November 17, 2003).


                                       62
<PAGE>

            Exhibit
            Number                        Exhibit Description
            -------  -----------------------------------------------------------

              10.20  Securities   Purchase  Agreement  among  eResource  Capital
                     Group, Inc. and the purchasers  identified on the signature
                     pages thereto (incorporated by reference to Exhibit 10.1 to
                     the Company's  Current Report on Form 8-K filed on November
                     17, 2003).

              10.21  Stock  Purchase  Agreement  dated as of May 11, 2004 by and
                     among WTI Acquisition, Inc., RCG Companies Incorporated and
                     Stockholders  of Response  Personnel,  Inc. and  Affiliates
                     (incorporated  by  reference  to  the  Company's  Quarterly
                     Report on Form 10-Q for the  quarter  ended  March 31, 2004
                     filed on May 14, 2004).

              10.22  Securities  Purchase  Agreement  dated as of September  13,
                     2004,  by and  among  RCG  Companies  Incorporated  and the
                     purchasers   identified  on  the  signature  pages  thereto
                     (incorporated  by reference to Exhibit 4.1 to the Company's
                     Current Report on Form 8-K filed on September 16, 2004).

              10.23  RCG Companies  Incorporated,  Certificate of Designation of
                     References,   Rights  and   Limitations   of  Series  A  6%
                     Convertible  Preferred Stock  (incorporated by reference to
                     Exhibit  4.5 to the  Company's  Current  Report on Form 8-K
                     filed on September 16, 2004).

              14.1   Code of Business Conduct and Ethics

              16.1   Change  in  Accountants-Letter  from  Ernst &  Young  dated
                     February  22, 2002  (incorporated  herein by  reference  to
                     Exhibit 16.1 to the Company's  Current Report on Form 8-K/A
                     filed on February 22, 2002).

              21.1   Subsidiaries of the Company

              23.1   Consent of BDO Seidman, LLP

              31.1   Certification  of Principal  Executive  Officer pursuant to
                     Section 302 of the Sarbanes-Oxley Act of 2002

              31.2   Certification  of Principal  Financial  Officer pursuant to
                     Section 302 of the Sarbanes-Oxley Act of 2002

              32.1   Certification of Principal  Executive Officer and Principal
                     Financial  Officer  pursuant to 18 U.S.C.  Section 1350, as
                     adopted pursuant to Section 906 of the  Sarbanes-Oxley  Act
                     of 2002


                                       63
<PAGE>

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
RCG Companies Incorporated and Subsidiaries
Charlotte, North Carolina

The audits  referred  to in our report  dated  October 8, 2004  relating  to the
consolidated   financial   statements   of  RCG   Companies   Incorporated   and
Subsidiaries,  which is contained in Item 8 of this Form 10-K included the audit
of the financial  statement  schedules  listed in the  accompanying  index.  Our
report  contains an  explanatory  paragraph  regarding the Company's  ability to
continue  as a  going  concern.  These  financial  statement  schedules  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statement schedules based upon our audits.

In our opinion,  such  financial  statement  schedules  present  fairly,  in all
material respects, the information set forth therein.

/s/ BDO Seidman
BDO Seidman, LLP
Charlotte, North Carolina

October 27, 2004


                                       64
<PAGE>

                   RCG COMPANIES INCORPORATED AND SUBSIDIARIES
                                   SCHEDULE II
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

<TABLE>
<CAPTION>
                                         Balance at          Charged                                                    Balance at
                                         Beginning         to Cost and                                  Other             End of
                                          of Year           Expenses          Deductions(1)          Adjustments           Year
                                       ---------------   ----------------  ---------------------   -----------------   -------------
<S>                                    <C>               <C>               <C>                     <C>                 <C>
Year Ended June 30, 2002
Allowance for Doubtful Accounts....... $       81,073     $       209,497   $             67,987                   -    $    222,583

Year Ended June 30, 2003
Allowance for Doubtful Accounts.......        222,583               5,917                116,676                   -         111,824

Year Ended June 30, 2004
Allowance for Doubtful Accounts.......        111,824             157,087                 10,934              73,713         331,690

(1) Write-off of doubtful accounts

</TABLE>


                                       65
<PAGE>

                                   SIGNATURES

In accordance  with Section 13 or 15(d) of the Exchange Act, the  Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.


                                   RCG COMPANIES INCORPORATED


Date: October 13, 2004             By:   /s/ Michael D. Pruitt
                                         ---------------------------------------
                                         Michael D. Pruitt
                                         President and Chief Executive Officer
                                         (principal executive officer)


Date: October 13, 2004             By:   /s/ Jeffrey F. Willmott
                                         ---------------------------------------
                                         Jeffrey F. Willmott
                                         Chairman of the Board


Date: October 13, 2004             By:   /s/ William W. Hodge
                                         ---------------------------------------
                                         William W. Hodge
                                         Chief Financial Officer
                                         (principal accounting officer)


Date: October 13, 2004             By:   /s/ Dr. James A. Verbrugge
                                         ---------------------------------------
                                         Dr. James A. Verbrugge
                                         Director


Date: October 13, 2004             By:   /s/ P. Roger Byer
                                         ---------------------------------------
                                         P. Roger Byer
                                         Director


Date: October 13, 2004             By:   /s/ J. Michael Carroll
                                         ---------------------------------------
                                         J. Michael Carroll
                                         Director


Date: October 13, 2004             By:   /s/ Wesley M. Jones
                                         ---------------------------------------
                                         Wesley M. Jones
                                         Director


                                       66