<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO ______________
COMMISSION FILE NUMBER 000-29342
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PROFIT FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
UTAH 91-1772094
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
14675 INTERURBAN AVENUE SOUTH
TUKWILA, WASHINGTON, 98168
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 901-3000)
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 [ ] No [x]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
6,715,032 shares of Class A Common Stock, $0.01 par value, outstanding as of
September 1, 1997.
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PROFIT FINANCIAL CORPORATION
Index
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets as of June 30, 1997 and December 31,
1996. Consolidated Statement of Operations for the quarters and
six month periods ended June 30, 1997 and June 30, 1996.
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Item 3. Quantitative and Qalitative Disclosures about Market Risk
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
2
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PART I. FINANCIAL INFORMATION
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS June 30, 1997 December 31, 1996
(Unaudited) (Audited)
------------- -----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,609,886 $ 635,141
Marketable securities 5,993,285 3,801,039
Trade and credit card receivables 4,672,567 848,282
Notes receivable, employees (current portion) 290,762 329,060
Notes receivable from officers (current portion) 14,576 13,191
Other receivables 158,536 11,378
Inventory 633,175 395,743
Prepaid expenses 286,541 93,196
Deferred royalties to related party 0 48,781
Deferred tax asset 917,904 783,064
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TOTAL CURRENT ASSETS 14,577,232 6,958,875
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PROPERTY & EQUIPMENT 12,847,454 7,135,205
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OTHER ASSETS
Non-marketable investments 1,130,091 522,600
Notes receivable, employees 2,842,699 1,385,742
Notes receivable from officers 261,231 236,413
Due from related parties 2,611,756 663,401
Deposits 27,470 35,423
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TOTAL OTHER ASSETS 6,873,247 2,843,579
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TOTAL ASSETS $34,297,933 $16,937,659
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</TABLE>
The notes to these consolidated financial statements
are an integral part hereof.
3
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PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
LIABILITIES & EQUITY June 30, 1997 December 31, 1996
(Unaudited) (Audited)
------------- -----------------
<S> <C> <C>
CURRENT LIABILITES
Current portion of long-term debt $ 419,253 $ 660,708
Accounts payable and accrued expenses 5,415,373 976,644
Margin loans in investment accounts 2,079,429 1,103,936
Payroll and other taxes withheld and accrued 1,022,498 807,414
Income taxes payable 4,492,798 2,075,872
Deferred revenue 5,919,942 5,160,999
Royalties payable to related party 702,279 0
Notes payable to related party 307,545 19,000
Notes payable to officer 45,000 45,000
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TOTAL CURRENT LIABILITIES 20,404,117 10,849,573
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LONG-TERM DEBT 3,344,892 1,768,762
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TOTAL LIABILITES 23,749,009 12,618,335
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MINORITY INTEREST 544,645 617,300
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SHAREHOLDERS' EQUITY
Preferred Stock, 5,000,000 shares authorized
at $10 par value, none issued and outstanding 0 0
Class A common stock, 20,000,000 shares
authorized at $0.01 par value, 6,680,864 shares
and 6,680,864 shares outstanding as of
June 30, 1997 and December 31, 1996, respectively 66,807 66,807
Paid-in capital 1,076,608 1,072,608
Prepaid advertising (500,000) (500,000)
Retained earnings (deficit) 9,360,864 3,062,609
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TOTAL SHAREHOLDERS' EQUITY 10,004,279 3,702,024
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TOTAL LIABILITIES, MINORITY INTEREST
AND SHAREHOLDERS' EQUITY $34,297,933 $16,937,659
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</TABLE>
4
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PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES, NET OF RETURNS AND
DISCOUNTS $28,025,364 $ 8,457,550 $46,613,752 $14,032,834
COST OF REVENUES:
Royalties to related party 3,058,282 1,044,733 5,039,195 1,601,483
Other cost of revenues 7,786,633 2,657,461 13,356,129 4,263,791
----------- ----------- ----------- -----------
TOTAL COST OF REVENUES 10,844,915 3,702,194 18,395,324 5,865,274
----------- ----------- ----------- -----------
GROSS PROFIT 17,180,449 4,755,356 28,218,428 8,167,560
----------- ----------- ----------- -----------
SELLING, GENERAL AND ADMIN.
EXPENSE 10,257,854 3,358,695 19,018,205 5,484,314
INCOME (LOSS) FROM
OPERATIONS 6,922,595 1,396,661 9,200,223 2,683,246
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES)
Dividends and interest 54,342 6,481 102,820 7,485
Gain (loss) on trading
securities 744,220 174,310 586,246 434,952
Other income (expense) 19,363 5,221 73,868 (4,647)
Loss on investment on
non-marketable securities 0 0 (87,500) 0
Interest expense (92,398) (9,508) (186,574) (13,665)
----------- ----------- ----------- -----------
TOTAL OTHER INCOME
(EXPENSES) 725,527 176,504 488,860 424,125
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES 7,648,122 1,573,165 9,689,083 3,107,371
----------- ----------- ----------- -----------
PROVISION FOR INCOME TAXES 2,676,842 539,881 3,390,828 1,066,392
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 4,971,280 $ 1,033,284 $ 6,298,255 $ 2,040,979
----------- ----------- ----------- -----------
EARNINGS (LOSS) PER SHARE $ 0.74 $ 0.16 $ 0.94 $ 0.31
----------- ----------- ----------- -----------
Weighted Average Number
of Common Shares 6,680,864 6,565,461 6,680,864 6,590,516
----------- ----------- ----------- -----------
</TABLE>
5
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PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1997 June 30, 1997
(Unaudited) (Unaudited)
------------------ ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,971,280 $ 6,298,255
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 274,948 540,369
(Gains) losses on trading marketable securities (744,221) (586,246)
Losses on disposition of fixed assets
Impairment of long-lived assets
Loss on investment in non-marketable securities 87,500
Purchases of trading securities (6,382,511) (9,379,371)
Proceeds from sale of trading securities 5,844,414 8,665,354
Changes in assets and liabilities:
Receivables (6,660,895) (7,364,660)
Inventory (149,794) (237,432)
Prepaid expenses (27,629) (193,345)
Deferred taxes (260,465) (134,840)
Deposits (650) 7,953
Accounts payable and accrued expenses 1,068,325 4,438,729
Payroll and other taxes withheld and accrued 143,865 215,084
Income taxes payable 1,937,307 2,416,926
Deferred revenue 1,653,937 758,953
Due to related party 283,545 288,545
Royalties payable 341,599 751,060
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TOTAL ADJUSTMENTS (2,678,225) 274,579
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NET CASH PROVIDED BY OPERATING ACTIVITIES 2,293,055 6,572,834
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,010,758) (6,860,109)
Subsidiary's investment
Return of subsidiary's investment
-----------
NET CASH USED FOR INVESTING ACTIVITIES (1,010,758) (6,860,109)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of subsidiary's minority
interest (19,150) (72,655)
Net borrowings (142,935) 1,334,675
Issuance of common stock
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NET CASH PROVIDED BY FINANCING ACTIVITIES (162,085) 1,262,020
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NET INCREASE (DECREASE) IN CASH 1,120,212 974,745
CASH, beginning of year 489,674 635,141
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CASH, end of period $ 1,609,886 $ 1,609,886
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</TABLE>
6
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Profit Financial Corporation
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
UNAUDITED BALANCE SHEET FOR THE PERIOD ENDED JUNE 30, 1997-LIQUIDITY AND CAPITAL
RESOURCES
The Company's total assets expanded to $34,297,933 at June 30, 1997
compared to $16,937,659 at December 31, 1996. The Company's total liabilities
grew to $23,749,009 from $12,618,335. Shareholders' equity at June 30, 1997
increased to $10,004,279 from $3,702,024 at December 31, 1996.
The Company experienced a substantial increase in credit card purchases and
as a result the credit card processing company the Company uses increased the
amount it requires as a hold back. Accordingly, trade and credit card
receivables increased to $4,672,567 compared to $848,282 at December 31, 1996.
The Company increased its portfolio of marketable securities to $5,993,285
compared to $3,801,039 at December 31, 1996.
FOR THE QUARTERS ENDED JUNE 30, 1997 AND JUNE 30, 1996
Gross revenues continued to increase, due largely to the increase in the
number of seminars provided by the Company. The company reported gross revenues
for the quarter ended June 30, 1997 OF $28,025,364 as compared to gross revenues
OF $8,457,550 for the same period in 1996.
The cost of generating revenues was $10,844,915 for the quarter ended June
30, 1997, as compared to $3,702,194 for the same quarter in 1996.
Gross profits, following the same trend as gross revenues, increased during
the quarter ended June 30, 1997 to $17,180,449 as compared to $4,755,356 during
the same quarter in 1996.
The net income for the Company, after taxes, was $4,971,280 for the quarter
ended June 30, 1997, as compared to net after-tax income of $1,033,284 for the
same quarter in 1996.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Required.
7
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PROFIT FINANCIAL CORPORATION
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
The following is a description of material pending legal proceedings to
which the Company or any of its subsidiaries is a party or which any of their
properties is subject:
Investigation by the U.S. Securities and Exchange Commission
The Company and certain of its executive officers have received subpoenas
to provide certain information in the Matter of Wade Cook Seminars, a private
informal investigation by the Securities and Exchange Commission ("SEC"). The
investigation relates to the possible violation of Sections 5(a), 5(c) and
17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5
thereunder, and Sections 203(a) and 206(1) and (2) of the Investment Advisers
Act. The SEC has stated that the investigation should not be construed as an
indication by the SEC or its staff that any violations of law have occurred,
nor should it be construed as an adverse reflection on the merits of the
securities involved or on any person or entity. The Company does not believe it
or any of its executive officers and directors has engaged in any inappropriate
activity or violated applicable laws, and the Company intends to continue to
cooperate with the investigation. No assurance can be given as to the outcome of
this investigation.
Informal Investigations by the State of Washington
The Assistant Attorney General for the State of Washington's Department of
Financial Institutions, Securities Division commenced an informal investigation
of Mr. Cook, WCSI and the Company in September, 1996. The Assistant U.S.
Attorney for the Western District of Washington issued a subpoena to WCSI in
March 1997 for records related to an independent contractor of the Company.
Although the breadth and nature of these two investigations are not known, the
Company does not believe it or any of its executive officers and directors has
engaged in any inappropriate activity or violated applicable laws and the
Company intends to continue to cooperate with the investigation. No assurances,
however, can be given as to the outcome of these investigations.
Wade Cook Seminars, Inc. v. Charles Mellon, et al.
The Company brought a suit against defendants Robbins Research
International and Charles E. Mellon in the King County Superior Court on
September 16, 1996 and joined Anthony Robbins and Options Management, Inc. in
June 1997. The Company alleges breach by Mellon of a noncompete agreement and
unfair competition and inducement to breach the noncompete by Robbins Research
and Anthony Robbins in hiring Mellon to present a copy of the Company's Wall
Street Workshop seminar on behalf of defendants. An injunction in favor of WCSI
was granted October 9, 1996 and attorney fees were awarded to the plaintiffs
against Mr. Mellon. The trial is currently scheduled for September 1997.
Wade B. Cook v. Anthony Robbins and Robbins Research International, Inc.
8
<PAGE>
The Company brought suit in United States District Court, Western District
of Washington, against Tony Robbins and Robbins Research International, Inc. on
June 18, 1997 for damages and injunctive relief for copyright infringement. The
Company alleges Tony Robbins copied or caused to be copied significant portions
of Wall Street Money Machine, authored by Wade B. Cook, and used these
materials in a course entitled "Financial Power."
Other Proceedings
The Company and its subsidiaries are also parties to various administration
actions and other legal proceedings arising in the ordinary course of business,
none of which is expected to materially affect the financial position, results
of operation or cash flow of the Company.
Item 2. Changes in Securities.
No securities were issued by the Company during the quarters covered by
this report.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the quarter
covered by this report.
Item 5. Other Information.
On August 13, 1997 the Board of Directors of the Company by resolution
authorized a 3-for-1 stock split of the shares of class A Common Stock
of the Company effective September 15, 1997.
Item 6. Exhibits and Reports on Form 8-K.
The Company filed no reports on Form 8-K during the quarter covered by this
report.
9
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SIGNATURES
Profit Financial Corporation
----------------------------------------
September 22, 1997 /s/ Wade B. Cook
- --------------------------- ----------------------------------------
(Date) Wade B. Cook, Chief Executive Officer
September 22, 1997 /s/ Andrew T. Rice
- --------------------------- ----------------------------------------
(Date) Andrew T. Rice, Chief Financial Officer
10
