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PROFIT FINANCIAL CORPORATION
Document 10-12G/POS AM
Filing Date: 9/22/1997
EXHIBIT LIST
EX-4.1
EX-10.1(b)
EX-10.11
EX-10.12
EX-16.1
EX-23
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TABLE OF CONTENTS
Document Sections
ITEM 1. BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 2. FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . .13
ITEM 3. PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. . .19
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS. . . . . . . . . . . . . . . . . .19
ITEM 6. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . .21
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . . . . .23
ITEM 8. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . .25
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES. . . . . . . . . . . . . . .27
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED. . . . . . .27
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS. . . . . . . . . . . . . .28
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . . . . . . . . .29
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS. . . . . . . . . . . .33
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS. . . . . . . . . . . . . . . . . .33
CONSOLIDATED BALANCE SHEETS . . . . . . . . . . . . . . . . . . . . . . . . F-1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . F-9
BALANCE SHEETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-23
Exhibits
EXHIBIT 4.1
EXHIBIT 10.1(b)
EXHIBIT 10.11
EXHIBIT 16.1
EXHIBIT 23
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10 POS AM
General Form for Registration of Securities
Pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934
PROFIT FINANCIAL CORPORATION
(Exact Name of Registration as Specified in Its Charter)
UTAH 91-1772094
(State or Other Jurisdiction of (IRS Employer)
Incorporation or Organization)
14675 Interurban Avenue South Seattle, Washington 98168
(Address of Principal Executive Offices) (Zip Code)
(206) 901-3000
(Registrant's Telephone Number, Including Area Code)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
None None
Securities to be registered pursuant to Section 12(g) of the Act:
Class A Common Stock $.01 par value
(Title of Class)
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THIS REGISTRATION STATEMENT CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
("EXCHANGE ACT"). ACTUAL RESULTS OR EVENTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED OR CONTEMPLATED BY SUCH STATEMENTS AS THE RESULT OF VARIOUS FACTORS
INCLUDING, WITHOUT LIMITATION, THE RISK FACTORS DISCUSSED IN THIS REGISTRATION
STATEMENT. THE CONSIDERATIONS DISCUSSED IN THIS REGISTRATION STATEMENT ARE NOT
INTENDED TO REPRESENT A COMPLETE LIST OF THE GENERAL OR SPECIFIC RISKS THAT MAY
AFFECT THE CLASS A COMMON STOCK ("COMMON STOCK") OF PROFIT FINANCIAL CORPORATION
("PROFIT, AND, TOGETHER WITH ITS DIRECT AND INDIRECT SUBSIDIARIES, THE
"COMPANY"). IT SHOULD BE RECOGNIZED THAT OTHER RISKS MAY BE SIGNIFICANT, NOW OR
IN THE FUTURE, AND THE RISKS SET FORTH BELOW MAY AFFECT THE COMMON STOCK OF THE
COMPANY TO A GREATER EXTENT THAN INDICATED.
THE COMPANY COMPLETED A TWO-FOR-ONE STOCK SPLIT OF ITS COMMON STOCK IN
SEPTEMBER 1996. ALL SHARE AND PER SHARE INFORMATION CONTAINED HEREIN AND THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO HAVE BEEN ADJUSTED TO
REFLECT THE IMPACT OF THE STOCK SPLIT UNLESS OTHERWISE INDICATED.
RISK FACTORS
An investment in the Common Stock of the Company involves a high degree of
risk. Prospective investors should carefully consider the following factors,
together with the other information contained in this Registration Statement, in
evaluating the Company and its business before purchasing shares of Common Stock
of the Company.
Dependence on Wade B. Cook
The Company's future prospects and financial condition depend in large part
on the continued services of Wade B. Cook, the Company's founder and the
President and Chairman of the Company ("Mr. Cook"). Substantially all of the
programs, products and services provided by the Company are based on Mr. Cook's
materials and ideas . Mr. Cook has not entered into and does not intend to enter
into a non-competition agreement with the Company. Mr. Cook has entered into an
Employment Agreement dated June 24, 1997 with Wade Cook Seminars, Inc., Profit's
wholly owned subsidiary, which agreement provides for a term of employment
through June 30, 2000 and contains a non-disclosure clause which limits Mr.
Cook's disclosure of certain proprietary information to third parties while an
employee. The loss of the services of Mr. Cook could have a material and
adverse effect on the Company's business, financial condition and results of
operation. The Company does not carry key man life insurance for Mr. Cook. See
"Business" and "Certain Relationships and Related Transactions".
Dependence on Certain Relationships
The Company derived the preponderance of its revenues in the fiscal years
ended December 31, 1996, 1995 and 1994 from sponsoring and promoting products,
seminars and services licensed from Money Chef, Inc., formerly known as USA/Wade
Cook Seminars, Inc. ("Money Chef"), and believes that it will continue to derive
the majority of its revenues in the foreseeable future from these sources. In
January 1993, the Company entered into a Product Agreement with Money Chef for
the non-exclusive right to promote and sponsor seminars, entity formation
services and products owned or controlled by Money Chef. In June, 1997, the
Company renegotiated the Product Agreement. Mr. Cook is the President of Money
Chef and is a trustee of a trust, created for the benefit of Mr. Cook's family,
that owns all of the outstanding shares of Money Chef. While there is no non-
competition agreement with either Mr. Cook or Money Chef, the Company is free to
offer, market and sell products and services, including seminars, created and
developed by others. Any factor adversely affecting the Company's relationship
with Mr. Cook or Money Chef could have a material and adverse effect on the
Company's business, financial condition and
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results of operation. See "Business-Dependence on Certain Relationships",
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and "Certain Related Transactions".
Managing Growth
The Company has recently experienced rapid and dramatic growth in the
number of employees, the number of classes and seminars offered by the
Company, the scope of its operating and financial management system and the
geographic areas of its operations. This growth has resulted in a significant
increase in the level of responsibility for both existing and new management
personnel. The Company's ability to manage growth will require it to continue
to implement and improve its operational, financial and management systems
and to motivate and effectively manage an increasing number of employees. The
Company's failure to manage its growth effectively could have a material and
adverse effect on the Company.
Limited Operating History
The Company has a limited operating history, and although the Company
has experienced significant growth since the reorganization of the Company in
1995, this is not necessarily indicative of future operating results. No
assurance can be given that the Company will be able to maintain profitability
on a quarterly or annual basis in the future.
Dependence on Successful Introduction of New Programs, Products and Services
The Company's growth strategy is dependent on its ability to sell existing
programs, products and services to additional markets and on its continued
ability to successfully develop and introduce new programs, products and
services. Although the Company is currently developing new programs and
products, it may need to rely upon the willingness of authors and producers of
products and programs to sell or license them to the Company. There can be no
assurance that the Company will be able to develop or acquire rights to
additional products and programs that it seeks on acceptable terms. Further,
market conditions and the level of customer interest may be different for the
Company's current products than for new products or programs, and there can be
no assurance that the Company will be able to compete favorably with, and obtain
market acceptance for, any new products and programs. Failure of the Company to
successfully develop, acquire, introduce and market new products and programs
could have a materially adverse effect on the Company's business and future
prospects.
Dependence on Changing Economic Conditions
The Company's revenues and profitability may be significantly affected by
general economic conditions. A significant portion of the Company's revenues
are derived from individuals who, the Company believes, may adjust their
expenditures for educational seminars and materials during economic downturns.
Should the economy weaken in any future period, these individuals may not
increase or may decrease their expenditures on the type of programs, products
and services provided by the Company, which would have a material and adverse
effect on the Company's business, financial condition and results of operations.
In addition, the Company has significant investments in marketable securities
and may have significant investments in the real estate market. Any weakening
of the economy in any future period may have a material and adverse effect on
the investments held by the Company. See "Business - Real Estate and Other
Investments".
Potential Liability
The Company faces exposure to potential claims in the event that the
methods and techniques presented in its programs and products are alleged to
have resulted in significant losses to an investor using such methods and
techniques. The Company requires its customers to execute a letter acknowledging
the risks inherent in following the investment and other strategies presented by
the Company. There can be no assurances that the Company will be able to avoid
any claims asserting such liability. In addition, any such claims or litigation
could result in the diversion of the management's attention and resources, which
could have a material and adverse effect on the Company. In that regard, the
Company and certain executive officers of the Company are the object of an
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investigation by the Securities and Exchange Commission. The Securities and
Exchange Commission could, if it concluded that a violation of federal
securities laws has occurred or is continuing, in the exercise of its statutory
authority, cause a cease and desist order to issue against the Company covering
certain of its activities, which activities could include conducting seminars.
The SEC could also initiate proceedings that could result in civil penalties
being levied against the Company in monetary amounts ranging from $50,000 to
$500,000, per violation. Additionally, the Washington State Securities
Administrator has issued subpoenas requesting information and documents from the
Company to which the Company has responded. The Washington State Securities
Administrator has more limited powers than the SEC but could take actions which
would have a material adverse affect on the Company and its business. Finally,
the Company has the general risks of liability faced by all businesses dealing
with the general public and that have persons coming on their premises to
conduct business. Although the Company currently has general liability
insurance, there can be no assurance that insurance coverage will continue to
be available in the future on commercially reasonable terms, or at all, or that
such insurance will be adequate to cover potential liability claims or that a
loss of insurance coverage or the assertion of a liability claim or claims would
not materially adversely affect the Company's business, financial condition and
result of operations. See "Legal Proceedings"
Competition
The highly competitive market in which the Company competes is fragmented
and decentralized, with low barriers to entry. The management of the Company
believes that the Company is a leader in the financial education market and
that no single competitor accounts for a dominant market share. The Company's
competitors include other companies and individuals who promote and conduct
seminars and provide products on topics relating to investment strategies,
financial planning and personal wealth management. The Company believes that
the majority of independent training providers are small organizations, which
often provide training as one of several services or product lines or provide
limited services and product lines. There can be no assurance that the Company
will be successful in maintaining its current position in the financial
education market or continue to be successful against such competition. See
"Business-Competition".
Risk Associated with Possible Acquisitions and Other Investments
Historically, the Company has invested the majority of its excess cash in
marketable securities. The Company has also made small investments in certain
venture capital partnerships and private companies. Although the Company is
continuing to invest a significant portion of its cash flow in marketable
securities, it is also aggressively seeking alternative vehicles through which
the Company can invest cash flow from its programs, products and services and
from its existing investment portfolio. A significant portion of the assets of
the Company may be used for the acquisition of real property and ownership
interests in limited partnerships that invest in real property. The Company is
actively evaluating acquisition and other investment opportunities that fit
within the investment strategy of the Company. Depending on the investment
opportunities that become available to the Company, the Company may also seek to
expand its existing investment portfolio to include, among other things,
substantial interests in private and public companies in related and unrelated
businesses. The type of investments that the Company is seeking and investing in
involve numerous risks, including potential difficulties in the assimilation of
acquired assets, diversion of management's attention away from normal operating
activities and the diversion of the Company's resources from other investment
opportunities. The Company has limited experience in executing and implementing
such investments and no assurances can be given as to the success of the
Company in executing and implementing the investments that the Company is
currently involved with or may be involved with in the future. See "Business-
Real Estate and Other Investments".
Control by Management
As of June 24, 1997, senior management of the Company collectively owns
approximately 60.4% of the outstanding shares of Common Stock. Mr. Cook and
entities affiliated with Mr. Cook own approximately 60.1% of the outstanding
shares of Common Stock. Consequently, the senior management, and Mr. Cook in
particular, will continue to have a significant influence over the policies and
affairs of the Company and will be in a position to determine the outcome of
corporate actions requiring stockholder approval, including the election of
directors, the
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adoption of amendments to the Company's corporate documents and
the approval of mergers and sales of the Company's assets. See "Security
Ownership of Certain Beneficial Owners and Management".
ITEM 1. BUSINESS.
The Company - Profit and Subsidiaries
Profit Financial Corporation, a Utah corporation, (formerly Profiteer
Corporation) ("Profit") is a holding company for the common stock and other
ownership interests of a group of business entities collectively referred to
herein as the "Company". Wade Cook Seminars, Inc., a Nevada corporation,
(formerly United Support Association, Inc.) ("WCSI"), Left Coast Advertising,
Inc., a Nevada corporation, ("Left Coast"), Lighthouse Publishing Group, Inc., a
Nevada corporation ("Lighthouse Publishing"), and Profit Financial Real Estate
Management Company, Inc., a Nevada corporation, ("Profit Real Estate") are all
100% owned subsidiaries of Profit. Entity Planners International, Inc., a Nevada
corporation, ("EPI") is a 100% owned subsidiary of Profit Real Estate as is
Hotel Associates #1, Inc., a Nevada corporation, ("Hotel Associates"). Unlimited
Potential, Inc., a Nevada corporation, ("Unlimited") is a 50% owned subsidiary
of EPI. The remaining 50% of EPI is owned by Zion's Holding Company, L.L.C., a
Utah limited liability company not affiliated with EPI, Profit or the Company.
Except for Zion's Holding Company, L.L.C., all of the entities identified above
are affiliates of Mr. Cook.
Wade Cook Seminars, Inc., Profit's wholly owned subsidiary ("WCSI"), markets and
delivers a variety of seminars and workshops focused on investment strategies,
financial planning and personal wealth management and produces and sells audio
tapes, videotapes, books and other written materials designed to teach various
investment strategies and financial planning techniques. In addition, WCSI hosts
a web site on the Internet at http://www.wadecook.com as an additional tool to
recruit students and market its programs, products and services. WCSI accounted
for almost all of the Company's revenues for the fiscal year ended December 31,
1996 ("fiscal 1996").
Left Coast is engaged in the business of producing and placing advertising in
various media, primarily for WCSI. Left Coast contributed less than one per cent
of consolidated gross revenues in the year ended December 31, 1996 and less than
two % through March 31, 1997.
Lighthouse Publishing is engaged in the business of producing and publishing
books, audio and video tapes, and other written materials, primarily for Wade B.
Cook in his capacity as author of such books and materials and producer of such
tapes. Lighthouse Publishing has entered into agreements to publish "Real Estate
Money Machine", "Business Buy the Bible", "Bear Market Baloney", "Stock Market
Miracles", and "Wall Street Money Machine", all of which are books by Wade B.
Cook. Lighthouse Publishing contributed less than 12 % of consolidated gross
revenues in the year ended December 31, 1996 and one % through March 31, 1997.
Profit Real Estate was formed to engage in the business of managing and
overseeing the real estate investment portfolio of the Company. Profit Real
Estate conducts its business through its wholly owned subsidiaries EPI and Hotel
Associates, and Unlimited, EPI's 50% owned subsidiary. EPI is a general partner
in Sherlock Homes, Limited Partnership, a Nevada limited partnership (an
inactive partnership formed to invest residential real estate projects), Rising
Tide L.P., a Nevada limited partnership (the owner of the Provo Fairfield Inn, a
limited service hotel located in Provo, Utah) , and Seattle-Tacoma Executive
Properties, L.P., a Nevada limited partnership (an inactive partnership formed
to hold the land and improvements constituting Profit's corporate headquarters).
Unlimited is a general partner in Reno F.I.S. Limited Partnership, a Nevada
limited partnership (formed to purchase the Reno Fairfield Inn, located in Reno,
Nevada), FSS, L. P., a Nevada limited partnership (formed to purchase a hotel
project located in Salt Lake City, Utah). Another entitiy which is an indirect
subsidiary is Park City Hotel Partners, Limited Partnership , a Nevada limited
partnership ( a partnership owning a hotel project in Park City). Profit Real
Estate and its subsidiaries contributed less than one % of consolidated gross
revenues in the year ended December 31, 1996 and one % at March 31, 1997.
The Company believes that it is well positioned to take advantage of the
increasing demand for information and training on investment strategies,
financial planning and personal wealth management. The Company also believes
that its approach to education and training offers many advantages over other
financial and investment
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seminars and related financial information products due to the breadth and
depth of its programs, products and services, the quality and size of its
instructor force and its strong marketing and sales team.
In 1996, the Company conducted 120 seminars in 42 cities across the
United States. Average attendance at the seminars was 81 persons. Through
June 30, 1997, the Company has conducted 103 seminars in 43 cities and the
average attendance is 70 persons per seminar. Prior to 1996, the Company did
not keep records sufficient to provide the data necessary to determine
statistics for prior periods similar to the statistics for 1996 and 1997.
The Company's principal executive office is located at 14675 Interurban
Avenue South, Seattle, Washington 98168 and its telephone number is (206)
901-3000.
Business Strategy
The Company's objective is to become the leader in offering personal
finance educational products. In pursuit of its objective, the Company's
strategy, in order of relative importance, is to:
Expand Program and Product Offerings. The Company is currently
developing and will continue to expand its library of programs, products and
services to increase sales to its existing customers and to attract new
customers. The Company hopes to offer a comprehensive array of programs,
products and services on almost all aspects of investment strategies,
financial planning and wealth management.
Explore Strategic Alliances. To increase sales of its programs and
products, the Company will explore opportunities for strategic alliances and
collaborative efforts with book clubs and major bookstore chains and with
providers and developers of programs and products consistent with the
strategic vision of the Company.
Strengthen Customer Base in Existing Markets. The Company has only
recently begun marketing and providing its programs, products and services in
many markets. The Company will seek to aggressively market its programs,
products and services in the newer markets to attract new customers and
increase sales to existing customers.
Explore Other Means of Advertising. To access new clients, the Company
will explore other means of advertising, including television infomercials
and advertising and newsprint advertising, to reach individuals who may be
interested in the products, programs and services offered by the Company.
Expand its Market into Smaller Cities. Historically, the Company has
marketed and provided its seminars and products to residents located in or
near cities in the United States with populations over one million. The
Company will be expanding to cities with smaller populations in the future to
broaden its market penetration.
While the Company has identified the above elements of a strategic plan,
it has not gone further to set forth in detail the steps to be taken to
implement such elements nor has it defined the scope of any planned expansion
nor developed an estimated or expected timetable for the implementation of
such expansion.
Prior Business History
Prior to May 18, 1995, the Company's educational seminar business was
conducted by United Support Association, Inc. ("USAI"), a corporation
incorporated in Nevada in 1989 that was owned by the Wade B. Cook Family Trust.
On May 18, 1995, Profit acquired all of the outstanding capital stock of USAI in
exchange for 1,880,000 shares of Profit's common stock. Profit was formed in
1979 as a Utah corporation under the name Profiteer Corporation. Prior to June
1, 1995, Profit engaged primarily in farming and ranching in Utah. USAI's name
was changed to "Wade Cook Seminars, Inc." in February 1997 due in part to the
marketing advantages of
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using Mr. Cook's name and associating the programs with his successful
publications.
Principal Programs, Products and Services
Substantially all of the Company's programs, products and services are
based on the financial and investment strategies of Mr. Cook. The Company has
the non-exclusive right to promote, produce and sell these programs, products
and services pursuant to the terms of a Product Agreement with Money Chef.
See "--Dependence on Certain Relationships" below. Mr. Cook has based his
programs and products on his belief that people need to: (a) increase their
wealth by increasing their cash flow; (b) learn how to minimize their
federal and state income taxes; (c) use entities, such as Nevada
corporations, family limited partnerships, living trusts, qualified pensions
and business trusts, to protect their assets; (d) be able to retire with
sufficient income from their assets to maintain a good standard of living;
and (e) be able to pass on their wealth and assets to their loved ones
without the problems of probate. The Company believes that its competitive
position and its name recognition have been greatly enhanced by the
popularity of Mr. Cook's books. Since 1996, over 300,000 copies of Mr. Cook's
books have been sold throughout the United States. The Company plans to
continue capitalizing on the popularity and exposure from such books.
Educational Seminars and Workshops
The Company promotes and sponsors a series of programs designed to meet
the educational needs of clients interested in increasing their wealth and
etter managing their personal finances. The seminars provided by the Company
include the following:
Financial Clinic is a three-hour seminar explaining the various products
and services offered by WCSI and providing an introduction to investing in
the stock market. The Financial Clinic is designed to serve as an
introduction to the Wall Street Work Shop. This seminar is currently taught
nationwide eight to ten times a week. The price to attend the Financial
Clinic is $22 to $33 depending on whether the customer prepays the price of
attendance.
Wall Street Work Shop ("WSWS") is a two-day seminar teaching investors the
investment strategies set forth in Mr. Cook's books, Wall Street Money
Machine and Stock Market Miracles. Students are taught stock market basic
terminology, how to choose a brokerage firm, stock market strategies, and
how to place a trade. The students observe instructors purchasing or selling
securities from brokers as they follow the investment strategies taught in
the class. The Company also offers the seminar Youth Wall Street for younger
investors. This seminar is currently taught nationwide nine to eleven times
per week. The price to attend WSWS ranges from $2,695 to $4,695 depending on
the particular options selected by the persons or person attending the
seminar and depending on the particular discount or promotion in effect at
the time of payment.
Business Entity Skills Training ("BEST") is a one-day seminar teaching
students personal finance management strategies such as asset protection and
tax reduction using corporations, limited partnerships, qualified pensions,
and living trusts. BEST is taught immediately after the last day of each
WSWS, either in the evening or the following day. The price to attend BEST is
$995 if no other seminar is also attended. Otherwise, the price of Best is
included in the price of attending certain companion seminars.
Next Step is a two-day seminar for participants who have already attended
the WSWS. Advance stock market investments strategies are taught in a format
in which students can actively participate in making investments. Next Step
is currently taught nationwide twelve times a year. The price to attend Next
Step ranges from $1,495 to $9,995, depending on whether it is attended
separately or with other seminars offered by the Company and depending on the
particular discount or promotion in effect at the time of payment
Wealth Academy is a three-day seminar teaching wealth accumulation and
asset protection formulas using various business strategies and corporate
income tax planning to assist students in better managing their personal
finance and business activities. Wealth Academy is currently taught
nationwide six to nine times a year. The price to attend Wealth Academy
ranges from $2,495 to $7,995 depending on whether it is attended separately
or with
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other seminars offered by the Company and depending on the particular
discount or promotion in effect at the time of payment.
Executive Retreat is a two-day workshop designed for participants who own
or control Nevada corporations to gain a broader understanding of the
mechanics using a corporation for tax advantages, limited liability and
estate planning. The workshop is currently taught two to three times a year
at two locations. The price to attend Executive Retreat ranges from $1,495 to
$2,495 depending on whether it is attended separately or with other seminars
offered by the Company and depending on the particular discount or promotion
in effect at the time of payment.
The seminars provided by the Company accounted for approximately 52%, 53% and
30% of the Company's revenues in fiscal 1996, 1995 and 1994, respectively.
The Company typically conducts its seminars and workshops at major cities in
the United States with populations of over one million. The majority of the
Company's seminars are held in Los Angeles, California, Denver, Colorado,
Seattle, Washington, Las Vegas, Nevada, Washington, D.C., Orlando, Florida
and Dallas, Texas. The Company derived more than 10% of its revenues in
fiscal 1996 from seminars taught in the states of California, Colorado,
Washington and Nevada. On March 31, 1997, forty speakers conducted seminars
for the Company throughout the United States. Thirty-five of such speakers
were independent contractors and five were employees of the Company. The
Company provides extensive training to its speakers, including two-day,
bi-monthly workshops with an experienced trainer. Most speakers review
training tapes and attend training sessions for six months prior to becoming
"technicians" and graduate to becoming "secondary speakers" on tour. The best
of these secondary speakers eventually rise to the role of primary speaker.
Typically, the Company's speakers are required to enter into an agreement not
to compete with the Company for a period of generally three years after the
termination of their engagement with the Company.
Audio tapes, Videotapes, Books and Other Printed Materials
The Company's seminars and programs are supplemented by audio tapes, video
tapes, books and other printed materials that are licensed to the Company.
Sales of these products accounted for 22%, 20% and 17% of the revenues of the
Company for fiscal 1996, 1995 and 1994, respectively,
The books promoted and sold by the Company include Wall Street Money
Machine, Stock Market Miracles, Bear Market Baloney and Business Buy the
Bible. The Company also sells Brilliant Deductions, The Real Estate Money
Machine, 12 Special Reports, The Incorporation Handbook, How to Pick Up
Foreclosures, Owner Financing, Cook's Book on Creative Real Estate, 101 Ways
to Buy Real Estate without Cash and 555 Clean Jokes. Each of these books was
written by Mr. Cook. These books are sold at prices ranging from $4.95 to
$59.95 depending on the title and excluding shipping and handling.
The audio tapes promoted and sold by the Company include the multi-tape
audio seminars Financial Fortress Home Study and Zero to Zillions. In
addition, the Company sells single tapes that generally address the ideas and
concepts taught in its seminars. The Company's single audio tapes include:
Financial 4x4; Financial Power Pack; Paper Tigers; Unlimited Wealth; High
Performance Business Strategies; Brilliant Deductions II; Retirement
Prosperity; Money Mysteries of the Millionaires; The Power of Nevada
Corporations; Entity Structuring; Outrageous Returns; Tax Updates 1 & 2;
Double Your Money Update; Everything You Ever Wanted to Know About: Cook
University; Everything You Ever Wanted to Know About: The Wall Street
Workshop; Everything You Ever Wanted to Know About: The Real Estate Cash Flow
Boot Camp; Everything You Ever Wanted to Know About: Becoming a Travel Agent;
Income Formulas; Income Streams; Stock Market Power Strategies; Smarter
Money. Mr. Cook is the primary speaker in each of these tapes. These audio
tapes are sold at prices ranging from $33 to $1,695 depending upon the title
of the audiotape or collection of audio tapes.
The videotapes promoted and sold by the Company include the multi-tape
video versions of the Company's seminars Wall Street Workshop and Next Step,
as well as single-tape videos on Dynamic Dollars, Entity Structuring and All
About Wall Street Workshop. The Next Step videotaped seminar is sold at a
price ranging from $1,495 to $2,995. The Wall Street Work Shop Videotaped
seminar is sold at a price ranging from $1,995 to $2,995.
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Entity Formation Services
The Company provides information, forms packages and assistance to
individuals interested in preparing Nevada Corporations, Living Trusts,
Pension Plans, Family Limited Partnerships, Charitable Remainder Trusts and
Business Trusts. After providing its clients with information about the
various entities, the Company typically outsources the formation of the
entities to independent outside vendors for a commission. Prices for the
Company's entity formation services range from $695 to $5,995 depending on
the nature and the number of the entities purchased The entity formation
services of the Company accounted for 14%, 20% and 45% of the Company's
revenues in fiscal 1996, 1995 and 1994, respectively.
WIN Subscriptions
Wealth Information Network ("WIN") is a subscription service provided
by the Company which can be accessed over the Internet 24 hours a day. WIN
provides detailed information on the Company's trades for each day using the
investment strategies discussed in Wall Street Money Machine and Stock Market
Miracles and taught in the Company's seminars. WIN also provides stock
information and updates on the Company's programs and products, including a
schedule of events and seminars provided by the Company. The subscription
rate for the WIN service ranges from $1,995 to $3,695 per year, depending on
the length of service, promotion offered at the time of sale, and whether a
subscriber is also an attendee at a seminar offered by the Company.
Subscription to WIN accounted for 7%, 7% and 2% of the Company's revenues in
fiscal 1996, 1995 and 1994, respectively.
Sales and Marketing
The Company creates interest and demand for its programs, products and
services through a mix of radio advertising, direct mail advertising and
telephone and Internet marketing.
Radio Advertising
The Company primarily uses radio advertising to reach potential
customers. Advertising on the radio permits the Company to consistently
advertise its programs and products to potential customers nationally.
Generally, the Company advertises on the radio offering a free audio tape
explaining certain stock market strategies and informing customers of a
financial clinic that will be presented by the Company. The radio advertising
attracts customers to the Financial Clinic seminars, which then introduce
and market the other programs, products and services provided by the
Company. The management of the Company believes that radio advertising is
crucial to maintaining the Company's current market niche and to maintaining
or increasing its revenues. Any factors that adversely affect the
availability or attractiveness of radio advertising for the Company, such as
a significant price increase in the cost of radio advertising, could have a
material and adverse effect on the Company's business, financial condition
and results of operation.
Direct Mail Marketing and Advertising
The Company markets its programs, products and services through direct
mailing to its mailing list of over 300,000 individuals, many of whom have
previously attended one of the Company's seminars or purchased the Company's
products. A centralized marketing department develops the Company's catalogs,
brochures and advertisement using desktop publishing, and electronic
pre-press technology to create the files used to produce direct full-color
film for plate-making. This capability enables the Company to make quick
improvements to its marketing materials in order to feature the latest
financial developments and address market opportunities in a timely manner.
Sales Team
The Company's sales force consists of over 180 people who are responsible
for responding to phone, e-mail, Internet and facsimile orders and inquiries
received by the Company, as well as for following up with existing
10
<PAGE>
clients to promote additional programs, products and services. The Company
provides its sales staff daily training to refine their sales skills and to
provide updates on the products, programs and services being offered by the
Company. The Company believes its sales force has been critical to the
Company's success in selling its products, program and services.
Internet Marketing
The Company maintains an Internet web site at http://www.wadecook.com
to market and promote its programs, products and services. The web site has
information on the Company's programs, products and services and certain
limited information on stock and investment strategies. A WIN subscriber can
access WIN through the web site. The Company believes that the Internet will
become an increasingly significant marketing channel to prospective clients
in the future.
Dependence on Certain Relationships
The Company derived the preponderance of its revenues in fiscal 1996,
1995 and 1994 from sponsoring and promoting products, seminars and services
licensed from Money Chef and believes that it will continue to derive the
majority of its revenues in the foreseeable future from these sources. In
January, 1993, the Company entered into a Product Agreement with Money Chef
for the non-exclusive rights to promote and sponsor seminars, entity
formation services and products owned or controlled by Money Chef. Mr. Cook
is the President of Money Chef and is a trustee of a trust, created for the
benefit of Mr. Cook's family, that owns all of the outstanding shares of
Money Chef. Accordingly, any factor adversely affecting the Company's
relationship with Mr. Cook or Money Chef could have a material and adverse
effect on the Company's business, financial condition and results of
operation.
Mr. Cook has granted a license to Simon & Schuster to market the
audio rights to `Wall Street Money Machine'. Further, Mr. Cook has stated
that in the future he may be willing to provide exclusive rights to the
Company with respect to intellectual property including publishing and
marketing rights thereto created by him although he is under no obligation to
do so.
On June 26, 1997, Wade Cook Seminars, Inc. renegotiated the Product
Agreement for an additional period through June 30, 2002 for a flat royalty
of 10% of gross sales. For fiscal years 1995 and 1996, Money Chef had the
right to take a royalty ranging from 10% to 50% of gross revenues however
they opted to take only 10%. Mr. Cook does not have an "outputs contract"
(i.e., a contract giving the Company the first right to license or otherwise
obtain the rights in and to all of the products Mr. Cook writes and creates)
with the Company and so the Management of the Company can not guarantee that
all future products created by Mr. Cook will be licensed by the Company under
the terms of the Product Agreement.
The Company also entered into an agreement with Mr. Cook for the
publication rights in the United States, its territories, dependencies and
possessions and the republic of the Philippines and Canada and the right to
sell copies in the open market throughout the world for the books Real Estate
Money Machine, Wall Street Money Machine, Stock Market Miracles, Bear Market
Baloney and Business Buy the Bible. Under the terms of each Agreement (all of
which agreements are substantially similar), the Company is obligated to pay
Mr. Cook 10% of the retail selling price for each book sold. Certain
additional rights in each book are to be shared equally. Such rights include:
the right to receive royalty payments for abridgment, condensation or digest
treatment, Anthology or annotation, sale to book clubs or similar
organizations, reprint, special editions and second serial and syndication
rights including reproduction in compilations, magazines, newspapers, or
books.
11
<PAGE>
Intellectual Property
The Company regards its seminars, workshops and other materials as
proprietary and relies primarily on a combination of statutory and common law
copyright, trademark and trade secret law, plus employee and third-party non-
disclosure agreements and other methods to protect its proprietary rights.
Notwithstanding the foregoing, a third party or parties could copy or otherwise
obtain and use the Company's materials in an unauthorized manner or use these
materials to develop programs, products and services which are substantially
similar to those of the Company. If substantial unauthorized use of the
Company's products were to occur, the Company's business and results of
operations could be materially and adversely affected. There can be no assurance
that the Company's means of protecting its proprietary rights will be adequate
or that the Company's competitors will not independently develop similar
educational materials, similar seminars, workshops and programs or delivery
methods. See "--Dependence on Certain Relationships".
Customers
The Company's customers are individuals with a broad variety of
backgrounds, who are interested in one or more of the seminar topics which are
presented by the Company. The Company is not dependent upon any single customer
for any of its businesses, and has no contracts or other agreements with any
third party pursuant to which the Company generates a material amount of its
revenues.
Competition
The highly competitive market in which the Company operates is
fragmented and decentralized, with low barriers to entry. The management
believes that the Company is among the largest competitors in the financial
education market and that no single competitor accounts for a dominant market
share. The Company's competitors include other companies and individuals who
promote and conduct seminars and provide products on topics relating to
investment, financial planning and personal wealth management. The Company
believes that the majority of independent training providers are small
organizations, which often provide training as one of several services or
product lines or provide limited services and product lines. The Company
differentiates itself from these providers based on its size, the scope and
quality of its proprietary course offerings and the number, quality and
experience of its instructors. Some of these competitors however offer
courses and products similar to the Company at lower prices. In addition,
many of the Company's competitors sponsor and conduct seminars free of charge
as a marketing tool for other business. These competitors include
stockbrokers, franchisers of business opportunities and portfolio and tax
consultants. Some competitors have greater financial and other resources than
the Company. There can be no assurance that the Company will be successful in
maintaining its current position in the financial education market or
continue to be successful against such competition.
Employees and Consultants
The Company currently employs 342 full-time employees and 10 part-time
employees. In addition, the Company has engaged the services of approximately
35 independent contractors, primarily as seminar speakers. On June 24, 1997,
the Company had 80 seminar speakers (including full time and part time
employees and consultants) 39 shipping and order fulfillment employees, 186
sales staff, 5 graphics staff, 12 marketing and advertising professionals and
70 management, legal, accounting and administrative staff. None of the
Company's employees are represented by a labor union. The Company believes
that its relationship with its employees is good.
Real Estate and Other Investments
Historically, the Company has invested the majority of its excess cash in
marketable securities. The Company has also made small investments in certain
venture capital partnerships and private companies. Although the Company is
continuing to invest a significant portion of its excess cash in marketable
securities, it is also aggressively seeking alternative vehicles through which
the Company can invest excess cash from its programs, products and services and
from its existing investment portfolio.
12
<PAGE>
Recently, the Company began focusing on investment opportunities in real
estate related markets. Primarily through Profit Financial Real Estate
Management Company, Inc., a wholly owned subsidiary of Profit ("RE
Management"), and various other subsidiaries (together, the "Real Estate
Subsidiaries"), the Company has begun investing in real estate projects.
Typically, the Company invests in real estate limited partnerships as the
sole or as a significant limited partner, and in some cases, acts as a
general partner. Through these investments, the Company has significant
ownership interest in four hotels in various stages of development and is
aggressively evaluating several other real estate investment opportunities.
To date, the investment amounts per project have ranged from $228,000 for
less than 10% percent of a project to $3,450,000 for 100% ownership of a
project. Of the Company's hotel/motel project investments, one hotel is an
operating business, one hotel is currently under construction, and two are
investments in real property on which hotels or motels are scheduled or
planned to be constructed under the name Fairfield Inn Suites or Hampton Inn
Suites. In late 1996, the Company purchased its headquarters in the Seattle,
Washington area for approximately $3 million and spent approximately $2.5
million on tenant improvements.
The Company's strategy for fiscal 1997 is to continue to directly and
indirectly make real estate-related investments, including acquiring and
developing hotels and motels primarily in Utah, Nevada, California and
Washington. The Company is currently evaluating or negotiating its investment
in a variety of properties and plans on making up to fourteen additional real
estate related investments in fiscal 1997. Depending on the investment
opportunities that become available to the Company, the Company may also seek
to expand its existing investment portfolio in fiscal 1997 to include, among
other things, substantial interests in private and public companies in
related and unrelated businesses.
The type of investments that the Company is seeking involve numerous risks,
including potential difficulties in the assimilation of any acquired assets,
operations or businesses, diversion of management's attention away from normal
operating activities, and the diversion of the Company's resources from other
investment opportunities. The Company has limited experience in executing and
implementing such investments and no assurances can be given as to the success
of the Company in executing and implementing the investments that the Company
is currently involved with or may be involved with in the future.
ITEM 2. FINANCIAL INFORMATION.
The following table summarizes certain selected financial data and is
qualified in its entirety by the more detailed financial statements contained
elsewhere in this Registration Statement.
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1996 1995 1994 1993** 1992**
---- ---- ---- ------ ------
AUDITED AUDITED AUDITED
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales $40,724,515 $7,567,335 $1,973,145 $727,974 $573,492
Cost of Sales 15,682,936 3,373,888 861,734 146,727 118,504
---------- --------- ------- ------- -------
Operating income (loss) 4,739,876 339,446 (22,667) 351,165 393,344
Net income(loss) per share .46 .02 (.03) .14 .20
--- --- ----- --- ---
Number of shares used in
computing net income (loss)
per share* 6,623,280 6,398,426 6,398,426 2,463,228 2,368,554
------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------------------------------------------
1996 1995 1994 1993** 1992**
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $ 635,141 $26,840 $ 1,001 $ 11,344 $ 1,590
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<PAGE>
Working capital (3,890,698) (763,216) 10,663 1,792,582 2,928.527
Long-term obligations -- -- -- 466,860 476,529
Total assets 16,937,659 2,283,055 675,347 3,120,478 3,984,138
Total stockholders equity 3,702,024 528,899 405,101 2,432,059 3,606,467
</TABLE>
See Note A of Notes to Financial Statements for an explanation of the
computation of per share data.
** The 1993 and 1992 figures include results of operation of business lines
which were spun off in connection with the reorganization in 1995.This balance
sheet information is based solely on the Company's 1993 and 1992 tax returns.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION AND FINANCIAL
CONDITION
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes to Consolidated Financial
Statements contained elsewhere in this Registration Statement.
Overview and Outlook
Profit is a holding company that, through its subsidiary WCSI, conducts
educational investment seminars and produces and sells audio tapes, videotapes,
books and other written materials focused on investment strategies, financial
planning and personal wealth management. The Company also invests in marketable
securities, and invests in real estate related limited partnership, venture
capital limited partnerships and private companies. WCSI also hosts WIN, an
internet website that allows subscribers to log on for information related to
the stock market at http://www.wadecook.com. Two other of the Company's
subsidiaries, Left Coast Advertising, Inc. and Lighthouse Publishing Group, Inc.
conduct advertising and publishing services, respectively, for the Company. To
date, the vast majority of revenues of the Company have been derived from the
educational seminars and products related to such seminars. These seminars and
related products are almost exclusively based on products and seminars developed
by Mr. Cook and are licensed to the Company by entities owned or controlled by
Mr. Cook, or by members of his family pursuant to a Product Agreement with
Money Chef. The Company believes that the sales of seminars and products
developed by Mr. Cook will constitute the majority of revenues for the Company
for the foreseeable future. Accordingly, any factor adversely affecting Mr.
Cook or the Company's relationship with Mr. Cook or Money Chef would have a
material adverse impact on the Company's business, financial condition and
results of operation. See "Risk Factors-Dependence on Certain Relationships".
The Company is currently seeking to develop new seminars and products with
new authors so that it can diversify its seminar topics, protect its current
role as a leader in the educational investment seminar business, and attract
new customers. The Company may also seek joint ventures with other similar
seminar businesses to expand its customer and product base. However, there can
be no assurances that the Company will be successful in these endeavors. The
failure of the Company to successfully expand its customer and product base and
minimize its dependence on Mr. Cook may have a material and adverse effect upon
the Company's future business and prospects.
The Company believes that the success of the Wall Street Workshop, which
accounts for the vast majority of the Company's current revenues, is due in
part to the ability of its workshop facilitators to make demonstration trades
with stock brokers during the seminars to familiarize students with the trading
process. Typically, after discussing certain stock market strategies, the
facilitators during the seminar will phone a stockbroker of his or her choosing
and will enter actual orders to purchase or sell securities. The purpose of this
demonstration during the class is to illustrate the process of trading these
investments. An example of such a transaction is the purchase or sale of 10 call
option contracts at a price of $300 per contract to settle in three days for an
amount of $3,000.00.
In order to allow facilitators to make actual purchases or salesof
marketable securities during the course of the Wall Street Workshops, the
Company has set up sub-accounts within its own brokerage accounts and has
authorized trading limits in a range of $25,000 to $40,000 depending upon the
facilitators background, experience and length of time with the Company. After
an investment is made, many of these investments are sold
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<PAGE>
by the Company's in-house traders without returning the rate of return
anticipated by the facilitators in making the investment.
The Company's need to maintain an adequate cash position in every brokerage
account, especially when every account is a margin account, sometimes requires
the Company to liquidate the investments made by its facilitators, even if they
produce losses. Historically, the losses have generally been offset by the short
term capital gains achieved by the facilitators and money managers. The Company
reported gains (losses) on trading securities of $92,711, $88,719 and $(1,616)
for the periods ending December 31, 1996, 1995 and 1994, respectively. The
financial results reported included unrealized losses of $226,264, $20,899 and
$23,180 for the same periods, respectively. However, there can be no assurances
that losses will not arise in the future. Although these sub-accounts are only
a small portion of the Company's portfolio of assets, the risk of investing in
stocks and derivatives creates the possibility of some losses for the Company.
The investment portfolio of the Company has materially increased from
1994 through 1996. The Company intends to continue to invest in its stock
market portfolio as necessary to support the trading of securities during the
Wall Street Workshops as a teaching mechanism, to use its portfolio as a tool
to train speakers for the Wall Street Workshop and to attempt to earn
investment income. The Company intends to pursue its current stock market
investment strategies. However, there can be no assurances that the condition
of the stock market will be what the management of the Company anticipates
that it will be at any given time or that the Company will be in a position
to effectively take advantage of existing market conditions. As with any
investment in the stock market, the Company may suffer significant losses
from pursuing its investment strategies.
WCSI has grown from three employees in 1989 to over 300 employees in 1997.
The increase in staffing at the Company reflects the dramatic growth in demand
for the Company's seminars and the corresponding need to increase the Company's
sales forces to adequately service the increasing customer base and to
coordinate seminars in most major cities in America. The management of the
Company believes that the historical rate of expansion of its staff in 1994,
1995 and 1996 will slow down in 1997 as the current number of employees is
sufficient for the Company's current needs.
Although the Company has historically been profitable, there can be no
assurance that the Company will maintain or increase revenues, maintain
profitability or avoid losses in any future period. The future results of
operation, both annually and from quarter to quarter, are subject to a variety
of factors applicable to the Company and the industries and markets in which it
operates.
Results of Operations
Quarterly Results
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 MARCH 31, 1997 AND MARCH 31, 1996
Gross revenues continued to increase, due largely to the increase in the
number of seminars provided by
15
<PAGE>
the Company. The Company reported gross revenues for the quarter ended March
31, 1997 of $18,588,388 as compared to gross revenues of $5,575,284 for the
same period in 1996.
The cost of generating revenues was $7,550,409 for the period ended
March 31, 1997, as compared to $2,163,080 for the same period in 1996.
Gross profits, following the same trend as gross revenues, increased
during the period ended March 31, 1997 to $11,037,979 as compared to
$3,412,204 during the same period in 1996.
The net income for the Company, after taxes, was $1,326,975 for the period
ended March 31, 1997, as compared to net after-tax income of $1,007,695 for the
same period in 1996. Notwithstanding a significant increase in gross revenues,
net income remained relatively stable, due to a substantial increase in selling,
general and administrative expense, of which major components are personnel and
advertising costs.
The Company experienced unusual demands on its cash resources in the first
quarter of 1997. A substantial factor in the increased demands for cash was the
renovation and relocation into its new headquarters offices located in Tukwila,
Washington. Additionally, the Company made a substantial cash investment in the
Fairfield Inn Suites at Provo, Utah. Capital expenditures during the quarter
ended March 31, 1997 were $5,849,351. Borrowings during this period were
$1,477,610 and accounts payable increased by $3,370,404.
Annual Results
The following table provides a summary of the Company's operating results
for the years 1996, 1995 and 1994:
<TABLE>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
---- ---- ----
AUDITED AUDITED AUDITED
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales $40,724,515 $7,567,335 $1,973,145
Cost of Sales 15,682,936 3,373,888 861,734
Operating income (loss) 4,739,876 339,446 (22,667)
Net income(loss) per share .46 .02 (.03)
Number of shares used in computing net
income (loss) per share*
6,623,280 6,398,426 6,398,426
</TABLE>
* See Note A of Notes to Financial Statements for an explanation of the
computation of per share data.
The Company has increased its gross revenues in each of the past three
years. Gross revenues of the Company were $1,973,145 in 1994, $7,567,335 in
1995 and $40,724,515 in 1996.
The rapid increase of gross revenues for the Company from 1994 to 1996 is
due to a variety of factors including, the dramatic increase in the frequency
of various seminars, the significant increase in fees for the seminars, the
establishment of the Wall Street Workshop program, the development of WIN, the
sales of the book, "Wall Street Money Machine," and the introduction of two new
seminars.
The average retail price of the seminars have generally increased 73%
from 1994 to 1995 and 25% from 1995 to 1996. Wall Street Workshop was
increased from $780 in 1994 to $1,677 in 1995 and $2,195 in 1996. Wealth
Academy increased from $1,950 in 1994 to $2,206 in 1995 to $3,286 in 1996.
The fee for the WIN internet service increased from $495 in 1994 to $1,995 in
1995 and $2,995 in 1996. The fee increase allowed the Company to focus its
resources to develop and increase market and research support for its web
site. In fiscal 1997, the Company does not anticipate any significant changes
in the fee structure for any of its programs.
16
<PAGE>
The Company has increased the frequency of Wall Street Workshops from two
per month in 1995 to two per week in early 1996, to five times per week in
early 1997. The Company will attempt to continue increasing the number and
frequency of seminars that the Company offers.
Net Sales. The net income for the Company for the past three fiscal years
was a net loss of $195,730 for 1994 to a net profit of $123,798 in 1995 and
$3,064,639 in 1996. This represents an increase of $319,528, or 163% from 1994
to 1995 and $2,940,841, or 2376% from 1995 to 1996. It should be noted that the
reorganization of Profit occurred on May 18, 1995, and the losses carried by
Profit for the first four and one-half months of 1995 affected the profit and
loss margin for the Company. The management of the Company anticipates strong
growth in fiscal 1997, however, there can be no assurances.
Cost of Sales. Although the direct costs of staffing the individual
seminars, workshops, or financial clinics as a percentage of net sales have
remained relatively stable over the past three years, the total cost has
increased to correspond with the rise in the number of seminars, workshops
and financial clinics provided by the Company. From 1994 to 1995, costs went
from $861,784 to $3,373,888, which is an increase of $2,512,104 or 292%, and
from 1995 to 1996, costs went from $3,373,888 to $15,682,936, which is an
increase of $12,309,048 or 365%.
A significant cost of sales to the Company are payments to Mr. Cook and
primarily his affiliate Money Chef, Inc.under various agreements to compensate
him for the use of the intellectual property owned by him or his affiliates. In
that regard, the Company accrued costs of $4,366,183, $755,550, $, and $82,923
for 1996, 1995 and 1994, respectively.
The seminar business is not generally seasonal in nature although the
Company experiences somewhat slower participation rates during July and August.
Liquidity and Capital Resources
Since the acquisition of WCSI in 1995, the Company has financed its
operations primarily through cash flow from operations. At December 31, 1996,
1995 and 1994, respectively, the Company had cash and cash equivalents of
$635,141, $26,840, $100, respectively. Total assets increased from $594,216 in
1994 to $2,283,055 in 1995 to $16,937,659 in 1996 and total liabilities
increased from $184,967 in 1994 to $1,458,352 in 1995 to $12,618,335 in 1996.
Although no assurances can be given, the Company does not anticipate any trends
which will materially increase or decrease its current level of liquidity.
In the past, the Company had the opportunity to increase its liquidity
by its investment strategies in the purchasing and selling of marketable
securities. The investment in marketable securities will need to continue for
teaching purposes with respect to each Wall Street Workshop. In addition, the
Company anticipates it will maintain or increase its current level of
investment in marketable securities in the future. The Company may channel
some of the liquidity of its investment portfolio into real estate limited
partnerships that are purchasing hotels or motels or underlying real property
to construct such hotels, to making investments in venture capital limited
partnerships or other less liquid investments or paying down underlying debt
attached to its corporate headquarters. See "Business-Real Estate and Other
Investments".
The current monthly payments for the outstanding loan for the corporate
headquarters of $50,000 per month will increase on September 1, 1997 to
$100,000 per month, until February 1, 1999. The contract allows the Company
to make lump sum prepayments on January 1, or July 1, in increments of
$100,000 but not more than $500,000. The Company may make a prepayment of
$500,000 on July 1, 1997. There is no prepayment penalty.
Except for the mortgage on its corporate headquarters, the Company
currently does not access external sources of liquidity and the management of
the Company does not currently expect to access external sources of liquidity
in the immediate future.
The Company has material commitments for its various hotel or motel
development projects. The real
17
<PAGE>
estate subsidiaries have long term or short term debt payments for various
hotel and motel development projects that will affect the Company's liquidity
in 1997. These include monthly payments of $10,430 and a down payment of
$25,000 for its 8.8% ownership of Park City Hotel Partners, Limited
Partnership, by WCSI; $690,000 payment for 51% ownership of FSS, Limited
Partnership; $590,000 for 51% ownership of Reno F.I.S., Limited Partnership;
$3,450,000, including payments of $1,400,000 in 1997 as well as monthly
payments of approximately $16,000 for 100% ownership of Rising Tide, Limited
Partnership. The anticipated source of revenue to meet these commitments will
be from operational revenue and investment portfolio growth. The management
of the Company believes that some revenue may be generated through income
from the limited partnerships owning the hotels/motels if occupancy increases
in late 1997 and early 1998. However, these expectations may not be met if
the investment portfolio held by the Company experiences little growth or a
diminution in value or if the existing trend of increased occupancy in
hotel/motels adversely changes.
The liquidity of the Company may be impaired in the event the underlying
loans wrapped by Rising Tide, Limited Partnership ("Rising Tide"), an indirect
subsidiary of the Company, are called by the lenders. On or about March 7, 1997
Rising Tide agreed to enter into an all-inclusive trust deed (with assignment
of rents) pursuant to which deed Rising Tide assumed the debt of East Bay
Associates, LLC (a non-affiliate) for a loan from The Bank of Utah in the
amount of approximately $791,000 and a loan from the Greater Salt Lake Business
District in the amount of approximately $788,000. The deed of trust contained
additional terms and conditions usual and customary of trust deeds. Both loans
may be accelerated at any time, which, if occured, would create a cash flow risk
for the Company and reduce the ability of the Company to continue its investment
strategies in purchasing hotels. Although there can be no assurances that the
loans will not be accelerated, the management of the Company does not anticipate
the loans will be accelerated and has structured the wrap around an assumption
package to pay off the debt. In addition, the hotel owned by Rising Tide is
operational and producing a current income stream. The income stream from Rising
Tide may be used to minimize the impact that the acceleration of the loans would
have on the liquidity of the Company.
The major expenses for the completion of the remodeling and refurbishing
of the corporate headquarters will be completed by the summer of 1997. The
Company purchased, in cash, all the office furniture, office equipment, and
office art in past fiscal year and the first quarter of 1997. The Company
does not anticipate any significant expenses exceeding $250,000 for its
corporate headquarters in 1997.
The Company's current financial resources and estimated cash flow from
operations are expected to provide adequate capital to fund the Company's
operations, including its various real estate development projects, for the
next twelve months.
The Company has unused sources of liquid assets in a stock market
portfolio estimated at $5 million which the Company will seek to invest in
various vehicles. See "Business - Real Estate and Other Investments".
Other Matters
Inflation did not have a significant impact on the Company's operations
in fiscal 1996, 1995 and 1994.
ITEM 3. PROPERTIES.
The Company's headquarters are located in a three-story, 63,000 square
foot office building in Seattle, Washington. The Company purchased the
building in 1996, and believes that the facility is adequate for the
Company's needs for the foreseeable future. The headquarters building houses
the management and sales staff of Profit, together with its subsidiaries
WCSI, Left Coast, Lighthouse Publishing and RE Management. The headquarters
building also contains three seminar rooms at which the Company conducts
seminars for the Seattle metropolitan area. The Company leases approximately
29,000 square feet of warehouse space in Tukwila, Washington where it stores
and ships audio tapes, video tapes, books and other printed materials. The
lease for such space expires in April 2000.
18
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of June 24, 1997 for
(i) each executive officer of the Company; (ii) each director of the Company;
(iii) all executive officers and directors of the Company as a group; and
(iv) each person known by the Company to be the beneficial owner of more than
five percent of the Common Stock:
<TABLE>
<CAPTION>
Beneficial Owner(1) Shares Beneficially % of Outstanding
Owned(2) Stock(3)
-------- --------
<S> <C> <C>
Officers and Directors:
Wade B. Cook(4).................................................... 4,138,540 60.1%
Andrew T. Rice..................................................... 0 *
Laura M. Cook(5)................................................... 4,138,540 60.1%
Cheryle Hamilton................................................... 140 *
Robert T. Hondel................................................... 20,140 *
Dr. Warren H. Chaney............................................... 0 *
John V. Childers(6)................................................ 20,140 *
Nicholas Dettman................................................... 0 *
Eric W. Marler(7).................................................. 20,500 *
All executive officers and directors of the 4,181,460 60.4%
Company as a group (9 persons).........
Non-management 5% Stockholders:(8)
Yeaman Enterprises, Inc.(6)
3098 S. Highland Drive, Suite 460
Salt Lake City, Utah 84106..................................... 741,813 13.7%
Wade B. Cook and Laura M. Cook
Family Trust(7)................................................ 2,800,000 41.9%
</TABLE>
*........Represents beneficial ownership of less than 1% of the
outstanding shares of the Common Stock
(1) Unless otherwise indicated, the address of the beneficial owner is c/o
Profit Financial Corporation, 14675 Interurban Avenue South, Seattle,
Washington 98168-4664.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to stock options and warrants currently exercisable or exercisable within
60 days are deemed to be outstanding for calculating the percentage
ownership of the person holding such options and the percentage
ownership of any group of which the holder is a member, but are not
deemed outstanding for calculating the percentage of any other person.
Except as indicated by footnote, and except for voting or investment
power held jointly with a person's spouse, the persons named in the
table have sole voting and investment power with respect to all shares
of capital stock shown beneficially owned by them.
(3) Percentage is calculated based upon 6,680,864 shares of Common Stock
outstanding on June 24, 1997.
(4) Includes (a) 938,540 shares owned by Mr. Cook, (b) 200,000 shares owned
by the Wade Cook Family Trust, a trust established for the benefit of
Mr. and Mrs. Cook's family, (c) 200,000 shares of Common Stock subject
to immediately exercisable option to exercise options held by Yeaman
Enterprises Inc., and (d) shared voting and investment power over
2,800,000 shares of Common Stock owned by the Wade B. Cook and Laura M.
Cook Family Trust, a trust established for the benefit of Mr. & Mrs.
Cook's family. Wade B. Cook and Laura M. Cook are husband and wife. All
shares held by Mr. Cook are held as community property. Mr. Cook is the
trustee of the trusts.
(5) Includes shared voting and investment power over 2,800,000 shares of
Common Stock owned by the Wade B. Cook and Laura M. Cook Family Trust,
Wade B. Cook and Laura M. Cook are husband and wife. Also includes
1,338,540 shares or options owned by Mr. Cook or by the Wade Cook Family
Trust, as to which Mrs. Cook disclaims beneficial ownership. All shares
held by Mrs. Cook are held as community property
(6) Includes 20,000 shares subject to exercisable options.
(7) Includes 2500 shares subject to an immediately exercisable option and
200,000 shares subject to option to purchase immediately exercisable
options.
(8) These shares of Common Stock are held in a Custodial Trust Account at
Yeaman Enterprises, Inc. for the benefit of Mr. Yeaman's family.
Mr. Yeaman disclaims beneficial ownership for such shares. Includes
options to acquire 100,000 shares of common stock on July 31, 1997 and
100,000 shares on August 31, 1997
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The following table sets forth certain information as of June 21, 1997
concerning each of the directors, executive officers and other senior officers
of the Company:
19
<PAGE>
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <C>
Wade B. Cook 47 President and Chairman of the Board
Andrew T. Rice 40 Treasurer and Controller
Laura M. Cook 44 Secretary and Director
Cheryle Hamilton 45 Director of Lighthouse Publishing
Robert T. Hondel 54 General Sales Manager of WCSI
Dr. Warren H. Chaney 54 Director
John V. Childers 52 Director
Nicholas Dettman 49 Director
Eric W. Marler 39 Director
</TABLE>
Wade B. Cook has been the Chairman of the Board and the President since
June, 1995. Mr. Cook also served as Treasurer and President of WCSI since 1989.
Mr. Cook is an internationally recognized author of 15 books on finance, real
estate, asset protection and the stock market, and trainer and speaker on these
topics, and the developer of educational products on investing and personal
wealth management. Mr. Cook is the husband of Laura M. Cook.
Andrew T. Rice has been Treasurer and Controller for the Company since
June 1997. Prior to his involvement with the Company, Mr. Rice was Controller
for Cosmos Development and Administration Corp. a major real estate
development company based in Bellevue, Washington.
Laura M. Cook has been the Secretary and a member of the Board of Directors
of the Company since May 1995. Mrs. Cook has also served as an officer and
operational manager in several subsidiaries of the Company. Mrs. Cook has also
managed accounting systems for various corporations for 15 years. Mrs. Cook is
the wife of Mr. Cook.
Cheryle Hamilton has been the Director of Lighthouse Publishing since
October, 1996. From March, 1996 to February, 1997, Ms. Hamilton served as
Human Resources Director for the Company. Prior to her involvement with the
Company, Ms. Hamilton was Executive Assistant of Sunsportswear, Inc., a
clothing manufacturer located in Seattle, Washington. She also provided
intellectual, property and marketing consulting on a contract basis from 1991
to 1994.
Robert T. Hondel is the General Sales Manager of WCSI. Mr. Hondel left
retirement to join the Company. Prior to joining the Company, Mr. Hondel spent
18 years as the Director and President of the Knapp College of Business in
Tacoma, Washington.
Dr. Warren H. Chaney has served on the Board of Directors since July
1996. Since 1980, Dr. Chaney has been involved in the motion picture and
television industry as writer, director and producer for projects originating
from Paige-Brace Cinema, Ltd., Lorimar Films, TMS, Inc., Skorris Films Inc.,
Sandpiper Productions, Inc., Leading Edge Entertainment, Inc., Warren Chaney
Productions, Ind., Intercontinental Releasing Corporation, and Millennial
Entertainment.
John V. Childers has been a member of the Board of Directors since
August 1995. In addition to his duties as Director, Mr. Childers acts as a
Speaker Trainer of the Company. Prior to his association with the Company,
Mr. Childers was the Chairman and President of Ideal Travel Concepts, a
travel company with locations in Tennessee and Florida.
Nicholas Dettman has been a member of the Board of Directors since May,
1995. He is a captain of Delta Airlines, located in Atlanta, Georgia for over
30 years. He is the owner and operator of Kalowai Plantation, a orchid ranch
in Kauai, Hawaii.
Eric W. Marler has been a Director since December 1996 and has been a
speaker for the Company since September 1996. Mr. Marler also served as Chief
Financial Officer of the Company from December 1996 to June 1996. Mr. Marler
is Vice President of Cascade Management Associates LP, a firm that provides
tax consulting.
20
<PAGE>
Prior to his involvement with the Company, Mr. Marler practiced as a
Certified Public Accountant giving advice on income tax and profitability
planning with Martin/Grambush, P.C., an accounting firm located in Kirkland,
Washington.
Board of Directors
Directors of the Company are elected by the Company's shareholders and
hold office until the next annual meeting of shareholders and until their
successors are elected and qualified, or until their earlier resignation or
removal. The Company's officers serve at the discretion of the Board of
Directors.
No director that is an employee of the Company is compensated for services
as a member of the Board of Directors or for services on any committee of the
Board of Directors. Compensation for non-employee directors consists of a
retainer of $500 dollars per year. Compensation for all non-employee directors
also consist of a fee varying from $25 to $125 depending on the length of the
meeting for each board meeting and committee meeting attended in person or by
telephone. Directors are reimbursed for reasonable travel and out-of-pocket
expenses incurred on behalf of the Company. Each of Directors Childers, Dettman
and Chaney has received a grant of options to acquire 10,000 shares (pre-
split) of the Company's Class A common stock at $3.00 per share. All of the
Options have been exercised. This grant was a one-time dispensation in reward
for past services to the Company and is not necessarily intended to establish a
Company policy of awarding non-employee directors stock options as compensation
in part for service to the Company as a director. Notwithstanding the foregoing,
the Company does plan to implement a stock option plan which will provide for,
but not require, the grant of options to directors in the future.During the
fiscal year ending December 31, 1996, the Company did not have a compensation
committee. All matters concerning executives compensation were addressed by Mr.
Cook. The Company is planning to implement a compensation committee and an
audit committee later this year.
Involvement in Legal Proceeding
The State of Arizona commenced an administrative proceeding against Wade
B. Cook and his former businesses American Business Alliance and Monarch
Funding Corporation in February, 1989. The State of Arizona issued an
administrative order, on or about May 1989, concluding that Mr. Cook and his
businesses had violated various securities laws, including anti-fraud
provisions, and as a result, ordered them to (1) pay over $390,000 in
restitution (2) jointly and severally pay a $150,000 administrative penalty,
and (3) to cease and desist the allegedly fraudulent conduct. Mr. Cook is
currently in the process of negotiating the treatment of this proceeding.
The U.S. Securities and Exchange Commission has commenced a private
formal investigation against the Company and certain of its officers and
directors, including Mr. Cook. In addition, the Securities Division of the
State of Washington has commenced an informal investigation of Mr. Cook,
together with WCSI and the Company. The Company does not believe it or any of
its officers engaged in any inappropriate activity or violated applicable
laws. See "Legal Proceedings".
Employment Agreements
Pursuant to an Employment Agreement, dated as of June 25, 1997 and
effective as of July 1, 1997, Mr. Cook will be employed as Chief Executive
Officer and President of the Company. The Employment Agreement provides for a
three-year term in which Mr. Cook will receive an annual base salary of
$240,000 in Year 1, $265,000 in Year 2 and $290,000 in Year 3. According to
the Employment Agreement, Mr. Cook may receive additional bonuses for work as
approved by the Board of Directors of the Company. To date, no such bonuses
have been requested or approved. In addition, Mr. Cook is entitled to
reimbursement for reasonable travel and business entertainment expenses
authorized by the Company, as well as certain fringe benefits.
ITEM 6. EXECUTIVE COMPENSATION.
The following table sets forth information regarding employee
compensation paid for all services rendered to the Company in all capacities
during fiscal 1996 by the Company's Chief Executive Officer, (one current
21
<PAGE>
executive officer and one former executive officer). No other executive
officers of the Company received in excess of $100,000 during the last fiscal
year.
22
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation
Name and Position Salary Bonus Other Long Term All Other
- ----------------- ------ ----- ----- --------- ----------
(3) Compensation Compensation (1)
----- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Wade B. Cook, $90,628 none none none $4,366,183 (2)
President and Chairman,
Chief Executive Officer
Robert T. Hondel, $180,069 $1,000 --- none ---
General Sales Manager
Christopher Carde (4) $222,550 $1,500 none none ---
Former General Counsel, CEO
and Director
Margaret Huss
Sales Representative $127,459 $38,803 none none ---
Barry Collett $9,652 $125,541 none none ---
Sales Representative
</TABLE>
(1) Certain of the Company's executive officers received personal benefits
in addition to salary and cash bonuses, including car allowances or
the use of a car owned by the Company and mortgages at market rates.
The aggregate amount of such personal benefits however, do not
exceed the lessor of $50,000 or 10% of the total of the annual
salary and bonus reported for the named executive officers.
(2) Royalties are paid by WCSI indirectly to Mr. Cook pursuant to a Product
Agreement. Amounts shown are accrued royalties payable for the year
1996 and do not necessarily represent amounts actually paid to Money
Chef. See "Certain Relationships and Related Transactions".
(3) All employees of the Company, including Mr. Cook, have received at
least once approximately 40 shares of the Company's common stock
from time to time as a bonus in exceeding certain sales expectations.
(4) Mr. Carde's employment was terminated on May 7, 1997.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company had a Product Agreement on January 3, 1993 with Money Chef
setting forth certain terms for the right to use the name and products. The
royalty payments paid to Money Chef under the Product Agreement ranged from
10% to 50% of gross sales (as defined in the Product Agreement). In fiscal
1995 and 1996, the Company was generally required to pay Money Chef 10% to
30% of gross sales, with Money Chef having the right to specify the
percentage within the 10% to 50% range that the Company must pay. Money Chef
has opted to receive the minimum amount of royalties of 10% in each of fiscal
1996 and 1995. The Company paid royalties of $4,366,183 in 1996 and $755,550
in 1995 and $82,923 in 1994.
On June 26, 1997, Wade Cook Seminars, Inc. renegotiated the Product
Agreement for an additional period through June 30, 2002 for a flat royalty
of 10% of gross sales. Mr. Cook does not have an "outputs contract" (i.e., a
contract giving the Company the first right to license or otherwise obtain
the rights in and to all of the products Mr. Cook writes and creates) with
the Company and so the Management of the Company can not guarantee that all
future products created by Mr. Cook will be licensed by the Company under the
terms of the Product Agreement.
The royalty payments paid to Money Chef under the Product Agreement
ranged from 10% to 50% of gross sales (as defined in the Product Agreement).
In fiscal year 1995 and 1996, the Company was generally required to pay
Money Chef 10% to 30% of gross sales, with Money Chef having the right to
specify the percentage within the 10% to 50% range that the Company must
pay. Money Chef has opted to receive the minimum amount of royalties of 10%
in each of fiscal pay. Money Chef has opted to receive the minimum amount of
royalties of 10% in each of fiscal 1996 and 1995.
The Company has licensed the rights to Mr. Cook's books, Real Estate
Money Machine, Wall Street Money Machine, Stock Market Miracles, Bear Market
Baloney, and Business Buy the Bible under individual Publishing Agreements
with Lighthouse Publishing Group, Inc., (a subsidiary). Under the terms of
each of the
23
<PAGE>
book licenses, Mr. Cook is paid a royalty of ten percent (10%) of the retail
price of each book sold.
Scott Scheuerman, who is the brother-in-law of Mr. Cook, is president of
BOSS, Inc. and Acorn Corporate Services, Inc. which are Nevada corporations
operating out of Nevada. Acorn acts as resident agent for Nevada corporations
and BOSS provides corporate services for Nevada corporations operating in
Nevada. The Company markets these services and sells the processing of Nevada
corporations. Clients of USA that purchased either/or both Acorn resident
agent services or BOSS services increased from 600 in 1994 to 1,120 in 1995
and 1,360 in 1996. In 1997 to date the Company has paid $550.00 to either
Acorn Corporate Services, Inc. or Boss, Inc. The amounts paid to these
entities in 1996 were undetermined at the date of filing this registration
statement. The Company paid $112,000 and $53,635 to either or both of these
entities in 1995 and 1994, respectively.
Evergreen Lodging, L.P., a Nevada limited partnership ("Evergreen")
which is an indirect subsidiary of the Company, has loaned approximately
$275,000 to Cross Roads, L.P., a limited partnership of which Mr. Cook serves
as the president of the general partner of the partnership. The indebtedness
is evidenced by a Secured Demand Note dated February 7, 1996 in the original
principal amount of $25,000 and a Secured Demand Note dated August 30, 1996
in the original principal amount of $250,000, each payable to Evergreen and
executed by Cross Roads, L.P.
WCSI has loaned approximately $125,000 to Newstart Centre, Inc., a Utah
corporation related to the Company by virtue of an ownership interest therein
own or controlled by Wade B. Cook or his affiliate. Newstart Centre, Inc. is
in the business of buying, leasing and selling motor vehicles to the general
public. The indebtedness is evidenced by a Promissory Note (Secured) dated
February 4, 1997 in the original principal amount of $125,000 payable to
WCSI and executed by Newstart Centre, Inc. and a Secured Loan Agreement
dated February 4, 1997 by and between WCSI and Newstart Centre, Inc. The
Promissory Note provides for the repayment of the loan in forty-eight (48)
equal monthly installments of $3,606.88. Interest accrues on the unpaid
principal balance at the simple interest rate of seventeen per cent (17%) per
annum. The Secured Loan Agreement provides that the loan evidenced by the
Promissory Note is secured by a lien in the motor vehicles owned by Newstart
Centre, Inc.
In 1995, the Company entered into an agreement with Associated
Reciprocal Traders, Ltd. ("ART") to purchase 20,000 Investor
Relations-Advertising-Infomercial radio air time spots, priced at $25 per ad
spot, per station, for a sum total of $500,000. In payment of the foregoing,
the Company issued 100,000 shares of Common Stock to ART in January 1996.
Eric W. Marler, the former Chief Financial Officer of the Company and a
current Director and a speaker in its educational seminars, is the owner of
50% of the issued shares of Cascade Management Associates, L.P. ("Cascade").
Cascade has provided to WCSI the seminar speaking services of Mr. Marler for
a fee of $10,000 per month, since September 1996. The Company has paid
$62,515 to Cascade so far in 1997. The Company has paid $35,555 in 1996 and
has no record of payments to Cascade in prior years.
The Company, through Profit or its subsidiaries, is the payee under
numerous secured notes, the vast majority of which are secured by residential
or other real estate, bearing varying interest rates in the aggregate amount
of approximately $1,700,000 as of January 31, 1997. These loans include
several loans to purchase homes and cars for employees of the Company.
The Company obtained services from seminar speakers provided by
companies owned by officers and other significant employees of the Company.
These companies are generally engaged in providing the speaking services of
the shareholder of the Company which is often times the seminar speaker.
Total speaker fees paid to such companies totaled $131,337 for the year ended
December 31, 1996 and none for years 1995 and 1994. There were no additional
amounts due to such companies as of December 31, 1996.
John V. Childers, a director of the Company, contracts with WCSI through
Speaker Services, Inc., a private corporation, to train all speakers for all
events produced by WCSI. The agreement sets forth a compensation plan of one
percent (1%) of the gross of all Financial Clinic seminars, and one-half
percent (0.5%) of the gross of all Wall Street Workshops. The Company has
paid Speaker Services $231,990 so far in 1997. The Company paid
24
<PAGE>
$22,710 and $3,080 in 1996 and 1995, respectively. The Company has no records
of payments to this entity in 1994.
Additionally, Mr. Childers is the former president and a director of
Ideal Travel Corporation ("Ideal"), and WCSI utilizes Ideal as well as other
travel agencies in the planning of its corporate travel. As a result of the
corporate working relationship between Ideal and WCSI, Mr. Cook receives
fifty percent of the commissions paid to Ideal by the Company, which
commissions are generally 10% of the cost of travel subject to airline caps
on airfare commissions. This arrangement is a carry-over from a time when
Mr. Cook was enrolled as a travel agent for Ideal Travel Corporation. The
Company has paid $415,209 to Ideal so far in 1997. The Company paid $37,044,
$162,783, and $15,563 to Ideal in the years 1996, 1995, and 1994,
respectively.
Paul Cook, Mr. Cook's brother, contracts with WCSI to provide speaking
services. Paul Cook executed a loan from WCSI on June 18th, 1997 for a total
of seventy-five thousand dollars ($75,000) for a two-year period at the
interest rate of 11 percent (11%). The loan is secured by a second position
on Mr. Cook's home in Salt Lake City, Utah. The Company has paid Paul Cook
$77, 156 so far in 1997. The Company has paid to Paul Cook $11,746 and
$3,500 in 1996 and 1995, respectively. The Company has no records of payments
to Paul Cook in 1994. Additionally, the Company believes that "Grand Teton"
is an entity owned or contolled by Paul Cook to which the Company has paid
$133,382 and $34,902 in 1997 to date and 1996, respectively.
Crossroads Northwest, LP, a limited partnership controlled by the Wade
B. Cook Family Trust owes the Company $637,401 under the terms of various
oral and written agreements to repay such amounts which have been borrowed
for the purpose of purchasing real estate used, in some instances, by the
Cook Family.
The Company's management believes that the terms and conditions of each
of the related party transactions set forth above are at least as favorable
as might be obtained from an independent third party.
ITEM 8. 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.
25
<PAGE>
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.
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 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
Although there is currently no established trading market for shares of
Common Stock of the Company, the Company's Common Stock is quoted under the
stock symbol "PFNL" in the over-the-counter market. At June 20, 1997, there
were four market makers of the Company's Common Stock.
The following table sets forth the approximate high and low bid
quotations for the Company's Common Stock for the calendar periods indicated.
The quotations reflect inter-dealer prices retail markups, markdowns or
commissions and may not reflect actual transactions.
<TABLE>
<CAPTION>
HIGH BID LOW BID
-------- -------
<S> <C> <C>
1997
----
Quarter Ended March 31 $3.00 $2.88
April 1 to June 20 $5.25 $2.50
1996
----
Quarter Ended March 31 2.12 2.00
Quarter Ended June 30 2.62 2.25
Quarter Ended September 30 3.75 3.50
Quarter Ended December 31 3.12 2.62
1995
----
Quarter Ended March 31 1.75 1.50
Quarter Ended June 30 2.37 2.12
Quarter Ended September 30 2.50 2.25
Quarter Ended December 31 2.00 1.87
1994
----
Quarter Ended March 31 1.87 1.62
Quarter Ended June 30 1.75 1.50
Quarter Ended September 30 1.75 1.50
26
<PAGE>
Quarter Ended December 31 1.75 1.50
</TABLE>
The high and low bid quotation price for the Common Stock on June 20,
1997 was $5.25 and $4.63, respectively. As of June 20, 1997, the Company had
approximately 6,680,000 shares of Common Stock outstanding.
As of June 20, 1997, there were approximately 924 record holders of
Common Stock. The Company has never paid any cash dividends on its Common
Stock and does not anticipate that it will pay dividends in the foreseeable
future. Instead, the Company intends to apply any earnings to the expansion
and development of its business.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
On June 28, 1996, the Company authorized the sale of 16,000 shares of
its Common Stock at $3 per share to five employees for subscription notes
receivable. The five employees are Robin Anderson, Laura Howell, Patricia
Taylor, Margie Huss and Robert Hondel. In addition, on June 28, 1996, the
Company authorized 30,420 shares of its Common Stock at $2.50 per share to
Nicolas Dettman n/o Paradise Funding Corporation Profit Sharing Plan. Margie
Huss, Pat Taylor, Robin Anderson, Laura Howell, Norman Eade, Gloria
Ducoulombier and Patricia McCarty as additional employee compensation. The
stocks were issued in January 1997. Each negotiated transaction was made in
reliance on the exemption from registration provided by Section 4 (2) of the
Securities Act of 1933, as amended (the "Securities Act") as isolated
transactions to a single investor which did not involve a public offering.
On June 28, 1996, the Company issued 10,000 shares of its common Stock
at $3.00 per share to Paradise Funding. This transaction was made in reliance
on the exemption from registration provided by Section 4(2) of the Securities
Act as an isolated transaction to a single investor and it did not involve a
public offering.
On January 31, 1996, the Company issued 100,000 shares of Common Stock
to Associated Reciprocal Traders, Ltd. in payment of an agreement to purchase
20,000 Investor Relations-Advertising-Infomercial radio air time spots,
priced at $25 per ad spot, per station, for a sum total of $500,000. The
negotiated transaction was made in reliance on the exemption from
registration provided by Section 4 (2) of the Securities Act as isolated
transactions to a few limited investors which did not invoke a public
offering.
On January 1, 1995, the Company transferred its ranching operations in
Uintah County, Utah to Four Star, Inc. in exchange for all of Four Star's
outstanding common stock pursuant to a plan of reorganization under section
368(a)(1)(D) of the Internal Revenue Code. All of Four Star's stocks were
then distributed to Yeaman Enterprises, Inc. in exchange for 1,880,00 shares
of the Company's stock as part of the reorganization on April 1, 1995. The
negotiated transaction was made in reliance on the exemption from
registration provided by Section 4 (2) of the Securities Act as isolated
transactions to a single investor which did not invoke a public offering.
See "Business-Prior Business History."
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The Company's authorized stock consists of 20,000,000 shares of Class A
Common Stock, par value .01 per share ("Common Stock"), and 5,000,000 shares
of Preferred Stock, par value $10 per share ("Preferred Stock"). As of June
15, 1997, there were outstanding approximately 6,680,000 shares of Common
Stock and no shares of Preferred Stock outstanding. All of the currently
outstanding shares of Common Stock are validly issued, fully paid, and
non-assessable.
On August 6, 1996, the Board of Directors declared a two-for-one stock
split on the Company's Class A Common Stock, effected in the form of a stock
dividend to shareholders of record on July 15, 1996. The number of shares
issued at September 10, 1996 after giving effect to the split was 6,650,442
common shares (3,325,211 common shares before the split). The effects of the
stock split are accounted for in all shares and per share data included in
this Registration Statement.
Common Stock
27
<PAGE>
The holders of Common Stock are entitled to one vote for each share on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, the holders of a majority of the stock entitled
to vote in any election of directors may elect all of the directors nominated
for election. Subject to preferences that may be applicable to any then
outstanding Preferred Stock, the holders of Common Stock will be entitled to
receive such dividends, if any, as may be declared by the Board of Directors
from time to time out of legally available funds. Upon liquidation,
dissolution, or winding up of the Company, the holders of Common Stock will
be entitled to share ratably in all assets of the Company that are legally
available for distribution, after payment of all debts and other liabilities
and subject to the prior rights of holders of any Preferred Stock then
outstanding. The holders of Common Stock have no preemptive, subscription,
redemption, or conversion rights. The rights, preferences, and privileges of
holders of Common Stock will be subject to the rights of the holders of share
of any series of Preferred Stock that the Company may issue in the future.
The authorized Preferred Stock of the Company is available for issuance
from time to time at the discretion of the Board of Directors of the Company
without stockholder approval. The Board of Directors have the authority to
prescribe, for each series of Preferred Stock it establishes, the number of
shares in that series, the consideration for such shares in that series and
the designations, powers, preferences and relative, participating, optional
or other special rights, and such qualifications, limitations or restrictions
on the shares in that series. Depending upon the rights of such Preferred
Stock, the issuance of Preferred Stock could have a material adverse affect
on the holders of Common Stock by delaying or preventing the change in
control of the Company, making removal of the present management of the
Company more difficult or resulting in restrictions upon the payment of
dividends and other distributions to the holders of Common Stock. The
management of the Company currently has no plans to issue any shares of any
class or series of its Preferred Stock.
Dividend Policy
The Company has never paid any cash dividends on its Common Stock and
does not anticipate that it will pay dividends in the foreseeable future.
Instead, the Company intends to apply any earnings to the expansion and
development of its business.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is National Stock
Transfer in Salt Lake City, Utah.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company does not have any provision in its charter, by-laws, or
other contracts providing for indemnification of its officers and directors.
The Utah Business Corporation Act, however, generally provides that a
corporation may indemnify an individual made a party to a proceeding because
he is or was a director, officer, employee, fiduciary or agent of the
corporation, against any liability incurred in the proceeding if (i) the
individual's conduct was in good faith, (ii) the individual reasonably
believed that his conduct was in, or not opposed to, the corporation's best
interests, and (iii) in the case of any criminal proceeding he had no
reasonable cause to believe his conduct was unlawful; provided, however,
that (x) in the case of an action by or in the right of the corporation,
indemnification is limited to reasonable expenses incurred in connection
with the proceeding and (y) the corporation may not, unless authorized by a
court of competent jurisdiction, indemnify an individual (A) in connection
with a proceeding by or in the right of the corporation in which the
individual was adjudged liable to the corporation, or (B) in connection with
any other proceeding in which the individual is adjudged liable on the basis
that he derived an improper personal benefit. In a judicial proceeding under
the foregoing clause (y), in order to authorize indemnification the court
must determine that the individual is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances. A director or
officer is entitled to mandatory indemnification if he was successful, on
the merits or otherwise, in the defense of any proceeding, or in the defense
of any claim, issue or matter in the proceeding, against the reasonable
expenses incurred by him in connection with the proceeding or claim with
respect to which
28
<PAGE>
he was successful. A corporation may also indemnify and advance expenses to
an officer, employee, fiduciary or agent to a greater extent if not
inconsistent with public policy and if provided for by the articles of
incorporation, by-laws, general or specific action of its board of directors
or contract.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The audited consolidated financial statements for the Company for the
fiscal years ended December 31, 1996, 1995 and 1994, and the report thereon
and the related financial statements, schedules and reports thereon, are set
forth below, beginning on page F-3.
The unaudited consolidated financial statements for the Company for the
quarters ended March 31, 1997 and for March 31, 1996 are set forth
immediately below. Management discussion and analysis of these quarterly
financial statements is included under "Item 2. Financial Information."
above. The notes to the financial statements beginning on page F-9 are an
integral part of these quarterly financial statements.
29
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1997 March 31, 1996
(Unaudited) (Unaudited)
------------- ------------
<S> <C> <C>
REVENUES, NET OF RETURNS AND DISCOUNTS $ 18,588,388 $ 5,575,284
COST OF REVENUES:
Royalties to related party 1,980,913 556,750
Other cost of revenues 5,569,496 1,606,330
------------- ------------
TOTAL COST OF REVENUES 7,550,409 2,163,080
------------- ------------
GROSS PROFIT 11,037,979 3,412,204
------------- ------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 8,760,351 2,125,619
INCOME (LOSS) FROM OPERATIONS 2,277,628 1,286,585
------------- ------------
OTHER INCOME (EXPENSES)
Dividends and interest 48,478 1,004
Gain (loss) on trading securities (157,974) 260,642
Other income (expense) 54,505 (9,868)
Loss on investment on non-marketable securities (87,500) 0
Interest expense (94,176) (4,157)
-------------- -------------
TOTAL OTHER INCOME (EXPENSES) (236,667) 247,621
-------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES 2,040,961 1,534,206
-------------- -------------
PROVISION FOR INCOME TAXES 713,986 526,511
-------------- -------------
NET INCOME (LOSS) $ 1,326,975 $ 1,007,695
-------------- -------------
EARNINGS (LOSS) PER SHARE $ 0.20 $ 0.15
-------------- -------------
Weighted Average Number of Common Shares 6,623,280 6,565,461
-------------- --------------
</TABLE>
30
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1997
(Unaudited)
--------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,326,975
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 265,421
(Gains) losses on trading marketable securities 157,975
Losses on disposition of fixed assets
Impairment of long-lived assets
Loss on investment in non-marketable securities 87,500
Purchases of trading securities (2,996,860)
Proceeds from sale of trading securities 2,820,940
Changes in assets and liabilities:
Receivables (703,765)
Inventory (87,638)
Prepaid expenses (165,716)
Deferred taxes 125,625
Deposits 8,603
Accounts payable and accrued expenses 3,370,404
Payroll and other taxes withheld and accrued 71,219
Income taxes payable 479,619
Deferred revenue (894,984)
Due to related party 5,000
Royalties payable 409,461
-----------
TOTAL ADJUSTMENTS 2,952,804
-----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,279,779
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,849,351)
Subsidiary's investment
Return of subsidiary's investment
------------
NET CASH USED FOR INVESTING ACTIVITIES (5,849,351)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of subsidiary's minority interest (53,505)
Net borrowings 1,477,610
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Issuance of common stock ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,424,105
------------
NET INCREASE (DECREASE) IN CASH (145,467)
CASH, beginning of year 635,141
-------------
CASH, end of period $ 489,674
-------------
</TABLE>
32
<PAGE>
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
On February 6, 1997, the Company engaged Miller and Company, an accounting
firm based in Santa Monica, California to act as its independent certified
public accountants and to audit the Company's financial statements for the
fiscal years ended December 31, 1995 and 1996. The Company terminated its
relationship with Smith and Company, an accounting firm based in Salt Lake City,
Utah on May 1, 1995 upon the completion of the merger of a subsidiary of the
Company with WCSI. With respect to the financial statements for the years ended
December 31, 1994, the report of Smith and Company did not contain an adverse
opinion or a disclaimer of opinion and were not modified or qualified as to
uncertainty, audit scope or accounting principles. The decision to change
accountants was recommended and approved by the Board of Directors of the
Company. There were no disagreements with Smith and Company on accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure related to the Company.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements. Page
----
Unaudited Consolidated Balance Sheet as of June 30, 1997 F-1
Years Ended December 31, 1996, 1995 and 1994
Report of Independent Certified Public Accountants F-3
FINANCIAL STATEMENTS:
Consolidated Balance Sheets F-4
Consolidated Statements of Income and Retained Earnings F-6
Consolidated Statement of Changes in Shareholders' Equity F-7
Consolidated Cash Flow Statements F-8
Report of Independent Certified Public Accountants F-22
FINANCIAL STATEMENT SCHEDULES:
Schedule 1 - Consolidated Financial Information of
Registrant F-23
(b) Exhibits Index.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
3.1(a)* Articles of Incorporation of Profiteer Corporation
3.1(b)* Amendment to Articles of Incorporation of Profiteer Corporation dated
September 2, 1984
3.1(c)* Amendment to the Articles of Incorporation of Profiteer Corporation
dated August 10, 1988
3.1(d)* Amendment to the Articles of incorporation of Profiteer Corporation
dated September 10, 1991
3.2* Bylaws of Profiteer Corporation
4.1 Form of Company's Class A Common Stock Certificate
10.1(a)* Product Agreement, dated January 3, 1993 between United Support
Association, Inc. as the purchaser, and Money Chef Inc., previously
known as USA/Wade Cook Seminars, Inc. as the seller.
10.1(b) Product Agreement, dated June 25, 1997 and effective as of July 1,
1997, among Wade Cook Seminars, Inc., Money Chef and Wade B. Cook.
10.2* Agreement dated May 18, 1995 by and among Profit Financial Corporation,
Yeaman Enterprises, Inc., Four Star Ranch, Inc., United Support
Association, Inc. and Wade B. Cook.
10.3(a)* Agreement dated February 1, 1996 between Wade B. Cook and Lighthouse
Publishing Group, Inc. (for Wall Street Money
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------ -----------
<S> <C>
Machine)
10.3(b)* Amended Agreement, dated June 26, 1997 between Wade B. Cook and
Lighthouse Publishing Group, Inc. (For Wall Street Money Machine)
10.4(a)* Agreement dated January 1, 1997 between Wade B. Cook and Lighthouse
Publishing Group, Inc. (for Stock Market Miracles)
10.4(b)* Amended Agreement dated June 26, 1997 between Wade B. Cook and
Lighthouse Publishing Group, Inc. (for Stock Market Miracles).
10.5* Agreement dated March 1, 1997 between Wade B. Cook and Lighthouse
Publishing Group, Inc. (for Bear Market Baloney)
10.6* Agreement dated May 1, 1997 between Wade B. Cook and Lighthouse
Publishing Group, Inc. (for Business Buy the Bible)
10.7* Purchase and Sale Agreement, dated July 4, 1996, between United Support
Association and Seller
10.8* Employment Agreement dated June 26, 1997 by and between Wade Cook
Seminars, Inc. and Wade B. Cook.
10.9* Commercial Lease dated June 25, 1997 by and between Wade Cook Seminars,
Inc. and U.S.A. Corporate Services, Inc.
10.10* Agreement, dated November 1, 1996 between Wade B. Cook and Lighthouse
Publishing Group, Inc. (for Real Estate Money Machine)
10.11 All Inclusive Trust Deed dated March 8, 1997 for the purchase and Assumption of Certain Real Estate by
Rising Tide, LTD from East Bay Lodging Association LTD
10.12 Secured Loan Agreement and Promissory Note (Secured)between USA Wade Cook Seminars, Inc. and Newstart Centre, Inc.
16.1 Letter re: Change in Certifying Accountant
21.1* List of Profit Financial Corporation Subsidiaries
</TABLE>
* Filed previously.
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated September 22, 1997 PROFIT FINANCIAL CORPORATION
/s/ Wade B. Cook
-------------------------------
Wade B. Cook, President
35
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS June 30, 1997
(Unaudited)
-----------------
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,609,886
Marketable securities 5,993,285
Trade and credit card receivables 4,672,567
Notes receivable, employees (current portion) 290,762
Notes receivable from officers (current portion) 14,576
Other receivables 158,536
Inventory 633,175
Prepaid expenses 286,541
Deferred royalties to related party 0
Deferred tax asset 917,904
-----------------
TOTAL CURRENT ASSETS 14,577,232
-----------------
PROPERTY & EQUIPMENT 12,847,454
-----------------
OTHER ASSETS
Non-marketable investments 1,130,091
Notes receivable, employees 2,842,699
Notes receivable from officers 261,231
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Due from related parties 2,611,756
Deposits 27,470
-----------------
TOTAL OTHER ASSETS 6,873,247
-----------------
TOTAL ASSETS $ 34,297,933
-----------------
-----------------
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES & EQUITY June 30, 1997
(Unaudited)
-----------------
CURRENT LIABILITES
Current portion of long-term debt $ 419,253
Accounts payable and accrued expenses 5,415,373
Margin loans in investment accounts 2,079,429
Payroll and other taxes withheld and accrued 1,022,498
Income taxes payable 4,492,798
Deferred revenue 5,919,942
Royalties payable to related party 702,279
Notes payable to related party 307,545
Notes payable to officer 45,000
-----------------
TOTAL CURRENT LIABILITIES 20,404,117
-----------------
LONG-TERM DEBT 3,344,892
-----------------
TOTAL LIABILITES 23,749,009
-----------------
MINORITY INTEREST 544,645
-----------------
SHAREHOLDERS' EQUITY
Preferred Stock, 5,000,000 shares authorized
at $10 par value, none issued and outstanding 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
Paid-in capital 1,076,608
Prepaid advertising (500,000)
Retained earnings (deficit) 9,360,864
-----------------
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
TOTAL SHAREHOLDERS' EQUITY 10,004,279
-----------------
TOTAL LIABILITIES, MINORITY INTEREST
AND SHAREHOLDERS' EQUITY $ 34,297,933
-----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Profit Financial Corporation
Seattle, Washington
We have audited the accompanying consolidated balance sheets of Profit
Financial Corporation and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, changes in shareholders'
equity, and cash flows for each of the years ended December 31, 1996, 1995
and 1994. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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 audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Profit Financial Corporation and subsidiaries as of December 31, 1996 and
1995, and the results of their consolidated operations and their consolidated
cash flows for the years ended December 31, 1996, 1995 and 1994 in conformity
with generally accepted accounting principles.
In 1995, as described in Note-I to the financial statements, the Company
changed its method of accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of in accordance with the Statement of
Financial Accounting Standards No. 121.
As discussed in Note-A to the financial statements, there was a change in
specific subsidiaries for which consolidated financial statements are
presented.
/s/ Miller & Company
Certified Public Accountants
Santa Monica, California
25 June 1997
F-3
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
----------------------------------
CURRENT ASSETS 1996 1995
------------- -------------
<S> <C> <C>
Cash and cash equivalents $ 635,141 $ 26,840
Marketable securities 3,801,039 349,206
Trade and credit card receivables 848,282 129,188
Notes receivable, employees(current portion) 329,060 16,452
Notes receivable from officers(current portion) 13,191 -
Other receivables 11,378 1,611
Inventory 395,743 46,139
Prepaid expenses 93,196 596
Deferred royalties to related party 48,781 -
Deferred tax asset 783,064 7,340
------------- -------------
TOTAL CURRENT ASSETS 6,958,875 577,372
------------- -------------
PROPERTY AND EQUIPMENT 7,135,205 345,011
------------- -------------
OTHER ASSETS
Non-marketable investments 522,600 1,235,100
Notes receivable, employees 1,385,742 90,452
Notes receivable from officers 236,413 -
Due from related parties 663,401 -
Deposits 35,423 35,120
------------- -------------
TOTAL OTHER ASSETS 2,843,579 1,360,672
------------- -------------
TOTAL ASSETS $ 16,937,659 $ 2,283,055
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
------------------------------
CURRENT LIABILITIES 1996 1995
- ------------------- ------------ ------------
<S> <C> <C>
Current portion of long-term debt $ 660,708 $ 77,175
Accounts payable and accrued expenses 976,644 501,560
Margin loans in investment accounts 1,103,936 --
Payroll and other taxes withheld and accrued 807,414 114,090
Income taxes payable 2,075,872 95,200
Deferred revenue 5,160,999 352,325
F-4
<PAGE>
Royalties payable to related party -- 136,238
Notes payable to related party 19,000 19,000
Notes payable to officer 45,000 45,000
------------ ------------
TOTAL CURRENT LIABILITIES 10,849,573 1,340,588
LONG-TERM DEBT 1,768,762 117,764
------------ ------------
TOTAL LIABILITIES 12,618,335 1,458,352
------------ ------------
MINORITY INTEREST 617,300 295,804
------------ ------------
SHAREHOLDERS' EQUITY
Preferred stock, 5,000,000 shares authorized
at $10 par value, none issued and outstanding -- --
Class A common stock, 20,000,000 shares
authorized at $0.01 par value, 6,680,864
shares and 3,199,211 shares outstanding as of
December 31, 1996 and 1995, respectively 66,807 31,991
Paid-in capital 1,072,608 498,938
Prepaid advertising (500,000) --
Retained earnings (deficit) 3,062,609 (2,030)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 3,702,024 528,899
------------ ------------
TOTAL LIABILITIES, MINORITY INTEREST,
AND SHAREHOLDERS' EQUITY $ 16,937,659 $ 2,283,055
============ ============
</TABLE>
F-5
<PAGE>
The accompanying notes are an integral part of these consolidated financial
statements.
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
REVENUES, NET OF RETURNS AND DISCOUNTS $40,724,515 $7,567,335 $1,973,145
COST OF REVENUES:
Royalties to related party 4,366,183 755,500 82,923
Speaker fees to related party 131,337 - -
Other cost of revenues 11,185,416 2,618,388 778,811
----------- ---------- ----------
TOTAL COST OF REVENUES 15,682,936 3,373,888 861,734
----------- ---------- ----------
GROSS PROFIT 25,041,579 4,193,447 1,111,411
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 20,301,703 3,755,001 1,134,078
IMPAIRMENT OF LONG-LIVED ASSETS - 99,000 -
----------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS 4,739,876 339,446 (22,667)
----------- ---------- ----------
OTHER INCOME (EXPENSES)
Dividends and interest 60,028 5,547 5,668
Gain (loss) on trading securities 92,711 88,719 (1,616)
Other income 58,513 6,648 1,975
Loss on investment on non-marketable securities - (107,400) (178,200)
Loss on disposition of fixed assets (21,960) - -
Interest expense (263,285) (25,422) (8,770)
----------- ---------- ----------
TOTAL OTHER INCOME (EXPENSES) (73,993) (31,908) (180,943)
----------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 4,665,883 307,538 (203,610)
----------- ---------- ----------
PROVISION FOR INCOME TAXES 1,601,244 183,740 (7,880)
----------- ---------- ----------
NET INCOME (LOSS) $ 3,064,639 $ 123,798 $ (195,730)
=========== ========== ==========
EARNINGS (LOSS) PER SHARE $ 0.46 $0.02 $(0.03)
=========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 6,623,280 6,398,426 6,398,426
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Class A Common Stock
----------------------------- Additional Retained Total
Paid-in Earnings Prepaid Shareholders
Shares Amount Capital (Deficit) Advertising Equity
------------ ------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances - December 31, 1994 3,199,211 $ 31,991 $ 4,093,794 $ (2,053,257) $ 2,072,528
Reorganization under
section 368(a)(1)(D)
of the Internal Revenue Code (1,880,000) (18,800) (3,578,056) 1,875,057 (1,721,799)
Issuance of common stock in
exchange for WCS stock 1,880,000 18,800 (16,800) 52,372 54,372
Net income for the year
ended December 31, 1995 123,798 123,798
------------ ------------- ------------- ------------- ----------- -------------
Balances - December 31, 1995 3,199,211 $ 31,991 $ 498,938 $ (2,030) $ 0 $ 528,899
------------ ------------- ------------- ------------- ----------- -------------
Issuance of common stock 26,000 260 77,740 78,000
Issuance of common stock in
exchange for prepaid advertising 100,000 1,000 499,000 500,000
Prepaid Advertising (500,000) (500,000)
Effect of 2 for 1 stock split 3,325,231 33,252 (33,252)
Issuance of common stock 30,422 304 75,746 76,050
Subscriptions receivable (45,564) (45,564)
Net income for the year ended
December 31, 1995 3,064,639 3,064,639
------------ ------------- ------------- ------------- ----------- -------------
Balances - December 31, 1996 6,680,864 $ 66,807 $ 1,072,608 $ 3,062,609 $ (500,000) $ 3,702,024
============ ============= ============= ============= =========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss) $ 3,064,639 $ 123,798 $ (195,730)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 344,991 38,816 30,663
(Gains) losses on trading marketable securities (92,711) (88,719) 1,616
Losses on disposition of fixed assets 21,960 -- --
Impairment of long-lived assets -- 99,000 --
Loss on investment in non-marketable securities -- 107,400 178,200
Purchases of trading securities (11,290,111) (1,059,197) (7,293)
Proceeds from sale of trading securities 9,034,925 920,395 --
Changes in assets and liabilities:
Receivables (3,249,764) (144,765) (75,557)
Inventory (349,604) (4,688)
Prepaid expenses (141,381) (597) 1,861
Deferred taxes (775,724) 540 (7,880)
Deposits (303) (29,752) (2,268)
Accounts payable and accrued expenses 475,084 302,305 104,533
Payroll and other taxes withheld and accrued 693,324 60,191 11,332
Income taxes payable 1,980,672 105,200 (10,000)
Deferred revenue 4,808,674 303,133 41,312
Due to related party -- -- (22,958)
Royalties payable (136,238) 177,806 --
------------ ------------ ------------
TOTAL ADJUSTMENTS 1,323,794 787,069 243,561
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,388,433 910,866 47,831
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,729,382) (214,849) (54,051)
Subsidiary's investment (87,500) (1,113,100) --
Return of subsidiary's investment 800,000 -- --
------------ ------------ ------------
NET CASH USED FOR INVESTING ACTIVITIES (4,016,882) (1,327,949) (54,051)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of subsidiary's minority interest 321,496 340,904 --
Short-term borrowings -- 141,175 6,220
Repayment on short-term borrowings (193,232) (38,156) --
Issuance of common stock 108,486 -- --
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 236,750 443,923 6,220
------------ ------------ ------------
NET INCREASE IN CASH 608,301 26,840 --
CASH, beginning of year 26,840 -- --
------------ ------------ ------------
CASH, end of year $ 635,141 $ 26,840 $ --
============ ============ ============
</TABLE>
F-8
<PAGE>
The accompanying notes are an integral part of these consolidated financial
statements.
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Summary of Significant Accounting Policies
Business
Profit Financial Corporation (PFC) is a holding company, whose principal
operating subsidiaries are Wade Cook Seminars, Inc. (WCS), formerly known
as United Support Association, Inc., which was acquired by PFC in 1995,
Lighthouse Publishing Group, Inc. and Left Coast Advertising, Inc. WCS
conducts educational investment and business seminars and produces video
tapes, audio tapes, and written materials designed to teach various
investment and cash flow strategies for investing in the stock market,
asset protection and asset accumulation techniques or strategies, and
entity formation for minimizing federal or state income taxes, deferral
of income and estate taxes, development of liability protection, and
elimination of the impact of probate on the transition of family owned
businesses to the public. WCS also hosts an internet website, Wealth
Information Network (WIN), which allows subscribers to log on for
information related to the stock market. Lighthouse Publishing Group,
Inc. publishes books on related topics and Left Coast Advertising, Inc.
conducts advertising for the Company. The copyrights to most seminars,
video and audio tapes, and written materials are owned and controlled by
Money Chef, Inc., formerly known as USA/Wade Cook Seminars, Inc., a
related party. As used hereafter, "Company" refers to Profit Financial
Corporation and its consolidated subsidiaries.
Prior to the acquisition of WCS, PFC had been operating in two different
businesses for over five years, namely its farming and ranching operations
in Uintah County, Utah, and its investment consulting business. On
January 1, 1995, PFC transferred its ranch operations and all related
assets and liabilities to Four Star, Inc. (Four Star) in exchange for all
of Four Star's outstanding common stock pursuant to a plan of
reorganization under the Internal Revenue Code section 368 (a)(1)(d). All
of Four Star's stocks were then distributed to Yeaman Enterprises, Inc.
(Yeaman) in exchange for 1,880,000 shares of the Company's stock as part
of the reorganization. The consolidated financial statements for the
periods presented have been restated to exclude the accounts related to
the ranch operations.
The following assets and liabilities were transferred to Four Star in the
reorganization:
Cash $ 5,266
Receivables 277,944
Inventories 113,445
Securities 335,333
Property and equipment 1,433,642
Accounts payable 1,588
Accrued expenses 61,257
Long-term debt 380,986
F-9
<PAGE>
The condensed financial positions of PFC before and after the transfer are
as follows:
<TABLE>
<CAPTION>
December 31, 1994 Transfer January 1, 1995
----------------- -------- ---------------
<S> <C> <C> <C>
Cash $ 5,266 $ 5,266 $ -
Receivables 277,944 277,944 -
Inventory 113,445 113,445 -
Property and Equipment 1,433,642 1,433,642 -
Investment in land 247,500 - 247,500
Investment in securities 461,333 335,333 126,000
----------- ----------- ----------
TOTAL ASSETS $ 2,539,130 $ 2,165,630 $ 373,500
=========== =========== ==========
Long-term debt $ 380,986 $ 380,986 $ -
Accounts payable 13,321 1,588 11,733
Accrued expenses 72,295 61,257 11,038
----------- ----------- ----------
TOTAL LIABILITIES 466,602 443,831 22,771
----------- ----------- ----------
Common stock 31,991 18,800 13,191
Additional paid-in capital 4,093,794 3,578,056 515,738
Retained earnings (2,053,257) (1,875,057) (178,200)
----------- ----------- ----------
TOTAL SHAREHOLDERS'
EQUITY 2,072,528 1,721,799 350,729
----------- ----------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 2,539,130 $ 2,165,630 $ 373,500
=========== =========== ==========
</TABLE>
On April 1, 1995, PFC acquired all of the outstanding shares of common
stock of WCS for 1,880,000 shares of the common stock of PFC. The
transaction has been accounted for as pooling of interests and,
accordingly, the consolidated financial statements for the periods
presented have been restated to include the accounts of WCS. Net sales
and net income of the separate companies for the periods preceding the
acquisition were as follows:
<TABLE>
<CAPTION>
Net Sales Net Income
--------- ----------
<S> <C> <C>
Three months ended March 31, 1995 (unaudited):
PFC -- --
WCS 944,061 106,012
--------- ----------
Combined 944,061 106,012
--------- ----------
Year ended December 31, 1994:
PFC -- (178,200)
WCS 1,973,145 (17,530)
--------- ----------
Combined 1,973,145 (195,730)
--------- ----------
</TABLE>
F-10
<PAGE>
Accounting principles and consolidation policy
The accompanying consolidated financial statements include the accounts of
Profit Financial Corporation and its majority-owned subsidiaries. WCS has
a fiscal year end of January 31, and the balances as of January 31, 1997,
1996 and 1995 have been used to prepare the consolidated financial
statements as of December 31, 1996, 1995 and 1994. All significant inter-
company transactions and balances have been eliminated in the
consolidation.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated
financial statements and related notes to financial statements. Changes
in such estimates may affect amounts reported in future periods.
Cash and cash equivalents
The Company considers highly liquid investments with the original maturity
of three months or less to be
F-11
<PAGE>
cash and cash equivalents. Included in these amounts are money market
funds of $581,558, and $41,348 as of December 31, 1996 and 1995,
respectively.
Marketable securities
Brokerage accounts are used by seminar instructors during the seminars,
especially at the Wall Street Workshop, to demonstrate how to buy and
sell securities using a broker. Marketable securities consist mainly of
stocks and options. They have been categorized as trading securities and,
as a result, are stated at market value. All changes in trading
securities' fair values are reported in earnings as they occur. Realized
gains and losses on the sale of securities are determined using the
specific-identification method.
Inventory
Inventory, which consists primarily of finished goods, is valued at the
lower of cost or market. Cost is determined using the first-in, first-out
method.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using
the accelerated method over the estimated useful lives of the related
assets for both financial reporting and tax reporting purposes. Leasehold
improvements are amortized using the straight-line method over the shorter
of the estimated life of the asset or the remaining term of the lease.
Maintenance and repairs are charged to operations when incurred.
Betterments and renewals are capitalized. When property and equipment are
sold or otherwise disposed of, the asset account and related accumulated
depreciation account are relieved, and any gain or loss is included in
operations.
Revenue recognition
Tuition revenues for seminars received in advance are deferred and
recognized only when the services are rendered. .
Subscription revenues for WIN (Wealth Information Network) membership
generally are received for up to one year in advance and are recorded and
presented in the financial statements as deferred revenue until earned.
Although a typical subscription binds the subscriber to prepay, the
subscription term begins when the customer receives his logon code. The
deferred revenues are recognized on a monthly basis over the term of the
contract.
Other revenues are recognized when finished products are shipped to
customers or services have been rendered.
Advertising costs
Advertising costs are expensed when incurred.
Income taxes
Income taxes are provided for tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred
taxes. Deferred taxes are recognized for differences between the basis of
assets and liabilities for financial statement and income tax purposes.
Barter transactions
F-12
<PAGE>
The Company is accounting for barter credits in accordance with APB
Opinion No. 29, Accounting for Non-monetary Transactions, and EITF issue
No. 93-11, Accounting for Barter Transactions, involving barter credits
which presumes that the fair value of the non-monetary asset exchanged is
more clearly evident than the fair value of the barter credit received,
and that the barter credit should be reported at the fair value of the
non-monetary asset exchanged.
The Company purchased radio air time advertising in exchange for common
stock in December 1995. .The transaction is discussed further in Note K.
Earnings per share
Earnings per share is based on the weighted average number of shares of
common stock and common stock equivalents outstanding during each year.
Earnings per share is computed using the treasury stock method.
Note B - Common Stock Split
On August 6, 1996, the Board of Directors declared a two-for-one stock
split on the Company's Class A common stock, effected in the form of a
stock dividend to shareholders of record on July 15, 1996. The number of
shares issued at September 10, 1996 after giving effect to the split was
6,650,442 common shares (3,325,211 common shares before the split). The
effects of the stock split are accounted for in all share and per share
data included in these consolidated financial statements.
Note C - Concentration of Risks
Cash in banks, based on bank balances, exceeded federally insured limits
by $574,388 and $7,851 as of December 31, 1996 and 1995, respectively.
Receivables from four credit card companies aggregated approximately
$376,256 and $129,188 at December 31, 1996 and 1995 respectively. The
Company invests the majority of its excess cash in marketable securities.
Marketable securities are carried at fair market value, which amounted to
$3,801,039, and $349,206 as of December 31, 1996, and 1995, and accounted
for 22% and 15% of the Company's consolidated assets as of December 1996
and 1995 respectively.
The following table shows the percentage of revenues:
1996 1995 1994
---- ---- ----
Seminars 52% 53% 30%
WIN subscriptions 12% 7% 3%
Entity formation services 14% 20% 50%
Product sales 22% 20% 17%
The following table shows the states from which the Company derived over
10% of its seminar revenues:
1996 1995 1994
---- ---- ----
California 15% 27% 34%
Colorado 7% 11% --
Washington 13% 13% 38%
Nevada 2% 1% 16%
Note D - Economic Dependency and Significant Risks and Uncertainties
The Company derived a majority of its revenues solely through the
sponsoring and promoting of products, seminars and services of
Money Chef, Inc. One of the co-trustees of the Cook Family Trust,
the shareholder
F-13
<PAGE>
of Money Chef, Inc., is the president of the Company. This individual
was the named defendant of a fraud charge in the State of Arizona. The
case was dismissed with prejudice on June 5, 1997.
In March 1996, the Securities and Exchange Commission (the "Commission")
entered an order directing a private investigation of the Company. The
Company's legal counsel has responded to the Commission's requests for
documents and information on behalf of the corporation. No enforcement
action has been taken, and the Commission has advised that the inquiry
should not be construed as an adverse reflection on the securities
involved or on any person or entity.
The Company has also received subpoenas from the State of Washington's
Department of Financial Institutions, Securities Division requesting
information related to PFC, WCS and the Company's president.
Note E - Related Party Transactions
The Company entered into a product agreement with Money Chef, Inc. to
obtain the rights to promote and sponsor seminars, entity formation
services and products owned and controlled by Money Chef, Inc. for
royalty payments ranging from ten to fifty percent of gross sales.
Royalty expenses totaled $4,366,183, $755,500, and $82,923 for the years
ended December 31, 1996, 1995 and 1994 respectively. $48,781 of royalties
were prepaid as of December 31, 1996 and $136,238 of royalties was owed
as of December 31, 1995. Money Chef, Inc. has opted to receive royalties
of the minimum percentage of revenue for all of the three years.
The Company obtained services from seminar speakers provided by companies
owned by officers of the Company. Total speaker fees paid to such
companies totaled $131,337 for the year ended December 31, 1996 and none
for years 1995 and 1994. There were no additional amounts due to such
companies as of December 31, 1996 and 1995.
The Company has various notes receivable from employees and officers.
Original maturity dates are from 12 months to 360 months. Annual interest
rates range from 5.45% to 12%. The manner of settlement is by salary
deduction or payment. Substantially all notes receivable are secured by
real property or personal property. The Company evaluates notes
receivables in accordance with Statement of Financial Accounting
Standards No. 114, Accounting by Creditors for Impairment of a Loan.
There is no impaired notes receivable as of December 31, 1996 and 1995.
In 1995, the Company accepted a single family home subject to a mortgage
balance of $119,825 from an employee in full settlement of a 10.5% note
receivable with an outstanding balance of $17,661. The asset was
capitalized at $137,486, and no gain or loss was charged to operations.
The employee entered into an agreement with the Company to rent the
property for a monthly rent of $1,300 through July 2000. Under the
agreement, the employee also has an option to repurchase the property
at specified amounts through July 2000. In 1996, the Company sold the
property to another employee for $137,352, and received a note bearing
8% interest per annum as consideration.
Due from related parties in the amount of $663,401 represents advances to
the following, in which the Company has no direct ownership interest:
Name of Related
Parties Amount
--------------- --------------------- ---------
Crossroad Northwest, LP $ 628,401
Five Star Consulting, Inc. 25,000
Total Hoteliers, LP 10,000
---------
Total $ 663,401
=========
F-14
<PAGE>
Note F - Marketable Securities
The net unrealized loss in trading securities that has been included in
earnings during the period amounted to $92,711, $88,719, and $(1,616)for
the years ended December 31, 1996, 1995, and 1994 respectively.
Note G - Receivables
Following is a summary of receivables:
December 31,
-------------------------
1996 1995
----------- ----------
Trade and credit card receivables $ 848,282 $ 129,188
Notes receivable, employees 1,714,802 106,904
Notes receivable from officer 249,604 -
Due from related parties 663,401 -
Other 11,378 1,611
----------- --------
Total $3,487,467 $237,703
========== ========
Management estimates that substantially all receivables are collectible.
Note H - Property and Equipment
The following is a summary of property and equipment:
December 31,
-----------------------
1996 1995
----------- ---------
Land $ 532,000 $ 27,470
Building 4,183,361 109,882
Equipment 1,270,583 218,555
Automobiles 828,604 --
Furniture and fixtures 681,425 52,793
Leasehold improvements -- 25,090
----------- ---------
7,495,973 433,790
Less: Accumulated depreciation (360,768) (88,779)
----------- ---------
Total $ 7,135,205 $ 345,011
=========== =========
Depreciation expense charged to operations was $344,991, $38,816 and
$30,663 in December 31, 1996, 1995, and 1994, respectively.
Note I - Non-Marketable Investments and Accounting Changes
Non-marketable investments consists of investments in venture capital
partnerships and private companies, and 99 lots of land in a recreational
development in the County of Antrim, Michigan. The estimated non-
F-15
<PAGE>
marketable investments approximated the carrying amount at December 31,
1996 and 1995. The fair values of investments in venture capital
partnerships and private companies were estimated based on financial
condition and operating results, or other pertinent information. No
dividends were received from non-marketable investments during the years
shown.
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of in 1995. The Company recorded a non-cash pre-tax
charge of $99,000 for the year ending December 31, 1995 to write-down the
carrying value of the land investment in the County of Antrim, Michigan.
The Company considers the sale prices of comparable lots in the
recreational development project as indicators of fair value.
Non-marketable investments consist of the following:
1996 1995
-------- ----------
200,000 shares Arrow Management, Inc. $ 18,600 $ 18,600
99 Lots (land) - Michigan $148,500 $ 148,500
12% interest in 4500 South Hotel Partners, L.C. $268,000 -- --
2,187 shares Internos Productions, Inc. $ 87,500 -- --
Equity in subsidiary's investment -- -- $1,068,000
-------- ----------
Totals $522,600 $1,235,100
-------- ----------
-------- ----------
Note J - Long-Term Debt
The following is a summary of long-term debt:
<TABLE>
<CAPTION>
December 31,
1996 1995
------------ ----------
<S> <C> <C>
Unsecured note payable to unrelated party, due
in monthly installments of $11,100, bears interest
at 21% per annum $ -- $ 70,000
Unsecured note payable to unrelated party, due in
monthly installments of $1,000, bears interest at 20%
per annum -- 6,204
Automobile loan payable to a credit union assumed by
the company on behalf of an employee, due December
2003, bears interest at 9.25% per annum 36,178 --
Unsecured note payable to a related party, originally
due October 15, 1996, bears interest at 10% per annum 19,000 19,000
Unsecured note payable to a related party, originally
due October 15, 1996; bears interest at 10% per annum 45,000 45,000
Mortgage payable, secured by land and building, due in monthly
installments of principal and interest of $50,000 from
September 1, 1996 through August 1, 1997, $100,000 from
September 1, 1997 to February 1, 1999 and $555,862 on March 1,
1999, includes interest at 9% per annum 2,393,292 --
Mortgage payable, secured by land and building, due
in monthly installments of $1,067, bears interest at
10% per annum -- 118,735
------------ ----------
Total Debt $ 2,493,470 $258,939
Less: Current maturities
others (660,708) (77,175)
related parties (19,000) (19,000)
officer (45,000) (45,000)
------------ ----------
Total Long Term Debt $ 1,768,762 $ 117,764
============ ===========
</TABLE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note K - Long-Term Debt (continued)
The following are maturities of long-term debt for each of the next five
years:
1997 $ 724,708
1998 1,091,782
1999 655,498
2000 4,954
2001 5,432
Thereafter 11,096
-----------
Total $ 2,493,470
Less: Current long-term debt 724,708
-----------
$ 1,768,762
===========
Note K - Prepaid Advertising
In 1995, the Company entered into an agreement with Associated Reciprocal
Traders, Ltd. (ART) to purchase from ART 20,000 Investor Relations-
Advertising-Infomercial radio air time spots, priced at $25 per ad spot,
per station, for a sum total of $500,000. In payment of the foregoing,
the Company issued 100,000 shares of common stock to ART in January 1996
at negotiated value which was greater than fair market value at $5.00 on
the date issued. The prepaid advertising is shown as a reduction of
shareholders' equity rather than as an asset.
Note L - Disclosures About Fair Value of Financial Instruments
Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards (SFAS) No. 107, Disclosures About Fair
Value of Financial Instruments, as part of a continuing process by the
FASB to improve information regarding financial instruments. The
following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Cash and cash equivalents - The carrying amount of cash and cash
equivalents approximates its fair value.
Marketable securities - The fair value of marketable securities were
estimated based on quotes obtained from brokers for those instruments.
Non-Marketable Investments - The fair value of non-marketable investments
is determined by financial positions of the investee companies and market
conditions.
Margin loans in investment accounts - The carrying amount of margin loans
approximates its fair value.
Long-Term Debt - The fair values of the Company's long-term debt either
approximates fair value or estimates using discounted cash flow analyses
based on the Company's current incremental borrowing rates for similar
types of borrowing arrangements.
The carrying amounts and fair values of the Company's financial
instruments at December 31, 1996 and 1995 are as follows:
F-17
<PAGE>
<TABLE>
<CAPTION>
1996 1995
--------------------------- ----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 635,141 $ 635,141 $ 26,840 $ 26,840
Marketable securities 3,801,039 3,801,039 349,206 349,206
Non-marketable investments 522,600 522,600 1,235,100 1,235,100
Margin loans in investment
accounts 1,103,936 1,103,936 - -
Long-term debt 1,768,762 1,768,762 117,764 117,764
</TABLE>
The carrying amounts in the table are included in the balance sheet under
the indicated captions.
Note M - Lease and Other Commitments
Operating lease commitments are primarily for office space. Rental
expense amounted to $294,918, $109,133 and $70,314 for the years
ended December 31, 1996, 1995, and 1994 respectively. Future minimum
rental commitments are as follows:
1997 $ 46,098
1998 46,098
1999 46,098
2000 7,683
----------
Total $ 145,977
==========
The Company entered into an employment agreement in January, 1997, with
one of its executive officers. The agreement provided for a minimum
salary plus incentive bonuses which are payable if specified management
goals are attained. The agreement also gives the officer the right to
purchase 80,000 shares at $1.50 per share through 1999 at 20,000 shares
per year. The options may be exercised within a ten year period from the
date of vesting.
The Company entered into agreements in 1996 with two contracting companies
to make improvements on its office building in Seattle, Washington. Total
commitments on future payments was approximately $375,000 as of
December 31, 1996.
F-18
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note N - Income Taxes
Provisions for income taxes in the consolidated statements of income
consist of the following components:
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Current
Federal $ 2,321,968 $ 183,200 $ --
State -- -- --
Other States 55,000 -- --
----------- ----------- -----------
2,376,968 183,200 --
Deferred
Federal (775,724) 540 (7,880)
State -- -- --
----------- ----------- -----------
(775,724) 540 (7,880)
----------- ----------- -----------
Total income taxes $ 1,601,244 $ 183,740 $ (7,880)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the company's deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
Deferred tax assets: 1996 1995
----------- -----------
<S> <C> <C>
Unrealized gain on trading securities $ 79,192 $ 7,340
Deferred revenues 806,294 --
State income tax 19,250 --
----------- -----------
Total deferred tax assets 904,736 7,340
----------- -----------
Deferred tax liabilities:
Accelerated depreciation 61,691 --
State income tax 59,981 --
----------- -----------
Total deferred liabilities 121,672 --
----------- -----------
Net Deferred tax asset $ 783,064 $ 7,340
----------- -----------
----------- -----------
</TABLE>
F-19
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note N - Income Taxes (continued)
The reconciliation of the effective income tax rate to the Federal
statutory rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Federal income tax rate 35.0% 35.0% 35.0%
Unrealized gain on trading securities 1.7 1.8 --
Deferred revenues 17.3 -- --
Accelerated depreciation (1.3) -- --
Capitalized interest (1.3) -- --
State income tax 0.4 -- --
-------- -------- --------
Effective income tax rate 51.8% 36.8% 35.0%
-------- -------- --------
-------- -------- --------
</TABLE>
Note O - Revenues and Other Cost of Revenues
<TABLE>
<CAPTION>
Seminar Product Entity WIN
Revenues Sales Formations Subscriptions Total
------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Revenues, net of returns & discounts $ 23,817,315 $ 10,608,421 $ 3,716,528 $ 2,582,251 $ 40,724,515
Other cost of revenues:
Cost of goods sold -- 5,017,027 -- -- 5,017,027
Credit card fees 556,663 247,942 86,864 60,353 951,822
Cost of meeting rooms 1,488,212 -- -- -- 1,488,212
Speaker fees 1,373,855 -- 764,312 -- 2,138,167
Travel 1,383,464 -- 206,724 -- 1,590,188
------------ ------------ ------------ ------------ ------------
Total $ 4,802,194 $ 5,264,969 $ 1,057,900 $ 60,353 $ 11,185,416
------------ ------------ ------------ ------------ ------------
Year ended December 31, 1995:
Revenues, net of returns & discounts $ 4,049,360 $ 1,477,200 $ 1,538,459 $ 502,316 $ 7,567,335
Other cost of revenues:
Cost of goods sold -- 1,121,336 -- -- 1,121,336
Credit card fees 90,359 32,963 34,330 11,209 168,861
Cost of meeting rooms 99,720 -- -- -- 99,720
Speaker fees 353,915 101,937 282,520 -- 738,372
Travel 357,772 -- 132,327 -- 490,099
------------ ------------ ------------ ------------ ------------
Total $ 901,766 $ 1,256,236 $ 449,177 $ 11,209 $ 2,618,388
------------ ------------ ------------ ------------ ------------
Year ended December 31, 1994:
Revenues, net of returns & discounts $ 532,422 $ 331,225 $ 1,064,670 $ 44,828 $ 1,973,145
Other cost of revenues:
Cost of goods sold -- 217,355 -- -- 217,355
Credit card fees 12,805 7,293 23,441 987 44,526
Cost of meeting rooms 14,083 -- -- -- 14,083
Speaker fees 64,279 54,017 286,986 -- 405,282
Travel 35,123 -- 62,442 -- 97,565
------------ ------------ ------------ ------------ ------------
Total $ 126,290 $ 278,665 $ 372,869 $ 987 $ 778,811
------------ ------------ ------------ ------------ ------------
</TABLE>
F-20
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note P - Dividends
The Company did not declare or pay any dividends for the years shown in
these financial statements.
Note Q - Non-Monetary Transactions
In June 1996, prior to the two-for-one stock split, the Company issued
16,000 shares of its Class A common stock at $3 per share ($1.50 per
share with effect of the stock split) to various employees for
subscription notes receivable. In addition, the Company issued 30,422
shares of its Class A common stock at $2.50 per share to various
employees as additional employee compensation.
Note R - Supplementary Disclosure of Cash Flow Information
The Company paid $263,285 and $25,422 in interest, and $100,000 and
$78,000 in income taxes, in the years ended December 31, 1996 and 1995
respectively. No interest or income taxes were paid in the year ended
December 31, 1994.
The Company purchased a three-story commercial building in July, 1996, and
relocated in January 1997. The $3,300,000 purchase was financed with a
$2,550,000 mortgage with an interest rate of 9% per annum, and a down
payment of $750,000.
F-21
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors Profit Financial Corporation Seattle, Washington
The audits referred to in our report to the Board of Directors of Profit
Financial Corporation and subsidiaries dated June 25, 1997, relating to the
consolidated financial statements of Profit Financial Corporation and
subsidiaries included the audit of schedules listed under Item 14 of Form
10-K for the years ended December 31, 1996, 1995, and 1994. 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/ Miller & Company
Certified Public Accountants
Santa Monica, California
25 June 1997
F-22
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
SCHEDULE 1 - CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEETS
ASSETS
December 31,
-----------------------------
CURRENT ASSETS 1996 1995
------------ -----------
Investment in subsidiary $ 110,552 $ 110,552
Investment in land 148,500 148,500
Investment in non-marketable securities 18,600 18,600
Other receivables 1,378 -
Due from subsidiary 48,013 -
------------ -----------
TOTAL ASSETS $ 327,043 $ 277,652
------------ -----------
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31,
-----------------------------
CURRENT LIABILITIES 1996 1995
------------ -----------
Accounts payable and accrued expenses $ 22,080 $ 41,396
------------ -----------
TOTAL LIABILITIES 22,080 41,396
------------ -----------
SHAREHOLDERS' EQUITY
Preferred stock -- --
Common stock 66,807 31,991
Paid-in capital 1,072,608 498,938
Prepaid advertising (500,000) --
Retained earnings (deficit) (334,452) (294,673)
------------ -----------
TOTAL SHAREHOLDERS' EQUITY 304,963 236,256
------------ -----------
TOTAL LIABILITIES, MINORITY INTEREST,
AND SHAREHOLDERS' EQUITY $ 327,043 $ 277,652
------------ -----------
------------ -----------
F-23
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
SCHEDULE 1 - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
Years ended December 31,
---------------------------------------
1996 1995 1994
--------- --------- ---------
INTEREST INCOME $ 2,013 $ -- $ --
GENERAL AND ADMINISTRATIVE EXPENSES (41,792) (18,625) --
LOSS ON NON-MARKETABLE SECURITIES -- (107,400) (178,200)
IMPAIRMENT OF LONG-LIVED ASSETS -- (99,000) --
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (39,779) (225,025) (178,200)
PROVISION FOR INCOME TAXES -- -- --
--------- --------- ---------
NET LOSS $ (39,779) $(225,025) $(178,200)
ACCUMULATED DEFICIT, BEGINNING (294,673) (178,200) --
ISSUANCE OF COMMON STOCK IN
EXCHANGE FOR INVESTMENT
IN SUBSIDIARY -- 108,552 --
--------- --------- ---------
ACCUMULATED DEFICIT, ENDING $(334,452) $(294,673) $(178,200)
--------- --------- ---------
--------- --------- ---------
F-24
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
SCHEDULE 1 - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Net income (loss) $ (39,779) $(225,025) $(178,200)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Impairment of long-lived assets -- 99,000 --
Loss on investment in non-marketable securities -- 107,400 178,200
Changes in assets and liabilities:
Receivables (1,378) -- --
Due from subsidiary (48,013) -- --
Accounts payable and accrued expenses (19,316) 18,625 --
--------- --------- ---------
TOTAL ADJUSTMENTS (68,707) 225,025 178,200
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES (108,486) 225,025 178,200
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 108,486 -- --
--------- --------- ---------
NET INCREASE IN CASH -- -- --
CASH, beginning of year -- -- --
--------- --------- ---------
CASH, end of year $ -- $ -- $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-25
<PAGE>
[ARTWORK]
INCORPORATED UNDER THE LAWS OF THE STATE OF UTAH
PROFIT FINANCIAL CORPORATION
THE CORPORATION IS AUTHORIZED TO HAVE 20,000,000 COMMON SHARES PAR VALUE
$.01 EACH
THIS CERTIFIES THAT SPECIMEN IS THE OWNER OF
________________________________________________________ FULLY PAID AND
NON-ASSESSABLE SHARES OF THE ABOVE CORPORATION TRANSFERABLE ONLY ON THE BOOKS
OF THE CORPORATION BY THE HOLDER HEREOF IN PERSON OR BY DULY AUTHORIZED
ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED.
IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE
SIGNED BY ITS DULY AUTHORIZED OFFICERS AND TO BE SEALED WITH THE SEAL OF THE
CORPORATION.
DATED_______________________
<PAGE>
OPEN ENDED PRODUCT AGREEMENT
1. PARTIES:
This Agreement is between Wade Cook Seminars, Inc., a Nevada corporation
("WCSI"), Money Chef, Inc., a Nevada corporation ("Money Chef"), and Wade B.
Cook, a resident of Washington State ("Cook").
2. BACKGROUND:
Cook and Money Chef own the rights to intellectual property related to
investment strategies, financial management, and wealth management created by
Wade B. Cook ("Cook IP"). WCSI has been sponsoring and promoting certain
seminars and materials relating to said Cook IP under the terms of a Product
Agreement dated January 3, 1993 between United Support Association, Inc. (now
WCSI) and USA/Wade Cook Seminars, Inc. (now Money Chef). WCSI and Money Chef
now wish to replace that Product Agreement with this Agreement.
3. TERM:
This Agreement shall take effect July 1, 1997 and remain in effect through
June 30, 2002 unless otherwise mutually agreed between the parties.
4. LICENSE:
Money Chef and Cook hereby continue to license rights in the Cook IP, which
Money Chef either owns or controls, to WCSI for the purpose of producing
seminars, audio tapes, videotapes, related books and writings, and other works
stemming from the Cook IP on an individual product basis. This license shall
be a non-exclusive world-wide license. A list of current Products to which
WCSI currently has the rights under the terms of this Agreement is attached
as "Exhibit A." Additional works owned or controlled by Cook and/or Money
Chef shall be licensed to WCSI under the terms of this master license
Agreement by executing individual "Intellectual Property License Orders" ("IP
Orders") in the form of "Exhibit B." Specific IP Orders shall be signed and
dated by the licensor of the intellectual property (either Money Chef, Cook or
both) and by the licensee WCSI (or its subsidiaries, parent company, or
affiliates) in order to be effective. The Term of each IP Order shall be for
the remainder of the term of this Agreement unless otherwise specified in
writing.
5. ROYALTIES:
WCSI shall pay to Cook, or his agent as requested by Cook in writing, a
royalty of ten percent (10%) of all gross sales for Products licensed
hereunder. Royalties shall be paid quarterly on May 1, August 1, November 1,
and February 1 for the quarter ending the month prior to the payment.
6. MARKETING AND PROMOTION:
WCSI shall have the right to promote and advertise Products as it deems
appropriate.
1
<PAGE>
7. AUTHOR'S WARRANTY
Cook represents and warrants to WCSI that the work is original and that he is
the sole author and proprietor thereof, and has full power to enter into this
Agreement. Cook and Money Chef warrant that they own all rights in the
Products subject to the previous license dated January 03, 1993. WCSI and/or
any subsidiaries or affiliates of WCSI which are wholly owned and controlled
by the parent company Profit Financial Corporation, Inc., Cook, and Money Chef
agree to indemnify and hold harmless WCSI against any damage or judgment,
including court costs and attorneys' fees, which may be sustained or
recovered against the Publisher by reason of the publication or sale of any
of the Products arising from anything contained therein. Cook and Money Chef
also agree to reimburse WCSI for all expenses, including court costs,
attorneys' fees, and amounts paid in settlement, sustained by WCSI in
resisting any claim, demand, suit, action or proceeding asserted or
instituted against WCSI based upon the sale of the Product or by reason of
anything contained therein.
8. RIGHT TO USE LIKENESS:
Cook hereby consents to the use of his name, likeness, identity, trademarks
and trade symbols, for the purposes of fulfilling this Agreement and in
connection with the promotion, advertising, distribution, financing,
marketing and production of the Productions or derivatives therefrom, and for
general organizational promotional purposes.
9. EXAMINATION OF BOOKS:
WCSI shall make available to Cook or Money Chef, within 10 days written
notice, at its headquarters, the financial books related to payment of
royalties hereunder.
10. DISPUTES:
Any dispute between the parties arising out of this Agreement which cannot be
amicably settled shall be referred to arbitration upon written notice by
either party to the other. The arbitration shall be governed by the laws of
the State of Nevada. Said arbitration is to be held in Seattle, Washington.
Any award rendered in arbitration shall be binding and conclusive upon the
parties and shall not be subject to appeals or retrying by the court.
11. ATTORNEY FEES:
In the event this Agreement is placed in the hands of an attorney due to a
default in the payment or performance of any of its terms, the defaulting
party shall pay, immediately upon demand, the other party's reasonable
attorney fees, collection costs, costs of either litigation, mediation, or
arbitration (whichever is appropriate), whether or not a suit or action is
filed, and any other fees or expenses reasonably incurred by the
non-defaulting party.
12. JURISDICTION:
This Agreement shall be governed by the laws of Nevada.
2
<PAGE>
13. FINAL AGREEMENT:
This Agreement is the entire, final and complete agreement of the parties and
supersedes all written and oral agreements heretofore made or existing by and
between the parties or their representatives.
Executed in duplicate this 29th day of August, 1997.
WADE COOK SEMINARS, INC.
By: /s/ Kiman A. Lucas
--------------------------
Name: Kiman A. Lucas
Title: General Counsel
/s/ Wade B. Cook
- -----------------------------
Wade B. Cook
MONEY CHEF, INC.
By: /s/ Wade B. Cook
-------------------------
Name: Wade B. Cook
Title: President
3
<PAGE>
EXHIBIT A
A list of current products to which WCSI currently has the rights to:
Books, Video & Audio Tapes:
1) How to Build a Real Estate Money Machine
2) Wall Street Money Machine
3) The Incorporation Handbook
4) How to Pick Up Foreclosures
5) Owner Financing
6) Cook's Book on Creative Real Estate
7) Brilliant Deductions
8) The Corporation Kit
9) Property Analysis Forms
10) Real Estate Record Keeping System
11) Special Reports, Real Estate
12) Travel Agent Information Kit
13) Stock Analysis Forms
14) 101 Ways to Buy Real Estate Without Cash
15) 555 Clean Jokes
16) The Real Estate Money Machine
17) Stock Market Miracles
18) Bear Market Baloney
19) Business Buy the Bible
20) A Day with Wade Cook
21) Paper Chase Cassette Seminar
22) Financial Fortress Home Study Program
23) Zero to Zillions
24) Next Step
Seminar Curriculum and Manuals:
1) Business Entities Skills Training (B.E.S.T.)
2) Wall Street Workshop
3) Youth Wall Street Workshop
4) Wealth Academy
5) Cook University
6) Real Estate Bootcamp
7) Four Days with Wade & Ultra B.E.S.T.
8) Next Step
9) Executive Retreat
10) Travel Agent
11) Wealth Information Network (W.I.N.)
12) Wealth Information Network Plus
13) Financial Clinics
14) WINSTOCK
4
<PAGE>
[LOGO]
Escrow No. 47346
ALL-INCLUSIVE TRUST DEED
WITH ASSIGNMENT OF RENTS
THIS TRUST DEED, MADE THIS MARCH 7, 1997 BETWEEN,
RISING TIDE, LTD, A LIMITED PARTNERSHIP, TRUSTOR,
of: 2001 E. Flamingo Road, Suite 100G, Las Vegas, NV 89119
FIRST AMERICAN TITLE COMPANY OF UTAH, a Utah Corporation, as Trustee, and
EAST BAY LODGING ASSOCIATES, LTD, a Utah Limited Partnership, Beneficiary,
of: 1515 South University Avenue, Provo, Utah 84606
WITNESSETH: THAT TRUSTOR HEREBY CONVEYS AND WARRANTS TO TRUSTEE IN
TRUST, WITH POWER OF SALE, the following described property situated in Utah
County, Utah:
Parcel 2, Plat "K", EAST BAY, PLANNED UNIT DEVELOPMENT, Provo, Utah, as the
same is identified in the recorded Survey Map in Utah, County, Utah, as Entry
No. 3689, and Map Filing No. 3728-43, (as said record of Survey Map may have
heretofore been amended of supplemented) and in the Declaration of Easements,
Covenants, Conditions and Restrictions, recorded in Utah County, Utah, as
Entry No 3690, in Book 2576, at Page 900 (as said Declaration may have
heretofore been amended or supplemented).
TOGETHER WITH the Pertinent easements over and rights of use and enjoyment of
said Project's Common Areas as established in the above mentioned Declaration
of Easements, Covenants, Conditions and Restrictions. TAX ID #38-104-2
Together with all buildings, fixtures and improvements thereon and all
water rights, rights of way, easements, rents, issues, profits, income,
tenements, hereditaments, privileges and appurtenances thereunto belonging,
now or hereafter used or enjoyed with said property, or any part thereof,
SUBJECT, HOWEVER, to the right, power and authority hereinafter given to and
conferred upon Beneficiary to collect and apply such rents, issues, and
profits;
FOR THE PURPOSE OF SECURING (1) payment of the indebtedness evidenced by
an All-Inclusive Promissory Note of even date herewith, in the principal sum
of $2,893,804.69, made by Trustor, payable to the order of Beneficiary at
the times, in the manner and with interest as therein set forth, and any
extensions and/or renewals or modifications thereof; (2) the performance of
each agreement of Trustor herein contained; (3) the payment of such
additional loans or advances a hereafter may be made to Trustor, or
his/her/its successors or assigns, when evidenced by a promissory note or
notes reciting that they are secured by this Trust Deed; and (4) the payment
of all sums expended or advanced by Beneficiary under or pursuant to the terms
hereof, together with interest thereon as herein provided.
This instrument is an All-Inclusive Trust Deed subject and subordinate to the
following instruments (hereinafter Senior Encumbrances");
This conveyance is made and accepted subject to a Deed of Trust in favor of
Bank of Utah, recorded May 19, 1992 as Entry No. 24196 in Book 2936 at Page
576 of Official Records, having an unpaid principal balance of $791,163.06
as of March 18, 1997 which Deed of Trust, and the debt secured thereby, the
grantee(s) herein, hereby assumes and agrees to pay.
1
<PAGE>
This conveyance is made and accepted subject to a Deed of Trust in favor
of Greater Salt Lake Business District, recorded September 30, 1992 as Entry
No. 51803 in Book 3011 at Page 74 of Official Records, and subsequently
assigned The Small Business Administration, by that certain Assignment
recorded September 30, 1992 as Entry No. 51804 in Book 3011 at Page 81 of
Official Records, having an unpaid principal balance of $787,935.93 as of
March 1, 1997 which Deed of Trust, and the debt secured thereby, the
grantee(s) herein, hereby assumes and agrees to pay.
The grantor(s) herein assign to the grantee(s) all rights, title and interest
to any reserve account held with said Deed of Trust herein assumed, for the
payment of insurance.
The Promissory Note(s) secured by said Trust Deed(s) is (are) hereinafter
referred to as the "Senior Note(s)". Nothing in this Trust Deed, the Note, or
any deed in connection herewith shall be deemed to be an assumption by the
Trustor of the Senior Notes or Senior Encumbrances.
TO PROTECT THE SECURITY OF THIS TRUST DEED, TRUSTOR AGREES:
1. To keep said property in good condition and repair; not to remove or
demolish any building thereon; to complete or restore promptly and in good and
workmanlike manner any building which may be constructed, damaged or
destroyed thereon; to comply with all laws, covenants and restrictions
affecting said property; not to commit or permit waste thereof; not to
commit, suffer or permit any act upon said property in violation of law; to
do all other acts which from the character or use of said property may be
reasonably necessary, the specific enumerations herein not excluding the
general; and if the loan secured hereby or any part thereof is being obtained
for the purpose of financing construction of improvements on said property,
Trustor further AGREES:
(a) To commence construction promptly and to pursue same with
reasonable diligence to completion in accordance with plans and
specifications satisfactory to Beneficiary, and
(b) To allow Beneficiary to inspect said property at all times during
construction.
Trustee, upon presentation to it of an affidavit signed by Beneficiary,
setting forth facts showing a default by Trustor under this paragraph, is
authorized to accept as true and conclusive all facts and statements therein,
and to act thereon hereunder.
2. To provide and maintain insurance, of such type or types and amounts
as Beneficiary may require, on the improvements now existing or hereafter
erected or placed on said property. Such insurance shall be carried in
companies approved by Beneficiary with loss payable clauses in favor of and
in form acceptable to Beneficiary. In event of loss, Trustor shall give
immediate notice to Beneficiary, who may make proof of loss, and each
insurance company concerned is hereby authorized and directed to make payment
for such loss directly to Beneficiary instead of to Trustor and Beneficiary
jointly, and the insurance proceeds, or any part thereof, may be applied by
Beneficiary, at his/her/its option, to reduction of the indebtedness hereby
secured or to the restoration of repair of the property damaged.
3. To deliver to, pay for and maintain with Beneficiary until the
indebtedness secured hereby is paid in full, such evidence of title as
Beneficiary may require, including abstracts of title or policies of title
insurance and any extensions or renewals thereof or supplements thereto.
4. To appear in and defend any action or proceeding purporting to affect
the security hereof, the title to said property, or the rights or powers of
Beneficiary or Trustee; and should Beneficiary or Trustee elect to also
appear in or defend any such action or proceeding, to pay all costs and
expenses, including cost of evidence of title and attorney's fees in a
reasonable sum incurred by Beneficiary or Trustee.
5. To pay all taxes, insurance and assessments of every kind or nature
as and when required by the Holders of Senior Encumbrances or when otherwise
due in absence of any requirements under the Senior Encumbrances.
6. Should fail to make any payment or to do any act as herein provided,
then Beneficiary or Trustee, but without obligation to do so and without
notice to or demand upon Trustor and without releasing Trustor from any
obligation hereof, may: Make or do the same in such manner and to such extent
as either may deem necessary to protect the security hereof, Beneficiary or
Trustee being authorized to enter upon said property for such purposes;
commence, appear in and defend any action or proceeding purporting
to affect the security hereof or the rights or powers of Beneficiary or
Trustee; pay, purchase, contest or compromise any encumbrance, charge or lien
which in the judgment of either appears to be prior or superior hereto; and
in exercising any such powers, incur any liability, expend whatever amounts
in its absolute discretion it may deem necessary therefor, including costs of
evidence of title, employ counsel, and pay reasonable fees.
7. To pay immediately and without demand all sums expended hereunder by
Beneficiary or Trustee, with interest from date of expenditure at the rate
borne by the principal balance under the note until paid, and the repayment
thereof shall be secured hereby.
IT IS MUTUALLY AGREED THAT:
8. Should said property or any part thereof be taken or damaged by
reason of any public improvement or condemnation proceeding, or damaged by
fire, or earthquake, or in any other manner, Beneficiary shall be entitled to
all compensation, awards, and other payments or relief therefor, and shall be
entitled at its option to commence, appear in and prosecute in its own name,
any action or proceedings, or to make any compromise or settlement, in
connection with such taking or damage. All such compensation, awards,
damages, rights or action and proceeds, including the proceeds of any
policies of fire and other insurance affecting said property, are hereby
assigned to Beneficiary, who may, after deducting therefrom all its expenses,
including attorney's fees, apply the same on any indebtedness secured hereby.
Trustor agrees to execute such further assignments of any compensation,
award, damages, and rights of action and proceeds as Beneficiary or Trustee
may require.
9. At any time and from time to time upon written request of
Beneficiary, payment of its fees and presentation of this Trust Deed and the
note of endorsement (in case of full reconveyance for cancellation and
retention), without affecting the liability of any persons for the payment of
the indebtedness secured hereby, Trustee may (a) consent to the making of
any map or plat of said property; (b) join in granting any easement or
creating any [illegible...]
2
<PAGE>
[...ILLEGIBLE] thereof; (d) reconvey, without warranty, all or any part of
said property. The grantee in any reconveyance may be described as "the
person or persons entitled thereto," and the recitals therein of any matters
or facts shall be conclusive proof of the truthfulness thereof. Trustor
agrees to pay reasonable Trustee fees for any of the services mentioned in
this paragraph.
10. As additional security, Trustors hereby assign to Beneficiary,
during the continuance of these trusts, all rents, issues, royalties, and
profits of the property affected by this Trust Deed and of any personal
property located thereon. Until Trustor shall default in the payment of any
indebtedness secured hereby or in the performance of any agreement
hereunder, Trustor shall have the right to collect all such rents, issues,
royalties, and profits earned prior to default as they become due and
payable. If Trustor shall default as aforesaid, Trustors' right to collect
any of such moneys shall cease and Beneficiary shall have the right, with or
without taking possession of the property affected hereby, to collect all
rents, royalties, issues, and profits. Failure or discontinuance of
Beneficiary at any time or from time to time to collect any such moneys shall
not in any manner affect the subsequent enforcement by Beneficiary of the
right, power, and authority to collect the same. Nothing contained herein,
nor the exercise of the right by Beneficiary to collect, shall be, or be
construed to be, an affirmation by Beneficiary of any tenancy, lease or
option, nor an assumption of liability under, nor a subordination of the lien
or charge of this Trust Deed to any such tenancy, lease or option.
11. Upon any default by Trustor hereunder, Beneficiary may at any time
without notice, either in person, by agent, or by a receiver to be appointed
by a court (Trustor hereby consenting to the appointment of Beneficiary as
such receiver), and without regard to the adequacy of any security for the
indebtedness hereby secured, enter upon and take possession of said property
or any part thereof, in its own name sue for or otherwise collect said rents,
issues and profits, including those past due and unpaid, and apply the same,
less costs and expensed of operation and collection, including reasonable
attorney's fees, upon any indebtedness secured thereby, and in such order as
Beneficiary may determine.
12. The entering upon and taking possession of said property, the
collection of such rents, issues and profits, or the proceeds of fire and
other insurance policies, or compensation or awards for any taking or damage
of said property, and the application or release thereof as aforesaid, shall
not cure or waive any default or notice of default hereunder or invalidate
any act done pursuant to such notice.
13. The failure on the part of Beneficiary to promptly enforce any right
hereunder shall not operate as a waiver of such right and the waiver by
Beneficiary of any default shall not constitute a waiver of any other or
subsequent default.
14. Time is of the essence hereof. Upon default by Trustor in the
payment of any indebtedness secured hereby or in the performance of any
agreement hereunder, all sums secured hereby shall immediately become due and
payable at the option of Beneficiary. In the event of such default,
Beneficiary may execute or cause Trustee to execute a written notice of
default and of election to cause said property to be sold to satisfy the
obligations hereof, and Trustee shall file such notice for record in each
county wherein said property or some part of parcel thereof is situated.
Beneficiary shall deposit with Trustee, the note and all documents evidencing
expenditures secured hereby.
15. After the lapse of such time as may then be required by law
following the recordation of said notice of default, and notice of default
and notice of sale having been given as then required by law, Trustee,
without demand on Beneficiary, shall sell said property on the date and at
the time and place designated in said notice of sale, either as a whole or in
separate parcels, and in such order as it may determine (but subject to any
statutory right of Trustor to direct the order in which property, if
consisting of several known lots or parcels, shall be sold), at public
auction to the highest bidder, the purchase price payable in lawful money of
the United States, at the time of sale. The person conducting the sale may,
for any cause he deems expedient, postpone the sale from time to time until
it shall be completed and, in every case, notice of postponement shall be
given by public declaration thereof by such person at the time and place last
appointed for the sale; provided, if the sale is postponed for longer than
one day beyond the day designated in the notice of sale, notice thereof shall
be given in the same manner as the original notice of sale. Trustee shall
execute and deliver to the purchaser its Deed conveying said property so
sold, but without any covenant or warranty, express or implied. The recitals
in the Deed of any matters or facts shall be conclusive proof of the
trustfulness thereof. Any person including Beneficiary, may bid at the same.
Trustee shall apply the proceeds of sale to payment of (1) the costs and
expenses of exercising the power of sale and of the sale, including the
evidence of title procured in connection with such sale; (2) all sums
expended under the terms hereof, not then repaid, with accrued interest at
the rate borne by the principal balance under the note from date of
expenditure; (3) all other sums then secured hereby; and (4) the remainder,
if any, to the person or persons legally entitled thereto, or the Trustee, in
its discretion, may deposit the balance of such proceeds with the county
Clerk of the county in which the sale took place.
16. Upon the occurrence of any default hereunder, Beneficiary shall
have the option to declare all sums secured hereby immediately due and
payable and foreclose this Trust Deed in the manner provided by law for the
foreclosure of mortgages on real property and Beneficiary shall be entitled
to recover in such proceedings all costs and expenses incidental thereto,
including a reasonable attorney's fee in such amount as shall be fixed by the
court.
17. Beneficiary may appoint a successor Trustee at any time by filing
for record in the office of the County Recorder of each county in which said
property or some part hereof is situated, a substitution of Trustee. From the
time the substitution is filed for record, the new Trustee shall succeed to
all the powers, duties, authority and title of the Trustee named herein or of
any successor Trustee. Each such substitution shall be executed and
acknowledged, and notice thereof shall be given and proof thereof made, in the
manner provided by law.
18. This Trust Deed shall apply to, inure to the benefits of, and bind
all parties hereto, their heirs, legatees, devisees, administrators,
executors, successors and assigns. All obligations of Trustor hereunder are
joint and several. The term "Beneficiary" shall mean the owner and holder,
including any pledgee, of the note secured hereby. In this Trust Deed,
whenever the context so requires, the masculine gender includes the feminine
and/or neuter, and the singular includes the plural.
19. Trustee accepts this Trust when this Trust Deed, duly executed and
acknowledged, is made a public record as provided by law. Trustee is not
obligated to notify any party hereto of pending sale under any other Trust
Deed or of any action or proceeding in which Trustor, Beneficiary, or Trustee
shall be a party unless brought by Trustee.
20. This Trust Deed shall be construed according to the laws of the State
of Utah.
21. The undersigned Trustors request that a copy of any notice of
default and of any notice of sale hereunder be mailed to him at the address
hereinbefore set forth.
3
<PAGE>
WITNESS the hands of said Grantor this March 7, 1997.
RISING TIDE, LTD
- ---------------------------------
WADE B. COOK, GENERAL PARTNER
State of Utah )
)ss.
County of Utah )
On the MARCH 7, 1997 personally appeared before me WADE B. COOK, who
being by me duly sworn did say, for himself/herself, that he/she, the said
WADE B. COOK is the General Partner of RISING TIDE, LTD, A LIMITED
PARTNERSHIP, and that the within and foregoing instrument was signed in behalf
of said partnership by authority of its partnership agreement and said WADE
B. COOK duly acknowledged to me that said partnership executed the same.
-----------------------------------
Notary Public
4
<PAGE>
SECURED LOAN AGREEMENT
THIS SECURED LOAN AGREEMENT (hereinafter referred to as "Agreement")
is made and entered into on this 4th day of FEBRUARY, 1997, by and between
NEWSTART CENTRE, INC., a Utah Corporation with its principal place of
business in Salt Lake County, State of Utah, (hereinafter referred to as
"Debtor") and USA WADE COOK SEMINARS, Inc. of C/O 11275 SOUTH LOAFER CANYON
ROAD, ELKRIDGE, UT. 84651 (hereinafter referred to as "Secured Party").
RECITALS:
A. WHEREAS, DEBTOR is engaged in the business of buying, leasing and
selling motor vehicles to the general public, and
B. WHEREAS, DEBTOR desires to borrow working capital for the purchase
of automobiles to sale or lease, and
C. WHEREAS, Secured Party desires to loan working capital to Debtor,
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties hereto hereby agree as follows:
1. Loan. Secured Party hereby lends to Debtor, receipt of which is
hereby acknowledged, the sum of $125,000.00 payable to Debtor in certified
funds concurrent with the execution of this Agreement and the other
documents/instruments referred to below.
2. Loan Documents.
a) Execution and delivery by Debtor. Debtor hereby agrees to
execute, by and through its authorized representatives, and to deliver to
Secured Party, the following instruments/ documents to effect the loan
described in paragraph 1 above.
1) Promissory Note dated the 4th day of FEBRUARY, 1997, a copy
of which is attached hereto as Exhibit "A".
2) Certificate of Delivery and Receipt of Documents, a copy of
which is attached hereto as Exhibit "B".
b) Execution and delivery by Secured Party. Secured Party hereby
agrees to execute and deliver to Debtor the Certificate of Delivery and
Receipt of Documents dated the 4th of FEBRUARY, 1997, (Exhibit "B").
3. Grant of Lien. Debtor hereby grants to Secured Party a continuing
lien against each vehicle (hereinafter the "vehicles") purchased with Secured
Party's funds to secure the payment and performance of each and every
obligation, liability and undertaking of Debtor under the loan documents and
Debtor hereby represents and warrants to secured Party that Debtor is or,
after acquisition by Debtor, will be the owner of the of the vehicles and
possesses all requisite power and authority to execute and deliver this
Agreement and to grant to Secured Party a lien as to all of the vehicles or
any replacements thereof.
4. No Other Security Interests/Liens. No financing statement or lien
covering the vehicles has been given or filed by Debtor with any filing
officer, and the said vehicles are or will be free from any adverse liens,
security interests, claims or encumbrances of any kind.
5. Taxes and Assessments. All taxes, assessments and other governmental
charges including Utah State sales tax, county property tax, and license and
registration fees upon the vehicles will, to the best of Debtor's knowledge,
have been paid and shall continue to be paid as they become due and payable.
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6. Substitution of Collateral. Secured Party consents and acknowledges
that Debtor, from time to time, may sell, transfer or assign any or all of
the said vehicles or leases covering the vehicles. Secured Party further
agrees to cooperate with and to execute and deliver to Debtor such additional
documents as may be necessary to sell or otherwise dispose of any of the
vehicles provided Debtor, within a reasonable time, replaces such vehicles(s)
with other vehicles(s) of equal or greater value and lists Secured Party as
the sole lien holder on the titles to any such replacement vehicles.
7. Evidence of Title. Debtor shall, within thirty (30) days after the
receipt thereof, deliver to Secured Party copies of any and all title and/or
registration documents relating to any of the motor vehicles covered by this
Agreement showing Secured Party as the sole lienholder. Debtor shall not
further mortgage, pledge, grant or permit to exist any lien against or
security interest in, or encumbrance on, any of the vehicles without the
prior written consent of Secured Party.
8. Insurance. Debtor shall maintain, or cause Lessees to maintain, at
Debtor's or Lessee's expense, proper insurance coverage on the vehicles
covered by this Agreement upon terms and with limits of coverage reasonably
required by the existing custom and usage in the motor vehicle leasing
industry and all rights, duties and obligations of Debtor and Lessees with
respect to insurance coverage of the vehicles, including, without limitation,
payment of premiums, use of proceeds and disposition of policies shall be as
are standard in the auto leasing industry.
9. Licenses and Permits. Debtor shall keep in effect all licenses,
permits and franchises required by law or contract relating to the vehicles
and shall pay, when due, all fees and other charges pertaining thereto.
10. Miscellaneous.
(a) Entire Agreement. This Agreement, together with all of the
documents/instruments listed herein constitute the entire agreement between
the parties. There are no terms, obligations, covenants, representatives,
statements, or conditions between the parties, other than those contained
herein. No variations or modifications of this Agreement or waiver of any of
the terms or provisions hereof shall be deemed valid unless in writing and
signed by both parties.
(b) Grace Period. In the event of a non-monetary default, Debtor
shall have thirty (30) days after receipt of written notice thereof from
Secured Party in which to cure such default.
(c) Amendments. Neither this Agreement nor any provisions hereof may
be changed, waived, discharged or terminated orally and may only be modified
or amended by an instrument in writing, signed by Secured Party and Debtor.
(d) Binding Effect. This Agreement shall be binding upon Debtor and
Debtor's successors and assigns. This Agreement shall inure to the benefit of
Secured Party, and Secured Party's heirs, personal representatives,
successors and assigns.
(e) Notices. Except as otherwise provided herein, all notices and
other communications under this Agreement shall be in writing and shall be
deemed given when delivered or, if mailed, then when mailed, if mailed by
registered or certified mail, postage prepaid, addressed as follows:
If to Secured Party, to:
USA WADE COOK SEMINARS, INC.
C/O 11275 SOUTH LOAFER CANYON ROAD
ELKRIDGE, UT. 84651
If to Debtor, to: NEWSTART CENTRE, INC.
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Such addresses may be changed by notice to the other parties given in
the same manner as above provided. Any notice given hereunder shall be deemed
given as of the date delivered or mailed.
(f) Severability. If any term or provision of this Agreement shall,
to any extent, be determined by a court of competent jurisdiction to be void,
voidable or unenforceable, such void, voidable or unenforceable term or
provision shall not affect any other term or provision of this Agreement.
(g) Governing Law. This Agreement and all matters relating hereto
shall be governed by, construed and interpreted in accordance with the laws
of the State of Utah, County of Salt Lake.
(h) Termination. This Agreement shall terminate upon the full and
complete performance and satisfaction by Debtor of all of its obligations to
Secured Party under this Agreement or any other instrument referred to herein
requiring performance by Debtor.
IN WITNESS WHEREOF, Debtor and Secured Party have executed this Secured
Loan Agreement effective as of the date first above written.
DEBTOR:
NEWSTART CENTRE, INC.
By /s/ illegible
[add signature]
SECURED PARTY: USA WADE COOK SEMINARS, INC.
By /s/ illegible
[add signature]
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<PAGE>
PROMISSORY NOTE
(Secured)
$ $125,000,000 Date: 4 FEB 97
FOR VALUE RECEIVED the undersigned hereby promise to pay to USA WADE
COOK SEMINARS, INC.
at
C/O 11275 SOUTH LOAFER CANYON ROAD, ELKRIDGE, UT. 84651
or at such other place as the holder hereof may designate in writing, the
principal sum of ONE HUNDRED TWENTY FIVE THOUSAND DOLLARS AND NO/100
($ $125,000.00), payable in forty-eight (48) consecutive equal monthly
payments, including interest as provided below, of ($3,606.88) each,
commencing with the first payment on the 21st day of MARCH, 1997, and
continuing with a like payment on the 21st day of each and every consecutive
month thereafter until the entire remaining unpaid principal balance has been
paid in full, subject to the following additional terms and conditions:
1. Interest. Interest shall accrue on the unpaid principal balance at
the simple rate of SEVENTEEN percent (17.00%) per annum.
2. Application of Payments. Payments shall be applied first toward
the payment and satisfaction of accrued and unpaid interest, if any, and the
remainder shall be applied toward the reduction of principal. Principal and
interest shall be payable only in lawful money of the United States of
America.
3. Prepayment. The undersigned shall have the right, without penalty,
to pre-pay any part or all of the unpaid principal balance due hereunder, in
which event subsequent monthly payments shall be reduced proportionately, or,
upon payment in full of all interest, entire principal balance, together
with all accrued interest and any accrued costs or attorney's fees as
provided herein, shall be paid in full on or before FEBRUARY 4th, 2001.
4. Default/Late Charges/Acceleration. In the event any installment
payment due hereunder or any portion thereof is not made within thirty (30)
days after its due date and such default is occasioned by the default of any
lessee, then, to that extent, Debtor shall have sixty (60) days from such due
date to repossess the subject motor vehicle(s), re-lease the same and resume
making monthly installment payments pursuant to the Note. Any installment
payment or any portion thereof not paid within the said sixty-day (60) period
shall be added on to the end of the term covered by the Note and the final
due date for such payment or part thereof, together with any accrued interest
thereon shall be extended by one month for each such installment payment
missed.
5. No Waiver. The acceptance of any installment or payment after the
occurrence of a default or event giving rise to the right of acceleration
provided for in the previous paragraph shall not constitute a waiver of such
right of acceleration with respect to any subsequent default or event.
6. Costs of Collection/Attorneys' Fees, etc. In the event any payment
due under this Note is not made, or any obligation provided to be satisfied
or performed under any instrument given to secure payment of the obligations
evidenced hereby is not satisfied or performed, at the time and in the manner
required, the undersigned agrees to pay all costs and expenses (regardless of
the particular nature thereof and whether incurred with or without suit and
before or after the judgement) which may be incurred by the holder hereof in
connection with the enforcement of any of his rights under this Note or under
any such other instrument, or any right arising out of the breach thereof,
including but not limited to, reasonable expenses incurred in foreclosing on
the collateral securing payment hereof, court costs, and reasonable
attorneys' fees.
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7. Notice. Any notice or demand hereunder shall be deemed to have been
given to and received by the undersigned when personally delivered or when
deposited in the U.S. mail, certified or registered mail, return receipt
requested, postage pre-paid, and addressed to the undersigned at the address
set forth below or at such other address as the undersigned may hereafter
designate in writing to the holder hereof.
This note shall be governed by and construed in accordance with the laws
of the State of Utah.
NEWSTART CENTRE, INC.
By /s/ Robert J. Atmore
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CERTIFICATE OF DELIVERY
AND RECEIPT OF DOCUMENTS
I, ROBERT J. ATMORE, of/for NEWSTART CENTRE, INC. do hereby certify that on
the 4th day of FEBRUARY, 1997 I delivered to USA WADE COOK SEMINARS, INC. of
C/O 11275 SOUTH LOAFER CANYON ROAD, ELKRIDGE, UT. 84651 one (1) original
and/or one (1) copy of each of the following documents:
(i) Secured Loan Agreement dated on the 4th day of FEBRUARY, 1997,
between NEWSTART CENTRE, INC., as Debtor, and USA WADE COOK SEMINARS, INC. as
Secured Party.
(ii) Promissory Note dated the 4th day of FEBRUARY, 1997.
DATED this 4th day of FEBRUARY, 1997
NEWSTART CENTRE, INC.
By /s/ Robert J. Atmore
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SMITH & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
MEMBERS OF: 10 WEST 100 SOUTH, SUITE 700
AMERICAN INSTITUTE OF SALT LAKE CITY, UTAH 84101
CERTIFIED PUBLIC ACCOUNTANTS TELEPHONE: (801) 575-8297
UTAH ASSOCIATION OF FACSIMILE (801) 575-8306
CERTIFIED PUBLIC ACCOUNTANTS E-MAIL: [email protected]
- --------------------------------------------------------------------------------
September 19, 1997
Board of Directors
Profit Financial Corporation
14675 Interurban Avenue South
Seattle, Washington 98168
We hereby affirm, with respect to the financial statements of Profit
Financial Corporation for the year ended December 31, 1994, that the report
of Smith & Company did not contain an adverse opinion or a disclaimer of
opinion and was not modified or qualified as to uncertainty, audit scope, or
accounting principles. There were no disagreements with Smith & Company on
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure related to Profit Financial Corporation. This
letter responds to your request for such letter which was made in April, 1997.
Very truly yours.
Smith & Company
By: /s/ WILLIAM R. DENNEY
---------------------
William R. Denney
WRD\kod
<PAGE>
MILLER AND CO.
[LETTERHEAD]
September 17, 1997
Profit Financial Corporation
14675 Interurban Avenue South
Seattle, Washington 98168
Dear Profit Financial Corporation:
We hereby consent to the inclusion in the Form 10, as amended and as filed by
Profit Financial Corporation, of the financial statements audited by Miller
and Co. for the fiscal years ending 1996, 1995, and 1994, the notes thereto
and our reports and opinions thereon.
Very truly yours,
MILLER AND CO.
/s/ Marlon G. Buno
Marlon G. Buno
Partner