SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10
General Form For Registration of Securities
Pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934
PROFIT FINANCIAL CORPORATION
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(Exact Name of Registration as Specified in Its Charter)
UTAH 91-1787197
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(State or Other Jurisdiction of (IRS Employer)
Incorporation or Organization)
14675 Interurban Avenue South 98168
Seattle, Washington
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(Address of Principal Executive Offices) (Zip Code)
(206) 901-3000
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(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
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None None
Securities to be registered pursuant to Section 12(g) of the Act:
Class A Common Stock $.01 par value
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(Title of Class)
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(Title of Class)
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THIS REGISTRATION STATEMENT CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 21E OF THE SECURITIES ACT OF 1934, AS AMENDED (THE "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 EFFECT THE
COMMON STOCK. IT SHOULD BE RECOGNIZED THAT OTHER RISKS MAY BE SIGNIFICANT,
PRESENTLY OR IN THE FUTURE, AND THE RISKS SET FORTH BELOW MAY EFFECT THE COMMON
STOCK TO A GREATER EXTENT THAN INDICATED.
THE COMPANY COMPLETED A TWO-FOR-ONE STOCK SPLIT OF ITS CLASS A COMMON STOCK
("COMMON STOCK") IN SEPTEMBER 1996. ALL SHARE AND PER SHARE INFORMATION
CONTAINED HEREIN OF ITS CLASS A COMMON STOCK ("COMMON STOCK") AND THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO HAVE BEEN ADJUSTED TO
REFLECT THE IMPACT OF THE STOCK SPLIT UNLESS OTHERWISE INDICATED.
ITEM 1. BUSINESS.
Profit Financial Corporation, Inc. ("PFCI" and, together with its
direct and indirect subsidiaries, the "Company"), is a holding company that,
through its subsidiaries, conducts educational investment seminars and invests
in hotel and motel assets. The Company's educational seminars are conducted
through its Wade Cook Seminars, Inc. ("WCSI") subsidiary. WCSI produces video
tapes, audio tapes, and written materials designed to teach various investment
and cash flow strategies for investors in the stock markets. WCS also hosts an
electronic bulletin board service, Wealth Information Network ("WIN"), which
allows subscribers to log on for information related to the stock market. WCSI
also hosts a web page site on the Internet called Wade Cook Seminars. Two other
of the Company's subsidiaries, Left Coast Advertising, Inc. ("Left Coast") and
Lighthouse Publishing Group, Inc. ("Lighthouse Publishing"), conduct advertising
and publishing services, respectively, for WCSI seminars.
In 1997, PFCI commenced a program of investing in businesses engaged in
developing hotels and motels, including the ownership of underlying real
property. Profit Financial Real Estate Management Company, Inc. ("PFREM"), is a
wholly owned subsidiary of PFCI, which in turn owns all of the capital stock of
Equity Planners International, Inc. ("EPI"), which in turn owns 50% of the
capital stock of Unlimited Potential, Inc. ("UP"). Zion Holdings, LLC., a
non-affiliated Utah limited liability corporation, owns the other 50% of the
shares of UP. PFREM, EPI and UP are collectively referred to herein as the "Real
Estate Subsidiaries."
Business Strategy.
The Company's strategy in the educational investment seminar portion of
its business is to maintain its leadership position in the field of producing
seminars on a national basis in the areas of personal finance, real estate,
asset protection and stock market investment strategies. To that end, during
1996, the number of seminars that the Company held was increased from one
seminar a week to approximately six a week by year end. The increase was the
result of a number of factors, including
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increased expenditures on radio advertising in selected markets, the popularity
of stock market investment books authored by Wade B. Cook and the audience
reception of the Company's "Wall Street Workshop" seminars.
The Company's strategy in the real estate portion of its business is to
continue to make direct and indirect investments in real estate-related assets,
principally in the hotel-motel category. To that end, the Company pursues a
strategy of making direct investments in land or in structures comprising hotels
and motels. The Company also invests in limited partnerships formed to acquire
land on which hotels and motels are built and in partnerships formed to develop
and own hotels and motels. The Company's geographic focus is on hotels and
motels in Utah and Nevada.
Educational Seminars.
The Company's educational seminars are based upon the financial and
investment strategies of Wade B. Cook. Mr. Cook founded the Company's WCSI
subsidiary in 1989, and has presented seminars to more than 42,000 individuals
since 1989. His radio and television shows have been heard or seen by several
hundred thousand people. He is the author of over 15 books, one of which, "Wall
Street Money Machine", reached number 3 on the New York Times Business
Best-seller List in 1996 and 1997.
The Company employed approximately 40 seminar speakers at March 31,
1997, who conduct the Company's seminars throughout the United States.
Approximately 35 of such seminar speakers are independent contractors, and
approximately four were employees of WCSI. The Company provides training
services to its speakers, and requires that its speakers enter into contracts
whereby the speakers agree not to compete with the Company for a period,
generally three years, after their employment or contractor status with the
Company ends. Over 50% of the Company's revenues in 1996 were derived from
conducting educational seminars.
The Company's seminar series is supplemental by audio tape, video tape
and printed materials intended for home study. The Company's home study programs
include a multiple cassette course concerning investment and personal money
management matters.
The copyrights to most seminars, video and audiotapes and written
materials are owned and controlled by Money Chef, Inc. (formerly known as
USA/Wade Cook Seminars, Inc., "Money Chef"), Wade B. Cook, the President of PFCI
is also the President of Money Chef and is a trustee of a trust created for the
benefit of Mr. Cook's family, which trust owns all of the outstanding shares of
Money Chef. The Company derived a majority of its revenues solely through
sponsoring and promoting products, seminars and services owned and controlled by
Money Chef. The Company and Money Chef are parties to a number of agreements
pursuant to which the Company is licensed the right to use the Money Chef
materials. These agreements are generally terminable by Money Chef upon the
occurrence of certain events of default set forth therein. Management believes
that it is in compliance with all material terms and provisions of such
agreements.
The educational seminars are marketed through the use of radio, direct
mail and television advertising. The majority of the seminars are held in Los
Angeles, California, Denver, Colorado, Seattle, Washington, Las Vegas, Nevada,
Washington, D.C., Orlando, Florida and Dallas, Texas.
The seminars provided by the Company include the following:
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Wall Street Work Shop ("WSWS") is a two day seminar structured to teach
investors the investment strategies set forth in Wade Cook's two books,
"Wall Street Money Machine" and "Stock Market Miracles." Participants
are informed of stock market basic terminology, how to choose a
brokerage firm, how to place a trade and observe facilitators
completing stock transactions and following the investments strategies
taught in class. It is designed to be an experiential seminar.
Wealth Academy is one of the original seminars designed by Mr. Cook to
inform participants about the strategies of using various business
entities, such as Nevada corporations, Nevada limited partnerships,
living trusts, Massachusetts business trusts, defined benefit and
defined contribution pensions, irrevocable life insurance trusts,
charitable remainder unity trusts and international asset protection
trusts to assist them in their personal finance or business activities.
The seminar is in a three-day format.
Business Entity Skills Training ("B.E.S.T.") is a one-day seminar
informing participants of asset protection, tax reduction and other
business strategies using corporations, limited partnerships, qualified
pensions, and living trusts. B.E.S.T. seminars are designed as a
follow-up to the information provided in the WSWS seminar.
Financial Clinic is a three hour preview class explaining the various
products and services offered by WCSI and providing an introduction to
investing in the stock market.
RE Boot Camp is a three-day seminar currently conducted in Seattle,
Washington that is modeled after the real estate investment formulas
contained in Wade Cook's "Real Estate Money Machine" book. As part of
the seminar, participants actually seek real estate properties to
invest in.
Next Step is a two-day seminar for participants who have already
attended the WSWS. Advance stock market investments strategies are
taught in an experiential format.
Executive Retreat is a two-day workshop designed for participants who
own or control Nevada corporations and need to understand the mechanics
of using a corporation for tax advantages, limited liability and estate
planning. The workshop is taught four times a year.
Real Estate Subsidiaries Hotel/Motel Business.
The Real Estate Subsidiaries were created in early 1997 to provide a
vehicle through which the Company would invest cash flow from its seminars,
investment portfolio, and related publishing business. Typically, when the
Company invests in a partnership which holds hotel or motel assets (structures,
real property, or both), the Company seeks to acquire a majority of the limited
partnership interests in the partnership. To date, the Company has purchased
partnerships interests in over four hotel and motel limited partnerships which
operate or have under construction four hotels, principally Fairfield Inn Suites
or Hampton Inn Suites.
WCSI also owns approximately 65% of Evergreen Lodging, L.P. The General
Partner of Evergreen Lodging, L.P. is a corporation controlled by an extended
family member of Wade B. Cook.
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Customers.
The Company's customers are primarily individuals who have interest in
one or more of the seminar topics which are presented by the Company. Customers
of the hotel/motel side of the Company's business are primarily business
travelers and vacationers. 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.
Financing.
The Company's principal source of funds is the fees that it receives
from seminar attendees, together with revenues from the sale of seminar-related
products such as audio tapes, video tapes, books and other printed material. In
fiscal 1996, approximately 63% of the Company's revenues, which totaled
$40,784,515, were generated by seminar fees and sales of related materials.
Revenues derived from the seminar portion of the Company's business comprise the
principal source of the funds which the Company invests in hotel and motel
assets. In fiscal 1996, the Company made an investment in one hotel/motel
project. The investment amounts per project ranged from $228,000 for less than
ten percent of the project to $3,450,000 for 100% ownership. 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.
Competition.
The Company competes in the educational seminar business with other
companies and individuals who promote and conduct seminars on topics relating to
investment, asset protection, real estate and the stock market. The Company
believes that the industry is highly fragmented and decentralized. Many of the
Company's competitors sponsor and conduct seminars free of charge a as marketing
tool for other business. These competitors include stockbrokers, franchisers of
business opportunities, and portfolio and tax consultants.
The Company's investment in the hotel and motel industry is generally
indirect, comprised of interests in partnerships that construct and/or operate
hotels and motels. Competition in the hotel/motel industry for guests is
intense, with the level of competition in a particular market being determined
to a large extent by the number of available rooms and the number of travelers
and vacationers seeking accommodation during a particular time period. The
hotels and motels in which the Company has made investments are principally "inn
suite" motels, which offer guests a two-room suite (bedroom and living room)
with a kitchenette.
Prior Business History.
Prior to January 31, 1996, the Company's educational seminar business
was conducted by United Support Association, Inc. ("USAI"), which had been
incorporated in Nevada in 1989 and which was owned by the Wade B. Cook Family
Trust. On May 18, 1995, PFCI acquired all of the outstanding capital stock of
USAI in consideration of 1,880,000 shares of PFCI's common stock. PFCI was
formed in 1979 as a Utah corporation under the name Profiteer Corporation. Prior
to June 1, 1995, PFCI engaged 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 using Mr. Cook's name and associating the programs with
his successful publications.
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Employees.
The Company had approximately 375 full-time equivalent employees at
March 31, 1997, not including independent contractors. The Company uses both
employees and independent contractors to present the Company's seminars. At
March 31, 1997, the Company had contractual arrangements with approximately 35
such independent contractors.
At March 31, 1997, the Company had approximately 60 employees engaged
principally in the Company's seminar business, 3 in its hotel and motel
investment business, and 12 employees engaged principally in finance and other
general corporate capacities. None of the Company's employees are represented by
a labor union. The Company believes that its relations with its employees is
good.
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>
SELECTED CONSOLIDATED FINANCIAL DATA
<CAPTION>
Year Ended December 31,
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1996 1995 1994 1993 1992
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Audited Audited Unaudited Unaudited 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 3,373,888 861,784 146,727 118,504
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
<CAPTION>
Balance Sheet Date: Year Ended December 31
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1996 1995 1994
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<S> <C> <C> <C>
Cash and cash equivalents... $ 635,141 $ 26,840 $ 100
Working capital ............ (3,890,698) (763,216) 10,663
Total assets ............... 16,937,659 2,283,055 675,347
Total stockholders equity... 3,702,024 528,899 405,101
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<FN>
* See Note A of Notes to Financial Statements for an explanation of the computation of per share data.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATION AND FINANCIAL CONDITION
Overview and Outlook
Since the inception of WCSI in 1989, the focus of this Company and of
Wade B. Cook , the founder, President, and Chairman of the Board of the Company,
was the development of seminars which
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would deal with educating people about investment opportunities in real estate,
in purchasing and selling negotiable paper, in financing residential and
commercial property and in developing marketing programs to improve their
businesses. Mr. Cook used his expertise in marketing, advertising, and the
seminar business to set the focus for WCSI with five principles: first, people
should have an opportunity to increase their wealth by increasing their cash
flow; second, people need to learn how to minimize their federal and state
income taxes; third, people need to use entities, such as Nevada corporations,
family limited partnerships, living trusts, qualified pensions and business
trusts, to protect their assets; fourth, people need to be able to retire with
sufficient income from their assets to maintain a good standard of living; and
finally, people need to be able to pass on their wealth and assets to their
loved ones without the problems of probate, a process he named, bequeathment.
These five principles are the primary focus of the Company's seminar business
and each seminar developed by WCSI contains those principles.
Although no assurances can be given, WCSI has historically been a
profitable business. WCSI sponsors and promotes seminars designed and
copyrighted by entities owned or controlled by Wade Cook or the Cook family.
WCSI documented this arrangement with a Product Agreement with Money Chef
granting WCSI the right to sponsor, promote seminars and sell products,
throughout the United States and pay royalties to Money Chef. The Product
Agreement ends in 1997 and it shall be important for WCSI to obtain another
agreement with Money Chef to continue to use Money Chef's products. Although
management believes that WCSI will be able to obtain an agreement with Money
Chef, there can be no assurances that an agreement or terms favorable to the
Company will be available, if at all.
Historically, WCSI has used radio advertising to reach its customers.
This format was used very early in the development of its business plan and
management believes radio advertising is necessary to maintain the Company's
current market niche and maintain or increase its revenue stream. The radio show
permits constant exposure to potential customers, nationally, and funnels
customers to preview seminars so they may be exposed to the product and services
sold by the Company. Any factors that materially and adversely affect the
availability or attractiveness of radio advertising for the Company, such as a
significant increase in the cost of radio advertising, would have a material and
adverse effect on the Company's business and financial condition.
To date, the vast majority of revenues of the Company are based on
products and seminars provided by Mr. Cook. The Company must continue to develop
new seminars with new authors or subject matters to minimize the inherent risk
of depending solely on these products and seminars. The Company is currently
seeking and developing new seminars and products with new authors to diversify
its seminar topics, to protect its current role as a leader in the educational
investment seminar business, and to attract new customers to its mailing list.
However, there can be no assurances that the Company will be successful in these
endeavors.
There is a significant risk of WCSI losing its current market niche in
the event Wade B. Cook or the products supplied by entities controlled by Mr.
Cook or members of the Cook family can no longer participate in the current
business of the Company. The loss of Mr. Cook or the Company's relationship with
him would have a material adverse effect on the Company's business, financial
condition and results of operation. The Company anticipates it will seek joint
ventures with other seminar businesses with similar interests to expand its
customer base and product base. Historically, the Company has had successful
joint ventures with other seminar business. In 1995 and 1996, WCSI worked with
New Growth Financial Inc. to cross promote and cross sell a seminar on the topic
of residential foreclosures and a seminar on the topic of tax lien certificates.
The expansion into a multiple speaker two day seminar, a how to "run your
business" two day seminar, and an offshore investment seminar, are three seminar
formats the Company is currently researching and developing for trial
presentation in late 1997
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and 1998. The Company will continue researching the development of two new
seminars for 1997 and anticipates good growth in sales for its computer service
via the Wade Cook Seminar web site. The Company look forwards to securing more
authors to publish different subject matters which will allow the Company to
diversify its seminar and product line. However, there can be no assurances that
the Company will be successful in expanding its customer base or its product
base.
A significant reason for the success of the Wall Street Workshop is
that one of its prominent features is the ability of its workshop facilitators
to have conversations with stock brokers during the seminars. After discussing
certain stock market strategies, the facilitators will purchase or sell options
or stock, during class, to illustrate the mechanism of purchasing stock. This
concept, active participation by facilitators with stock brokers, required the
Company to set up sub-accounts within its brokerage accounts so each facilitator
had funds available to purchase or sell marketable securities, during the course
of a Wall Street Workshop. While each brokerage account is monitored by the
in-house Company money managers, many of the stock market investments are sold
by the in-house money managers before returning the anticipated rate of return
when purchased by the facilitators.
There is further risk to the Company's business, financial condition
and results of operation from the stock market investment program commenced by
the Company in 1995. The need for an adequate cash position in every brokerage
account, especially when every account is a margin account, sometimes requires
the liquidating of security positions, thus producing losses. Historically, the
losses are offset by the short term capital gains achieved by the facilitators
and money managers. The risk of investing in stocks and derivatives includes the
possibility of losing the Company's entire investment. The investment portfolio
of the Company has materially increased from 1994 through 1996. The Company
intends to continue to increase the value of the stock market portfolio as
necessary to support the trading of marketable 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.
There are inherent risks in investing in marketable securities, especially in
investing in derivatives, but stock market investing is an integral part of the
Wall Street Workshop and the marketing of this program. There can be no
assurances that the Company will not lose its entire investment in its stock
market portfolio.
The Company intends to pursue its current stock market investment
strategies as long as the "bull market" continues and the revenues generated by
the Wall Street Workshop, and the Next Step seminar exceed the costs directly
related to the production of these seminars by 20 percent. 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.
The increased frequency of the various seminars and the fees for the
seminars have set a trend of increased annual revenue from 1994 of approximate
$533,000, to approximate $4,049,000 in 1995, to approximate $23,800,00 in 1996.
The Company anticipates the trend of revenue increase as related to frequency of
seminars should continue for 1997. However, it is unlikely that the Company will
continue to have the type of growth rate experienced between 1995 to 1996. The
positive growth rate in revenues for the past two fiscal years can be attributed
to the establishment of the Wall Street Workshop program, the collateral sales
of the book, "Wall Street Money Machine," and the development of two seminars,
BEST and Next Step.
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The Company will attempt to continue the pattern of increasing the
number of seminars that the Company offers. The trend of increasing Wall Street
Workshop from two per month in 1995 to two per week in early 1996 has continued
with Wall Street Workshops being taught, in twenty major cities, nationally,
five times per week. In 1997, the management of the Company expects that the
number of Wall Street Workshops conducted weekly should rise to approximately
eight per week, followed by the BEST seminars. The Company anticipates Wealth
Academy seminars will increase from four per year to ten per year. The Executive
Retreat has increased from two per year to four per year. The Next Step has
increased from two per year in1995, four per year in 1996 and the Company
reasonably anticipates it will increased this seminar to six per year in 1997.
The Company anticipates it will continue to market its products and
services by continuing its use of radio advertisements to attract potential
customers and will continue to offer a free audio tape explaining stock market
strategies, offer a lower priced product for under $100, or inform customers in
certain major cities that a free financial clinic will be presented. The
financial clinic is a preview class of the products and seminars offered by the
Company and usually precedes Wall Street Workshop by three weeks. The financial
clinics offered by the Company have increased proportionately to the number of
Wall Streets taught per week.
WCSI has grown in size from 1989 with three employees to the current
employee staff of over 300. The increase in the employees from 25 employees in
1995 to over 375 employees in April , 1997 reflects the growth of income
generated from three seminars, the Wall Street Workshop, the Wealth Academy, and
the Financial Clinic, and the corresponding need to increase sales forces to
service the increasing customer base and to increase staffing levels to
coordinate seminars in most major cities in America. The Company has increased
its investment research staff from one researcher in 1994 to six researchers in
1996 to accommodate the need for stock market information required for the Wall
Street Workshops and the Company's computer bulletin board service.
Management believes that the historical rate of expansion of the sales
force in 1994, 1995 and 1996 shall slow in 1997 as the Company anticipates the
number of employees necessary to service the clients, to service the seminar
business, and to support the logistics of producing the seminars or shipping the
products is satisfactory for its current needs. The Company reasonably
anticipates the current sales force located at corporate headquarters will be
sufficient to handle the increased customer base generated by radio and media
advertising, by the sale of books, by referrals, and by direct mailings, until
the number of daily calls by customers exceeds 5000 per day.
Results of Operations
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.
Revenues
The Company has increased its revenue 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. It should be noted that the reorganization of WCS into PFCI
occurred on May 18, 1995, and the loss carried by PFCI for the first four and
one-half months of 1996 did affect the profit and loss margin for the Company.
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The retail cost of Wall Street Workshop was increased from $1,995 in
1994 to $2,695 in 1995 and $4,695 in 1996. The seminar fee increase allowed a
greater margin of profit and the number of sales per salesperson did not
significantly change with the fee increase. The fee for the bulletin board
service, Wealth Information Network, provided by the Company increased from $495
in 1994 to $1,995 in 1995 and $2,995 in 1996. The fee increase allowed the
Company to developed its own web site, increase the support and research staff
for the network, and improve its marketing for the network. The Company does not
anticipate any changes in fee structure for the first quarter of 1997 for any of
its programs.
The rapid increase of gross revenues for the Company from 1994 of
approximately $1,900,000, to approximately $7,560,000 in 1995, to approximately
$40,720,000 in 1996, can be attributed to the popularity of the Wall Street
Workshop, increased radio advertising, increased financial clinics, increased
sales force, the development of the bulletin board service, and the improvement
of training for employees and speakers. The development of three new workshops
in 1995 and 1996, the Next Step, C. C. Rider, and BEST, contributed to the
increase in revenues.
Net Income
The net income for the Company for the past three fiscal years was net
loss of ($195,730) for 1994 and a net profit of $123,798 in 1995 and $3,064,639
in 1996. Although there can be no assurances that the Company will have a
positive net income in 1997, based on current trends, the management of the
Company believes that net profits for 1997 may be similar in nature to 1996 (of
approximately $3,600,000 or 54 cents per weighted share).
Cost of Sales
The cost of staffing the various seminars, workshops, or financial
clinics have remained fixed over the past three years but the total cost has
increased to correspond with the number seminars, workshops, or financial
clinics conducted.
The investment portfolio of the Company has materially increased from
1994 through 1996. The Company intends to continue to increase the value of the
stock market portfolio as necessary to support the trading of marketable
securities during the Wall Street Workshops at a teaching mechanism, to use its
portfolio as a tool to train speakers for the Wall Street Workshop and its
reasonable intention to earn investment income. There are inherent risks in
investing in marketable securities, especially in investing in derivatives, but
stock market investing is an integral part of the Wall Street Workshop and the
marketing of this program. The Company increased its investment research staff
from one in 1994 to six in 1996 to accommodate the need for stock market
information required to for the Wall Street Workshops and the Company's computer
bulletin board service.
The seminar business does not appear to be seasonal in nature during
the past three fiscal years for the Company except for the anticipated slower
participation rate during July and August.
Liquidity
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 has an opportunity to increase its liquidity
by its investment strategies in the purchasing and selling of marketable
securities. The investment in marketable securities shall
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continue as such expenditure is related to instructors' participation at each
Wall Street Workshop. The Company anticipates it will maintain its current level
of investment in marketable securities. The Company may channel some of the
liquidity of its investment portfolio into the purchasing of hotel or motels or
underlying real property to construct such hotels in 1997 or paying down
underlying debt attached to its corporate headquarters.
For fiscal 1997, the Company has several non-operating expenses which
may affect the liquidity of Company in a non-detrimental way. The anticipated
expenses include a payment of approximately $1,400,000, for income tax liability
for WCI due on April 15, 1997.
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 believes that it may make a prepayment of $500,000 on
July 1, 1997. There is no prepayment penalty.
The Real 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 including, $10,429.59 and $25,000 for Ownership, 8.8%, Park
City Hotel Partners, L.C., by WCI; $690,000 payment for Ownership, 51%, FSS, LP;
$590,000 for Ownership, 51%, Reno F.I.S., LP; $3,450,000, including payments of
$1,400,000 in 1997 as well as monthly payments of approximately $16,000 for
Ownership, 100%, Rising Tide, LP.
The liquidity of the Company may be impaired in the event the
underlying loans wrapped by Rising Tide, LP, a subsidiary of the Company, are
called by the lenders. Rising Tide, LP assumed the debt from East Bay
Associates, LLC for two outstanding loans from The Bank of Utah in the amount of
approximately $790,000 and a small business loan, in the amount of approximately
$790,000. Both loans may be accelerated at any time, creating a cash flow risk
for the Company and reducing 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
assumption package to pay off the debt. In addition, the hotel owned by Rising
Tide LP, 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.
Although there can be no assurances, the Company anticipates that
current revenue from operations will be adequate to pay the short term and long
term debt obligations of the Company.
The Company anticipates the outstanding tax liability shall be paid
from current revenues by September, 1997.
The Company has no external source of liquidity and the management of
the Company does not currently anticipate a change in this trend except for
anticipated cash flows from operational hotels which may return a 12% rate of
return it they can maintain a 75% occupancy rate.
Capital Resources
The Company has material commitments for the various hotel or motel
development projects. The anticipated source of revenue to meet such commitments
shall be from operational revenue and
11
<PAGE>
investment portfolio growth. Some revenue for the Company will be generated
through income from the limited partnerships owning the hotels/motels as the
trend of increased occupancy occurs 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 adversely changes.
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 currently anticipate any further major expenses exceeding
$250,000 for its corporate headquarters in 1997.
Other Matters
The Company does not believe inflation has had an impact on its
operations for the past three fiscal years.
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 PFCI, WCSI, Left Coast, Lighthouse Publishing and PFREM. The
headquarters building also contains three seminar rooms at which the Company
conducts seminars in the Seattle metropolitan area. The Company leases
approximately 29,000 square feet of commercial office space in Tukwila,
Washington at which seminar audio tapes, video tapes, and printed materials are
assembled and shipped. The lease for such space expires in April 2000.
12
<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 April 1, 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>
Shares Beneficially % of Outstanding
Beneficial Owner(1) Owned Stock(2)
- - --------------------------------------------- ------------------- ----------------
<S> <C> <C>
Officers and Directors:
Wade B. Cook(3) ............................. 3,760,000 58.8%
Caesar Regoso ............................... 140 *
Laura M. Cook(4) ............................ 3,760,000 58.8%
Cheryle Hamilton ............................ 140 *
Robert T. Hondel ............................ 10,000 *
Dr. Warren H. Chaney ........................ 140 *
John V. Childers ............................ 140 *
Nicholas Dettman ............................ 20,000 *
All executive officers and directors of the
Company as a group (8 persons)............... 4,070,000 61.4%
Non-management 5% stockholders:
David R. Yeaman ............................. 973,964 15.2%
Yeaman Enterprises
3098 S. Highland Drive, Suite 460
Salt Lake City, Utah 84106
Jerry W. Peterson ........................... 520,000 8.1%
4484 S. Parkview Drive
Salt Lake City, Utah 84124
Global Market Systems ....................... 326,668 5.1%
13069 S. Old US Hwy. 95
Boulder City, Nevada 89005
- - ---------------
<FN>
* 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 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
computing 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 computing the percentage of any other person. Except as
indicated by footnote, and subject to community property laws where applicable,
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 The 3,760,000 shares of Common Stock are owned by the Wade B. Cook Family Trust, a
trust established for the benefit of Mr. Cook's family as community property.
4 Includes Mrs. Cook's interest in 3,760,000 shares of Common Stock owned by the
Wade B. Cook Family Trust, a trust established for the benefit of Mr. Cook's
family as community property. Wade B. Cook and Laura M. Cook are husband and wife.
</TABLE>
13
<PAGE>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The following table sets forth certain information as of April 30, 1997
concerning each of the directors, executive officers and other senior officers
of the Company:
Name Age Position
- - -------------------------------- --- -----------------------------------------
Wade B. Cook 47 Chairman and President
Caesar Regoso 45 Director, Treasurer and Comptroller
Laura M. Cook 45 Director and Secretary
Cheryle Hamilton 45 General Manager of WCSI
Robert T. Hondel 54 General Sales Manager of WCSI
Robin Anderson 33 Sales Manager of WCSI
Dr. Warren H. Chaney 54 Director
John V. Childers 52 Director
Nicholas Dettman 49 Director
Wade B. Cook has been the President and Chairman of the Board since
June, 1995. Mr. Cook also served as Treasurer and President of USAI since 1989.
Mr. Cook is known nationally as an author of over 15 books on finance, real
estate, asset protection and the stock market, an international trainer and
speaker on these topics, and the developer of educational products for the small
business owner and investor. His books include Wall Street Money Machine, Stock
Market Miracles and Real Estate Money Machine. Mr. Cook is a named defendant of
a fraud charge in the State of Arizona. In addition, the Securities Division of
the State of Washington has commenced an informal investigation of Mr. Cook,
together with USA and PFCI. See "Legal Proceedings." In June 1984, Mr. Cook
filed for bankruptcy under Chapter 11 in the U.S. Bankruptcy Court in Phoenix,
Arizona. The bankruptcy was discharged in October, 1992. Mr. Cook is the husband
of Laura M. Cook.
Caesar Regoso has served on the Board of Directors since July 1996 and
has been Controller for the Company since 1995. From1988 to 1995, Mr. Regoso was
employed in private practice as a Certified Public Accountant.
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
in several subsidiaries of the Company. Mrs. Cook is the wife of Mr. Cook.
Cheryle Hamilton has been General Manager of WCSI since January 1997.
Prior to joining WCSI, Ms. Hamilton was Executive Assistant of Sunsportwear,
Inc., a clothing manufacturer located in Seattle, Washington.
Robert T. Hondel is the General Sales Manager of WCSI. Mr. Hondel left
retirement to join the Company. Prior to joining Wade Cook Seminars, Mr. Hondel
spent 18 years as the Director and President of the Knapp College of Business in
Tacoma, Washington. Mr. Hondel is Ms. Anderson's uncle.
Robin Anderson started as a sales representative for the Company in
1993 and has been the Sales Manager of WCSI since December, 1994. Ms. Anderson
is Mr. Hondel's niece.
14
<PAGE>
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 acting 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 company with
locations in Tennessee and Florida, which sells memberships in its travel
agencies.
Nicholas Dettman has been a member of the Board of Directors since May,
1995. He has been a captain of Delta Airlines, located in Atlanta, Georgia for
over 30 years. He is the owner of Kalowai Plantation, a orchid ranch in Kauai,
Hawaii.
Directors are not compensated for their services apart from their
executive salaries, but may be reimbursed for travel expenses related to the
Company's business. Each director is elected by holders of the majority of the
Common Stock to serve for a term of three years ending on the appropriate annual
meeting of stockholders until his or her successor is elected and qualified.
Officers serve at the will of the Board.
Other Key Employees
Eric W. Marler has been a speaker for the Company since September 1996.
From December 1996 to February, 1997, Mr. Marler served on the Board of
Directors and acted as the temporary Chief Financial Officer of the Company in
order to assist the Company in preparing to file this Registration Statement.
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.
Christopher M. Carde has been General Counsel to the Company since
January 1995. Prior to joining the Company, Mr. Carde was an attorney in private
practice. Mr. Carde served as the Executive Vice President and a Director of the
Company from May, 1995 to February, 1997. Mr. Carde filed for bankruptcy under
Chapter 7 in 1994 in U.S. Bankruptcy Court in Seattle, Washington after his
divorce and subsequent to his wife's filing for bankruptcy. The bankruptcy was
discharged in December, 1995.
Employment Agreements
The Company and Mr. Carde, its General Counsel, entered into a one year
employment agreement in January, 1997. The agreement provided for a minimum
salary plus incentive bonuses which are payable if specified management goals
are attained. The agreement also gives Mr. Carde options for 80,000 shares of
Common Stock at $1.50 per share which vest in equal installments over a four
year period. The options may be exercised within a ten year period from the date
of vesting.
15
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION.
The following table sets forth information regarding compensation paid
for all services rendered to the Company in all capacities during the last three
completed fiscal years by the Company's Chief Executive Officer and one
executive officers of the Company. No other executive officers of the Company
received in excess of $100,000 during any of those years.
<TABLE>
<CAPTION>
Annual Compensation
----------------------
Name and Position Year Salary Bonus Other Long Term All Other
Compensation Compensation(1)
- - ------------------------- ---- -------- ----- ----- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Wade B. Cook, President 1996 $114,000 none none none $4,366,183
(Chief Executive Officer) 1995 none none none none 755,550
1994 none none none none 82,923
Robert T. Hondel, General 1996 176,000 none 2 none none
Sales Manager 1995 62,500 none none none none
1994 --- --- --- --- ---
- - ---------------
<FN>
1 Represents royalties from WCSI to Money Chef paid pursuant to the Product
Agreement. See "Certain Relationships and Related Transactions."
2 Mr. Hondel, together with all other employees of the Company, received 140
shares of the Company's Common Stock as a bonus.
</TABLE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On January 3, 1993, the Company entered into a Product Agreement with
Money Chef to obtain the rights to promote and sponsor seminars, entity
formation services and products owned and controlled by Money Chef for royalty
payments ranging from ten to fifty percent of gross sales. Mr. Cook, the
Company's President is also the President of Money Chef. In addition, a trust
created for the benefit of Mr. Cook's family owns all of the outstanding shares
of Money Chef. Royalty payments made by the Company totaled $4,366,183 in 1996,
$755,500 in 1995, and $82,923 in 1994. Royalties of $48,781 were prepaid as of
December 31, 1996 and royalties of $136,238 were owed as of December 31, 1995.
Pursuant to the Product Agreement, Money Chef had the option of taking the
minimum payment of 10% in direct payments and the optional 20% to be paid
directly into stock broker accounts on behalf of Money Chef. Money Chef has
opted to receive royalties of the minimum percentage of revenue for all three
years.
Mr. Cook has royalty agreements with Left Coast Advertising for the
publication of his Wall Street Money Machine and Stock Market Miracles. The
royalty agreements are dated, respectively, February 1, 1996, for Wall Street
Money Machine and January 1, 1997 for Stock Market Miracles. Wade Cook is
entitled to 10% of the revenue from 5000 books, then 12 2% for 5000-7500 books
sold, then 15% thereafter the retail price of the books sold up to 7500.
The Company leases space to USA/Corporate Services, a Nevada
corporation. The President of USA/Corporate Services is Scott Scheuerman, who is
the brother-in-law of Mr. Cook. USA/Corporate Services leases 725 sq. feet of
space at a dollar per square foot at the Company headquarters. Mr. Scheuerman is
also 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
16
<PAGE>
Acorn resident agent services or BOSS services increased from 600 in 1994 to
1,120 in 1995 and 1,360 in 1996.
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. 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.
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 sports, 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, a speaker for the Company, is the owner of 50% of the
issued share capital of Cascade Margcret Associated, L.P. ("Cascade"). Cascade
provides seminar speaking services for a fee of $10,000 per month to USA since
September 1996.
The Company, through PFCI or its subsidiaries, is the payee under
numerous unsecured and secured notes, bearing varying interest rate in the
aggregate amount of approximately $1,700,000 to numerous employees and other
parties related to the Company as of January 31, 1997. These loans include
several loans to purchase homes and cars for employees of the Company and
include the following:
Christopher Carde, the General Counsel of PFCI, currently owes the
Company $187,000 on a 15 year note for a loan made by PFCI for the
purchase of his home. PFC charges a 9.25% rate of interest on the loan.
WCSI has loaned $187,043 to Shane A. and Carolyn H. Norris to purchase
a home. Mr. Norris is the nephew of Mr. Wade. The loan is evidenced by
a promissory note and deed of trust executed for the benefit of WCSI.
The promissory note is for a term of thirty years (which began on
December 15, 1996) and bears interest at the initial rate of 5.45% and
thereafter at a rate that adjusts every year to be 2 :% above the 11th
District Cost of Funds Index.
Evergreen has loaned $267,195 to Jimmie E. and Patricia A. Powell to
purchase a home. Mr. And Mrs. Powell are employees of the Company. The
loan is evidenced by a promissory note and deed of trust executed for
the benefit of Evergreen. The promissory note is for a term of thirty
years (which began on January 15, 1997) and bears interest at the
initial rate of 5.5%, which rate escalates to 9.5% by the fifth year of
the loan.
17
<PAGE>
Evergreen has loaned $262,268 to Thomas and Linnet Cloward to purchase
a home. Mr. and Mrs. Cloward are employees of the Company. The loan is
evidenced by a promissory note and deed of trust executed for the
benefit of Evergreen. The promissory note is for a term of thirty years
(which began December 15, 1996) and bears interest at the initial rate
of 5.5%, which rate escalates to 9.0% by the fifth year of the loan.
Shane Norris, an employee of the Company and Mr. Cook's nephew, has
three loans with the Company: a five year secured loan in the amount of
approximately $19,600 dated August 1, 1996 with the interest of 9% for
five years, a loan in the amount of $187,000 for the purchase of a home
dated November 26, 1996 for a 30 year term with an adjustable interest
starting at 5%, and a loan in the amount of $12,000, with interest at
fair market value.
The Company obtained services from seminar speakers provided by
companies owned by officers and other significant employees 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.
Various related parties owe approximately $663,401 to the Company.
Crossroad Northwest, LP, a limited partnership controlled by the Wade B. Cook
Family Trust owes $638,401. Five Star Consulting, Inc., of which Mr. Cook is
President, owes $25,000. Total Hoteliers, LP, a related party, owes $1,000.
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:
State of Arizona v. Wade B. Cook
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. And Mrs. Cook
filed for bankruptcy under Chapter 7 in the U.S. Bankruptcy Court in Phoenix,
Arizona. The bankruptcy was discharged in September 1987 and the State of
Arizona indicted Mr. Cook on 18 counts of felony.
In mid-1991, a Superior Court Judge dismissed the entire indictment
because he concluded that the prior administrative proceeding extracted a
punitive sanction from Mr. Cook, thereby making that proceeding criminal in
nature. As a result, the Double Jeopardy Clause of the United States and Arizona
Constitutions prohibited the second proceeding from going forward. The Arizona
Court of Appeals, in written opinion, affirmed the trial court's decision
dismissing all 18 counts of the indictment. The Arizona Supreme refused to hear
the case, but the United States Supreme Court, through writ of certiorari,
remanded the case back to the Arizona Court of Appeals to reconsider its written
opinion in the light of a recent Supreme Court pronouncement. The Arizona Court
of Appeals reconsidered, and dismissed all of the securities counts, but
reinstated the fraud count and the RICO count to the extent it utilized fraud as
its underlying offense. On June 17, 1996, the Arizona Court of Appeals sent the
two
18
<PAGE>
remaining counts back to the Superior Court for trial. In February, 1997, the
new trial court judge dismissed Count 18, the RICO count, as legally
insufficient, thereby only leaving Count 1, which alleges fraud. The State
recently appealed the decision dismissing Count 18 and the Appellate Court
affirmed the lower court's holdings. While settlement negotiations are
occurring, the trial on Count 1 is tentatively scheduled for June 30, 1997. If
Mr. Cook is convicted, it would have a material adverse effect on the Company.
Informal Investigation by the U.S. Securities and Exchange Commission
The U.S. Securities and Exchange Commission entered an order directing
a private investigation of WCSI in May, 1996. Wade B. Cook has received a
subpoena issued by the SEC and believes he will be requested to appear for a
deposition in August or September 1997. The basis for the informal investigation
has not been presented to WCSI.
Informal Investigation 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 Wade B. Cook, USA and the Company in September, 1996. The basis
for the informal investigation has not been presented to the management of the
Company.
United Support Association v. Mellon
The Company brought a suit against defendants Anthony Robbins, Robbins
Research International and Charles E. Mellon in the King County Superior Court
on September 16, 1996. 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. In February
1997, Mellon served a counterclaim alleging that the Company caused Mellon to
lose income from other speaking engagements because the Company changed his
speaking schedule. The counterclaim also alleged that the Company failed to pay
appropriate payroll taxes on behalf of Mellon. The counterclaim did not specify
damages. The counterclaim was voluntarily dismissed on March 27, 1997. An
injunction in favor of WCSI was granted October 9, 1996 and attorney fees were
awarded to the plaintiffs against Mr. Mellon. The trial, scheduled for April 21,
1997, has been postponed to allow for discovery to be completed and is
anticipated to be sometime this summer.
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 are expected to materially effect the
financial position, results of operation or cash flow of the Company.
19
<PAGE>
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 share 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 April 29, 1997, there are
five 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 do not reflect retail markups, markdowns or commissions and may
not reflect actual transactions.
HIGH BID LOW BID
-------- --------
1997
------------------------------
Quarter Ended March 31 ....... $ 3.00 $ 2.88
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
Quarter Ended December 31 .... 1.75 1.50
- - ---------------
The high and low bid quotation price for the Common Stock on April 29,
1997 was $3.12 and $3.00, respectively. As of April 29, 1997, the Company had
approximately 6,680,000 shares of Common Stock outstanding.
As of April 29, 1997 there were approximately 917 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.
20
<PAGE>
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
On June 28, 1996, the Company issued 16,000 shares of its Common Stock
at $3 per share to after employees for subscription notes receivable. In
addition, the Company issued 30,422 shares of its Common Stock at $2.50 per
share to various employees as additional employee compensation. The negotiated
transaction was made in reliance on the exemption from registration set forth in
Section 4(2) of the Securities Act of 1933, as amended ("Securities Act") as an
isolated transaction to a single investor and did not invoke 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 set forth in
Section 4(2) of the Securities Act as an isolated transaction to a few limited
investors and 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 the Internal
Revenue Code section 368(a)(1)(d). 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 set forth in
Section 4(2) of the Securities Act as an isolated transaction to a single
investor and did not invoke a public offering.
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
Cumulative Preferred Stock, par value $10 per share ("Cumulative Preferred
Stock"). As of April 29, 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 share and per share data included in this
Registration Statement.
Common Stock
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 standing 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
21
<PAGE>
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.
Preferred Stock
The Company is authorized to issue up to 5,000,000 shares of Preferred
Stock, par value $10 per share. The Board of Directors is authorized, subject to
any limitations prescribed by the laws of the State of Utah, but without further
action by the Company's stockholders, to provide for the issuance of Preferred
Stock in one or more series, to establish from time to time the number of shares
to be included in each such series, to fix the designations, powers,
preferences, and rights of the shares of each such series and any
qualifications, limitations, or restrictions thereof, and to increase or
decrease the number of shares of any such series (but not below the number of
shares of such series then outstanding) without any further vote or action by
the stockholders. The Board of Directors may authorize and issue Preferred Stock
with voting or conversion rights that could adversely affect the voting power or
other rights of the holders of Common Stock. In addition, the issuance of
Preferred Stock may have the effect of delaying, deferring, or preventing a
change in control of the Company. As of the date of this Prospectus, the Company
has not authorized any class of Preferred Stock and the Company has no current
plan to issue any shares of 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 part 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 a 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
22
<PAGE>
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 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-1.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
On February 6, 1997, the Company engaged Miller and Company to act as
its independent certified public accountant and to audit the Company's financial
statements for 1995 and 1996. Smith and Company, who was engaged by the Company
prior to its merger with USA, resigned on May 1, 1995. The principal
accountant's report on the financial statements for the past two years do not
contain an adverse opinion or a disclaimer of opinion and was 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. To the knowledge of the Company, there were no disagreements with
the former accountant in any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements. Page
Years Ended December 31, 1996 and 1995
Report of Independent Certified Public Accountants F-1
FINANCIAL STATEMENTS:
Consolidated Balance Sheets F-2
Consolidated Statements of Income and Retained Earnings F-4
Consolidated Statement of Changes in Shareholders' Equity F-5
Consolidated Cash Flow Statements F-6
Report of Independent Certified Public Accountants F-20
23
<PAGE>
FINANCIAL STATEMENT SCHEDULES:
Schedule 1 - Consolidated Financial Information of Registrant F-21
Year Ended December 31, 1994
Independent Auditor's Report of Smith & Company F-24
Balance Sheets F-25
Statement of Operations F-27
Statement of Cash Flows F-28
Statement of Stockholder's Equity F-32
Notes to Financial Statements F-32
(b) Exhibits Index.
Exhibit Description
------- -----------------------------------------------------------
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
10.1* 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.
10.2* 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 Agreement dated February 1, 1996 between Wade B. Cook and
Lighthouse Publishing Group, Inc.
10.4* Secured Demand Note dated February 7, 1996 in the original
principal amount of $25,000, executed by Cross Roads L.P.,
for the benefit of Evergreen Lodging Limited Partnership
10.5* Secured Demand Note dated August 30, 1996 in the original
principal amount of $250,000, executed by Cross Roads,
L.P., for the benefit of Evergreen Lodging Limited
Partnership
10.6* Secured Promissory Note dated October 22, 1996 in the
original principal amount of $197,800 executed by
Christopher M. Carde for the benefit of United Support
Association, Inc.
10.7* Secured Promissory Note dated November 14, 1996 in the
original principal amount of $262,268.08 executed by Thomas
Cloward and Linnett Cloward for the benefit of Evergreen
Lodging Limited Partnership
10.8* Secured Promissory Note dated November 26, 1996 in the
original principal amount of $187,043.00 executed by Shane
A. and Carolyn H. Norris for the benefit of United Support
Association, Inc.
24
10.9* Secured Promissory Note dated December 18, 1996 in the
original principal amount of $267,194.66 executed by Jimmie
E. and Patricia A. Powell for the benefit of Evergreen
Lodging Limited Partnership
10.10 Agreement dated January 1, 1997 between Wade B. Cook and
Lighthouse Publishing Group, Inc.
10.11* Secured Promissory Note dated April 14,1997 in the original
principal amount of $66,490.15 by Brandee Gibson for Wade
Cook Seminars, Inc.
11.1** Statement Regarding Computation of Earnings
12.1** Statement Regarding Computation of Ratios
16.1* Letter re: Change in Certifying Accountant
21.1 List of Profit Financial Corporation Subsidiaries
27.** Financial Data Schedule
- - --------------
* To be filed by amendment.
** To be filed by amendment, if necessary.
25
<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.
Date: April 30, 1997 PROFIT FINANCIAL CORPORATION
By: Wade B. Cook
-----------------------------------
Wade B. Cook, President
26
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Financial Statements. Page
Years Ended December 31, 1996 and 1995
Report of Independent Certified Public Accountants F-1
FINANCIAL STATEMENTS:
Consolidated Balance Sheets F-2
Consolidated Statements of Income and Retained Earnings F-4
Consolidated Statement of Changes in Shareholders' Equity F-5
Consolidated Cash Flow Statements F-6
Report of Independent Certified Public Accountants F-20
FINANCIAL STATEMENT SCHEDULES:
Schedule 1 - Consolidated Financial Information of Registrant F-21
Year Ended December 31, 1994
Independent Auditor's Report of Smith & Company F-24
Balance Sheets F-25
Statement of Operations F-27
Statement of Cash Flows F-28
Statement of Stockholder's Equity F-32
Notes to Financial Statements F-32
27
<PAGE>
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 then ended. 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 then ended in conformity with generally accepted accounting
principles.
In 1995, as described in Note-J 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.
The accompanying consolidated statement of income and consolidated statement of
cash flows for the year ended December 31, 1994 were not audited by us and,
accordingly, we do not express an opinion on them.
Certified Public Accountants
Santa Monica, California
April 25, 1997
F-1
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
------------------------
CURRENT ASSETS 1996 1995
----------- -----------
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, 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 .............................. 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
=========== ===========
The accompanying notes are an integral part of thes consolidated financial
statements.
F-2
<PAGE>
<TABLE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<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
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
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<CAPTION>
Year ended December 31,
------------------------------------------
1996 1995 1994
------------ ------------ ------------
(unaudited)
<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
============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<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 $(2,053,247) $ 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
=========== =========== =========== =========== =========== ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
<CAPTION>
Years ended December 31,
------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995 1994
------------ ------------ ------------
(unaudited)
<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 $ --
============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-6
<PAGE>
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, and
Lighthouse Publishing Group, 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 business structuring 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
electronic bulletin board service, 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. 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.
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 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.
F-7
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Summary of Significant Accounting Policies (continued)
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 are recognized when services are rendered.
Subscription revenues for the electronic bulletin board service membership
are deferred and recognized over the term of the subscription. 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
--------------------
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.
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.
F-8
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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%
W.I.N. 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 of
Money Chef, Inc., is the president of the Company. This individual is the
named defendant of a fraud charge in the State of Arizona. The case has
been successfully reduced by defense counsel from eighteen
F-9
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note D - Economic Dependency and Significant Risks and Uncertainties (continued)
charges to one remaining charge. The charge is being vigorously contested
by the defendant, however, defense counsel cannot predict the probability
of success at this stage. A conviction of the charge could have a material
financial impact on the company in the event the mass media uses the
situation as a news item.
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 - Reorganization and Business Combination
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-10
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note E - Reorganization and Business Combination (continued)
The condensed financial positions of PFC before and after the transfer are
as follows:
<TABLE>
<CAPTION>
December 31, 1994 Transfer January 1, 1995
----------------- --------------- ---------------
(unaudited)
<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:
Net Sales Net Income
--------- ----------
Three months ended March 31, 1995 (unaudited):
PFC - -
WCS 944,061 106,012
--------- ----------
Combined 944,061 106,012
--------- ----------
Year ended December 31, 1994: (unaudited)
PFC 713,842 (432,864)
WCS 1,973,145 (17,530)
--------- ----------
Combined 2,686,987 (450,394)
--------- ----------
F-11
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note F - 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.
Due from related parties in the amount of $663,401 represents advances from
the following:
Name of Related Company's Percentage
Parties of Ownership Amount
-------------------------- -------------------- ---------------
Crossroad Northwest, LP 0% $ 637,401
Five Star Consulting, Inc. 0% 25,000
Total Hoteliers, LP 0% 1,000
---------------
Total $ 663,401
===============
Note G - Marketable Securities
The net unrealized gain (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 H - Receivables
Following is a summary of receivables:
December 31,
1996 1995
---------- ----------
Trade and credit card receivables $ 848,282 $ 129,188
Installment notes ............... 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.
F-12
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note I - 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 J - 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-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.
F-13
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note K - 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>
F-14
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
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 L - 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. The
prepaid advertising is shown as a reduction of shareholders' equity rather
than as an asset.
Note M - 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.
F-15
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note M - Disclosures About Fair Value of Financial Instruments (continued)
The carrying amounts and fair values of the Company's financial instruments
at December 31, 1996 and 1995 are as follows:
1996 1995
---------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
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
The carrying amounts in the table are included in the balance sheet under
the indicated captions.
Note N - 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-16
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note O - Income Taxes
Provisions for income taxes in the consolidated statements of income
consist of the following components:
Years ended December 31,
1996 1995 1994
----------- ----------- -----------
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)
=========== =========== ===========
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:
December 31,
Deferred tax assets: 1996 1995
-------- --------
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
======== ========
F-17
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note O - Income Taxes (continued)
The reconciliation of the effective income tax rate to the Federal
statutory rate is as follows:
1996 1995 1994
-------- -------- --------
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%
======== ======== ========
Note P - 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-18
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note Q - Dividends
The Company did not declare or pay any dividends for the years shown in
these financial statements.
Note R - Non-Monetary Transactions
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.
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 S - 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-19
<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 April 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 and 1995. 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.
The accompanying financial statement schedules for the year ended December 31,
1994 were not audited by us, and accordingly, we do not express an opinion on
them.
Certified Public Accountants
Santa Monica, California
April 25, 1997
F-20
<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-21
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
SCHEDULE 1 - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
Year ended December 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
(unaudited)
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-22
<PAGE>
<TABLE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
SCHEDULE 1 - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
STATEMENTS OF CASH FLOWS
<CAPTION>
Years ended December 31,
---------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995 1994
--------- --------- ---------
(unaudited)
<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-23
<PAGE>
SMITH & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
MEMBERS OF:
AMERICAN INSTITUTE OF 10 WEST 100 SOUTH, SUITE #700
CERTIFIED PUBLIC ACCOUNTANTS SALT LAKE CITY, UTAH 84101
UTAH ASSOCIATION OF TELEPHONE: (801) 575-8297
CERTIFIED PUBLIC ACCOUNTANTS FACSIMILE: (801) 575-8306
- - --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Profit Financial Corporation
Salt Lake City, Utah
We have audited the balance sheet of Profit Financial Corporation as of December
31, 1994, and the related statements of operations, stockholders' equity and
cash flows, for the year ended December 31, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit. The financial
statements of Profit Financial Corporation as of December 31, 1993, were audited
by other auditors whose report dated March 31, 1994, expressed an unqualified
opinion on those statements.
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 financial statements referred to above present fairly, in
all material respects, the financial position of Profit Financial Corporation as
of December 31, 1994, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principals.
Certified Public Accountants
Salt Lake City, Utah
May 15, 1995
F-24
<PAGE>
<TABLE>
PROFIT FINANCIAL CORPORATION
BALANCE SHEET
DECEMBER 31, 1994 AND 1993
<CAPTION>
December 31,
----------------------
1994 1993
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash ...................................................... $ 5,266 $ 11,344
Trade credits (Note 1) .................................... 9,198 39,929
Account Receivable - related party (Note 8) ............... 120,000 - 0 -
Investment securities (Note 4) ............................ 262,000 - 0 -
Inventories - cattle and feed (Note 1) .................... 113,445 252,214
---------- ----------
TOTAL CURRENT ASSETS 509,909 303,487
PROPERTY AND EQUIPMENT - AT
COST (NOTE 1) ............................................. 1,433,642 1,093,492
OTHER ASSETS
Investment securities (Note 4) ............................ 199,333 1,142,439
Account Receivable - related party (Note 8) ............... 148,746 - 0 -
Investment - land (Note 5) ................................ 247,500 247,500
---------- ----------
595,579 1,389,939
---------- ----------
$2,539,130 $2,786,918
========== ==========
See Notes to Financial Statements.
</TABLE>
F-25
<PAGE>
<TABLE>
PROFIT FINANCIAL CORPORATION
BALANCE SHEET (CONTINUED)
DECEMBER 31, 1994 AND 1993
<CAPTION>
December 31,
-------------------------
1994 1993
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade ............................................ $ 13,321 $ 36,145
Current maturities of long-term
debt (Note 6) .................................................. 106,281 171,408
Accrued interest .................................................... 34,574 26,297
Accrued property taxes .............................................. 25,741 - 0 -
Accrued payroll and payroll taxes ................................... 11,980 7,709
----------- -----------
TOTAL CURRENT LIABILITIES ......... 191,897 241,559
LONG-TERM DEBT (NOTE 6) ...................................................... 274,705 446,860
----------- -----------
TOTAL LIABILITIES ......... 466,602 688,419
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock - Authorized 5,000,000
shares at $10 par value, none issued
and outstanding (Note 2) ....................................... - 0 - - 0 -
Common stock - Authorized 20,000,000 shares at $.01 par value; issued
and outstanding 3,199,211 shares at
December 31, 1994 and 1993 (Note 2) ............................ 31,991 31,991
Additional paid-in capital .......................................... 4,093,794 6,220,461
Less stock subscription receivable
(Note 3) ....................................................... - 0 - (2,200,000)
Accumulated deficit ................................................. (2,053,257) (1,620,393)
Accumulated unrealized losses on equity
securities (Note 4) ............................................ - 0 - (333,560)
----------- -----------
TOTAL STOCKHOLDERS EQUITY ......... 2,072,528 2,098,499
----------- -----------
$ 2,539,130 $ 2,786,918
=========== ===========
See Notes to Financial Statements.
</TABLE>
F-26
<PAGE>
<TABLE>
PROFIT FINANCIAL CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<CAPTION>
Year Ended
December 31,
---------------------
1994 1993
--------- ---------
<S> <C> <C>
REVENUE (NOTE 7) ................................................... $ 713,842 $ 727,974
COST OF REVENUE .................................................... 32,579 146,727
--------- ---------
GROSS PROFIT ....................................................... 681,263 581,247
--------- ---------
OPERATING EXPENSES
General and administrative expenses ....................... 12,657 81,211
Depreciation .............................................. 136,721 34,828
--------- ---------
TOTAL OPERATING EXPENSES 149,378 116,039
--------- ---------
Net Income from operations ................................ 531,885 465,208
--------- ---------
OTHER EXPENSES
Net loss on securities:
Realized ............................................. (668,786) (57,633)
Unrealized ........................................... (230,600) - 0 -
Interest expense .......................................... (65,363) (56,410)
--------- ---------
TOTAL OTHER EXPENSES (964,749) (114,043)
--------- ---------
Net Income (Loss) Before Income Taxes .............................. (432,864) 351,165
Provision for Income Taxes (Note 1) ................................ - 0 - - 0 -
--------- ---------
NET INCOME (LOSS) .................................................. $(432,864) $ 351,165
========= =========
NET INCOME (LOSS) PER SHARE OF COMMON
STOCK (NOTE 1) ............................................ $ (.14) $ .14
========= =========
See Notes to Financial Statements.
</TABLE>
F-27
<PAGE>
<TABLE>
PROFIT FINANCIAL CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<CAPTION>
Year Ended
December 31,
---------------------
1994 1993
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income (loss) ...................................................... $(432,864) $ 351,165
Adjustments to Reconcile Net Income to
Net Cash Used in Operating Activities:
Adjustments to reconcile net income (loss) to net cash provided
(required) by operating activities:
Equity securities received for fees and
other trades ......................................... - 0 - (204,200)
Loss - Universal Prosperity (Note 1) ..................... - 0 - 37,692
Consulting fees .......................................... (211,254) - 0 -
Loss on investment securities ............................ 922,431 - 0 -
Investment valuation ..................................... 165,568 - 0 -
Depreciation ............................................. 136,721 34,828
Decrease (Increase) in:
Inventories .......................................... 138,769 (55,344)
Trade credits ........................................ 30,731 (1,208)
Accounts receivable - related party .................. (268,746) - 0 -
Increase (Decrease) in:
Accrued interest ..................................... 8,277 (14,018)
Accrued property taxes ............................... 25,741 - 0 -
Accrued payroll taxes ................................ 4,271 1,151
Accounts payable ..................................... (22,824) 2,693
--------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES ................................. 496,821 152,759
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment and cattle - Ranch ................... (476,871) (91,561)
--------- ---------
NET CASH USED BY
INVESTING ACTIVITIES ................................. (476,871) (91,561)
--------- ---------
See Notes to Financial Statements.
</TABLE>
F-28
<PAGE>
<TABLE>
PROFIT FINANCIAL CORPORATION
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<CAPTION>
Year Ended
December 31,
---------------------
1994 1993
--------- ---------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from related party loans ......................... $ 166,016 $ 171,814
Principal payments on related party loans ................. (80,964) (164,112)
Proceeds from long-term borrowings ........................ 18,347 - 0 -
Principal payments on long-term
borrowings ........................................... (129,427) (59,146)
--------- ---------
NET CASH FLOWS FROM
FINANCING ACTIVITIES (26,028) (51,444)
--------- ---------
NET INCREASE (DECREASE) IN CASH .................................... (6,078) 9,754
CASH AT BEGINNING OF PERIOD ........................................ 11,344 1,590
--------- ---------
CASH AT END OF PERIOD .............................................. $ 5,266 $ 11,344
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest ............................................. $ 57,086 $ 70,428
========= =========
</TABLE>
SCHEDULE OF NONCASH TRANSACTIONS
1994
Rescinded stock subscription agreement entered into in 1993 - 733,333 shares of
common stock for $2,000,000 (see Note 3).
Issued 733,333 shares of common stock for 733,333 shares of Yeaman Enterprises,
Inc. (a related party) at a value of $73,333.
See Notes to Financial Statements.
F-29
<PAGE>
PROFIT FINANCIAL CORPORATION
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
SCHEDULE OF NONCASH TRANSACTIONS (CONTINUED)
1993
Received 250,000 shares of Parkside Industries, Inc., for services rendered
valued at $250,000.
Traded equity securities for other equity securities and payments on land and
expenses as follows:
Received - 110,000 shares of Panorama.............. $ 79,200
Payment on land.................................... 25,000
Payment on expenses................................ 25,000
Loss on exchange................................... 20,800
----------
$ 150,000
Traded 150,000 shares of
Parkside Industries, Inc. ..................... $ 150,000
==========
Issuance of 733,333 shares of
common stock in exchange for
stock subscription receivable (Note 3)......... $2,200,000
==========
See Notes to Financial Statements.
F-30
<PAGE>
<TABLE>
PROFIT FINANCIAL CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<CAPTION>
Unrealized
Common Stock Additional Losses on
--------------------------------- Paid - in Equity Accumulated
Shares Amount Capital Securities Deficit
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Balances -
December 31, 1992 ....... 2,730,878 $ 27,308 $ 5,016,252 $ (556,160) $ (1,971,558)
Issuance of common
stock in exchange
for subscription
receivable (Note 3) ..... 733,333 7,333 2,192,667 - 0 - - 0 -
Net unrealized gain
on non-current equity
securities .............. - 0 - - 0 - - 0 - 222,600 - 0 -
Return of common
stock (Note 1) .......... (265,000) (2,650) (988,458) - 0 - - 0 -
Net income for the
year ended
December 31, 1993 ....... - 0 - - 0 - - 0 - - 0 - 351,165
--------------- --------------- --------------- --------------- ---------------
Balances -
December 31, 1993 ....... 3,199,211 31,991 6,220,461 (333,560) (1,620,393)
Rescission of stock
subscription agreement .. (733,333) (7,333) (2,192,667) - 0 - - 0 -
Issuance of common stock
for investment securities 733,333 7,333 66,000
Reverse unrealized losses on
equity securities ....... 333,560
Net loss for the
year ended
December 31, 1994 ....... (432,864)
--------------- --------------- --------------- --------------- ---------------
Balances -
December 31, 1994 ....... 3,199,211 $ 31,991 $ 4,093,794 $ - 0 - $ (2,053,257)
=============== =============== =============== =============== ===============
See Notes to Financial Statements.
</TABLE>
F-31
<PAGE>
PROFIT FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's accounting policies reflect industry practices and conform to
generally accepted accounting principles. The following policies are considered
to be significant:
Accounting Method
- - -----------------
The accompanying financial statements have been prepared on the accrual method
using generally accepted accounting principles applicable to a going concern
which contemplates the realization of assets and the liquidation of liabilities
in the normal course of business. All assets are listed at historical cost.
Inventories
- - -----------
Inventories consist of cattle, not retained for expansion or replacement of the
breeding herd and feed. The inventories are stated at the lower of cost or
market.
Investment Securities
- - ---------------------
Investments are stated at market value in accordance with a new financial
accounting standard which become effective in 1994 (FAS 115). The securities
were stated at the lower of aggregate cost or market in 1993. Any change in
value of investments after 1993 will be reflected in the statement of operations
as an adjustment of investments to market value.
Investment securities include the Company's investment in common stock of
companies recorded at fair market value (see Note 4). Classification as current
or non-current is based on the Company's intent to hold or sell the securities
within one year.
Property and Equipment
- - ----------------------
Property and equipment are stated at cost. Depreciation is provided using the
straight-line and declining balance recovery system methods over the estimated
useful lives of 5 to 31 years.
December 31, December 31,
1994 1993
------------ ------------
Land ............................................... $ 625,000 $ 625,000
Cattle - breeding .................................. 621,975 254,655
Machinery and equipment ............................ 709,413 613,818
Building and improvements .......................... 107,678 107,678
------------ ------------
2,064,066 1,601,151
Less: Accumulated depreciation .................... 630,424 507,659
------------ ------------
Total property and equipment - net ................. $ 1,433,642 $ 1,093,492
============ ============
Depreciation was $136,721 for the year ended December 31, 1994 and $34,828 for
the year ended December 1993.
Income Taxes
- - ------------
The Company records the income tax effect of transactions in the same year that
the transactions enter into the determination of income, regardless of when the
transactions are recognized for tax purposes. Since the Company has net
operating loss carryovers that exceed taxable income, no provision for federal
and state income taxes has been made.
F-32
<PAGE>
PROFIT FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company reports income and losses for financial reporting and income tax
purposes on the accrual method of accounting in accordance with Financial
Accounting Standards ("FAS") No. 109 with the cumulative effects reflected in
the year ended December 31, 1993. FAS 109 requires deferred tax balances to be
adjusted to reflect the tax rates in effect when those amounts are expected to
become payable or refundable.
The Company has net operating loss carryovers that will expire as follows:
Federal Utah
---------------------- ----------------------
Year of Year of Year of
loss expiration Amount expiration Amount
---------- ---------- ---------- ---------- ----------
1982 1997 $ 280,632 $
1984 1999 270,361
1985 2000 144,038
1986 2001 194,610
1987 2002 306,722
1988 2003 257,740
1989 2004 42,995
1990 2005 87,285 1995 87,185
1992 2007 57,008 1997 56,808
1994 2009 202,264 2009 202,164
---------- ----------
$1,843,655 $ 346,157
========== ==========
Due to the Company's history of losses, there is not a sufficient basis for
making an estimate of future income. At December 31, 1994, the Company has not
recorded a deferred tax asset. There may be a deferred tax asset, but the
amount, if any, cannot be determined at this time and therefore has been
reserved 100%.
Trade Credits
- - -------------
On July 10, 1992, the Company exchanged equity securities for trade credits in
ITEX Barter Systems, Inc., a national barter organization, in the amount of
$150,000. Since that time $140,803 of the credits have been used in the
Company's operations, or for use in other trades.
The Company is accounting for the barter credits in accordance with APB Opinion
No. 29, Accounting for Nonmonetary Transactions and EITF Issue No. 23-11,
Accounting for Barter Transactions Involving Barter Credits which presumes that
the fair value of the nonmonetary asset exchanged is more clearly evident than
the fair value of the barter credits received, and that the barter credits
should be reported at the fair value of the nonmonetary asset exchanged.
Statements of Cash Flows
- - ------------------------
The cash flows reported include cash equivalents resulting from the receipts,
sales and exchanges of assets that have been used in the ordinary course of
business which were reported at fair value on the dates of the trades.
Rescission of the Purchase of a KOA Campground
- - ----------------------------------------------
During 1991, a wholly owned subsidiary, Universal Prosperity, Inc., purchased
the land, buildings and improvements, comprising a KOA campground in Knox County
Chancery Court, State of Michigan. The purchase was effected by the transfer of
265,000 shares of the Company, owned by Universal Prosperity, Inc., and the
assumption of certain mortgage notes due against the KOA Campground assets.
Since that time, the Company combined the operations of the two corporations in
consolidated financial statements.
Effective December 30,1993, the purchase of the KOA Campground was rescinded and
the Company stock cancelled, by notice to the transfer agent, which resulted in
a loss of $37,692. On this date the Company also returned the stock of Universal
Prosperity, Inc.
F-33
<PAGE>
PROFIT FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Rescission of the Purchase of a KOA Campground (continued)
- - ----------------------------------------------------------
For purposes of these reports, the financial statements have been prepared
eliminating the operations of Universal Prosperity, Inc., and therefore, the
financial statements have been restated for 1993.
Earnings Per Share
- - ------------------
Earnings per share is computed by dividing net income by the weighted average
number of shares of common stock outstanding during the year which was 3,199,211
for the year ended December 31, 1994 and 2,463,228 for the year ended December
31, 1993. Primary and fully diluted earnings per share are the same.
Dividend Policy
- - ---------------
The Company has not yet adopted a policy regarding payment of dividends on its
common or preferred stock.
2. CAPITALIZATION
On September 10, 1991, the Company completed a 5 for 1 reverse stock split by
majority vote of the shareholders. The outstanding common stock of 9,623,392
shares was reduced (5 for 1) to 1,924,677 shares. In addition, the authorized
capital stock of the Company was divided into two classes: Common stock of
20,000,000 shares at par value of $.01 per share; and Preferred stock of
5,000,000 shares at par value of $10 per share. Also, on September 10, 1991, the
Company changed its name from Profiteer Corporation to Profit Financial
Corporation. At present, the Company has no plans for the issuance of its
preferred stock.
3. STOCK SUBSCRIPTION RECEIVABLE
The Company issued 1,000,000 shares of its common capital stock in exchange for
a stock subscription receivable dated February 1, 1993 and due 18 months after
issue. The subscription was revised December 12, 1993 with a reduction in shares
to 733,333.
The terms of the revised subscription receivable provided for a non-refundable
monthly payment of $9,167 until $2,000,000 has been paid. The Company had agreed
to add additional shares to the agreement in the event that the market value of
the shares decreased by more than 20% below $3 a share.
The agreement was cancelled on June 17, 1994.
4. INVESTMENT SECURITIES
Investment securities (restricted as to trading) are stated at the lower of cost
or market at December 31, 1993. The cost of these investments exceeded market
value by $333,560 at December 31, 1993. During 1992, $112,100 of the unrealized
loss was due to de-listing of certain investment securities. Since market quotes
were not available, the values were assumed to be zero and therefore recorded as
a permanent impairment of value and the amount was deducted in the statement of
operations during 1992. These securities were sold during 1993 for a nominal
amount. The balance of the unrealized losses was recorded as a reduction in
stockholders' equity.
F-34
<PAGE>
PROFIT FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
4. INVESTMENT SECURITIES (CONTINUED)
Original Adjustment to Market Value
Company Shares Cost Market Value 12/31/94
- - ------------------------- --------- --------- ------------- ------------
Current:
ITEX .................. 131,000 $ 314,400 $ (52,400) $ 262,000
Long-term:
Arrow Management ...... 200,000 304,200 (178,200) 126,000
Yeaman Enterprises .... 733,333 73,333 - 0 - 73,333
--------- ------------- ------------
TOTAL ................. $ 691,933 $(230,600) $ 461,333
========= ============= ============
5. INVESTMENT - LAND
The land held by the Company consists of 99 lots in a recreational development.
The value was determined by the trading prices of lots, as furnished by the
project managers.
6. NOTES PAYABLE
The Company had notes payable consisting of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1994 1993
------------ ------------
<S> <C> <C>
Note payable to FHA, a government agency,
payable at $15,246 per year, including
interest at 9.75% per annum. Secured
by real property .................................................... $ - 0 - $ 12,857
Note payable to the Department of Agriculture, a government agency, payable
$10,448 per year, including interest at 9.9% per annum ..............
Secured by real property ............................................ 43,020 51,943
Note payable to equipment dealers, payable
$23,043 per year, including interest at
12.4% per annum. Secured by equipment .............................. 50,456 60,986
Note payable to an individual, payable $78,770 per year plus accrued
interest, payments to begin May 1, 1993 and continuing through May 1,
1997. Interest to begin on January 9, 1992 at 8% per annum on the
unpaid
balance, Secured by cattle and equipment ............................ 236,310 315,080
Note payable to related company, interest at 8.5%,
unsecured ........................................................... - 0 - 11,000
Note payable to a related individual, interest at 8.5%,
unsecured ........................................................... 18,200 10,200
Note payable to a related company, interest at 8.5%,
unsecured ........................................................... 33,000 - 0 -
Note payable to a related company, interest at 8.5%,
unsecured ........................................................... - 0 - 156,202
------------ ------------
380,986 618,268
Less current maturities ...................................................... (106,281) (171,408)
------------ ------------
Total Long-term Debt ......................................................... $ 274,705 $ 446,860
============ ============
</TABLE>
F-35
<PAGE>
PROFIT FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
6. NOTES PAYABLE (CONTINUED)
Maturities of notes payable are as follows for the next five years:
Years Ended
December 31,
------------
1995 $106,281
1996 106,556
1997 102,236
1998 14,714
1999 - 0 -
Thereafter 51,199
--------
$380,986
========
7. REVENUE SOURCES
The Company has two significant revenue sources which are summarized by type in
the following statements of operations.
<TABLE>
FOR THE YEAR ENDED DECEMBER 31, 1994:
<CAPTION>
Ranch Service and
Total Operations Consulting Fees
--------------- --------------- ---------------
<S> <C> <C> <C>
Sales and fee income ........................................................... $ 713,842 $ 136,175 $ 577,667
Cost of sales and ranch operations ............................................. 32,579 32,579 - 0 -
--------------- --------------- ---------------
Gross profit ................................................................... 681,263 103,596 577,667
--------------- --------------- ---------------
Operating expenses
General and administrative ............................................ 12,657 4,000 8,657
Depreciation .......................................................... 136,721 136,721 - 0 -
--------------- --------------- ---------------
Total Operating Expenses ....................... 149,378 140,721 8,657
--------------- --------------- ---------------
Net income (loss) from operations .............................................. $ 531,885 $ (37,125) $ 569,010
=============== =============== ===============
FOR THE YEAR ENDED DECEMBER 31, 1993:
<CAPTION>
Ranch Service and
Total Operations Consulting Fees
--------------- --------------- ---------------
<S> <C> <C> <C>
Sales and fee income ........................................................... $ 727,974 $ 120,681 $ 607,293
Cost of sales and ranch operations ............................................. 146,727 146,727 - 0 -
--------------- --------------- ---------------
Gross profit (loss) ............................................................ 581,247 (26,046) 607,293
--------------- --------------- ---------------
Operating expenses
General and administrative ............................................ 81,211 12,000 69,211
Depreciation .......................................................... 34,828 34,828 - 0 -
--------------- --------------- ---------------
Total Operating Expenses ....................... 116,039 46,828 69,211
--------------- --------------- ---------------
Net income (loss) from operations .............................................. $ 465,208 $ (72,874) $ 538,082
=============== =============== ===============
</TABLE>
F-36
<PAGE>
PROFIT FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
7. REVENUE SOURCES (CONTINUED)
The income shown under Service and Consulting Fees was received for services
rendered by the Company from several clients amounting to $577,667 for the year
ended December 31, 1994 and $607,293 for the year ended December 31, 1993.
Included in the $577,667 for 1994 is $480,000 from a related party. The Company
contracted with a related party to provide services from January 1, 1994 through
December 31, 1994 for a fee of $40,000 per month.
The nature of the Service and Consulting provided to clients consists of
assistance in asset leveraging and capital expansion, reverse acquisitions and
mergers.
8. RELATED PARTY TRANSACTIONS (SEE NOTE 7)
Related party transactions are outlined in the Statements of Cash Flows and are
listed under Schedule of Non-Cash Transactions.
At December 31, 1994, $268,746 is due from a related party. $120,000 is
considered current and 148,746 is considered long-term. The receivables are
non-interest bearing.
9. SUBSEQUENT EVENTS
Subsequent to December 31, 1994, the Company transferred its ranch operations to
Four Star Ranch, Inc. ("Four Star") in exchange for 100% of the common stock of
Four Star and 1,880,000 shares of Profit stock received from a related party.
The Four Star stock was then distributed to the related party. The net operating
losses (all of which are related to the ranch operations) were also transferred
to Four Star.
The Company then exchanged 1,880,000 shares of its common stock for 100% of the
common stock of United Support Association, Inc. ("USA"), making USA a wholly
owned subsidiary of the Company. The Company will continue its investment and
consulting operations through USA.
F-37
<PAGE>
INDEX TO EXHIBITS
Exhibit Description
------- -----------------------------------------------------------
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
3.2 Bylaws of Profiteer Corporation
10.3 Agreement dated February 1, 1996 between Wade B. Cook and
Lighthouse Publishing Group, Inc.
10.10 Agreement dated January 1, 1997 between Wade B. Cook and
Lighthouse Publishing Group, Inc.
21.1 List of Profit Financial Corporation Subsidiaries
EXHIBIT 3.1(a)
FILED in the office of the Lt. Gov./Sec. Of
State, of the State of Utah, on the 2nd
day of January, A.D. 1979
DAVID S. MONSON
Lt. Gov./Sec. Of State
Filing Clerk: BT Fees: 50.00
ARTICLES OF INCORPORATION
OF
PROFITEER CORPORATION
We, the undersigned natural persons of the age of twenty-one years or more,
acting as incorporators of a corporation under the Utah Business Corporations
Act (hereinafter called the "Act"), adopt the following Articles of
Incorporation for such corporation:
ARTICLE I
Name. The name of the Corporation (hereinafter called the "Corporation")
is: PROFITEER CORPORATION.
ARTICLE II
Period of Duration. The period of duration of the Corporation is perpetual.
ARTICLE III
Purpose and Powers. The general nature of the business to be transacted by
this corporation shall be to conduct a cattle feedlot business and to produce,
feed, purchase, sell or otherwise deal with livestock either as an agent or
principal.
To do each and everything necessary, suitable or proper for the
accomplishment of any of the foregoing purposes or the attainment of any one or
more of the subjects hereinabove enumerated, or which may at any time appear
conducive to or expedient for the protection or benefit of this corporation, and
to do such acts as fully and to the same extent as natural persons might, or
could do, in any part of the world as principals, agents, partners, trustees, or
otherwise, either alone or in conjunction with any other person, association or
corporation.
The foregoing clauses shall be construed as powers as well as objects and
purposes and the matters expressed in each clause shall, unless herein otherwise
expressly provided, be in no wise limited by reference to or inference from the
terms of any other clause but shall be regarded as independent objects, purposes
and powers and the enumeration of specific objects, purposes and powers shall
not be construed to limit or restrict in any manner the meaning of the general
terms or the general powers of the corporation nor shall the expression of one
thing be deemed to exclude another not expressed although to be of like nature.
<PAGE>
ARTICLE IV
Authorized Shares.
Section 1. The aggregate number of shares which the corporation shall have
authority to issue is 50,000,000 shares having a par value of one mill (1/10
cent) per share. The stock shall be designated as class "A" Voting common stock
and shall be of the same class and shall have the same rights and preferences.
The stock of the Corporation shall be nonassessable. Fully paid stock of this
corporation shall not be liable to any further call or assessment. The total
capitalization shall be $50,000.00
Section 2. The shares of Class "A" common stock shall not be divided into
classes and may not be issued in series.
ARTICLE V
Pre-emptive Rights.
No stockholder of the corporation shall because of his ownership of stock
have a pre-emptive or other right to purchase, subscribe for or take part of any
stock or any part of the notes, debentures, bonds or other securities
convertible into or carrying options for warrants to purchase stock of the
corporation issued, optioned or sold by it after its incorporation except as may
be otherwise stated in these Articles of Incorporation. Any part of the capital
stock and any part of the notes, debentures, bonds, or other securities
convertible into or carrying options or warranties to purchase stock of the
corporation authorized by these Articles of Incorporation or by an amended
certificate duly filed may at any time be issued, optioned for sale and sold or
disposed of by the corporation pursuant to resolution of its Board of Directors,
to such persons and upon such terms as may to such Board of Directors seem
proper without first offering such stock or securities or any part thereof to
existing stockholders except as required in Article IV of these Articles of
Incorporation.
ARTICLE VI
Commencement of Business. The Corporation shall not commence business until
at least One Thousand Dollars ($1,000.00) has been received by the Corporation
as consideration for the issuance of shares.
ARTICLE VII
Voting of Shares. Each outstanding share of the Class A Common stock of the
Corporation shall be entitled to one vote on each matter submitted to a vote at
a meeting of the stockholders. Each shareholder being entitled to vote his or
its shares in person or by proxy executed in writing by such shareholder or by
his duly authorized attorney in fact. At each election for directors every
shareholder entitled to vote at such election shall have the right to vote in
person or by proxy the number of shares owned by him or it for as many persons
as there are directors to be elected and for whose election he or it has a right
to vote, but the shareholder shall have no right whatsoever to accumulate his or
its votes with regard to such election.
<PAGE>
ARTICLE VIII
Provisions for Regulation of the Internal Affairs of the Corporation.
Section 1. Meetings of Shareholders. All meetings of the shareholders of
the corporation shall be held at such place either within or without the State
of Utah as may be provided in the By-laws of the corporation. In the absence of
any such provision, all such meetings shall be held at the registered office of
the corporation.
Section 2. Quorum of Shareholders. Unless otherwise provided in the Act or
other applicable law, a majority of the shares outstanding, said stock being
entitled to vote whether represented in person or by proxy, shall constitute a
quorum at a meeting of the shareholders of the corporation.
Section 3. Meetings of Directors. Meetings of the Board of Directors of the
Corporation, whether regular or special, may be held either within or without
the State of Utah and upon such notice as may be prescribed in the By-laws of
the corporation.
Section 4. Quorum of Directors. The number of directors of the Corporation
which shall constitute a quorum for the transaction of business at any meeting
of the Board of Directors shall be fixed in the By-laws of the Corporation.
Section 5. Designation of Committees by the Board of Directors. The Board
of Directors may by a resolution or resolutions passed by a majority of the
whole board designate a committee or committees consisting of not less than two
directors, which committee or committees to the extent provided in such
resolution or resolutions shall have and may exercise all the authority so
provided but the designation of such committees and the delegation thereto of
such authority shall not operate to relieve the Board of Directors or any member
thereof of any responsibility imposed upon it or him by law.
Section 6. By-laws of the Corporation. The initial By-laws of the
corporation shall be adopted by its Board of Directors hereafter unless
otherwise provided in the Act. Bylaws of the Corporation may be adopted, amended
or repealed either by the shareholders or by the Board of Directors, except that
(a) no By-law adopted or amended by the shareholders shall be altered or
repealed by the Board of Directors; and (b) no By-law shall be adopted by the
Directors which shall require more than a majority of the voting for a quorum at
a meeting of the shareholders of the corporation or more than a majority of the
votes cast to constitute action by the shareholders except where higher
percentages are required by law. The By-laws may contain any provisions for the
regulation and management of the affairs of the corporation not inconsistent
with the Act, other applicable laws and these Articles of Incorporation.
Section 7. Vacancy in the Board of Directors. Any vacancy occurring in the
Board of Directors may be filled by affirmative vote of a majority of the
remaining directors though less than a quorum of the Board of Directors. A
director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office. Any directorship to be filled by reason of an
increase in the number of directors shall also be filled by the Board of
Directors, such appointment to be until the next annual meeting or a special
meeting of the shareholders called for the purpose of electing a director to the
office so created.
Section 8. Shareholders of Record. The name and address of each shareholder
of record of the capital stock of the corporation as they appear in the stock
records of the corporation shall be conclusive evidence as to who are the
<PAGE>
shareholders who are entitled to receive notice of any meetings of the
shareholders, to vote at such meetings, to examine a complete list of the
shareholders who may be entitled to vote at any such meetings and to own, enjoy
and exercise any other rights and privileges which are based on the ownership of
these shares of stock of the corporation.
Section 9. Books and Records. The corporation shall keep complete and
correct books and records of account and shall keep minutes of the proceedings
of its shareholders and Board of Directors and shall keep at its registered
office or principal place of business or at the office of its transfer agent or
registrar a record of its shareholders giving the names and addresses of all
shareholders and the number of shares of the corporation held by each. No
shareholder shall have the right to inspect any such books and records except as
conferred by the Act or other applicable law unless authorized to do so by a
resolution or resolutions of the shareholders or of the Board of Directors.
Section 10. The Board of Directors of the corporation shall have the power
from time to time to fix and determine and to vary the amount which is to be
reserved by the corporation as working capital and before the payment of any
dividends or the making of any distribution of profits it may set aside out of
net profits or earned surplus of the corporation such sum or sums as it may from
time to time in its absolute discretion determine to be proper whether as a
reserve fund to meet contingencies or for the equalizing of dividends or the
repairing or of any property of the corporation or for an addition to stated
capital, capital surplus or earned surplus or for any corporate purpose which
the Board of Directors shall deem to be in the best interests of the corporation
subject only to such limitations as the By-laws or the corporation may from time
to time impose.
Section 11. Compensation of Directors. The Board of Directors of the
corporation may, providing the By-laws of the corporation so provide, make
provision for reasonable compensation to its members for their services as
directors and establish the basis and conditions upon which such compensation
shall be paid. Any director of the corporation may also serve the corporation in
any other capacity and receive proper compensation therefor.
Section 12. Qualification of Directors. The directors of this corporation
need not be stockholders.
Section 13. Number of Directors. The exact number of directors may from
time to time be specified by the By-laws at not less than three nor more than
fifteen. When the Bylaws do not specify the exact number of directors the number
of directors shall be three.
Section 14. Reliance upon Others. A director shall be fully protected in
relying in good faith upon the books of account of the corporation or statements
prepared by any of its officials as to the value and amount of assets,
liabilities or net profits of the corporation or any other facts pertinent to
the existence and amount of surplus or other funds from which dividends might
properly be declared and paid.
Section 15. Reliance upon Others' Prudent Conduct. No person shall be
liable to the Corporation for any loss or damage suffered by it on account of
any action taken or omitted to be taken by him as a director or officer of the
corporation in good faith if such person (a) exercised or used the same degree
of care and skill as a prudent man would have exercised or used under the
circumstances in the conduct of his own affairs; or (b) took or omitted to take
such action in reliance upon advice of counsel for the corporation or upon
<PAGE>
statements made or information furnished by officers or employees of the
corporation which he had reasonable grounds to believe or upon a financial
statement of the corporation prepared by an officer or employee of the
corporation in charge of its accounts or certified by a public accountant or
firm of public accountants.
Section 16. Contracts with Interested Directors, Disclosure and Voting. A
director of the corporation shall not in the absence of fraud be disqualified by
his office from dealing or contracting with the corporation either as a vendor,
purchaser or otherwise, nor in the absence of fraud shall, insofar as permitted
by the Act or any other applicable statute, any transaction or contract of the
corporation be void or voidable or affected by reason of the fact that any
director or any firm of which a director is a member or any corporation of which
any director is an officer, director or stockholder is in any way interested in
such transaction or contract provided that at the meeting of the Board of
Directors or of a committee thereof having authority in the premises to
authorize or confirm such contract or transaction, the interest of such
director, firm or corporation is disclosed or made known and there shall be
present a quorum of the Board of Directors or of the directors constituting such
committee and such contract or transaction shall be approved by a majority of
such quorum, which majority shall consist of directors not so interested or
connected. Nor shall any director be liable to account to the corporation for
any profit realized by him from or through any such transaction or contract of
the corporation, ratified or approved as herein provided, by reason of the fact
that he or any firm of which he is a member, or any corporation of which he is a
stockholder, director, or officer, was interested in such transaction or
contract. Directors so interested may be counted when present at meetings of the
Board of Directors or of such committee for the purpose of determining the
existence of a quorum. Each and every person who is or may become a director of
the corporation is hereby relieved from any liability that might otherwise exist
from those contracting with the corporation for the benefit of himself or any
firm, association or corporation in which he may be in any way interested. Any
contract, transaction or act of the corporation or of the Board of Directors or
of any committee which shall be ratified by a majority in interest of a quorum
of the stockholders having voting power, shall be as valid and as binding as
though ratified by each and every stockholder of the corporation, but this shall
not be constituted as requiring the submission of any contract to the
stockholders for approval.
Section 17. Ratification of Acts of Directors. The directors may submit any
contract or transaction for approval at any annual meeting of the stockholders
or at any special meeting of the stockholders called for that purpose, and any
contract or transaction so approved by a majority vote of a quorum of the
stockholders at such meeting shall be binding upon the corporation and all its
stockholders, whether or not the contract or transaction would otherwise be
subject to attack because of the interest of any of the directors of the
corporation or for any other reason.
Section 18. The corporation may in its By-laws make any other provisions or
requirements for the management or conduct of the business of the corporation,
provided the same is not inconsistent with the provisions of these Articles of
Incorporation or contrary to the laws of the State of Utah or the United States.
Section 19. The corporation may issue and sell its authorized shares
without par value from time to time in the absence of fraud in the transaction
for such considerations as may from time to time be fixed by the Board of
Directors, and sell and dispose of any stocks having a par value for such
consideration permitted by law, as the Board of Directors may from time to time
<PAGE>
determine without other authority, consent, or vote of the stockholders of the
corporation of any class or classes.
Section 20. Amendments of these Articles of Incorporation. The corporation
reserves the right amend, alter or repeal or to add any provisions to these
Articles of Incorporation in any manner now or hereafter prescribed by the Act
and any amendment thereto or by the provisions of any other applicable law and
all rights conferred upon the shareholders of the corporation by these Articles
of Incorporation and any amendments hereto are granted subject only to this
reservation.
ARTICLE IX
Initial Registered Office and Initial Registered Agent.
Section 1. Registered Office. The address of the initial registered office
of the corporation is 4434 South Parkview Drive, Salt Lake City, Utah 84117.
Section 2. Registered Agent. The name of the initial registered agent of
the corporation at such address is DAVID R. YEAMAN.
ARTICLE X
Directors and Incorporators.
Section 1. The Incorporators and Initial Board of Directors. The
Incorporators and initial Board of Directors of the corporation shall consist of
three members and their respective names and addresses are:
Name Address
- - -------------------------------------- ----------------------------------------
DAVID R. YEAMAN 4434 South Parkview Drive
Salt Lake City, Utah 84117
SHERRIE A. YEAMAN 4434 South Parkview Drive
Salt Lake City, Utah 84117
RUE B. DASTRUP 3537 Fieldstone Circle
Salt Lake City, Utah 84121
which directors shall hold office until the first meeting of the shareholders of
the corporation and until their successors shall have been elected and
qualified.
<PAGE>
Section 2. Subsequent Board of Directors. At the first meeting of the
shareholders of the corporation and at each annual meeting thereafter, the
shareholders shall elect directors to hold office until the next succeeding
annual meeting of the shareholders. Each director so elected shall hold office
for the term for which he is elected and until his successor shall have been
elected and qualified. Directors need not be residents of the State of Utah or
shareholders of the corporation.
Executed this 2nd day of January, 1979.
David R. Yeaman
----------------------------------------
DAVID R. YEAMAN
Sherrie A. Yeaman
----------------------------------------
SHERRIE A. YEAMAN
Rue B. Dastrup
----------------------------------------
RUE B. DASTRUP
STATE OF UTAH )
: ss
COUNTY OF SALT LAKE )
I, Margaret Smith, A Notary Public, hereby certify that on the 2nd day of
January, personally appeared before me DAVID R. YEAMAN, SHERRIE A. YEAMAN, AND
RUE B. DASTRUP, the signers of the above, who being by me duly sworn for
themselves, declared that they are the persons who signed the foregoing document
as incorporators, and that the statements contained therein are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 2nd day of
January, 1979.
My Commission expires: October 18, 1980
Residing at Salt Lake City, Utah
Margaret E. Smith
----------------------------------------
Notary Public
EXHIBIT 3.1(b)
APPROVED by the Division of Corporations RECEIVED
and Commercial Code of the Utah State 1985 FEB 26 PM 1:55
Department of Business Regulation DIVISION OF CORPORATIONS
on this 26th day of February A.D. 1985 STATE OF UTAH
Corporate Documents Examiner: MC
Fees paid: $100.00
AMENDMENT TO THE
ARTICLES OF INCORPORATION
OF
PROFITEER CORPORATION
WHEREAS, there was issued by the Secretary of State a Charter dated January
2, 1979, constituting and creating PROFITEER CORPORATION, a corporation
organized under the laws of this state with its principal place of business in
Salt Lake City, Utah.
The undersigned, President of PROFITEER CORPORATION, hereby certifies that
ten (10) days notice was given each shareholder by mail or personal contact, of
the meeting of the shareholders which was held on August 1, 1984, which notice
stated the time and place of the meeting and the purpose thereof.
And further, that the meeting was duly held pursuant to such notice. At the
time of the meeting there were 50,000,000 shares outstanding and entitled to
vote, 37,845,500 shares present in person or by proxy and that shares voted in
favor of, 352,750 shares voting against, amending the Articles of Incorporation
as follows:
That Article IV, be amended and changed to read as follows:
Authorized Shares.
Section 1. The aggregate number of shares which the corporation shall have
the authority to issue is 200,000,000 shares having a par value of $0.001
(OneMill-1/10 cent) per share. The stock shall be designated as class "A" Voting
common stock and shall be the same class and shall have the same rights and
preferences. The stock of the corporation shall be nonassessable. Fully paid
stock of this corporation shall not be liable to any further call or assessment.
The total capitalization shall be $200,000.00.
Section 2. The shares of class "A" common stock shall not be divided into
classes and may not be issued in series.
And further, your petitioners certify that they have complied in all
respects with Sections 16-10-54 through 16-10-60, Utah Code Annotated, 1953 as
amended.
WHEREFORE, they pray that the Articles of Incorporation of PROFITEER
CORPORATION be so amended.
DATED this 2nd day of September, 1984.
David R. Yeaman
----------------------------------------
David R. Yeaman, President
Cynthia S. Brown
- - --------------------------------------
Cynthia S. Brown, Secretary
STATE OF UTAH )
: ss
County of Salt Lake )
On this 2nd day of September, 1984, before me, a notary public, personally
appeared David R. Yeaman and Cynthia S. Brown, known to me to be the persons
whose names are subscribed to the within document, and acknowledge that they
executed the same.
[SIGNATURE ILLEGIBLE]
----------------------------------------
Notary Public
Residing at: Salt Lake City, Utah.
My Commission Expires: 11-18-87
EXHIBIT 3.1(c)
APPROVED by the Division of Corporations 080186
and Commercial Code of the Utah State 1988 SEP 12 AM 11:23
Department of Business Regulation 8257020048
on this 12th day of September A.D. 1988
Corporate Documents Examiner: MC
Fees paid: $35.00
AMENDMENT TO THE
ARTICLES OF INCORPORATION
OF
PROFITEER CORPORATION
WHEREAS, there was issued by the Secretary of State a Charter dated
January 2, 1979, constituting and creating PROFITEER CORPORATION, a corporation
organized under the laws of this state with its principal place of business in
Salt Lake City, Utah.
The undersigned, President of PROFITEER CORPORATION, hereby certifies that
ten (10) days notice was given each shareholder by mail or personal contact, of
the meeting of the shareholders which was held on May 17, 1988, which notice
stated the time and place of the meeting and the purpose thereof.
And further, that the meeting was duly held pursuant to such notice. At the
time of the meeting there were 157,390,000 shares outstanding and entitled to
vote, 125,478,817 shares in person or by proxy and that shares voted in favor
of, 57,400 shares voting against, amending the Articles of Incorporation as
follows:
That Article IV, be amended and changed to read as follows:
Authorized Shares.
-----------------
Section 1. The aggregate number of shares which the corporation shall have
the authority to issue is 20,000,000 shares having a par value of $0.01 per
share. The stock shall be designated as class "A" Voting common stock and shall
be the same class and shall have the same rights and preferences. The stock of
the corporation shall be nonassessable. Fully paid stock of this corporation
shall not be liable to any further call or assessment. The total capitalization
shall be $200,000.00.
Section 2. The shares of class "A" common stock shall not be divided into
classes and may not be issued in series.
And further, your petitioners certify that they have complied in all
respects with Sections 16-10-54 through 16-10-60, Utah Code Annotated, 1953 as
amended.
WHEREFORE, they pray that the Articles of Incorporation of PROFITEER
CORPORATION be so amended.
DATED this 10th day of August, 1988.
David R. Yeaman
----------------------------------------
David R. Yeaman, President
Krista Castleton
- - --------------------------------------
Krista Castleton, Secretary
STATE OF UTAH )
: ss
County of Salt Lake )
On this 10th day of August, 1988, before me, a notary public, personally
appeared David R. Yeaman and Krista Castleton, known to me to be the persons
whose names are subscribed to the within document, and acknowledged that they
executed the same.
Jeri J. Pettersson
----------------------------------------
Notary Public
Residing at: Salt Lake City, Utah
My Commission Expires: 9-1-89
EXHIBIT 3.2
BY-LAWS
-of-
PROFITEER CORPORATION
ARTICLE 1
OFFICES
The principal office of the Corporation in the State of Utah shall be
located at 4434 South Parkview Drive, Salt Lake City, Utah 84117. The
Corporation may have such other offices, either within or without the State of
Utah, as the President of the Corporation may designate or as the business of
the Corporation may warrant and require from time to time.
ARTICLE II
SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the shareholders shall be
held on the first Saturday in the month of February of each year, beginning with
the year 1980 at the hour of 10:00 o'clock A.M. for the purpose of electing
directors and for the transaction of such other business as may come before the
meeting. If the date fixed for the annual meeting should be a legal holiday in
the State of Utah, such meeting shall be held on the next succeeding Saturday
which is not a holiday. In the event that such annual meeting is omitted by
oversight or otherwise on the date herein provided for, the directors shall
cause a meeting in lieu thereof to be held as soon thereafter as conveniently
may be, and any business transacted or elections held at such meeting shall be
as valid as if transacted or held at the annual meeting. If the election of
directors shall not be held on the date designated herein for any annual meeting
of shareholders, or at any adjournment thereof, the Board of Directors shall
cause the election to be held at a special meeting of shareholders as soon
thereafter as may conveniently be called. Such subsequent meetings shall be
called in the same manner as is provided for the annual meeting of stockholders.
Section 2. Special Meetings. Except as otherwise provided by law, special
meetings of the stockholders of this Corporation shall be held whenever called
by the President or a Vice-President or by the Treasurer or by majority of the
Board of Directors or whenever one or more stockholders are entitled to vote and
who held at least 10 percent of the capital stock issued and outstanding shall
make written application therefor to the Secretary or an assistant secretary
stating the time, place and purpose of the meeting called.
Section 3. Place of Meeting. The Board of Directors may designate any
place, either within or without the State of Utah, unless otherwise prescribed
by statute, as the place of meeting for any annual meeting or for any special
meeting called by the Board of Directors. A waiver of notice signed by all
shareholders entitled to vote at a meeting may designate any place, either
within or without the State of Utah, unless otherwise prescribed by statute, as
the place for the holding of such meeting. If no designation is made, or if a
special meeting be otherwise called, the place of meeting shall be the principal
office of the Corporation in the State of Utah.
<PAGE>
Section 4. Notice of Stockholders Meetings. Notice of all stockholders
meetings stating the time and the place and the objects for which such meetings
are called shall be given by the President or a Vice-President or the Treasurer
or the Secretary or an assistant secretary or by any one or more stockholders
entitled to call a special meeting of the stockholders by mail not less than ten
days nor more than thirty days prior to the date of the meeting to each
stockholder of record at his address as it appears on the stock record books of
the Corporation unless he shall have filed with the Secretary of the Corporation
a written request that notice intended for him be mailed to some other address,
in which case it shall be mailed to the address designated in such request. The
person giving such notice shall make an affidavit in relation thereto.
Any meeting of which all stockholders shall at any time waive or have
waived notice in writing shall be a legal meeting for the transaction of
business notwithstanding that notice has not been given as hereinbefore
provided.
Section 5. Waiver of Notice. Whenever any notice whatever is required to be
given by these By-laws, or the Articles of Incorporation of this Corporation, or
by any of the Corporation Laws of the State of Utah, a waiver thereof in writing
signed by the person or persons entitled to such notice, whether before or after
the time stated herein, shall be deemed equivalent thereto.
Section 6. Quorum of Stockholders. Except as herein provided and as
otherwise provided by law, at any meeting of stockholders a majority in interest
of all the capital stock issued and outstanding represented by stockholders of
record in person or by proxy shall constitute a quorum, but a less interest may
adjourn any meeting and the meeting may be held as adjourned without further
notice; provided, however, that directors shall not be elected at the meeting so
adjourned. When a quorum is present at any meeting, a majority in interest of
the stock represented thereat shall decide any question brought before such
meeting, unless the question is one upon which by express provision of law or of
the Articles of Incorporation or of of these By-laws a larger or different vote
is required, in which case such express provision shall govern and control the
decision of such question.
Section 7. Closing of Transfer Books or Fixing Record Date. For the purpose
of determining shareholders entitled to notice or to vote at any meeting of
shareholders or any adjournment thereof, or shareholders entitled to receive
payment of any dividend, or in order to make a determination of shareholders for
any other proper purpose, the Board of Directors of the Corporation may provide
that the stock transfer books shall be closed for a period not to exceed in any
case five days. If the stock transfer books shall be closed for the purpose of
determining shareholders entitled to notice or to vote at a meeting of
shareholders, such books shall be closed for at least two days immediately
preceding the date determined to be the date of record. In lieu of closing the
stock transfer books, the Board of Directors may fix in advance a date as the
record date for any such determination of shareholders, such date in any case to
be not more than 50 days and in case of a meeting of shareholders not less than
20 days prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If the stock transfer books are
not closed and no record date is fixed for the determination of shareholders
entitled to notice or to vote at a meeting of shareholders or shareholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be deemed the date
of record for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
<PAGE>
provided in this section, such determination shall apply to any adjournment
thereof.
Section 8. Voting Lists. The officer or agent having charge of the stock
transfer books for the shares of the Corporation shall make, at least five days
before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting, or any adjournment thereof, arranged in
alphabetical order, with the addresses of and the number of shares held by each
shareholder, which list for a period of five days prior to such meeting, shall
be kept on file at the registered office of the Corporation and shall be subject
to the inspection by any shareholder at any time during normal business hours.
Such lists shall also be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any stockholder during the
whole time of the meeting, the original stock transfer books shall be prima
facie evidence as to who are the shareholders entitled to examine such lists or
transfer books or to vote at any meeting of shareholders.
Section 9. Proxy and Voting. Stockholders of record may vote at any meeting
either in person or by proxy in writing which shall be filed with the secretary
of the meeting before being voted. Such proxy shall entitle the holders thereof
to vote at any adjournment of such meeting but shall not be valid after the
final adjournment thereof. No proxy shall be valid after the expiration of 11
months from the date of its execution unless the stockholder executing it shall
have specified therein the length of time said proxy is to continue in force,
which shall be for some limited period of time. Each shareholder, except as
otherwise provided, shall be entitled to one vote for each share of capital
stock held by him.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. The business and the affairs of the Corporation
shall be managed by its Board of Directors.
Section 2. Number, Tenure and Qualifications. The number of directors shall
be not less than three nor more than fifteen. Each director shall hold office
until the next annual meeting of shareholders and until his successor shall have
been elected and qualified.
Section 3. Election of Board of Directors. The Board of Directors shall be
chosen by ballot at the annual meeting of stockholders or at any meeting held in
place thereof as provided by law.
Every election of directors by the stockholders shall be conducted by two
inspectors, neither of whom shall be a candidate for the office of director,
appointed by the presiding officer of the meeting, but inspectors of the first
election of directors and all previous meetings of the stockholders shall be
appointed by the Board of Directors. Before entering upon the discharge of their
duties the inspectors shall be sworn as provided by law. The appointment of such
inspectors may be waived by the unanimous consent of all stockholders present or
represented by proxy at any given meeting. Voting shall be by secret ballot, or
if there is no contest for positions on the board, then by voice vote upon
motion from the floor for such a vote.
Section 4. Powers of Directors. The Board of Directors shall have the
responsibility for the entire management of the business of this Corporation. In
the management and control of the property, business and affairs of the
Corporation the Board of Directors is hereby vested with all of the powers
<PAGE>
possessed by the Corporation itself so far as this delegation of authority is
not inconsistent with the laws of the State of Utah and with the Articles of
Incorporation or with these By-laws. The Board of Directors shall have the power
to determine what constitutes net earnings, profits and surplus, respectively,
and what amounts shall be reserved for working capital and for any other purpose
and what amounts shall be declared as dividends, and such determination by the
Board of Directors shall be final and conclusive.
Section 5. Meetings of Directors. Regular meetings of the Board of
Directors shall be held at such places and at such times as the Board of
Directors by vote may determine, and if so determined no notice thereof need be
given. Special meetings of the Board of Directors may be held at any time or any
place within or without the State of Utah whenever called by the President,
Vice-President, the Treasurer, the Secretary and Assistant Secretary or two
directors, notice thereof being given to each director by the Secretary or an
assistant secretary or by the officer calling the meeting, or at any time
without formal notice provided all directors are present or those not present
shall have at any time waived notice thereof. Notice of special meetings stating
the time and place thereof shall be given by mailing the same to each director
at his residence or business address at least three days prior to the date set
for the meeting or by delivering the same to him personally or telegraphing the
same to him at his residence or business address not later than 28 hours prior
to the day on which the meeting is to be held unless, in case of emergency, the
Chairman of the Board of Directors or the President shall prescribe a shorter
notice to be given personally or by telegraphing each director at his residence
or business address. Such special meeting shall be held at such time and place
as the notice thereof or waiver shall specify. The officers of the Corporation
shall be elected by the Board of Directors after its election by the
stockholders, and a meeting may be held without notice for this purpose
immediately after the annual meeting of stockholders and at the same place.
Section 6. Quorum of Directors. A majority of the members of the Board of
Directors as constituted for the time being shall constitute a quorum for the
transaction of business, but a lesser number not less than two may adjourn any
meeting and the meeting may be held as adjourned without further notice. When a
quorum is present at any meeting, the majority of the members present thereat
shall decide any question brought before such meeting except as otherwise
provided by law or by these By-laws.
Section 7. Vacancies. Any vacancy occurring in the Board of Directors may
be filled by an affirmative vote of the majority of the remaining directors
though less than a quorum of the Board of Directors, unless otherwise provided
by law or the Articles of Incorporation. A director elected to fill a vacancy
shall be elected for the unexpired term of his predecessor in office. Any
directorship to be filled by reason of an increase in the number of directors
shall be filled by election at the annual meeting or at a special meeting of
shareholders called for that purpose.
Section 8. Compensation. By resolution of the Board of Directors, directors
may be paid their expenses, if any, of attendance at each meeting of the Board
of Directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors or a stated salary as a director. No such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
Section 9. Presumption of Assent. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
<PAGE>
his dissent shall be entered in the minutes of the meeting or unless he shall
file his written dissent of such action with the person acting as the secretary
of the meeting or the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
Section 10. Formal Action by Directors. Unless otherwise provided by law,
any action required to be taken at a meeting of the Board of Directors, or any
other action which may be taken at a meeting of the Board of Directors may be
taken without a meeting if a consent in writing setting forth the action so
taken shall be signed by all the directors entitled to vote with respect to the
subject matter thereof.
ARTICLE IV
OFFICERS
Section 1. Officers of the Corporation. The officers of this Corporation
shall be a President, a Vice-President or Vice-Presidents, as the case may be, a
Secretary and an Assistant Secretary if so required, and a Treasurer. The Board
of Directors in its discretion may elect a Chairman of the Board of Directors
who, when present, shall preside at all meetings of the Board of Directors and
who shall have such other powers as the Board of Directors may from time to time
prescribe.
Section 2. Eligibility of Officers. The President and the Chairman of the
Board of Directors need not be stockholders but shall be directors of the
Corporation. The Vice-President or Vice-Presidents, Secretary and/or Assistant
Secretary, Treasurer and such other officers as may be elected or appointed need
not be stockholders or directors of the Corporation. Any person may hold more
than one office provided the duties thereof can be consistently performed by the
same person; provided, however, that no person shall, at any time, hold the
three offices of President or Vice-President and Secretary and Treasurer.
Section 3. Additional Officers and Agents. The Board of Directors at its
discretion may appoint a general manager, one or more assistant treasurers and
one or more assistant secretaries and such other officers or agents as may be
deemed advisable and prescribe the duties thereof.
Section 4. Election and Term of Office. The officers of the Corporation to
be elected by the Board of Directors shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each annual
meeting of the shareholders. If the election of officers shall not be held at
such meeting, such election shall be held as soon thereafter as may be
convenient. Each officer shall hold office until his successor shall have been
duly elected and shall have qualified or until his death or until he shall
resign or have been removed in the manner hereinafter provided.
Section 5. President. The President shall be the chief executive officer of
the Corporation and, when present, shall preside at all meetings of the
stockholders and, unless a chairman of the Board of Directors has been elected
and is present, shall preside at meetings of the Board of Directors. The
President or a vice-president, unless some other person is specifically
authorized by vote of the Board of Directors, shall sign all certificates of
stock, bonds, deeds, mortgages, extension agreements, modification of mortgage
agreements leases and contracts of the Corporation. He shall perform all the
duties commonly incident to his office and shall perform such other duties as
the Board of Directors shall designate from time to time.
<PAGE>
Section 6. Vice-President or Vice-Presidents. Except as especially limited
by vote of the Board of Directors, any Vice-President shall perform the duties
and have the powers of the President during the absence or disability of the
President and shall have the power to sign all certificates of stock, bonds,
deeds and contracts of the Corporation. He shall perform such other duties and
have such other powers as the Board of Directors shall from time to time so
designate.
Section 7. Secretary or Assistant Secretary. The Secretary shall keep
accurate minutes of all meetings of the stockholders and of the Board of
Directors and shall perform all the duties commonly incident to his office and
shall perform such other duties and have such other powers as the Board of
Directors shall from time to time so designate. The Secretary shall have power,
together with the President or a Vice-President, to sign certificates of stock
of the Corporation. In his absence at any meeting an assistant secretary or a
secretary pro tempore shall perform his duties thereat. The Secretary, any
assistant secretary and any secretary pro tempore shall be sworn to the faithful
discharge of their duties.
Section 8. Treasurer. The Treasurer, subject to the order of the Board of
Directors, shall have the care and custody of the money, funds, valuable papers,
and documents of the Corporation (other than his own bond, if any, which shall
be in the custody of the President) and shall have and exercise under the
supervision of the Board of Directors, all the powers and duties commonly
incident to his office and shall give bond in such form and with such sureties
as shall be required by the Board of Directors. He shall deposit all funds of
the Corporation in such bank or banks, trust company or trust companies, or with
such firm or firms doing a banking business as the directors shall from time to
time so designate. The Treasurer may endorse for deposit or collection all
checks and notes payable to the Corporation or to its order, may accept drafts
on behalf of the Corporation and, together with the President or a
vice-president, may sign certificates of stock. He shall keep accurate books of
account of the Corporation's transactions which shall be the property of the
Corporation and, together with all its property in his possession, shall be
subject at all times to the inspection and control of the Board of Directors.
All checks, drafts, notes or other obligations for the payment of money
shall be signed by such officer or officers or agent or agents as the Board of
Directors shall by general or special resolution direct. The Board of Directors
may also in its discretion require by general or special resolutions that
checks, drafts, notes and other obligations for the payment of money shall be
countersigned or registered as a condition to their validity by such officer or
officers or agent or agents as shall be directed in such resolution.
Section 9. Resignations and Removals. Any director or officer of the
Corporation may resign at any time by giving written notice to the Corporation,
to the Board of Directors, or to the Chairman of the Board, or to the President,
or to the Secretary of the Corporation. Any such resignation shall take effect
at the time specified therein, or, if the time be not specified therein, upon
its acceptance by the Board of Directors.
The stockholders at any meeting called for the purpose by vote of a
majority of the stock issued and outstanding may remove from office any director
or other officer elected or appointed by the stockholders or Board of Directors
and elect or appoint his successor. The Board of Directors by vote of not less
than a majority of the entire board may remove from office any officer or agent
elected or appointed by it.
<PAGE>
Section 10. Vacancies. If the office of any director or officer or agent
becomes vacant by reason of death, resignation, removal, disqualification or
otherwise, the directors may by vote of a majority of a quorum choose a
successor or successors who shall hold office for the unexpired term. If there
be less than a quorum of the directors but at least two directors at the time in
office, the directors may by a majority vote choose a successor or successors
who shall hold office for the unexpired term. Vacancies in the Board of
Directors may be filled for the unexpired term by the stockholders at a meeting
called for that purpose unless such vacancy shall have been filled by the
directors. Vacancies resulting from an increase in the number of directors may
be filled in the same manner.
Section 11. Salaries. The salaries of the officers shall be fixed from time
to time by the Board of Directors, and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
Corporation.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation, and such authority
may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the Corporation
and no evidences of indebtedness shall be issued in its name unless authorized
by a resolution of the Board of Directors. Such authority may be general or
confined to specific instances.
Section 3. Checks, Drafts, Etc. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by such officer or officers, agent or agents of
the Corporation and in such manner as shall from time to time be determined by a
resolution of the Board of Directors.
Section 4. Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board of Directors may in
their sole discretion select.
Section 5. Nothing contained in this Article shall in any way conflict or
in any other wise hamper the duties and obligations set forth for the Treasurer
of this Corporation as provided in Article IV, Section 8.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates of Stock. Every stockholder shall be entitled to a
certificate or certificates of the common stock of the Corporation in such form
as may from time to time be prescribed by the Board of Directors, such shares
shall be duly numbered and sealed with the corporate seal of the Corporation and
set forth the number and kind of shares. Such certificates shall be signed by
the President or a vice-president and by the Treasurer or an assistant treasurer
or the Secretary or an assistant secretary.
Section 2. Transfer of Stock. Shares of stock may be transferred by
delivery of the certificate accompanied either by an assignment in writing on
<PAGE>
the back of the certificate or by a written power of attorney to sell, assign
and transfer the same on the books of the Corporation signed by the person
appearing by the certificate to be the owner of the shares represented thereby,
together with all necessary federal and state transfer tax stamps affixed, and
shall be transferable on the books of the Corporation under surrender thereof so
assigned or endorsed. The person registered on the books of the Corporation as
to the owner of any shares of stock or subordinated convertible debentures shall
be entitled to all the rights of ownership with respect to such shares or
subordinated convertible debentures. It shall be the duty of every stockholder
or registered debenture holder to notify the Corporation of his present post
office address.
Section 3. Transfer Books. The transfer books of the stock of the
Corporation may be closed for such period, not exceeding 50 days, unless such
period of time shall otherwise be limited by these By-laws, by the laws of the
State of Utah or by the Articles of Incorporation, in anticipation of
stockholders meetings as the Board of Directors may from time to time determine.
In lieu of closing the transfer books, the Board of Directors may fix a day not
more than 50 days prior to the day of holding any meeting of the stockholders as
the day as of which the stockholders entitled to notice of and to vote at such
meeting shall be determined; and only stockholders of record on such day shall
be entitled to notice of or to vote at such meeting. The holders of the
subordinate convertible debentures shall be responsible for all the duties and
obligations under this paragraph and subject to the rights and privileges
afforded shareholders under this paragraph and any other paragraph of these
By-laws except that the holder of a subordinated convertible debenture will have
no voting rights in the Corporation.
Section 4. Loss of Certificates. In case of the loss, mutilation or
destruction of a certificate of stock or a certificate representing a
subordinated convertible debenture, a duplicate certificate may be issued upon
such terms as the Board of Directors shall from time to time prescribe.
Section 5. Seal. The seal of this Corporation shall consist of a flatfaced
circular die with the following words and figures cut or engraved thereon:
PROFITEER CORPORATION
ARTICLE VII
FISCAL YEAR
The fiscal year of the Corporation shall begin on the 1st day of January
and end on the 31st day of December each year, except that the first year shall
run from the date of incorporation until the 31st day of December 1979.
ARTICLE VIII
DIVIDENDS
The Board of Directors may from time to time declare, and the Corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and its Articles of Incorporation.
ARTICLE IX
WAIVER OF NOTICE
Unless otherwise provided by law, whenever any notice is required to be
given to any shareholder, or holder of a certificate evidencing ownership of a
subordinated convertible debenture, or director of the Corporation under the
provisions of these By-laws or under the provisions of the Articles of
<PAGE>
Incorporation, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether before or after the time stated therein shall
be deemed equivalent to the giving of such notice.
ARTICLE X
AMENDMENTS
The By-laws of the Corporation, regardless of whether made by the
stockholders or by the Board of Directors, may be amended, added to or repealed
by a vote of the holders of not less than 75 percent of the issued and
outstanding capital stock. That the capital stock shall bear a vote on the basis
of one vote for each share of stock, and the voting on such resolutions or
amendments to these By-laws may take place at any meeting of the stockholders,
provided notice of the proposed change is given and the notice of the meeting,
or notice thereof is waived in writing.
ARTICLE XI
MISCELLANEOUS
Section 1. The Board of Directors shall have the power to fix and from time
to time change the fiscal year of the Corporation. Unless otherwise fixed by the
Board of Directors, the calendar year as stated above shall be the fiscal year.
Section 2. The Board of Directors shall at all times keep themselves
informed and take such necessary actions as a reasonable, prudent man would do
to serve the best interests of the Corporation.
* * * *
EXHIBIT 10.3
AGREEMENT made this 01 day of February, 1996, between Wade B. Cook
(hereinafter called the Author); whose residence address is 31005 SE 40th
Street, Fall City, WA 98024 whose citizenship is USA and Lighthouse Publishing
Group, Inc. (hereinafter called the Publisher): whose principal place of
business is at 14675 Interurban Avenue South, Seattle, WA 98168.
I. GRANT OF RIGHTS The Author hereby grants, assigns, and
transfers to the Publisher the following exclusive
rights and privileges to and in connection with a
Work, presently entitled Wall Street Money Machine
which Work is a novel.
A. The sole and exclusive book publication
rights in the United States, its territories,
dependencies, and possessions, the Republic of the
Philippines, and Canada, and the right to sell
copies of the Work in the open market throughout
the world.
B. The sole and exclusive subsidiary
publication and performance rights set forth in
Article VIIA below. These subsidiary publication
and performance rights are granted to the
Publisher for the United States, its territories,
dependencies and possessions, the Republic of the
Philippines, and Canada, and include the right to
authorize others to exercise in any foreign
country any of the rights granted to the
Publisher.
II. COPYRIGHT It is understood and agreed that the
copyright shall be secured by the Publisher in the
name of Wade B. Cook and the Publisher is hereby
authorized to take all steps required to secure
such copyright in the United States of America.
The Publisher agrees to print an appropriate
copyright notice in each and every copy of the
published work and to require all parties to whom
it grants licenses in connection with the work to
do the same. The party in whose name copyright is
registered shall hold for the benefit of the other
such rights as the equities hereby created may
prescribe. Unless it specifically agrees to do so
in writing, the Publisher shall not be responsible
for securing any copyright outside the United
States of America.
III. MANUSCRIPT The Author agrees to deliver to the Publisher
not later than February 28, 1996 three finally
revised copies of the manuscript, approximately
70,000 words in length, satisfactory in form,
style, and content and acceptable to the Publisher
in its sole judgment and discretion.
<PAGE>
FORM OF A. Unless otherwise agreed in writing, the
MANUSCRIPT Author shall furnish promptly and free of charge
to the Publisher, complete and ready for
reproduction, all drawings, maps, photographs,
charts and designs which are a part of or
necessary to the text. If the Author fails to
supply any necessary drawings, maps, photographs,
charts and designs in satisfactory form and within
the specified time, the Publisher shall have the
right to have them made and the charges and
expenses of making them shall be paid for by the
Author.
B. The Publisher may, at his discretion,
cause an index to be made of the work and charge
the cost thereof against any sums due the Author
hereunder.
AUTHOR C. The provisions as to satisfaction and
COMPLIANCE acceptability to the Publisher and time of
delivery of such copy are material terms of this
agreement and upon the Author's failure to comply
with any of such provisions, the Publisher may at
its option by written notice to the Author
terminate this agreement, whereupon the Author
shall return to the Publisher all amounts which it
may have advanced to him. In such event, if the
manuscript should be completed subsequently, the
Author shall nevertheless be obligated to offer
the same to the Publisher, which at its option,
shall have the right to publish the same upon the
terms of the agreement.
CORRECTIONS D. If the Publisher is directed by the Author
to make alterations in any proofs from final copy
as delivered which shall cost more than ten per
cent of the cost of composition of the Work, the
Author agrees to pay said excess. The Author shall
pay in full for any corrections in the plates
which he requires or which are necessary for the
correction of actual errors after the plates have
been made in conformity with the last proof as
corrected by the Author. The Publisher shall upon
request keep the Author informed of such excess
charges.
SUBSEQUENT E. When the Publisher considers it necessary,
REVISIONS it shall have the right in its sole discretion to
call upon the Author to revise the Work, and the
Author shall make such revisions. The provisions
of this agreement shall apply to revision of the
Work by the Author as though any such revision
were the original Work being published for the
first time, except that the manuscript of the
revised Work shall be delivered in final form by
the Author to the Publisher within a reasonable
amount of time; further, no initial payment shall
be made in connection with such revision. Should
<PAGE>
the Author not provide the revision within a
reasonable time, or should the Author be deceased,
the Publisher may have the revision done and
charge the cost of such revision against royalties
due or that may become due the Author, and may
display in the revised Work, and in advertising,
the name of the person or persons who revised the
Work.
RETYPING F. If in the opinion of the Publisher it is
considered expedient to have the manuscript
retyped in as many copies as shall be necessary,
the cost of such retyping shall be borne by the
Author.
PUBLISHER'S G. The Publisher shall be free to prepare the
DETERMINATION manuscript of the Work for the printer in such
manner as shall be consonant with their publishing
house style. All details as to the manner of
publication, distribution and advertising,
including the format and price of the Work in its
manufactured from and the number and distribution
of free copies, shall be left to the sole
discretion of the Publisher.
H. The Publisher will use the same care in
protecting the manuscript and other material
supplied to it hereunder as is its customary
practice in protecting similar material in its
possession, but it shall not be liable for
damages, if any, resulting from the loss or
destruction of such materials or any part thereof.
IV. ADVANCE The Publisher will pay to the Author as an
advance payment against all monies accruing to the
Author under this agreement the sum of: None
V. ROYALTIES A. The Publisher shall pay to the Author the
following royalties on regular net sales, other
than sales falling within (B) through (F) below on
the Retail selling price of each copy sold: 10% on
first 7,500 copies; 12.5% on next 2,500 copies and
15% thereafter.
EXPORT SPECIAL B. Where copies are sold for export or where
DISCOUNT copies are sold in quantities sufficient to
justify special discounts of forty-nine per cent
of the retail price or more, the royalty shall be
10 percent on the sums actually received. No
royalties shall be paid on sales at discounts of
70 percent or more.
LIMITED REPRINT C. The Publisher shall pay the Author one
EDITION half of the stipulated royalty, as stated above,
on all copies sold from a reprinting of 3,500
copies or less, made after one year from the date
of the first publication, this reduced royalty
being provided by reason of the increased cost of
<PAGE>
manufacturing of small reprintings, to enable the
Publisher to keep the Work in print and
circulation as long as possible.
SALE OF SHEETS D. Where sheets are sold, except as a
remainder, the percentage of royalty shall be the
same as for bound books and shall be calculated on
the net amount received by the Publisher.
MAIL ORDER E. [TEXT DELETED]
LOWER PRICE F. [TEXT DELETED]
EDITIONS
FREE COPIES G. No royalties shall be paid on copies
furnished gratis to the Author, or for review,
advertising, samples or like purposes.
EXCERPTS H. The Author grants sole and exclusive
PERMISSIONS rights to the Publisher in the exercise of its
discretion, to grant permission to publish
extracts from the Work, whether or not a fee shall
be collected on the Work for such use, the
Publisher warranting to make no gratuitous grants
of permissions, except as shall, in its estimate,
advance the sale of the Work or enhance the public
esteem of the Author; the Publisher shall pay to
the Author one half of all sums of money received
as compensation for such grants of permission to
reprint extracts.
The Publisher is authorized to permit
publication of the Work in Braille, or
photographing, recording and/or microfilming the
Work for the physically handicapped without
payment of fees and without compensation to the
Author, providing no compensation is received by
the Publisher. In case a compensation is received,
the Publisher shall pay the Author fifty per cent
(50%) of the proceeds.
VI. REMAINDERS-- A. If, in the opinion of the Publisher, the
OVERSTOCK Work shall become unsalable in the ordinary
channels of the trade the Publisher may at its
option sell part or all of the remaining copies as
"remainders" after first informing the Author of
its intention to do so.
B. The Author shall receive a royalty of ten
per cent of the amount of the Publisher's sale
price secured over the cost of production for all
copies of overstock which the Publisher deems it
expedient to sell at "remainder" prices, i.e., at
less than half of the catalog retail price, except
when these are sold at or below cost, in which
case no royalty shall be paid.
<PAGE>
VII. SUBSIDIARY A. The further and additional rights referred
RIGHTS Work shall become unsalable in the ordinary
channels of the trade enumerated below, and are to
be shared by the Author and the Publisher in the
percentage indicated, less only such direct
expenses, including agent's commissions, as shall
be incurred by the Publisher in disposing of such
rights:
To To
Author Publisher
1) Abridgement, condensation,
or digest .................. 50% 50%
2) Anthology or quotation...... 50% 50%
3) Book clubs or similar
organizations .............. 50% 50%
4) Reprint..................... 50% 50%
5) Special editions............ 50% 50%
6) Second serial and
syndication (including
reproduction in compilations,
magazines, newspapers, or
books)...................... 50% 50%
B. All revenue derived from the sale of
rights not specifically enumerated, whether now in
existence or hereinafter coming into existence,
shall be shared equally by the Author and the
Publisher.
C. All such rights shall be disposed of by
the sale, lease, license, or otherwise by the
Publisher who for that purpose is constituted the
attorney-in-fact of the Author. The Author agrees
to sign, make, execute, deliver and acknowledge
all such papers, documents and agreements as may
be necessary to effectuate the grants hereinabove
contemplated. In the event that the Author shall
fail to do so, they may be signed, executed,
delivered and acknowledged by the Publisher as the
attorney-in-fact of the Author with the same full
force and effect as if signed by the Author.
All sums due under this Agreement shall be
paid to the Author's agent United Support
Association/Wade Cook Seminars or other designated
agent whose receipt shall be a full and valid
discharge of the Publisher's obligations and who
shall act with the authority of the Author in all
matters arising out of this agreement.
IX. PUBLICATION The Publisher, in consideration of the rights
DATE granted, agrees to publish the work at its own
expense, in such style or styles as the Publisher
deems most advisable, not later than 3 months
after the Publisher's acceptance of the final
revised manuscript (except on account of late
delivery of manuscript by the Author, strikes,
<PAGE>
fires, other contingencies beyond the control of
the Publisher or its suppliers, or advisability of
postponement because of prospective advantageous
trade conditions, in which event publication shall
be postponed.)
X. OPTION [TEXT DELETED]
XI. AUTHOR'S A. The Author represents and warrants to the
WARRANTY Publisher: (a) that the work is original; (b) that
he is the sole author and proprietor thereof, and
has full power to enter into this agreement; (c)
that the work has not heretofore been published in
whole or in part in volume form and that he has
not entered into or become subject to any
contract, agreement or understanding with respect
thereto other than this agreement; (d) that if
published it will not infringe upon any
proprietary right at common law, or any statutory
copyright, or any other right whatsoever; and (e)
that it is innocent, and contains no matter
whatsoever that is obscene, libelous, in violation
of any right of privacy, or otherwise in
contravention of law. The Author shall indemnify
and hold harmless the Publisher 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 the Work, arising from anything contained
therein. Author shall also reimburse the Publisher
for all expenses including court costs, attorneys'
fees and amounts paid in settlement, sustained by
the Publisher in resisting any claim, demand,
suit, action or proceeding asserted or instituted
against the Publisher based upon the publication
or sale of the Work by reason of anything
contained therein.
PLAINTIFF B. The Author hereby grants to the Publisher
ACTION the right, if copyright is in the Author's name,
to bring in the name of the Author as plaintiff or
complainant, any action or proceeding for the
enjoining of an infringement of the copyright in
the said Work and for any damages resulting
therefrom, and the net amount recovered after
deducting all expenses of suit shall be divided
equally between the Author and Publisher. The
copyright shall be assigned by either party to the
other on demand, when necessary for bringing,
COPYRIGHT defending or maintaining a copyright action under
ASSIGNMENT this agreement, after the termination of which
action the copyright shall on demand be
reassigned.
COMPETING C. The Author will not, without the written
WORKS consent of the Publisher, write, print, publish or
produce, or cause to be written, printed,
published or produced, during the continuance of
<PAGE>
this contract, any other edition of said Work or
any work in any form of a similar character or
title tending to interfere with or injure the sale
of the Work in any manner.
AUTHOR'S D. The Author agrees, in the event that the
PERMISSIONS Author plans to incorporate in the Work any
writings or composition previously published
elsewhere, to obtain and deliver to the Publisher
proper and complete written permission and
authorization to reprint same from the owner of
the copyright covering same.
XII. WITHDRAWAL OF In case the Publisher fails to keep said Work
WORK in print and for sale and, after written demand
from the Author, declines or neglects to reprint
the Work within six months and to offer it for
sale, or in the event that, after one year from
the date of the first publication, the Work in the
opinion of the Publisher is no longer merchantable
or profitable, and it gives one month's notice to
the Author of its desire and intention to
discontinue publication, this contract shall
terminate and all rights preserved, with any
plates of illustrations furnished by the Author
and any remaining copies and sheets shall be
transferred to the Author, provided that the
Author shall pay the manufacturing costs
(including composition) of such plates and the
manufacturing cost of such remaining copies or
sheets, in default of which payments the Publisher
shall have the rights to destroy any plates and to
sell remaining copies or sheets at cost or less,
without payment of royalty to the Author upon such
copies or sheets. In case of the termination of
the contract, if the copyright is in the name of
the Publisher it shall assign said copyright to
the Author.
The Work shall not be considered to be out of
print if it is on public sale in any printed
edition, in the United States, or if there shall
be in existence a contract for cheap edition
publication which provides for publication within
six (6) months after the work is out of print in
the regular edition.
XIII. BANKRUPTCY A. If a petition in bankruptcy (as
distinguished from reorganization or arrangement)
shall be filed by the Publisher, or shall be filed
against the Publisher and finally sustained, the
Author shall have the right to buy back at his
option to be exercised in thirty days the rights
of publication at their fair market value, to be
determined by agreement, together with any plates
or remaining copies of sheets, at their fair
market value, this also to be determined by
agreement, and thereupon this contract shall
<PAGE>
terminate. However, no reversion of rights under
this clause shall take place until after the
Author has repaid to the Publisher any
indebtedness incurred by him and still outstanding
under this agreement. If this agreement contains a
clause of option on future books by the Author,
such clause shall become null and void in event of
the Publisher's bankruptcy or receivership.
AUTHOR'S B. The Author, upon his written request,
EXAMINATION shall have the right to examine or cause to be
examined through certified public accountants the
books of account of the Publisher insofar as such
books of account shall relate to the Work. If such
examination shall reveal errors of accounting
(other than those arising from an interpretation
of this agreement) amounting to a sum in excess of
ten percent of the total royalties earned in the
period under examination to the Author's
disadvantage, the costs of such examination shall
be borne by the Publisher, otherwise such costs
shall be borne by the Author.
XIV. SEMI-ANNUAL The Publisher agrees to render semi-annual
STATEMENTS statements of account to March 31st and September
PAYMENTS 30th of each year, on the succeeding July 1 and
January 1 and to make settlements in cash or about
said last mentioned dates. In making accountings,
the Publisher shall have the right to allow for a
reasonable reserve against returns and nonpayment
of invoices for copies billed out by the
Publisher.
XV. AUTHOR'S COPIES The Publisher agrees to present to the Author
100 free copies of said Work upon publication, and
to permit the Author to purchase from it further
copies for its own personal use, at a discount of
forty percent off list price. Author shall be
billed directly for these copies, and shall make
payment therefor within 30 days of invoice date.
No consignment sales shall be made to Author.
Author shall not receive royalties on sales made
to him.
XVI. RECOVERABLE All payments made by Publisher to the Author,
PAYMENTS whether under this agreement or not, shall be
chargeable against and recoverable from any or all
monies accruing to the Author under this contract
and for all other contracts between the parties or
their assigns.
XVII. TAX WITH- It is mutually agreed that State, Federal and
HOLDING Foreign taxes on the Author's earnings, when paid
by the Publisher, are proper charges against the
Author's earnings due under this agreement, and
may be withheld by the Publisher.
<PAGE>
XVIII. ASSIGNMENT This agreement shall be binding upon and
shall inure to the benefit of the parties hereto,
their successors, assigns, executors,
administrators and/or personal representatives and
may be assigned by either party hereto, except
that no assignment by the Author shall be valid
against the Publisher unless the Publisher has
received written notice therefrom from the Author
and has consented to the same in writing.
XIX. ARBITRATION Any controversy or claim arising out of this
agreement or the breach thereof shall be settled
by arbitration in accordance with the rules then
obtaining of the American Arbitration Association,
and judgment upon the award may be entered in the
highest court of the forum, State or Federal,
having jurisdiction. Such arbitration shall be
held in the City of Seattle, Washington, unless
otherwise agreed by the parties. The Author may at
his option, in case of failure to pay royalties,
refuse to arbitrate, and pursue his legal
remedies.
XX. NOTICES Any written notice required under any of
the provisions of this agreement shall be deemed
to have been properly served by delivery in person
or by mailing the same to the parties hereto at
the addresses set forth above, except as the
addresses may be changed by notice in writing;
provided, however, that notices of termination
shall be sent by registered mail.
XXI. WAIVER A waiver of any breach of this agreement or
of any of the terms or conditions by either party
thereto shall not be deemed a waiver of any
repetition of such breach or in any wise affect
any other terms or conditions hereof; no waiver
shall be valid or binding unless it shall be in
writing, and signed by the parties.
XXII. DELIVERY OF This agreement shall be binding on either the
CONTRACT Publisher or the Author unless it is signed by
both parties and delivered to the Publisher within
a period of two months from the date of the
agreement.
The changes, alterations and interlineations made in Articles VII, X, XVI of
this contract and the additional Articles numbered None were made and added
before execution hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto affixed their
respective hands and seals the day and year first above written.
Christopher M. Carde Wade B. Cook
- - ---------------------------------------- ---------------------------------------
(Witness to Signature of Author) (Author)
(Christopher Carde)
---------------------------------------
Author's Social Security or
Tax Identification Number
USA
---------------------------------------
Author's Citizenship
Christopher M. Carde Jerald Miller
- - ---------------------------------------- ---------------------------------------
(Attest) (Lighthouse Publishing Group, Inc.)
(Christopher Carde) (Jerald Miller)
EXHIBIT 10.10
AGREEMENT made this 01 day of January, 1997, between Wade B. Cook
(hereinafter called the Author); whose residence address is 31005 SE 40th
Street, Fall City, WA 98024, whose citizenship is USA and Lighthouse Publishing
Group, Inc. (hereinafter called the Publisher):
whose principal place of business is at 14675 Interurban Avenue South, Seattle,
WA 98168.
I. GRANT OF RIGHTS
The Author hereby grants, assigns, and
transfers to the Publisher the following exclusive
rights and privileges to and in connection with a
Work, presently entitled Stock Market Miracles
which Work is a novel.
A. The sole and exclusive book publication
rights in the United States, its territories,
dependencies, and possessions, the Republic of the
Philippines, and Canada, and the right to sell
copies of the Work in the open market throughout
the world.
B. The sole and exclusive subsidiary
publication and performance rights set forth in
Article VIIA below. These subsidiary publication
and performance rights are granted to the
Publisher for the United States, its territories,
dependencies and possessions, the Republic of the
Philippines, and Canada, and include the right to
authorize others to exercise in any foreign
country any of the rights granted to the
Publisher.
II. COPYRIGHT
It is understood and agreed that the
copyright shall be secured by the Publisher in the
name of Wade B. Cook and the Publisher is hereby
authorized to take all steps required to secure
such copyright in the United States of America.
The Publisher agrees to print an appropriate
copyright notice in each and every copy of the
published work and to require all parties to whom
it grants licenses in connection with the work to
do the same. The party in whose name copyright is
registered shall hold for the benefit of the other
such rights as the equities hereby created may
prescribe. Unless it specifically agrees to do so
in writing, the Publisher shall not be responsible
for securing any copyright outside the United
States of America.
<PAGE>
III. MANUSCRIPT
The Author agrees to deliver to the Publisher
not later than January 31, 1997 three finally
revised copies of the manuscript, approximately
70,000 words in length, satisfactory in form,
style, and content and acceptable to the Publisher
in its sole judgment and discretion.
FORM OF MANUSCRIPT
A. Unless otherwise agreed in writing, the
Author shall furnish promptly and free of charge
to the Publisher, complete and ready for
reproduction, all drawings, maps, photographs,
charts and designs which are a part of or
necessary to the text. If the Author fails to
supply any necessary drawings, maps, photographs,
charts and designs in satisfactory form and within
the specified time, the Publisher shall have the
right to have them made and the charges and
expenses of making them shall be paid for by the
Author.
B. The Publisher may, at his discretion,
cause an index to be made of the work and charge
the cost thereof against any sums due the Author
hereunder.
AUTHOR COMPLIANCE
C. The provisions as to satisfaction and
acceptability to the Publisher and time of
delivery of such copy are material terms of this
agreement and upon the Author's failure to comply
with any of such provisions, the Publisher may at
its option by written notice to the Author
terminate this agreement, whereupon the Author
shall return to the Publisher all amounts which it
may have advanced to him. In such event, if the
manuscript should be completed subsequently, the
Author shall nevertheless be obligated to offer
the same to the Publisher, which at its option,
shall have the right to publish the same upon the
terms of the agreement.
CORRECTIONS
D. If the Publisher is directed by the Author
to make alterations in any proofs form final copy
as delivered which shall cost more than ten per
cent of the cost of composition of the Work, the
Author agrees to pay said excess. The Author shall
pay in full for any corrections in the plates
which he requires or which are necessary for the
correction of actual errors after the plates have
been made in conformity with the last proof as
corrected by the Author. The Publisher shall upon
request keep the Author informed of such excess
charges.
<PAGE>
SUBSEQUENT REVISIONS
E. When the Publisher considers it necessary,
it shall have the right in its sole discretion to
call upon the Author to revise the Work, and the
Author shall make such revisions. The provisions
of this agreement shall apply to revision of the
Work by the Author as though any such revision
were the original Work being published for the
first time, except that the manuscript of the
revised Work shall be delivered in final form by
the Author to the Publisher within a reasonable
amount of time; further, no initial payment shall
be made in connection with such revision. Should
the Author not provide the revision within a
reasonable time, or should the Author be deceased,
the Publisher may have the revision done and
charge the cost of such revision against royalties
due or that may become due the Author, and may
display in the revised Work, and in advertising,
the name of the person or persons who revised the
Work.
RETYPING
F. If in the opinion of the Publisher it is
considered expedient to have the manuscript
retyped in as many copies as shall be necessary,
the cost of such retyping shall be borne by the
Author.
PUBLISHER'S DETERMINATION
G. The Publisher shall be free to prepare the
manuscript of the Work for the printer in such
manner as shall be consonant with their publishing
house style. All details as to the manner of
publication, distribution and advertising,
including the format and price of the Work in its
manufactured form and the number and distribution
of free copies, shall be left to the sole
discretion of the Publisher.
H. The Publisher will use the same care in
protecting the manuscript and other material
supplied to it hereunder as is its customary
practice in protecting similar material in its
possession, but it shall not be liable for
damages, if any, resulting from the loss or
destruction of such materials, or any part
thereof.
IV. ADVANCE
The Publisher will pay to the Author as an
advance payment against all monies accruing to the
Author under this agreement the sum of: None.
V. ROYALTIES
A. The Publisher shall pay to the Author the
following royalties on regular net sales, other
than sales falling within (B) through (F) below on
<PAGE>
the Retail selling price of each copy sold: 10% on
first 7,500 copies; 12.5% on next 2,500 copies and
15% thereafter.
EXPORT SPECIAL DISCOUNT
B. Where copies are sold for export or where
copies are sold in quantities sufficient to
justify special discounts of forty-nine per cent
of the retail price or more, the royalty shall be
10 percent on the sums actually received. No
royalties shall be paid on sales at discounts of
70 percent or more.
LIMITED REPRINT EDITION
C. The Publisher shall pay the Author one
half of the stipulated royalty, as stated above,
on all copies sold from a reprinting of 3,500
copies or less, made after one year from the date
of the first publication, this reduced royalty
being provided by reason of the increased cost of
manufacturing of small reprintings, to enable the
Publisher to keep the Work in print and
circulation as long as possible.
SALE OF SHEETS
D. Where sheets are sold, except as a
remainder, the percentage of royalty shall be the
same as for bound books and shall be calculated on
the net amount received by the Publisher.
MAIL ORDER E. [TEXT DELETED]
LOWER PRICE EDITIONS F. [TEXT DELETED]
FREE COPIES
G. No royalties shall be paid on copies
furnished gratis to the Author, or for review,
advertising, samples or like purposes.
EXCERPTS PERMISSIONS
H. The Author grants sole and exclusive
rights to the Publisher in the exercise of its
discretion, to grant permission to publish
extracts from the Work, whether or not a fee shall
be collected on the Work for such use, the
Publisher warranting to make no gratuitous grants
of permissions, except as shall, in its estimate,
advance the sale of the Work or enhance the public
esteem of the Author; the Publisher shall pay to
the Author one half of all sums of money received
as compensation for such grants of permission to
reprint extracts.
The Publisher is authorized to permit
publication of the Work in Braille, or
photographing, recording and/or microfilming the
Work for the physically handicapped without
payment of fees and without compensation to the
<PAGE>
Author, providing no compensation is received by
the Publisher. In case a compensation is received,
the Publisher shall pay the Author fifty per cent
(50%) of the proceeds.
VI. REMAINDERS--OVERSTOCK
A. If, in the opinion of the Publisher, the
Work shall become unsalable in the ordinary
channels of the trade the Publisher may at its
option sell part or all of the remaining copies as
"remainders" after first informing the Author of
its intention to do so.
B. The Author shall receive a royalty of ten
per cent of the amount of the Publisher's sale
price secured over the cost of production for all
copies of overstock which the Publisher deems it
expedient to sell at "remainder" prices, i.e., at
less than half of the catalog retail price, except
when these are sold at or below cost, in which
case no royalty shall be paid.
VII. SUBSIDIARY RIGHTS
A. The further and additional rights referred
to in this agreement are hereby defined to include
the rights enumerated below, and are to be shared
by the Author and the Publisher in the percentage
indicated, less only such direct expenses,
including agent's commissions, as shall be
incurred by the Publisher in disposing of such
rights:
To To
Author Publisher
1) Abridgement, condensation,
or digest ................... 50% 50%
2) Anthology or quotation....... 50% 50%
3) Book clubs or similar
organizations ............... 50% 50%
4) Reprint...................... 50% 50%
5) Special editions............. 50% 50%
6) Second serial and syndication
(including reproduction in
compilations, magazines,
newspapers, or books) ....... 50% 50%
B. All revenue derived from the sale of
rights not specifically enumerated, whether now in
existence or hereinafter coming into existence,
shall be shared equally by the Author and the
Publisher.
C. All such rights shall be disposed of by
the sale, lease, license, or otherwise by the
Publisher who for that purpose is constituted the
attorney-in-fact of the Author. The Author agrees
to sign, make, execute, deliver and acknowledge
<PAGE>
all such papers, documents and agreements as may
be necessary to effectuate the grants hereinabove
contemplated. In the event that the Author shall
fail to do so, they may be signed, executed,
delivered and acknowledged by the Publisher as the
attorney-in-fact of the Author with the same full
force and effect as if signed by the Author.
All sums due under this Agreement shall be
paid to the Author's agent United Support
Association/Wade Cook Seminars or other designated
agent whose receipt shall be a full and valid
discharge of the Publisher's obligations and who
shall act with the authority of the Author in all
matters arising out of this agreement.
IX. PUBLICATION DATE
The Publisher, in consideration of the rights
granted, agrees to publish the work at its own
expense, in such style or styles as the Publisher
deems most advisable, not later than 3 months
after the Publisher's acceptance of the final
revised manuscript (except on account of late
delivery of manuscript by the Author, strikes,
fires, other contingencies beyond the control of
the Publisher or its suppliers, or advisability of
postponement because of prospective advantageous
trade conditions, in which event publication shall
be postponed.)
X. OPTION [TEXT DELETED]
XI. AUTHOR'S WARRANTY
A. The Author represents and warrants to the
Publisher: (a) that the work is original; (b) that
he is the sole author and proprietor thereof, and
has full power to enter into this agreement; (c)
that the work has not heretofore been published in
whole or in part in volume form and that he has
not entered into or become subject to any
contract, agreement or understanding with respect
thereto other than this agreement; (d) that if
published it will not infringe upon any
proprietary right at common law, or any statutory
copyright, or any other right whatsoever; and (e)
that it is innocent, and contains no matter
whatsoever that is obscene, libelous, in violation
of any right of privacy, or otherwise in
contravention of law. The Author shall indemnify
and hold harmless the Publisher 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 the Work, arising from anything contained
therein. Author shall also reimburse the Publisher
for all expenses including court costs, attorneys'
fees and amounts paid in settlement, sustained by
the Publisher in resisting any claim, demand,
<PAGE>
suit, action or proceeding asserted or instituted
against the Publisher based upon the publication
or sale of the Work by reason of anything
contained therein.
PLAINTIFF ACTION
B. The Author hereby grants to the Publisher
the right, if copyright is in the Author's name,
to bring in the name of the Author as plaintiff or
complainant, any action or proceeding for the
enjoining of an infringement of the copyright in
the said Work and for any damages resulting
therefrom, and the net amount recovered after
deducting all expenses of suit shall be divided
equally between the Author and Publisher. The
copyright shall be assigned by either party to the
other on demand, when necessary for bringing,
defending or maintaining a copyright action under
COPYRIGHT ASSIGNMENT this agreement, after the termination of which
action the copyright shall on demand be
reassigned.
COMPETING WORKS
C. The Author will not, without the written
consent of the Publisher, write, print, publish or
produce, or cause to be written, printed,
published or produced, during the continuance of
this contract, any other edition of said Work or
any work in any form of a similar character or
title tending to interfere with or injure the sale
of the Work in any manner.
AUTHOR'S PERMISSIONS
D. The Author agrees, in the event that the
Author plans to incorporate in the Work any
writings or composition previously published
elsewhere, to obtain and deliver to the Publisher
proper and complete written permission and
authorization to reprint same from the owner of
the copyright covering same.
XII. WITHDRAWAL OF WORK
In case the Publisher fails to keep said Work
in print and for sale and, after written demand
from the Author, declines or neglects to reprint
the Work within six months and to offer it for
sale, or in the event that, after one year from
the date of the first publication, the Work in the
opinion of the Publisher is no longer merchantable
or profitable, and it gives one month's notice to
the Author of its desire and intention to
discontinue publication, this contract shall
terminate and all rights preserved, with any
plates of illustrations furnished by the Author
and any remaining copies and sheets shall be
transferred to the Author, provided that the
Author shall pay the manufacturing costs
(including composition) of such plates and the
<PAGE>
manufacturing cost of such remaining copies or
sheets, in default of which payments the Publisher
shall have the rights to destroy any plates and to
sell remaining copies or sheets at cost or less,
without payment of royalty to the Author upon such
copies or sheets. In case of the termination of
the contract, if the copyright is in the name of
the Publisher it shall assign said copyright to
the Author.
The Work shall not be considered to be out of
print if it is on public sale in any printed
edition, in the United States, or if there shall
be in existence a contract for cheap edition
publication which provides for publication within
six (6) months after the work is out of print in
the regular edition.
XIII. BANKRUPTCY
A. If a petition in bankruptcy (as
distinguished from reorganization or arrangement)
shall be filed by the Publisher, or shall be filed
against the Publisher and finally sustained, the
Author shall have the right to buy back at his
option to be exercised in thirty days the rights
of publication at their fair market value, to be
determined by agreement, together with any plates
or remaining copies of sheets, at their fair
market value, this also to be determined by
agreement, and thereupon this contract shall
terminate. However, no reversion of rights under
this clause shall take place until after the
Author has repaid to the Publisher any
indebtedness incurred by him and still outstanding
under this agreement. If this agreement contains a
clause of option on future books by the Author,
such clause shall become null and void in event of
the Publisher's bankruptcy or receivership.
AUTHOR'S EXAMINATION
B. The Author, upon his written request,
shall have the right to examine or cause to be
examined through certified public accountants the
books of account of the Publisher insofar as such
books of account shall relate to the Work. If such
examination shall reveal errors of accounting
(other than those arising from an interpretation
of this agreement) amounting to a sum in excess of
ten percent of the total royalties earned in the
period under examination to the Author's
disadvantage, the costs of such examination shall
be borne by the Publisher, otherwise such costs
shall be borne by the Author.
XIV. SEMI-ANNUAL STATEMENTS
PAYMENTS
The Publisher agrees to render semi-annual
statements of account to March 31st and September
<PAGE>
30th of each year, on the succeeding July 1 and
January 1 and to make settlements in cash or about
said last mentioned dates. In making accountings,
the Publisher shall have the right to allow for a
reasonable reserve against returns and nonpayment
of invoices for copies billed out by the
Publisher.
XV. AUTHOR'S COPIES
The Publisher agrees to present to the Author
100 free copies of said Work upon publication, and
to permit the Author to purchase from it further
copies for its own personal use, at a discount of
forty percent off list price. Author shall be
billed directly for these copies, and shall make
payment therefor within thirty 30 days of invoice
date. No consignment sales shall be made to
Author. Author shall not receive royalties on
sales made to him.
XVI. RECOVERABLE PAYMENTS
All payments made by Publisher to the Author,
whether under this agreement or not, shall be
chargeable against recoverable from any or all
monies accruing to the Author under this contract
and for all other contracts between the parties or
their assigns.
XVII. TAX WITHHOLDING
It is mutually agreed that State, Federal and
Foreign taxes on the Author's earnings, when paid
by the Publisher, are proper charges against the
Author's earnings due under this agreement, and
may be withheld by the Publisher.
XVIII. ASSIGNMENT
This agreement shall be binding upon and
shall inure to the benefit of the parties hereto,
their successors, assigns, executors,
administrators and/or personal representatives and
may be assigned by either party hereto, except
that no assignment by the Author shall be valid
against the Publisher unless the Publisher has
received written notice therefrom from the Author
and has consented to the same in writing.
XIX. ARBITRATION
Any controversy or claim arising out of this
agreement or the breach thereof shall be settled
by arbitration in accordance with the rules then
obtaining of the American Arbitration Association,
and judgment upon the award may be entered in the
highest court of the forum, State or Federal,
having jurisdiction. Such arbitration shall be
held in the City of Seattle, Washington, unless
otherwise agreed by the parties. The Author may at
his option, in case of failure to pay royalties,
<PAGE>
refuse to arbitrate, and pursue his legal
remedies.
XX. NOTICES
Any written notice required under any of the
provisions of this agreement shall be deemed to
have been properly served by delivery in person or
by mailing the same to the parties hereto at the
addresses set forth above, except as the addresses
may be changed by notice in writing; provided,
however, that notices of termination shall be sent
by registered mail.
XXI. WAIVER
A waiver of any breach of this agreement or
of any of the terms or conditions by either party
thereto shall not be deemed a waiver of any
repetition of such breach or in any wise affect
any other terms or conditions hereof; no waiver
shall be valid or binding unless it shall be in
writing, and signed by the parties.
XXII. DELIVERY OF CONTRACT
This agreement shall be binding on either the
Publisher or the Author unless it is signed by
both parties and delivered to the Publisher within
a period of two months from the date of the
agreement.
The changes, alterations and interlineations made in Articles VII, X, XVI of
this contract and the additional Articles numbered None were made and added
before execution hereof.
IN WITNESS WHEREOF, the parties hereto have hereunto affixed their
respective hands and seals the day and year first above written.
Christopher Carde Ward B. Cook
- - ---------------------------------------- ---------------------------------------
(Witness to Signature of Author) (Author)
(Christopher Carde)
---------------------------------------
Author's Social Security or
Tax Identification Number
USA
---------------------------------------
Author's Citizenship
Christopher M. Carde Jerald Miller
- - ---------------------------------------- ---------------------------------------
(Attest) (Lighthouse Publishing Group, Inc.)
(Christopher Carde) (Jerald Miller)
EXHIBIT 21.1
LIST OF PROFIT FINANCIAL CORPORATION SUBSIDIARIES
Name: Entity Planner International, Inc.
State of Incorporation: Nevada
Name: Evergreen Lodging Limited Partnership
State of Organization: Nevada
Name: FSS Limited Partnership
State of Organization: Nevada
Name: Hotel Associates #1 Limited Partnership
State of Organization: Nevada
Name: Interurban Land Project Limited Partnership
State of Organization: Nevada
Name: Left Coast Advertising, Inc.
State of Incorporation: Nevada
Name: Lighthouse Publishing Group, Inc.
State of Incorporation: Nevada
Name: Profit Financial Real Estate Management Company, Inc.
State of Incorporation: Nevada
Name: Reno F.I.S. Limited Partnership
State of Organization: Nevada
Name: Rising Tide Limited Partnership
State of Organization: Nevada
Name: Seattle-Tacoma Executive Properties Limited Partnership
State of Organization: Nevada
Name: Sherlock Holmes Limited Partnership
State of Organization: Nevada
Name: Unlimited Potential, Inc.
State of Incorporation: Nevada
Name: Wade Cook Seminars, Inc.
(formerly known as United Support Association, Inc.)
State of Incorporation: Nevada
