<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------------- --------------
COMMISSION FILE NUMBER 000-29342
---------
PROFIT FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
UTAH 91-1772094
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
14675 INTERURBAN AVENUE SOUTH
TUKWILA, WASHINGTON, 98168
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 901-3000)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [x]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
6,715,032 shares of Class A Common Stock, $0.01 par value, outstanding as of
September 1, 1997.
<PAGE>
PROFIT FINANCIAL CORPORATION
Index
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Restated Consolidated Balance Sheets
as of June 30, 1997 and December 31, 1996. . . . . . . . . . 3
Restated Consolidated Statement of Operations
for the quarters and six month periods ended
June 30, 1997 and June 30, 1996. . . . . . . . . . . . . . . 5
Restated Consolidated Statement of Cash Flows for
the quarters and six month periods ended June 30,
1997 and June 30, 1996. . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements. . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation. . . . . . . . . . . . . . 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk. . 7
PART II OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 8
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . 9
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . 9
Item 4. Submission of Matters to a Vote of Security Holders . . . . . 9
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . 9
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . 9
2
<PAGE>
PART I. FINANCIAL INFORMATION
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(restated)
<TABLE>
<CAPTION>
ASSETS June 30, 1997 December 31, 1996
(Unaudited) (Unaudited)
------------- -----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,552,971 $ 635,141
Marketable securities 5,993,285 3,801,039
Trade and credit card receivables 4,489,580 848,282
Notes receivable, employees (current portion) 290,762 329,060
Notes receivable from officers (current portion) 14,576 13,191
Other receivables 158,536 11,378
Inventory 633,175 395,743
Prepaid expenses 276,327 93,196
Deferred royalties to related party 0 48,781
Deferred tax asset 917,904 783,064
----------- -----------
TOTAL CURRENT ASSETS 14,327,116 6,958,875
----------- -----------
PROPERTY & EQUIPMENT 9,627,420 7,135,205
----------- -----------
OTHER ASSETS
Non-marketable investments 2,945,992 522,600
Notes receivable, employees 2,842,699 1,385,742
Notes receivable from officers 261,231 236,413
Due from related parties 2,611,756 663,401
Deposits 22,310 35,423
----------- -----------
TOTAL OTHER ASSETS 8,683,988 2,843,579
----------- -----------
TOTAL ASSETS $32,638,524 $16,937,659
----------- -----------
</TABLE>
The notes to these consolidated financial statements
are an integral part hereof.
3
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(restated)
<TABLE>
<CAPTION>
LIABILITIES & EQUITY June 30, 1997 December 31, 1996
(Unaudited) (Unaudited)
------------- -----------------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 419,253 $ 660,708
Accounts payable and accrued expenses 5,349,370 976,644
Margin loans in investment accounts 2,079,429 1,103,936
Payroll and other taxes withheld and accrued 1,006,658 807,414
Income taxes payable 4,489,029 2,075,872
Deferred revenue 5,919,942 5,160,999
Royalties payable to related party 702,279 0
Notes payable to related party 307,545 19,000
Notes payable to officer 45,000 45,000
----------- -----------
TOTAL CURRENT LIABILITIES 20,318,505 10,849,573
----------- -----------
LONG-TERM DEBT 1,778,095 1,768,762
----------- -----------
TOTAL LIABILITIES 22,096,600 12,618,335
----------- -----------
MINORITY INTEREST 544,645 617,300
----------- -----------
SHAREHOLDERS' EQUITY
Preferred Stock, 5,000,000 shares authorized
at $10 par value, none issued and outstanding 0 0
Class A common stock, 20,000,000 shares
authorized at $0.01 par value, 6,680,864 shares
and 6,680,864 shares outstanding as of
June 30, 1997 and December 31, 1996, respectively 66,807 66,807
Paid-in capital 898,408 894,408
Prepaid advertising (500,000) (500,000)
Retained earnings (deficit) 9,532,064 3,240,809
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 9,997,279 3,702,024
----------- -----------
TOTAL LIABILITIES, MINORITY INTEREST
AND SHAREHOLDERS' EQUITY $32,638,524 $16,937,659
----------- -----------
</TABLE>
The notes to these consolidated financial statements
are an integral part hereof.
4
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(restated)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES, NET OF RETURNS AND
DISCOUNTS $27,744,146 $ 8,457,550 $46,332,534 $14,032,834
COST OF REVENUES:
Royalties to related party 3,058,282 1,044,733 5,039,195 1,601,483
Other cost of revenues 7,688,044 2,657,461 13,257,540 4,263,791
----------- ----------- ----------- -----------
TOTAL COST OF REVENUES 10,746,326 3,702,194 18,296,735 5,865,274
----------- ----------- ----------- -----------
GROSS PROFIT 16,997,820 4,755,356 28,035,799 8,167,560
----------- ----------- ----------- -----------
SELLING, GENERAL AND ADMIN.
EXPENSE 10,123,806 3,358,695 18,884,157 5,484,314
INCOME (LOSS) FROM
OPERATIONS 6,874,014 1,396,661 9,151,642 2,683,246
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES)
Dividends and interest 54,342 6,481 102,820 7,485
Gain (loss) on trading
securities 744,220 174,310 586,246 434,952
Other income (expense) 19,363 5,221 73,868 (4,647)
Loss on investment on
non-marketable securities 0 0 (87,500) 0
Interest expense (54,586) (9,508) (148,762) (13,665)
----------- ----------- ----------- -----------
TOTAL OTHER INCOME
(EXPENSES) 763,339 176,504 526,672 424,125
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES 7,637,353 1,573,165 9,678,314 3,107,371
----------- ----------- ----------- -----------
PROVISION FOR INCOME TAXES 2,672,723 539,881 3,387,059 1,066,392
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 4,964,630 $ 1,033,284 $ 6,291,255 $ 2,040,979
----------- ----------- ----------- -----------
EARNINGS (LOSS) PER SHARE $ 0.25 $ 0.08 $ 0.31 $ 0.15
----------- ----------- ----------- -----------
Weighted Average Number
of Common Shares
(after giving effect to a
3 for 1 stock split effective
September 15, 1997) 20,095,912 13,180,944 20,095,912 13,180,944
----------- ----------- ----------- -----------
</TABLE>
The notes to these consolidated financial statements
are an integral part hereof.
5
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
(restated)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1997 June 30, 1997
(Unaudited) (Unaudited)
------------------ ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,964,630 $ 6,291,255
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 274,948 540,369
(Gains) losses on trading marketable securities (744,221) (586,246)
Losses on disposition of fixed assets
Impairment of long-lived assets
Loss on investment in non-marketable securities 87,500
Purchases of trading securities (6,382,511) (9,379,371)
Proceeds from sale of trading securities 5,844,414 8,665,354
Changes in assets and liabilities:
Receivables (7,047,176) (7,181,673)
Inventory (149,794) (237,432)
Prepaid expenses (27,456) (183,131)
Deferred taxes (260,465) (134,840)
Deposits (650) 2,793
Accounts payable and accrued expenses 243,151 4,372,726
Payroll and other taxes withheld and accrued 143,889 199,243
Income taxes payable 1,933,188 2,413,157
Deferred revenue 1,653,937 758,953
Due to related party 283,545 288,545
Royalties payable 341,599 751,060
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TOTAL ADJUSTMENTS (3,243,602) 377,007
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NET CASH PROVIDED BY OPERATING ACTIVITIES 1,721,028 6,668,262
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (416,571) (3,640,075)
Subsidiary's investment
Return of subsidiary's investment
----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES (416,571) (3,640,075)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of subsidiary's minority
interest (19,150) (72,655)
Net borrowings (140,611) (2,037,702)
Issuance of common stock
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES (159,761) (2,110,357)
----------- -----------
NET INCREASE (DECREASE) IN CASH 1,144,696 917,830
CASH, beginning of year 408,275 635,141
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CASH, end of period $ 1,552,971 $ 1,552,971
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</TABLE>
PROFIT FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE W - BASIS FOR PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for Interim
financial information and with the Instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the six-month period ended June 30, 1997
are not necessarily indicative of the results that may be expected for
the period ending December 31, 1997. For further information, refer to
"Factors Affecting Future Results," and to the financial statements
and footnotes thereto included in the Company's Registration Statement on
Form 10, as amended for the year ended December 31, 1996.
NOTE X - RESTATEMENT
As more fully discussed in its year end financial statements, the
Company restated its 1995 financial statements which decreased Paid-in
Capital by $178,200 and increased retained earnings by $178,200.
The Company has corrected its comparative weighted average number of
common shares outstanding and earnings per share as follows:
<TABLE>
<CAPTION>
Three months Six Months
Ended Ended
June 30, 1997 June 30, 1997 June 30, 1997 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Weighted average shares
As previously reported 6,680,864 6,565,461 6,680,864 6,590,516
As restated (after giving effect
to 3 for 1 stock split effective
September 15, 1997 20,095,912 13,180,944 20,095,912 13,180,944
Earnings per share
As previously reported 0.74 0.16 0.94 0.31
As restated 0.25 0.08 0.31 0.15
</TABLE>
6
<PAGE>
Profit Financial Corporation
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
UNAUDITED BALANCE SHEET FOR THE PERIOD ENDED JUNE 30, 1997-LIQUIDITY AND CAPITAL
RESOURCES
The Company's total assets expanded to $32,638,524 at June 30, 1997
compared to $16,937,659 at December 31, 1996. The increase in total assets
was due to substantial increases in both current assets and other assets at
June 30, 1997. Current assets increased to $14,327,116 compared with
$6,958,875 at December 31, 1996. The increase in current assets was due to an
increase in cash and cash equivalents, marketable securities owned by the
Company, and trade and credit card receivables. The increase in other assets
was due to an increase in non-marketable investments and notes and other
amounts due from officers, employees and related parties. Generally, total
assets increased due to substantially increased gross revenues and the
relatively high rate at which such revenues are being capitalized.
The Company's total liabilities grew to $22,096,600 from $12,618,355.
The Company's total current liabilities increased to $20,318,505 at June 30,
1997 compared with $10,849,573 at December 31, 1996. The increase in total
liabilities is the result of increases in accounts payable and accrued
expenses, margin loans to finance purchases of marketable securities and
income taxes payable. The Company's current liabilities exceeded its current
assets by $5,991,389 at June 30, 1997 and $3,890,698 at December 31, 1996.
The Company's management believes that its working capital position in light
of a high rate of gross revenues is sufficient to finance the Company's
operations over the next twelve months.
Shareholders' equity at June 30, 1997 increased to $9,997,279 from
$3,702,024 at December 31, 1996. Shareholders' equity increased due to a
substantial increase in retained earnings from $3,240,809 at December 31,
1996 to $9,532,064 at June 30, 1997. Retained earnings increased because of
sharply higher net income for the period.
The Company experienced a substantial increase in credit card purchases and
as a result the credit card processing company the Company uses increased the
amount it requires as a hold back. Accordingly, trade and credit card
receivables increased to $4,489,580 compared to $848,282 at December 31, 1996.
The Company increased its portfolio of marketable securities to $5,993,285
compared to $3,801,039 at December 31, 1996. (See above)
FOR THE QUARTERS ENDED JUNE 30, 1997 AND JUNE 30, 1996
Operating Results
Gross revenues continued to increase, due largely to the increase in the
number of seminars provided by the Company and increased product and book
sales due to the growing notoriety of Wade B. Cook. The Company reported
gross revenues for the quarter ended June 30, 1997 OF $27,744,146 as compared
to gross revenues of $8,457,550 for the same period in 1996.
The cost of generating revenues was $10,746,326 for the quarter ended June
30, 1997, as compared to $3,702,194 for the same quarter in 1996.
Gross profits, following the same trend as gross revenues, increased during
the quarter ended June 30, 1997 to $16,997,820 as compared to $4,755,356 during
the same quarter in 1996.
The net income for the Company, after taxes, was $4,964,630 for the quarter
ended June 30, 1997, as compared to net after-tax income of $1,033,284 for the
same quarter in 1996.
Inflation and Seasonality
The Company's management does not believe that its financial results are
materially affected by inflation. The Company's business is not seasonal.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Required.
7
<PAGE>
PROFIT FINANCIAL CORPORATION
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
The following is a description of material pending legal proceedings to
which the Company or any of its subsidiaries is a party or which any of their
properties is subject:
Investigation by the U.S. Securities and Exchange Commission
The Company and certain of its executive officers have received subpoenas
to provide certain information in the Matter of Wade Cook Seminars, a private
informal investigation by the Securities and Exchange Commission ("SEC"). The
investigation relates to the possible violation of Sections 5(a), 5(c) and
17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5
thereunder, and Sections 203(a) and 206(1) and (2) of the Investment Advisers
Act. The SEC has stated that the investigation should not be construed as an
indication by the SEC or its staff that any violations of law have occurred,
nor should it be construed as an adverse reflection on the merits of the
securities involved or on any person or entity. The Company does not believe it
or any of its executive officers and directors has engaged in any inappropriate
activity or violated applicable laws, and the Company intends to continue to
cooperate with the investigation. No assurance can be given as to the outcome of
this investigation.
Informal Investigations by the State of Washington
The Assistant Attorney General for the State of Washington's Department of
Financial Institutions, Securities Division commenced an informal investigation
of Mr. Cook, WCSI and the Company in September, 1996. The Assistant U.S.
Attorney for the Western District of Washington issued a subpoena to WCSI in
March 1997 for records related to an independent contractor of the Company.
Although the breadth and nature of these two investigations are not known, the
Company does not believe it or any of its executive officers and directors has
engaged in any inappropriate activity or violated applicable laws and the
Company intends to continue to cooperate with the investigation. No assurances,
however, can be given as to the outcome of these investigations.
Wade Cook Seminars, Inc. v. Charles Mellon, et al.
The Company brought a suit against defendants Robbins Research
International and Charles E. Mellon in the King County Superior Court on
September 16, 1996 and joined Anthony Robbins and Options Management, Inc. in
June 1997. The Company alleges breach by Mellon of a noncompete agreement and
unfair competition and inducement to breach the noncompete by Robbins Research
and Anthony Robbins in hiring Mellon to present a copy of the Company's Wall
Street Workshop seminar on behalf of defendants. An injunction in favor of WCSI
was granted October 9, 1996 and attorney fees were awarded to the plaintiffs
against Mr. Mellon. The trial is currently scheduled for September 1997.
8
<PAGE>
Wade B. Cook v. Anthony Robbins and Robbins Research International, Inc.
The Company brought suit in United States District Court, Western District
of Washington, against Tony Robbins and Robbins Research International, Inc. on
June 18, 1997 for damages and injunctive relief for copyright infringement. The
Company alleges Tony Robbins copied or caused to be copied significant portions
of Wall Street Money Machine, authored by Wade B. Cook, and used these
materials in a course entitled "Financial Power."
Other Proceedings
The Company and its subsidiaries are also parties to various administration
actions and other legal proceedings arising in the ordinary course of business,
none of which is expected to materially affect the financial position, results
of operation or cash flow of the Company.
Item 2. Changes in Securities.
No securities were issued by the Company during the quarters covered by
this report.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the quarter
covered by this report.
Item 5. Other Information.
On August 13, 1997 the Board of Directors of the Company by resolution
authorized a 3-for-1 stock split of the shares of class A Common Stock
of the Company effective September 15, 1997.
Item 6. Exhibits and Reports on Form 8-K.
The Company filed no reports on Form 8-K during the quarter covered by this
report.
9
<PAGE>
SIGNATURES
Profit Financial Corporation
----------------------------------------
May 28, 1998 /s/ Wade B. Cook
- --------------------------- ----------------------------------------
(Date) Wade B. Cook, Chief Executive Officer
May 28, 1998 /s/ Wade B. Cook
- --------------------------- ----------------------------------------
(Date) Wade B. Cook, Interim Chief Financial Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1552971
<SECURITIES> 5993285
<RECEIVABLES> 4489580
<ALLOWANCES> 0
<INVENTORY> 633175
<CURRENT-ASSETS> 14327116
<PP&E> 9627420
<DEPRECIATION> 0
<TOTAL-ASSETS> 32638524
<CURRENT-LIABILITIES> 20318505
<BONDS> 1778095
0
0
<COMMON> 66807
<OTHER-SE> 9532064
<TOTAL-LIABILITY-AND-EQUITY> 32638524
<SALES> 46332534
<TOTAL-REVENUES> 46332534
<CGS> 18296735
<TOTAL-COSTS> 37180892
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 148762
<INCOME-PRETAX> 9678314
<INCOME-TAX> 3387059
<INCOME-CONTINUING> 6291255
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6291255
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
