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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 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
WADE COOK FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 91-1772094
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
14675 INTERURBAN AVENUE SOUTH
SEATTLE, WASHINGTON 98168-4664
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 901-3000
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [ X ] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained in this Form 10-K, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ X ]
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The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant on March 13, 1998 based on the closing price on
the OTC BB System of such stock on such date was $70,373,778.
Registrant's Common Stock outstanding at March 13, 1998 was 64,223,685 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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WADE COOK FINANCIAL CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
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PART I
Item 1. - BUSINESS ........................................................ 4
Item 2. - PROPERTIES ...................................................... 16
Item 3. - LEGAL PROCEEDINGS ............................................... 17
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............. 19
PART II
Item 5. - MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS ................................. 20
Item 6. - SELECTED FINANCIAL DATA ......................................... 21
Item 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ................... 23
Item 8. - FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA ...................... 27
Item 9. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE ........................................ 27
PART III
Item 10. - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ............. 27
Item 11. - EXECUTIVE COMPENSATION ......................................... 31
Item 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT ................................................. 35
Item 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................. 36
PART IV
Item 14. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K ............................................ 39
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NOTE REGARDING FORWARD LOOKING INFORMATION
This Form 10-K contains forward looking statements identified by the use of
"believes", "expects", "anticipates", and similar expressions. Such statements
are subject to risk and uncertainties that could cause actual results to differ
from those contemplated by the forward looking statement. Such risks and
uncertainties include any change in the market acceptance of the Company's
products and services, the risk of the Company being able to finance its
business operations, and other similar business and market risks. Readers are
cautioned not to place undue reliance on such forward looking statements.
PART I
ITEM 1. - BUSINESS
GENERAL
Wade Cook Financial Corporation (OTC BB:WADE) is a Nevada
corporation which serves as a holding company for the common stock and other
ownership interests of a group of business entities collectively referred to
in this Form 10-K as "WCFC" or the "Company." The most significant asset of
the Company is its wholly owned subsidiary Wade Cook Seminars, Inc. ("WCSI")
through which the Company conducts its educational seminar business.
Prior to May 1995, the Company's educational seminar business was
conducted by United Support Association, Inc. ("USAI"), a Nevada corporation
founded in 1989 by Wade B. Cook. Profit Financial Corporation, a publicly
traded shell corporation at the time of the reverse merger described below,
was formed in 1979 as a Utah corporation under the name Profiteer Corporation
("Profit"). In May 1995, USAI engaged in a transaction with Profit
effectively constituting a reverse merger. Profit was the legal acquirer and
USAI was the accounting acquirer. As a result of the transaction, Profit
became the holding company and parent of USAI which was renamed Wade Cook
Seminars, Inc. in February 1997. Another corporation owned or controlled by
Wade B. Cook named USA/Wade Cook Seminars, Inc. was renamed Money Chef, Inc.
("Money Chef") which corporation is an affiliate of the Company. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."
Profit Financial Corporation changed its name to Wade Cook Financial
Corporation in September 1997 which change of name was ratified by the
shareholders of the Company at the annual meeting of shareholders held in
December 1997 (the "Annual Meeting"). The shareholders of the Company also
authorized at the Annual Meeting, among other things, the reincorporation of the
Company from the State of Utah to the State of Nevada.
On December 19, 1997, WCFC filed the Articles of Merger, Agreement
and Plan of Merger, Articles of Incorporation, and Articles of Amendment to
the Articles of Incorporation of WCFC in Nevada. On December 22, 1997, the
Articles of Merger and Agreement and Plan of Merger were filed in the State
of Utah. On December 24, 1997 a Certificate of Correction was filed in the
state of Nevada, correcting a technical error in a prior filing. These
filings changed the state of incorporation for WCFC from the State of Utah to
the State of Nevada and increased the total authorized number of the common
stock of the Company (the "Common Stock") from 60,000,000 shares to
140,000,000 shares. The designation of the common stock of the Utah
corporation as "Class A" was not carried forward to the new Nevada
corporation but the par value of $.01 remained unchanged.
The Company's headquarters address is 14675 Interurban Avenue South,
Seattle, Washington 98168-4664 and its telephone number is (206) 901-3000.
Subsidiary Companies
The Company's wholly-owned subsidiaries are:
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Corporation Name Abbreviation State of Incorporation
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Wade Cook Seminars, Inc. WCSI NV
Lighthouse Publishing Group, Inc. Lighthouse NV
Left Coast Advertising, Inc. Left Coast NV
Bountiful Investment Group, Inc. BIG NV
Entity Planners, Inc. EPI NV
Ideal Travel Concepts, Inc. Ideal NV
Origin Book Sales, Inc. Origin UT
Worldwide Publishers, Inc. Worldwide UT
Gold Leaf Press, Inc. Gold Leaf NV
Get Ahead Bookstores, Inc. Get Ahead NV
Quantum Marketing, Inc. Quantum NV
Information Quest, Inc. IQI NV
American Newsletter Co., Inc. ANC NV
Unlimited Potential, Inc. Unlimited NV
Hotel Associates Management #1, Inc. Hotel Associates NV
Entity Planners International, Inc. EPII NV
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Of the subsidiaries listed above, only Unlimited, Hotel Associates and EPI
do not carry on a trade or business and therefore are not further described in
this Form 10-K. Not listed above is Evergreen Lodging, L.P., a limited
partnership in which WCSI owns a 65% limited partnership interest and an
affiliate of Wade B. Cook is the general partner. Evergreen Lodging, L.P. is
consolidated in the consolidated financial statements of the Company presented
elsewhere in this Form 10-K.
Wade Cook Seminars, Inc.
Wade Cook Seminars, Inc., ("WCSI"), creates, designs, produces, owns,
markets and sells a variety of seminars and workshops focused on investment
strategies, financial planning and personal wealth management. WCSI also
produces and sells audio tapes, videotapes, books and other written materials
designed to teach various investment strategies and financial planning
techniques. In addition, WCSI hosts a web site on the Internet at
http://www.wadecook.com as an additional tool to recruit students and market
its programs, products and services. WCSI accounted for approximately 91% of
the Company's net sales for the fiscal year ended December 31, 1997,
approximately 97% of the Company's net sales for the fiscal year ended
December 31, 1996, and approximately 100% of net sales for the fiscal year
ended December 31, 1995.
In 1997, WCSI conducted approximately 3,293 seminars in approximately
379 cities across the United States. Average attendance at the seminars was 123
persons. In 1996, WCSI conducted approximately 437 seminars in 42 cities with an
average attendance of 81 persons. Prior to 1996, the Company did not keep
records sufficient to provide the data necessary to determine statistics for
prior periods similar to the statistics presented for 1996 and 1997.
Seminars Offered by WCSI
The Financial Clinic is a three-hour seminar explaining the various
financial education products and services offered by WCSI and providing an
introduction to investing in the stock market. The Financial Clinic is designed
to serve as an introduction to the Wall Street Workshop. This seminar is
currently taught nationwide 43 times a week. The price to attend the Financial
Clinic is $22 to $33 depending on whether the customer pre-pays the price of
attendance. Occasionally, the Financial Clinic is offered for free to serve the
promotional purposes of WCSI.
The Wall Street Work Shop ("WSWS") is a two-day seminar teaching
investors the investment strategies set forth in Mr. Cook's books, Wall Street
Money Machine and Stock Market Miracles. Students are taught basic stock market
terminology, how to choose a brokerage firm, stock market strategies, and how to
place an order to buy and sell securities ( a "trade"). Students are taught how
to practice paper trades in class. The seminar is taught nationwide 7 times a
week and is taught in conjunction with the Business Entity Skills Training
seminar. The price to attend Wall Street Workshop ranges from $695 for
individuals who have attended Cook University to $4,695 depending on the
particular options selected by the person or persons attending the seminar and
depending on the particular discount or promotion in effect
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at the time of payment to attend the seminar. The Company also offers the
seminar Youth Wall Street for younger individuals. This seminar is taught 2
times per week nationwide. The Youth Wall Street is free to registrants 18 years
of age and younger.
Fortify Your Income ("FYI") is a half-day seminar reviewing the
strategies taught at the Wall Street Workshop. FYI is a refresher course offered
to WSWS graduates at no cost. FYI was taught nationwide 30 times during 1997 and
60 times during the first three months of 1998.
The Entity Structuring Workshop ("ESW") is a half-day seminar
explaining the use of entities to protect assets and reduce taxes. The ESW is
designed to serve as an introduction to the Business Entity Skills Training
seminar. The workshop was taught nationwide 210 times throughout 1997. The price
to attend the workshop ranges from $22 to $33.
Business Entity Skills Training ("BEST") is a one-day seminar teaching
students personal finance management strategies such as asset protection and tax
reduction using corporations, limited partnerships, qualified pensions, and
living trusts. BEST is taught immediately after the last day of each WSWS,
either in the evening or the following day. The price to attend BEST is $995 if
no other seminar is also attended. Otherwise, the price of Best is included in
the price of attending certain companion seminars.
WINSTOCK is a two-day workshop teaching stock market strategies and
various related topics in a roundtable forum. WINSTOCK was taught for the first
time in 1997 to 620 attendees. The workshop is taught in conjunction with the
Super BEST and is priced at $997.
The Super BEST is a one-day seminar taught the third day following
WINSTOCK. Super BEST teaches students personal finance strategies such as
asset protection and tax reduction strategies using corporations, limited
partnerships, qualified pensions, and living trusts. The seminar was
introduced in and taught once during 1997. The seminar is priced at $997 and
includes WINSTOCK.
The Next Step is a two-day seminar for participants who have already
attended the WSWS. Advanced stock market investment strategies are taught in a
format in which students can actively participate in making investments. Next
Step was taught nationwide seven times in 1997 and has been taught three times
in the first three months of 1998. The price to attend Next Step ranges from
$1,495 to $7,995, depending on whether it is attended separately or with other
seminars offered by the Company and depending on the particular discount or
promotion in effect at the time of payment to attend the seminar.
The Wealth Academy, now known as the Wealth Institute, is a three-day
seminar teaching wealth accumulation and asset protection formulas using
various business strategies and corporate income tax planning to assist
students in better managing their personal finance and business activities.
The Wealth Institute is currently taught nationwide ten times a year. The
price to attend Wealth Institute ranges from $4,995 to $7,995 depending on
whether it is attended separately or with other seminars offered by the
Company and depending on the particular discount or promotion in effect at the
time of payment to attend the seminar.
The Executive Retreat is a two-day workshop designed for participants
who own or control Nevada corporations to gain a broader understanding of the
mechanics of using a corporation for tax advantages, limited liability and
estate planning purposes. The workshop is currently taught four times a year.
The price to attend the Executive Retreat ranges from $1,295 to $2,495
depending on whether it is attended separately or with other seminars offered
by the Company and depending on the particular discount or promotion in effect
at the time of payment to attend the seminar.
Cook University is a package of workshops and products promoted by WCSI
that are individually tailored to the needs of the student. The package
generally sells for $12,345 to $16,345 depending on the combination of seminars
and products selected and the discount or promotions in effect at the time of
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payment to attend the seminars.
Building Perpetual Income ("BPI") is a three-hour workshop introduced
in 1997, which summarizes cash-flow strategies related to the real estate
market. This workshop is intended to serve as an introduction to the Real Estate
Workshop. BPI was offered three times in 1997 and has been offered four times to
date in 1998. The price to attend the Building Perpetual Income seminar is $22
to $33 depending on whether the student pre-pays.
The Real Estate Workshop is a one-day event introduced in 1997, which
teaches students the strategies outlined in Mr. Cook's book The Real Estate
Money Machine. Students are taught how to look for real estate investments and
how to turn them into cash-flow investments. The Real Estate Workshop was
offered once in 1997. The price to attend the Real Estate Workshop ranges from
$995 to $1,495 depending on the discounts or promotion in effect at the time of
payment to attend the seminar.
The Real Estate Bootcamp is a two and one-half day event introduced
in 1997 which teaches students the strategies outlined in Mr. Cook's book The
Real Estate Money Machine in greater detail. The class often takes a field
trip to various parts of the local area in an effort to become more familiar
with the types of real estate available. The Real Estate Bootcamp was offered
once in 1997. The price to attend the Real Estate Bootcamp ranges from $3495
to $4495 depending on the discounts or promotion in effect at the time of
payment to attend the seminar.
High Octane Options Performance Seminar ("HOOPS") is a one-day seminar
created for WCSI and introduced in 1997 by speaker Steve Wirrick. Mr. Wirrick
goes into greater detail about investing in options. HOOPS was offered sixteen
times in 1997 and has been offered fifteen times during the first three months
of 1998. The price to attend HOOPS ranges from $1995 to $3295 depending on the
discounts or promotion in effect at the time of payment to attend the seminar.
The Options Bootcamp is a two-day seminar created for WCSI by speaker
Steve Wirrick which was introduced in 1997. Mr. Wirrick expands on his HOOPS
workshop in greater detail relating to his option investing. Students take a
tour of the Option Exchange in Chicago as a part of the class. The Options
Bootcamp was offered five times during 1997 and has been offered three times
during the first quarter of 1998. The price to attend the Options Bootcamp
ranges from $2995 to $5995 depending on the discounts or promotion in effect at
the time of payment.
WCSI typically conducts its seminars and workshops in major cities
in the United States with populations of over 100,000. The majority of WCSI's
seminars are held in Los Angeles, California; Denver, Colorado; Seattle,
Washington; Las Vegas, Nevada; Washington, D.C.; Orlando, Florida; and
Dallas, Texas. WCSI derived more than 10% of its revenues in fiscal 1997 from
seminars taught in the states of California and Florida. As of March 13,
1998, approximately sixty-nine speakers conducted seminars for the Company
throughout the United States, of which the majority were independent
contractors. The Company provides training to the speakers, including
two-day, bi-monthly workshops with an experienced trainer. Most speakers
review training tapes and attend training sessions for six months prior to
becoming "technicians" and graduate to becoming "second speakers" on tour.
The best of these second speakers eventually rise to the role of primary
speaker. Typically, the speakers are required to enter into an agreement not
to compete with the Company for a period of generally three years after the
termination of their contract with the Company.
The seminars provided by WCSI accounted for approximately 70%, 52%, and
53% of the Company's net sales in 1997, 1996, and 1995, respectively.
Products and Services marketed by WCSI
WCSI's seminars and programs are supplemented by audio tapes, video
tapes, books and other printed materials that are licensed to the Company.
Sales of these products accounted for 20%, 22% and 20% of the net sales of the
Company for 1997, 1996 and 1995, respectively.
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The books promoted and marketed by WCSI include best-selling books
written by Wade B. Cook such as the Wall Street Money Machine, Stock Market
Miracles, Bear Market Baloney and Business Buy the Bible. The Company also sells
Brilliant Deductions, The Real Estate Money Machine, How to Pick Up
Foreclosures, Owner Financing, Cook's Book on Creative Real Estate, 101 Ways to
Buy Real Estate without Cash, Cook's Book on Creative Real Estate, Don't Set
Goals, How to Build a Real Estate Money Machine, Real Estate for Real People,
Unlimited Wealth, Wealth 101, and 555 Clean Jokes. Each of these books was
written by Mr. Cook. These books are sold at prices ranging from $12.95 to
$26.95 depending on the title, excluding shipping and handling.
Other publications licensed from author Wade B. Cook and marketed by
WCSI include: 12 Special Reports, The Incorporation Handbook, How to Incorporate
in Nevada Special Report, Legal Forms, Owner Financing, Property Analysis Forms,
Real Estate Record Keeping System, Real Estate Special Reports, Stock Analysis
Forms, The Corporation Kit, and To S or Not to S Special Report. Publications
licensed from author Steve Wirrick and marketed by WCSI include: 7 Special
Reports, High Octane Reference Charts, High Octane Options Supplemental Charts,
Use of Profit and Loss Charts Special Report, The Secret to Pricing
Options---Never Pay Too Much Again Special Report, and Owner Financing. These
publications are sold at prices ranging from $6.50 to $34.95 depending on the
title, excluding shipping and handling.
The audio tapes promoted and sold by WCSI and authored by Wade B. Cook
include the multi-tape audio seminars Financial Fortress Home Study and Zero to
Zillions. In addition, WCSI sells single tapes that generally address the ideas
and concepts taught in its seminars. The single audio tapes include: Financial
4x4, Financial Power Pack, Paper Tigers, Unlimited Wealth, High Octane
Performance Entities, Retirement Prosperity, Money Mysteries of the
Millionaires, The Power of Nevada Corporations, Entity Structuring, Outrageous
Returns, Double Your Money Update, Everything You Ever Wanted to Know About:
Cook University, Everything You Ever Wanted to Know About: The Wall Street
Workshop, Everything You Ever Wanted to Know About: The Real Estate Cash Flow
Boot Camp, Everything You Ever Wanted to Know About: Becoming a Travel Agent,
Income Formulas, Income Streams, Stock Market Power Strategies, Smarter Money,
100 Fold Return, Are We Headed for a Bear Market, Covered Calls, Financial Jump
Start, Living Loving Trusts, Money Machine I, Money Machine II, Red Hot
Financial Seminars, Paper Chase, Pension Power, Real Estate Start-up, Sail
Through Life, SAIL: Scriptural Applications in Life, Stock Market Power
Strategies, Wealth Academy and Wealth, Riches, & Covenants. Mr. Cook is the
primary speaker in each of these tapes. These audio tapes are sold at prices
ranging from $26.95 to $1,695 depending upon the title of the audio tape or
collection of audio tapes. From time to time, WCSI distributes free "Update
Tapes" which are recorded by Wade B. Cook in an effort to promote the products
of WCSI.
The videotapes promoted and sold by the Company include the multi-tape
video versions of the Company's seminars Wall Street Workshop and Next Step, as
well as single-tape videos on Dynamic Dollars, Entity Structuring, 180 Cash
Flow Turnaround Seminar: 180 Degrees in 180 Minutes, Financial 4 x 4, Financial
Jump Start, High Octane Performance Entities, Second to None, Seven Strategies
to Success, and Winning Ways. Videos are sold at prices ranging from $33 to
$2,995.
Entity Formation Services
In 1997, WCSI provided information, form packages and assistance to
individuals interested in preparing Nevada Corporations, Living Trusts,
Pension Plans, Limited Partnerships, Charitable Remainder Trusts, and various
business office services. After teaching students about the various entities,
the majority of actual entities which were formed were provided by various
independent outside vendors for a fee. Prices for the Company's entity
formation services range from $895 to $5,995 depending on the nature and the
number of the entities purchased. The entity formation services of the Company
accounted for 6%, 14%, and 20% of the Company's net sales in 1997, 1996 and
1995, respectively. In 1998, the entity formation service activities were
separated from WCSI and placed in Entity Planners, Inc., a wholly-owned
subsidiary.
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WIN Subscriptions
Wealth Information Network ("WIN") is a subscription service provided
by the Company which can be accessed over the Internet 24 hours a day. WIN
provides detailed information on the trades made by the Company, its
subsidiaries, and by Mr. Cook personally, using the investment strategies
discussed in Wall Street Money Machine and Stock Market Miracles and taught at
WCSI seminars. WIN also provides stock information and updates on the Company's
programs and products, including a schedule of events and seminars provided by
WCSI. The subscription rate for the WIN service ranges from $695 to $3,695 per
year, depending on the length of service, promotion offered at the time of sale,
and whether a subscriber is also an attendee at a seminar offered by WCSI.
Subscription to WIN accounted for 4% 12%, and 7% of the Company's net sales in
1997, 1996 and 1995, respectively.
Other Products Marketed by WCSI
WCSI has various marketing agreements or arrangements with other
companies to market and sell the products of these other companies and share
in the revenue generated by such sales. During 1997, WCSI obtained exclusive
marketing rights to the IQ Pager from Information Quest, Inc., a Nevada
corporation ("IQI"). Revenues generated by WCSI from sales of the IQ Pager
were split equally with IQI through December 31, 1997. On March 20, 1998, all
of the common stock of IQI was acquired by WCFC effective as of January 1,
1998. As a result of such acquisition, 100% of the revenue generated by WCFC
from IQ Pager sales will be retained by WCFC.
On September 12, 1997, WCFC entered into a purchase agreement with
Applied Voice Recognition, Inc. to purchase wholesale 10,000 units of a private
label automated speech recognition system including a self-contained contact
manager. WCFC received inventory under the purchase agreement in late 1997 of
2,500 units and will begin marketing the devices in 1998.
On January 20, 1997, WCFC entered into a software development
agreement with KnowWonder, Inc. ("KnowWonder") for the development of a family
finance software package. The software is to be completed for release on or
about August, 1998. Under the agreement, WCFC will own the intellectual
property for the software and will have non-exclusive rights to distribute the
software. KnowWonder will pay a royalty to WCFC for sales of the software.
Sales and Marketing
The Company creates interest and demand for its programs, products and
services through a mix of radio and television advertising, direct mail
advertising, Internet marketing and sports promotions.
Radio & Television Advertising
The Company's primary means of advertising to potential customers is
through various commercial radio spots nationwide, including radio infomercials.
Generally, the radio advertising contains information relating to a strategy
taught by Wade B. Cook and promotes a financial clinic to be offered within the
coming few weeks in the local area of the advertising. The customer may call the
toll-free number provided in the advertisement and, if he does, will be
encouraged to reserve a seat at the upcoming Financial Clinic. During 1997, the
Company advertised on a limited basis on television in connection with the
Company's sports promotion advertising and in a few other select markets.
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Direct Mail Marketing and Advertising
The Company markets its programs, products and services through direct
mailing to its mailing list of over 500,000 individuals, many of whom have
previously attended one of the Company's seminars or purchased the Company's
products. A centralized marketing department develops the Company's catalogs,
brochures and advertisements.
Sales Team
The Company's sales force consists of approximately 130 people who are
responsible for responding to phone, e-mail, Internet and facsimile orders and
inquiries received by the Company, as well as for following up with existing
clients to promote additional programs, products and services. The Company
provides its sales staff daily training aimed at refining their sales skills and
providing updates on new products, programs and services being offered by the
Company.
Internet Marketing
The Company maintains an Internet web site at http://www.wadecook.com
to market and promote its programs, products and services. The web site has
information on the Company's programs, products and services and certain limited
information on stock and investment strategies. A WIN subscriber can access WIN
through the web site. A web site visitor can purchase a limited number of the
Company's products on-line at the web site. In the future, the Company
intends to expand products offered at the web site to all of the Company's
products.
Sports Promotions
The Company sponsors a variety of sporting events including several
games of the Seattle Seahawks and Seattle Super Sonics. These sponsorships
enable the Company to advertise via giveaways which have in the past included
packages containing a free book, audio tape, video tape and other promotional
publications of the Company. All giveaway packages contain information about the
Company's products and the toll free telephone number to call to register for a
Financial Clinic or other upcoming seminar.
Lighthouse Publishing Group, Inc.
Lighthouse is engaged in the business of producing and publishing
books, audio and video tapes, and other written materials, mainly in the
categories of business, finance, real estate, and self-improvement. Many of the
current books are authored by Wade B. Cook, including "Real Estate Money
Machine", "Business Buy the Bible", "Bear Market Baloney", "Stock Market
Miracles", and "Wall Street Money Machine." Lighthouse Publishing contributed
approximately 5% of the consolidated revenues of the Company in 1997, 12% of
consolidated revenues of the Company in 1996 and no contribution to
consolidated revenue in 1996.
Left Coast Advertising, Inc.
Left Coast is engaged in the business of producing and placing
advertising in various media including radio, television, newspaper, and
magazines. Left Coast is a fully licensed advertising agency whose primary
client is WCFC and its subsidiaries. Left Coast contributed less than one per
cent of the consolidated revenues of the Company in the year 1997, 1996 and
1995.
Bountiful Investment Group, Inc.
Bountiful Investment Group, Inc. (formerly Profit Financial Real Estate
Management Company) ("BIG") was formed in 1997 to manage and oversee the real
estate investment portfolio of the Company, primarily consisting of hotel
investments.
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BIG contributed less than one per cent of the consolidated revenues of the
Company in 1997.
Hotel Investment Properties
WCSI owns a 25 percent interest in Airport Lodging Associates, L.C.
which owns the Airport Ramada Ltd. Suites. WCSI's purchase price for their
interest acquired was $250,000. The hotel is a new structure that opened in
November 1997. The Ramada Ltd. Suites has 58 rooms and 1 suite, and is
located at 315 North Admiral Boulevard in Salt Lake City, Utah.
WCSI owns a 12 percent interest in 45th South Hotel Partners, L.C.,
a limited liability corporation, which owns the Murray Hampton Inn and the
Murray Fairfield Inn. The 12 percent interest was purchased for $220,000,
which was paid $160,000 in cash and 10,000 shares of Common Stock in the
Company. The Hampton Inn is a 65 room hotel located at 606 West 4500 South in
Murray, Utah. The Fairfield Inn is a 61 room hotel located at 4500 South in
Murray, Utah.
WCSI owns a 10 percent interest in Airport Hilton Partners, L.C.,
which owns the Airport Sheraton Suites. The hotel is located at 307 North
Admiral Boulevard in Salt Lake City, Utah. The purchase price for the
interest acquired was $250,000. The Sheraton Suites is due to open in April
1998 with 108 suite-style rooms.
WCSI purchased a 7 percent interest in Woods Cross Hotel Partners,
L.C. which owns the Woods Cross Fairfield Inn. The 7 percent interest was
purchased for $119,269 paid in the form of 11,636 shares of Common Stock of
the Company at $10.50 a share. The Woods Cross Fairfield Inn has 80 rooms and
is located at 2437 South Wildcat Way in Woods Cross, Utah.
WCSI owns a 4 percent interest in the Park City Hampton Inn &
Suites. WCSI paid $225,002 for its 4% interest which consisted of $200,000 in
cash and 4,167 shares of Common Stock in the Company. The hotel has 61 rooms
and 20 suites and is located at 6609 North Landmark Drive in Park City, Utah.
BIG owns a 100 percent direct ownership interest in the Best Western
McCarran House. The total purchase price was $5,250,000 with a commitment to
make $1,000,000 in renovations. The payment for renovations is to be made in
installments over the course of 1998. The Best Western McCarran House has 220
units and is located at 55 East Nugget in Sparks, Nevada.
BIG owns a 50 percent interest in Red Rock Lodging Associates, L.C.
an entity which owns the St. George Hilton Inn. The purchase price was
$3,850,000 of which BIG has contributed $800,000 in cash. The Hilton Inn has
98 rooms and 2 suites and is located at 1450 South Hilton Drive in St.
George, Utah.
Rising Tide Limited Partnership had negotiated to purchase a 100
percent ownership interest in the Provo Fairfield Inn for $3,450,000, of
which $1,310,000 has been placed in escrow. In order to retain the Marriott
franchise, the ownership of the Fairfield Inn is being restructured such that
the original franchisee will retain 51 percent ownership interest and the
Company will obtain a 49 percent interest. This transaction is scheduled to
close in the second quarter of 1998. The Company intends to have its interest
in the Provo Fairfield Inn held in Bountiful Investment Group, Inc.. Any
funds that have been paid in excess of the 49 percent purchase price will
either be returned to the Company or credited towards the acquisition of
other hotel properties. The Provo Fairfield Inn has 66 rooms and 6 suites and
is located at 1515 South University Avenue in Provo, Utah.
BIG has made an offer to purchase the St. George Sleep Inn. If the
sale goes through, BIG would own a 100 percent interest in the hotel. The
purchase price is $1,200,000. Additionally, BIG would have a commitment to
make approximately $130,000 in renovations. The Sleep Inn has 68 rooms and is
located at 1481 South Sunland Drive in St. George, Utah
Raw Land
WCSI owns a 65% percent interest in Evergreen Lodging, L.P.. Evergreen
owns a 100% interest in undeveloped property located near the 7200 South
off-ramp of the I-15 Interstate near Salt Lake City, Utah. Evergreen purchased
the land for $690,000. The land was purchased with the original intent of
building a hotel on the property.
WCSI owns a 42 percent interest in Lake View Lodging Associates,
L.C. which owns the property located at 215 West 1300 South in Orem, Utah.
The purchase price for its interest acquired was $560,000.
BIG owns a 100 percent interest in an undeveloped lot located in
Reno, Nevada. BIG purchased the property for $590,000.
Entity Planners, Inc.
EPI provides entity planning information and education to WCSI
customers attending Business Entity Structuring Skills Training and Entity
Structuring Workshop. EPI had no financial activity in 1997.
Ideal Travel Concepts, Inc.
As of August 1, 1997, the Company acquired Ideal from a director of
the Company. In addition to providing travel arrangements for the Company,
the Company markets travel agency training kits at its seminars for a price
of $495. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS"
Origin Book Sales, Inc.
In August 1997, WCFC acquired all of the issued and outstanding
common stock of Origin in exchange for the issuance of 30,269 shares of
restricted Common Stock of the Company pursuant to a Share Exchange Agreement
effective as of August 15, 1997. Origin, a Utah corporation, is a book
distribution company which sells books on consignment. Origin also offers
select titles to national bookstore chains. Origin is the exclusive
distributor of products for Worldwide Publishers Inc.
Worldwide Publishers, Inc.
In August 1997, WCFC purchased all of the issued and outstanding
common stock of Worldwide for $1.00 pursuant to a Stock Purchase Agrement
effective as of August 8, 1997. Additional consideration for the acquisition
of Worldwide was the extinguishment of the obligation of Worldwide to repay
two promissory notes in the total amount of $275,000. The obligation to repay
the amounts loaned to Worldwide are eliminated as intercompany transactions.
Worldwide is a Utah corporation doing business under the identifying
publishing insignias ("imprints") as Aspen Books and Buckaroo Books. Aspen
Books publishes religious books or books with a spiritual emphasis. Buckaroo
Books publishes children's books and books of whimsy.
Gold Leaf Press, Inc.
In August 1997, WCFC acquired all of the outstanding common stock of
Gold Leaf in exchange for 7,692 shares of the restricted Common Stock of the
Company pursuant to a Stock Exchange Agreement effective as of August 15,
1997. Gold Leaf publishes fiction and non-fiction books.
Get Ahead Bookstores, Inc.
Effective January 1, 1998, WCFC acquired Get Ahead Bookstores, Inc., a
Nevada corporation. Get Ahead is housed within Wade Cook Financial Education
Centers in both Seattle and Tacoma. Get Ahead is staffed by Quantum Marketing
personnel in an effort to coordinate Quantum sales of WCFC products and
services. Get Ahead is a retail outlet for books, audio and video recordings
primarily related to finance, education, investments, and business and personal
development. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS"
Quantum Marketing, Inc.
Quantum Marketing, Inc., a Nevada corporation, was established in
1997 by Robert Hondel, a member of the Company's Board of Directors, to
provide alternative marketing of the Company's products and services.
Currently, Quantum maintains its own website on the Internet and provides
local marketing through its offices located within Wade Cook Financial
Education Centers in Tacoma & Seattle, Washington and Newport Beach,
California. Another Quantum office is to open in Santa Ana, California in
1998. Quantum pays WCFC a gross royalty of 70 percent on all products and
services sold by Quantum through WCSI. Quantum provides WCFC with a 30
percent royalty on all products and services sold by Quantum through its Wade
Cook Financial Education Centers. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
The first Wade Cook Financial Education Center was established in 1997
in Tacoma, Washington.
11
<PAGE>
Each Wade Cook Financial Education Center contains a Winvest Center where WCFC
alumni can meet to network and obtain additional financial investment
information and information related to other WCFC products and services.
Effective January 1, 1998, the Company acquired Quantum as a wholly-owned
subsidiary. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
Information Quest, Inc.
Information Quest, Inc. was organized in 1997 for the primary purpose
of marketing the IQ Pager. The Company acquired IQI effective January 1, 1998 as
a wholly-owned subsidiary. IQI is the distributor of the IQ Pager, a one-way
receiving paging device. IQI transmits stock market updates and various
financial information over the IQ Pager to subscribers. In addition, IQI
provides all supplies, packaging, and distribution of the IQ Pager and provides
all of the organizational support and maintains all contracts relating to the
base paging service. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
American Newsletter Company, Inc.
American Newsletter Company, Inc., a Nevada corporation, was
incorporated August 28, 1997 as a wholly-owned subsidiary of WCFC. American
Newsletter Company designs, produces, and distributes newsletters for commercial
purposes. Current products include the Navigator, a bi-monthly, single-sheet,
marketing newsletter targeted to bookstores which promotes Lighthouse
publications. American Newsletter Company also publishes EXPLANATIONS, a
promotional newsletter for WCSI products and services. EXPLANATIONS provides
continuing education focusing on cash flow generation and wealth strategies
taught by WCSI. EXPLANATIONS is a sixteen page monthly newsletter which is
shipped to WCFC customers at a retail subscription rate of $144 per year.
NET SALES BY OPERATING SUBSIDIARIES
The following table sets forth the Company's net sales by subsidiary:
PROFORMA NET SALES BREAKDOWN BY SUBSIDIARY
FOR THE YEAR ENDING DECEMBER 31,
(unaudited)
(Amounts in 000's)
<TABLE>
<CAPTION>
1997 1996 1995
Subsidiary Sales % Sales % Sales %
- ---------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
WCSI $ 99,616 89.85% $ 39,256 85% $ 7,567 46%
Left Coast $ -- 0.00% $ -- 0% $ 0%
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Lighthouse $ 4,840 4.37% $ 1,469 3% $ 0%
Origin $ 1,510 1.36% $ 1 801 4% $ 1 0%
Gold Leaf $ 26 0.02% $ 1 462 3% $ 1,330 8%
Worldwide $ 555 0.50% $ 971 2% $ 7,209 44%
Ideal Travel $ 4,321 3.90% $ 1,023 2% $ 182 1%
---------------------- --------------------- ---------------------
$110,868 100.00% $45, 982 100% $ 16,289 100%
---------------------- --------------------- ---------------------
---------------------- --------------------- ---------------------
</TABLE>
CORPORATE CONTROL BY WADE B. COOK
Wade B. Cook is the founder, majority shareholder, Chairman of the
Board of Directors, President, Treasurer, acting Chief Financial Officer and
CEO of the Company. Mr. Cook's wife is the Secretary of the Company and is a
member of the Board of Directors. Several of Mr. Cook's siblings and
relatives are in management positions at the Company. Mr. Cook maintains
control of nearly every aspect of the Company including, but not limited to,
setting corporate policy, determining strategic direction and determining
each acquisition of a company or assets made by the Company and the material
terms of such acquisition. Mr. Cook selects and approves every product and
seminar sponsored by the Company. Mr. Cook directs most marketing efforts of
the Company. Mr. Cook dominates the management of the Company.
CONTROL BY MANAGEMENT
As of March 13, 1998, senior management of the Company collectively
owns approximately 64% of the outstanding shares of Common Stock. Mr. Cook and
entities affiliated with Mr. Cook own approximately 62% of the outstanding
shares of Common Stock. Consequently, the senior management, and Mr. Cook in
particular, will continue to have a significant influence over the policies and
procedures of the Company and will be in a position to determine the outcome of
corporate actions requiring stockholder approval, including the election of
directors, the adoption of amendments to the Company's corporate documents and
the approval of mergers and sales of the Company's assets. See "Security
Ownership of Certain Beneficial Owners and Management."
BUSINESS STRATEGY
WCFC's business strategy is to generate revenue and earnings growth
through further market penetration of domestic markets for sales of the
Company's existing products, and the introduction of new product lines that
complement and supplement existing product lines which can be sold through
the same channels of distribution.
To accomplish its strategic objectives, WCFC has: (i) acquired
companies; (ii) increased advertising expenditures; (iii) further expanded into
smaller markets; (iv) developed and introduced new and ancillary product
categories; (v) continued to acquire licenses from Mr. Cook and to seek out new
licenses from new authors; (vi) and entered into relationships with others to
develop and market new products.
Substantially all of the Company's programs, products and services are
based on the financial and investment strategies of Mr. Cook. The Company has
the non-exclusive right to promote, produce and sell these programs, products
and services pursuant to the terms of a Product Agreement with Mr. Cook dated
March 20, 1998. Mr. Cook has based his programs and products on his belief that
people need to: (a) increase their wealth by increasing their cash flow; (b)
learn how to minimize their federal and state income taxes; (c) use entities,
such as Nevada corporations, family limited partnerships, living trusts,
qualified pensions and business trusts, to protect their assets; (d) be able to
retire with sufficient income from their assets to maintain a good standard of
living; and (e) be able to pass on their wealth and assets to their loved ones
without the problems of probate.
13
<PAGE>
COMPETITION
The Company does not generally conduct market research on
competitive companies or competitive products and does not therefore have
meaningful statistical data on competitors or competitive products.
The Company believes that the highly competitive market in which the
Company operates is fragmented and decentralized, with low barriers to entry.
The Company's competitors include other companies and individuals who promote
and conduct seminars and provide products on topics relating to investments,
financial planning and personal wealth management. Some of these competitors
offer courses and products similar to the Company at lower prices. In
addition, many of the Company's competitors sponsor and conduct seminars free
of charge as a marketing tool for other business. These competitors include
stockbrokers, franchisers of business opportunities and portfolio and tax
consultants.
LICENSING FROM WADE B. COOK
On March 20, 1998, the Company entered into a new Open Ended Product
Agreement with Wade B. Cook to be effective July 1, 1997 and expiring June
30, 2000. This agreement amended the previous Product Agreement dated June
25, 1997. Pursuant to this Open Ended Product Agreement, the Company has a
non-exclusive license with Mr. Cook which permits the Company to produce,
market and sell licensed original products and intellectual property in
exchange for a royalty of ten percent of the gross sales of the licensed
products. Royalties are paid to Mr. Cook on a quarterly basis under the terms
of the agreement; however, Mr. Cook is CEO of the Company and is authorized
to set Company policy which allows him to take draws against royalties in
amounts which he determines to be reasonable. In such cases, the royalties
owing under the license are then reconciled quarterly with the draws Mr. Cook
has taken. The license also grants the Company the right to use Mr. Cook's
name, likeness, identity, trademarks, and trade symbols. The Agreement is
open-ended in that it allows for future products developed by Mr. Cook to be
licensed under the same terms and conditions upon the execution of a form
"License Order". The Company does not have a contract which gives it the
first right to license or otherwise obtain the right to produce, market or
sell any future products developed by Mr. Cook. See "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."
14
<PAGE>
RETURNS AND REFUNDS POLICY
Due to the nature of the intellectual property contained in the
majority of the Company's products and the ease with which the materials could
be copied, the Company has an "all sales are final" policy except as otherwise
required by state and federal law. The Company adopted a policy in May to
provide a 7-day right of cancellation on all sales contracts. Additionally,
the Company has given and continues to give refunds on a case by
case basis as determined by the Refund Manager and/or the General Counsel.
During 1997, the average return refund rate was under 2% of sales.
INTELLECTUAL PROPERTY
The Company regards its seminars, products and other materials as
proprietary and relies primarily on a combination of statutory and common laws
regarding copyrights, trademarks and trade secrets to protect such rights.
Additionally, employee and third-party nondisclosure agreements and other
methods to protect said propriety rights are relied on by the Company.
The Company is currently attempting to identify and protect the
intellectual property of the Company. In general, Wade B. Cook selects the
trademarks for all products and the names of all corporate subsidiaries and
promotions based on his personal preferences. Mr. Cook has, in the past,
generally selected names which have common appeal and which contain descriptive
terms and/or descriptive acronyms such as "Business Entity Skills Workshop" or
"B.E.S.T." The Company has chosen not to register most existing trademarks
currently used by the Company.
15
<PAGE>
EMPLOYEES
As of December 31, 1997, the Company had 532 employees, including
422 full-time employees, 110 part-time employees and approximately 70
independent contractors. As of March 13, 1998, WCFC had approximately 519
employees of which 114 are part-time. The Company's employees are not covered
by collective bargaining agreements. The Company believes its relationship
with its employees is good.
SEASONALITY
The Company's business is not seasonal.
ITEM 2. - PROPERTIES
Commercial Property
The Company's headquarters is a three-story 63,000 square feet building
owned by it and located at 14675 Interurban Avenue South, Seattle, Washington
98168. The majority of the Company's operations, such as corporate offices,
in-house sales staff, in-house seminar staff, art department, accounting
department and legal department are based at this location. In addition, the
headquarters has 3 seminar rooms which the Company uses to hold some of its
seminars.
The Company leases space at 4479 South 134th Place, Seattle, Washington
98168, for its shipping and warehouse operations. The shipping warehouse is
approximately 10,000 square feet. The majority of the Company's shipping is
conducted at this location.
Worldwide leases 2,400 square feet of office space located at 6208
Stratler in Salt Lake City, Utah. Worldwide conducts the majority of its
operations out of this facility.
Origin leases 7,200 square feet of office space located at 6208
Stratler in Salt Lake City, Utah. Origin conducts the majority of its
business out of this facility.
16
<PAGE>
ITEM 3. - LEGAL PROCEEDINGS
Investigation by the Securities and Exchange Commission
17
<PAGE>
The Company is subject to a private investigation by the Securities and
Exchange Commission ("SEC") in the Matter of Wade Cook Seminars, Inc. The SEC is
investigating the possible violation of Sections 5(a), 5(c) and 17(a) of the
Securities Act, Section 1(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 its executive
officers and directors have violated applicable laws, and the Company intends to
continue to cooperate with the investigation. The Company does not believe it
or its executive officer and directors have violated applicable laws.
Investigation by the State of Washington
The Assistant Attorney General for the State of Washington's
Department of Financial Institutions, Securities Division commenced an
investigation of Mr. Cook, WCSI, and the Company in September, 1996. Since
that time, the State of Washington's Department of Financial Institutions,
Securities Division has issued subpoenas to Mr. Cook, WCSI, the Company, the
General Counsel, and the former General Counsel requesting information
related to the investigation. The Company has not been informed as to the
specific basis for the State of Washington's investigation. The Company does
not believe it or its executive officer and directors have violated
applicable laws.
Wade Cook Seminars, Inc. v. Charles Mellon, Anthony Robbins, Options Management,
Inc. and Robbins Research International, Inc.
On October 4, 1996, WCSI and Mr. Cook filed a complaint in King
County Superior Court, State of Washington against Robbins Research
International, Inc., Anthony Robbins, Charles Mellon, and Options Management,
Inc. seeking damages and injunctive relief for unfair competition,
misappropriation of trade secrets, breach of a non-compete agreement, and
inducement to breach the non-compete agreement. On November 26, 1997, WCSI
and Mr. Cook's unfair competition and misappropriation of trade secrets
claims were dismissed in a hearing on a Motion for Summary Judgment brought
by the Defendant. The Company and Mr. Cook are appealing the decision to the
Ninth Circuit Court of Appeals. WCSI and Mr. Cook filed for a voluntary
dismissal on the non-compete issues and were granted a dismissal without
prejudice.
Wade B. Cook v. Anthony Robbins, Robbins Research International, Inc. and
Charles Mellon
On June 18, 1997, Mr. Cook filed a copyright infringement suit in the
United States District Court, Western District of Washington, against Anthony
Robbins and Robbins Research International, Inc. seeking damages and injunctive
relief. Charles Mellon, a former speaker for Wade Cook Seminars, Inc., was added
as a defendant on August 5, 1997. Mr. Cook alleges Anthony Robbins copied or
caused to be copied significant portions of his best selling book, Wall Street
Money Machine. Mr. Cook authored and copyrighted the book which he claims
defendants used in creating their new seminar entitled "Financial Power". A
trial is scheduled for September 28, 1998.
Litigation with ART and ITEX
On February 4, 1998, WCFC filed a complaint against Associated
Reciprocal Traders, Ltd. ("ART") and its parent corporation, ITEX, in the
King County Superior Court, State of Washington in Seattle, Washington. On
the same day, Associated Reciprocal Traders, Ltd. filed a complaint against
WCFC in the King County Superior Court, State of Washington in Kent,
Washington. Both complaints have been consolidated and are related to a
dispute over the ownership of 1,800,000 shares of common stock that
originally was issued as 100,000 shares of common stock of WCFC on September
10, 1996 in exchange for $500,000 worth of media credits for radio spots to
Associated Reciprocal Traders, Ltd. pursuant to an agreement dated December
29, 1995.
18
<PAGE>
County of Fresno Investigation
On March 5, 1998, the Company received a letter from the County of
Fresno, California, Office of District Attorney Business Affairs Unit
("BAU"), informing the Company that the BAU believed that the seminar sales
contracts used in California by the Company were not in compliance with
sections 1678.20 through 1693 of the California Civil Code which provide for
a three-day right of cancellation on seminar sales solicitation contracts.
According to the BAU, potential penalties for such actions could include
restitution and civil penalties up to $2,500 for each violation. The BAU has
afforded the Company the opportunity to negotiate a settlement with the BAU
prior to any legal action being taken against the Company and a meeting has
been scheduled in April for such purposes. The Company is now offering a
7-day right of cancellation in all of its seminar sales contracts.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1997 Annual Meeting of Shareholders of the Company (the "Annual
Meeting") was held at the Company's headquarters on December 10, 1997. At the
meeting the shareholders of the Company approved the following: (i) the election
of management's slate of directors for the forthcoming year; (ii) the
ratification of the Company's name change from Profit Financial Corporation to
Wade Cook Financial Corporation; (iii) the authorization of reincorporating the
Company in the State of Nevada; (iv) the adoption of the 1997 Stock Incentive
Plan; and (v) the authorization of an increase in the total number of
authorized Common Stock of the Company to 140,000,000 shares from 60,000,000
shares.
The directors nominated by management and elected by the
shareholders were: Wade B. Cook, Laura Cook, John Childers, Sr., Nicholas
Dettman, Eric Marler, Robert Hondel, Cheryle Hamilton, Pamela Andersen and
Robin Anderson. Dr. Warren Chaney was not nominated to stand for election as
a director notwithstanding the fact that his name was included in the Proxy
Statement delivered to shareholders prior to the meeting.
Voting Results
The total number of outstanding shares representing the total possible
number of votes that could be cast at the Annual Meeting was 6,715,032. The
actual number of votes cast by proxy or in person excluding abstentions and
broker non-votes was 4,118,659.
The following table sets forth the actual numbers of votes cast for,
against and those abstaining on each of the items voted on:
<TABLE>
<CAPTION>
ITEM FOR AGAINST ABSTAIN
- ---- --- ------- -------
<S> <C> <C> <C>
#1. Election of Directors 4,118,411 248 N/A
#2. Name Change 4,118,439 180 40
#3. Reincorporation 4,118,431 188 40
#4. Stock Incentive Plan 4,118,047 408 204
#5. Share Increase 4,117,809 284 566
</TABLE>
19
<PAGE>
PART II
ITEM 5. - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock has been traded in the OTC BB Market under
the symbol "WADE" since August 11, 1997. Prior to that time, the Company's
Common Stock was quoted under the stock symbol "PFNL" in the over-the-counter
market.
The following table sets forth the approximate high and low bid
quotations for the Company's Common Stock for the calendar periods indicated.
The quotations reflect inter-dealer prices which may include retail markups,
markdowns or commissions and may not reflect actual transactions.
<TABLE>
<CAPTION>
HIGH BID LOW BID
--------- -------
1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Quarter Ended March 31 4.25 2.00
Quarter ended June 30 5.94 2.63
Quarter ended September 30 13.88 4.88
Quarter ended December 31 15.44 7.63
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
</TABLE>
(1) Prices reported reflect a 3 for 1 stock split effective September 15,
1997, a 3 for 1 stock split effective December 23, 1997, and a 2 for 1
stock split effective September 9, 1996.
20
<PAGE>
On March 13, 1998, there were approximately 1,373 shareholders of
record of the Company's Common Stock and approximately 9,333 beneficial holders.
On March 13, 1998, the closing bid price of the Company's Common Stock on the
OTC BB Market was $3.03 per share.
In February 1998, the Company changed stock transfer agents to
American Stock Transfer and Trust Company, New York, New York.
The Company has never paid cash dividends on its Common Stock and
does not anticipate that it will pay dividends in the foreseeable future.
Instead, the Company intends to retain earnings to expand and develop its
business.
RECENT SALES OF UNREGISTERED SECURITIES
The issuances of shares of unregistered Common Stock disclosed below
were made in reliance primarily on the exemption from registration of
securities contained in Section 4(2) of the Securities Act of 1933, the rules
and regulations promulgated thereunder by its Securities and Exchange
Commission, and applicable provisions of state securities laws.
On August 13, 1997, the Company authorized the issuance of
3,224,997 restricted shares of Common Stock for the acquisition of Ideal
Travel Concepts Inc., under a Stock Purchase Agreement dated August 1, 1997.
On September 12, 1997, the Company issued 500 post split shares of
its restricted Class A Common Stock at $5 per share (pre splits) to Kathleen
Mikos for payment in full of subscription notes receivables.
On September 12, 1997, the Company issued 20,000 shares of its
restricted Class A Common Stock at $1.00 per share ($3 per share pre split)
to Baker Street Investments, L.P. under the stock options available to Board
members.
On October 13, 1997, the Company issued 5,000 shares of its
restricted Class A Common Stock at $5.00 per share to Paul Christensen for a
finder's fee in the purchase of the Fairfield Inn in Provo, Utah.
On October 13, 1997, the Company issued 5,000 shares of its
restricted Class A Common Stock at $5.00 per share to Rex Griffiths for a
finder's fee in the purchase of the Fairfield Inn in Provo, Utah.
On October 13, 1997, the Company issued 2,084 shares of its
restricted Class A Common Stock at $6.00 per share to Paul Christensen for the
acquisition of the Hampton Inn & Suites in Park City, Utah.
On October 13, 1997, the Company issued 2,083 shares of its
restricted Class A Common Stock at $6.00 per share to Rex Griffiths for the
acquisition of the Hampton Inn & Suites in Park City, Utah.
On November 17, 1997, the Company issued 11,538 post split shares
of its restricted Class A Common Stock to Stan Zenk in exchange for 12,500
shares of Common Stock in Gold Leaf Press, Inc. for the acquisition of Gold
Leaf Press, Inc.
On November 17, 1997, the Company issued 11,538 post split shares
of its restricted Class A Common to Curtis Taylor in exchange for 12,500
shares of Common Stock in Gold Leaf Press, Inc. for the acquisition of Gold
Leaf Press, Inc.
On December 19, 1997, the Company issued 3,637 shares of its
restricted Class A Common Stock at $10.50 per share to Rex Griffiths for the
purchase of a seven percent interest in Woods Cross Hotel Partners, L.C.
On December 19, 1997, the Company issued 6,545 shares of its
restricted Class A Common Stock at $10.50 per share to Paul Christensen for
the purchase of a seven percent interest in Woods Cross Hotel Partners, L.C.
On February 24, 1998, the Company issued a total of 13,650 shares
of restricted common stock for the issuance of 25 shares of Common stock to
all employees of record on December 22, 1997 as a year-end holiday bonus and
the issuance of 50 shares of its Common stock to all management personnel of
record on December 22, 1997.
On August 15, 1997, the Company issued 30,269 shares of its
restricted Common Stock to the following individuals in exchange for all of
the issued and authorized shares in Origin Book Sales, Inc.: Stan Zenk, Curtis
Taylor, Michael Hurst, Clarence Taylor, Delvin Jenks, Lonnie Hester, Stuart
Taylor, Mark Mendenhall, Susan Coon, Diane Mower, and Isaac Taylor.
On August 12, 1997, the Company issued 20,000 shares of restricted
common stock (10,000 pre split) at $3.00 per share to John Childers, Sr.
under the stock options available to employees and directors.
ITEM 6. - SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's consolidated financial statements and the related
notes and with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF THE COMPANY" included elsewhere in this Form 10-K. The
selected consolidated balance sheet data presented below as of December 31, 1996
and 1997 and of the consolidated statement of operations data presented below
for the years ended December 31, 1995, 1996 and 1997 are derived from the
consolidated financial statements of the Company included elsewhere in this Form
10-K, which financial statements have been audited by Miller and Company,
independent certified public accountants. The selected consolidated balance
sheet data presented below as of December 31, 1995 and 1994 and the consolidated
21
<PAGE>
statement of operations data for the year ended 1994 are derived from financial
statements of the Company not included in this Form 10-K which have been audited
by Miller and Co., independent certified public accountants. The selected
consolidated balance sheet data and selected consolidated statement of operation
data presented below as of December 31, 1993 and for the year ended December 31,
1993 are derived from financial statements of the Company audited by other
auditors not included in this Form 10-K.
SELECTED CONSOLIDATED FINANCIAL DATA
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales $ 728 $ 1,973 $ 6,504 $ 40,725 $ 104,908
Cost of sales $ 147 $ 862 $ 2,877 $ 15,683 $ 39,068
------- --------- --------- ---------- ----------
Gross profit $ 581 $ 1,111 $ 3,627 $ 25,042 $ 65,840
Operating expenses $ 116 $ 1,134 $ 3,333 $ 20,302 $ 50,099
------- --------- --------- ---------- ----------
Income (loss) from
operations $ 465 $ (23) $ 294 $ 4,470 $ 15,741
Other expenses $ 114 $ 181 $ 55 $ 74 $ 706
------- --------- --------- ---------- ----------
Income (loss) from
continuing operations $ 351 $ (204) $ 239 $ 4,666 $ 15,035
------- --------- --------- ---------- ----------
PRO FORMA INCOME FROM CONTINUING OPERATIONS DATA (1,2):
Income (loss) before
income taxes,
minority interest and
acquired operations
as reported $ 351 $ (204) $ 239 $ 4,666 $ 15,035
Pro forma provision
(benefit) for income
taxes $ -- $ (8) $ 171 $ 1,061 $ 6,063
----------
Minority interest in
loss of subsidiary $ $ $ $ $ 21
- - - - ----------
Pro forma net income
(loss) $ 351 $ (196) $ 68 $ 3,605 $ 8,993
------- --------- --------- ---------- ----------
------- --------- --------- ---------- ----------
PER SHARE DATA:
Pro forma (loss income
from continuing operations
per share $0.007 (.003) .001 0.05 0.14
------- --------- --------- ---------- ----------
------- --------- --------- ---------- ----------
Weighted average shares
outstanding 50,961,951 59,585,798 57,585,798 59,609,520 63,362,984
</TABLE>
22
<PAGE>
<TABLE>
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
1993 1994 1995 1996 1997(1)
<S> <C> <C> <C> <C> <C>
Total assets $ 2,787 $ 206 $ 2,283 $ 16,938 $ 41,404
Total debt, including $ 688 $ 134 $ 1,458 $ 12,618 $ 24,649
current portion
------- --------- ---------- ---------- -----------
Stockholders' equity $ 2,099 $ 72 $ 825 $ 4,320 $ 16,755
</TABLE>
(1) In the fourth quarter of 1997, the Board of Directors changed the fiscal
year of WCSI from a fiscal year ending January 31 to a calendar fiscal
year. The effect of the change was to exclude January 1998 from the
consolidated financial statements of the Company and shorten the 1997
results of WCSI to an eleven month period.
ITEM 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion is intended to provide information to
facilitate the understanding and assessment of significant changes and trends
related to the financial condition of the Company and the results of its
operations. This discussion and analysis should be read in conjunction with the
Company's audited consolidated financial statements and the notes thereto
included elsewhere in this Form 10-K.
Overview and Outlook
WCFC is a holding company that, through its operating subsidiary WCSI,
conducts educational investment seminars and produces and sells audio tapes,
videotapes, books and other written materials focused on investment strategies,
financial planning and personal wealth management. The Company also invests in
marketable securities, real estate, gold, oil and gas venture capital limited
partnerships and private companies. WCSI hosts WIN, an Internet web site that
allows subscribers to log on for information related to the stock market at
http://www.wadecook.com. Two of the Company's operating subsidiaries, Left Coast
Advertising, Inc. and Lighthouse Publishing Group, Inc. conduct advertising and
publishing services, respectively, for the Company. In 1997 the Company acquired
Worldwide, Origin, Gold Leaf and Ideal Travel.
The following tables set forth the net sales, total cost of sales and
gross profit of each of the operating subsidiaries of WCFC for the years ended
December 31, 1995, 1996 and 1997.
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
WADE COOK FINANCIAL CORPORATION SUBSIDIARIES
YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995
- ----------------------------------------------------------------------------------------------------------------------------------
Gold Ideal
WCSI Lighthouse Origin Leaf Worldwide Travel Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES $ 6,504 $ -- $ -- $-- $-- $ -- $ 6,504
- ----------------------------------------------------------------------------------------------------------------------------------
COST OF GOODS SOLD 2,122 2,122
- ----------------------------------------------------------------------------------------------------------------------------------
LICENSE AND ROYALTY EXPENSE 755 0 755
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL COST OF SALES 2,877 0 0 0 0 0 2,877
- ----------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 3,627 -- -- -- -- -- 3,627
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
1996
- ----------------------------------------------------------------------------------------------------------------------------------
Gold Ideal
WCSI Lighthouse Origin Leaf Worldwide Travel Total
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
NET SALES $39,256 $1,469 -- -- -- -- 40,725
- ----------------------------------------------------------------------------------------------------------------------------------
COST OF GOODS SOLD 3,972 394 -- -- -- -- 4,366
- ----------------------------------------------------------------------------------------------------------------------------------
LICENSE AND ROYALTY EXPENSE 10,950 367 -- -- -- -- 11,317
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL COST OF SALES 14,922 761 -- -- -- -- 15,683
- ----------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 24,334 708 -- -- -- -- 25,042
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
1997
- ----------------------------------------------------------------------------------------------------------------------------------
Gold Ideal
WCSI Lighthouse Origin* Leaf* Worldwide* Travel** Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
NET SALES $94,984 $4,733 $1,496 $26 $48 $ 3,620 $104,907
- ----------------------------------------------------------------------------------------------------------------------------------
COST OF GOODS SOLD 23,319 1,576 1,016 -- 17 2,964 28,892
- ----------------------------------------------------------------------------------------------------------------------------------
LICENSE AND ROYALTY EXPENSE 8,994 1,130 -- 13 39 -- 10,176
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL COST OF SALES 32,313 2,706 1,016 13 56 2,964 39,068
- ----------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 62,671 2,027 480 13 (8) 656 65,839
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
</TABLE>
* - Acquired effective August 27, 1997
** - Acquired effective August 1, 1997
24
<PAGE>
Intercompany transactions have been eliminated.
Results of Operations
1997 versus 1996
----------------
Revenues for the year ended December 31, 1997 were $104.9 million
as compared to revenues of $40.7 million for the year ended December 31,
1996. These results include the results of WCSI for only eleven months due to
a change in WCSI's fiscal year end from January 31 to December 31. Revenues
grew significantly due to several factors, including a substantial increase in
advertising, and the fact that several books authored by Wade Cook appeared on
the New York Times' Business Best Seller List, resulting in greater
recognition for Wade Cook in the investment educational market. Seminar sales
grew from $25 million in 1996 to more than $56 million in 1997, an increase
of over 120%. Book sales rose from $9 million in 1996 to more than $33
million in 1997, an increase of over 267%. WIN subscribers have increased. The
increase in overall revenues may also be attributed to the acquisition of
related businesses in 1997.
Costs of revenues increased from $15.7 million to $39 million, an
increase of over 149%. However, the costs of revenues as a percentage of net
revenues have decreased from 38.4% in 1996 compared to 37.2% in 1997. The
Company believes it is taking advantage of the economies of scale in the
distribution, travel, and publishing areas. The increase in costs was
primarily attributed to revenue growth.
Selling, general and administrative expenses increased by almost $30
million to $50.1 million in 1997 as compared to $20 million in 1996. The
increase was attributable to increases in labor and related costs ($7 million
in 1996, comapred to $16 million in 1997), advertising ($6 million in 1996
compared to almost $14 million in 1997), and postage and freight ($2.2
million in 1996 compared to $4.2 million in 1997).
For the year ended December 31, 1997, the Company's net other
income/expense was $706 thousand as compared to $74 thousand in 1996. The
increase in expense was due to the costs associated with the purchase of the
Company's headquarters building coupled with a net investment loss of over
$800 thousand. The net investment loss can be attributed to the losses
incurred in the brokerage accounts used by seminar instructors to make
demonstration trades as well as a downturn in the stock and securities
markets at the end of 1997.
The provision for income taxes of $6 million and $1.6 million for
the years ended 1997 and 1996, respectively, reflect taxes payable in respect
of profitable operations.
The Company anticipates that existing cash, together with internally
generated funds aided by continuing increase in revenues, will provide the
Company with the resources that are needed to satisfy the Company's working
capital requirements in 1998.
1996 versus 1995
----------------
Net revenues increased over $34 million or 526% during 1996 in
comparison with 1995. This result was primarily attributable to the growth in
both seminar ($26 million or 750%) and book sales ($8 million or 546%)
coupled with the fact that 1995 consisted of only nine months.
Costs of revenues increased almost $13 million or 445% during 1996
in comparison with 1995. The increase was primarily due to revenue growth.
Cost of revenues for 1995 was 44% of sales compared to 39% in 1996. The
reduction was principally due to the creation of its wholly owned subsidiary,
Lighthouse Publishing, Inc., which cut the distribution and publishing costs
of its books.
Selling, general, and administrative expenses were $20 million (50%
of revenues) for 1996 compared to almost $3 million (50% of revenues) in
1995. Selling, general, and administrative expenses increased by $17 million
or 528% in 1996 primarily due to increases in labor ($7 million) and
advertising ($6 million) costs.
In 1995 the Company recorded a one-time non-cash pre-tax charge of
$99 thousand to write down the carrying value of the land investment in
Michigan. There were no additional impairment charges recognized in 1996.
Investment income in 1996 was $190 thousand compared to $76 thousand
in 1995. The increase is due to increases in investment in marketable
securities. However, in 1995 the Company wrote down the value of its
investment in a privately held company by $107 thousand. Interest expense in
1996 increased by $240 thousand due to margin loans on brokerage accounts.
The provision for income taxes of $1.6 million and $171 thousand
reflect taxes payable in respect of profitable operations. The 1995 provision
reflects an additional provision for state income taxes of 10% of anticipated
taxable income in the respective states.
25
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company's cash and cash equivalents and
marketable securities totaled $6.7 million dollars. The Company's negative
working capital was approximately $11,000,000 in 1997. The Company's negative
working capital grew from $763,000 in 1995 to $3.9 million in 1996.
The Company expects, therefore, that the negative working capital of
the Company will increase in 1998. The primary reason for the increase in
negative working capital is the Company's practice of funding long term
investments with working capital as opposed to using other forms of financing
including the issuance of equity and debt.
26
<PAGE>
EFFECTS OF INFLATION
The Company's management believes that inflation will not have a significant
effect on the Company's results of operations.
SEASONALITY
The Company's business is not seasonal.
ITEM 8. - FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The Financial Statements of the Company and financial statement schedule filed
as part of this report on Form 10-K are listed in Item 14(a).
ITEM 9. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's Board of Directors is divided into three classes of
directors, with the directors in each class elected for three-year staggered
terms. Class I consists of three (3) directors whose term expires at the annual
shareholders' meeting in 2000. Class II consists of three (3) directors whose
term expires at the annual shareholders' meeting in 1999. Class III consists of
four (4) directors whose term expires at the annual shareholders' meeting in
1998. Officers serve on the Board of Directors, subject to restrictions set
forth in their employment agreements, if any. See "EXECUTIVE
COMPENSATION--Employment Agreements."
The following table sets forth information with respect to each
director and executive officer of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION CLASS DIRECTOR SINCE
- ---- ---- -------- ----- --------------
<S> <C> <C> <C> <C>
Wade B. Cook 47 Chairman of the Board* I June, 1995
Laura M. Cook 45 Secretary and Director* I June, 1995
Cheryle Hamilton 46 Director* III June, 1997
Robert T. Hondel 54 Director* III June, 1997
Warren H. Chaney 54 Director (1) August, 1996
John V. Childers 52 Director I Sept., 1995
Nicholas Dettman 49 Director II Sept., 1995
Eric W. Marler 40 Director (3) II December, 1996
Pamela Andersen 46 Director* (2) III August, 1997
Robin Anderson 34 Director* III June, 1997
Christopher M. Carde Director, General Counsel and Interim CEO(4)
Andrew T. Rice Comptroller, Treasurer and Chief Financial Officer(5)
Caesar Regosa Comptroller and Director(6)
</TABLE>
- -----------------
* Indicates members who are presently executive officers or employees of
the Company.
27
<PAGE>
(1) Did not stand for re-election at the 1997 Annual Shareholders' Meeting.
Certain biographical information regarding Mr. Chaney has been omitted
below.
(2) Resigned from the Board, effective March 17, 1998.
(3) Eric W. Marler served as the Chief Financial Officer of the Company from
December, 1996 to June, 1997 when he resigned in order to take advantage of
another business opportunity. He remains on the Board of Directors and
continues to work for a company, Cascade Management Associates, L.P. that
provides speaker services to the Company.
(4) Christopher M. Carde was terminated by the Company pursuant to a
confidential termination agreement dated August 21, 1997. Mr. Carde did
not receive any additional severance compensation and agreed to continue
to uphold his non-compete agreement. Certain biographical information
regarding Mr. Carde has been omitted below.
(5) Andrew T. Rice served as Comptroller from June to December 1997. During
that time Mr. Rice became Treasurer and CFO of the Company. Mr. Rice
resigned as CFO of the Company in December 1997 and left the Company just
prior to the year-end. Certain biographical information regarding Mr. Rice
has been omitted below.
WADE B. COOK is the Chairman of the Board, CEO, President and interim
Treasurer and Chief Financial Officer of the Company and has occupied at
least one of those positions since June of 1995. Mr. Cook also served as
Treasurer and President of WCSI since 1989. Mr. Cook is an author of numerous
books on finance, real estate, asset protection and the stock market, a trainer
and speaker on these topics, and the developer of educational products on
investing and personal wealth management. Mr. Cook is the husband of Laura M.
Cook.
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. This matter has
been concluded and all fines and penalties have been paid.
LAURA M. COOK is the Secretary and a member of the Board of Directors of the
Company. Mrs. Cook has also served as an officer and operational manager in
several subsidiaries of the Company. Mrs. Cook has managed accounting systems
for various corporations for 15 years.
CHERYLE HAMILTON is the Director of Lighthouse Publishing. From March, 1996 to
February, 1997, Ms. Hamilton served as Human Resources Director for the Company.
Prior to her involvement with the Company, Ms. Hamilton was Executive Assistant
of Sunsportswear, Inc., a clothing manufacturer located in Seattle, Washington.
She also provided intellectual property and marketing consulting on a contract
basis from 1991 to 1994.
ROBERT T. HONDEL is a Director of the Company and is the President and a
director of Quantum Marketing, Inc., a wholly-owned subsidiary, and was the
General Sales Manager of WCSI until December 1997. Mr. Hondel left retirement
to join the Company. Prior to joining the Company, Mr. Hondel spent 18 years
as the Director and President of the Knapp College of Business in Tacoma,
Washington. Mr. Hondel is the uncle of Robin Anderson.
JOHN V. CHILDERS, SR. is a Director of the Company. In addition to his duties as
Director, Mr. Childers acts as a speaker trainer of the Company. Mr. Childers is
the former President of Ideal Travel Concepts, Inc., a travel company with
locations in Tennessee and Florida which was recently acquired by the Company.
28
<PAGE>
NICHOLAS DETTMAN is a Director of the Company. He is a captain for Delta
Airlines and has been with that company for over 30 years. He is the owner and
operator of Kalowai Plantation, an orchid ranch in Kauai, Hawaii.
ERIC W. MARLER is a Director of the Company and has been a speaker for the
Company since September, 1996. Mr. Marler also served as Chief Financial Officer
of the Company from December, 1996 to June, 1997. Mr. Marler is Vice President
of Cascade Management Associates, L.P., a firm that provides tax consulting.
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.
PAMELA S. ANDERSEN was a Director of the Company until March 1998. Ms. Andersen
joined WCSI in October, 1994, as a director of Left Coast Advertising, Inc., a
subsidiary of the Company. She currently serves as Manager of Real Estate
Investments for the Company. Prior to her association with the Company, Ms.
Andersen worked with Bromar, Inc., Harris/3M and NEC, and has experience in the
fields of sales and real estate.
ROBIN ANDERSON is a Director of the Company. Ms. Anderson is the Sales Manager
for the Company and has been with the Company since 1994. Ms. Anderson is the
niece of Robert T. Hondel.
COMPENSATION OF DIRECTORS
The Company pays each director a fee of $3,000, payable quarterly, in
advance. In addition, the Company reimburses non-employee directors for
reasonable travel and out-of-pocket expenses incurred in connection with their
activities on behalf of the Company. Directors of the Company are eligible for
participation in the Wade Cook Financial Corporation 1997 Stock Incentive Plan.
See "The 1997 Stock Incentive Plan". The 1997 Stock Incentive Plan is
administered by the Board of Directors.
The 1997 Stock Incentive Plan
The Company's 1997 Stock Incentive Plan ("Plan") provides for the
granting of Stock Options ("Options"), including Incentive Stock Options
("ISOs") within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), and Non-Qualified Stock Options ("NQSOs"). In addition,
Stock Appreciation Rights ("SARs") may be granted under the Plan, either
accompanying an Option grant (a "Tandem SAR") or independent of an Option grant
(a "Stand-Alone SAR"). The Plan also provides for the granting of shares of
Restricted Stock, shares of Phantom Stock, stock bonuses and other stock-based
awards.
The Plan is administered by the Board. The Board has the right to grant
awards to eligible recipients and to determine the terms and conditions of Award
Agreements ("Agreements"), including, but not limited to, the vesting schedule
and exercise price of such awards, and to make all other determinations deemed
necessary or advisable for the administration of the Plan. The persons who will
be eligible to receive awards pursuant to the Plan will be such directors,
officers, consultants and other employees of the Company as the Board selects
("Participants").
29
<PAGE>
The maximum number of shares of Company stock reserved for issuance
under the Plan is 1,000,000 shares (subject to adjustment as provided in this
Form 10-K). Such shares may be authorized but unissued Company stock or
authorized and issued Company stock held in the Company's treasury. The Board
has the authority to make any and all equitable changes or adjustments it
deems necessary or appropriate in the event any dividend or other
distribution (whether in the form of cash, Company stock, or other property),
recapitalization, Company stock split, reverse Company stock split,
reorganization, merger, consolidation, spin-off, combination, repurchase, or
share exchange, or other similar corporate transaction or event, affects the
Company stock such that an adjustment is appropriate in order to prevent
dilution or enlargement of the rights of Participants under the Plan.
The Board will determine the expiration date of each Option,
provided however, that no ISO will be exercisable more than 10 years after
the date of grant. The exercisability of Options may be based on a
predetermined vesting schedule or may be subject to the attainment by the
Company of performance goals pre-established by the Board. The option
exercise price per share will be determined by the Board; provided, however,
that in the case of an ISO, the option exercise price will in no event be
less than the fair market value of a share of Company stock on the date the
ISO is granted. The Plan provides that the Board will have the authority to
specify, at the time of grant, or with respect to NQSOs, at or after the time
of grant, that a Participant shall be granted a new NQSO (a "Reload Option")
for a number of shares equal to the number of shares surrendered by the
Participant upon exercise of all or a part of an Option, subject to the
availability of shares of Company stock under the Plan at the time of such
exercise.
The Board may grant Common Stock as a bonus. Other forms of awards
valued in whole or in part by reference to, or otherwise based on, Company
stock may be granted either alone or in addition to other awards under the
Plan. The Board will determine the persons to whom and the time or times at
which such awards will be granted. The number of shares of Company stock to
be granted pursuant to such awards and all other conditions of such awards.
The Board may suspend, terminate or amend the Plan at any time,
provided however, that stockholder approval will be required if and to the
extent the Board determines that such approval is appropriate for purposes of
satisfying Section 422 of the Code or Rule 16b-3 as promulgated under the SEC.
BOARD MEETINGS AND COMMITTEES
During 1997, the Board of Directors held 10 meetings, and as of March
13, 1998, has met two times. Each current member attended at least 100% of the
meetings of the Board of Directors for which they were eligible to attend.
Board Committees
The Executive Committee has the authority to approve the acquisition,
financing and disposition of investments for the Company and execute certain
contracts and agreements, including those related to borrowing money by the
Company, and generally will exercise all other powers of the Board of Directors
except for those which require action by the Board of Directors under the
Articles of Incorporation, By-laws or applicable law. The members of the
Executive Committee are Wade B. Cook and Laura M. Cook.
The Audit Committee consists of directors who are not employees and who
are, in the opinion of the Board of Directors, free from any relationship that
would interfere with their exercise of independent judgment as Audit Committee
members. The Audit Committee has been established to make recommendations
concerning the engagement of independent public accountants, review with the
independent public accountants the plans and results of the audit engagement,
approve professional services provided by the independent accountants, review
the independence of the independent public accountants, consider the range of
audit and non-audit fees and review the adequacy of the Company's
30
<PAGE>
internal accounting controls. The members of the Audit Committee are Eric W.
Marler and Nicholas Dettman. The Audit Committee held three meetings in 1997
and, as of March 13, 1998, has held one meeting in 1998.
The Compensation Committee consists of directors who may be
employees and non-employees of the Company and has been established to review
the Company's general compensation strategy, establish the salaries of, and
review the benefit programs for, the Chairman and Chief Executive Officer and
set the salaries of, and review the benefit programs for, those persons who
report directly to the Chief Executive Officer, and to approve certain
employment contracts. The members of the Compensation Committee are John V.
Childers, Cheryle Hamilton, and Robert T. Hondel. The Compensation Committee
held no meetings in 1997 and, as of March 13, 1998 has held two meetings.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities to file
reports of ownership and changes in ownership on Forms 3,4 and 5 with the
Securities and Exchange Commission. Based solely on the Company's review of the
copies of such forms it has received and written representations from certain
reporting persons that they were not required to file Form 5 for fiscal year
1997, the Company believes that all its officers, directors and greater than ten
percent (10%) beneficial owners complied with all filing requirements applicable
to them with respect to transactions during 1997.
ITEM 11. - EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth certain compensation information for
each of the last three fiscal years for the Chief Executive Officer and each of
the next four most highly compensated executive officers whose compensation
exceeded $100,000 and two additional persons for whom disclosure would have been
required had such persons been executive officers of the Company.
<TABLE>
<CAPTION>
NAME AND POSITION YEAR SALARY OTHER BENEFITS OTHER COMPENSATION
- ----------------- ----- ------- -------------- ------------------
<S> <C> <C> <C> <C>
Wade B. Cook 1997 $238,240 $7,500(1) $9,996,840(2)
Chairman, President 1996 $ 90,628 -- $4,366,183(3)
and CEO 1995 $755,550 -- $ 82,923
Robert T. Hondel 1997 $112,231 -- $ 81,403
General Sales 1996 $179,532 -- --
Manager 1995 $ 62,500 -- --
Kim Brydson, 1997 $182,185 -- --
Director of Marketing 1996 $ 63,120 -- $ 17,923
1995 -- -- $ 2,550
Cheryle Hamilton 1997 $120,446 -- --
Director of Lighthouse 1996 $ 34,781 -- --
Publishing 1995 -- -- --
Scott Curry 1997 $124,645 -- --
Sales Representative 1996 $ 21,527 -- --
1995 -- -- --
</TABLE>
31
<PAGE>
Certain of the Company's executive officers received personal benefits
in addition to salary and cash bonuses, including car allowances or the use of a
car owned by the Company. The aggregate amount of such personal benefits,
however, does not exceed the lesser of $50,000 or 10% of the total of the annual
salary and bonus reported for the named executive officers.
- ------------------------
(1) Represents payment of the annual premium for a Life Insurance Policy on
Wade B. Cook with Laura M. Cook as beneficiary.
(2) Represents amounts paid by WCSI to Mr. Cook or his affiliates pursuant
to a Product Agreement. See "Certain Relationships and Related
Transactions."
(3) Amounts shown are accrued royalties payable for the year 1996. The
amount actually paid to Wade B. Cook and affiliates was $2,999,130.
EMPLOYMENT AND TERMINATION AGREEMENTS
Pursuant to an Employment Agreement, dated as of June 25, 1997 and
effective as of July 1, 1997, Mr. Cook is employed as Chief Executive Officer
and President of the Company. The Employment Agreement provides for a
three-year term in which Mr. Cook will receive an annual base salary of
$240,000 in Year 1, $265,000 in Year 2 and $290,000 in Year 3. According to
the Employment Agreement, Mr. Cook may receive additional bonuses for work as
approved by the Board of Directors of the Company. To date, no such bonuses
have been requested or approved. In addition, Mr. Cook is entitled to
reimbursement for reasonable travel and business entertainment expenses
authorized by the Company, as well as certain fringe benefits.
Christopher Carde was terminated by the Company pursuant to a
confidential termination agreement dated August 21, 1997. Mr. Carde did not
receive any additional severance compensation and agreed to continue to uphold
his non-compete agreement.
OPTION GRANTS IN LAST FISCAL YEAR
Shown below is information concerning grants of options during fiscal 1997 to
the Named Officers.
Option Grants in the Last Fiscal Year
Individual Grants(l)
<TABLE>
<CAPTION>
Securities % of Securities Potential Realizable Value at Assumed
Underlying Underlying Actual Rates of Stock Price Appreciation
Options Options Granted for Option Term (2)
Granted to Employees in Exercise Price Expiration ---------------------------------------
Name (#) (1) Fiscal Year ($/Share) Date(s) 5% ($) 10% ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Wade B. Cook,
Chairman
Laura M. Cook,
Secretary
--NONE GRANTED--
</TABLE>
(1) Under the terms of the Stock Option and Stock Award Plan all options
to purchase the Company's Common Stock granted have ten-year terms.
The per share exercise price in each case is equal to or greater than
the closing price of the Company's Common Stock on the date of grant
as reported on the OTC BB. The purchase price of Common Stock acquired
by the exercise of options may
32
<PAGE>
be paid by the delivery of shares of Common Stock previously acquired
by the optionee. The Board has broad discretion and authority to amend
outstanding options and re-price such options, whether through an
exchange of options or amendments thereto.
(2) Potential realizable value is based on an assumption that the stock
price of the Common Stock appreciates at the annual rate shown
(compounded annually) from the date of grant until the end of the
option term. These numbers are calculated based on the requirements of
the Securities and Exchange Commission and do not reflect the
Company's estimate of future stock price performance.
The number of shares acquired upon exercise of options and the value realized
from any such exercise, during fiscal year 1997, and the number of shares
subject to exercisable and unexercisable options held and their values at
December 31, 1997 for each of the Named Officers are set forth in the following
table.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
Shown below is information with respect to the unexercised options to purchase
the Company's Common Stock granted in fiscal 1997 under the Company's 1997 Stock
Option Plan to the Named Officers. None of the Named Officers exercised any
stock options during fiscal 1997.
Aggregated Option Exercises in the Last Fiscal Year
and FY-End Option Values
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Shares FY-End (#) FY-End ($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise(#)(1) Realized($)(1) Unexercisable Unexercisable (2)
<S> <C> <C> <C> <C>
Wade B. Cook, Chairman
Laura M. Cook, Secretary
</TABLE>
(1) No options were exercised during 1997.
(2) No options were in-the-money at the time of grant or at fiscal year
end. "In-the-money" means that the market price of the underlying
shares is higher than the price at which shares can be purchased by
exercise of an option.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has formed a Compensation Committee. No executive officer
of the Company has served as a member of the board of directors or compensation
committee of any company in which another Board member is an executive officer.
33
<PAGE>
COMPENSATION REPORT OF THE BOARD OF DIRECTORS
The Board of Directors is responsible for establishing compensation
policy and administering the compensation programs of the Company's executive
officers. See "Directors and Executive Officers of the Registrant--Board
Meetings and Committees." The purpose of this report is to inform
shareholders of the Company's compensation policies for executive officers
and rationale for the compensation paid to executive officers in fiscal year
1997. The amount of compensation paid by the Company to each of its directors
and officers and the terms of employment were determined solely by Wade B.
Cook except as otherwise noted below. The Company believes that the
compensation paid to its directors and officers, including Wade B. Cook, is
competitive with that paid by similar companies. The compensations and
benefits for 1997 of the Chief Executive Officer and the other executive
officers of the Company are determined by oral employment agreements (except
as otherwise noted below). The terms of such agreements were negotiated with
Wade B. Cook. Mr. Cook's employment agreement for 1997 to 2000 was negotiated
through the Company's General Counsel and was based on a general
consideration of the compensation of similarly situated chief executive
officers in the Pacific Northwest region of the United States.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Wade B. Cook's minimum base salary for 1997 was paid pursuant to his
Employment Agreement.
COMPENSATION OF ALL EXECUTIVE OFFICERS
All executive officers of the Company are compensated based on a
performance based system of generating sales and opportunities to and for the
Company in exchange for salaries and bonuses. Mr. Cook negotiates all
salaries. The Company believes that the levels of compensation and benefits
set for executive officers is within the range of those set in similar
companies for persons performing the same or similar functions. In one
instance in 1997, employees, including executive officers, were granted small
direct awards of the Company's Common Stock. The Board of Directors believes
that the use of direct stock awards is appropriate for employees and in the
future intends to use direct stock awards to reward outstanding service to
the Company or to attract and retain individuals with exceptional talent and
credentials. The use of incentives such as stock options or awards is
intended to further align the interests of executive officers and other key
employees with those of the Company's shareholders.
The Omnibus Budget Reconciliation Act of 1993 as codified in the
Internal Revenue Code established certain criteria for the tax deductibility of
compensation in excess of $1 million paid to any one of the Company's executive
officers. The effect of Section 162(m) of the Internal Revenue Code is that
starting with tax years beginning after January 1, 1994, a publicly held
corporation may not deduct compensation paid to its chief executive officer and
its four other most-highly compensated officers in excess of $1 million per
officer during a corporate taxable year except to the extent such amounts in
excess of $1 million qualify for an exception to this limitation. To qualify for
this exception, such amounts must be determined on the basis of pre-established,
objective, nondiscretionary formulae that meet certain shareholder and outside
director approval requirements.
Submitted by the Board of Directors
Wade B. Cook
STOCK PERFORMANCE GRAPH
34
<PAGE>
The following graph compares the Company's cumulative total shareholder
return since the Common Stock became registered under Section 12 of the
Securites Exchange Act of 1934 on June 30, 1997 with the Russell 2000 Index and
an index of certain companies having the same Standard Industrial Classification
Code. The graph assumes that the value of an investment in the Company's Common
Stock at June 30, 1997 at the closing price of $1.68 per share and each index
was $100.00 on June 30, 1997.
[GRAPH]
<TABLE>
<CAPTION>
6/30/97 7/31/97 8/29/97 9/30/97 10/31/97 11/28/97 12/31/97 1/30/98 2/27/98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
K FINANC 100.00 106.91 311.45 184.18 202.27 190.91 76.14 59.66 54.55
CODE IND 100.00 104.13 99.92 105.73 109.62 104.31 108.01 114.95 126.86
ELL 2000 IN 100.00 104.64 107.03 114.86 109.82 109.11 111.02 109.26 117.34
</TABLE>
1 The Industry Index chosen was: Sic Code 2741--Miscellaneous Publishing
The Current composition of the industry index is as follows:
American Education PRD
Global One Distrib&Merch
Harte Hanks Communicatns
Pacific Chemical Inc
Publishing Co N America
Topps Co Inc
Tro Learning Inc
Visual Data Corp
2 The Broad Market Index chosen was: Russell 2000 Index
ITEM 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of shares of the Common Stock as of March 13, 1998 (except as
otherwise noted) by (i) each person known by the Company to beneficially own
more than 5% of the outstanding shares of Common Stock, (ii) each director of
the Company, (iii) each executive officer of the Company, and (iv) all
directors and executive officers of the Company as a group. Except as noted
below each person named in the table has sole voting and dispositive power
with respect to all shares of Common Stock shown as beneficially owned.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT OF
BENEFICIAL OWNER (1) OWNED (2) CLASS (3)
<S> <C> <C>
Officers and Directors:
Wade B. Cook 39,789,860(4) 62%
Laura M. Cook 39,789,860(4) 62%
Cheryle Hamilton 1,310 *
Robert T. Hondel 166,310 *
John V. Childers 1,148,810 1.8%
Nicholas Dettman 0 *
Eric W. Marler 23,480 *
Pamela Andersen 1,310 *
</TABLE>
35
<PAGE>
<TABLE>
<S> <C> <C>
Robin Anderson 18,050 *
All executive officers
and directors of the Company
as a group (9 persons) 41,149,130 64%
Non-management 5% Shareholders -- --
</TABLE>
- ------------------------
* Represents beneficial ownership of less than 1% of the outstanding shares of
the Common Stock
(1) Unless otherwise indicated, the address of the beneficial owner is c/o Wade
Cook Financial Corporation, 14675 Interurban Avenue South, Seattle, Washington
98168-4664.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of Common Stock subject to stock
options and warrants currently exercisable or exercisable within 60 days are
deemed to be outstanding for calculating the percentage ownership of the person
holding such options and the percentage ownership of any group of which the
holder is a member, but are not deemed outstanding for calculating the
percentage of any other person. Except as indicated by footnote, and except for
voting or investment power held jointly with a person's spouse, the persons
named in the table have sole voting and investment power with respect to all
shares of capital stock shown beneficially owned by them.
(3) Percentage is calculated based upon 64,223,685 shares of Common Stock
outstanding on March 13, 1998 and takes into account a 3:1 stock split
approved by the Board of Directors effective September 15, 1997 and a 3:1
stock split approved by the Board of Directors effective December 23, 1997.
(4) Includes (a) 7,508,345 shares of Common Stock owned of record by Mr. Cook,
(b) 3,600,140 shares owned by the Wade Cook Family Trust, a trust established
for the benefit of Mr. and Mrs. Cook's family, (c) 7,500 shares of Common Stock
held by Money Chef, Inc., and (d) shared voting and investment power over
24,200,000 shares of Common Stock owned by the Wade B. Cook and Laura M. Cook
Family Trust, a trust established for the benefit of Mr. & Mrs. Cook's family.
Wade B. Cook and Laura M. Cook are husband and wife. All shares held by Mr. Cook
are held as community property. Mr. Cook is the trustee of the named trusts.
ITEM 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 20, 1998, Mr. Cook and the Company entered into a new Product
Agreement adding additional licensed materials. As with the previous Open Ended
Product Agreement the license is nonexclusive, provides Mr. Cook with a 10%
royalty rate of all gross sales for the products licensed, and will remain in
effect until June 30, 2002. The Company paid royalties to Mr. Cook or entities
controlled by Mr. Cook of $9,996,840 in 1997, $2,199,130 in 1996, and
$755,550 in 1995.
The Company has licensed the rights to various books authored by Mr.
Cook. See Licensing from Wade B. Cook. Under the terms of each Publishing
Agreement, Mr. Cook is paid a royalty of ten percent (10%) of the retail price
of each book sold. The amount of royalties paid to Mr. Cook and his affiliates
under the Publishing Agreements in 1997, 1996, and 1995 is included in the
amounts stated above as paid royalties.
WCSI has two loans to Paul Cook, Mr. Cook's brother, in the amount of
seventy-five thousand dollars ($75,000) and thirteen thousand dollars ($13,000).
The first loan in the amount of seventy-five thousand dollars ($75,000) was
executed on June 18, 1997 for a two-year term at an interest rate of 11
36
<PAGE>
percent (11%) per annum. The second loan for thirteen thousand dollars ($13,000)
was executed on January 1, 1998 for a one year term at an interest rate of
eleven percent (11%) per annum. Both loans are secured by a deed of trust on
Paul Cook's home in Salt Lake City, Utah. The Company contracts with Grand
Teton, a company owned or controlled by Paul Cook, to provide speaker
services. The Company paid to Paul Cook and Grand Teton $178,700, $46,648 and
$3,500 in 1997, 1996 and 1995, respectively.
Scott Scheuerman, Mr. Cook's brother-in-law, is president of USA
Corporate Services, Inc. (USA), BOSS Services, Inc., (BOSS), and Acorn
Services, Inc. and is also secretary and treasurer of Black Ink, ("Black
Ink") all of which are Nevada corporations. Boss and Acorn provide business
office support services and registered agent services respectively, and both
have corporate offices in Nevada. USA and Black Ink provide incorporation
services and corporate documentation. USA and Black Inks's corporate offices
are located in WCFC's headquarters in Seattle, Washington. USA and Black Ink
leases the office space for their corporate headquarters from Wade Cook
Seminars, Inc.. The Company markets the services of USA, BOSS, Acorn, and
Black Ink to its seminar attendees. In 1997, the Company paid approximately
$1,990 to Acorn, approximately $1,027,501 to USA, and approximately $91,725
to Black Ink. The Company paid $117,866 and $123,242 to these entities in
1996 and 1995, respectively.
Eric W. Marler, the former Chief Financial Officer of the Company
and a current Director and speaker for the Company, is the owner of 50% of
the issued units of Cascade Management Associates, L.P. ("Cascade"). Cascade
provides WCSI with the speaking services of Mr. Marler. The Company paid
$103,009 to Cascade in 1997 and $35,555 in 1996. There is no record of
payment to Cascade in prior years.
John V. Childers, Sr., a Director of the Company, contracts with WCSI
through Speaker Services, Inc. ("Speaker Services"), a corporation owned or
controlled by Mr. Childers, to develop & direct speaker trainer programs for
WCSI. Mr. Childers receives a commission based on the gross sales of
Financial Clinic and Wall Street Workshops. The Company paid Speaker Services
$254,422 and Seminar Services $166,860 in 1997, $22,710 in 1996, and $3,080 in
1995. The Company paid Mr. Childers $421,282 in 1997 and has no record of
direct payment to him in prior years. Additionally, Mr. Childers is the
former president and director of Ideal Travel Concepts Inc. ("Ideal"). WCFC
executed a stock purchase agreement with Ideal effective August 1, 1997 to
purchase Ideal for 358,333 shares of restricted Common Stock of the Company
for a total purchase price of $2,150,000. Ideal provides travel services
to the Company and others and has offices in Tennessee and Florida. Ideal
also provides travel agent training kits which are marketed by WCSI.
Effective January 1, 1998, the Company acquired Quantum Marketing, Inc.
("Quantum") from Robert Hondel, a Director of the Company in exchange for 45,000
restricted shares of Common Stock in the Company. Quantum provides retail and
local marketing of the products of the Company through individual Wade Cook
Financial Education Centers. Most centers contain a business bookstore, a sales
office, and an alumni center. Mr. Hondel will remain as the President of
Quantum. Hondel also assigned all rights and interests in Wade Cook Financial
Education Centers, Inc., a Nevada corporation to the Company for $1.
On January 9, 1998, WCSI executed a loan to Robert Hondel, a Director
and the President of Quantum Marketing, Inc., which is now a wholly-owned
subsidiary of the Company. The loan was in the amount of forty-thousand dollars
($40,000) for a term of 4 years at an interest rate of 10% per annum. On July
31, 1997 Robert Hondel executed a promissory note in the principal amount of
$300,000 in favor of WCSI. The note is secured by a lien on Mr. Hondel's real
property located in Graham, Washington and bears interest at a rate of 10%
per year payable in monthly installments of $2,500 plus 50% of all monthly
income received by Quantum Marketing and its affiliates in excess of $8,000
per month beginning September 5, 1997 until paid in full.
Money Chef, Inc., an affiliate of Wade B. Cook has a 50% ownership
interest in Newstart Centre, Inc., a Utah corporation ("Newstart") that
specializes in automobile sales and leasing to consumers unable to obtain
financing from traditional sources. Money Chef, Inc. also purchased the
property which is currently leased to Newstart. The Company originally
planned to purchase the interest of Newstart, and the land leased by Newstart
37
<PAGE>
at the time of the acquisition by Money Chef, Inc., but was not in a position
to do so at the time of closing. With the approval of the Board, Mr. Cook,
made the acquisition personally through his interest in Money Chef, Inc.
which enabled the Company further time to consider the investment. The Board
has subsequently agreed to purchase both the land and the 50% interest in
Newstart for a $1 above that which Mr. Cook and/or Money Chef has invested to
date for said property and 50% interest in Newstart. The Company intends to
complete this acquisition in the next quarter. WCSI, Left Coast Advertising,
Inc., and Information Quest, Inc. have a total of eight outstanding loans to
Newstart. On May 23, June 20, and July 25 of 1997 and January 20, 1998, WCSI
executed four loans with Newstart. Each loan was in the amount of one-hundred
and twenty-five thousand dollars ($125,000) for a term of 4 years. All of the
loans executed in 1997 were at an interest rate of seventeen percent (17%)
per year. The loan executed on January 20, 1998 was at an interest rate of
fifteen percent (15%) per year. On August 22, and October 9, of 1997,
Information Quest executed two loans with Newstart for one hundred and
twenty-five thousand dollars ($125,000) each for a term of four (4) years
at an interest rate of seventeen percent (17%) per year. Left Coast
Advertising executed two separate loans with Newstart, on August 19, and
October 9, of 1997. These loans were in the amount of one hundred and
twenty-five thousand dollars ($125,000) for a term of four years at an
interest rate of 17% per year. All of these loans are secured by titles to
automobiles purchased with these funds.
Effective January 1, 1998, WCFC acquired all of the stock in
Information Quest, Inc., a Nevada corporation ("IQI"), from Thomas and Linnet
Cloward in exchange for 45,000 restricted shares of common stock in the
Company. Mr. Cloward was the former Chief Information Officer of the Company
and will continue as President of IQI under the terms of an Employment
Agreement effective April 1, 1998 and terminating December 31, 1998. The
Employment Agreement provides for a base salary of $60,000 and a one percent
commission override on IQI sales. The Employment Agreement further provides
Cloward the option to purchase 45,000 restricted shares of WADE at $2.00 per
share on September 1, 1998 and an additional 45,000 shares of restricted
stock of WADE at $2.33 per share on September 1, 1999. Ms. Cloward is an
employee of the Company. Information Quest, Inc. is a provider of
subscription paging service related to stock market developments. The Company
has also licensed the rights to the IQ Pager, the primary product of IQI,
from Mr. Cloward, the inventor, in exchange for a two and one-half percent
(2.5%) royalty of gross revenues related to the product. Prior to the
acquisition of IQI and the license from Cloward, the Company had a marketing
arrangement with IQI wherein the Company split equally the gross income of
all IQ Pagers sold by the Company.
Effective January 1, 1998, WCFC acquired all of the stock in Get
Ahead Bookstores, Inc., a Nevada corporation ("Get Ahead") from Glendon H.
Sypher for an Assignment of all of his right, title and interest in and to
for $1. Mr. Sypher was hired to begin Get Ahead operations from funds
advanced by the Company.
38
<PAGE>
PART IV
ITEM 14. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
PAGE REFERENCE
(a)(1) FINANCIAL STATEMENTS. FORM 10-K
<TABLE>
<S> <C>
Independent Auditors' Report ...................................... F-1
Consolidated Balance Sheets as of December 31,
1996 and 1997 ................................................... F-2
Consolidated Statements of Operations for each of the
three years in the period ended
December 31, 1997 .............................................. F-
Consolidated Statements of Stockholders' (Deficiency)
Equity for each of the three years in the period
ended December 31, 1997 ......................................... F-
Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 1997 .............. F-
Notes to Consolidated Financial Statements ....................... F-
</TABLE>
<TABLE>
<S> <C>
(a)(2) FINANCIAL STATEMENT SCHEDULE.
Independent Auditors' Report....................................... S-1
Schedule I - Condensed Financial Information of Registrant......... S-2
(a)(3) EXHIBITS.
2.1(a)**** Articles of Merger, dated September 10, 1997, filed on December
19, 1997 in the State of Nevada. (previously filed as Exhibit
19.14)
2.1(b)**** Articles of Merger, dated December 20, 1997, filed on December
22, 1997 in the State of Utah. (previously filed as Exhibit 99.14)
2.1(c)**** Agreement and Plan of Merger, dated August 15, 1997, filed on
December 19, 1997 in the State of Nevada and filed on December
22, 1997 in the State of Utah. (previously filed as Exhibit 99.14)
2.1(d)**** Certificate of Correction dated and filed on December 24, 1997
in the State of Nevada. (previously filed as Exhibit 99.14)
2.1(e)**** Articles of Incorporation, dated and filed December 19, 1997, in
the State of Nevada. (previously filed as Exhibit 99.14)
2.1(f)**** Minutes of Annual Shareholders' meeting of Wade Cook Financial
Corporation held on December 10, 1997 filed on December 19, 1997
in the State of Nevada. (previously filed as Exhibit 99.14)
2.1(g)**** Corporate Charter for Wade Cook Financial Corporation. (previously
filed as Exhibit 99.14)
2.1(h)**** Corporate Resolution, dated December 18, 1997, to increase total
authorized common stock of Wade Cook Financial Corporation.
(previously filed as Exhibit 99.14)
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
3.1(e)**** Amendment to the Articles of Incorporation of Profit Financial
Corporation dated September 14, 1997 (previously filed as Exhibit
99.14)
3.2**** Bylaws of Wade Cook Financial Corporation (previously filed as
Exhibit 99.17)
3.2(a)* Bylaws of Profiteer Corporation
4.1*** Form of Profit Financial Corporation's Class A Common Stock
Certificate
4.1(a)**** Form of Wade Cook Financial Corporation's Common Stock
Certificate (previously filed as Exhibit 99.7)
10.1(a)** Product Agreement, Dated January 3, 1993, between United Support
Association, Inc. as the purchaser, and Money Chef, Inc.,
previously known as USA/Wade Cook Seminars, Inc. as the seller
10.1(b)*** Product Agreement, dated June 25, 1997, and effective as of July
1, 1997, among Wade Cook Seminars, Inc., Money Chef, Inc., and
Wade B. Cook
10.1(c)**** 1997 Stock Incentive Plan of Wade Cook Financial Corporation
(previously filed as Exhibit 99.19)
10.1(d)**** Notice of Grant of Stock Option of Wade Cook Financial
Corporation (previously filed as Exhibit 99.18)
10.1(e)**** Certificate of Appointment of American Stock Transfer & Trust
Company (previously filed as Exhibit 99.15)
10.1(f) Form of Indemnification Agreement of Wade Cook Financial
Corporation (previously filed as Exhibit 99.16)
39
<PAGE>
10.2* Agreement dated May 18, 1995, by and among Profit Financial
Corporation, Yeaman Enterprises, Inc., Four Star Ranch, Inc.,
United Support Association, Inc. and Wade B. Cook
10.3(a)* Agreement dated February 1, 1996, between Wade B. Cook and
Lighthouse Publishing Group, Inc. (for Wall Street Money Machine)
10.3(b)** Amended Agreement, dated June 26, 1997, between Wade B. Cook and
Lighthouse Publishing Group, Inc. (for Wall Street Money Machine)
10.4(a)* Agreement Dated January 1, 1997, between Wade B. Cook and
Lighthouse Publishing Group, Inc. (for Stock Market Miracles)
10.4(b)** Amended Agreement dated June 26, 1997, between Wade B. Cook and
Lighthouse Publishing Group, Inc. (for Stock Market Miracles)
10.5** Agreement dated March 1, 1997, between Wade B. Cook and
Lighthouse Publishing Group, Inc. (for Bear Market Baloney)
10.6** Agreement dated May 1, 1997, between Wade B. Cook and Lighthouse
Publishing Group, Inc. (for Business Buy The Bible)
10.7** Purchase and Sale Agreement, dated July 4, 1996, between United
Support Association and Seller
10.8** Employment Agreement dated June 26, 1997, by and between Wade
Cook Seminars, Inc., and Wade B. Cook
10.9** Commercial Lease dated June 25, 1997, by and between Wade Cook
Seminars, Inc. and U.S.A. Corporate Services, Inc.
10.10** Agreement dated November 1, 1996, between Wade B. Cook and
Lighthouse Publishing Group, Inc. (for Real Estate Money Machine)
10.11*** All Inclusive Trust Deed dated March 8, 1997, for the purchase
and assumption of certain real-estate by Rising Tide, LTD from
East Bay Lodging Association, LTD
10.12*** Secured Loan Agreement and Promissory Note (Secured) between
U.S.A., Wade Cook Seminars, Inc. and Newstart Centre, Inc.
10.13**** Open-Ended Product Agreement, dated March 20, 1998, between Wade
Cook Financial Corporation and Wade B. Cook (previously filed as
Exhibit 99.10)
10.14 Product Agreement, dated March 23, 1998, between Planet Cash,
Inc., Steven Allyn Wirrick and Wade Cook Financial Corporation
10.15 Stock Assignment Agreement, dated January 1, 1998, between Get
Ahead Bookstores, Inc., Glendon H. Sypher and Wade Cook
Financial Corporation
10.16**** Employment Agreement, dated March 23, 1998, between Wade Cook
Financial Corporation and Thomas Cloward (previously filed as
Exhibit 99.6)
10.17**** Product Agreement, dated March 23, 1998, between Wade Cook
Financial Corporation, Information Quest, Inc. and Thomas Cloward
(previously filed as Exhibit 99.6)
10.18**** Share Exchange Agreement, dated January 1, 1998, between Wade
Cook Financial Corporation and Information Quest, Inc.
(previously filed as Exhibit 99.6)
10.19**** Stock Purchase Agreement, dated August 8, 1997, between Profit
Financial Corporation and Curtis A. Taylor and Stanley J. Zenk
regarding Worldwide Acquisition. (previously filed as Exhibit 99.3)
10.20**** Stock Purchase Agreement, dated August 1, 1997, between Wade
Cook Financial Corporation and John V. Childers, Sr., Brenda
Childers, Tracy Allan Childers and John V. Childers, Jr.
regarding Ideal Acquisition. (previously filed as Exhibit 99.4)
10.21**** Share Exchange Agreement, dated September 12, 1997, between
Profit Financial Corporation and Applied Voice Recognition, Inc.
(previously filed as Exhibit 99.1)
10.22**** Publishing Agreement, effective October 1, 1997 and signed
January 12, 1998, between Lighthouse Publishing Group, Inc. and
Wade B. Cook (re: Don't Set Goals (the Old Way)) (previously
filed as Exhibit 99.11)
10.23**** Distribution Agreement, effective September 21, 1997 and signed
October 1, 1997, between Lighthouse Publishing Group, Inc. and
Origin Trade Books, Inc. (re: Don't Set Goals (the Old Way))
(previously filed as Exhibit 99.11)
10.24**** Distribution Agreement, effective September 21, 1997 and signed
October 1, 1997, between Lighthouse Publishing Group, Inc. and
Origin Trade Books, Inc. for several Wade B. Cook's books
(previously filed as Exhibit 99.11)
10.25**** Secured Loan Agreement, Promissory Note, and Certificate of
Delivery and Receipt of Documents, dated May 23, 1997, between
USA/Wade Cook Seminars, Inc. and Newstart Centre, Inc.
(previously filed as Exhibit 99.20)
10.26**** Secured Loan Agreement, Promissory Note, and Certificate of
Delivery and Receipt of Documents, dated June 20, 1997, between
Wade Cook Seminars, Inc. and Newstart Centre, Inc.
(previously filed as Exhibit 99.20)
10.27**** Secured Loan Agreement, Promissory Note, and Certificate of
Delivery and Receipt of Documents, dated July 25, 1997, between
Wade Cook Seminars, Inc. and Newstart Centre, Inc. (previously
filed as Exhibit 99.20)
10.28**** Secured Loan Agreement, Promissory Note, and Certificate of
Delivery and Receipt of Documents, dated August 22, 1997,
between Information Quest, Inc. and Newstart Centre, Inc.
(previously filed as Exhibit 99.20)
10.29**** Secured Loan Agreement, Promissory Note and Certificate of
Delivery and Receipt of Documents, dated October 9, 1997,
between Information Quest, Inc. and Newstart Centre, Inc.
(previously filed as Exhibit 99.20)
10.30**** Secured Loan Agreement, Promissory Note and Certificate of
Delivery and Receipt of Documents, dated October 9, 1997,
between Left Coast Advertising, Inc. and Newstart Centre, Inc.
(previously filed as Exhibit 99.20)
10.31**** Secured Loan Agreement, Promissory Note and Certificate of
Delivery and Receipt of Documents dated August 19, 1997, between
Left Coast Advertising, Inc. and Newstart Centre, Inc.
(previously filed as Exhibit 99.20)
10.32 Secured Loan Agreement, Promissory Note and Certificate of
Delivery and Receipt of Documents, dated January 20, 1998,
between Wade Cook Seminars, Inc. and Newstart Centre, Inc.
10.33**** Secured Promissory Note, dated July 31, 1997, between Wade Cook
Seminars, Inc. and Robert and Meda Hondel. (previously filed as
Exhibit 99.6)
10.34**** Share Exchange Agreement, dated August 15, 1997, between Profit
Financial Corporation and Gold Leaf Press, Inc. (previously filed
as Exhibit 99.21)
10.35**** Share Exchange Agreement, dated August 15, 1997, between Profit
Financial Corporation and Origin Book Sales, Inc. (previously
filed as Exhibit 99.22)
10.36 Secured Promissory Note, dated June 18, 1997, between Paul and
Laurie Cook and Wade Cook Seminars, Inc.
10.37 Secured Promissory Note, dated January 1, 1998, between Paul and
Laurie Cook and Wade Cook Seminars, Inc.
10.38**** Purchase Order Form, dated September 12, 1997, between Profit
Financial Corporation and Applied Voice Recognition, Inc.
(previously filed as Exhibit 99.23)
10.39 Articles of Organization of Lake View Lodging Associates, L.C.
effective as of September 22, 1997
10.40 Assignment and Assumption of Interest, Consent Agreement,
Memorandum of Terms re: Airport Hotel Partners, L.L.C.
10.41 Limited Liability Company Interest Purchase Agreement re: Woods
Cross Hotel Partners, L.C. dated November 29, 1997
10.42 Limited Liability Company Interest Purchase Agreement with
exhibits re: Park City Hotel Partners, L.C. dated February 4, 1997
10.43 Memorandum of Terms, Assignment and Assumption of Interest,
Warranty Deed re: Airport Lodging Associates, L.C.
10.44 Warranty Deed, Articles of Organization re: Red Rock Lodging
Associates, L.C.
16.1*** Letter re: Change in Certifying Accountant
21.1* List of Profit Financial Corporation Subsidiaries
23.1 Consent of Miller and Company
24**** Powers of Attorney
27 Financial Data Schedule
</TABLE>
- --------------------------
* Previously filed as an exhibit to the Company's Form 10-12G filed with the SEC
on April 30, 1997 and incorporated in this Form 10-K by reference.
40
<PAGE>
** Previously filed as an exhibit to the Company's Form 10/A-1 filed with the
SEC on June 29, 1997 and incorporated in this Form 10-K by reference.
*** Previously filed as an exhibit to the Company's Form 10-12G/POS AM filed
with the SEC on September 24, 1997 and incorporated in this Form 10-K by
reference.
**** Previously filed as an exhibit to the Company's Form 10-K filed with the
SEC on March 31, 1998 and incorporated in this Form 10-K/A by reference.
(b) REPORTS ON FORM 8-K. In the Company's last fiscal quarter ended December 31,
1997, the Company did not file with the Securities and Exchange Commission a
Current Report on Form 8-K.
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report on Form 10K, as amended,
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Seattle, Washington, on July 13, 1998.
WADE COOK FINANCIAL CORPORATION
By: /s/ Wade B. Cook
------------------------------------
Wade B. Cook,
Chief Executive Officer
By: /s/ Wade B. Cook
------------------------------------
Wade B. Cook,
Interim Chief Financial Officer
42
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Wade Cook Financial Corporation and Subsidiaries
Seattle, Washington
We have audited the accompanying consolidated balance sheets of Wade Cook
Financial Corporation and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of income, changes in shareholders'
equity,and cash flows for the years ended December 31, 1997 and 1996, and the
nine months ended December 31, 1995 (restated). 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 Wade Cook Financial Corporation and subsidiaries as of December 31, 1997
and 1996,and the results of their consolidated operations and their
consolidated cashflows for the years ended December 31, 1997 and 1996, and
the nine months ended December 31, 1995 (restated) in conformity with generally
accepted accounting principles.
As discussed in Note-B to the financial statements, the Company has restated
its 1998 earnings per share.
As described in Note-I to the financial statements, the Company changed in
1995, its method of accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of in accordance with the Statement of
Financial Accounting Standards No. 121.
As discussed in Note-V to the financial statements, the Company has restated
its 1995 financial statements to conform with reversed acquisition under the
purchase method of accounting. Before the restatement the acquisition was
previously accounted for under the pooling of interests method.
/s/ Miller and Co.
-------------------------------
Miller and Co.
Certified Public Accountants
Santa Monica, California
February 26, 1998, except Notes V & W,
for which the date is March 26, 1998
F-1
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
CURRENT ASSETS NOTES 1997 1996
- ----------------------------------------------------------------------- ---------- ------------- -------------
<S> <C> <C> <C>
Cash and cash equivalents.............................................. A,L,V $ 540,763 $ 635,141
Marketable securities................................................ A,C,G,L 6,162,733 3,801,039
Trade and credit card receivables.................................... 3,283,183 859,660
Inventory............................................................ A 1,312,366 395,743
Due from related parties............................................. E 749,726 --
Notes receivable -- employees, current portion....................... 242,537 329,060
Notes receivable from officers, current portion...................... -- 13,191
Prepaid expenses..................................................... 235,840 93,196
Deferred royalties to related party.................................. -- 48,781
Deferred tax asset................................................... A,N 251,015 783,064
---------- ------------- -------------
TOTAL CURRENT ASSETS................................................. 12,778,163 6,958,875
---------- ------------- -------------
PROPERTY AND EQUIPMENT................................................. A,H 10,425,159 7,135,205
---------- ------------- -------------
GOODWILL............................................................... A,Q 2,637,669 --
---------- ------------- -------------
OTHER ASSETS
Non-marketable investments........................................... I,L 7,330,460 522,600
Other investments.................................................... 246,848 --
Deposits............................................................. U 4,093,334 35,423
Notes receivable -- employees........................................ E 3,293,182 1,385,742
Notes receivable from officers....................................... -- 236,413
Due from related parties............................................. E 599,323 663,401
---------- ------------- -------------
TOTAL OTHER ASSETS................................................... 15,563,147 2,843,579
---------- ------------- -------------
TOTAL ASSETS....................................................... $ 41,404,138 $ 16,937,659
---------- ------------- -------------
---------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
CURRENT LIABILITIES NOTES 1997 1996
- ------------------------------------------------------------------------ --------- ------------- -------------
<S> <C> <C> <C>
Current portion of long-term debt..................................... J $ 1,445,000 $ 660,708
Book overdrafts....................................................... U 2,156,305 --
Accounts payable and accrued expenses................................. 6,450,485 976,644
Margin loans in investment accounts................................... L 2,766,824 1,103,936
Payroll and other taxes withheld and accrued.......................... 163,363 807,414
Income taxes payable.................................................. A,N 5,253,700 2,075,872
Deferred revenue...................................................... A 4,764,441 5,160,999
Due to related parties................................................ E 782,752 19,000
Notes payable to officer.............................................. J 45,000 45,000
------------- -------------
TOTAL CURRENT LIABILITIES............................................. 23,827,870 10,849,573
LONG -TERM DEBT......................................................... J,L 821,182 1,768,762
------------- -------------
TOTAL LIABILITIES..................................................... 24,649,052 12,618,335
------------- -------------
COMMITMENTS & CONTINGENCIES............................................. D,M,W
MINORITY INTEREST....................................................... 687,945 617,300
------------- -------------
SHAREHOLDERS' EQUITY
Preferred stock, 5,000,000 shares authorized at $10 par value, none
issued and outstanding................................................ -- --
Common stock, 140,000,000 shares authorized at $0.01 par value,
64,245,923 shares and 6,680,864 shares outstanding as of December 31,
1997 and 1996, respectively........................................... 642,459 66,807
Paid-in capital......................................................... 3,691,386 894,408
Prepaid advertising..................................................... K,T (500,000) (500,000)
Retained earnings....................................................... 12,233,296 3,240,809
------------- -------------
TOTAL SHAREHOLDERS' EQUITY........................................ 16,067,141 3,702,024
------------- -------------
TOTAL LIABILITIES, MINORITY INTEREST,
AND SHAREHOLDERS' EQUITY.......................................... $ 41,404,138 $ 16,937,659
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED
----------------------------- (restated)
NOTES 1997 1996 1995
------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
REVENUES, NET OF RETURNS AND DISCOUNTS.................... $ 104,907,650 $ 40,724,515 $ 6,504,011
COSTS OF REVENUES......................................... O
Royalties to related party.............................. 9,996,840 4,366,183 649,172
Speaker fees to related party........................... 166,661 131,337 --
Other costs of revenues................................. 28,904,364 11,185,416 2,227,737
-------------- ------------- ------------
TOTAL COSTS OF REVENUES................................... 39,067,865 15,682,936 2,876,909
-------------- ------------- ------------
GROSS PROFIT............................................ 65,839,785 25,041,579 3,627,102
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.............. 50,099,355 20,301,703 3,233,884
IMPAIRMENT OF LONG-LIVED ASSETS........................... I -- -- 99,000
-------------- ------------- ------------
INCOME FROM OPERATIONS.................................. 15,740,430 4,739,876 294,218
-------------- ------------- ------------
OTHER INCOME (EXPENSE)
Dividends and interest.................................. 385,338 60,028 5,548
Gain (loss) on trading securities....................... G (804,493) 92,711 69,297
Other income............................................ 128,171 58,513 742
Loss on investment on non-marketable securities......... (106,099) -- (107,400)
Loss on disposition of fixed assets..................... -- (21,960) --
Interest expense........................................ (308,796) (263,285) (23,047)
-------------- ------------- ------------
TOTAL OTHER EXPENSES.................................... (705,879) (73,993) (54,860)
-------------- ------------- ------------
INCOME BEFORE INCOME TAXES................................ 15,034,551 4,665,883 239,358
PROVISION FOR INCOME TAXES................................ N 6,063,387 1,601,244 171,740
-------------- ------------- ------------
INCOME BEFORE MINORITY INTEREST......................... 8,971,164 3,064,639 67,618
MINORITY INTEREST IN LOSS OF SUBSIDIARY................... 21,323 -- --
-------------- ------------- ------------
NET INCOME.............................................. $ 8,992,487 $ 3,064,639 $ 67,618
-------------- ------------- ------------
-------------- ------------- ------------
EARNINGS PER SHARE........................................ $ 0.14 $ 0.05 --
-------------- ------------- ------------
-------------- ------------- ------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING...... 63,362,984 59,609,520 57,585,798
-------------- ------------- ------------
-------------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------------
ADDITIONAL TOTAL
PAID-IN RETAINED PREPAID SHAREHOLDERS
NOTES SHARES AMOUNT CAPITAL EARNINGS ADVERTISING EQUITY
----- ---------- --------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances--December 31, 1995 as
restated, Note...................... V 3,199,211 $ 31,991 $ 320,738 $ 176,170 $ 528,899
Issuance of restricted stock.......... 26,000 260 77,740 78,000
Issuance of restricted stock in
exchange 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 restricted stock for
additional compensation............. 30,422 304 75,746 76,050
Subscriptions receivable.............. (45,564) (45,564)
Net income for year ended December 31,
1996................................ 3,064,639 3,064,639
---------- --------- ---------- ------------ ----------- ------------
Balances -- December 31, 1996 as
restated............................ V 6,680,864 $ 66,807 $ 894,408 $ 3,240,809 $ (500,000) $3,702,024
---------- --------- ---------- ------------ ----------- ------------
Issuance of restricted stock in
exchange for finders' fees relating
to purchase of interest in Fairfield
Inn, Provo, Utah.................... 10,000 100 33,650 33,750
Issuance of restricted stock.......... 10,660 107 31,874 31,981
Issuance of restricted stock in
exchange for finders' fees relating
to purchase of interest in Hampton
Inn & Suites, Park City, Utah........ 4,167 42 52,046 52,088
Issuance of restricted stock for 12%
interest in 45th South Hotel
Partners, LC........................ 10,000 100 59,900 60,000
Authorized but unissued restricted
stock in exchange for stock of Ideal
Travel Concepts, Inc., at August
1,1997.............................. 358,333 3,583 2,146,417 2,150,000
Issuance of restricted stock in
exchange for the common stock of
Origin Book Sales, Inc. at August
27, 1997............................ 30,269 303 196,446 196,749
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------
ADDITIONAL TOTAL
PAID-IN RETAINED PREPAID SHAREHOLDERS
NOTES SHARES AMOUNT CAPITAL EARNINGS ADVERTISING EQUITY
----- ------------ --------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of restricted stock in
exchange for the common stock
of Gold Leaf Press,Inc. at
August 27, 1997................ 7,692 77 49,921 49,999
Issuance of restricted stock..... 20,500 205 32,295 32,500
Effect of 3 for 1 stock split.... 14,264,970 142,650 (142,649)
Issuance of restricted shares in
exchange for 7% interest in Wood
Cross Hotel Partners, LC....... 11,636 116 119,153 119,269
Issuance of restricted stock..... 2,000 20 7,980 8,000
Effect of 3 for 1 stock split.... 42,821,182 428,212 (428,212)
Authorized but unissued restricted
stock for employee bonus....... 13,650 137 (137)
Return of Stock Sale Profits by
Officer........................ B 632,710 632,710
Collection of subscription
receivable..................... 5,584 5,584
Net Income for year ended
December 31, 1997.............. 8,992,487 8,992,487
------------ --------- ------------ ------------- ----------- -------------
Balances--December 31, 1997...... 64,245,923 642,459 $ 3,691,386 $ 12,233,296 $ (500,000) $ 16,067,141
------------ --------- ------------ ------------- ----------- -------------
------------ --------- ------------ ------------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED
-------------------------------- (restated)
CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996 1995
- ----------------------------------------------------------------- ----------------- ------------- ------------
<S> <C> <C> <C>
Net income....................................................... $ 8,992,487 $ 3,064,639 $ 67,618
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................. 1,287,153 344,991 38,816
(Gain) loss on trading securities.............................. 804,493 (92,711) (69,297)
Loss on disposition of fixed assets............................ -- 21,960 --
Impairment of long-lived assets................................ -- -- 99,000
Loss on investment in non-marketable securities................ 106,099 -- 107,400
Purchases of trading securities................................ (20,805,975) (11,290,111) (1,059,197)
Proceeds from sale of trading securities....................... 19,318,577 9,034,925 920,395
Changes in assets and liabilities, net of effects from purchase
of companies:
Receivables.................................................... (2,423,523) (3,249,764) (133,219)
Inventory...................................................... (582,092) (349,604) (4,688)
Prepaid expenses............................................... (142,644) (141,381) (6,297)
Deferred taxes................................................. 532,149 (775,724) 540
Deposits....................................................... (4,057,911) (303) (29,752)
Accounts payable and accrued expenses.......................... 8,535,921 475,084 340,741
Payroll and other taxes withheld and accrued................... (687,968) 693,324 60,191
Income taxes payable........................................... 3,177,728 1,980,672 105,200
Deferred revenue............................................... (396,558) 4,808,674 352,325
Due to related party........................................... 118,273 -- --
Royalties payable.............................................. 171,603 (136,238) 87,139
----------------- ------------- ------------
TOTAL ADJUSTMENTS................................................ 4,955,325 1,323,794 809,297
----------------- ------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES........................ 13,947,812 4,388,433 876,915
----------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable from employees and officers..................... (1,571,313) -- --
Capital expenditures............................................. (4,157,082) (4,729,382) (186,098)
Purchase of non-marketable investments........................... (6,285,709) -- --
Subsidiary's investment........................................... (769,000) (87,500) (1,113,100)
Return of subsidiary's investment................................ -- 800,000 --
Payment for purchase of companies, net of cash acquired.......... (1,748,230) -- --
----------------- ------------- ------------
NET CASH USED FOR INVESTING ACTIVITIES........................... (14,531,334) (4,016,882) (1,299,198)
----------------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of subsidiary's minority interest......... 70,645 321,496 340,904
Short-term borrowings............................................ -- -- 141,175
Repayment on short-term borrowings............................... (292,276) (193,232) (32,956)
Issuance of common stock......................................... 72,481 108,486 --
Collection on subscription receivables and return of stock
profits by officer............................................. 638,294 -- --
----------------- ------------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES........................ 489,144 236,750 449,123
----------------- ------------- ------------
NET INCREASE (DECREASE) IN CASH.................................. (94,378) 608,301 26,840
CASH, beginning of year.......................................... 635,141 26,840 --
----------------- ------------- ------------
CASH, end of year................................................ $ 540,763 $ 635,141 $ 26,840
----------------- ------------- ------------
----------------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Wade Cook Financial Corporation (WCFC), or Company, is the legal
successor to 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., Lighthouse Publishing Group, Inc.,
and Left Coast Advertising, Inc. In 1997, WCFC acquired Origin Book Sales,
Inc., Worldwide Publishers, Inc., Gold Leaf Press, Inc., and Ideal Travel
Concepts, 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 a subscriber internet service,
Wealth Information Network (WIN), which allows subscribers to log on for
information related to the stock market. In 1997, WCFC began investing
heavily in hotel/motel properties and other real estate investments.
Lighthouse Publishing Inc. publishes books on investment, financial and
motivational topics. Left Coast Advertising, Inc. is an advertising agency.
Worldwide Publishers, Inc. and Gold Leaf Press, Inc. are book publishers.
Origin Book Sales, Inc. is a book distributor of primarily religious topics.
Ideal Travel Concepts, Inc. is a travel agency, also in the business of
selling travel agent training kits. The copyrights to most seminars, video
and audio tapes, and written materials which were colicensed by Money Chef,
Inc., formerly known as USA/Wade Cook Seminars, Inc., a related party, are
now fully owned by Wade B. Cook. As used hereafter, "Company" refers to
Wade Cook Financial Corporation and its consolidated subsidiaries.
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 stock was 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.
F-8
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following assets and liabilities were transferred to Four Star from PFC
in there organization:
<TABLE>
<S> <C>
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
</TABLE>
The condensed financial positions of WCFC before and after the transfer are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 TRANSFER JANUARY 1,1995
----------------- ------------ --------------
<S> <C> <C> <C>
Cash............................................................. $ 5,266 $ 5,266 $ --
Receivables...................................................... 277,944 277,944 --
Inventory........................................................ 113,445 113,445 --
Property and Equipment........................................... 1,433,642 1,433,642 --
Investment in land............................................... 247,500 -- 247,500
Investment in securities......................................... 461,333 335,333 126,000
----------------- ------------ --------------
TOTAL ASSETS..................................................... $ 2,539,130 $ 2,165,630 $ 373,500
----------------- ------------ --------------
----------------- ------------ --------------
Long-term debt................................................... $ 380,986 $ 380,986 $ --
Accounts payable................................................. 13,321 1,588 11,733
Accrued expenses................................................. 72,295 61,257 11,038
----------------- ------------ --------------
TOTAL LIABILITIES................................................ 466,602 443,831 22,771
----------------- ------------ --------------
Common Stock..................................................... 31,991 18,800 13,191
Additional paid-in capital....................................... 4,093,794 3,578,056 515,738
Retained earnings................................................ (2,053,257) (1,875,057) (178,200)
----------------- ------------ --------------
TOTAL SHAREHOLDERS' EQUITY....................................... 2,072,528 1,721,799 350,729
----------------- ------------ --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY....................... $ 2,539,130 $ 2,165,630 $ 373,500
----------------- ------------ --------------
----------------- ------------ --------------
</TABLE>
On April 1, 1995, PFC acquired all of the outstanding shares of common stock
of WCS for 1,880,000 shares of the commonstock of PFC. The transaction was
previously accounted for as a pooling of interest but is restated to be
accounted for on the purchase accounting method based on a recharacterization of
the transaction as a reverse-acquisition (NoteV).
F-9
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING PRINCIPLES AND CONSOLIDATION POLICY
The accompanying consolidated financial statements include the accounts of
Wade Cook Financial Corporation and its majority-owned subsidiaries. WCS had a
fiscal year end of January 31, and the balances as of January 31, 1997 and 1996
have been used to prepare the consolidated financial statements as of December
31, 1996 and 1995. In 1997, WCS changed its fiscal year end to December 31, and
the balances as of December 31, 1997 do not include activity for the month of
January 31, 1997 and January 31, 1998. All significant inter-company
transactions and balances have been eliminated in the consolidation.
During 1997, WCFC acquired Ideal, Origin, Worldwide, and Gold Leaf and used
the purchase method of accounting to account for such acquisitions (Note Q). The
consolidated financial statements include the activity of each identified
acquisition from the effective date of acquisition through December 31, 1997.
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 $50,022,and $581,558 as of December 31, 1997
and 1996, respectively.
MARKETABLE SECURITIES
Brokerage accounts were used by seminar instructors during the seminars to
demonstrate how to buy and sell securities using a broker. Marketable securities
consist mainly of stocks and options. They have been categorized as trading
securities and, as a result, are stated at market value. All changes in trading
securities' fair values are reported in earnings as they occur. Realized gains
and losses on the sale of securities are determined using the
specific-identification method.
INVENTORY
Inventory, which consists primarily of finished goods, is valued at the
lower of cost or market. Cost is determined using the first-in, first-out
method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using an
accelerated method over the estimated useful lives of the related assets for
both financial reporting and tax reporting purposes. Leasehold improvements are
amortized using
F-10
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
The Company evaluates impairment of long-lived assets in accordance with the
Financial Accounting Standards Board's (FASB) 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 SFAS No. 121 requires the Company to
assess whether an asset (or group of assets) that will continue to be used is
impaired and needs to be adjusted. Other long-lived assets to be disposed of
(either by sale or abandonment unrelated to the disposal of a business segment)
should be written down to fair value less the cost to sell such assets.
INTANGIBLE
The 1997 acquisitions (Note Q) resulted in the Company recording
$2,851,886 for goodwill, which represents the excess of the cost of the
assets purchased over their fair value. Amortization is computed using the
straight-line method over the estimated useful life of the intangible asset
or 40 years, whichever is shorter.
NON-MARKETABLE INVESTMENTS
The Company accounts for non-marketable investments, at cost, if the Company
owns less than 20% of the investee; and at equity, if the Company owns 20% to
50% of the investee.
REVENUE RECOGNITION
Tuition revenues for seminars are recognized when services are rendered.
Subscription revenues for WIN (Wealth Information Network) membership
generally are received for up to one year in advance and are recorded and
presented in the financial statements as deferred revenue until earned. Although
a typical subscription binds the subscriber to prepay, the subscription term
begins when the customer receives his logon code. The deferred revenues are
recognized on a monthly basis over the term of the contract.
If a subscriber cancels within the first twelve months of the service
period, any remaining unearned subscription revenue will be recognized into
income at the time of the cancellation because the subscription is a binding
nonrefundable contract.
Other revenues are recognized when finished products are shipped to
customers or services have been rendered.
F-11
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
Advertising costs are expensed when incurred. Advertising costs amounted to
$13,685,893, $6,094,922 and $751,533 for the years ended December 31, 1997, 1996
and 1995, respectively.
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.
The Company purchased radio air time advertising in exchange for common
stock. The transaction is discussed in Note K.
EARNINGS PER SHARE
The Company is accounting for earnings per share in accordance with FASB No.
128. Earnings per share are based on the weighted average number of shares of
common stock and common stock equivalents outstanding during each year.
RECLASSIFICATION OF FINANCIAL STATEMENT PRESENTATION
Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform with the 1997 financial statement presentation. Such
reclassifications had no effect on net income as previously reported.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) issued in February 1997,
SFAS No. 128, Earnings per Share, which establishes standards for computing and
presenting earnings per share (EPS) and applies to entities with publicly held
common stock or potential common stock. The Company does not have a complex
capital structure. The Company has not issued potential common stock, i.e.,
securities such as options, warrants, convertible securities, or contingent
stock agreements. The Company believes that SFAS No. 128 did not have a
material effect on its computation of EPS.
The FASB issued in February 1997, SFAS No. 129, Disclosure of Information
About Capital Structure. SFAS No. 129 requires disclosure of descriptive
information about
F-12
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
securities, e.g., rights and privileges of the various securities
outstanding, the number of shares issued upon conversion, exercise, or
satisfaction of required conditions, and the liquidation preference of
preferred stock. The Company is authorized to issue preferred stock but none
was issued or outstanding. The Company does not have any plans to issue
preferred stock. The Company adopted on October 14, 1997 a stock incentive
plan and reserved for issuance 1,000,000 of the Company's common stock. The
stock incentive plan provides that the Board of Directors may grant
restricted stock, stock options, stock appreciation rights or other stock
based awards to eligible employees, directors, or consultants. The Board of
Directors did not issue any incentive awards from the plan as of December 31,
1997. The Company believes that SFAS No. 129 did not have material effect on
its disclosure of information about capital structure.
The FASB issued in June 1997, SFAS No.130, Reporting Comprehensive Income.
SFAS No. 130 establishes standards for reporting comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set of general
purpose financial statements. SFAS No. 130 requires that the Company a) classify
items of other comprehensive income by their nature in a financial statement and
b) display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. The Company did not have any other
comprehensive income in 1997, 1996, or 1995.
The FASB issued in June 1997, SFAS No.131, Disclosures about Segments of
an Enterprise and Related Information. SFAS No. 131 requires that the Company
disclose a) factors used to identify the Company's reportable segments,
including the basis of organization, and types of products and services from
which each reportable segment derives its revenues, b) information about
reportable segment profit or loss, including certain revenues and expenses
included in reported segment profit or loss, segment assets, and the basis of
measurement, c) reconciliations of the totals of segment revenues, reported
profit or loss, assets, and other significant items to corresponding Company
amounts, and d) if complete sets of financial statements are provided for
more than one period, the information required by SFAS No. 131 shall be
reported for each period presented. The Company will implement SFAS No. 131
for the year ending December 31, 1998.
NOTE B--SHAREHOLDERS' EQUITY
The Company did not declare or pay any dividends for the years shown in
these financial statements.
On August 13, 1997, and December 10, 1997, the Board of Directors declared
three-for-one stock splits on the Company's common stock, effected in the form
of a stock dividend to the shareholders of record on September 1, 1997 and
December 19, 1997, respectively. The number of shares issued at September 1,
1997 and December 19, 1997, after giving effect to the stock split were
21,397,455 and 64,232,273 common shares, respectively,
F-13
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE B--SHAREHOLDERS' EQUITY (CONTINUED)
(7,132,485 and 21,411,091 common shares before the split, respectively). On
August 6, 1996, the Board of Directors declared a two-for-one stock split on
the Company's 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
splits are accounted for in all share and per share data included in these
consolidated financial statements.
The Company has corrected its comparative weighted average number of common
shares outstanding from 26,674,666 to 59,609,520 for 1996 and from 25,593,688
to 57,585,798 for 1995. Earnings per share changed from $0.12 to $0.05 in
1996. Earnings per share was not meaningful in 1995, at less than $0.01.
RETURN OF STOCK SALE PROFITS BY OFFICER
In connection with the purchase and sale of stock in 1997, it was determined
that certain transactions required the return to the Company of profits made on
such transactions. In that regard, $632,710 has been returned to the Company by
Wade B. Cook.
NOTE C--CONCENTRATION OF RISKS
Cash in banks, based on bank balances, exceeded federally insured limits by
$186,708 and $574,388 as of December 31, 1997 and 1996, respectively.
Receivables from four credit card companies aggregated approximately $487,693
and $376,256 at December 31, 1997 and 1996 respectively. The Company invests the
majority of its excess cash in marketable securities. Marketable securities are
carried at fair market value, which amounted to $6,162,733 and $3,801,039 as of
December 31, 1997, and 1996, and accounted for 15% and 22% of the Company's
consolidated assets as of December 31, 1997 and 1996 respectively.
The following table shows the percentage of revenues:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Seminars................................................................... 70% 52% 46%
WIN subcription............................................................ 4% 12% 7%
Entity formation services.................................................. 6% 14% 24%
Product sales.............................................................. 20% 22% 23%
</TABLE>
The following table shows the states from which the Company derived over 10%
of its seminar revenues:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
California................................................................. 15% 15% 27%
Colorado................................................................... 3% 7% 11%
Washington................................................................. 9% 13% 13%
Florida.................................................................... 10% 8% 7%
</TABLE>
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 authored by Wade B. Cook. This
individual was the named defendant of a fraud charge in the State of Arizona.
Prior to February, 1997, defense counsel successfully reduced the case from
eighteen charges to one remaining charge. In February 1997, the remaining charge
was dismissed with prejudice.
F-14
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE D--ECONOMIC DEPENDENCY AND SIGNIFICANT RISKS AND UNCERTAINTIES (CONTINUED)
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 WCFC, WCS and the Company's president.
NOTE E--RELATED PARTY TRANSACTIONS
The Company entered into a product agreement with Money Chef, Inc. to obtain
the rights to promote and sponsor seminars, entity formation services and
products owned and controlled by Wade B. Cook and Money Chef, Inc. for royalty
payments. Royalty expenses totaled $9,996,840, $4,366,183, and $649,172 for the
years-ended December 31, 1997, 1996, and 1995 respectively. No royalties were
prepaid or unpaid as of December 31, 1997 and $48,781 of royalties was prepaid
as of December 31, 1996.
The Company obtained services from seminar speakers provided by companies
owned by directors of the Company. Total speaker fees paid to such companies
totaled $166,661 and $131,337 for the years ended December 31, 1997 and 1996,
and none for year 1995. There were no additional amounts due to such companies
as of December 31, 1997 and 1996.
Due from related parties in the amounts of $749,726 (current) and $599,323
(non-current) represent advances to the following:
<TABLE>
<CAPTION>
NAME OF RELATED
PARTIES RELATIONSHIP CURRENT NON-CURRENT
- --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Newstart Centre, Inc. 50% owned and controlled by
President/ CEO of WCFC or
his affiliates $43,283 $599,323
Get Ahead Bookstores Majority stockholder is an
employee of WCFC 155,989 --
Quantum Marketing Majority stockholder is a
director of WCFC 524,854 --
Five Star Consulting, Inc. General partner is
President/CEO of WCFC 25,000 --
Employees' advance Employees of WCFC 600 --
-------- --------
Total $749,726 $599,323
-------- --------
-------- --------
</TABLE>
F-15
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE E--RELATED PARTY TRANSACTIONS (CONTINUED)
At December 31, 1997, due to related parties totaled $782,752, all of
which was current and consists of the following:
<TABLE>
<CAPTION>
NAME OF RELATED
PARTIES RELATIONSHIP CURRENT
- -------------------------------------------------- -------------------------------------------------- ----------
<S> <C> <C>
Information Quest, Inc. Majority stockholder is
employee of WCFC $682,576
Board of Directors advance Directors of WCFC 100,176
--------
Total $782,752
--------
--------
</TABLE>
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 single family home was
recorded in the Company's books 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 had 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, after the option was waived and received a note bearing 8%
interest per annum as consideration.
The Company has various notes receivable from employees and officers.
Original maturity dates are from 12 months to 360 months. Annual interest
rates range from 5.45% to 12%. The manner of settlement is by salary
deduction or payment. The majority of notes receivable are secured by real
property or personal property. The Company evaluates notes receivables in
accordance with Statement of Financial Accounting Standards No. 114,
Accounting by Creditors for Impairment of a Loan. Statement No. 114 requires
that impaired loans be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate. Statement No.
118, Income Recognition and Disclosures, amends Statement No. 114 to allow a
creditor to use existing methods for recognizing interest income on an
impaired loan. There were no impaired notes receivable as of December
31,1996. At December 31, 1997, a reduction in the note receivable of $287,264
was recorded to reflect impaired notes. Substantially all of the reduction
was from unsecured receivables from employees who are no longer with the
company. Future cash flow was not expected, due to the uncertainty of
repayment.
At December 31, 1997, due from employees amounted to $3,535,719, of which,
$242,537 has been classified as current. Amounts due from employees represent
loans both secured and unsecured:
<TABLE>
<CAPTION>
LOAN AMOUNT
---------- -------------
<S> <C>
Secured............................................ $ 3,097,408
Unsecured.......................................... 438,311
------------
Total.............................................. $ 3,535,719
------------
------------
</TABLE>
F-16
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE E--RELATED PARTY TRANSACTIONS (CONTINUED)
For the year ended December 31, 1997, interest income resulting from the
employee note receivables was $199,663. Interest income was calculated by
multiplying the outstanding balance of unimpaired loans with their respective
interest rate. Interest income was not calculated on impaired loans.
NOTE F--RECEIVABLES
Following is a summary of receivables:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Trade and credit card receivables...................................................... $ 3,242,151 $ 848,282
Notes receivable -- employees.......................................................... 3,535,719 1,714,802
Notes receivable from officer.......................................................... -- 249,604
Due from related parties............................................................... 1,471,049 663,401
Other................................................................................. 41,032 11,378
------------ ------------
Total................................................................................. $ 8,289,951 $ 3,487,467
------------ ------------
------------ ------------
</TABLE>
In 1996, management estimated that substantially all receivables were
collectible. In 1997, an allowance for uncollectible accounts was maintained,
and at December 31, 1997 the allowance amounted to $58,163. Amounts reported on
the balance sheet are shown net of the allowance.
NOTE G--MARKETABLE SECURITIES
The net unrealized gain (loss) in trading securities that has been included
in earnings during the period amounted to $(755,437), $92,711, and $88,719, for
the years ended December 31, 1997, 1996, and 1995, respectively.
NOTE H--PROPERTY AND EQUIPMENT
The following is a summary of property and equipment:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996
------------- ------------
<S> <C> <C>
Land................................................................................. $ 532,000 $ 532,000
Building............................................................................. 6,021,788 4,183,361
Equipment............................................................................ 2,446,895 1,270,583
Automobiles.......................................................................... 1,279,972 828,604
Furniture and fixtures............................................................... 1,774,284 681,425
------------- ------------
12,054,939 7,495,973
Less: Accumulated depreciation....................................................... (1,629,780) (360,768)
------------- ------------
Total................................................................................ $ 10,425,159 $ 7,135,205
------------- ------------
------------- ------------
</TABLE>
Depreciation expense charged to operations was $1,073,224, $344,991 and
$38,816 in December 31, 1997, 1996, and 1995, respectively.
F-17
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE I--NON-MARKETABLE INVESTMENTS AND ACCOUNTING CHANGES
Non-marketable investments consist of investments in venture capital
partnerships and private companies, primarily comprised of hotel/motel
properties and other real estate investments. The estimated non-marketable
investments approximated the carrying amount at December 31, 1997 and 1996. 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 Atrim, Michigan. The Company
considers the sale prices of comparable lots in the recreational development
project as indicators of fair value.
Non-marketable investments consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
------------ ----------
<S> <C> <C>
Cost method:
Oil and gas............................................................................. $ 650,000 $ --
Hotels/motels........................................................................... 1,177,350 268,000
Real estate............................................................................. 1,385,780 148,500
Private companies....................................................................... 1,250,000 106,100
Equity method:
Hotels/motels........................................................................... 2,562,750 --
Real estate............................................................................. 304,580 --
------------ ----------
Total................................................................................... $ 7,330,460 $ 522,600
------------ ----------
------------ ----------
</TABLE>
Private companies in 1997 are comprised of a privately held computer
software company ($750,000) and a wireless reseller company ($500,000) which
acquired an inactive public company through a reverse acquisition in 1998.
Investees are in the development stage. Accumulation deficit during the
development stage was not material in 1997 and 1996.
F-18
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE J--LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Note payable due May 2002, has a monthly installment of $418, including interest at
9.75% per annum, secured by an automobile........................................... 16,347 --
Note payable to a credit union assumed by the Company on behalf of an employee, due
December 2003, including interest at 9.25% per annum, secured by an automobile...... -- $ 36,178
Note payable due July 2000, has a monthly installment of $514, including interest at
9% per annum, secured by equipment.................................................. 28,298 --
Note payable due June 2001, has a monthly installment of $1,325, including interest at
8.5% per annum, secured by computers................................................ 44,823 --
Unsecured note payable to a related party, originally due October 15, 1996, including
interest at 10% per annum, due on demand............................................ -- 19,000
Unsecured note payable to a related party, originally due October 15, 1996; including
interest at 10% per annum, due on demand............................................ 45,000 45,000
Note payable to a bank with monthly installments of $300, including interest at 16%
per annum, secured by an automobile................................................. 11,413 --
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,
including interest at 9% per annum.................................................. 1,825,302 2,393,292
Real estate contract payable, secured by land and building,payable in monthly
installments of $2,157, including interest at 7(6)%, maturity date September 1,
1998................................................................................ 339,999 --
Total Long Term Debt.............................................................. $ 2,311,182 $ 2,493,470
------------ ------------
Less: Current maturities
Others.............................................................................. (1,445,000) (660,708)
related parties..................................................................... -- (19,000)
officer............................................................................. (45,000) (45,000)
------------ ------------
Net Long Term Debt.................................................................... $ 821,182 $ 1,768,762
------------ ------------
------------ ------------
</TABLE>
F-19
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE J--LONG-TERM DEBT (CONTINUED)
The following are maturities of long-term debt for each of the next five
years:
<TABLE>
<S> <C>
1998............................................................................ $1,490,000
1999............................................................................ 770,393
2000............................................................................ 25,046
2001............................................................................ 18,051
2002............................................................................ 7,692
Thereafter...................................................................... --
----------
Total........................................................................... 2,311,182
----------
----------
</TABLE>
NOTE K--PREPAID ADVERTISING
In 1995, the Company entered into an agreement with Associated Reciprocal
Traders, Ltd. (ART) to purchase from ART 20,000 Investor
Relations-Advertising-Infomercial radio air time spots, priced at $25 per ad
spot, per station, for a sum total of $500,000. In payment of the foregoing,
the Company issued 100,000 shares of common stock to ART on September 10,
1996. The prepaid advertising is shown as a reduction of shareholders' equity
rather than as an asset (Note T).
NOTE L--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board("FASB") has issued Statement of
Financial Accounting Standards (SFAS) No.107, Disclosures About Fair Value of
Financial Instruments, as part of a continuing process by the FASB to improve
information regarding financial instruments. The following methods and
assumptions were used to estimate the fair value of each class of financial
instruments:
Cash and cash equivalents--The carrying amount of cash and cash
equivalents approximates its fair value.
Notes receivables from Employees and Officers--The carrying amount of notes
receivable approximates its fair value.
Marketable securities--The fair value of marketable securities was
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-20
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note L--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and fair values of the Company's financial instruments
at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents..................................... $ 540,763 $ 540,763 $ 635,141 $ 635,141
Marketable securities......................................... 6,040,733 6,040,733 3,801,039 3,801,039
Receivables from employees and officers....................... 3,535,719 3,535,719 1,964,406 1,964,406
Non-marketable investments.................................... 7,330,460 7,330,460 522,600 522,600
Margin loans in investment accounts........................... 2,766,824 2,766,824 1,103,936 1,103,936
Long-term debt................................................ 821,182 821,182 1,768,762 1,768,762
</TABLE>
The carrying amounts in the table are included on the balance sheet under
the indicated captions, except for notes receivable which has several
components on the balance sheet.
NOTE M--LEASE AND OTHER COMMITMENTS
Operating lease commitments are primarily for the Company's shipping
warehouse and equipment rentals. Rental expense amounted to $135,476, $294,918,
and $109,133 for the years ended December 31, 1997, 1996, and 1995 respectively.
Future minimum rental commitments are as follows:
<TABLE>
<S> <C>
1998.............................................................................. $ 61,779
1999.............................................................................. 54,621
2000.............................................................................. 12,760
2001.............................................................................. --
---------
Total............................................................................. $ 129,160
---------
---------
</TABLE>
The Company entered into an employment agreement in June 1997 with Wade
Cook, the president and CEO of the Company. The agreement provided for a minimum
salary of $240,000 for the first year, $265,000 for the second year, and
$290,000 for the final year of the agreement. Cook will be paid in accordance
with the Company's standard method of payment for executives. Cook may receive
additional bonuses for work as approved by the Board of Directors.
The Company is committed to purchase 8,000 additional units from Applied
Voice Recognition, Inc. at $60.00 per unit (voice recognition software), but no
time limit is provided for in the agreement. There is a minimum purchase
requirement of 2,000 units per order and payment is due in advance of shipment
(Note U).
F-21
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE M--LEASE AND OTHER COMMITMENTS (CONTINUED)
The Company is committed to purchase 50,000 units (computer programs) from
KnowWonder, Inc. (the computer software company described in Note I) at $10.00
per unit. The $500,000 is payable in eight (8) monthly installments of $62,500
beginning January 1998 on the first of each month thereafter.
NOTE N--INCOME TAXES
Provisions for income taxes in the consolidated statements of income
consist of the following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1995
1997 1996 (restated)
------------ ------------ ----------
<S> <C> <C> <C>
Current
- -------
Federal................................................................... $ 4,659,610 $ 2,321,968 $ 171,200
State..................................................................... -- -- --
Other States.............................................................. 458,000 55,000
------------ ------------ ----------
5,117,610 2,376,968 171,200
------------ ------------ ----------
Deferred
- --------
Federal................................................................... 945,777 (775,724) 540
State..................................................................... -- -- --
945,777 (775,724) 540
------------ ------------ ----------
Total income taxes........................................................ $ 6,063,387 $ 1,601,244 $ 171,740
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
DEFERRED TAX ASSETS: 1997 1996
- ------------------------------------------------------------------------------------------ ---------- ----------
<S> <C> <C>
Unrealized loss on trading securities..................................................... $ 254,096 $ 79,192
Deferred revenues......................................................................... -- 806,294
State income tax.......................................................................... 160,300 19,250
---------- ----------
Total deferred tax assets................................................................. 414,396 904,736
---------- ----------
Deferred tax liabilities:
Accelerated depreciation.................................................................. 69,800 61,691
State income tax.......................................................................... 93,581 59,981
---------- ----------
Total deferred liabilities................................................................ 163,381 121,672
---------- ----------
Net deferred tax assets................................................................... $ 251,015 $ 783,064
---------- ----------
---------- ----------
</TABLE>
F-22
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE N--INCOME TAXES (CONTINUED)
The reconciliation of the effective income tax rate to the Federal
statutory rate is as follows:
<TABLE>
<CAPTION>
1995
1997 1996 (restated)
--------- --------- ---------
<S> <C> <C> <C>
Federal income tax rate..................................................................... 35.0% 35.0% 35.0%
Unrealized loss on trading securities....................................................... 6.2 1.7 7.2
Deferred revenues........................................................................... -- 17.3 19.5
Accelerated depreciation.................................................................... (1.3) (1.3) --
Capitalized interest........................................................................ -- (1.3) --
State income tax ........................................................................... .4 0.4 10.0
Effective income tax rate................................................................... 40.3% 51.8% 71.7%
</TABLE>
NOTE O--REVENUES AND OTHER COST OF REVENUES
<TABLE>
<CAPTION>
TRAVEL
SEMINAR PRODUCT ENTITY WIN RELATED
REVENUES SALES FORMATIONS SUBSCRIPTIONS SERVICES TOTAL
------------- ------------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Revenues, net of returns &
discounts..................... $ 66,725,225 $ 25,336,102 $ 5,598,409 $4,049,646 $ 3,198,268 $ 104,907,650
Royalties to related party...... 4,709,067 3,438,418 1,849,355 -- -- 9,996,840
Speaker fees to related party... 153,760 12,901 -- -- -- 166,661
Other cost of revenues:
Cost of goods sold.............. -- 9,020,702 -- -- 2,963,579 11,984,281
Credit card fees................ 1,655,339 393,248 120,253 87,312 -- 2,256,152
Cost of meeting rooms........... 3,953,888 -- -- -- -- 3,953,888
Speaker fees.................... 6,502,497 -- 557,357 -- -- 7,059,854
Travel.......................... 3,367,636 -- 282,553 -- -- 3,650,189
------------- ------------- ------------ ------------ ------------ --------------
Total Cost of Revenues.......... $ 20,342,187 $ 12,865,269 $ 2,809,518 -- $ 2,963,579 $ 39,067,865
------------- ------------- ------------ ------------ ------------ --------------
Gross Profit.................... $ 46,383,038 $ 12,470,833 $ 2,788,891 $3,962,334 $ 234,689 65,839,785
------------- ------------- ------------ ------------ ------------ --------------
</TABLE>
<TABLE>
<CAPTION>
TRAVEL
SEMINAR PRODUCT ENTITY WIN RELATED
REVENUES SALES FORMATIONS SUBSCRIPTIONS SERVICES TOTAL
------------- ------------- ------------ ------------ ------------- -------------
<S> <C> <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
Royalties to related party............ 2,933,688 1,060,842 371,653 -- -- 4,366,183
Speaker fees to related party......... 113,609 -- 17,728 -- -- 131,337
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 Cost of Revenues................ $ 7,849,491 $ 6,325,811 $ 1,447,281 $ 60,353 -- $ 15,682,936
------------- ------------- ------------ ------------ ------ -------------
Gross Profit.......................... $ 15,967,824 $ 4,282,610 $ 2,269,247 $2,521,898 -- 25,041,579
------------- ------------- ------------ ------------ ------ -------------
</TABLE>
F-23
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE O--REVENUES AND OTHER COST OF REVENUES (CONTINUED)
<TABLE>
<CAPTION>
TRAVEL
SEMINAR PRODUCT ENTITY WIN RELATED
REVENUES SALES FORMATIONS SUBSCRIPTIONS SERVICES TOTAL
------------ ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Nine Months ended December 31, 1995
(restated):
Revenues, net of returns & discounts.... $ 2,986,036 $ 1,477,200 $ 1,538,459 $ 502,316 -- $ 6,504,011
Royalties to related party................ 326,691 157,964 164,517 -- -- 649,172
Speaker fees to related party............. -- -- -- -- -- --
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.............................. 158,589 101,937 282,520 -- -- 543,046
Travel.................................... 162,447 -- 132,327 -- -- 294,774
------------ ------------ ------------ ------------ ------ ------------
Total Cost of Revenues.................... $ 837,806 $ 1,414,200 $ 613,694 $ 11,209 -- $ 2,876,909
------------ ------------ ------------ ------------ ------ ------------
Gross Profit.............................. $ 2,148,230 $ 63,000 $ 924,765 $ 491,107 -- $ 3,627,102
------------ ------------ ------------ ------------ ------ ------------
</TABLE>
NOTE P--SUPPLEMENTARY DISCLOSURE OF CASHFLOW INFORMATION
The Company paid $308,796, $263,285 and $23,047 in interest, and $2,485,111,
$100,000 and $78,000 for income taxes, in the years ended December 31, 1997,
1996 and 1995 respectively.
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.
NOTE Q- ACQUISITIONS
During 1997, WCFC completed the acquisition of Ideal Travel Concepts, Inc.
(Ideal), Worldwide Publishers, Inc.(Worldwide), Origin Book Sales, Inc.
(Origin), and Gold Leaf Press, Inc. (GoldLeaf).
All of the outstanding stock of Ideal was acquired on August 1, 1997, in
exchange for 358,333 shares of Wade Cook Financial Corporation (WCFC) stock to
be issued at a later date (Note T). On that date, the market value of the stock
issued was $2,150,000. The acquisition was accounted for as a purchase,
resulting in assets of $215,719, goodwill of $2,008,294 less liabilities assumed
of $74,013.
All of the outstanding stock of Worldwide was acquired on August 27, 1997,
for $1. The acquisition was accounted for as a purchase resulting in assets of
$315,352, goodwill of $311,976 less liabilities assumed of $627,327.
F-24
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE Q- ACQUISITIONS (continued)
All of the outstanding stock of Origin was acquired on August 27, 1997,
in exchange for 30,269 shares of WCFC stock. On that date, the market value
of the stock issued was $196,749. The acquisition was accounted for as a
purchase resulting in assets of $809,730, goodwill of $469,496 less
liabilities assumed of $1,082,477.
All of the outstanding stock of Gold Leaf was acquired on August 27,
1997, in exchange for 7,692 shares of Wade Cook Financial Corporation (WCFC)
stock. On that date, the market value of the stock issued was $49,998. The
acquisition was accounted for as a purchase resulting in assets of $8,263,
goodwill of $62,119 less liabilities assumed of $20,384.
Total goodwill is $2,851,885, accumulated amortization is $214,217, creating
net goodwill of $2,637,669.
NOTE R--PROFORMA FINANCIAL STATEMENTS
The following unaudited proforma information is presented for the years
ended December 31, 1997, 1996, and 1995, as if the Ideal, Worldwide, Origin, and
Gold Leaf acquisitions had been combined as of the beginning of the period.
Ideal, Worldwide, Origin, and Gold Leaf amounts represent historical values
without acquisition adjustments as describe in Note Q.
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS, EXCEPT EPS
FISCAL YEAR ENDED DECEMBER 31, 1997
BALANCE SHEET WCFC IDEAL WORLDWIDE ORIGIN GOLD LEAF TOTAL
- ----------------------------------------------------------- --------- --------- ------------- --------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Assets..................................................... $ 38,982 $ 656 $ 459 $ 1,386 $ -- 41,483
Liabilities................................................ 22,769 417 735 1,621 -- 25,542
Stockholders' equity....................................... 16,213 239 (276) (235) -- 15,941
INCOME STATEMENT
Revenues................................................... 104,456 4,321 555 1,510 26 110,868
Expenses................................................... 95,469 4,100 519 1,472 14 101,573
--------- --------- ----- --------- --- ---------
Net income................................................. $ 8,987 $ 221 $ 36 $ 38 $ 12 $ 9,294
--------- --------- ----- --------- --- ---------
EPS........................................................ $ 0.15
--------- --------- ----- --------- --- ---------
</TABLE>
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
BALANCE SHEET WCFC IDEAL WORLDWIDE ORIGIN GOLD LEAF TOTAL
- ----------------------------------------------------------- --------- --------- ------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Assets..................................................... $ 16,938 $ 237 $ 529 $ 3,902 $ 8,263 $ 29,869
Liabilities................................................ 12,619 277 453 3,834 20,384 37,567
Stockholders' equity....................................... 4,319 (40) 76 68 (12,121) (7,698)
INCOME STATEMENT
Revenues................................................... 40,725 1,023 971 1,801 1,462 45,982
Expenses................................................... 37,660 1,057 935 1,830 1,462 42,944
--------- --------- ----- --------- ----------- ---------
Net income (loss).......................................... $ 3,065 $ (34) $ 36 $ (29) $ -- $ 3,038
--------- --------- ----- --------- ----------- ---------
EPS........................................................ $ [0.05]
--------- --------- ----- --------- ----------- ---------
</TABLE>
F-25
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE R--PROFORMA FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1995
BALANCE SHEET WCFC IDEAL WORLDWIDE ORIGIN GOLD LEAF TOTAL
- ----------------------------------------------------------- --------- ----- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Assets..................................................... $ 2,283 $ 65 $ 994 $ 71 $ 294 $ 3,707
Liabilities................................................ 1,458 80 953 38 284 2,813
Stockholders' equity....................................... 825 (15) 41 33 10 894
INCOME STATEMENT
Revenues................................................... $ 6,504 182 7,209 1 1,330 $ 15,226
Expenses................................................... 6,436 169 7,196 18 1,333 15,152
--------- --- ----- --- ----- ---------
Net income (loss).......................................... $ 68 $ 13 $ 13 $ (17) $ (3) $ 74
--------- --- ----- --- ----- ---------
EPS........................................................ --
--------- --- ----- --- ----- ---------
</TABLE>
NOTE S--PENDING LITIGATION
On September 16, 1996, Wade Cook Seminars, Inc. v. Mellon, Charles E. and
Robbins Research International, Inc., et al., was filed, for breach of
non-compete contract. The court in a partial summary judgment dismissed this
claim on November 26, 1997. Defendants subsequently made a motion for an award
of attorney's fees of approximately $71,000, which was denied in January 1998.
Both the order of dismissal and the denial of the award of attorney's fees have
been appealed.
NOTE T--SUBSEQUENT EVENTS
On February 5, 1998, a claim was filed by WCFC against Associated
Reciprocal Traders, Ltd. (ART) in the King County Superior Court based on a
dispute over the ownership of 100,000 restricted shares of WADE stock (now
1,800,000 shares) issued pursuant to a Media for Stock Agreement dated
December 29, 1995. On the same day ART filed a complaint against the Company
based on substantially the same claims. A motion has been granted to
consolidate the two claims.
On January 14, 1998, WCFC issued 3,224,997 shares of its common stock in
full settlement of the Ideal Travel Concepts, Inc. acquisition. (Note Q)
WCFC is negotiating for the acquisition of Get Ahead Bookstores, Inc. (Get
Ahead), Information Quest, Inc. (Info Quest),and Quantum Marketing, Inc.
(Quantum), all related parties (Note E). In each transaction, substantially all
of the outstanding stock of each company will be purchased by issuing common
stock of WCFC. It is anticipated that all of the transactions will be accounted
for under the purchase method. Get Ahead is a retail bookstore, selling
primarily business related books, periodicals, and related materials. Info Quest
sells a pager system that provides the customer with up to the minute stock
quotes. Quantum is a marketing company.
F-26
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE U- DEPOSITS AND BOOK OVERDRAFTS
Deposits as of December 31, 1997 and 1996 amounted to $4,093,334 and $35,423
respectively. Deposits represent the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
DESCRIPTION 1997 1996
- ----------------------------------------------------------------------------------------- ------------ ---------
<S> <C> <C>
Held by credit card processor............................................................ $ 2,050,000 --
Held for purchase of hotel............................................................... 1,913,790 --
Purchase of AVRI equipment............................................................... 120,000 --
Held for security on buildings........................................................... 9,544 35,423
------------ ---------
Totals................................................................................... $ 4,093,334 $ 35,423
------------ ---------
------------ ---------
</TABLE>
None of the deposits accrue interest.
Book overdrafts amounted to $2,156,305 as of December 31, 1997 and none as
of December 31, 1996. Under the Company's cash management system, checks issued
but not presented to banks frequently result in overdraft balances for
accounting purposes and are classified as "book overdrafts" in the balance
sheet.
NOTE V- PRIOR PERIOD ADJUSTMENTS
The Company has restated its previously issued 1995 and 1994 financial
statements to reflect adjustments principally related to the business
combination described in Note A. The business combination was previously
accounted for as a pooling of interest but has been restated to a
reverse-acquisition whereby WCS is deemed to have acquired PFC.
The adjustments relate primarily to the 1995 recapitalization under the
reverse acquisition and the three month timing difference in income recognition
under the pooling of interest (January 1, 1995 to December 31, 1995) and the
purchase method, i.e., a reverse acquisition (April 1, 1995 to
December 31, 1995).
<TABLE>
<CAPTION>
AS
PREVIOUSLY AS
REPORTED RESTATED
------------ ------------
<S> <C> <C>
Net income for year ended December 31, 1995........................................... $ 123,798 $ 67,618
Earnings per share.................................................................... $ 0.02 $ 0.01
Additional paid in capital at December 31, 1995....................................... $ 498,938 $ 320,738
Additional paid in capital at December 31, 1996....................................... $ 1,072,608 $ 894,408
Retained earnings (deficit) at December 31, 1995...................................... $ (2,030) $ 176,170
Retained earnings at December 31, 1996................................................ $ 3,062,609 $ 3,240,809
</TABLE>
F-27
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE V- PRIOR PERIOD ADJUSTMENTS (CONTINUED)
Changes in shareholders' equity to reflect the restatement are calculated
as follows:
<TABLE>
<CAPTION>
TOTAL
NUMBER OF PAID IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Prior to acquisition................ 3,199,211 $ 31,991 $ 4,093,794 $ (2,053,257) $2,072,528
WCFC Reorganization under section
368(a)(1)(D) of the IRC........... (1,880,000) (18,800) (3,578,056) 1,875,057 (1,721,799)
----------- ----------- ------------ ------------ ----------
Balance January 1, 1995 (Note A).... 1,319,211 13,191 515,738 (178,200) 350,729
Issuance of Company shares to
acquire assets of WCS............. 1,880,000 18,800 (16,800) 108,552 110,552
Net income December 31, 1995, as
previously reported............... 123,798 123,798
----------- ----------- ------------ ------------ ----------
Balance, December 31, 1995, as
previously reported............... 3,199,211 31,991 498,938 (2,030) 528,899
Issuance of shares:
As previously reported.............. (1,880,000) (18,800) 16,800 (52,372) (54,372)
As restated......................... 1,880,000 18,800 (16,800) 108,552 110,552
1995 recapitalization of WCFC....... (178,200) 178,200
Net income, December 31, 1995:
As previously reported.............. (123,798) (123,798)
As restated......................... 67,618 67,618
----------- ----------- ------------ ------------ ----------
Balance, December 31, 1995, as
restated.......................... 3,199,211 31,991 320,738 176,170 528,899
----------- ----------- ------------ ------------ ----------
----------- ----------- ------------ ------------ ----------
</TABLE>
Based upon the term of the business combination, the transaction for
financial reporting and accounting purposes has been accounted for as a
reverse acquisition whereby, WCS (formerly known as USA) is deemed to have
acquired WCFC (formerly known as PFC). However, WCFC is the continuing entity
and registrant for both the Securities and Exchange Commission filing
purposes and income tax reporting purposes. Consistent with reverse
acquisition accounting treatment, WCFC has carried forward the historical
basis of the acquired assets and assumed liabilities of WCS and has revalued
the basis of its net assets which was at fair value even before the business
combination.
The following unaudited proforma combined statements of income for the
twelve months ended December 31, 1995 and January 31, 1995 are presented as
if the combination had occurred as of January 1, 1994. The proforma
information is not necessarily indicative of the actual results of operation
which would have occurred had the transactions occurred on such dates.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1995 JANUARY 31, 1995
------------------- -------------------
<S> <C> <C>
Revenues............................................................... $ 7,567,335 $ 1,973,145
Cost of revenues....................................................... (3,373,888) (861,734)
Other income (loss).................................................... (4,069,649) (1,307,141)
------------------- -------------------
Net income (loss)...................................................... $ 123,798 $ (195,730)
------------------- -------------------
------------------- -------------------
Net income (loss) per share............................................ $ 0.02 $ (0.03)
------------------- -------------------
------------------- -------------------
</TABLE>
F-28
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE W- COUNTY OF FRESNO INVESTIGATION
On March 5, 1998, the Company received a letter from the County of
Fresno, California, Office of District Attorney Business Affairs Unit
("BAU"), which informed the Company that the BAU believed that the seminar
sales contracts used in California by the Company were not in compliance with
section 1678.20 through 1693 of the California Civil Code which provide for a
three-day right of cancellation on seminar sales solicitation contracts. The
Company has not yet determined any impact on its financial statements. No
provision for losses have been made.
F-29
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Wade Cook Financial Corporation
Seattle, Washington
The audits referred to in our report to the Board of Directors of Wade
Cook Financial Corporation and subsidiaries dated February 26, 1998, except
Notes V and W, for which the date is March 26, 1998, relating to the
consolidated financial statements of Wade Cook Financial Corporation and
subsidiaries included the audit of schedules listed under Item 14 of Form
10-K for the years ended December 31, 1997 and 1996. 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 audit.
In our opinion such financial statement schedules present fairly, in all
material respects, the information set forth therein.
Certified Public Accountants
Santa Monica, California
February 26, 1998, except Notes V and W,
for which the date is March 26, 1998
S-1
<PAGE>
WADE COOK FINANCIAL CORPORATION
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
CURRENT ASSETS 1997 1996
- ---------------------------------------------------------------------------------------- ------------ ----------
<S> <C> <C>
Cash.................................................................................... $ 32,500 --
Investment in subsidiaries.............................................................. 2,703,379 $ 110,552
Investment in land...................................................................... 1,245,358 148,500
Investment in non-marketable securities................................................. 4,828,101 18,600
Other receivable........................................................................ -- 1,378
Due from subsidiary..................................................................... -- 48,013
------------ ----------
TOTAL ASSETS............................................................................ $ 8,809,338 $ 327,043
------------ ----------
------------ ----------
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
CURRENT LIABILITIES 1997 1996
- ---------------------------------------------------------------------------------------- ------------ ----------
<S> <C> <C>
Accounts payable and accrued expenses................................................... $ -- $ 22,080
Due to subsidiaries..................................................................... 5,055,870 --
------------ ----------
TOTAL LIABILITIES....................................................................... 5,055,870 22,080
------------ ----------
SHAREHOLDERS' EQUITY
Preferred stock......................................................................... -- --
Common stock............................................................................ 636,459 66,807
Paid-in capital......................................................................... 3,875,586 894,408
Prepaid advertising..................................................................... (500,000) (500,000)
Retained earnings (deficit)............................................................. (258,577) (156,252)
------------ ----------
TOTAL SHAREHOLDERS' EQUITY.............................................................. 3,753,468 304,963
------------ ----------
TOTAL LIABILITIES, MINORITY INTEREST, AND SHAREHOLDERS' EQUITY.......................... $ 8,809,338 $ 327,043
------------ ----------
------------ ----------
</TABLE>
S-2
<PAGE>
WADE COOK FINANCIAL CORPORATION
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME............................................................ $ -- $ 2,013 $ --
GENERAL AND ADMINISTRATIVE EXPENSES........................................ (83,725) (41,792) (18,625)
LOSS ON NON-MARKETABLE SECURITIES.......................................... (18,600) -- (107,400)
IMPAIRMENT OF LONG-LIVED ASSETS............................................ -- -- (99,000)
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES.......................................... (102,325) (39,779) (225,025)
PROVISION FOR INCOME TAXES................................................. -- -- --
----------- ----------- -----------
NET LOSS................................................................... $ (102,325) $ (39,779) $ (225,025)
ACCUMULATED DEFICIT, BEGINNING............................................. (156,252) (116,473) (178,200)
ISSUANCE OF COMMON STOCK IN EXCHANGE FOR INVESTMENT IN SUBSIDIARY.......... -- -- 286,752
----------- ----------- -----------
ACCUMULATED DEFICIT, ENDING................................................ $ (258,577) $ (156,252) $ (116,473)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
S-3
<PAGE>
WADE COOK FINANCIAL CORPORATION
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASHFLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996 1995
- --------------------------------------------------------------------------- ----------- ---------- -----------
<S> <C> <C> <C>
Net income (loss).......................................................... $ (102,325) $ (39,779) $ (225,025)
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............................ 18,600 -- 107,400
Changes in assets and liabilities, net of effects from purchase of
companies:
Receivables................................................................ 1,378 (1,378) --
Due from subsidiaries...................................................... 7,099,341 (48,013) --
Accounts payable and accrued expenses...................................... (22,080) (19,316) 18,625
----------- ---------- -----------
TOTAL ADJUSTMENTS.......................................................... 7,097,239 (68,707) 225,025
----------- ---------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................................. 6,994,914 (108,486) -0-
----------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of non-marketable securities...................................... (4,828,101) -- --
Capital expenditures....................................................... (1,096,858) -- --
Payment for purchase of companies, net of cash acquired.................... (1,748,230) -- --
----------- ---------- -----------
NET CASH USED FOR INVESTING ACTIVITIES..................................... (7,673,189) -- --
----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock................................................... 72,481 108,486 --
Collection on subscription receivables and return of stock profits by
officer.................................................................. 638,294 -- --
----------- ---------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES.................................. 710,775 108,486 --
----------- ---------- -----------
NET INCREASE IN CASH....................................................... 32,500 -0- --
CASH, beginning of year.................................................... -- -- --
----------- ---------- -----------
CASH, end of year.......................................................... $ 32,500 $ -- $ --
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
S-4
<PAGE>
Product License Agreement
1. Parties:
This Agreement is between Planet Cash, Inc., a Nevada corporation with its
principal place of business at 3885 S. Decatur Blvd., Suite 2010, Las Vegas,
Nevada, 89103, ("Planet Cash"),Steven Allyn Wirrick, an individual residing
in Bellevue,Washington, 98006, ("Wirrick"), and Wade Cook Financial
Corporation, a Nevada corporation with its principal place of business at
14675 Interurban Avenue South, Seattle, Washington, 98168, and/or its agents
and assigns, including any subsidiary ("WCFC").
2. Term:
This Agreement shall take effect September 1, 1997 and remain in effect
through September 1, 2002. At the sole option of WCFC this Agreement may be
extended for two additional 5-year periods upon 30 days written notice. This
Agreement may be further extneded upon mutual agreement between the parties.
3. Agreement:
WCFC hereby agrees to license from Planet Cash and Wirrick rights in the
Planet Cash/Wirrick IP, which Planet Cash or Wirrick either owns or
controls,for the purpose of producing and marketing seminars, audio
tapes,videotapes, documents and writings related to the Planet Cash/Wirrick
IP. This license shall be an exclusive world-wide license. A list of current
Products to which WCFC currently has the rights under the terms of this
Agreement is attached as "Exhibit A." Additional works owned or controlled by
Planet Cash or Wirrick shall be licensed to WCFC under the terms of this
master license Agreement by executing individual "Intellectual Property
License Orders" ("IP Orders") in the form of "Exhibit B." Specific IP Orders
shall be signed and dated by the licensor of the intellectual property
(Planet Cash or Wirrick) and by the licensee (WCFC or its subsidiaries) in
order to be effective. The term of each IP Order shall be for the remainder
of the term of this Agreement unless otherwise specified in writing.
4. Earned Royalties:
WCFC shall pay to Planet Cash, Wirrick, or its/his agent as requested by
Wirrick in writing, a royalty of ten percent (10%) of all gross sales for
Products licensed hereunder. No royalty shall be payable on copies furnished
gratis to Planet Cash or Wirrick or for review, returned products, destroyed
products, products given away free for publicity,
<PAGE>
promotional purposes, or to introduce additional sales. Royalties shall be
paid quarterly according to WCFC Accounting Department's standard payment
schedule.
5. Marketing and Promotion:
WCFC shall have the right to promote and advertise Products as it deems
appropriate.
6. Author's Warranty:
Planet Cash and Wirrick each represent and warrant to WCFC that the work is
original and that Warrick is the sole author and proprietor thereof, and has
full power to enter into this Agreement, Planet Cash and Wirrick agree to
indemnify and hold harmless WCFC against any damage or judgment, including
court costs and attorneys' fees, which may be sustained or recovered against
WCFC by reason of the publication, marketing,or sale of any of the Products
subject to this Agreement or arising from anything contained therein. Planet
Cash and Wirrick also agree to reimburse WCFC for all expenses, including
court costs, attorneys' fees, and amounts paid in settlement, sustained by
WCFC in resisting any claim, demand, suit, action or proceeding asserted or
instituted against WCFC as a result of the sale of any Product or by reason
of anything contained therein.
7. Rights to Use Likeness:
Planet Cash and Wirrick hereby consent to the use of Planet Cash's and/or
Wirrick's name, likeness, identity, trademarks and trade symbols, for the
purposes of fulfilling this Agreement and in connection with the promotion,
advertising, distribution, financing, marketing and production of the
Products or derivatives therefrom, and for general organizational promotional
purposes. Wirrick agrees to participate in the production of video recordings
and/or audio recordings at the request of WCFC, consents to the use and
reproduction by WCFC of such video and reproduction by WCFC of such video and
audio recordings. Wirrick releases WCFC from any and all liabilities
arising from the use of Wirrick's image.
8. Examination of Books:
WCFC shall make available to Planet Cash and/or Wirrick, within 30 days
written notice, at its headquarters, the financial books related to payment
of royalties hereunder.
9. Copyright:
WCFC will, in all published versions of the Products, place a Copyright Notice
in a form and place that complies with the requirement of the United States
Copyright law, showing that the owner of the copyright rights in and to the
Products is Wirrick or Planet Cash and that said rights have been licensed to
WCFC and/or its publishing subsidiary. Such notice shall not be construed as
in any way affecting or diminishing any of the rights granted to WCFC under
this Agreement. Wirrick or Planet Cash shall execute and
<PAGE>
deliver to WCFC and documents necessary or desirable to evidence or effectuate
the rights granted to WCFC under this Agreement. The "copyright laws" shall be
construed to be those now or hereafter in force in the United States. Wirrick
agrees to register and maintain said copyright with the U.S. Copyright Office
in accordance with directions provided by WCFC.
10. Derivative Work:
WCFC reserves the exclusive right to publish audio and/or video derivations
of any written publications licensed herein. The same terms and conditions as
set forth herein shall apply to each such audio and video derivations of the
Products. WCFC shall have exclusive rights to create derivative works for
promotional purposes. WCFC shall have sole copyright for any such derivative
works created by WCFC. Planet Cash and Wirrick acknowledge that WCFC is in the
seminar and publication business related to investments and will continue to
market products similar to those licensed herein.
11. Promotional Materials:
WCFC shall own any and all promotional materials created by WCFC to sell the
Products including titles, packaging design,and marketing materials. Upon
termination of the Agreement, all rights of ownership of said promotional
materials shall remain with WCFC. All copyrighted materials owned by Planed
Cash or Wirrick included in the Products shall remain the property of Planet
Cash or Wirrick.
12. Infringement of Copyright:
If during the existence of this Agreement the copyright shall be infringed or
a claim for unfair competition shall arise from the unauthorized use of the
Products or any part thereof, but not limited to, the format thereof of the
characters or situations contained herein, and if the parties proceed
jointly, the expenses and recoveries, if any, shall be shares equally, and if
they do not proceed jointly, either party shall have the right to prosecute
such action, and such party shall bear the expenses thereof, and any
recoveries shall belong to such party. If such party shall not hold the
record title of the copyright, the other party hereby consents that the
action be brought in its or his name. WCFC shall not be liable to Planet Cash
or Wirrick for failure to take such legal steps.
13. Disputes:
Any dispute between the parties arising out of this Agreement which cannot be
amicably settled shall be referred to arbitration upon written notice by
either party to the other. The arbitration shall be governed by the laws of
the State of Washington. Said arbitration is to be held in Seattle,
Washington. Any award rendered in arbitration shall be binding and conclusive
upon the parties and shall not be subject to appeals or retrying by the court.
<PAGE>
14. ATTORNEY FEES:
In the event this Agreement is placed in the hands of an attorney due to a
default in the payment or performance of any of its terms, the defaulting
party shall pay, immediately upon demand, the other party's reasonable
attorney fees, collection costs, costs of either litigation, mediation, or
arbitration (whichever is appropriate), whether or not a suit or action is
filed, and any other fees or expenses reasonably incurred by the
none-defaulting party.
15. JURISDICTION:
This Agreement shall be governed by the laws of Washington.
16. FINAL AGREEMENT:
This Agreement is the entire, final and complete agreement of the parties and
supersedes all written and oral agreements heretofore made or existing by and
between the parties or their representatives.
IN WITNESS WHEREOF the parties hereto have executed and duly witnessed this
Agreement as of the day and year written below.
PLANET CASH, INC.
By: /s/ JOHN V. CHILDERS, JR., PRES.
---------------------------------
John V. Childers, Jr., President
Dated: March 23, 1998
STEVEN ALLYN WIRRICK, INDIVIDUALLY
/s/ STEVEN ALLYN WIRRICK
- ----------------------------------
Steven Allyn Wirrick
Dated: March 23, 1998
WADE COOK FINANCIAL CORPORATION
By: /s/ WADE B. COOK
- ----------------------------------
Wade B. Cook, President and CEO
Dated:
<PAGE>
EXHIBIT A
A list of current products to which Planet Cash currently has the rights to
and is licensing to WCFC:
1. Seven Special Reports
A) #701 - S Strategy for Success
B) #702 - The Psychology of Trading
C) #703 - Measuring Market Sentiment
D) #704 - A Day late and a Dollar Short
E) #705 - A Picture is Worth a Thousands of Dollars
F) #706 - Know When to Hold 'em, Know When to Fold 'em
G) #707 - Commandments of Trading
2. High Octane Options Audio Set
A) #8101 - Psychology of Trading
B) #8102 - Psychology of the Market
C) #8103 - Trend Analysis
D) #8104 - Timing is Crucial
E) #8105 - Options 101
F) #8106 - Strategies
G) #8107 - Chart Patterns
H) #8108 - Rules of Thumb and Money Management
3. Workbook Titles:
A) High Octane Options - Audio Edition
B) High Octane Options - Reference Charts
C) High Octane Options - Supplemental Charts
4. High Impact Trading Audio Set
A) #4001 - Option Basics
B) #4002 - The Trend is Your Friend
C) #4003 - High Octane Options Overview
D) #4004 - The Greatest Money Making Secret in the World
E) #4005 - Take the Money and Run
F) #4006 - The Buck Starts Here
G) #4007 - Road Map to Riches
H) #4008 - Use of Profit & Loss Charts Special Report
I) #4009 - The Secret to Pricing Options - Never Pay Too Much
Again Special Report
5. High Octane Options Seminar or High Octane Option Play Strategies - One
day event to learn the strategies created by Steve Wirrick about trading
in the options market.
6. Options Bootcamp - Two day event covering advanced options strategies
created by Steve Wirrick.
<PAGE>
EXHIBIT B
LICENSE ORDER
EFFECTIVE DATE:
EXECUTION DATE:
LICENSOR:
LICENSEE:
ENDING DATE:
PRODUCTS:
PUBLICATIONS, VIDEO & AUDIO TAPES:
WADE COOK FINANCIAL CORPORATION
By:
----------------------------
Name:
Title:
STEVEN ALLYN WIRRICK
By:
----------------------------
Name:
<PAGE>
STOCK ASSIGNMENT AGREEMENT
THIS STOCK PURCHASE ASSIGNMENT (the "Assignment") for the transfer of all
interest in Get Ahead Bookstores, Inc., a Nevada corporation (the
"Corporation") is made effective January 1, 1998, between Wade Cook Financial
Corporation, a Nevada corporation ("Buyer") and Glendon H. Sypher, a resident
of the State of Washington ("Seller").
RECITALS
WHEREAS, the parties hereto desire to complete the Assignment upon the terms
and conditions hereinafter stated in order for the Corporation to become a
wholly owned subsidiary of the Buyer;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, it is agreed as follows:
AGREEMENT
1. SALE OF STOCK. Seller hereby agrees to assign all interests, rights and
claims in the Corporation to Buyer.
2. PURCHASE PRICE. The purchase price for the Assignment shall be One
Dollar and no cents ($1.00).
3. OPERATION OF BUSINESS. Seller shall continue to manage and direct the
operation of the Corporation including service on the Board of Directors as
agreed under the terms and conditions set forth in the Employment Agreement
effective September 15, 1997 and/or as subsequently modified.
4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants
to Buyer as follows:
a. STOCK. Seller represents that none of the stock in the Corporation
has been issued, however, to the extent that there are any issued and
outstanding shares in the Corporation, Seller hereby assigns said
interest to Buyer.
5. INDEMNIFICATION. Purchaser agrees to indemnify and hold Seller harmless
from and against all damages that Seller may suffer, sustain, incur or become
subject to whether directly or indirectly, arising out of, based upon,
resulting from or in connection with the operation of the Corporation or
ownership of the assets of the Corporation before the Closing Date, including
without limitation liabilities arising from the sale of products sold by
Seller before the Closing Date.
<PAGE>
6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each party hereto covenants
and agrees that its representations and warranties contained in this
Agreement, and in any document delivered or to be delivered pursuant to this
Agreement in connection with Closing hereunder, shall survive Closing.
7. SUCCESSORS. This Agreement shall inure to the benefit of and be binding
upon the parties hereto, their successors, heirs, personal representatives,
and assigns.
8. NOTICES. All notices, requests, demands, and other communications which
are required or may be given under this Agreement shall be in writing, unless
otherwise specified in this Agreement, and shall be deemed to have been duly
given if delivered personally or sent by certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to Seller: Glendon H. Sypher
P. O. Box 553
Fall City, WA 98024
If to the Buyer: Kiman Lucas, Esq.
General Counsel
Wade Cook Financial Corporation
14675 Interurban Avenue South
Seattle, WA 98168-4664
or to such other addresses any party shall have specified by notice in writing
to the other.
9. APPLICABLE LAW. This Agreement and the legal relations between the
parties hereto shall be governed by and in accordance with the law of the
State of Washington.
10. ATTORNEY'S FEES. In any action or proceeding brought by any party
against the other, the substantially prevailing party shall, in addition to
other allowable costs, by entitled to an award of reasonable attorney's fees.
11. HEADINGS. The section and other headings contained in this Agreement
are for reference purposes only and shall not affect the meaning and
interpretation of this Agreement.
12. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of
which together shall be deemed to be one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
ASSIGNOR:
/s/ GLENDON H. SYPHER
------------------------------------
Glendon H. Sypher
ASSIGNEE:
Wade Cook Financial Corporation
By: /s/ Wade B. Cook
--------------------------------
Name: Wade B. Cook
Its: Chairman and Chief Executive Officer
<PAGE>
SECURED LOAN AGREEMENT
THIS SECURED LOAN AGREEMENT (hereinafter referred to as "Agreement") is
made and entered into on this 20th day of JANUARY, 1998, by and between NEWSTART
CENTRE, INC., a Utah Corporation with its principal place of business in Salt
Lake County, State of Utah, (hereinafter referred to as "Debtor") and WADE COOK
SEMINARS, INC. of 14675 INTERURBAN AVE. SOUTH, SEATTLE, WA 98168 (hereinafter
referred to as "Secured Party").
CAPTIONS AND HEADINGS. The captions and headings throughout this Agreement
are for convenience of reference only, and the words contained therein shall in
no way be held or deemed to define, limit, describe, explain, modify, amplify or
add to the interpretation, construction or meaning of any provisions of or the
scope or intent of this Agreement or in any way affect this Agreement.
RECITALS:
A. WHEREAS, DEBTOR is engaged in the business of buying, leasing and
selling motor vehicles to the general public, and
B. WHEREAS, DEBTOR desires to borrow working capital for the purchase of
automobiles to sale or lease, and
C. WHEREAS, Secured Party desires to loan working capital to Debtor,
NOW, THEREFORE, in consideration of the mutual promises and covenants herein
contained, the parties hereto hereby agree as follows:
1. Loan. Secured Party hereby lends to Debtor, receipt of which is hereby
acknowledged, the sum of $125,000.00 payable to Debtor in certified funds
concurrent with the execution of this Agreement and the other
documents/instruments referred to below.
2. Loan Documents.
a) Execution and delivery by Debtor. Debtor hereby agrees to
execute, by and through its authorized representatives, and to deliver to
Secured Party, the following instruments/documents to effect the loan described
in paragraph 1 above.
1) Promissory Note dated the 20th day of JANUARY, 1998, a copy
of which is attached hereto as Exhibit "A".
2) Certificate of Delivery and Receipt of Documents, a copy of
which is attached hereto as Exhibit "B".
b) Execution and delivery by Secured Party. Secured Party hereby
agrees to execute and deliver to Debtor the Certificate of Delivery and Receipt
of Documents dated the 20th of JANUARY, 1998, (Exhibit "B").
3. Grant of Lien. Debtor hereby grants to Secured Party a continuing lien
against each vehicle (hereinafter the "vehicles") purchased with Secured Party's
funds to secure the payment and performance of each and every obligation,
liability and undertaking of Debtor under the loan documents and Debtor hereby
represents and warrants to secured Party that Debtor is or, after acquisition by
Debtor, will be the owner of the vehicles and possesses all requisite power and
authority to execute and deliver this Agreement and to grant to Secured Party a
lien as to all of the vehicles or any replacements thereof.
<PAGE>
4. No Other Security Interests/Liens. No financing statement or lien
covering the vehicles has been given or filed by Debtor with any filing officer,
and the said vehicles are or will be free from any adverse liens, security
interests, claims or encumbrances of any kind.
5. Taxes and Assessments. All taxes, assessments and other governmental
charges including Utah State sales tax, county property tax, and license and
registration fees upon the vehicles will, to the best of Debtor's knowledge,
have been paid and shall continue to be paid as they become due and payable.
6. Substitution of Collateral. Secured Party consents and acknowledges
that Debtor, from time to time, January sell, transfer or assign any or all of
the said vehicles or leases covering the vehicles. Secured Party further agrees
to cooperate with and to execute and deliver to Debtor such additional documents
as January be necessary to sell or otherwise dispose of any of the vehicles
provided Debtor, within a reasonable time, replaces such vehicle(s) with other
vehicle(s) of equal or greater value and lists Secured Party as the sole lien
holder on the titles to any such replacement vehicles.
7. Evidence of Title. Debtor shall, within thirty (30) days after the
receipt thereof, deliver to Secured Party copies of any and all title and/or
registration documents relating to any of the motor vehicles covered by this
Agreement showing Secured Party as the sole lienholder. Debtor shall not further
mortgage, pledge, grant or permit to exist any lien against or security interest
in, or encumbrance on, any of the vehicles without the prior written consent of
Secured Party.
8. Insurance. Debtor shall maintain, or cause Lessees to maintain, at
Debtor's or Lessee's expense, proper insurance coverage on the vehicles covered
by this Agreement upon terms and with limits of coverage reasonably required by
the existing custom and usage in the motor vehicle leasing industry and all
rights, duties and obligations of Debtor and Lessees with respect to insurance
coverage of the vehicles, including, without limitation, payment of premiums,
use of proceeds and disposition of policies shall be as are standard in the auto
leasing industry.
9. Licenses and Permits. Debtor shall keep in effect all licenses,
permits and franchises required by law or contract relating to the vehicles and
shall pay, when due, all fees and other charges pertaining thereto.
10. Miscellaneous.
(a) Entire Agreement. This Agreement, together with all of the
documents/instruments listed herein constitute the entire agreement between the
parties. There are no terms, obligations, covenants, representations,
statements, or conditions between the parties, other than those contained
herein. No variations or modifications of this Agreement or waiver of any of the
terms or provisions hereof shall be deemed valid unless in writing and signed by
both parties.
(b) Grace Period. In the event of a non-monetary default, Debtor
shall have thirty (30) days after receipt of written notice thereof from Secured
Party in which to cure such default.
(c) Amendments. Neither this Agreement nor any provisions hereof
January be changed, waived, discharged or terminated orally and January only be
modified or amended by an instrument in writing, signed by Secured Party and
Debtor.
(d) Binding Effect. This Agreement shall be binding upon Debtor and
Debtor's successors and assigns. This Agreement shall inure to the benefit of
Secured Party, and Secured Party's heirs, personal representatives, successors
and assigns.
<PAGE>
(e) Notices. Except as otherwise provided herein, all notices
and other communications under this Agreement shall be in writing and shall be
deemed given when delivered or, if mailed, then when mailed, if mailed by
registered or certified mail, postage prepaid, addressed as follows:
If to Secured Party, to: If to Debtor, to:
WADE COOK SEMINARS, INC. NEWSTART CENTRE, INC.
C/O 14676 INTERURBAN AVE. SOUTH 5200 SOUTH STATE STREET
SEATTLE, WA. 98168 MURRAY, UTAH 84107
Such addresses January be changed by notice to the other parties given in the
same manner as above provided. Any notice given hereunder shall be deemed given
as of the date delivered or mailed.
(f) Severability. If any term or provision of this Agreement shall,
to any extent, be determined by a court of competent jurisdiction to be void,
voidable or unenforceable, such void, voidable or unenforceable term or
provision shall not affect any other term or provision of this Agreement.
(g) Governing Law. This Agreement and all matters relating hereto
shall be governed by, construed and interpreted in accordance with the laws of
the State of Utah, County of Salt Lake.
(h) Termination. This Agreement shall terminate upon the full and
complete performance and satisfaction by Debtor of all of its obligations to
Secured Party under this Agreement or any other instrument referred to herein
requiring performance by Debtor.
IN WITNESS WHEREOF, Debtor and Secured Party have executed this Secured
Loan Agreement effective as of the date first above written.
DEBTOR:
NEWSTART CENTRE, INC.
By /s/ Robert J. Atmore
-------------------------------
Robert J. Atmore, President
SECURED PARTY:
Wade Cook Seminars, Inc.
By /s/ Wade B. Cook
-------------------------------
Wade B. Cook
<PAGE>
PROMISSORY NOTE
(Secured)
$ $125,000.00 Date: January 20, 1998
FOR VALUE RECEIVED the undersigned hereby promise to pay to WADE COOK
SEMINARS, INC. at 14675 INTERURBAN AVE. SOUTH, SEATTLE, WA 98168 or at such
other place as the holder hereof January designate in writing, the principal
sum of One Hundred Twenty Five Thousand dollars and no/100 ($ $125,000.00),
payable in forty-eight (48) consecutive equal monthly payments, including
interest as provided below, of ($3,503.15) each, commencing with the first
payment on the 6th day of March, 1998, and continuing with a like payment on
the 6th day of each and every consecutive month thereafter until the entire
remaining unpaid principal balance has been paid in full, subject to the
following additional terms and conditions:
1. Interest. Interest shall accrue on the unpaid principal balance at
the simple rate of fifteen percent (15.00%) per annum.
2. Application of Payments. Payments shall be applied first toward the
payment and satisfaction of accrued and unpaid interest, if any, and the
remainder shall be applied toward the reduction of principal. Principal and
interest shall be payable only in lawful money of the United States of America.
3. Prepayment. The undersigned shall have the right, without penalty, to
pre-pay any part or all of the unpaid principal balance due hereunder, in which
event subsequent monthly payments shall be reduced proportionately, or, upon
payment in full of all interest, principal and any other amounts due hereunder,
payments shall terminate. In any event, the entire principal balance, together
with all accrued interest and any accrued costs or attorney's fees, as provided
herein, shall be paid in full on or before March, 2002.
4. Default/Late Charges/Acceleration. In the event any installment
payment due hereunder or any portion thereof is not made within thirty (30)
days after its due date and such default is occasioned by the default of any
lessee, then, to that extent, Debtor shall have sixty (60) days from such due
date to repossess the subject motor vehicle(s), re-lease the same and resume
making monthly installment payments pursuant to the Note. Any installment
payment or any portion thereof not paid within the said sixty-day (60) period
shall be added on to the end of the term covered by the Note and the final
due date for such payment or part thereof, together with any accrued interest
thereon shall be extended by one month for each such installment payment
missed.
5. No Waiver. The acceptance of any installment or payment after the
occurrence of a default or event giving rise to the right of acceleration
provided for in the previous paragraph shall not constitute a waiver of such
right of acceleration with respect to any subsequent default or event.
6. Costs of Collection/Attorneys' Fees, etc. In the event any payment due
under this Note is not made, or any obligation provided to be satisfied or
performed under any instrument given to secure payment of the obligations
evidenced hereby is not satisfied or performed, at the time and in the manner
required, the undersigned agrees to pay all costs and expenses (regardless of
the particular nature thereof and whether incurred with or without suit and
before or after judgment) which January be incurred by the holder hereof in
connection with the enforcement of any of his rights under this Note or under
any such other instrument, or any right arising out of the breach thereof,
including but not limited to, reasonable expenses incurred in foreclosing on the
collateral securing payment hereof, court costs, and reasonable attorneys' fees.
<PAGE>
7. Notice. Any notice or demand hereunder shall be deemed to have been
given to and received by the undersigned when personally delivered or when
deposited in the U.S. mail, certified or registered mail, return receipt
requested, postage pre-paid, and addressed to the undersigned at the address set
forth below or at such other address as the undersigned January hereafter
designate in writing to the holder hereof.
This note shall be governed and construed in accordance with the laws of
the State of Utah.
NEWSTART CENTRE, INC.
By /s/ Robert J. Atmore
---------------------------
Robert J. Atmore, President
<PAGE>
CERTIFICATE OF DELIVERY
AND RECEIPT OF DOCUMENTS
I, ROBERT J. ATMORE, of/for NEWSTART CENTRE, INC. do hereby certify that on the
20TH day of JANUARY, 1998 I delivered to WADE COOK SEMINARS, INC. of 14675
INTERURBAN AVE. SOUTH, SEATTLE, WA 98168 one (1) original and/or one (1) copy of
each of the following documents:
(i) Secured Loan Agreement dated the 20TH day of JANUARY, 1998, between
NEWSTART CENTRE, INC., as Debtor, and WADE COOK SEMINARS, INC. as Secured Party.
(ii) Promissory Note dated the 20TH day of JANUARY, 1998.
DATED this 20TH day of JANUARY, 1998.
NEWSTART CENTRE, INC.
By /s/ Robert J. Atmore
---------------------------
Robert J. Atmore, President
<PAGE>
RECEIPT
The undersigned do hereby acknowledge receipt of each of the documents or
copies thereof listed above and attached to this Certificate.
DATED this 20TH day of JANUARY, 1998.
Name: WADE COOK SEMINARS, INC.
By: /s/ Wade B. Cook Fed EIN#
------------------ ------------------
Wade B. Cook
<PAGE>
Secured Home Promissory Note
$75,000.00 Washington
June 18, 1997
For value received, Paul and Laurie Cook, (Promissor) promise to pay to
the order of Wade Cook Seminars, Inc. a Nevada corporation, at its office at
14675 Interurban Ave., S, Seattle, Washington, 98168 or at such other place as
the holder of it may from time to time designate in writing, the principal
sum of seventy five thousand dollars and no cents, ($75,000.00), which sum,
together with interest from the date of this Note on the unpaid principal
balance at the rate of eleven (11.00%) percent per year, shall be payable in
monthly installments of seven hundred and fifty dollars ($750.00) each,
beginning July 1, 1997, and continuing on thereafter for two years for a
total of twenty four payments.
A Balloon payment of sixty five thousand, one hundred and sixty nine
dollars and seventy cents ($65,169.70) will be due upon the last payment made.
The undersigned reserves the right to prepay this Note in whole or in
part at any time, provided that all interest accrued to the date of the
prepayment shall first have been paid.
Secured Property:
Lot 24, Overlook at Old Mill subdivision, according to the Plat thereof.
As recorded in the Office of the County Recorder of Said County.
The address to the house is: 6611 South Lindie CT, Salt Lake City, Utah 84058
In the event that the monthly payments provided for in this Note have
not been paid and actually received by Promisee on or within five (5) days of
their due date, a late charge of twenty-five dollars ($25.00) shall be
accessed by Promisee to cover the extra expense involved in handling
delinquent payments. Promisee shall not be obligated to accept any monthly
payment made after its due date, unless that monthly payment shall be
accompanied by the full amount of the late charges assessed by Promisee as
provided in this Note: however, in the event that a late monthly payment is
accepted, that payment shall first by applied to late charges.
Any legal holder of this Note may, without notice and without releasing
the liability of any maker or guarantor of this Note, grant extensions or
renewals of this Note from time to time and for any term or terms. Any legal
holder of this
Page 1 of 2
<PAGE>
Secured Promissory Note
Paul and Laurie Cook
Page 2
Note shall not be liable for or prejudice by failure to collect or for lack
of diligence in bringing suit on this Note or any renewal or extension of
this Note. Promissor waives presentement of nonpayment, protest and notice of
protest.
Should this Note be placed in the hands of an attorney for collection, or
if action be instituted on it, all parties now or in the future liable for
indebtedness evidenced by this Note, jointly and severally agree to pay all
costs and expenses of the collection or enforcement action with reasonable
attorney fees in addition to the amount found due.
/s/ Paul Cook
- -------------------------------
Paul Cook
6-19-97
- -------------------------------
Date
/s/ Laurie Cook
- -------------------------------
Laurie Cook
6/19/97
- -------------------------------
Date
<PAGE>
Secured Home Promissory Note
$13,000.00 Washington
January 1, 1998
For value received, Paul D. Cook and Laurie C. Cook, (Promissor) promise
to pay to the order of Wade Cook Seminars, Inc., a Nevada corporation, at its
office at 14675 Interurban Ave. S, Seattle, Washington, 98168 or at such
other place as the holder of it may from time to time designate in writing,
the principal sum of thirteen thousand dollars and no cents, ($13,000.00),
which sum, together with interest from the date of this Note on the unpaid
principal sum, together with interest from the date of this Note on the
unpaid principal balance at the rate of eleven (11.00%) percent per year,
shall be payable in monthly installments of Four Hundred Dollars and no/100
($400.00) each, beginning February 1, 1998, and continuing on thereafter for
one year for a total of twelve payments.
A Balloon payment of Nine Thousand, Eight Hundred Fifty Four Dollars
and Eighty cents ($9,854.80) will be due upon the last payment made.
It is further agreed and understood that for as long as Promissor is an
employee/independent contractor of Wade Cook Seminars, Inc. he authorizes
said monthly payment to be automatically deducted from his monthly
commission. If Promissor is terminated or leaves said company, Promissor
shall continue to be bound by the obligations as set forth in this agreement.
The undersigned reserves the right to prepay this Note in whole or in
part at any time, provided that all interest accrued to the date of the
prepayment shall first have been paid.
Secured Property:
Lot 24, Overlook at Old Mill Subdivision, according to the Plat thereof;
as recorded in the Office of the County Recorder of Said County.
The address to the house is: 6611 South Lindie CT, Sale Lake City, Utah 84058
In the event that the monthly payments provided for in this Note have
not been paid and actually received by Promisee on or within five (5) days of
their due date, a late charge of twenty-five dollars ($25.00) shall be
accessed by Promisee to cover the extra expense involved in handling
delinquent payments. Promisee shall not be obligated to accept any monthly
payment made after its due date, unless that monthly payment shall be
accompanied by the full amount of the late charges assessed by Promisee as
provided in this Note; however, in the event that a late monthly payment is
accepted, that payment shall first be applied to late charges.
<PAGE>
Secured Promissory Note
Paul D. Cook and Laurie C. Cook
Page 2
Any legal holder of this Note may, without notice and without releasing
the liability of any maker or guarantor of this Note, grant extensions or
renewals of this Note from time to time and for any term or terms.
Any legal holder of this Note shall not be liable for or prejudice by
failure to collect or for lack of diligence in bringing suit on this Note or
any renewal or extension of this Note. Promissor waives presentment for
payment, notice of nonpayment, protest and notice of protest.
Should this Note be placed in the hands of an attorney for collection,
or if action be instituted on it, all parties now or in the future liable for
indebtedness evidenced by this Note, jointly and severally agree to pay all
costs and expenses of the collection or enforcement action with reasonable
attorney fees in addition to the amount found due.
Dated this 30th day of December, 1997.
/s/ Paul D. Cook /s/ Laurie C. Cook
- ---------------------- --------------------------
Paul D. Cook Laurie C. Cook
<PAGE>
[SEAL]
ARTICLES OF ORGANIZATION
OF
LAKE VIEW LODGING ASSOCIATES, L.C.
The undersigned two or more persons hereby form a limited liability
company under the Utah Limited Liability Company Act and adopt and certify as
the Articles of Organization of such limited liability company the following:
I. NAME: The name of the limited liability company is:
Lake View Lodging Associates, L.C.
II. DURATION: The period of its duration:
The duration of the company shall be thirty-nine years from the date of
filing of these Articles of Organization with the Division of Corporations of
the State of Utah.
III. PURPOSE: The business purpose for which this limited liability
company is organized includes, but is not limited to, the following:
The Company shall engage in the business of acquisition, development and
operation of lodging facilities, and other related hotel activities,
including but not limited to the development of hotel or motel properties.
In addition, the Company shall have unlimited power to engage in and do
any lawful act concerning any or all lawful businesses for which limited
liability companies may be organized according to the laws of the State of
Utah, excluding banking and insurance, including all powers and purposes now
and hereafter permitted by law to a limited liability company.
IV. AGENT:
A. The address of the registered office in Utah is:
2601 North Canyon Road, Suite 203
Provo, UT 84604
B. The name and address of the registered agent at the
office in Utah is:
Glen A. Overton
2601 North Canyon Road, Suite 203
Provo, UT 84604
I, Glen A. Overton, do this date hereby voluntarily accept and agree to
serve as Registered Agent for Lake View Lodging Associates, L.C.
/s/ Glen A. Overton
--------------------------------
Glen A. Overton, Registered Agent
<PAGE>
V. DIVISION APPOINTMENT: The Utah Division of Corporations is hereby
appointed the agent of this limited liability company for service of process
if the registered agent has resigned, the agent's authority had been revoked
or the agent cannot be found or served with the exercise of reasonable
diligence.
VI. CAPITOL: The total amount of cash and a description and agreed
value of property other than cash initially contributed to the Company is:
A minimum One Thousand Dollars cash
The total additional contributions, if any, agreed to be made by all
members and the times at which or events upon the happening of which they
shall be made:
Additional equity contributions shall be made at such times and in such
amounts as may be agreed by the Company and the members or as provided in the
Operating Agreement of the Company.
Loans from members maybe made to and accepted by the company and are
authorized to be repaid on a preferential loan basis.
VII. OWNERSHIP: The right, if given, of the members to admit additional
members, and the terms and conditions of the admission:
Additional members may be submitted at such times and on such terms and
conditions as all members may unanimously agree and as provided in the
Operating Agreement of the Company.
Ownership interest may be transferred only upon the prior approval of
all members.
VIII. TERMINATION: This business and association shall terminate and
dissolve upon the death, retirement, resignation, expulsion, or bankruptcy of
any member. The right of the remaining members of the limited liability
company to continue the business on the death, retirement, resignation,
expulsion, bankruptcy, or dissolution of a member or occurrence of any other
event which terminated the continued membership of a member in the limited
liability company is as permitted by statute and as follows:
The remaining members of the Company may continue the business upon the
termination of membership of a member on the Company upon unanimous agreement
and as provided in the Operating Agreement of the Company.
<PAGE>
IX. MANAGEMENT.
The Company is to be managed by its members: Zion Management and
Development Company, Inc., through its designated officers and agents, 2601
North Canyon Road, Suite 203, Provo, Utah 84604 and Fitch Properties L.C.,
through its designated officers and agents, 550 West 700 South, Orem, Utah
84058, and Bountiful Investment Group, Inc., formerly Profit Financial Real
Estate Management Company, through its designated officers and agents, 14675
Interurban Avenue South, Seattle, Washington 98168.
The members of the company are: (1) Zions Management and Development
Company Inc., as to a 25% ownership as a member being a Utah Corporation, (2)
Fitch Family Properties L.C., as to a 33% ownership as a member being a Utah
Corporation, and (3) Bountiful Investment Group, Inc., as to a 42% ownership
as a member being a Nevada Corporation; with such capital accounts,
management control, and percentage ownerships and rights to receive profits
and losses as are set fourth in the Operating Agreement, Membership
Certificates and such other written agreements between the members.
X. INDEMNIFICATION: Other provisions for the regulations of the
internal affairs of the limited liability company are:
1. The Company shall indemnify any individual made a party to a
proceeding because he is or was a manager, officer, organizer,
employee or agent of the Company against liability incurred in the
proceeding if:
a. He conducted himself in good faith;
b. He reasonably believed that his conduct was in or at least not
opposed to the Company's best interest; and
c. In the case of any criminal proceeding, he had no reasonable
cause to believe his conduct was unlawful.
2. Indemnification shall also be provided for an individual's conduct
with respect to an employee benefit plan if the individual reasonably
believed his conduct to be in the interest of the participants in and
beneficiaries of such plan.
3. The Company shall pay for or reimburse the reasonable expenses
incurred by a manager, officer, organizer, employee or agent of the
Company who is a party to a proceeding in advance of final disposition
of the proceeding if:
a. The individual furnishes the Company a written affirmation of
his good faith belief that he has met the standard of conduct
described herein;
b. The individual furnishes the Company a written undertaking
executed personally or on his behalf to repay the advance of it
is ultimately determined
<PAGE>
That he did not meet the standard of conduct; and
c. A determination is made that the facts then known to those
making the determination would not preclude indemnification under
the law.
The undertaking required by this paragraph shall be an unlimited general
obligation, but need not be secured and may be accepted without reference
to financial ability to make repayment.
4. The indemnification and advance of expense authorized herein shall
not be exclusive to any other rights to which any manager, officer,
organizer, employee or agent may be entitled under any Operating
Agreement, by-law, agreement, vote of members or disinterest managers
or otherwise. The Articles of Organization shall not be interpreted
to limit in any manner the indemnification or right to advancement
for expenses of an individual who would otherwise be entitled
thereto. These Articles of Organization shall be interpreted as
mandating indemnification and advancement of expenses to the extent
permitted by law.
5. In addition to the foregoing, the Company shall indemnify and save
the organizers harmless for all acts taken by them as organizers of
the Company, and shall pay all costs and expenses incurred by or
imposed upon them as a result of the same, including compensation
based upon the usual charges for expenditures required of them in
pursuit of the defense against any liability arising on the account
of acting as organizers or on account of enforcing the indemnification
right hereunder, and the Company releases them from all liability for
any such act as organizers not involving willful or grossly negligent
misconduct.
IN WITNESS WHEREOF, the Articles of Organization are executed
under penalties of perjury by all of the members of the Limited
Liability Company effective as of the 22nd day of September, 1997.
/s/ Glen A. Overton
-----------------------------------
Glen A. Overton, President
East Bay Lodging Associates L.C.
/s/ Wade B. Cook
-----------------------------------
Wade B. Cook, President
Bountiful Investment Group
formerly Profit Financial Real Estate Management Company
/s/ Robert H. Fitch
-----------------------------------
Robert H. Fitch, Manager
Fitch Family Properties L.C.
<PAGE>
STATE OF UTAH )
)ss.
COUNTY OF UTAH )
On the 4 day of December, 1977 personally appeared before me Glen A.
Overton signer of the above instrument, who duly acknowledged to me that he
executed the same.
My Commission Expires /s/ Deborah A. Whitlock
November 15, 1999 -------------------------------
- --------------------- Notary Public
[SEAL]
Residing at:
Provo, Utah
-------------------------------
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
On the 2nd day of December, 1997 personally appeared before me Wade B.
Cook signer of the above instrument, who duly acknowledged to me that he
executed the same.
My Commission Expires /s/ ILLEGIBLE
October 1997 -------------------------------
- ------------------- Notary Public
Residing at:
Bellevue, Wa.
-------------------------------
STATE OF UTAH )
)ss.
COUNTY OF UTAH )
On the 4 day of December, 1997 personally appeared before me Robert H.
Fitch signer of the above instrument, who duly acknowledged to me that he
executed the same.
My Commission Expires /s/ Deborah A. Whitlock
Nov. 1999 -------------------------------
- ------------------- Notary Public
Residing at:
Provo, UT
-------------------------------
[SEAL]
<PAGE>
ASSIGNMENT AND ASSUMPTION OF INTEREST
THIS ASSIGNMENT AND ASSUMPTION OF INTEREST is made this 10th day of
September, 1997 by Zions Management and Development Co. (herein "Zions"), a
Utah corporation, to Airport Hotel Partners, L.L.C. (Herein "AHP") and Wade
Cook Seminars.
RECITALS:
A. Zions owns ten percent (10%) interest in Airport Hotel Partners, L.L.C.
B. Zions agrees to relinquish all of its rights being ten percent (10%) in
AHP, L.L.C. to Wade Cook Seminars and Wade Cook Seminars agrees to accept the
assignment for the sum of $250,000.
AGREEMENT:
1. Zions hereby assigns to Wade Cook Seminars a ten percent (10%) interest in
"AHP".
2. Wade Cook Seminars agrees to buy the foregoing interest in AHP for the sum
of $250,000 and agrees to perform any and all obligations which it may
thereby have under the Articles of Organization or Operating Agreement of AHP.
IN WITNESS WHEREOF, the parties have entered into this Agreement the day
and year first above written.
ZIONS MANAGEMENT AND DEVELOPMENT CO.
By /s/ Glen A. Overton
---------------------------------
Glen A. Overton, President
<PAGE>
AIRPORT LODGING ASSOCIATES, L.C.
By /s/ Glen A. Overton
---------------------------------
Zions Management and Development
Co., Managing Member
WADE COOK SEMINARS
By
---------------------------------
Wade B. Cook, President
On this 19 day of September, 1997, Glen A. Overton did personally appear
before me, who being duly sworn did say that he the said Glen A. Overton is the
President of Zions Management and Development Co. And that the within and
foregoing instrument was signed in behalf of the said corporation.
/s/ Deborah A. Whitlock
---------------------------------
NOTARY PUBLIC
Residing in: [ILLEGIBLE]
---------------------------------
My Commission Expires: [STAMP]
1999
- ----------------------
On this ____ day of September, 1997, Wade B. Cook did personally appear
before me, who being duly sworn did say that he the said Wade B. Cook is the
President of Wade Cook Seminars. And that the within and foregoing instrument
was signed in behalf of the said corporation.
------------------------------------
NOTARY PUBLIC
Residing in:
------------------------
My Commission Expires:
- ----------------------
<PAGE>
CONSENT AGREEMENT
Admission of New Member
In compliance with the "Operating Agreement" of Airport Hotel Partners, LLC,
as stated in item number 14 of that agreement.
14. ADMISSION OF NEW MEMBERS
The Members may admit new Members (or transferees of any interests of
existing Members) into the Limited Liability Company by the affirmative vote
of consent of Members holding a majority of the Members' Percentage Interests.
MGR Investment Group, LLC agrees to allow Investment Lodging Corp. To
transfer 10% of its interest to Wade Cook Seminars, Inc. Wade Cook Seminars,
Inc. Will become a member of Airport Partners, LLC after the hotel is
completed and open for business operations.
INVESTMENT LODGING CORP. MGR INVESTMENT GROUP, LLC.
BY /s/ [ILLEGIBLE] BY /s/ Grant Taylor
-------------------------------- ------------------------------
PRESIDENT MEMBER
GRANT TAYLOR
<PAGE>
TO: Wade R. Cook
FROM: Glen Overton
SUBJECT: Property # UT-015, Salt Lake City Airport
DATE: August 15, 1997
SHERATON SUITES, AIRPORT PROPERTY
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
LOCATION: 307 North Admiral Byrd
Salt Lake City International Center
Salt Lake City, UT 84101
Property sets on 2.45 acres - 2 miles west of the Salt
Lake City Airport
DESCRIPTION: 104 units, combination of large studio suites and luxury 1
and 2 bedroom suites. Has a two-story lobby, lounge,
restaurant, meeting rooms, exercise facility, and outdoor
pool and hot tub. This will be the most upscale 4-star
property at the International Center.
TIME LINE: Construction began 03/97
Projected opening 11/20/97
HOTEL COST: Total project cost estimated at $8.5 million
EQUITY DIST. Ownership to be held in in an L.L.C.
- MGR Investment Group, L.L.C. and related parties to hold
78% ownership
- Investment Lodging, Inc. and related parties to hold a
12% ownership
- WADE COOK SEMINARS, INC. TO HOLD A 10% OWNERSHIP
INVESTMENT: Total equity contribution to date totals $2,500,000
- Wade Cook Seminars, Inc. to pay to Investment Lodging,
Inc. $250,000 directly to acquire 10% of Investment Lodging,
Inc. interest.
COOK PAYMENTS: $250,000 to be received by check to MGR Investment Group
Bank Wire
Agreement Accepted by
/s/ Wade B. Cook 8-22-97
- --------------------------- --------------------
Wade Cook Seminars, Inc by Date
Wade Cook
<PAGE>
LIMITED LIABILITY COMPANY INTEREST PURCHASE AGREEMENT
THIS LIMITED LIABILITY COMPANY INTEREST PURCHASE AGREEMENT ("Agreement") is
entered into as of this 29th day of November, 1997, by and between Wade Cook
Seminars, Inc., a Nevada corporation ("Buyer") and Wespac Holdings, L.C., a Utah
limited liability company ("Seller").
WITNESSETH:
A. Seller owns a seven percent (7%) membership, capital and profits
interest (the "Interest") in Woods Cross Hotel Partners, L.C., a Utah limited
liability Company (the "Company"). The Company has developed and owns and
operates a Fairfield Inn by Marriott located near the intersection of 2600
South and Wildcat Way (on the I-15 Freeway frontage road) in Woods Cross,
Utah.
B. Seller desires to sell the Interest to Buyer and Buyer desires to buy
from Seller the Interest pursuant to the terms and subject to the conditions set
forth in this Agreement.
AGREEMENT
---------
In consideration of the foregoing and the mutual promises contained herein,
the parties agree as follows:
1. PURCHASE AND SALE OF INTEREST. Upon the terms and subject to the
conditions set forth in this Agreement, hereby sells, assigns, transfers and
conveys the Interest to Buyer, and Buyer hereby purchases, obtains and acquires
the Interest form Seller.
2. PURCHASE PRICE. In consideration of and in exchange for the sale,
assignment, transfer and conveyance of the Interest, Buyer agrees to assign and
transfer to Seller, Ten Thousand One Hundred Eighty Two (10,182) shares of the
common stock of Wade Cook Financial Corporation, a Utah corporation, (the
"Stock"). The Stock shall be delivered to Seller through certificates, properly
endorsed for transfer, on the Closing Date as follows:
Number of
Name Shares of Stock
---- ---------------
Paul d. Christensen 6,545
Rex K. Griffiths 3,637
The Stock shall be registered and capable subject to no restrictions or
limitation, other than not more than a one year restriction on transfer, as of
the Closing Date.
<PAGE>
3. CLOSING. Subject to the satisfaction of the conditions set forth in
this Agreement and compliance with the other provisions hereof, the closing of
the transaction contemplated by this Agreement (the "Closing") shall take place
at SLC Utah on 11/29/97 at 10:00 a.m., local time, or at such other place and
time as shall be mutually agreeable to the parties hereto (the "(Closing Date").
At the Closing, Buyer shall deliver to Seller certificates evidencing the number
of shares of Stock specified in Sections 2 hereof, properly endorsed for
transfer, and Seller shall each deliver to Buyer an assignment of the Interest,
in the form attached as Exhibit A.
4. ASSIGNMENT OF THE INTEREST. From and after the Closing, all equitable
and legal rights, title and interests in and to the Interest shall be owned,
held and exercised by Buyer. All captial calls, obligations and liabilities,
if any, under the Company's Operating Agreement shall be the sole
responsibility of Buyer.
5. ASSIGNMENTS OF THE STOCK. From and after the Closing, all equitable
and legal rights, title and interests in and to the Stock shall be owned,
held and exercised by each member of Seller in the proportions specified in
Sections 2 above. Wade Cook Financial Corporation shall, upon surrender of
certificates no. _____ evidencing the Stock, cancel the old certificates and
issue new certificates to each member of Seller (or as they may direct) for the
number of shares of Stock as specified in Section 2 above.
6. INVESTMENT REPRESENTATIONS OF BUYER. Buyer hereby represents and
warrants to each of Sellers as follows:
(a) Buyer understands that the Interest has not been registered under
the Securities Act of 1933 (the "1933 Act") or the laws of any state, and the
transactions contemplated hereby are being undertaken in reliance upon an
exemption from the registration requirements of the 1933 Act, and reliance upon
such exemption is based upon Buyer's representations, warranties and agreements
contained in this Agreement.
(b) Buyer has received and carefully reviewed all information
necessary to enable Buyer to evaluate his investment in the Company. Buyer has
been given the opportunity to ask questions of and to receive answers from the
Company concerning its business and the Interest, and to obtain such additional
written information necessary to verify the accuracy thereof.
(c) Buy is aware the purchase of the Interest is speculative and
involves a high degree of risk. Buyer is aware that there is no guarantee that
Buyer will realize any gain from his acquisition of the Interest. Buyer further
understands that Buyer could lose the entire amount of his investment.
(d) Buyer understands that no federal or state agency or other
authority has made any finding or determination regarding the fairness of the
offer, sale and/or issuance of the Interest or has made any recommendation or
endorsement thereof or has passed in any way upon this Agreement.
2
<PAGE>
(e) Buyer: (i) is acquiring the Interest solely for Buyer's own
account for investment purposes only and not with a view toward resale or
distribution thereof, in whole or in part, (ii) has no tract, undertaking,
agreement or arrangement, in existence or contemplated, to sell, pledge,
assign or otherwise transfer the Interest to any other person, and (iii)
agrees not to sell or otherwise transfer the Interest unless and until it is
subsequently registered under the 1933 Act and any applicable state
securities laws, or unless an exemption from any such requirement is
available.
(f) Buyer is financially able to bear the economic risk of an
investment in the Interest, including the ability to hold the Interest
indefinitely and to afford a complete loss of his investment in the Interest.
Buyer has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of the acquisition of the
Interest.
7. INVESTMENT REPRESENTATIONS OF SELLERS. The Seller hereby represents
and warrants to Buyer as follows:
(a) Seller has received and carefully reviewed all information
necessary to enable Seller to evaluate the investment represented by the Stock
in Wade Cook Financial Corporation. Seller has been given the opportunity to ask
questions of and to receive answers from Wade Cook Financial Corporation
concerning its business and the Stock, and to obtain such additional written
information necessary to verify the accuracy thereof.
(b) Seller is aware that the Stock is speculative and involves a high
degree of risk. Seller is aware that there is no guarantee that Seller will
realize any gain form ownership of the Stock. Seller further understands that it
could lose the entire amount of their investment.
(c) Seller is financially able to bear the economic risk of an
investment in the Stock, including the ability to hold the Stock indefinitely
and to afford a complete loss of their investment in the Stock. Seller has
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risk of the acquisition of the Stock.
8. CONDITIONS TO OBLIGATIONS OF BUYER. The obligation of Buyer to
consummate the transactions contemplated by this Agreement is subject to the
fulfillment of each of the following conditions:
(a) On the Closing Date, Seller shall be the sole legal and
beneficial owner of the Interest, free and clear of all claims, liens,
mortgages, charges, security interests, encumbrances and other restrictions and
limitations of any kind and nature whatsoever.
(b) By the Closing Date, any and all necessary consents,
authorizations, orders or approvals for transfer of the Interest shall have been
obtained.
(c) Neither the execution or delivery of this Agreement nor the
performance of its obligations hereunder will conflict with or result in a
breach of or constitute a default under or result in the creation of or an
imposition of a lien upon any of the properties or assets of Seller or any
agreement too which Seller may be a party or by which its property or assets
may be subject.
3
<PAGE>
9. CONDITIONS TO OBLIGATIONS OF SELLER. The obligation of Seller to
consummate the transactions contemplated by this Agreement is subject to the
fulfillment of each of the following conditions:
(a) On of the Closing Date, Buyer shall be the sole legal and
beneficial owner of the Stock, free and clear of all claims, liens, charges,
security interest, encumbrances and other restrictions and limitations of any
kind or nature whatsoever.
(b) On the Closing Date, any and all necessary consents,
authorizations, orders or approvals for transfer of the Stock shall have been
obtained.
(c) Neither the execution or delivery of this Agreement nor the
performance of its obligation hereunder will conflict with or result in a breach
of or constitute a default under or result in the creation of or an imposition
of a lien upon any of the properties or assets of Buyer or any agreement to
which Buyer may be a party or by which it property or assets may be subject.
(d) Wade Cook Financial Corporation shall provide assurances of the
registration of the Stock and its willingness, upon presentation and
endorsement, to cancel certificate no. ____ and issue new certificates in the
names of the members of Seller (or as they may direct) evidencing their
ownership of the Stock as specified in Section 2 above.
10. MISCELLANEOUS.
(a) This Agreement represents the entire agreement between the
parties hereto with respect to the transactions contemplated hereby and
supersedes all prior agreements with respect thereto, whether written or oral.
(b) This Agreement shall be governed by and construed in accordance
with the laws of the State of Utah, without regard, however, to such
jurisdiction's principles of conflict of laws.
(c) This Agreement may be executed in counterpart originals, each of
which shall be an original, but all of which shall constitute only one
Agreement. A facsimile signature of any party will be binding on that party, and
any facsimile communication shall be immediately followed by a hard copy
containing such signature.
DATED as of the date first written above,.
BUYER
WADE COOK SEMINARS, INC.,
a Nevada corporation
By: /s/ Wade B. Cook
----------------------------------
Wade B. Cook, President
4
<PAGE>
SELLERS:
WESPAC HOLDINGS, L.C.,
a Utah limited liability company
By: /s/ Paul E. Christian
-------------------------------
Paul E. Christian, member
By: /s/ Rex K. Griffith
-------------------------------
Rex K. Griffith, member
5
<PAGE>
EXHIBIT A
ASSIGNMENT OF MEMBERSHIP INTEREST
FOR VALUE RECEIVED, Wespac Holdings, L.C., a Utah limited liability
company ("Assignor"), herewith sells, assigns, transfers and conveys to Wade
Cook Seminars, Inc,. a Nevada corporations ("Assignee"), the entirety of
Assignor's rights, title and interests as member of and in Woods Cross Hotel
Partners, L.C., a Utah limited liability company (the "Company"), which shall
include, without limitation, Assignor's seven percent (7%) capital and
profits interest in the Company, Assignor's capital account balance in the
Company, Assignor's distributions and liquidation rights in the Company and
Assignor's voting and management rights and powers in the Company.
This Assignment of Membership Interest in the Company is made, delivered
and shall be effective on the date hereof in accordance with and in complete
satisfaction of the requirements of Article VII of the Operating Agreement of
Woods Cross Hotel Partners, L.C. dated as of November 11, 1994.
IN WITNESS WHEREOF, Assignor has executed this Assignment by and through
its members this ___ day of November, 1997.
WESPAC HOLDINGS, L.C., a Utah
limited liability company
By: /s/ Paul E. Christensen
----------------------------------------
Paul E. Christensen, member
By: /s/ Rex K. Griffiths
----------------------------------------
Rex K. Griffiths, member
1
<PAGE>
Acknowledged, consented, approved and agreed to by Woods Cross Hotel
Partners, L.C., a Utah limited liability company (the "Company"), and each of
its members this 29th day of November, 1997, that Wade Cook Seminars Inc., a
Nevada corporation pursuant to the attached Assignment of Membership Interest
has become and at all times hereafter shall be a substitute member of the
Company as provided by Section 7.3 of the Operating Agreement of the Company
dated as of November 11, 1994, with all rights, title and interest in the
Company provided therein, and the rights and limitations of the members under
Section 7.1 of the Operating Agreement of the Company dated as of November
11, 1994 with respect to the attached Assignment of Membership Interest to
Money Chef Inc. are hereby waived and released.
WOODS CROSS HOTEL PARTNERS, L.C.,
a Utah limited liability company
BY: ITS MEMBERS
WESTERN STATES LODGING AND
DEVELOPMENT, L.C.,
a Utah limited liability company
By: The Miles Group, L.L.C., a Utah
limited liability company
By: /s/ Richard L. Miles
-------------------------------
Richard L. Miles, member
By: /s/ Stephen P. Miles
-------------------------------
Stephen P. Miles, member
By: EXMAR Company, L.C. a Utah
limited liability company
By: /s/ Gary K. Griffiths
-------------------------------
Gary K. Griffiths, member
By: /s/ Laura Jo Griffiths
-------------------------------
Laura Jo Griffiths, member
By: /s/ David R. Webster
-------------------------------
David R. Webster, member
By: /s/ Sylvia N. Webster
-------------------------------
Sylvia N. Webster, member
2
<PAGE>
WESPAC HOLDINGS, L.C., a Utah
limited liability company
By: /s/ Paul E. Christensen
----------------------------------------
Paul E. Christensen, member
By: /s/ Rex K. Griffiths
----------------------------------------
Rex K. Griffiths, member
RJT ENTERPRISES, L.C.,
a Utah limited liability company
By: /s/ Ray C. Thomas
----------------------------------------
Ray C. Thomas, member
By: /s/ Jean Thomas
----------------------------------------
Jean Thomas, member
3
<PAGE>
LIMITED LIABILITY COMPANY INTEREST PURCHASE AGREEMENT
THIS LIMITED LIABILITY COMPANY INTEREST PURCHASE AGREEMENT (this
"Agreement") is entered into as of this 4th day of Feb, 1997, by and between
United Support Association, Inc., a Nevada corporation ("Buyer") and Wespac
Holdings, L.C., a Utah limited liability company ("Seller").
RECITALS
A. Seller owns an eight and 88/100 percent (8.88%) capital and profits
membership interest (the "Interest") in Park City Hotel Partners, L.C., a
Utah limited liability company (the "Company").
B. Seller desires to sell the Interest to Buyer, and Buyer desires to
buy from Seller the Interest pursuant to the terms and subject to the
conditions set forth in this Agreement.
AGREEMENT
In consideration of the foregoing Recitals and the mutual promises
contained herein, the parties agree as follows:
1. PURCHASE AND SALE OF INTEREST. Upon the terms and subject to the
conditions set forth in this Agreement, Seller shall sell, assign, transfer
and convey to Buyer, and Buyer shall purchase, obtain and acquire from
Seller, all of Seller's right, title and interest in and to the Interest.
2. PURCHASE PRICE. In consideration of and in exchange for the
Seller's sale, assignment, transfer and conveyance of the Interest, Buyer
agrees to pay Seller Two Hundred Thousand Dollars ($200,000.00) payable as
follows:
(a) $25,000.00 down payment at the time of the execution and
delivery of this Agreement; and
(b) A promissory note in the face amount of $175,000.00 with
interest at 9% per annum on the unpaid balance payable in 18 equal monthly
installments of $10,429.59 each. A copy of the Promissory Note is attached as
EXHIBIT A.
(c) The promissory note shall be secured by a personal guarantee
of Wade Cook, a copy of which is attached as EXHIBIT B, and a perfected
security interest on the Interest to be entered into at such time as the
Interest is assigned and transferred under Section 4 hereof. A copy of the
Security Agreement is attached as EXHIBIT C.
<PAGE>
3. CLOSING. Subject to the satisfaction of the conditions set forth in
this Agreement and compliance with the other provisions hereof, the closing
of the transactions contemplated by this Agreement (the "Closing") shall take
place at _______________ on ___________ at 10:00 a.m., local time, or at such
other place and time as shall be mutually agreeable to the parties hereto
(the "Closing Date"). At the Closing, Buyer shall deliver the down payment
and promissory note to Seller as provided in Section 2 above. At the time of
the completion of the conditions of Section 4, Seller shall deliver an
assignment of the Interest to Buyer.
4. ASSIGNMENT OF INTEREST. From and after the Closing, all equitable
rights, title and interests in the Interest shall be owned, held and
exercised by Buyer. All capital calls, obligations and liabilities, if any,
under the Company's Operating Agreement shall be the sole responsibility of
Buyer. The Company is in the process of obtaining permanent financing on the
hotel being constructed. Following the obtaining of the permanent financing,
Seller will deliver to Buyer an executed Assignment of Membership Interest
relating to the Interest, a copy of which is attached as EXHIBIT D.
5. INVESTMENT REPRESENTATIONS OF BUYER. Buyer hereby represents and
warrants to Seller as follows:
(a) Buyer understands that the Interest has not been registered
under the Securities Act of 1933 (the "1933 Act") or the laws of any state,
and the transactions contemplated hereby are being undertaken in reliance
upon an exemption from the registration requirements of the 1933 Act, and
reliance upon such exemption is based upon Buyer's representations,
warranties and agreements contained in this Agreement.
(b) Buyer has received and carefully reviewed all information
necessary to enable Buyer to evaluate his investment in the Company. Buyer
has been given the opportunity to ask questions of and to receive answers
from the Company concerning its business and the Interest, and to obtain such
additional written information necessary to verify the accuracy thereof.
(c) Buyer is aware that the purchase of the Interest is
speculative and involves a high degree of risk. Buyer is aware that there is
no guarantee that Buyer will realize any gain from his acquisition of the
Interest. Buyer further understands that Buyer could lose the entire amount
of his investment.
(d) Buyer understands that no federal or state agency or other
authority has made any finding or determination regarding the fairness of the
offer, sale and/or issuance of the Interest or has made any recommendation or
endorsement thereof or has passed in any way upon this Agreement.
(e) Buyer: (i) is acquiring the Interest solely for Buyer's own
account for investment purposes only and not with a view toward resale or
distribution thereof, in whole or in part; (ii) has no contract,
undertaking, agreement or other arrangement, in existence or contemplated, to
sell, pledge, assign or otherwise transfer the Interest to any other person;
and (iii) agrees not to sell or otherwise transfer the Interest unless and
until it is
<PAGE>
subsequently registered under the 1933 Act and any applicable state
securities laws, or unless an exemption from any such requirement is
available.
(f) Buyer is financially able to bear the economic risk of an
investment in the Interest, including the ability to hold the Interest
indefinitely and to afford a complete loss of his investment in the Interest.
Buyer has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of the acquisition of the
Interest.
6. CONDITIONS TO OBLIGATIONS OF BUYER. The obligation of Buyer to
consummate the transactions contemplated by this Agreement is subject to the
fulfillment of each of the following conditions:
(a) On and as of the Closing Date, Seller shall be the sole legal
and beneficial owner of the Interest, which shall be free and clear of all
claims, liens, mortgages, charges, security interests, encumbrances and other
restrictions and limitations of any kind whatsoever.
(b) By the Closing Date, any and all necessary consents,
authorizations, orders or approvals shall have been obtained.
(c) Neither the execution or delivery of this Agreement nor the
performance of its obligations hereunder will conflict with or result in a
breach of or constitute a default under or result in the creation of or an
imposition of a lien upon any of the properties or assets of Seller or any
Agreement to which Seller may be a party or by which its property or assets
may be subject.
7. CONDITIONS TO OBLIGATIONS OF SELLER. The obligation of Seller to
consummate the transactions contemplated by this Agreement is subject to the
fulfillment of each of the following conditions:
(a) By the Closing Date, any and all necessary consents,
authorizations, orders or approvals shall have been obtained.
(b) Neither the execution or delivery of this Agreement nor the
performance of its obligations hereunder will conflict with or result in a
breach of or constitute a default under or result in the creation of or an
imposition of a lien upon any of the properties or assets of Buyer or any
Agreement to which Buyer may be a party or by which its property or assets
may be subject.
8. FINDER'S FEE. For the expertise, time, efforts and expense incurred
by Paul E. Christensen and Rex K. Griffiths in bringing together the Buyer
and Seller and obtaining the various approvals of the transaction by the
members of the Company, Buyer shall pay to Paul E. Christensen and Rex K.
Griffiths at Closing a commission of Twenty Five Thousand Dollars ($25,000)
($12,500 to Paul E. Christensen and $12,500 to Rex K. Griffiths). Except as
provided by this Section 8, no other commissions, fees or
<PAGE>
compensation shall be due as a result of this Agreement or the transactions
contemplated herein.
9. MISCELLANEOUS.
(a) This Agreement represents the entire agreement between the
parties hereto with respect to the transactions contemplated hereby and
supersedes all prior agreements with respect thereto, whether written or oral.
(b) This Agreement shall be governed by and construed in accordance
with the laws of the State of Utah, without regard, however, to such
jurisdiction's principles of conflict of laws.
(c) This Agreement may be executed in counterparts, each of which
shall be an original, but all of which shall constitute but one Agreement.
DATED as of the date of first written above.
UNITED SUPPORT ASSOCIATION, INC.,
a Nevada corporation
By: /s/ Wade B. Cook
--------------------------
Wade B. Cook, President
---------------
WESPAC HOLDING, L.C.,
a Utah limited liability company
By: /s/ Paul E. Christensen
------------------------------------
Paul E. Christensen, a member
By: /s/ Rex K. Griffith
----------------------------------
Rex K. Griffith, a member
<PAGE>
Exhibit A
PROMISSORY NOTE
Amount: $175,000.00 Date: January 31, 1997
Place: Salt Lake City, Utah
FOR VALUE RECEIVED, the undersigned, promises to pay to Wespac Holdings,
L.C., a Utah limited liability company or order at 2932 Chippewa Way, Provo,
Utah 84604 or such other place as the holder may designate in writing, the
principal sum of One Hundred Seventy-Five Thousand Dollars ($175,000.00),
together with interest thereon computed at the rate of nine percent (9%) per
annum on the unpaid principal balance owing from time to time and charged on
actual days the loan is outstanding. The principal and interest hereunder
shall be payable in eighteen (18) equal monthly installments of Ten Thousand
Four Hundred Twenty-Nine and 59/100 Dollars ($10,429.59) each, with the first
installment due 30 days from the date hereof, and each installment thereafter
due and on the same day of each succeeding month thereafter until paid in
full.
An installment payment which is paid in full within ten days after any
scheduled due date is a timely payment, and no late fee will be assessed for
that payment. If, however, a payment is not paid in full within ten days of a
scheduled payment date, a late fee will be charged in the amount of $500.00.
If any payment comes due on a day which is not a business day, it shall be
due the next business day.
All payments received shall be applied first to the amounts advanced by
holder to protect its security, if any, then to accrued late fees, if any,
and thereafter to the payment of interest and then to the payment of
principal. If any payment hereunder is not paid within thirty days from the
due date thereof, or if there is an event of default under the Security
Agreement, then, at the option of the holder hereof, all obligations of
principal, interest, costs and fees hereunder shall become immediately due and
payable without presentment for payment, diligence, grace, exhibition of this
Note, protest, dishonor, demand or notice of any kind, all of which are
hereby expressly waived, and shall thereafter bear interest both before and
after judgment until paid in full at the rate of twelve percent (12%) per
annum. Maker shall pay all expenses and fees, including reasonable attorneys'
fees and court costs, incurred in the collection of this Note and/or incurred
in any bankruptcy or insolvency proceeding. Maker may prepay this Note at any
time without penalty.
Maker and all endorsers or guarantors of this Note waive presentment,
demand, notice, protest and all other notices in connection with the
delivery, acceptance,
<PAGE>
default or enforcement of this Note and agree that holder may, from time to
time, without their consent, renew, modify or extend performance of
obligation of Maker hereunder, and also each specifically consent to the
release of a part of all of any collateral that may secure this Note and to
the addition or release of any party primarily or secondarily liable hereon.
The interpretation, construction and enforcement of this Note shall be
governed by the laws of the State of Utah.
If any provision or portions thereof in this Note or the Security
Agreement is found by any court to be unenforceable or to violate any law or
juridical decision, or if such court should declare such portion or
provision to be illegal, invalid, unlawful, void or unenforceable as written,
then it is the intent of all parties hereto that such portion, provision or
provisions shall be given force to the fullest possible extent that they are
legal, valid and enforceable and that the remainder of this Note and the
Security Agreement shall be construed as if such illegal, invalid, unlawful,
void or unenforceable portion, provision or provisions were not contained
therein and that the rights, obligations and interests of the maker and
holder thereof, under the remainder of this Note and the Security Agreement,
shall continue in full force and effect.
IN WITNESS WHEREOF, Maker has caused this Note to be executed as of the
date set forth above, and as authorized in accordance with the duly and
regularly adopted and existing resolution of the Board of Directors of the
Maker.
MAKER:
UNITED SUPPORT ASSOCIATION, INC.,
a Nevada corporation
By: /s/ Wade B. Cook
---------------------
Wade B. Cook, Pres.
-----------
<PAGE>
Salt Lake City, Utah
Wade B. Cook January 31, 1997
GUARANTY
For and in consideration of the sum of Ten Dollars and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Wade B. Cook ("Guarantor") hereby unconditionally guarantees to
Wespac Holdings, L.C., a Utah limited liability company ("Wespac"), the due
and punctual payment, performance and observance by United Support
Association, Inc., a Nevada corporation ("United") of each and every
obligation, covenant and condition to be performed and observed by United, to
the same extent as if Guarantor had directly entered into those transactions
with Wespac, under that certain Limited Liability Company Interest Purchase
Agreement and Promissory Note dated of even date herewith, between Wespac and
United, as the same may hereafter be extended or amended (collectively, the
"Obligations"), together with all costs and expenses (including reasonable
attorneys' fees) incurred by Wespac in enforcing its rights hereunder. This
Guaranty is a guarantee of payment and performance and not of collection.
Guarantor waives notice of any extension, modification, indulgence,
amendment, or variation of the terms of any such obligation or agreement of
United with Wespac, and the liability of Guarantor hereunder shall not be
affected by the insolvency, bankruptcy, or receivership of United. Notice of
any default of United shall, however, be promptly provided to Guarantor but
the failure to give such notice shall not affect Wespac's rights hereunder.
Guarantor shall not exercise any rights that it may acquire by way of
subrogation, by any payment made under this Guaranty or otherwise, until all
the Obligations have been paid in full. If any amount is paid to the
Guarantor on account of subrogation rights under this Guaranty at any time
when all the Obligations have not been paid in full, the amount shall be held
in trust for the benefit of Wespac and shall be promptly paid to Wespac to be
credited and applied to the Obligations when due. If the Guarantor makes
payment to Wespac of all or any part of the Obligations and all the
Obligations are paid in full, and so long as no other sums are owing
hereunder or in connection with the Obligations, Wespac shall, at the request
of Guarantor, execute and deliver to Guarantor appropriate documents, without
recourse and without representation or warranty, necessary to evidence the
transfer by subrogation to the Guarantor of an interest in the Obligations
resulting from the payment.
This Guaranty shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any Obligation is rescinded or
must otherwise be returned by
<PAGE>
Wespac upon the insolvency, bankruptcy or reorganization of United or
otherwise, all as though such payment had not been made.
Absent the prior written consent of Guarantor, Wespac shall not assign or
transfer in whole or in part, any of its rights herein.
The construction and enforcement of this Guaranty shall be governed by
the internal laws of the State of Utah.
IN WITNESS WHEREOF, Wade Cook has caused this Guaranty to be executed
this 31 day of January, 1997.
/s/ WADE B. COOK
----------------------------------
Wade B. Cook
2
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is made effective as of the 31 day
of January, 1997, by and between United Support Association, Inc., a Nevada
corporation ("Maker") and Wespac Holdings, L.C., a Utah limited liability
company ("Wespac").
WHEREAS, Maker has purchased membership interests in Park City Hotel
Partners, L.C., a Utah limited liability company (the "Company") from Wespac
pursuant to a Limited Liability Company Interest Purchase Agreement dated the
date hereof (the "Purchase Agreement") and owe Wespac the principal sum of
One Hundred Seventy-Five Thousand Dollars ($175,000), as evidenced by that
certain promissory note between Maker, as maker, and Wespac of even date
herewith (the "Note").
WHEREAS, pursuant to the Purchase Agreement, Maker agreed to grant Wespac
a security interest to secure the performance by Maker of its obligations
under the Note and the Purchase Agreement.
WHEREAS, the parties desire to memorialize the grant of such security
interest by executing this Agreement.
A G R E E M E N T :
NOW, THEREFORE, in consideration of the foregoing recitals and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. COLLATERAL. Maker's performance hereunder and under the Note and
Purchase Agreement shall be secured by, and Maker hereby specifically grants
to Wespac a continuing security interest in and to, and lien upon, the
property more particularly described on Exhibit "1" attached hereto (the
"Collateral"). Maker agrees to execute and deliver to Wespac a UCC-1
financing statement, and shall perform, in a timely fashion, all additional
acts, as from time to time may be necessary in the opinion of counsel to
Wespac, to perfect, verify and acknowledge the security interest of Wespac in
the Collateral.
2. DEFAULT. It shall be an event of default hereunder if (i) Maker shall
fail to make any payment called for by the Note and any agreements or
documents executed and delivered in connection therewith, or (ii) any party
other than Wespac shall default in the performance of any obligation under
the Note and the Purchase Agreement. Any default hereunder shall be deemed to
be a default under the Note and this Agreement, and vice versa.
<PAGE>
3. REMEDIES UPON DEFAULT. Upon the occurrence of any event of default,
Wespac may declare immediately due and payable all amounts under the Note,
including all accrued interest and late fees thereon, and shall have all of
the remedies of a secured party under the laws of the State of Utah.
4. RELEASE OF LIEN. Upon payment in full of all obligations of Maker to
Wespac, and the performance by Maker of all obligations imposed upon it by
the Note, and the Purchase Agreement, this Agreement shall be terminated, the
liens and security interests arising hereunder shall be terminated and
released and Wespac shall take any action necessary to evidence such
release.
5. OBLIGATIONS OF WESPAC. Wespac, by accepting the security interest
provided for herein, shall not be subject to any obligation, liability or any
duty to perform any of the terms, covenants, provisions, conditions or
agreements made or assumed by Maker in connection with Maker's interest in
the Collateral, but such obligations shall continue to be performed by Maker
as though this Agreement had not been made. Wespac shall have the right,
however, upon any event of default hereunder, to assume any and all of such
obligations, liabilities or duties, and shall be entitled to the benefits of
any such assumption.
6. MISCELLANEOUS.
(a) GOVERNING LAW. The law of the State of Utah shall govern the
interpretation and enforcement of this Agreement.
(b) BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
(c) SEVERABILITY; INTEGRATION. The inapplicability or
unenforceability of any provision of this Agreement shall not limit or impair
the operation or validity of any other provision of this Agreement. This
Agreement, together with the documents executed in connection herewith
(including the Note and any personal guarantees), constitute the entire
agreement between the parties with respect to the subject matter hereof, and
no modification or waiver shall be effective unless in writing and signed by
the party to be charged.
(d) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered, shall be an
original, but all of which shall together constitute one and the same
instrument. The agreement may be executed by facsimile signature, and such
execution shall be deemed to have the same force and effect as original
signatures.
(e) ASSIGNABILITY. The rights of Westpac under this Agreement are
assignable in part or wholly, and any assignee of Wespac shall succeed to and
be possessed of the rights of Westpac to the extent of the assignment made.
The rights and obligations of Maker hereunder shall not be assignable without
the prior written consent of Westpac,
<PAGE>
and any attempt by Maker to assign its rights and obligations hereunder
without such consent shall be a default hereunder.
(f) WAIVER OF DEFAULT. The waiver by Wespac of any breach of default
by Maker under any of the terms of this Agreement shall not be deemed to be a
waiver of any subsequent breach or default on the part of Maker under the
same.
7. ATTORNEYS' FEES. In the event of any litigation by any party hereto
to enforce the terms of this Agreement, the prevailing party in such
litigation shall be entitled to receive from the other party payment of
attorneys' fees incurred (before or after the commencement of such
litigation) by the prevailing party.
IN WITNESS WHEREOF, the parties have executed this agreement as of the
day and year first above written.
UNITED SUPPORT ASSOCIATION,
INC., a Nevada corporation
By: /s/ Wade B. Cook
----------------------------------
Wade B. Cook, Pres
-------------------
WESPAC HOLDINGS, L.C., a
Utah limited liability company
By: /s/ Paul E. Christensen
----------------------------------
Paul E. Christensen, Member
By: /s/ Rex K. Griffiths
----------------------------------
Rex K. Griffiths, Member
3
<PAGE>
EXHIBIT "1"
SECURITY AGREEMENT
DESCRIPTION OF COLLATERAL
All of Maker's right, title and interest as a member of and in Park City
Hotel Partners, L.C., a Utah limited liability company (the "Company") which
shall include, without limitation, Maker's eight and 88/100 percent (8.88%)
capital and profits interest in the Company, Maker's capital account balance
in the Company, Maker's distribution and liquidation rights in the Company and
Maker's voting and management rights and powers in the Company.
4
<PAGE>
Exhibit D
ASSIGNMENT OF MEMBERSHIP INTEREST
FOR VALUE RECEIVED, Wespac Holdings, L.C., a Utah limited liability company
("Assignor"), herewith sells, assigns, transfers and conveys to United Support
Association, Inc., a Nevada corporation ("Assignee"), the entirety of Assignor's
right, title and interest as a member of and in Park City Hotel Partners, L.C.,
a Utah limited liability company (the "Company"), which shall include, without
limitation, Assignor's eight and 88/100 percent (8.88%) capital and profits
interest in the Company, Assignor's capital account balance in the Company,
Assignor's distributions and liquidation rights in the Company and Assignor's
voting and management rights and powers in the Company.
This Assignment of the Membership Interest is made, delivered and shall be
effective on the date of this Assignment in accordance with and in satisfaction
of the requirements of Article VII of the Operating Agreement of the Company
dated as of October 4, 1995.
IN WITNESS WHEREOF, Assignor has executed this Assignment by and through
its members this 3rd day of February, 1997.
WESPAC HOLDINGS, L.C., a Utah
limited liability company
By /s/ Paul E. Christensen
-------------------------------------
Paul E. Christensen, Member
By /s/ Rex K. Griffiths
-------------------------------------
Rex K. Griffiths, Member
<PAGE>
Acknowledged and approved by Park City Hotel Partners, L.C., and its
members this 3rd day of February, 1997 that United Support Association, Inc.,
a Nevada corporation is and at all times hereunder shall be a substituted
member of the Company as provided by Section 7.3 of the Operating Agreement
of the Company dated as of October 4, 1995 with all rights, title and
interest in the Company provided therein.
PARK CITY HOTEL PARTNERS, L.C.,
A UTAH LIMITED LIABILITY COMPANY
BY: ITS MEMBERS
KJ HOTEL PARTNERS, L.C.,
A UTAH LIMITED LIABILITY COMPANY
By: Western States Lodging and Development,
L.C., a Utah limited liability company
By: The Miles Group, L.C., a Utah
limited liability company
By: /s/ Richard Miles
--------------------------------
Richard Miles, Member
By: /s/ Stephen Miles
--------------------------------
Steven Miles, Member
By: EXMAR Company, L.C., a Utah
limited liability company
By: /s/ Gary K. Griffiths
--------------------------------
Gary K. Griffiths, Member
By: /s/ Laura Jo Griffiths
--------------------------------
Laura Jo Griffiths, Member
By: /s/ David R. Webster
--------------------------------
David Webster, Member
By: /s/ Sylvia Webster
--------------------------------
Sylvia Webster, Member
2
<PAGE>
LODGING DEVELOPMENT COMPANY,
L.C., A UTAH LIMITED LIABILITY COMPANY
By: /s/ Thomas A. Hulbert
--------------------------------
Thomas A. Hulbert, Member
By: /s/ Heather Hulbert
--------------------------------
Heather Hulbert, Member
WESPAC HOLDINGS, L.C., A UTAH LIMITED
LIABILITY COMPANY
By: /s/ Paul E. Christensen
--------------------------------
Paul E. Christensen, Member
By: /s/ Rex K. Griffiths
--------------------------------
Rex K. Griffiths, Member
3
<PAGE>
TO: Wade R. Cook
FROM: Glen Overton
SUBJECT: Property # UT-010, Salt Lake City Airport
DATE: August 15, 1997
RAMADA LTD. SUITES, AIRPORT PROPERTY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOCATION: 315 North Admiral Byrd
Salt Lake City International Center
Salt Lake City, UT 84101
Property sets on 1.4 acres - 2 miles west of the Salt Lake
City Airport
DESCRIPTION: 59 units, combination of standard rooms and mini-suites
decorated in a country theme. Has a two-story lobby,
breakfast area, meeting rooms, exercise facility, and
outdoor pool and hot tub. This is the BEST LOOKING PROPERTY
at the airport -- without a doubt!
TIME LINE: Construction began 11/96
Projected Opening 10/10/97
HOTEL COST: Total project cost estimated at $2.5 million
First year NOI estimate of $347k = a hotel cap rate of 13.88
EQUITY DIST. Ownership to be held in Airport Lodging Associates, L.C.
--Zions Management & Development Co. to hold 25% ownership
--Investment Lodging, Inc. to hold a 35% ownership
--THH Ltd. to hold a 15% ownership
--WADE COOK SEMINARS, INC. TO HOLD A 25% OWNERSHIP
INVESTMENT: --Zions Management contributed financing, cash, franchise,
and other services valued at $350,000
--Investment Lodging contributed land, supervision, plans,
etc. valued at $500,000
--THH Ltd. contributed cash and note transfer valued at
$175,000
--Wade Cook Seminars, Inc. to contribute $250,000 cash
COOK PAYMENTS: $250,000 to be received by 08/25/97
Agreement Accepted by
/s/ Wade B. Cook 8-22-97
- ------------------------------- --------
Wade Cook Seminars, Inc by Date
Wade Cook
<PAGE>
ASSIGNMENT AND ASSUMPTION OF INTEREST
THIS ASSIGNMENT AND ASSUMPTION OF INTEREST is made this 22nd day of August,
1996 by Zions Management and Development Co. (herein "Zions"), a Utah
corporation, to Airport Lodging Associates, L.C. (Herein "ALA") and Wade Cook
Seminars.
RECITALS:
A. Zions owns fifty percent (50%) interest in ALA.
B. Zions agrees to relinquish the rights to twenty five percent (25%) to ALA.
C. ALA agrees to sell and assign the acquired twenty five percent (25%) to Wade
Cook Seminars and Wade Cook Seminars agrees to accept the assignment for the sum
of $250,000.
AGREEMENT:
1. Zions hereby assigns to ALA a twenty five percent (25%) interest in and to
ALA.
2. ALA accepts the foregoing assignment and agrees to sell this interest to
Wade Cook Seminars.
3. Wade Cook Seminars agrees to buy the foregoing interest in ALA for the sum of
$250,000 and agrees to perform any and all obligations which it may thereby have
under the Articles of Organization or Operating Agreement of ALA.
IN WITNESS WHEREOF, the parties have entered into this Agreement the day
and year first above written.
ZIONS MANAGEMENT AND DEVELOPMENT CO.
/s/ Glen A. Overton
-------------------------------------------------
Glen A. Overton, President
<PAGE>
AIRPORT LODGING ASSOCIATES, L.C.
By /s/ Glen A. Overton
-------------------------------------------------
Zions Management and Development Co., Managing
Member
WADE COOK SEMINARS
By
-------------------------------------------------
Wade R. Cook, President
On this 22 day of August, 1997, Glen A. Overton did personally appear
before me, who being duly sworn did say that he the said Glen A. Overton is the
President of Zions Management and Development Co. And that the within and fore
going instrument was signed in behalf of the said corporation.
/s/ Deborah Whitlock
-------------------------------------------------
NOTARY PUBLIC
Residing in: Provo, UT
-------------------------------------
My Commission Expires:
1999 [SEAL]
- ---------------------
<PAGE>
AFTER RECORDING, MAIL TO:
Wayne G. Petty
MOYLE & DRAPER, P.C.
City Centre I, Suite 900
175 East Fourth South
Salt Lake City, Utah 84111
WARRANTY DEED
Garrick Development Company, L.L.C., Grantor, of Salt Lake City,
County of Salt Lake, State of Utah, hereby conveys and warrants to Airport
Lodging Associates, L.C., Grantee, whose address is 175 East 400 South, Suite
900, Salt Lake City, Utah 84111, for the sum of TEN AND NO/100 DOLLARS, the
following described tract of land in Salt Lake County, State of Utah:
Lot 7B as shown on the Amended Plat of Lot 7, Salt Lake International
Center, Plat 8 as recorded in the office of the Salt Lake County
Recorder and being located in the Southwest Quarter of Section 36,
Township 1 North, Range 2 West, Salt Lake Base & Meridian.
WITNESS, the hand of said Grantor, this 17 day of July, 1996.
GARRICK DEVELOPMENT COMPANY, L.L.C.
By /s/ F. S. Prince Jr.
------------------------------------------
F. S. Prince, Jr. Manager
STATE OF UTAH )
:ss.
COUNTY OF SALT LAKE )
On the 17 day of July 1996, personally appeared before me F. S.
Prince, Jr. the signer of the within instrument, who duly acknowledged to me
that he executed the same as Manager of Garrick Development Company, L.L.C.
Colleen G. Bailey
--------------------------------------------
NOTARY PUBLIC
Residing at: S. L. COUNTY
--------------------------------
My Commission Expires:
10-24-98 [SEAL]
- ----------------------
<PAGE>
STATE OF UTAH )
:ss.
COUNTY OF SALT LAKE )
On the 19 day of August, 1996, personally appeared before me Wayne
G. Petty, the signer of the within instrument who duly acknowledged to me
that he executed the same.
Colleen G. Bailey
--------------------------------------------
NOTARY PUBLIC
Residing at: S. L. COUNTY
--------------------------------
My Commission Expires:
10-24-98 [SEAL]
- ----------------------
<PAGE>
WHEN RECORDED MAIL TO:
RED ROCK LODGING ASSOCIATES, L.C.
2601 NO. CANYON ROAD, SUITE 203
PROVO, UT 84604
WARRANTY DEED
11640
East Bay Lodging Associates, Ltd., a Utah limited partnership,
grantor,
of Provo, State of Utah,
hereby CONVEY and WARRANT to
Red Rock Lodging Associates, L.C., a Utah limited liability company
grantee,
of PROVO, County of UTAH, State of Utah,
for the sum of Ten dollars and other good and valuable consideration,
the following tract of land in WASHINGTON County, State of Utah, to-wit:
SG-5-2-31-3342-1
See Attached Exhibit "A"
WITNESS the hand of said grantor, this day of , 199 .
Signed in the presence of
EAST BAY LODGING ASSOCIATES, LTD.
A Utah limited partnership
- -------------------------------------
/s/ David A. Peterson By /s/ Glen A. Overton
- ------------------------------------- ----------------------------------
GLEN A. OVERTON, partner
/s/ David A. Peterson By /s/ Kim Overton
- ------------------------------------- ----------------------------------
KIM OVERTON, partner
STATE OF UTAH
COUNTY OF
On the 24th day of December, 1997, personally appeared before me
GLEN A. OVERTON and KIM OVERTON as partners of
EAST BAY LODGING ASSOCIATES, LTD., a Utah limited partnership,
the signer(s) of the foregoing instrument, who duly acknowledged to me that
they executed the same, for and on behalf of said partnership, with power to
do so given by the partnership agreement and/or amendments thereto, of said
EAST BAY LODGING ASSOCIATES, LTD., a Utah limited partnership.
/s/ Deborah A. Whitlock
---------------------------------
Notary Public
My commission Expires 11/1999 PROVO, UTAH
[SEAL]
<PAGE>
EXHIBIT A
BEGINNING at a point S 0DEG. 48' 46" E 4.86 feet along the section line and N
89DEG. 12' 12" E, 196.18 feet from the Northwest Corner of the Southwest 1/4,
of the Southwest 1/4 of Section 31, Township 42 South, Range 15 West, Salt
Lake Base and Meridian; thence N 89DEG. 12' 12" E, 410.58 feet to the West
Line of the I-15 Frontage Road and a point on a curve to the right, the
radius point of which bears S 73DEG. 30' 44" W, 1349.86 feet; thence
Southeasterly 362.02 feet along the arc of said curve and the west line of
said frontage road; thence S 89DEG. 00' 06" W, 813.06 feet; thence S 0DEG.
59' 54" E, 144.20 feet to a point on the North line of 1470 South Street;
thence N 89DEG. 03' 46" W, 261.58 feet along the North line of said 1470
South Street; thence N 0DEG. 48' 46" W, 61.00 feet; thence N 89DEG. 02' 33"
E, 16.48 feet; thence N 0DEG. 48' 46" W, 99.72 feet; thence S 89DEG. 02' 33"
W, 33.00 feet; thence N 01DEG. 27' 42" W, 17.58 feet; thence S 88DEG. 32' 18"
W, 8.44 feet; thence N 0DEG. 58' 28" W, 36.63 feet; thence N 0DEG. 56' 15" E,
279.68 feet to the point of Beginning.
<PAGE>
NON-FOREIGN CERTIFICATION
[CORPORATION, PARTNERSHIP, TRUST, OF ESTATE TRANSFEROR(S)]
1. SECTION 1445 OF THE INTERNAL REVENUE CODE PROVIDES THAT A TRANSFEREE OF A
UNITED STATES REAL PROPERTY INTEREST MUST WITHHOLD TAX IF THE TRANSFEROR IS
A FOREIGN CORPORATION, FOREIGN PARTNERSHIP, FOREIGN TRUST, OR FOREIGN ESTATE.
2. IN ORDER TO INFORM THE TRANSFEREE THAT WITHHOLDING OF TAX IS NOT REQUIRED
UPON THE DISPOSITION OF THE UNITED STATES REAL PROPERTY DESCRIBED AS
FOLLOWS:
SEE ATTACHED EXHIBIT "A"
THE UNDERSIGNED HEREBY CERTIFIES THE FOLLOWING ON BEHALF OF THE TRANSFEROR:
A. EAST BAY LODGING ASSOCIATES, LTD. [NAME OF TRANSFEROR] IS NOT A
FOREIGN CORPORATION, FOREIGN PARTNERSHIP, FOREIGN TRUST, OR FOREIGN
ESTATE (AS THOSE TERMS ARE DEFINED IN THE INTERNAL REVENUE CODE AND
INCOME TAX REGULATIONS):
B. EAST BAY LODGING ASSOCIATES, LTD. [NAME OF TRANSFEROR]'S U.S.
EMPLOYER IDENTIFICATION NUMBER IS __________________________, AND
C. EAST BAY LODGING ASSOCIATES, LTD. [NAME OF TRANSFEROR]'S OFFICE
ADDRESS IS _____________________________________________________________
________________________________________________________________________
D. THERE ARE NO OTHER PERSONS OR ENTITIES THAT HAVE AN OWNERSHIP INTEREST
IN THE ABOVE DESCRIBED PROPERTY OTHER THAN THAT SET FORTH ABOVE IN
SUBPARAGRAPH B.
3. THE UNDERSIGNED HEREBY FURTHER CERTIFIES AND DECLARES
A. I (WE) UNDERSTAND THAT THE PURCHASER OF THE ABOVE DESCRIBED PROPERTY
INTENDS TO RELY ON THE FOREGOING REPRESENTATIONS IN CONNECTION WITH
THE UNITED STATES FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT.
(94 STAT 2682 AS AMENDED).
B. I (WE) UNDERSTAND THIS CERTIFICATION MAY BE DISCLOSED TO THE INTERNAL
REVENUE SERVICE BY TRANSFEREE AND THAT ANY FALSE STATEMENT CONTAINED
IN THIS CERTIFICATION MAY BE PUNISHED BY FINE, IMPRISONMENT, OR BOTH.
UNDER PENALTIES OF PERJURY I (WE) DECLARE I (WE) HAVE EXAMINED THIS
CERTIFICATION AND TO THE BEST OF MY KNOWLEDGE AND BELIEF, IT IS TRUE, CORRECT
AND COMPLETE AND I (WE) FURTHER DECLARE THAT I (WE) HAVE AUTHORITY TO SIGN
THIS DOCUMENT ON BEHALF OF EAST BAY LODGING ASSOCIATES, LTD.
[NAME OF TRANSFEROR]
DATE: 12/24/97
-------------------
OWNER: /s/ Glen A. Overton
------------------------------------
BY: /s/ Glen Overton TITLE: President
--------------------------------------- --------------------------
BY: TITLE:
--------------------------------------- --------------------------
(THIS DOCUMENT MUST BE RETAINED UNTIL THE END OF THE FIFTH TAXABLE YEAR
FOLLOWING THE TAXABLE YEAR IN WHICH THE TRANSFER TAKES PLACE)
CONSULT YOUR ATTORNEY AND/OR TAX ADVISOR--NO REPRESENTATION OR RECOMMENDATION
IS MADE BY FIRST TITLE OF UTAH, INC. CONCERNING THE LEGAL SUFFICIENCY AND/OR
TAX CONSEQUENCES OF THIS DOCUMENT. YOU MAY BE REQUIRED TO FILE A COPY OF THIS
DOCUMENT WITH THE INTERNAL REVENUE SERVICE. THESE ARE QUESTIONS FOR YOUR
ATTORNEY OR TAX ADVISOR.
<PAGE>
[SEAL] ARTICLES OF ORGANIZATION
OF
RED ROCK LODGING ASSOCIATES, L.C.
The undersigned two or more persons hereby form a limited liability
company under the Utah Limited Liability Company Act and adopt and certify as
the Articles of Organization of such limited liability company the following:
I. NAME: The name of the limited liability company is:
Red Rock Lodging Associates, L.C.
II. DURATION: The period of its duration:
The duration of the company shall be thirty-nine years from the date of
filing of these Articles of Organization with the Division of Corporations of
the State of Utah.
III. PURPOSE: The business purpose for which this limited
liability company is organized includes, but is not limited to, the following:
The Company shall engage in the business of acquisition, development and
operation of lodging facilities, and other related hotel activities, including
but not limited to the development of hotel or motel properties.
In addition, the Company shall have unlimited power to engage in and do
any lawful act concerning any or all lawful businesses for which limited
liability companies may be organized according to the laws of the State of
Utah, excluding banking and insurance, including all powers and purposes now
and hereafter permitted by law to a limited liability company.
IV. AGENT:
A. The address of the registered office in Utah is:
2601 North Canyon Road, Suite 203
Provo, UT 84604
B. The name and address of the registered agent at the office in
Utah is:
Glen A. Overton
2601 North Canyon Road, Suite 203
Provo, UT 84604
I, Glen A. Overton, do this date hereby voluntarily accept and agree to
serve as Registered Agent for Red Rock Lodging Associates, L.C.
/s/ Glen A. Overton
---------------------------------
Glen A. Overton, Registered Agent
<PAGE>
V. DIVISION APPOINTMENT: The Utah Division of Corporations is hereby
appointed the agent of this limited liability company for service of process
if the registered agent has resigned, the agent's authority had been revoked
or the agent cannot be found or served with the exercise of reasonable
diligence.
VI. CAPITOL: The total amount of cash and a description and agreed value
of property other than cash initially contributed to the Company is:
A minimum One Thousand Dollars cash
The total additional contributions, if any, agreed to be made by all
members and the times at which or events upon the happening of which they
shall be made:
Additional equity contributions shall be made at such times and in such
amounts as may be agreed by the Company and the members or as provided in the
Operating Agreement of the Company.
Loans from members maybe made to and accepted by the company and are
authorized to be repaid on a preferential loan basis.
VII. OWNERSHIP: The right, if given, of the members to admit additional
members, and the terms and conditions of the admission:
Additional members may be submitted at such times and on such terms and
conditions as all members may unanimously agree and as provided in the
Operating Agreement of the Company.
Ownership interest may be transferred only upon the prior approval of all
members.
VIII. TERMINATION: This business and association shall terminate and
dissolve upon the death, retirement, resignation, expulsion, or bankruptcy
of any member. The right of the remaining members of the limited liability
company to continue the business on the death, retirement, resignation,
expulsion, bankruptcy, or dissolution of a member or occurrence of any other
event which terminated the continued membership of a member in the limited
liability company is as permitted by statute and as follows:
The remaining members of the Company may continue the business upon the
termination of membership of a member on the Company upon unanimous agreement
and as provided in the Operating Agreement of the Company.
<PAGE>
IX. MANAGEMENT:
The Company is to be managed by its members: East Bay Lodging Associates,
Ltd., through its designated officers and agents, 2601 North Canyon Road,
Suite 203, Provo, Utah 84604, and Bountiful Investment Group, through its
designated officers and agents, 14675 Interurban Avenue South, Seattle,
Washington 98168.
The members of the company are: (1) East Bay Lodging Associates, Ltd., a
Utah Limited Partnership, as to a 50% ownership as a member, and (2)
Bountiful Investment Group, as to a 50% ownership as a member, being a Neveda
Corporation; with such capital accounts, management control, and percentage
ownerships and rights to receive profits and losses as are set forth in the
Operating Agreement, Membership Certificates and such other written
agreements between the members.
X. INDEMNIFICATION: Other provisions for the regulation of the
internal affairs of the limited liability company are:
1. The Company shall indemnify any individual made a party to a
proceeding because he is or was a manager, officer, organizer,
employee or agent of the Company against liability incurred in
the proceeding if:
a. He conducted himself in good faith;
b. He reasonably believed that his conduct was in or at least not
opposed to the Company's best interest; and
c. In the case of any criminal proceeding, he had no reasonable
cause to believe his conduct was unlawful.
2. Indemnification shall also be provided for an individual's conduct
with respect to an employee benefit plan if the individual
reasonably believed his conduct to be in the interests of the
participants in and beneficiaries of such plan.
3. The Company shall pay for or reimburse the reasonable expenses
incurred by a manager, officer, organizer, employee or agent of
the Company who is a party to a proceeding in advance of final
disposition of the proceeding if:
a. The individual furnishes the Company a written affirmation of
his good faith belief that he has met the standard of conduct
described herein;
b. The individual furnishes the Company a written undertaking
executed personally or on his behalf to repay the advance of it
is ultimately determined that he did not meet the standard of
conduct; and
3
<PAGE>
c. A determination is made that the facts then known to those
making the determination would not preclude indemnification
under the law.
The undertaking required by this paragraph shall be an unlimited general
obligation, but need not be secured and may be accepted without reference to
financial ability to make repayment.
4. The indemnification and advance of expense authorized herein shall
not be exclusive to any other rights to which any manager, officer,
organizer, employee or agent may be entitled under any Operating
Agreement, by-law, agreement, vote of members or disinterest
managers or otherwise. The Articles of Organization shall not be
interpreted to limit in any manner the indemnification or right to
advancement for expenses of an individual who would otherwise be
entitled thereto. These Articles of Organization shall be
interpreted as mandating indemnification and advancement of
expenses to the extent permitted by law.
5. In addition to the foregoing, the Company shall indemnify and save
the organizers harmless for all acts taken by them as organizers of
the Company, and shall pay all costs and expenses incurred by or
imposed upon them as a result of the same, including compensation
based upon the usual charges for expenditures required of them in
pursuit of the defense against any liability arising on the account
of acting as organizers or on account of enforcing the
indemnification right hereunder, and the Company releases them from
all liability for any such act as organizers not involving willful or
grossly negligent misconduct.
IN WITNESS WHEREOF, the Articles of Organization are executed under
penalties of perjury by all of the members of the Limited Liability Company
effective as of the 22nd day of September, 1997.
/s/ GLEN A. OVERTON
- ----------------------------------
Glen A. Overton, General Partner
East Bay Lodging Associates, Ltd.
/s/ WADE B. COOK
- ----------------------------------
Wade B. Cook, President
Bountiful Investment Group
formerly Profit Financial Real Estate Management Company
<PAGE>
STATE OF UTAH )
) SS.
COUNTY OF UTAH )
On the 4 day of DECEMBER, 1997 personally appeared before me GLEN A.
OVERTON signer of the above instrument, who duly acknowledged to me that he
executed the same.
My Commission Expires /s/ Deborah A. Whitlock
NOVEMBER 1999 -------------------------
Notary Public
[STAMP]
Residing at
Provo, UT
-------------------------
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On the 2nd day of DECEMBER, 1997 personally appeared before me WADE B.
COOK signer of the above instrument, who duly acknowledged to me that he
executed the same.
My Commission Expires /s/ [ILLEGIBLE]
OCTOBER 1999 -------------------------
Notary Public
[STAMP]
Residing at
Bellevue, WA
-------------------------
<PAGE>
MILLER AND CO.
Letterhead
June 30, 1998
Wade Cook Financial Corporation
14675 Interurban Avenue South
Seattle, Washington 98168
Dear Wade Cook Financial Corporation:
We hereby consent to the inclusion in the Form 10-K, as amended, for the
period ended December 31, 1997, as filed by Wade Cook Financial Corporation,
of the financial statements and financial statement schedules audited by
Miller and Co. for the fiscal years ending 1997, 1996, and 1995, the notes
thereto and our reports and opinions thereon.
Very truly yours,
MILLER AND CO.
/s/ Marlon G. Buno
- -------------------------
Marlon G. Buno,
Partner
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS, STATEMENTS OF INCOME CHANGES IN SHAREHOLDERS EQUITY AND CASH
FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1997 JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 541 635 0
<SECURITIES> 6,163 3,801 0
<RECEIVABLES> 8,168 3,536 0
<ALLOWANCES> 0 0 0
<INVENTORY> 1,312 396 0
<CURRENT-ASSETS> 12,778 6,959 0
<PP&E> 10,425 7,135 0
<DEPRECIATION> 1,287 345 0
<TOTAL-ASSETS> 41,404 16,938 0
<CURRENT-LIABILITIES> 23,828 10,850 0
<BONDS> 821 1,769 0
0 0 0
0 0 0
<COMMON> 642 67 0
<OTHER-SE> 15,425 3,635 0
<TOTAL-LIABILITY-AND-EQUITY> 41,404 16,938 0
<SALES> 0 0 6,504
<TOTAL-REVENUES> 104,908 40,724 6,504
<CGS> 39,068 15,683 2,877
<TOTAL-COSTS> 39,068 15,683 2,877
<OTHER-EXPENSES> 50,099 20,302 3,234
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 309 263 23
<INCOME-PRETAX> 15,035 4,666 239
<INCOME-TAX> 6,063 1,601 171
<INCOME-CONTINUING> 8,992 3,064 68
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 8,992 3,064 68
<EPS-PRIMARY> 0.14 0.05 .002
<EPS-DILUTED> 0.14 0.05 .002
</TABLE>
