<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO __________________
COMMISSION FILE NUMBER 000-29342
PROFIT FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
UTAH 91-1772094
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
14675 INTERURBAN AVENUE SOUTH
SEATTLE, WASHINGTON, 98168
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 901-3000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [x] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
6,715,032 shares of Class A Common Stock, $0.01 par value, outstanding as of
September 1, 1997.
<PAGE>
PROFIT FINANCIAL CORPORATION
Index
PART I. FINANCIAL INFORMATION Page
----
Item 1. Restated Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . .3
Restated Consolidated Statement of Income and Retained Earnings
for the quarters and nine month periods ended September 30, 1997
and September 30, 1996. . . . . . . . . . . . . . . . . . . . . . .5
Restated Consolidated Cash Flow Statements
for the quarters and nine month periods
ended September 30, 1997 and September 30, 1996 . . . . . . . . . .6
Restated Notes to Consolidated Financial Statements . . . . . . . .7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation. . . . . . . . . . . . . . . . . . . . . .8
Item 3. Quantitative and Qualitative Disclosures About Market Risk. . . . .9
PART II OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . 11
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . 11
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . 11
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . 11
2
<PAGE>
PART I - FINANCIAL INFORMATION
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(restated)
<TABLE>
<CAPTION>
ASSETS September 30, 1997 December 31, 1996
(Unaudited) (Unaudited)
------------------- ------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,235,371 $ 635,141
Marketable securities 7,789,371 3,801,039
Trade and credit card receivables 3,247,442 848,282
Notes receivable, employees (current portion) 55,571 329,060
Notes receivable, officers (current portion) 0 13,191
Other receivables 160,562 11,378
Inventory 1,017,998 395,743
Prepaid expenses 215,094 93,196
Deferred royalties to related party 0 48,781
Deferred tax asset 1,105,147 783,064
------------- -------------
TOTAL CURRENT ASSETS 15,826,556 6,958,875
------------- -------------
PROPERTY & EQUIPMENT 11,071,616 7,135,205
------------- -------------
OTHER ASSETS
Non-marketable investments 6,198,165 522,600
Advances and Deposits of Joint Ventures 900,000 0
Notes receivable, employees 4,437,724 1,385,742
Notes receivable, officers 0 236,413
Due from related parties 3,040,510 663,401
Deposits 56,060 35,423
------------- -------------
TOTAL OTHER ASSETS 14,632,459 2,843,579
------------- -------------
TOTAL ASSETS $ 41,530,631 $ 16,937,659
------------- -------------
</TABLE>
The notes to these financial statements are an integral part hereof.
3
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(restated)
<TABLE>
<CAPTION>
LIABILITIES & EQUITY September 30, 1997 December 31, 1996
(Unaudited) (Unaudited)
------------------- ------------------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 1,113,984 $ 660,708
Accounts payable and accrued expenses 7,782,565 976,644
Margin loans in investment accounts 2,362,898 1,103,936
Payroll and other taxes withheld and accrued 633,199 807,414
Income taxes payable 6,855,649 2,075,872
Deferred revenue 7,108,788 5,160,999
Royalties payable to related party 628,892 0
Notes payable to related party 35,000 19,000
Notes payable to officer 45,000 45,000
------------- -------------
TOTAL CURRENT LIABILITIES 26,565,975 10,849,573
------------- -------------
LONG-TERM DEBT 931,571 1,768,762
------------- -------------
TOTAL LIABILITIES 27,497,546 12,618,335
------------- -------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 544,645 617,300
------------- -------------
SHAREHOLDERS' EQUITY
Preferred Stock, 5,000,000 shares authorized
at $10 par value, none issued and outstanding 0 0
Class A common stock, 20,000,000 shares
authorized at $0.01 par value, 6,736,513 shares
and 6,680,864 shares outstanding as of
September 30, 1997 and December 31, 1996, respectively 66,807 66,807
Paid-in capital 1,732,169 894,408
Prepaid advertising (500,000) (500,000)
Retained earnings (deficit) 12,189,464 3,240,809
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 13,488,440 3,702,024
------------- -------------
TOTAL LIABILITIES, MINORITY INTEREST
AND SHAREHOLDERS' EQUITY $ 41,530,631 $ 16,937,659
------------- -------------
</TABLE>
The notes to these financial statements are an integral part hereof.
4
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(restated)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
--------------- --------------- --------------- ---------------
(dollars) (dollars) (dollars) (dollars)
<S> <C> <C> <C> <C>
REVENUES, NET OF RETURNS AND DISCOUNTS 34,701,333 13,522,654 81,033,867 28,883,739
COST OF REVENUES:
Royalties to related party 3,536,624 1,390,305 8,575,819 2,991,788
Other cost of revenues 11,151,231 3,929,545 24,408,771 8,193,336
------------ ------------ ------------ ------------
TOTAL COST OF REVENUES 14,687,855 5,319,850 32,984,590 11,185,124
------------ ------------ ------------ ------------
GROSS PROFIT 20,013,478 8,202,804 48,049,277 17,698,615
------------ ------------ ------------ ------------
SELLING, GENERAL AND ADMIN. EXPENSE 14,212,018 4,905,118 33,096,175 10,220,434
INCOME (LOSS) FROM OPERATIONS 5,801,460 3,297,686 14,953,102 7,478,181
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES)
Dividends and interest 120,756 8,704 223,576 16,189
Gain (loss) on trading securities (238,842) 0 347,405 434,952
Other income (expense) 3,674 3085 77,542 (1,562)
Loss on investment in non-marketable 0 0 (87,500) 0
securities
Interest expense (96,661) (126,201) (245,423) (139,866)
------------ ------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSES) (211,073) (114,412) 315,600 309,713
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 5,590,387 3,183,274 15,268,702 7,787,894
------------ ------------ ------------ ------------
PROVISION FOR INCOME TAXES 2,932,987 954,982 6,320,046 2,336,368
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 2,657,400 $ 2,228,292 $ 8,948,656 $ 5,451,526
------------ ------------ ------------ ------------
EARNINGS (LOSS) PER SHARE $ .13 $ .17 $ .43 $ .41
------------ ------------ ------------ ------------
Weighted Average Number of Common Shares
(after giving effect to a 3 for 1 stock
split effective September 15, 1997) 21,051,437 13,221,354 21,051,437 13,221,354
------------ ------------ ------------ ------------
</TABLE>
The notes to these financial statements are an integral part hereof.
5
<PAGE>
PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
(restated)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1997 September 30, 1997
(Unaudited) (Unaudited)
------------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,657,400 $ 8,948,656
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 329,476 869,845
(Gains) losses on trading marketable securities 234,842 (351,404)
Losses on disposition of fixed assets
Impairment of long-lived assets
Loss on investment in non-marketable securities 87,500
Purchases of trading securities (6,715,535) (16,517,205)
Proceeds from sale of trading securities 4,214,923 12,880,277
Changes in assets and liabilities:
Receivables (272,669) (7,405,060)
Inventory (384,823) (622,255)
Prepaid expenses 61,233 (121,898)
Deferred taxes (187,243) (322,083)
Deposits (33,750) (20,637)
Accounts payable and accrued expenses 2,716,664 8,064,883
Payroll and other taxes withheld and accrued (373,458) (174,215)
Income taxes payable 2,366,620 4,779,777
Deferred revenue 1,188,846 1,947,789
Due to related party 325,347 16,000
Royalties payable (73,388) 628,892
------------ ------------
TOTAL ADJUSTMENTS 3,397,085 3,740,206
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,054,485 12,688,862
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,444,196) (4,056,497)
Subsidiary's investment (4,152,173) (6,575,565)
Return of subsidiary's investment
------------ ------------
NET CASH USED FOR INVESTING ACTIVITIES (5,596,369) (10,632,062)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of subsidiary's minority interest (72,655)
Net borrowings 224,284 (383,915)
Issuance of common stock
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 224,284 (456,570)
------------ ------------
NET INCREASE (DECREASE) IN CASH 682,400 1,600,230
CASH, beginning of year 1,552,971 635,141
------------ ------------
CASH, end of period $ 2,235,371 $ 2,235,371
------------ ------------
</TABLE>
The notes to these financial statements are an integral part hereof.
6
<PAGE>
PROFIT FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
Note W - Basis for Presentation -
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the nine month period ended September 30, 1997 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1997.
For further information, refer to the financial statements and footnotes
thereto for the year ended December 31, 1996 included in the Company's
Registration Statement on Form 10, as amended.
Note X - Subsequent Events -
Since the close of the last fiscal year ending December 31, 1996, there
have been several material events which have had an impact on the
consolidated financial statements of the Company.
The Company intends to acquire a controlling interest in Rising Tide
Limited Partnership ("Rising Tide"). Its investment in Rising Tide is on
deposit with an escrow.
The Company acquired the following under the purchase method of
accounting. Ideal Travel Concepts, Inc. ("Ideal"), Worldwide Publishers,
Inc. ("Worldwide"), Origin Books Sales, Inc. ("Origin"), and Gold Leaf Press,
Inc. ("Gold").
All of the outstanding stock of Ideal was acquired on August 1, 1997, in
exchange for 358,333 shares of the Company's common stock to be issued on
January 14, 1998. The acquisition resulted in recording assets in the amount
of $215,719, goodwill of $2,008,294, and liabilities assumed in the amount of
$74,013.
All of the outstanding stock of Worldwide was acquired on August 27,
1997 for $1. The acquisition resulted in recording assets of $315,352,
goodwill of $311,976 and liabilities assumed in the amount of $627,327.
All of the outstanding stock of Origin was acquired on August 27, 1997,
in exchange for 39,269 shares of the Company's common stock with a market
value of $196,749. The acquisition resulted in recording assets of $809,730,
goodwill of $469,496 and liabilities in the amount 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 the Company's common stock with a market
value of $49,998. The acquisition resulted in recording assets of $8,263,
goodwill of $62,119 and liabilities in the amount of $20,384.
The following unaudited pro-forma information is presented for the
period ended September 30, 1997, as if 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.
Amounts in thousands, except EPS
September 30, 1997
BALANCE SHEETS
<TABLE>
<CAPTION>
PFC IDEAL WORLD WIDE ORIGIN GOLD LEAF TOTAL
<S> <C> <C> <C> <C> <C> <C>
Assets 41,201 216 330 818 8 42,573
Liabilities 27,987 74 550 1,000 20 29,631
Stockholders' equity (deficit) 13,214 142 (220) (182) (12) 12,942
INCOME STATEMENTS
Revenues 80,705 544 329 977 26 82,581
Expenses 71,386 419 699 1,086 14 73,604
Net Income (loss) 9,319 125 (370) (109) 12 8,977
EPS - - - - - 0.42
</TABLE>
Amounts in thousands, except EPS
Fiscal year ended December 31, 1996
BALANCE SHEETS
<TABLE>
<CAPTION>
PFC IDEAL WORLD WIDE ORIGIN GOLD LEAF TOTAL
<S> <C> <C> <C> <C> <C> <C>
Assets 16,938 237 529 3,902 8 21,614
Liabilities 12,619 277 453 3,834 20 17,203
Stockholders' Equity 4,319 (40) 76 68 (12) (4,441)
INCOME STATEMENT
Revenues 40,725 1,023 971 1,801 146 44,666
Expenses 37,660 1,057 935 1,830 146 41,628
Net Income (Loss) 3,065 (24) 36 (29) - 3,038
EPS 0.04
</TABLE>
NOTE Y - COMMITMENTS
In the third quarter of 1997, the Company invested $150,000 in
Thanksgiving Point Lodging Associates, L.C. for a 25 percent interest
therein. The partnership will develop a Hilton Garden Inn in Lehi, Utah which
is scheduled to break ground in February of 1998, with an estimated opening
date of August of 1998. The Company is required to invest an additional
$650,000 before conclusion of the project.
NOTE Z - RESTATEMENT
The Company corrected its previously issued Form 10-Q for September 30,
1997 by restating its 100% equity interest in Rising Tide to a deposit in
escrow. The restatement decreased the current portion of long-term debt by
$6,610, decreased long-term debt by $2,009,399 and decreased property and
equipment by $3,437,745.
As more fully discussed in its year end statements, the Company restated
its 1995 financial statements which decreased paid-in capital by $178,200 and
increased retained earnings by $178,200. The Company has corrected its
comparative weighted average number of common shares outstanding and earnings
per share as follows:
<TABLE>
<CAPTION>
Three months Six Months
Ended Ended
Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1996
<S> <C> <C> <C> <C>
Weighted average shares
As previously reported 6,709,379 6,650,432 6,680,144 6,611,219
As restated 21,051,437 13,221,354 21,051,437 13,211,354
Earnings per share
As previously reported 0.39 0.33 1.33 0.82
As restated, rounded, say 0.13 0.17 0.43 0.41
</TABLE>
7
<PAGE>
PROFIT FINANCIAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
UNAUDITED BALANCE SHEET FOR THE PERIOD ENDED SEPTEMBER 30, 1997-LIQUIDITY AND
CAPITAL RESOURCES
The Company's total assets increased to $41,530,631 at September 30, 1997
compared to $16,937,659 at December 31, 1996. The Company's total liabilities
grew to $27,497,546 from $12,618,335. Shareholders' equity at September 30, 1997
increased to $13,488,440 from $3,702,024 at December 31, 1996.
The Company increased its portfolio of marketable securities to $7,789,371
compared to $3,801,039 at December 31, 1996.
The Company's investment in non-marketable securities increased
substantially from $522,600 at December 31, 1996 to $6,198,165 at September 30,
1997. The Company's non-marketable investments include the following:
<TABLE>
<CAPTION>
Name of Investment Number of Shares or Description of Amount Invested Relative Ownership
- ------------------ ------------------- -------------- --------------- ------------------
Entity other Ownership Business (In dollars) as a Percent of All
- ------ ---------------- ----------- ------------ -------------------
Interests Equity
--------- ------
<S> <C> <C> <C> <C>
Know Wonder, Inc. 375,000 shs. software developer $850,000 Less than 14%
Common Stock
Picometrix, Inc. 256,410 shs. wireless modem $500,000 Less than 5%
Common Stock services
Monarch Ridge 3-682 20 Units oil drilling $650,000 Approx. 20%
venture
Airport Hotel membership Airport Sheraton at $250,000 10%
Partners, LLC interests Salt Lake City, UT
Airport Lodging membership Salt Lake City $250,000 25%
Associates, LC interests Airport Ramada Inn
Thanksgiving Lodging membership Hilton Garden Inn, $150,000 25%
Associates, LLC interests Lehi UT
Lakeview Lodging membership Hawthorne Suites $560,000 42%
Associates, LLC interests Hotel, Orem, UT
</TABLE>
8
<PAGE>
The Company experienced a substantial increase in credit card purchases
from its customers, as a result, the Company's credit card processing service
provider increased the provision for charge backs to $2,050,000. Additionally,
to account for administrative time necessary to process the claims, the
Company's trade and credit card receivables increased to $3,247,442 compared to
$848,282 at December 31, 1996.
The Company's notes receivable, officers have been re-classified as notes
receivable, employees due to the fact that the individuals who are the makers
of the notes are no longer officers of the Company. The Company's policy of
providing mortgages to qualified employees accounts for the significant
increase in notes receivable in the third quarter. The notes have recently
been transferred to an independent third party for administration and
collection. During the quarter, the Company made 3 loans of $125,000 each to
Newstart Centre, Inc., an auto sales and leasing company located in Salt Lake
City, Utah. The loans were for the purchase of automobiles and are secured by
titles to the cars. The loans bear interest at 17 percent and are amortized
over a 4-year period.
The accounts payable cycle has been increased due in part to the expenses
related to significant monthly revenue increases, and in part to accommodate the
timing of certain real estate investments, as set forth above.
Income tax payables have increased significantly due to an increase in net
revenues.
Royalties payable to related parties in the amount of $628,892 represents
royalties due Money Chef, Inc. pursuant to a book publishing agreement between
Lighthouse Publishing, Wade Cook, and Money Chef, Inc..
Regarding, the increase in long-term debt, the Company's monthly mortgage
payment on its headquarters in Seattle, Washington increased from $54,371 to
$104,405 on September 5, 1997 in accordance with the real estate purchase
agreement.
FOR THE QUARTERS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
Operating Results
Gross revenues continued to increase, due largely to the increase in the
number of seminars provided by the Company. The Company reported gross revenues
for the quarter ended September 30, 1997 of $34,701,333 as compared to gross
revenues of $13,522,654 for the same period in 1996.
The cost of generating revenues was $14,687,855 for the quarter ended
September 30, 1997, as compared to $5,319,850 for the same quarter in 1996, in
proportion to increase in gross revenues.
Gross profits, following the same trend as gross revenues, increased during
the quarter ended September 30, 1997 to $20,013,478 as compared to $8,202,804
during the same quarter in 1996.
The provision for income taxes for the three month period ending September
30, 1997 has substantially impacted the net income for the Company, which was
$2,657,400 for the quarter ended September 30, 1997, as compared to net income
of $2,228,292 for the same period in 1996.
For the nine months ended September 30, 1997 and September 30, 1996
The Company's revenues for the nine months ended September 30, 1997 grew to
$81,033,867 compared to $28,883,739 for the same period last year due to
increases in seminar sales and book sales.
Costs of revenues increased from $11,185,124 for the nine months ended
September 30, 1996 to $32,984,590 for the same period in 1997 and was
primarily due to the increase in revenues. Gross profit increased to
$48,049,277 for the nine months ended September 30, 1997 compared to
$17,698,615 for the same period in 1996.
Selling, general and administrative expenses increased from $10,220,434 for
the nine months ended September 30, 1996 to $33,096,175 for the same period
in 1997 due to increases in labor and other related costs, advertising and
other overhead costs.
Provisions for income taxes increased from $2,336,368 for the nine months
ended September 30, 1996 to $6,320,046 for the same period in 1997 due to
increased revenues.
Inflation and Seasonality
The Company's management does not believe that its financial results are
materially affected by inflation. The Company's business is not seasonal.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Required.
9
<PAGE>
PROFIT FINANCIAL CORPORATION
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
The following is a description of material pending legal proceedings to
which the Company or any of its subsidiaries is a party or which any of their
properties is subject:
Investigation by the U.S. Securities and Exchange Commission
The Company and certain of its executive officers have received subpoenas
to provide certain information in the Matter of Wade Cook Seminars, a private
investigation by the Securities and Exchange Commission ("SEC"). The
investigation relates to the possible violation of Sections 5(a), 5(c) and
17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5
thereunder, and Sections 203(a) and 206(1) and (2) of the Investment Advisers
Act. The SEC has stated that the investigation should not be construed as an
indication by the SEC or its staff that any violations of law have occurred,
nor should it be construed as an adverse reflection on the merits of the
securities involved or on any person or entity. The Company does not believe it
or any of its executive officers and directors has engaged in any inappropriate
activity or violated applicable laws, and the Company intends to continue to
cooperate with the investigation. No assurance can be given as to the outcome of
this investigation.
Informal Investigations by the State of Washington
The Assistant Attorney General for the State of Washington's Department of
Financial Institutions, Securities Division commenced an informal investigation
of Mr. Cook, WCSI and the Company in September, 1996. The Assistant U.S.
Attorney for the Western District of Washington issued a subpoena to WCSI in
March 1997 for records related to an independent contractor of the Company.
Although the breadth and nature of these two investigations are not known, the
Company does not believe it or any of its executive officers and directors has
engaged in any inappropriate activity or violated applicable laws and the
Company intends to continue to cooperate with the investigation. No assurances,
however, can be given as to the outcome of these investigations.
Wade Cook Seminars, Inc. v. Charles Mellon, Options Management, Inc., Anthony
Robbins, and Robbins Research International, Inc.
The Company brought a suit against defendants Robbins Research
International and Charles E. Mellon in the King County Superior Court on
September 16, 1996 and joined Anthony Robbins and Options Management, Inc. in
June 1997. The Company alleges breach by Mellon of a noncompete agreement and
unfair competition and inducement to breach the noncompete by Robbins Research
and Anthony Robbins in hiring Mellon to present a copy of the Company's Wall
Street Workshop seminar on behalf of defendants. An injunction in favor of WCSI
was granted October 9, 1996 and attorney fees were awarded to the plaintiffs
against Mr. Mellon.
10
<PAGE>
Wade B. Cook v. Anthony Robbins and Robbins Research International, Inc.
The Company brought suit in United States District Court, Western District
of Washington, against Tony Robbins and Robbins Research International, Inc. on
June 18, 1997 for damages and injunctive relief for copyright infringement. The
Company alleges Tony Robbins copied or caused to be copied significant portions
of Wall Street Money Machine, authored by Wade B. Cook, and used these
materials in a course entitled "Financial Power."
Other Proceedings
The Company and its subsidiaries are also parties to various legal
proceedings arising in the ordinary course of business, none of which is
expected to materially affect the financial position, results of operation or
cash flow of the Company.
Item 2. Changes in Securities.
The Company sold 20,000 shares of restricted Class A Common Stock to Baker
Street Investments of which Dr. Warren Chaney, a Director of the Company, is a
beneficial owner. The consideration received by the Company was $30,000 cash.
The Company also sold 500 shares of restricted Class A Common Stock to Kathleen
Mikos, a former employee of Wade Cook Seminars, Inc. The consideration received
by the Company was $2,500. In each case the Company relied on the exemption from
registration provided by Section 4 (2) of the Securities Act of 1933.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the quarter
covered by this report.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
The Company filed no reports on Form 8-K during the quarter covered by this
report.
11
<PAGE>
SIGNATURES
PROFIT FINANCIAL CORPORATION
May 28, 1998 /s/ Wade B. Cook
- ------------------------------ ----------------------------------------
(Date) Wade B. Cook, Chief Executive Officer
May 28, 1998 /s/ Wade B. Cook
- ------------------------------ ----------------------------------------
(Date) Wade B. Cook, Interim Chief Financial
Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2235371
<SECURITIES> 7789371
<RECEIVABLES> 3247442
<ALLOWANCES> 0
<INVENTORY> 1017998
<CURRENT-ASSETS> 15826556
<PP&E> 11071616
<DEPRECIATION> 0
<TOTAL-ASSETS> 41530631
<CURRENT-LIABILITIES> 26565975
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