UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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
(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 documents and
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 [ ]
The number of outstanding shares of the registrant's common stock, $0.001 par
value, as of September 30, 1999 was 63,761,448 shares.
<PAGE>
WADE COOK FINANCIAL CORPORATION
Form 10-Q
Index
<TABLE>
Page
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<S> <C>
PART I --FINANCIAL INFORMATION............................................................................
Item 1: Financial Statements.............................................................................
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations............
Item 3: Quantitative and Qualitative Disclosures About Market Risk.......................................
PART II --OTHER INFORMATION..............................................................................
Item 1. Legal Proceedings................................................................................
Item 2. Changes in Securities............................................................................
Item 3. Defaults Upon Senior Securities..................................................................
Item 4. Submission of Matters to a Vote of Security Holders..............................................
Item 5. Other Information................................................................................
Item 6. Exhibits and Reports on Form 8-K.................................................................
</TABLE>
2
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PART I -- FINANCIAL INFORMATION
Item 1: Financial Statements
Wade Cook Financial Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
(in thousands) September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Assets:
Current Assets:
Cash and cash equivalents $ 211 $ 1,742
Marketable securities 2,107 2,870
Receivables, trade 1,495 3,112
Inventory 2,990 3,743
Receivables, related parties 241 177
Prepaid 445 354
Deferred Tax Assets 147 -
------------------ -----------------
Total current assets 7,636 11,998
------------------ -----------------
Property, plant and equipment, net of depreciation 27,030 29,204
------------------ -----------------
Goodwill, net of amortization 3,637 3,061
------------------ -----------------
Other assets:
Non-marketable investments 7,272 9,494
Other investments 255 255
Deposits 211 151
Notes receivables - employees 2,521 2,920
Receivable, related 1,548 1,617
------------------ -----------------
Total other assets 11,807 14,437
------------------ -----------------
Total assets $ 50,110 $ 58,700
================== =================
</TABLE>
3
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<TABLE>
(in thousands) September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Liabilities and Shareholders' Equity:
Current liabilities:
Current portion of long-term debt 1,977 4,667
Accounts payable and accrued expenses 8,213 9,198
Margin loans in investment accounts 88 146
Payroll and other accrued taxes 292 163
Accrued income taxes 4,214 4,969
Deferred tax liability - 642
Deferred revenue 3,408 5,662
Payables, related parties 2,274 3,109
Notes payable to officer 45 45
------------------ -----------------
Total current liabilities 20,511 28,601
Long-term debt 8,761 9,474
------------------ -----------------
Total liabilities 29,272 38,075
------------------ -----------------
Minority interest 925 936
------------------ -----------------
Shareholders' Equity
Preferred stock -
Common stock 64 644
Paid-in capital 4,474 4,095
Prepaid advertising (300) (500)
Retained Earnings 16,212 15,987
------------------ -----------------
20,450 20,226
Less: common stock in treasury at cost: (537) (537)
------------------ -----------------
Total shareholders' equity 19,913 19,689
------------------ -----------------
Total liabilities, minority interest, and stockholders'
Equity $ 50,110 $ 58,700
================== =================
</TABLE>
4
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Wade Cook Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
For the Three Months Ended For the Nine Months Ended
------------------------------------- -----------------------------------
(in thousands, except per share data) September September, September September
30, 1999 30, 1998 30, 1999 30, 1998
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue, net of returns and discounts $ 18,655 $ 30,582 $ 70,703 $ 88,492
------------ ----------- ----------- -----------
Costs and expenses:
Cost of revenue 7,441 11,822 31,108 34,086
Selling, general and administrative 13,201 16,438 42,174 49,978
------------ ----------- ----------- -----------
Total operating costs 20,642 28,260 73,282 84,064
------------ ----------- ----------- -----------
Income (loss) from operations (1,987) 2,322 (2,579) 4,428
------------ ----------- ----------- -----------
Other income (expense):
Interest and dividends 142 140 291 316
Gain (loss) on trading securities (41) (305) 1,046 499
Gain (loss) on non-marketable
securities 18 - 87 -
Interest expense (401) (501) (1,163) (1,002)
Undistributed income (loss) from - (14) (266)
Hotel
Other 960 1,058 2,697 1,248
------------ ----------- ----------- -----------
Total other income (expenses) 678 378 2,958 795
------------ ----------- ----------- -----------
Income (loss) before income taxes (1,309) 2,700 379 5,223
------------ ----------- ----------- -----------
Provision for income taxes (tax (444) 960 165 1,854
benefits)
Minority Interest (25) - 11 -
------------ ----------- ----------- -----------
Income from continuing operations $ (890) $ 1,740 $ 225 $ 3,369
------------ ----------- ----------- -----------
Discontinued operations:
Income from operations of Entity
Planners, Inc. to be disposed of (net
of income taxes of $183 in 1998) - - - 584
Operating income of Entity Planners,
Inc. during phase-out period (net of
tax of $8,280) - - - 15
Gain on disposal of Entity Planners,
Inc. (net of income tax of $87,500 in
1998) 163 163 - 163
------------ ----------- ----------- -----------
5
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- 163 - 762
Net income (loss) $ (890) $ 1,903 $ 225 $ 4,131
============ =========== =========== ===========
Earnings per share
Income from continuing operations $ ( 0.01) $ 0.03 $ - $ 0.05
Income from discontinuing operations - - - 0.01
Income during phase out period - - - -
Gain on disposal - - - -
------------ ----------- ----------- -----------
Net income $ ( 0.01) $ 0.03 $ - $ 0.06
============ =========== =========== ===========
Weighted average number of shares 57,964 64,257 64,144 64,257
</TABLE>
6
<PAGE>
Wade Cook Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flow
(Unaudited)
<TABLE>
Nine Months Ended
-------------------------------------------------------
(in thousands) September 30, 1999 September 30, 1998
-------------------- --------------------
<S> <C> <C>
Cash provided by (used in) operations $ (1,082) $ 6,897
Cash provided by (used in) investing activities 2,954 (17,124)
Cash provided by financing activities:
Net payments (3,403) 10,831
-------------------- --------------------
Net (decrease) increase in cash $ (1,531) $ 604
==================== ====================
</TABLE>
7
<PAGE>
Wade Cook Financial Corporation and Subsidiaries
Notes to Interim Financial Statements
September 30, 1999
1. Basis for Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the
three-month period ended September 30, 1999 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1999.
For further information, refer to "Factors Affecting Future Results," and
to the financial statements and footnotes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
Certain items in the 1998 consolidated financial statements have been
reclassified to comply with the condensed consolidated financial statement
presentation for 1999.
2. Earnings per Share
Basic earnings per share are computed by dividing net income available to
common shareholders by the weighted average number of common shares
outstanding during the period.
3. Shareholders Equity
In June of 1999, the board of directors resolved to authorize a change in
par value of common stock from $ 0.01 to $ 0.001. As a result, the Company
adjusted the common stock and paid in capital to reflect this change.
4. Liabilities and Shareholders' Equity.
On November 5, 1999, the Company was approved for a new first mortgage
secured by its Corporate Headquarters in the principal amount of $3,000,000
dollars.* The proceeds of the mortgage have been ear-marked for payment of
accrued income taxes owed to the Internal Revenue Service.* The mortgage
funds have not currently been transferred to the Company; however, the
closing documents are expected to be completed in the final week of
November.* The lender's obligations to close the first mortgage is subject
to number of conditions including the lender's approval of certain matters
concerning the property and the Company. Accordingly there can be no
assurance that the loan will close in a timely manner or at all.
5. Discontinued Operations
On June 30, 1998, the Company sold the stock of Entity Planners, Inc.
(EPI), a wholly owned subsidiary of Wade Cook Financial Corporation (WCFC),
which owns a five year licensing agreement with WCFC enabling it to provide
entity structuring services relating to the topic of asset protection,
estate planning and tax minimization. EPI was sold to a newly formed
company by principals who have been involved in the production, selling,
and marketing of products and seminars for the Company. The stock of EPI
was sold for $250,000.
6. Licensing Agreement
With the sale of EPI, the licensing agreement between WCFC and EPI was
transferred to the new owners. EPI was subsequently sold to the Anderson
Law Group, P.C. (ALG). The Company has entered into a temporary arrangement
with the ALG, which provides for the payment of marketing fees in the
amount of 35% of EPI's gross proceeds to the Company.
8
<PAGE>
7. Contingencies
The Company is subject to various legal proceedings and claims, which were
discussed in detail in the 1998 Form 10K. The Company is also subject to
certain other legal proceedings and claims which have arisen in the
ordinary course of business and which have not been fully adjudicated. The
results of the Company's legal proceedings cannot be predicted with
certainty; however, although management does not presently anticipate
liability related to any legal proceedings and claims that would have a
material adverse effect on its financial condition or result of operations,
it has not yet made an estimate of its potential exposure in several
pending proceedings and investigations or determined the impact of adverse
results in such matters on its financial statements.
8. Segment Reporting
During 1998, the Company adopted SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information," which establishes standards for
the way that companies report information about operating segments, based
on the approach that management utilizes to organize the segments for
management reporting and decision making.
The Company operates through six business segments: seminars, product
sales, hotels, pager services, travel services, and other. The seminar
segment conducts educational investment and business seminars. The product
sales segment includes the publishing and distribution of 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. The hotel segment includes
the ownership of operating hotels. The pager services segment produces the
IQ Pager, which provides subscribers with paging services for stock related
information. The travel service segment is a travel agency that is also in
the business of selling travel agent training kit. The other segment
includes retail book sales, interest in real estate ventures, and an
inter-company advertising agency.
Information on the Company's business segments for the nine months ended
September 30,
<TABLE>
(in thousands) 1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Net revenues and sales
Seminars $ 42,989 $ 62,442 $ 61,786
Product sales 20,614 18,130 19,247
Hotels 2,964 1,702 -
Pager service 1,332 2,564 -
Travel service 1,945 1,838 -
Other 4,210 6,898 2,333
Less: inter-company sales (3,351) (5,082) (2,333)
============== ============== ==============
$ 70,703 $ 88,492 $ 81,033
============== ============== ==============
</TABLE>
9
<PAGE>
<TABLE>
(in thousands) 1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Cost of sales
Seminars $ 18,816 $ 26,053 $ 23,316
Product sales 11,082 7,973 7,937
Hotels 1,185 812 -
Pager service 277 375 -
Travel service 37 61 -
Other 3,139 5,228 1,732
Less: inter-company sales (3,428) (6,416) -
============== ============== ==============
$ 31,108 $ 34,086 $ 32,985
============== ============== ==============
Operating income
Seminars $ (1,438) $ 3,225 $ 11,316
Product sales (1,572) 336 3,045
Hotels 238 82 -
Pager service 835 1,799 -
Travel service 87 286 -
Other (661) (251) 594
Less: inter-company sales (68) (1,049) -
============== ============== ==============
$ (2,579) $ 4,428 $ 14,955
============== ============== ==============
Identifiable assets
Seminars $ - $ - $ -
Product sales 4,340 2,916 2,170
Hotels 13,775 7,076 -
Pager service 1,685 1,363 -
Travel service 57 - -
Other 1,609 1,345 -
-------------- -------------- --------------
Segmented assets 21,466 12,700 2,170
Corporate assets 10,336 9,840 8,679
-------------- -------------- --------------
Total identifiable assets $ 31,802 $ 22,540 $ 10,849
-------------- -------------- --------------
</TABLE>
10
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<TABLE>
(in thousands) 1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Accumulated depreciation and
Amortization
Seminars $ - $ - $ -
Product sales (1,313) (762) -
Hotels (501) (51) -
Pager service (169) (215) -
Travel service - - -
Other (133) (20) -
-------------- -------------- --------------
Segmented asset depreciation and
Amortization (2116) (1,048) -
Corporate asset depreciation and
Amortization (2,656) (2,026) -
-------------- -------------- --------------
Total accumulated depreciation and
Amortization (4,772) (3,074) -
-------------- -------------- --------------
Net identifiable assets $ 27,030 $ 19,466 $ 10,849
============== ============== ==============
Capital Expenditures
Seminars $ - $ - $ -
Product sales 88 183 -
Hotels 474 7,076 -
Pager service 163 1,363 -
Travel service 40 - -
------------- ------------------- ------------------
Total segment expenditure 765 8,622 -
Corporate expenditures (sales) 41 1,648 -
============== ============== ==============
Total capital expenditures $ 806 $ 10,270 $ -
============== ============== ==============
</TABLE>
11
<PAGE>
Information on the Company's business segments for the three months ended
September 30,
<TABLE>
(in thousands) 1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net revenues and sales
Seminars $ 8,147 $ 22,925 $ 26,415
Product sales 7,817 5,243 8,285
Hotels 1,151 821 -
Pager service 371 478 -
Travel service 683 538 -
Other 1,134 1,595 1,438
Less: inter-company sales (648) (1,018) (142)
============ ============ ============
$ 18,655 $ 30,582 $ 35,996
============ ============ ============
Cost of sales
Seminars $ 4,467 $ 11,285 $ 9,824
Product sales 4,259 3,249 3,758
Hotels 478 386 -
Pager service 187 105 -
Travel service 22 28 -
Other 1,055 899 1,106
Less: inter-company sales (3,027) (4,130) -
============ ============ ============
$ 7,441 $ 11,822 $ 14,688
============ ============ ============
Operating income
Seminars $ (1,435) $ 2,565 $ 4,640
Product sales (1,076) 132 836
Hotels 711 98 -
Pager service 187 291 -
Travel service (88) 27 -
Other (58) (404) 327
Less: inter-company sales (228) (387) 534
============ ============ ============
$ (1,987) $ 2,322 $ 6,337
============ ============ ============
</TABLE>
8. Reclassification
Certain amounts in the condensed consolidated financial statements for the
nine and six months ended September 30, 1998 and June 30, 1998,
respectively, have been reclassified to conform to the 1999 presentation.
9. Subsequent Events
12
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
This Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Any statements that express or involve discussions with respect to
predictions, expectations, beliefs, plans, objectives, assumptions or future
events or performance (often, but not always, using words and phrases such as
"expects," "believe," "believes," "plans," "anticipate," "anticipates," "is
anticipated," or stating that certain actions, events or results "will," "may,"
"should," or "can" be taken, occur or be achieved) are not statements of
historical fact and may be "forward-looking statements." Forward-looking
statements are based on expectations, estimates and projections at the time the
statements are made that involve a number of risks and uncertainties which could
cause actual results or events to differ materially from those anticipated by
the Company. Such risks and uncertainties include, but are not limited to, the
Company's working capital deficiency, the effect that recent volatility in the
stock market and world economic conditions may have on the interest of customers
in the Company's seminars, products and services and on the Company's own
investments, the Company's ability to manage its growth and to integrate recent
acquisitions, fluctuations in the commercial real estate market, failure of
recently acquired hotel properties to perform as expected, the significant
contribution to and influence on the management of the Company by Mr. Cook, the
possibility of adverse outcomes in pending or threatened litigation and
government investigations involving the Company, the possible effects of adverse
publicity arising from government investigations involving the Company on the
interest of customers in the Company's financial education services and
products, consequences associated with the Company's failure to pay state and
federal income tax when due, lack of liquidity in the Company's investments, the
ability of the Company to successfully remediate its year 2000 issues and other
risks and uncertainties discussed herein and those detailed in the Company's
other Securities and Exchange Commission filings, including the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998. Investors are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis as of the date hereof. The Company undertakes no
obligation to publicly release the results of any revision to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof. For the convenience of the reader, the Company has
attempted to identify forward-looking statements contained in this report with
an asterisk (*). However, the omission of an asterisk should not be presumed to
mean that a statement is not forward-looking statement within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act.
General
Wade Cook Financial Corporation is a holding company that, through its
operating subsidiary, Wade Cook Seminars, Inc. ("WCSI"), conducts educational
investment seminars and produces and sells video and audio tapes, books and
other written materials. The Company's core business is financial education,
through its seminar and publishing concerns. These core businesses are
complemented by the retailing of books that focus on financial education, a
financial information pager service, a subscription-based web site that provides
stock market information and that illustrates the strategies taught in the
Company's seminars and publications and a travel-related service provider.
13
<PAGE>
WCSI hosts Wealth Information Network ("WIN"), an Internet web site that
allows subscribers to log on and obtain 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.
In 1997, the Company acquired Ideal Travel Concepts International, Inc.,
which provides travel agent services and also markets services to travel agents.
Also during 1997, the Company expanded its publishing interests in two
publishing companies and one book distribution business.
In 1998, the Company began operating Get Ahead Bookstores Inc. (bookstores)
and Information Quest, Inc. (a distributor of paging devices that transmit stock
market data) and Quantum Marketing, Inc. (local sales and marketing offices). In
1998, the Company disposed of the business Entity Planners, Inc. ("EPI"), an
entity formation business. In connection with the sale of EPI, the Company
granted a license to the purchasers of EPI to use certain intellectual property.
EPI has recently been transferred to the Anderson Law Group, P.C. ("ALG"). The
Company has temporarily entered into a marketing agreement with ALG which
provides for payment to the Company of 35% of EPI's gross proceeds. The
marketing agreement may be cancelled at any time. The Company accounts for EPI
as a discontinued business operation.
The Company has begun to de-emphasize its presence in the retail bookstore
market through the phasing out of several of the retail bookstores operated by
Get Ahead Bookstores, Inc.
In 1998 the Company also acquired 100% of Best Western McCarran House,
located in Sparks, Nevada, 100% interest in the Four Points by Sheraton Hotel in
St. George, Utah and 75% ownership in Airport Lodging Association Limited
Partnership, which is located in Salt Lake City, Utah.
The investments in hotel and other projects outside the traditional
business of WCSI have reduced profits in recent periods. In addition, the
profitability of WCSI has been lower in recent periods than in previous
comparable periods, and WCSI suffered a significant operating loss in the
quarter ended September 30, 1999. The Company believes that negative publicity
generated by government investigations may be negatively affecting its financial
education business. The Company cannot predict the effect that continued adverse
publicity, world economic conditions or stock market volatility will have on the
interest in the seminars and other products and services of WCSI, or on WCSI's
revenue or profits. There can be no assurance that the Company's operations will
be profitable in the future.
In addition to its core businesses, the Company has made a variety of
investments in real estate, hotels, oil and gas projects, and other venture
capital limited partnerships and private companies and in marketable securities.
In 1997, the Company formed Bountiful Investment Group to manage its real estate
and hotel investments and embarked on a strategy of acquiring larger stakes in
hotel projects.
Pursuant to this strategy, in 1998, the Company acquired the Best Western
McCarran House hotel, located in Sparks, Nevada and the Four Points by Sheraton
hotel in St. George, Utah and increased its ownership percentage in the Airport
Lodging Limited Partnership to 70% in exchange for interests in other hotel
properties held by the Company. The Company's hotels required greater than
anticipated renovation and upgrading to secure favorable hotel chain
affiliations and have not performed as well as the Company anticipated prior to
their acquisition. The hotels experienced losses in 1998 and during the first
nine months of 1999, and it is uncertain whether they will be profitable in the
future. The Company may maintain its current investments in hotel properties,
but does not have any plans to acquire additional hotel properties in the near
future.*
Certain of the Company's investments in oil and gas projects and in private
companies have not performed as well as anticipated by the Company. The Company
intends to continue to review the performance of these investments, and may
determine that the carrying value of one or more of these investments on the
Company's books exceeds their fair market value, and in such event a charge to
income would be required.
14
<PAGE>
Liquidity and Capital Resources
At September 30, 1999, the Company had current assets and current
liabilities in the amounts of $7.6 million and $20.5 million, respectively,
resulting in a working capital deficit of $12.9 million. The working capital
deficit at December 31, 1998 was $16.6 million. Current liabilities at September
30, 1999 include $3.4 million in deferred revenue, which results primarily from
revenues from seminars not yet attended, prepayments for future pager services
from Information Quest, and/or subscriptions to the WIN web-site. Current
liabilities at September 30, 1999 also includes $4.2 million in taxes payable,
which include estimated 1999 federal income taxes provision, delinquent payments
owed on 1998 state and federal income taxes and 1997 federal income taxes. The
accrued liabilities do not include penalties, which may be material.
At September 30, 1999, the Company had payables to related parties in the
amount $2.3 million, which primarily represents royalties owed to Mr. Wade B.
Cook.
The market value of the Company's marketable securities decreased from $2.9
million at December 31, 1998 to $2.1 million at September 30, 1999, due
primarily the use of such marketable securities in other investments, the use of
marketable securities to meet operating expenses including advertising, and as a
result of stock market volatility. Inventory decreased from $3.7 million at
December 31, 1998 to $3.0 million at September 30, 1999 primarily as a result of
the implementation of cost controls and inventory management. At September 30,
1999, the Company also had receivables from related parties in the amount of
$241,000 consisting primarily of term loans to employees and directors, the
majority of which are secured by mortgages on real property.
The Company's principal source of cash has been from the operation of its
financial education seminars and sales of related tapes, books and other
materials. The Company does not have an established bank line of credit. Cash in
the amount of $1.1 million was used in operations as a whole, and the Company's
seminar operations in particular, consumed cash rather than generating it in the
quarter ended September 30, 1999.
Cash in the amount of $3.4 million was used toward debt repayment for the
nine months ended September 30, 1999, compared with $1.1 million of net
borrowings for the same period of 1998. The debt repaid in 1999 was primarily
attributable to the repayments of notes on the Company's hotel properties, hotel
renovations, and the retirement of debt on the Company's Corporate Headquarters.
On November 5, 1999, the Company was approved for a new first mortgage
secured by its Corporate Headquarters in the principal amount of $3,000,000
dollars.* The proceeds of the mortgage have been ear-marked for payment of
accrued income taxes owed to the Internal Revenue Service.* The mortgage funds
have not currently been transferred to the Company; however, the closing
documents are expected to be completed in the final week of November.* The
lender's obligations to close the first mortgage is subject to number of
conditions including the lender's approval of certain matters concerning the
property and the Company. Accordingly there can be no assurance that the loan
will close in a timely manner or at all.
In addition to cash received from its own operations, the Company is
entitled to receive payment under a temporary marketing arrangement with ALG,
the current owner of EPI, which provides for payment to the Company by ALG of an
amount equal to 35% of EPI's gross proceeds. The agreement may be terminated at
any time. Receipt of these payments may, as a practical matter, be dependent on
the success of the business in the hands of ALG. To date, ALG has made all
payments when due.
Non-marketable investments decreased from $9.5 million at December 31, 1998
to $7.3 million at September 30, 1999, due to sales of non-marketable
investments and the reinvestment of the proceeds into marketable investments.
15
<PAGE>
The Company's non-marketable investments include the following:
Investment
Description of Investment (in thousands)
------------------------------------------------------------------
Oil and gas properties $ 1,321
Hotel and motel investments 2,517
Investments in undeveloped land 1,919
Private companies -- Various industries 1,515
---------------
Total non-marketable investments $ 7,272
===============
The Company has not acquired any new businesses in the first three quarters
of 1999. Instead it has focused on its core and currently owned businesses, the
repayment of debt and making additional expenditures to fund its operations,
including advertising. Cash flow from operations, which has historically been
the Company's principal source of cash for working capital, has decreased in
recent periods principally due to lower than expected revenues in several of the
Company's operating subsidiaries, and because the Company's core businesses
experienced losses and negative cash flow in the quarter ended September 30,
1999.
The Company has continued to fund new subsidiaries in anticipation of
future revenues. The Company's practice of using available cash to fund its
subsidiaries, its working capital deficit and the fact that the Company's
seminar business has not generated cash as in the past have resulted in
constraints on liquidity, including failure to pay tax and other obligations.
Due to lower than anticipated revenues, the Company's liquidity situation has
further deteriorated in September and October 1999. The Company has not paid
accounts payable in a timely manner and several creditors have commenced or
threatened litigation to obtain payment. As of September 30, 1999, approximately
$ 3.3 million in accounts payable were at least 90 days overdue.
The Company is seeking to resolve its cash flow needs, including more
strategic focus on its core competencies in the seminar segment, more focused
advertising, and personnel reductions.* These actions may not, however, result
in improved revenues from the seminar segment, and may not reduce expenses to
the point that cash flow is significantly improved. Accordingly, there can be no
assurance that the Company's efforts will improve its liquidity situation.
The Company is also seeking to generate cash for working capital purposes
from its non-marketable investments or other assets.* The Company may not be
able to liquidate investments in a timely manner, or in a manner that would
allow the Company to realize the full value of the investments or assets
involved.
Failure to generate adequate cash resources for working capital could
require the Company to cut back operations, delay or cancel expansion and
development projects, default on contracts, forfeit valuable rights for
non-payment or non-performance and cause the Company to be unable to meet
obligations.
The Company is a party to various government investigations and legal
proceedings. See Part II, Item 1 of this report for descriptions of these
proceedings. The Company has not yet made an estimate of its potential exposure
in several pending proceedings and investigations or determined the impact of
adverse results in such matters on its financial statements.* The outcome of
these matters is difficult to predict and subject to uncertainty, and the legal
fees and other costs involved may be material.* Adverse publicity resulting from
these matters may be negatively affecting the Company's business, and further
adverse publicity could have further negative effects.* If the Company were
found to be liable in certain
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of these proceedings, the liability could be material. In addition, if
government agencies establish violations of certain consumer protection or other
laws, the Company may be required to pay material penalties or to refund money
paid to the Company by seminar attendees within the jurisdictions involved or
significantly change the manner in which the Company's business is conducted.*
Any such result could materially adversely affect the Company's financial
condition or results of operations.*
Results of Operations
Three Months Ended September 30, 1999 Compared with the Three Months Ended
September 30, 1998
Revenue. Revenue from continuing operations was $18.7 million for the
quarter ended September 30, 1999, which was $ 11.9 million less than the
comparable quarter in 1998. Revenues from product sales increased by $ 2.6
million from $5.2 million in the third quarter of 1998 to $ 7.8 million during
the quarter ended September 30, 1999 primarily due to the introduction of new
product titles, including but not limited to Red Light, Green Light, Next Step
(the Update), the Wall Street Workshop (the update), and Safety First Investing.
During the same quarter the sales of seminars decreased by $14.8 million from
$22.9 million to $8.1 million. Seminar revenues decreased in the third quarter
due to reduced attendance at the Company's seminars which the Company believes
may be the result of negative publicity, governmental investigations, unfocused
marketing efforts, possible saturation of the Company's seminars in certain
demographic markets, and fears about consumer spending before the year 2000. The
Company has begun to introduce new products, and develop more tailored marketing
efforts to address these problems.*
Revenue attributable to the Company's hotel operations increased by
$330,000 from $821,000 for the quarter ended September 30, 1998 to $ 1.2 million
for the comparable quarter in 1999. This increase was primarily due to the
acquisitions of the Best Western McCarran House in Sparks, Nevada, the Four
Points by Sheraton hotel in St. George, Utah and the increase of the Company's
ownership in the Airport Ramada Suites in Salt Lake City, Utah in 1998. Revenue
in the pager segment decreased by $107,000 from $478,000 in the quarter ended
September 30, 1998 to $371,000 for the comparable quarter of 1999. The reduction
in pager revenue resulted primarily from a reduced renewal rates, and lower than
expected attendance in the seminars segment which is historically the principal
marketing tool for the pager segment.
Revenue from the Company's travel segment increased by $145,000 from
$538,000 during the quarter ended September 30, 1998 to $683,000 for the
comparable period of 1999. Revenue from the other segment, consisting primarily
of the Company's real estate development operations, retail bookstores and
advertising agency, decreased by $461,000 from $1.6 million in the quarter ended
September 30, 1998 to $1.1 million during the comparable period of 1999
principally from decreased revenues in the retail book stores. The Company
believes the retail bookstores' declining revenues resulted from the Company
having no new titles on the best seller list and the phasing out of the retail
bookstores in an effort to refocus Company on its core competencies.
Cost of Revenue. Cost of revenue for the quarter ended September 30, 1999
was $7.4 million compared with $11.8 million for the comparable quarter in 1998.
The decrease in cost of revenues in the quarter ended September 30, 1999 is
primarily due to reduced sales in the seminar and travel segments, and reduction
in overhead.
Cost of revenue attributable to the Company's seminar segment decreased
$6.8 million from $11.3 million for the quarter ended September 30, 1998 to $4.5
million for the comparable quarter ended 1999 primarily due to a corresponding
reduction in Company sales, and reduction in overhead. Cost of product sales
increased by $1.0 million from $3.2 million in the quarter ended September 30,
1998 to $4.3 million for the comparable period of 1999 primarily due to
increased units sold. Cost of revenue in the hotel segment increased by $92,000
from $386,000 for the quarter ended September 30, 1998 compared with $478,000
for the quarter ended September 30, 1999 due to the costs associated with needed
hotel renovations.
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The cost of revenue for the pager services segment increased by $82,000
from $105,000 for the quarter ended September 30, 1998 to $187,000 for the
quarter ended September 30, 1999 due to new product development costs. The cost
of revenue for the travel service segment decreased from $28,000 to $22,000. The
other segment cost of revenue increased from $900,000 to $1.1 million for the
quarters ended September 30, 1998 and 1999, respectively, primarily as a result
of increased commissions paid with respect to the Company's advertising
business.
Selling, General and Administrative Expenses. Selling, general and
administrative costs for the quarter ended September 30, 1999 were $13.2 million
compared with $16.4 million in the comparable period in 1998. Although the
Company experienced an increase in advertising costs for the quarter ending
September 30, 1999, the Company experienced an offset in the general and
administrative expenses as a result of a substantial decrease in overall Company
sales.
Operating Income. The Company had net operating loss from the quarter ended
September 30, 1999 of $2.0 million, compared to net operating income of $2.3
million for the comparable period in 1998. The reduction in operating income
resulted principally from a decrease in net revenues without an equal and
corresponding decrease in over-all costs, the additional expenses related to the
Company's recently acquired hotel properties and increased advertising costs.
Operating income in the seminar segment decreased by $4.0 million from income of
$2.6 million in the quarter ended September 30, 1998 to a loss of $1.4 million
in the quarter ended September 30, 1999. This decrease was attributable
principally to reduced attendance at the Company's seminars and increased
advertising costs. Operating income attributable to the product sales segment
decreased by $1.2 million from income of $132,000 in the quarter ended September
30, 1998 to loss of $1.0 million in the quarter ended September 30, 1999 due
primarily to costs incurred with the production of new Company products, and
increased advertising costs.
The Company realized operating income in the hotel segment of $711,000 in
the quarter ended September 30, 1999, compared with a gain of $98,000 during the
comparable period of 1998 due to increased daily occupancy rates and local
marketing efforts. In addition, operating income in the travel segment decreased
by $115,00 million from $27,000 for the quarter ended September 30, 1998 to a
loss of $88,000 for the quarter ended September 30, 1999 primarily due to
expenses associated with the installation of a new phone/reservation system, and
production of new marketing pieces. Operating income in the pager segment
decreased by $104,000 from $291,000 in the quarter ended September 30, 1998 to
$187,000 for the quarter ended September 30, 1999 primarily as a result of the
reduction in sales due to the decease in attendance at the Company's seminar
segment, and the cost of developing new products. The other segment realized a
loss of $58,000 for the quarter ended September 30, 1999 compared with operating
loss of $404,000 during the comparable quarter of 1998. The reduced loss was
primarily due to the fact the Company began phasing out its unprofitable retail
bookstores in an effort to help the Company focus on its core competencies.
Other Income (Expenses). Total other income was $678,000 for the quarter
ended September 30, 1999, compared with income of $378,000 in the comparable
quarter of 1998. During the quarter ended September 30, 1999, the Company
experienced a loss on trading securities of $41,000. The Company records its
investment in trading securities in accordance with Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities, and therefore, adjusts marketable securities to market value,
thereby reflecting changes in market value through the income statement in the
current period. Other income during the quarter ended September 30, 1999 also
included $621,000 license fee from EPI, which was the result of a discontinued
operation in June of 1998.
Loss before income taxes for the quarter ended September 30, 1999 was $1.3
million, compared with income of $2.7 million in the comparable period in 1998.
This net loss before income taxes and discontinued operations resulted in income
tax benefit for the quarter ended September 30, 1999 in the amount of $444,000
and a tax expense for the quarter September 30, 1998 of $960,000. Income taxes
are based on the applicable prevailing statutory rates.
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Nine Months Ended September 30, 1999 Compared with the Nine Months Ended
September 30, 1998
Revenue. Revenue from continuing operations was $70.7 million for the nine
months ended September 30, 1999 compared to $88.4 million for the nine months
ended September 30, 1998. Revenues from product sales increased by $2.5 from
$18.1 million during the nine months ended 1998 compared to $20.6 million during
nine months ended September 30, 1999. During the same period seminar sales
decreased by $19.4 million from $62.4 million to $43 million. The Company
believes that the decline in seminar revenue may have been influenced by
negative press publicity, governmental investigations, unfocused marketing
efforts, possible saturation of the Company's seminars in certain demographic
markets, and fears about consumer spending before the year 2000.
Revenue attributable to the Company's hotel operations increased by $1.3
from $1.7 for the nine months ended September 30, 1998 to $3.0 million for the
comparable period in 1999. This increase was primarily due to the acquisitions
of the Best Western McCarran House in Sparks, Nevada, the Four Points by
Sheraton hotel in St. George, Utah and the increase of the Company's ownership
in the Airport Ramada Suites in Salt Lake City, Utah in 1998. Revenue in the
pager segment decreased by $1.3 million from $2.6 million in the nine months
ended September 30, 1998 to $1.3 for the comparable period of 1999. The
reduction in pager revenue resulted primarily from reduced renewal rates, lower
than expected attendance in the seminars segment which is historically the
principle marketing tool for the pager segment.
Revenue from the Company's travel segment increased by $100,000 from $1.8
million during the nine months ended September 30, 1998 to $1.9 million for the
comparable period of 1999. The other segment, consisting primarily of the
Company's retail bookstores and advertising agency, decreased by $2.7 million
from $6.9 million in the nine months ended September 30, 1998 to $4.2 million
during the comparable period of 1999 principally from decreased business
activities by SHI, a real estate subsidiary of the Company, decreased
advertising by WCSI, and decreased revenues in the retail book stores which the
Company believes is the result having no new titles on the bestseller list, and
the phasing out of the retail bookstores in an effort to refocus the Company on
its core competencies.
Cost of Revenue. Cost of revenue for the nine months ended September 30,
1999 was $31.1 million compared with $34.1 million for the comparable period in
1998. The decrease in cost of revenues for the nine months ended September 30,
1999 is due to reduced sales in the seminar and travel segments, and a reduction
in overhead.
Cost of revenue attributable to the Company's seminar segment decreased
$7.2 from $26.0 million for the nine months ended September 30, 1998 to $18.8
million for the comparable nine months ended 1999 primarily due to the
implementation of cost controls, more efficient use of existing inventory, a
reduction in Company sales, and a reduction in overhead. Cost of product sales
increased by $3.1 million from $8.0 million in the nine months ended September
30, 1998 to $11.1 million for the comparable period of 1999 primarily due to
write-offs of obsolete inventory and increased units sold. Cost of revenue in
the hotel segment increased by $373,000 from $812,000 for the nine months ended
September 30, 1998 compared with $1.2 million for the nine months ended
September 30, 1999 due to increased ownership percentages in hotel properties,
additional capital calls, interest expenses on the financing for the hotels, and
the costs associated with needed hotel renovations.
The cost of revenue for pager services segment decreased by $98,000 from
$375,000 for the nine months ended September 30, 1998 to $277,000 for the nine
months ended September 30, 1999 due to reduced renewal rates for sales and pager
subscriptions, better contract prices with suppliers, and a decrease in
personnel. However, the decrease was offset in the third quarter due to new
product development costs. The cost of revenue for travel service segment
decreased from $61,000 to $37,000 The other segment cost of revenue decreased
from $5.2 million to $3.1 million for the nine months ended September 30, 1998
and 1999, respectively, primarily because of a corresponding decrease in the
revenue in this segment.
Selling, General and Administrative Expenses. Selling, general and
administrative costs for the nine months ended September 30, 1999 were $42.1
million compared with $50.0 million in the comparable period in 1998. Although
the Company experienced an increase in advertising costs for the quarter ending
September 30, 1999, the Company experienced an offset in the general and
administrative expenses as a result of a substantial decrease in overall Company
sales.
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Operating Income. The Company had net operating loss for the nine months
ended September 30, 1999 of $2.6 million, compared to net operating income of
$4.4 million for the comparable period in 1998. The reduction in operating
income resulted principally from a decrease in net revenues without an equal and
corresponding decrease in over-all costs, the additional expenses related to the
Company's recently acquired hotel properties and increased advertising costs.
Operating income in the seminar segment decreased by $4.6 million from income of
$3.2 million in the nine months ended September 30, 1998 to loss of $1.4 million
in the nine months ended September 30, 1999. This decrease was attributable
principally to reduced attendance at the Company's seminars and increased
advertising costs. Operating income attributable to the product sales segment
decreased by $1.9 million from income of $336,000 in the nine months ended
September 30, 1998 to loss of $1.6 million in the nine months ended September
30, 1999 primarily as a result of primarily to costs incurred with the
production of new Company products, and increased advertising costs.
The Company realized a income in the hotel segment of $238,000 in the nine
months ended September 30,1999, compared with a gain of $82,000 during the
comparable period of 1998 due increased daily occupancy rates, and local
marketing efforts. In addition, operating income in the travel segment decreased
by $199,000 from $286,000 for the nine months ended September 30, 1998 to
$87,000 for the nine months ended September 30, 1999 primarily due to expenses
associated with the installation of a new phone/reservation system, and
production of new marketing pieces. Operating income in the pager segment
decreased by $964,000 from $1.8 million in the nine months ended September 30,
1998 to $835,000 for the nine months ended September 30, 1999 primarily due to a
decrease in renewal rates, a result of the reduction in sales due to the decease
in attendance at the Company's seminar segment, and the cost of developing new
products. The other segment realized a loss of $661,000 for the nine months
ended September 30, 1999 compared with operating loss of $251,000 during the
comparable period of 1998 primarily because of a decrease in over-all revenue
and an increase in the commissions paid with respect to the Company's
advertising business.
Other Income (Expenses). Total other income was $3.0 million for the nine
months ended September 30, 1999, compared with $795,000 in the comparable period
of 1998. During the nine months ended September 30, 1999, the Company
experienced a gain on trading securities of $547,000 million. The Company
records its investment in trading securities in accordance with Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities, and therefore, adjusts marketable securities to
market value, thereby reflecting changes in market value through the income
statement in the current period. Other income during the nine months ended
September 30, 1999 also included $2.4 million license fee from EPI, which was
the result of a discontinued operation in June of 1998.
Income before income taxes for the nine months ended September 30, 1999 was
$379,000 compared to income of $5.2 million in the comparable period in 1998.
This net income before income taxes and discontinued operations resulted in
income tax expense of $165,000 and $1.8 million for the nine months ended
September 30, 1999 and 1998, respectively. Income taxes are based on the
applicable prevailing statutory rates due to the fact the Company did not have
any new titles on the best seller list and the Company commenced phasing out its
retail bookstores in an effort to help the Company focus on its core
competencies.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to changes in interest rates affecting the return on
its notes receiveable and investments. In the normal course of business, the
Company employs established policies and procedures to manage its exposure to
fluctuations in interest rates.
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's investments and notes receivables. The Company has
not used derivative financial instruments in its investment portfolio. The
Company places their investment with enterprises with which it has majority
control and thus limits the amount of credit exposure to any one issuer. The
Company protects and preserves its invested funds by limited default, market and
reinvestment risk.
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PART II * OTHER INFORMATION
Item 1. Legal Proceedings.
The following is a description of previously unreported material threatened
or pending legal proceedings and updated information regarding previously
reported material threatened or pending legal proceedings to which the Company
or any of its subsidiaries is a party or which any of their properties is
subject as to which there were material developments during the period since the
last report:
Michael Glover and MMD Investments Limited Partnership v. Wade Bruce Cook,
Wade Cook Seminars, Inc, Wade Cook Financial Corporation, et al. On September
14th, 1999, Michael Glover and MMD Investments (the "plaintiff") filed suit in
the 11th Judicial District Court of San Juan County New Mexico against the
Company. The complaint alleges that Wade B. Cook and the Company violated the
New Mexico Unfair Practices Act sections 57-12-1 et seq. through the commission
of fraud; civil conspiracy, civil aiding and abetting, and negligent
misrepresentation. The Plaintiffs allege that they have suffered actual damages
of approximately $204,000, and in addition to demanding such actual damages are
seeking treble damages, attorney fees, and exemplary damages. The Company
believes that it has not engaged in any unlawful practices and intends to defend
itself in this matter.* The Company has not yet determined the impact on its
financial statements and has not made provisions for losses, if any.
Stuart E. Mac Gregor, II vs. Wade B. Cook, Wade Cook Seminars, Inc.,
Information Quest, Inc. and Wade Cook Financial Corporation. On September 21st,
1999, Mr. Stuart Mac Gregor filed suit in the Superior Court of Washington for
King County against Mr. Cook and the Company. The complaint alleges that Mr.
Cook and the Company committed negligent misrepresentation, fraud, and
conspiracy to commit fraud in selling products and services to Mr. Mac Gregor.
Mr. Mac Gregor seeks approximately $54,000 in actual and consequential damages,
and also requests exemplary damages in the matter. The Company believes that it
has not engaged in any unlawful practices and intends to defend itself in this
matter.* The Company has not yet determined the impact on its financial
statements and has not made provisions for losses, if any.
Vendor suits. During the third quarter, three vendors commenced legal
proceedings against the Company to collect delinquent payment for services.
Collectively, the dollar amount sought by such vendors totals $197,930.55. The
Company is currently assessing its options in this matter.
Federal Trade Commission. On September 16, 1999 representatives of Wade
Cook Seminars met with staff of the Federal Trade Commission ("FTC"). The
meeting was called to discuss alleged acts by Wade Cook Seminars, Inc. and
others of various provisions of federal consumer laws, namely provisions dealing
with unfair and deceptive trade practices. Since that time, the FTC has had
several meetings with the Company, and no formal action has been filed. Although
no action has been taken to date, and the Company does not believe that it or
its officers or directors have violated applicable laws, no assurance can be
given that enforcement proceedings will not be brought against the Company, or
its officers or directors, or as to the outcome of any investigations by the
FTC*
Investigation by the State of Washington, Securities Division. Since
September 1996, the Washington State Department of Financial Institutions,
Securities Division has been investigating Mr. Cook, WCSI, and the Company. The
Company has been informed that the investigation is being performed pursuant to
RCW 21.20.370 and 21.20.700. On July 2, 1999, the Superior Court for the State
of Washington in King County granted the State of Washington its petition to
enforce a subpoena ordering the Company to produce its list of certain
Washington State customers. The subpoena was issued subject to a Protective
Order granted in favor of the Company by the same court on July 10, 1999. The
Protective Order limits the manner in which the Securities Division can contact
customers of the Company. On September 7, 1999, the Company brought suit against
Deborah Bortner and Rex Staples, solely in their official capacities as
employees of the Department of Financial Institutions, Securities Division, of
the State of Washington, for declaratory and injunctive relief. The Company's
complaint asks that the Court find that the Company does not qualify as an
"Investment Advisor" under RCW 21.200.5(6) and thus is not subject to the
Securities Division's jurisdiction. In the alternative if the Court finds that
the Company is an
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"Investment Advisor" under RCW 21.200.005(6), said complaint asks the court to
rule that the provisions of RCW 21.20 et seq. violate the Company's federal and
state constitutional rights of free speech, and freedom of publication. Although
no civil or criminal charges have been brought and the Company does not believe
that it or its officers or directors have violated applicable laws, no assurance
can be given that enforcement proceedings will not be brought against the
Company, or its officers or directors, or as to the outcome of any
investigations by the Washington State Attorney General.*
State Attorneys General Investigations. During 1998 and 1999, the Attorneys
General of 10 states opened investigations to determine whether the Company has
engaged in business and advertising practices that violate such states' consumer
protection laws and regulations. The Company does not believe that it has
engaged in any unlawful activities in any of the states and is cooperating fully
with each state's investigation. Although no action has been taken, and the
Company does not believe that it or its officers or directors have violated
applicable laws, no assurance can be given that enforcement proceedings will not
be brought against the Company, or its officers or directors, or as to the
outcome of any proceedings that are brought.*
Himmelman and Love vs. Wade Cook Seminars, Inc., et al. On February 26,
1999, two former employees of Wade Cook Seminars, Inc. filed a complaint with
the Pierce County Superior Court of the state of Washington alleging sexual
harassment, retaliatory discharge and defamation. Although no specific damages
are alleged, the plaintiffs request lost income, pain and suffering, emotional
distress, court costs, reasonable attorney fees, and punitive damages. On May 4,
1999, the Company submitted a response to the Plaintiff's complaint denying all
claims thereunder and presenting affirmative defenses. Trial, originally
scheduled for September 1999, has been rescheduled for March of 2000. The
Company has responded to Plaintiff's discovery requests, and will be filing a
summary judgement on several of the issues involved. The Company believes that
it has not engaged in any unlawful practices and intends to defend itself in
this matter.* The Company has not yet made an estimate of potential exposure or
determined the impact on its financial statements and has not made provisions
for losses, if any.
Tom Cloward: In re IQ Pagers, Inc ("IQ"). The Company has been advised by
Tom Cloward, former Chief Information Officer of the Company and a former
director of IQ, a wholly-owned subsidiary of the Company, that Mr. Cloward is
seeking royalty payments equal to 2.5% of gross revenues derived from sales of
the IQ Pager based on the terms of a previous agreement between Mr. Cloward and
the Company. On April 15, 1999, Mr. Cloward's legal counsel sent a letter
threatening suit in the event settlement in the above matter could not be
reached. Mediation had been set to take place on October 5th, 1999, however, the
Company has decided to forgo a mediated settlement. The Company has not yet made
an estimate of its potential exposure or determined the impact on its financial
statements and has not made provisions for losses, if any.
Item 2. Changes in Securities.
On September 14, 1999, the Company issued 28,900 shares of the Company's
Common Stock to designated employees and independent contractors. Shares were
received by a total of 578 person with each person receiving 50 shares of
Company Common Stock. The Board of Directors granted said bonus shares on
December 14th, 1998. The shares were validly issued pursuant to the filing of
the Form S-8 on September 14, 1999 with the Securities and Exchange Commission.
Item 3. Defaults Upon Senior Securities.
None.
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Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
Year 2000
Many computer systems experience problems handling dates in and beyond the
year 1999. Therefore, some computer hardware and software will need to be
modified prior to the year 2000 in order to remain functional. The Company has
assessed both the readiness of its internal computer systems, software and
embedded chips for handling the year 2000. The Company has identified those
internal systems, software, and embedded chips which are year 2000 compliant and
those that are not. The Company expects to implement successfully any systems
and programming changes necessary to address year 2000 issues, and does not
believe that the costs of such actions will have a material effect on the
Company's results of operations or financial condition.* The Company does not
have any contingency plans with respect to year 2000 issues. There can be no
assurance, however, that there will not be a delay in, or increased costs
associated with, the implementation of such changes, and the Company's inability
to implement such changes could have an adverse effect on future results of
operations or financial condition. The Company is also beginning to assess the
possible effects on the Company's operations of the year 2000 readiness of
various wholly owned subsidiaries other than Wade Cook Seminars, Inc., key
suppliers and other vendors.* The Company's reliance on its subsidiaries,
suppliers and vendors, and therefore, on the proper functioning of their
information systems and software, means that their failure to address year 2000
issues could have a material impact on the Company's operations and financial
results. However, the potential impact and related costs are not known at this
time. The Company can give no guarantee that the systems of other companies upon
which the Company relies will be converted on time or that failure to convert by
another company would not have a material adverse affect on the Company.
The Company's Year 2000 remediation plan focuses on: internal systems,
including personal computing, facilities and business systems, and third-party
considerations, such as suppliers and other vendors. The tasks common to each of
these areas are (i) the identification and assessment of year 2000 issues, (ii)
assessment of remediation required, (iii) prioritization of risk, (iv)
remediation and testing and (v) contingency planning.
Internal Systems
The Company's compliance team has evaluated significant internal personal
computing and business systems that are critical to the ongoing operation of the
Company and in the process of identifying the computer hardware and software
upgrades and replacements necessary to make such systems Year 2000 compliant.
Due to budget constraints, upgrades and replacements were postponed and
currently have not been made as of the third quarter of 1999.* The projected
costs of such upgrades is projected at $2,500 to $7,000.
Suppliers and Vendors
The Company's business operations are, to some extent, dependent on the
year 2000 readiness of infrastructure suppliers such as banking, communications,
transportation and other services. In this environment, there will likely be
instances of failure that could cause disruptions in business processes.* The
likelihood and effects of such failures in infrastructure systems and the supply
chain cannot be estimated.
Wholly Owned Subsidiaries
The Company's business operations are, to some extent, dependent on the
year 2000 readiness of infrastructure of its wholly owned subsidiaries
including, but not limited to Lighthouse Publishing Group, Inc., Left Coast
Advertising, Inc., Origin Book Sales, Inc., Gold Leaf Press, Inc., Information
Quest, Inc., American Newsletter, Inc., Get Ahead Book Stores, Inc., Worldwide
Publishers, Inc., Ideal Travel
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Concepts International, Inc., Bountiful Investment Group, Inc., and Quantum
Marketing, Inc. In this environment, there will likely be instances of failure
that could cause disruptions in business processes.* The Company has determined
that the accounting software used by Worldwide Publishers, Inc. is not Year 2000
compliant. The likelihood and total effects of failures in infrastructure
systems, internal software, and the supply chain of the Company's various
subsidiaries cannot be estimated at this time. Currently, Ideal Travel Concepts
International, Inc., the only Company subsidiary having been assessed for year
2000 readiness, is year 2000 compliant.
Costs
The Company does not believe that the total cost of the Company's year 2000
plan with regard to Wade Cook Financial Corporation and Wade Cook Seminars is
material to the Company's financial condition. The estimated total cost of the
plan is expected to be under $10,000 and funded through operating cash flow.* At
June 30, 1999, the Company had incurred less than $5,000 in costs related to its
year 2000 identification, assessment, remediation and testing efforts. The major
portion of the remaining amount of the estimate is expected to have been
incurred by the end of the fourth quarter of 1999 when the Company's year 2000
compliance efforts are expected to be completed, with the balance expended
thereafter to monitor the compliance process.* None of the Company's other
projects have been delayed or deferred as a result of the implementation of the
year 2000 compliance plan.
Risks
To date, the Company has not incurred, and does not expect to incur,
material costs to review and remedy year 2000 compliance problems.* However,
there can be no assurance that the systems or products of other entities,
including the Company's suppliers on which the Company relies and disruptions in
the economy generally resulting from year 2000, will not have a material adverse
effect on the Company.
Wade Cook Seminars, Inc renamed Stock Market Institute of Learning, Inc.
On October 27, 1999, the Company officially changed the name of Wade Cook
Seminars, Inc. ("WCSI"), a wholly owned subsidiary of the Company, to Stock
Market Institute of Learning, Inc. WCSI conducts educational investment seminars
and produces and sells video and audio tapes, books and other written materials,
and is the Company's principle source of revenues. The purpose of the name
change was to better reflect the teachings and objectives of the Company.
Moneyworks Seminars, Inc.
On September 2, 1999, the Company filed Articles of Incorporation with the
State of Nevada for Moneyworks Seminars, Inc. ("Moneyworks"). Moneyworks, a
wholly owned subsidiary of the Company, is a corporation which will be involved
in presenting seminars targeted at educating beginners in the investment
market.* The events presented by Moneyworks are intended as a primer for
students who will later attend more in-depth Company seminars such as the Wall
Street Workshop.*
Lay-Off of Employees.
During and subsequent to the third quarter, the Company laid-off 34
employee positions in addition to normal attrition. The intent of the lay-off
was to reduce the Company's payroll and thereby ease recent constraints on cash
flow and liquidity. In connection with the lay-offs, the Company also took
measures to reduce specific employee salaries.
Resignation of Company Directors.
During the months of October and November the Company received resignations
from two members of the Board of Directors. The following members of the Board
of Directors tendered their resignations: Gregory Maxwell on October 28th, 1999,
and John Lang on November 2, 1999.
24
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Number Description
-------------- -----------
3.3 Certificate of Amendment of Articles of
Incorporation dated June 2, 1999
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Form 10-Q, period ending September 30, 1999 to
be signed on its behalf by the undersigned duly authorized.
WADE COOK FINANCIAL CORPORATION
November 11, 1999 /s/ Wade B. Cook
-------------------------------------
Wade B. Cook, Chief Executive Officer
November 11, 1999 /s/ Richard Smith
-------------------------------------
Richard Smith, Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
3.3 Certificate of Amendment of Articles of
Incorporation dated June 2, 1999
27.1 Financial Data Schedule
EXHIBIT 3.3
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE
STATE OF NEVADA
AUG 09 1999
NO. C28590-97
/s/ DEAN HELLER
DEAN HELLER
SECRETARY OF STATE
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
(After Issuance of Stock)
WADE COOK FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
Name of Corporation
We the undersigned Wade B. Cook and
President or Vice President
Laura M. Cook of Wade Cook Financial Corporation
Secretary
do hereby certify:
That the Board of Directors of said corporation at a meeting duly convened,
held on the 2nd day of June, 1999, adopted a resolution to amend the original
articles as follows:
Article III is amended to read as follows:
- ------------------------------------------
Article III: The number of shares the corporation is authorized to issue is
one hundred and forty million (140,000,000) shares of Common Stock with a par
value of $.001 per share and five million (5,000,000) shares of Preferred Stock,
with a par value of $10.00 per share. Shares of either the common or preferred
stock of the Corporation may be issued from time to time in one or more classes
or series, each of which class or series may have such distinctive designation
of title as shall be fixed by the Board of Directors of the Corporation prior to
the issuance of any shares thereof. Each such class or series of stock shall
have such voting powers, full or limited, or no voting power, and such other
relative, participating, optional or other rights, redemption provisions
(including sinking fund provisions), dividend rates, liquidation preferences and
conversion rights, and such qualifications, limitations or restrictions thereof,
as shall be stated in such resolution or resolutions providing for the issuance
of such class or series of stock as may be adopted from time to time by the
Board of Directors prior to the issuance of any shares thereof pursuant to the
authority hereby expressly vested in it, all in accordance with laws of the
State of Nevada. Any action by the Board of Directors under this section shall
require the affirmative vote of a majority of the members of the Board of
Directors then in office.
Article V is amended to read as follows:
- ----------------------------------------
Article V: The governing board of the Corporation shall be styled as
"Directors." The initial Board of Directors shall consist of ten (10) members
and may be increased or decreased from time to time in the manner specified in
the Bylaws of this Corporation; provided, however, that the number shall not be
less than three (3) nor more than twelve (12). In case of an increase in the
number of directors, the additional director or directors shall be elected by
the shareholders
<PAGE>
at an annual meeting or at a special meeting called for that purpose. In case of
a vacancy in the Board of Directors, the remaining directors, by majority vote,
may elect a successor to hold office for the unexpired term of the director
whose position is vacant, and until the election and qualification of a
successor.
The directors of the Corporation will be divided into three classes: Class
I, Class II and Class III. Such classes must be as nearly equal in number as
possible. The term of the initial Class I directors will expire at the first
annual meeting of the shareholders following designation; the term of the
initial Class II directors will expire at the second annual meeting of the
shareholders following designation; and the term of the initial Class III
directors will expire at the third annual meeting of the shareholders following
designation. Thereafter, the term of office of a director shall be three (3)
years. If the number of directors is increased or decreased in the manner
specified in the Bylaws, such change will be apportioned among the classes so
that after the change, the classes will remain as nearly equal in number as
possible.
Notwithstanding any other provision of these Articles of Incorporation or
the Bylaws of the Corporation, the provisions of the Article V may not be
amended or repealed, and no provisions inconsistent herewith may be adopted by
the Corporation without the affirmative vote of the holders of at least
two-thirds (2/3) of the Corporation's outstanding Common Stock.
The names and street addresses and class designations of the initial
directors of the Corporation is as follows:
Wade B. Cook, 14675 Interurban Ave. S., Seattle, WA 98168. Class I
Article VIII is amended to read as follows:
- -------------------------------------------
Article VIII: Every person who was or is a party to, or is threatened to be
made a party to, or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he,
or a person of whom he is the legal representative, is or was a director of
officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprise, shall
be indemnified and held harmless to the fullest extent legally permissible under
the laws of the State of Nevada from time to time against all expenses,
liability and loss (including attorneys' fees, judgements, fines and amounts
paid or to be paid in settlement) reasonably incurred or suffered by him in
connection therewith. Such right of indemnification shall be a contract right
which may be enforced in any manner desired by such person. The expenses of
directors and officers incurred in defending a civil or criminal action, suit or
proceeding must be paid by the Corporation as they are incurred and in advance
of the final disposition of the action suit or proceeding, upon receipt of an
undertaking by or on behalf of the director or officer to repay the amount if it
is ultimately determined by a court of competent jurisdiction that he is not
entitled to be indemnified by the Corporation. Such right of indemnification
shall not be exclusive of any right which such directors, officers or
representatives may or hereafter acquire, and, without limiting the generality
of such statement, they shall be entitled to their respective rights of
indemnification under any bylaw, agreement, vote of stockholders, provision of
law, or otherwise, as well as their rights under this Article.
<PAGE>
Without limiting the application of the foregoing, the Board of Directors
may adopt Bylaws from time to time with respect to indemnification, to provide
at all times the fullest indemnification permitted under the laws of the State
of Nevada, and may cause the Corporation to purchase and maintain on behalf of
any person who is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director or officer of another
corporation, or as its representative in a partnership, joint venture, trust or
other enterprise against any liability asserted against such person and incurred
in any such capacity or arising out of such status, whether or not the
Corporation would have the power to indemnify such person. The indemnification
provided in this Article shall continue as to a person who has ceased to be a
director, officer, employee, agent, and shall inure to the benefit of the heirs,
executors and administrators of such person.
The number of shares of the corporation outstanding and entitled to vote on
an amendment to the Articles of Incorporation is 64,383,730; that the said
change(s) and amendment have been consented to and approved by a majority of the
stockholders holding at least a majority of each class of stock outstanding and
entitled to vote thereon.
/s/ Wade B Cook
-----------------------------------------
President or Vice President
/s/ Laura M. Cook
-----------------------------------------
Secretary or Assistant Secretary
State of Washington )
) ss.
County of King )
On July 22, 1999, personally appeared before me, a Notary Public, Wade B.
Cook & Laura M. Cook, who acknowledged that they executed the above instrument.
/s/ Patricia A. Sanders
-----------------------------------------
Signature of Notary
[Notary Seal of Patricia A. Sanders
Notary Public for the State of Washington]
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
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<SECURITIES> 2,107
<RECEIVABLES> 1,495
<ALLOWANCES> 0
<INVENTORY> 2,990
<CURRENT-ASSETS> 7,636
<PP&E> 27,030
<DEPRECIATION> 0
<TOTAL-ASSETS> 50,110
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0
0
<COMMON> 64
<OTHER-SE> 19,849
<TOTAL-LIABILITY-AND-EQUITY> 19,913
<SALES> 0
<TOTAL-REVENUES> 70,703
<CGS> 31,108
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