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 June 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, $0.01 par
value, as of June 30, 1999 was 64,123,548 shares.
<PAGE>
WADE COOK FINANCIAL CORPORATION
Form 10-Q
Index
<TABLE>
Page
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<S> <C>
PART I -- FINANCIAL INFORMATION..........................................................................3
Item 1: Financial Statements.............................................................................3
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations..........12
Item 3: Quantitative and Qualitative Disclosures About Market Risk.....................................19
PART II -- OTHER INFORMATION............................................................................20
Item 1. Legal Proceedings..............................................................................20
Item 2. Changes in Securities..........................................................................21
Item 3. Defaults Upon Senior Securities................................................................22
Item 4. Submission of Matters to a Vote of Security Holders............................................22
Item 5. Other Information..............................................................................23
Item 6. Exhibits and Reports on Form 8-K...............................................................24
</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) June 30, 1999 December 31, 1998
---------------- -----------------
<S> <C> <C>
Assets:
Current Assets:
Cash and cash equivalents $ 1,793 $ 1,742
Marketable securities 4,550 2,870
Receivables, trade 3,197 3,112
Inventory 2,801 3,743
Receivables, related parties 123 177
Prepaid 219 354
---------------- -----------------
Total current assets 12,683 11,998
---------------- -----------------
Property, plant and equipment, net of depreciation 27,681 29,204
---------------- -----------------
Goodwill, net of amortization 3,013 3,061
---------------- -----------------
Other assets:
Non-marketable investments 8,418 9,494
Other investments 265 255
Deposits 223 151
Notes receivables - employees 2,778 2,920
Receivable, related 1,174 1,617
Other receivables 521 -
---------------- -----------------
Total other assets 13,379 14,437
---------------- -----------------
Total assets $ 56,756 $ 58,700
================ =================
</TABLE>
3
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<TABLE>
(in thousands) June 30, 1999 December 31, 1998
---------------- -----------------
<S> <C> <C>
Liabilities and Shareholders' Equity:
Current liabilities:
Current portion of long-term debt 3,359 4,667
Accounts payable and accrued expenses 8,551 9,198
Margin loans in investment accounts 448 146
Payroll and other accrued taxes 248 163
Accrued income taxes 4,777 4,969
Deferred tax liability 642 642
Deferred revenue 5,635 5,662
Payables, related parties 2,943 3,109
Notes payable to officers 45 45
--------------- ------------------
Total current liabilities 26,648 28,601
Long-term debt 8,427 9,474
--------------- ------------------
Total liabilities 35,075 38,075
--------------- ------------------
Minority interest 917 936
--------------- ------------------
Shareholders' Equity
Preferred stock - -
Common stock 644 644
Paid-in capital 4,095 4,095
Prepaid advertising (500) (500)
Retained earnings 17,102 15,987
--------------- ------------------
21,341 20,226
Less: common stock in treasury at cost: (577) (537)
--------------- ------------------
Total shareholders' equity 20,764 19,689
--------------- ------------------
Total liabilities, minority interest, and stockholders'
Equity $ 56,756 $ 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 Six Months Ended
------------------------------------- -----------------------------------
(in thousands, except per share data) June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
---------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenue, net of returns and discounts $ 24,841 $ 24,872 $ 52,048 $ 56,725
---------------- ----------------- --------------- ---------------
Costs and expenses:
Cost of revenue 11,546 9,474 23,667 22,264
Selling, general and administrative 14,614 15,129 29,673 32,332
---------------- ----------------- --------------- ---------------
Total operating costs 26,160 24,603 53,340 54,596
---------------- ----------------- --------------- ---------------
Income (loss) from operations (1,319) 269 (1,292) 2,129
---------------- ----------------- --------------- ---------------
Other income (expense):
Interest and dividends 52 175 126 175
Gain (loss) on trading securities 669 (53) 1,154 804
Gain (loss) on non-marketable
securities 69 - 69 -
Interest expense - (364) (62) (500)
Undistributed income (loss) from
Hotel - (252) - (252)
Other 950 71 1,693 197
---------------- ----------------- --------------- ---------------
Total other income (expenses) 1,740 (423) 2,980 424
---------------- ----------------- --------------- ---------------
Income (loss) before income taxes 421 (154) 1,688 2,553
---------------- ----------------- --------------- ---------------
Provision for income taxes (tax 165 (54) 609 894
benefits)
Minority Interest 33 - 36 -
---------------- ----------------- --------------- ---------------
Income from continuing operations $ 289 $ (100) $ 1,115 $ 1,659
---------------- ----------------- --------------- ---------------
Discontinued operations:
Income from operations of Entity
Planners, Inc. to be disposed of (net
of income taxes of $183 in 1998) - 244 - 584
Operating income of Entity Planners,
Inc. during phase-out period - 15 - 15
---------------- ----------------- --------------- ---------------
- 259 - 599
---------------- ----------------- --------------- ---------------
Net income (loss) $ 289 $ 159 $ 1,115 $ 2,258
================ ================= =============== ===============
Earnings per share
Income from continuing operations $ 0.01 $ - $ 0.02 $ 0.03
Income from discontinuing operations - - - 0.01
Income during phase-out period - - - -
---------------- ----------------- --------------- ---------------
Net income $ 0.01 $ - $ 0.02 $ 0.04
================ ================= =============== ===============
Weighted average number of shares 64,064 64,257 64,064 64,257
</TABLE>
5
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Wade Cook Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flow
(Unaudited)
<TABLE>
Six Months Ended
-------------------------------------------
(in thousands) June 30, 1999 June 30, 1998
-------------------- ------------------
<S> <C> <C>
Cash provided by (used in) operations $ (150) $ 5,827
Cash provided by (used in) investing activities 1,862 (4,320)
Cash used in financing activities:
Net payments (1,661) (1,073)
-------------------- ------------------
Net increase in cash $ 51 $ 434
==================== ==================
</TABLE>
6
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Wade Cook Financial Corporation and Subsidiaries
Notes to Interim Financial Statements
June 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 June 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. 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.
4. 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 to the
Company by ALG in an amount equal to 35% of EPI's gross sales.
7
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5. 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.
6. 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 books, 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
kits. The other segment includes retail book sales, interests in real
estate ventures, and an inter-company advertising agency.
Information on the Company's business segments for the six months ended
June 30,
<TABLE>
(in thousands) 1999 1998 1997
--------------- ----------------- ----------------
<S> <C> <C> <C>
Net revenues and sales
Seminars $ 34,842 $ 39,517 $ 35,371
Product sales 12,797 12,887 10,962
Hotels 1,813 881 -
Pager service 961 2,086 -
Travel service 1,262 1,300 -
Other 3,076 5,303 895
Less: inter-company sales (2,703) (5,249) (2,191)
=============== ================= ================
$ 52,048 $ 56,725 $ 45,037
=============== ================= ================
</TABLE>
8
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<TABLE>
(in thousands) 1999 1998 1997
--------------- ----------------- ----------------
<S> <C> <C> <C>
Cost of sales
Seminars $ 14,349 $ 14,768 $ 13,492
Product sales 6,823 4,724 4,179
Hotels 707 426 -
Pager service 90 480 -
Travel service 15 33 -
Other 2,084 4,329 626
Less: inter-company sales (401) (2,496)
--------------- ----------------- ----------------
$ 23,667 $ 22,264 $ 18,297
=============== ================= ================
Operating income
Seminars $ (3) $ 660 $ 6,676
Product sales (496) 204 2,209
Hotels (473) (16) -
Pager service 648 1,508 -
Travel service 175 259 -
Other (603) 153 267
Less: inter-company sales (540) (639) (534)
--------------- ----------------- ----------------
$ (1,292) $ 2,129 $ 8,618
=============== ================= ================
Identifiable assets
Seminars $ - $ - $ -
Product sales 3,276 3,254 1,896
Hotels 13,767 9,301 -
Pager service 1,610 996 -
Travel service 41 9 -
Other 1,609 1,148 -
--------------- ----------------- ----------------
Segmented assets 20,303 14,708 1,896
Corporate assets 11,724 9,939 10,952
--------------- ----------------- ----------------
Total identifiable assets $ 32,027 $ 24,647 $ 12,848
--------------- ----------------- ----------------
</TABLE>
9
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<TABLE>
(in thousands) 1999 1998 1997
--------------- ----------------- ----------------
<S> <C> <C> <C>
Accumulated depreciation and
Amortization
Seminars $ - $ - $ -
Product sales 975 691 -
Hotels 432 - -
Pager service 169 - -
Travel service 2 - -
Other 107 13 -
--------------- ----------------- ----------------
Segmented asset depreciation and
Amortization 1,685 704 -
Corporate asset depreciation and
Amortization 2,661 1,597 -
--------------- ----------------- ----------------
Total accumulated depreciation and
Amortization 4,346 2,301 -
--------------- ----------------- ----------------
Net identifiable assets $ 27,681 $ 22,346 $ 12,848
=============== ================= ================
Capital Expenditures
Seminars $ - $ -
Product sales - -
Hotels 283 11,919
Pager service - -
Travel service -
--------------- ----------------- ----------------
Total segment expenditure
283 11,919
Corporate expenditures (sales) 253 -
--------------- ----------------- ----------------
Total capital expenditures $ 536 $ 11,919
=============== ================= ================
</TABLE>
10
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<TABLE>
Information on the Company's business segments for the three months ended June 30,
(in thousands) 1999 1998 1997
---------------- ----------------- --------------
<S> <C> <C> <C>
Net revenues and sales
Seminars $ 16,562 $ 16,069 $ 20,873
Product sales 5,783 6,247 6,931
Hotels 992 763 -
Pager service 353 1,334 -
Travel service 710 598 -
Other 1,621 1,967 836
Less: inter-company sales (1,180) (2,106) (2,191)
---------------- ----------------- --------------
$ 24,841 $ 24,872 $ 26,449
================ ================= ==============
Cost of sales
Seminars $ 7,145 $ 5,314 $ 7,692
Product sales 3,062 2,731 2,463
Hotels 396 379 -
Pager service 26 240 -
Travel service 15 33 -
Other 1,095 1,784 592
Less: inter-company sales (193) (1,007) -
---------------- ----------------- --------------
$ 11,546 $ 9,474 $ 10,747
================ ================= ==============
Operating income
Seminars $ (527) $ 66 $ 4,929
Product sales (432) 27 1,762
Hotels (184) (3) -
Pager service 171 345 -
Travel service 102 11 -
Other (361) (177) 183
Less: inter-company sales (88) - -
---------------- ----------------- --------------
(1,319) $ 269 $ 6,874
================ ================= ==============
</TABLE>
7. Reclassification
Certain amounts in the condensed consolidated financial statements for the
three and six months ended March 31, 1998 and June 30, 1998, respectively,
have been reclassified to conform to the 1999 presentation.
11
<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 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 or to reflect the occurrence of unanticipated events. 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 financial
education seminars and produces and sells related video and audio tapes, books
and other written materials. The Company's core business is financial education,
through its seminar and publishing concerns. This core business is complemented
by bookstores that focus on financial education, a financial information pager
service and a subscription-based web site that provides stock market information
and that illustrates the strategies taught in the Company's seminars and
publications.
12
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WCSI hosts the Wealth Information Network ("WIN"), an Internet web site
that allows subscribers to log on for information related to the stock market at
http://www.wadecook.com. Two of the Company's operating subsidiaries, Left Coast
Advertising, Inc., and Lighthouse Publishing Group, Inc., conduct advertising
and publishing services.
In 1997, the Company acquired Ideal Travel Concepts, Inc., which provides
travel agent services and also markets services to travel agents. Also during
1997, the Company expanded its publishing activities by acquiring 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).
Also 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. The Company understands that EPI has recently been sold to the
Anderson Law Group, P.C. ("ALG") and has temporarily entered into a marketing
agreement with ALG which provides for a monthly payment to the Company by ALG of
an amount equal to 35% of EPI's gross monthly sales. The marketing agreement may
be canceled at any time. The Company accounts for EPI as a discontinued business
operation.
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. 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 of investors 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 75% in exchange for interests in
other hotel properties held by the Company. The financial results of each of
these properties are consolidated in the Company's financial statements from the
date the majority ownership was acquired. 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
six 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 current plans to acquire additional hotel properties in
the near future.*
Liquidity and Capital Resources
At June 30, 1999, the Company had current assets and current liabilities in
the amounts of $12.7 and $26.6 million, respectively, resulting in a working
capital deficit of $13.9 million. The working capital deficit at December 31,
1998 was $16.6 million. Current liabilities at June 30, 1999 include $5.6
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 June 30, 1999
also includes $4.8 million in taxes payable, which are delinquent payments owed
on 1998 state and federal income taxes and 1997 federal income taxes. The
Company has not made estimated tax
13
<PAGE>
payments with respect to 1999 income taxes. The accrued liabilities do not
include penalties, which may be material.
At June 30, 1999, the Company had payables to related parties in the amount
$2.9 million, which primarily represents royalties owed to Mr. Wade B. Cook.
The market value of the Company's marketable securities increased from $2.9
million at December 31, 1998 to $4.6 million at June 30, 1999, due primarily to
the reinvestment of proceeds from sales of non-marketable investments and
unrealized gains on marketable securities. Inventory decreased from $3.7 million
at December 31, 1998 to $2.8 million at June 30, 1999 primarily as a result of
the implementation of inventory controls eliminating excess inventory. At June
30, 1999 the Company also had receivables from related parties in the amount of
$123,000 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 $150,000 was used in operations for the six months ended June 30,
1999, because the Company's operations as a whole, and the Company's seminar
operations in particular, consumed cash rather than generating it in the quarter
ended June 30, 1999.
Cash in the amount of $1.7 million was used toward debt repayment for the
six months ended June 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 related to a hotel acquisition.
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 a monthly payment to the Company by
ALG of an amount equal to 35% of EPI's gross monthly 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 $8.4 million at June 30, 1999, due to the sale of non-marketable investments
and the reinvestment of the proceeds into marketable investments.
14
<PAGE>
The Company's non-marketable investments include the following:
Investment
Description of Investment (in thousands)
------------------------- --------------
Oil and gas properties $ 1,937
Hotel and motel investments 4,789
Investments in undeveloped land 792
Private companies--Various industries 900
--------------
Total non-marketable investments $ 8,418
==============
The Company has not acquired any new businesses in the first two quarters
of 1999. Instead it has focused on its core and currently owned business, 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 a reduction in revenues and increased expenses
attributable to the Company's seminar segment and ongoing funding requirements
of recently acquired or formed businesses.
The Company has continued to fund new subsidiaries and investments in
anticipation of future revenues. The Company's practice of using available cash
to fund its subsidiaries and investments, 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 when due. The Company has in some cases not paid accounts
payable in a timely manner and several creditors have commenced or threatened
litigation to obtain payment. As of June 30, 1999, approximately $2.6 million in
accounts payable were at least 90 days overdue.
The Company may be required to generate cash for working capital purposes
from its non-marketable investments or other assets.* If it seeks to do so, it
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 and have been higher in recent
periods.* 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 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 effect the Company's financial condition or results
of operations.*
15
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Results of Operations
Three Months Ended June 30, 1999 Compared with the Three Months Ended June 30,
1998
Revenue. Revenue from continuing operations was $24.8 million for the
quarter ended June 30, 1999, which was approximately the same as the comparable
quarter in 1998. Revenues from product sales decreased by $464,000 from $6.2
million in the second quarter of 1998 to $5.8 million during the quarter ended
June 30, 1999 primarily due to less than anticipated demand for new books
published by Mr. Cook and the aging of previously published titles. During the
same quarter the sales of seminars increased by $493,000 from $16.1 million to
$16.6 million.
Revenue attributable to the Company's hotel operations increased by
$229,000 from $763,000 for the quarter ended June 30, 1998 to $992,000 for the
comparable period in 1999. This increase was primarily due to the opening of the
Four Points by Sheraton hotel in St. George, Utah in June of 1998 and the
increase of the Company's ownership in, and the opening of, the Airport Ramada
Suites in Salt Lake City, Utah in 1998. In addition, revenue in the pager
segment decreased by $981,000 from $1.3 million in the quarter ended June 30,
1998 to $353,000 for the comparable period of 1999. The reduction in pager
revenue resulted primarily from reduced renewal rates for and sales of pager
subscriptions during the second quarter of 1999.
Revenue from the Company's travel segment increased by $112,000 from
$598,000 during the quarter ended June 30, 1998 to $710,000 for the comparable
period of 1999. The other segment, consisting primarily of the Company's real
estate development operations, retail bookstores and advertising agency,
decreased by $346,000 from $2.0 million in the quarter ended June 30, 1998 to
$1.6 million during the comparable period of 1999 principally from the decreased
activity of Sherlock Homes, Inc. ("SHI"), a real estate development subsidiary
of the Company.
Cost of Revenue. Cost of revenue for the quarter ended June 30, 1999 was
$11.5 million compared with $9.5 million for the comparable quarter in 1998. The
increase in cost of revenue in the quarter ended June 30, 1999 is primarily due
to increased costs associated with seminar and product development efforts.
Cost of revenue attributable to the Company's seminar segment increased
$1.8 million from $5.3 million for the quarter ended June 30, 1998 to $7.1
million for the comparable quarter ended 1999 primarily due to increased costs
associated with new seminar development, increased wages and sales commissions,
higher room costs, travel expenses and speaker fees. Cost of product sales
increased by $331,000 from $2.7 million in the quarter ended June 30, 1998 to
$3.1 million for the comparable period of 1999 primarily due to write offs of
obsolete inventory and increased costs associated with product development
efforts. Cost of revenue in the hotel segment increased by $17,000 from $379,000
for the quarter ended June 30, 1998 compared with $396,000 for the quarter ended
June 30, 1999 due to capital calls for hotels and related costs of renovation
for certain hotel properties.
The cost of revenue for pager services segment decreased by $214,000 from
$240,000 for the quarter ended June 30, 1998 to $26,000 for the quarter ended
June 30, 1999 due to a decrease in pager renewals and subscriptions and
decreased wages as a result of a management change. The cost of revenue for
travel service segment decreased from $33,000 to $15,000. The other segment cost
of revenue decreased from $1.8 million to $1.1 million for the quarters ended
June 30, 1998 and 1999, respectively, primarily as a result of the decreased
activity of SHI.
Selling, General and Advertising Expenses. Selling, general and
administrative costs for the quarter ended June 30, 1999 were $14.6 million
compared with $15.1 million in the comparable period in 1998.
16
<PAGE>
Operating Income. The Company had net operating loss from the quarter ended
June 30, 1999 of $1.3 million, compared to net operating income of $269,000 for
the comparable period in 1998. The reduction in operating income resulted
principally from reduced revenues combined with increased seminar and product
development costs and additional expenses related to the Company's recently
acquired hotel properties. Operating income in the seminar segment decreased by
$593,000 from income of $66,000 in the quarter ended June 30, 1998 to a loss of
$527,000 in the quarter ended June 30, 1999. Much of this decrease was
attributable to an increase in cost of revenue in seminars, which includes
advertising commissions and product development costs. Operating income
attributable to the product sales segment decreased by $459,000 from income of
$27,000 in the quarter ended June 30, 1998 to a loss of $432,000 in the quarter
ended June 30, 1999 primarily as a result of increased cost of revenue in the
products segment.
The Company realized a loss in the hotel segment of $184,000 in the quarter
ended June 30,1999, compared with a loss of $3,000 during the comparable period
of 1998. In addition, operating income in the travel segment increased by
$91,000 from $11,000 for the quarter ended June 30, 1998 to $102,000 for the
quarter ended June 30, 1999 primarily due to a reduction in the mortgage
interest expenses from the sale of real estate in the first quarter of 1999.
Operating income in the pager segment decreased by $174,000 from $345,000 in the
quarter ended June 30, 1998 to $171,000 for the quarter ended June 30, 1999
primarily due to reduced sales and renewal rates for pager services and lower
wages resulting from a management change. The other segment realized a loss of
$361,000 for the quarter ended June 30, 1999 compared with operating loss of
$177,000 during the comparable period of 1998 primarily because decreased sales
and an increase in the use of an outside advertising agency instead of the
Company's advertising subsidiary.
Other Income (Expenses). Total other income was $1.7 million for the
quarter ended June 30, 1999, compared with expenses of $423,000 in the
comparable period of 1998. During the quarter ended June 30, 1999, the Company
experienced a gain on trading securities of $669,000. 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 June 30, 1999 also
included $978,000 license fee from EPI, which was the result of a discontinued
operation in June of 1998.
Income before income taxes for the quarter ended June 30, 1999 was
$421,000, compared with a loss of $154,000 in the comparable period in 1998.
This net income (loss) before income taxes and discontinued operations resulted
in income tax expense for the quarter ended June 30, 1999 in the amount of
$165,000 and a tax benefit for the quarter June 30, 1998 of $54,000. Income
taxes are based on the applicable prevailing statutory rates.
Six Months Ended June 30, 1999 Compared with the Six Months Ended June 30, 1998
Revenue. Revenue from continuing operations was $52.0 million for the six
months ended June 30, 1999 compared to $56.7 million for the six months ended
June 30, 1998. Revenue from product sales decreased by $90,000 from $12.9
million during the six months ended 1998 compared to $12.8 million during six
months ended June 30, 1999. During the same period seminar sales decreased by
$4.7 million from $40.0 million to $34.8 million. The Company believes that the
decline in seminar and product sales revenue may have been influenced by reduced
advertising, negative press coverage of current litigation and governmental
investigations involving the Company and possible saturation of certain portions
of its customer base.
Revenue attributable to the Company's hotel operations increased by
$932,000 from $881,000 for the six months ended June 30, 1998 to $1.8 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 opening
of 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. In addition, revenue in the pager segment decreased by $1.1 million from
$2.1 million in the six months ended June 30, 1998 to $961,000 for the
17
<PAGE>
comparable period of 1999. The reduction in pager revenue resulted primarily
from reduced sales and renewal rates for pager subscriptions during the second
quarter of 1999.
Revenue from the Company's travel segment decreased by $38,000 from $1.3
million during the quarter ended June 30, 1998 to $1.2 million for the
comparable period of 1999. The other segment, consisting primarily of the
Company's retail bookstores, real estate development operations and advertising
agency, decreased by $2.2 million from $5.3 million in the quarter ended June
30, 1998 to $3.1 million during the comparable period of 1999 principally from
decreased business activities by SHI, a real estate development subsidiary of
the Company, decreased advertising by WCSI and less than anticipated book sales.
Cost of Revenue. Cost of revenue for the six months ended June 30, 1999 was
$23.7 million compared with $22.3 million for the comparable quarter in 1998.
The increase in cost of revenues for the six months ended June 30, 1999 is
primarily due to new seminar development and product development efforts and
increased costs associated with the Company's newly-acquired hotel properties.
Cost of revenue attributable to the Company's seminar segment decreased
$419,000 from $14.8 million for the six months ended June 30, 1998 to $14.3
million for the comparable six months ended 1999 primarily due to implementation
of cost controls, more efficient use of inventory and a decrease in overall
seminar sales. Cost of product sales increased by $2.1 million from $4.7 million
in the six months ended June 30, 1998 to $6.8 million for the comparable period
of 1999 primarily due to write offs of obsolete inventory and new product
development efforts. Cost of revenue in the hotel segment increased by $281,000
from $426,000 for the six months ended June 30, 1998 compared with $707,000 for
the six months ended June 30, 1999 due to increased ownership percentages in
hotel properties and additional capital calls and increased expenses on existing
hotels.
The cost of revenue for pager services segment decreased by $390,000 from
$480,000 for the six months ended June 30, 1998 to $90,000 for the six months
ended June 30, 1999 due to reduced renewal rates for and sales of pager
subscriptions, better contract prices with suppliers and decreased wages caused
by a management change. The cost of revenue for travel service segment decreased
from $33,000 to $15,000 . The other segment cost of revenue decreased from $4.3
million to $2.1 million for the six months ended June 30, 1998 and 1999,
respectively, primarily because of a corresponding decrease in revenue in this
segment.
Selling, General and Advertising Expenses. Selling, general and
administrative costs for the six months ended June 30, 1999 were $30.0 million
compared with $32.0 million in the comparable period in 1998.
Operating Income. The Company had net operating loss for the six months
ended June 30, 1999 of $1.3 million, compared to net operating income of $2.1
million for the comparable period in 1998. The reduction in operating income
resulted principally from reduced revenue combined with increased seminar and
product development costs and additional expenses related to the Company's
recently acquired hotel properties. Operating income in the seminar segment
decreased by $663,000 from income of $660,000 in the six months ended June 30,
1998 to loss of $3,000 in the six months ended June 30, 1999. Much of this
decrease was attributable to a decrease in net revenue and an increase in cost
of revenue in seminars, and in costs associated with the development of new
seminars and related expenses. Operating income attributable to the product
sales segment decreased by $700,000 from income of $204,000 in the six months
ended June 30, 1998 to loss of $496,000 in the six months ended June 30, 1999
primarily as a result of increased cost of sales and reduced revenue in the
product segment.
The Company realized a loss in the hotel segment of $473,000 in the six
months ended June 30,1999, compared with a loss of $16,000 during the comparable
period of 1998 due to additional capital calls for hotels and related costs of
renovation for certain hotel properties. In addition, operating income in the
travel segment decreased by $84,000 from $259,000 for the six months ended June
30, 1998 to
18
<PAGE>
$175,000 for the six months ended June 30, 1999 primarily due to increased
advertising expenses in this segment. Operating income in the pager segment
decreased by $860,000 from $1.5 million in the six months ended June 30, 1998 to
$648,000 for the six months ended June 30, 1999 primarily due to a decrease in
renewals and sales of subscriptions for pager services. The other segment
realized a loss of $603,000 for the six months ended June 30, 1999 compared with
operating income of $153,000 during the comparable period of 1998 primarily
because of a decrease in retail book sales and an increase in the use of an
outside advertising agency instead of the Company's advertising subsidiary.
Other Income (Expenses). Total other income was $3.0 million for the six
months ended June 30, 1999, compared with $424,000 in the comparable period of
1998. During the six months ended June 30, 1999, the Company experienced a gain
on trading securities of $1.2 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 six months ended June 30, 1999 also
included $1.7 million license fee from EPI, which was the result of a
discontinued operation in June of 1998.
Income before income taxes for the six months ended June 30, 1999 was $1.7
million, compared with a loss of $2.6 million in the comparable period in 1998.
This net income (loss) before income taxes and discontinued operations resulted
in income tax expense for the six months ended June 30, 1999 in the amount of
$609,000 and a tax benefit for the six months June 30, 1998 of $894,000. Income
taxes are based on the applicable prevailing statutory rates.
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.
19
<PAGE>
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:
Litigation with ART and ITEX. On May 28, 1999, the Company agreed to settle
a lawsuit with Associated Reciprocal Traders, Ltd. ("ART") and its parent
corporation ITEX Corporation ("ITEX"). The lawsuit was a consolidation of claims
filed by the Company against ART/ITEX on February 4, 1998 in the Superior Court
of King County in the state of Washington and claims filed by ART/ITEX against
the Company on the same day. The lawsuit involved an agreement dated December
29, 1999 wherein the parties agreed that ART would provide $500,000 worth of
media credits for advertising in exchange for 100,000 restricted shares of stock
in WCFC. The shares subsequently split to 1,800,000 shares. Some radio
advertising was provided to WCFC in early 1999. The settlement reduced the
number of shares given to ART/ITEX to 1,400,000 and provides $300,000 worth of
barter ITEX dollars to WCFC. In addition, ART/ITEX agreed not to sell more than
100,000 of the shares within any calendar month. The Company expects the
settlement to be completed in the third quarter of 1999.*
Wade Cook Financial Corporation, et al. vs. Publishers Distribution Center,
Inc., et al. On September 17, 1998, the Company filed a lawsuit against
Publishers Distribution Center, Inc. ("PDC"), a Utah Corporation, and William
Beutler, Cora Beutler, and Scott Beutler, as individuals, in the United States
District Court, District of Utah, Central Division. Shortly after filing a
complaint in the United States District Court, the Company dismissed that action
and refiled its complaint in Third Judicial District Court, Salt Lake County in
the state of Utah. The complaint alleged fraud and negligent misrepresentation
relating to the Company's attempted purchase of PDC and requested restitution in
addition to other relief. PDC filed a counterclaim against the Company. On July
14, 1999, the parties agreed to a confidential monetary settlement which did not
have a material effect on the results of operations or financial condition of
the Company and which provided for a mutual release of claims, including claims
to certain payables allegedly owed by the Company, and a dismissal of the
lawsuit with prejudice.
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. 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 ten 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 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 proceedings that are brought.*
20
<PAGE>
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. A trial has been set for
August 26, 1999. 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.
Hewlett Packard Company ("HP") vs. Wade Cook Financial Corporation. On
April 16, 1999 the Hewlett Packard Company filed a complaint in the King County
Superior Court of the state of Washington claiming $642,000 in damages. HP
alleges that it has not received full payment under a consulting services
contract with the Company. On May 28, 1999, the Company counter-claimed stating
that HP made knowingly false representations about its services which resulted
in a breach of a consulting services contract, a breach of express and implied
warranties, and fraudulent and/or negligent misrepresentation. If the Company
were to be found liable, payment of any significant award may materially impact
the Company's cash flow.*
Kevin Carrol v. Wade Cook Seminars, Inc., Wade B. Cook, Entity Planners,
Inc. ("EPI"), and Norman Ovitt. On June 17, 1999, Kevin Carrol filed a civil
suit against WCSI, Wade B. Cook and EPI in the District Court of 126 Judicial
District for Travis County, Texas. Carrol alleges that he lost money after
relying on information given by the defendants and using their products. Mr.
Carrol has requested relief for his actual damages, attorney fees, pre and
post-judgment interest, and related costs. Mr. Carrol also alleges that the
defendants knowingly engaged in deceptive acts or practices, and requests
additional damages as provided for under Section 17.50(b)(1) of the Texas
Business and Commerce Code. 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.
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. 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 March 25, 1999, the Company released 45,000 shares of restricted common
stock to Norman Eade pursuant to an installment contract executed and fully paid
on October 22, 1997. The restricted common stock was issued in reliance on
exemptions from registration provided by section 4(2) of the Securities Act and
the laws of the state of Nevada.
On June 2, 1999, the Company's Board of Directors adopted a resolution
amending the Company's Article of Incorporation. The resolution reduced the par
value of Company's common stock from $0.01 to $0.001. The stockholders ratified
the reduction in par value at the Annual Stockholders' Meeting held on June 2,
1999. The amendment will be effective when filed with the Nevada Secretary of
State.
21
<PAGE>
On June 2, 1999, the Company adopted a resolution to amend Section 2.13 of
the By-laws. The amendment provides that in voting for Directors each
stockholder is permitted to cast one vote per share of Company common stock
held. The provision for straight voting thus modifies the prior By-laws which
allowed for cumulative voting. The amendment will be effective on execution by
the President and Secretary of the Corporation.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's annual meeting of stockholders was held on June 2, 1999.
The following nominees were elected as directors, each to hold office,
until his/her successor is elected and qualified, by vote set forth below:
FOR AGAINST WITHHELD
--------- ------- --------
Nick Dettman 56,442,426 320,552
Greg Maxwell 56,435,126 320,522
Angela Pirtle 56,441,251 327,822
John Lang 56,446,451 316,497
In addition, the following directors' terms continued after the annual meeting:
Robin Anderson
Joel Black
Robert T. Hondel
Dan Wagner
Wade B. Cook
Laura M. Cook
Janice Leysath
The proposal to ratify a 1997 amendment to the Company's Articles of
Incorporation increasing the number of authorized shares of common stock from
60,000,000 million shares to 140,000,000 million shares was approved by the vote
set forth below:
FOR AGAINST WITHHELD
--- ------- --------
56,297,473 372,414 93,061
The proposal to approve the amendment to the Company's Articles of
Incorporation to reduced the par value of Company common stock from $0.01 to
$0.001 was approved by the vote set forth below:
FOR AGAINST WITHHELD
--- ------- --------
56,246,342 413,914 102,692
22
<PAGE>
The proposal to approve the amendment to the Company's Articles of
Incorporation to eliminate limitations on annual increases in the number of
Director positions was approved by the vote set forth below:
FOR AGAINST WITHHELD
--- ------- --------
42,741,572 624,783 49,928
The proposal to approve the amendment to the Company's Articles of
Incorporation to clarify existing director and officer indemnification
provisions was approved by the vote set forth below:
FOR AGAINST WITHHELD
--- ------- --------
56,358,227 346,017 58,704
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 is
currently assessing both the readiness of its internal computer systems,
software and embedded chips for handling the year 2000. The Company intends to
complete this testing process of all significant applications and systems by
September 1999.* The Company expects to implement successfully any systems and
programming changes necessary to address year 2000 issues, and does not believe
that the cost 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 assessing and addressing the possible
effects on the Company's operations of the year 2000 readiness of key suppliers
and other vendors. The Company's reliance on 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 effect 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 second quarter of 1999.*
23
<PAGE>
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.
Costs
The Company does not believe that the total cost of the Company's year 2000
plan 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 third 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.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Number Description
-------------- -----------
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Form 10-Q, period ending June 30, 1999 to be
signed on its behalf by the undersigned duly authorized.
WADE COOK FINANCIAL CORPORATION
August 5, 1999 /s/ Wade B. Cook
-----------------------------------
ade B. Cook, Chief Executive Officer
August 5, 1999 /s/ Richard Smith
-----------------------------------
ichard Smith, Chief Financial Officer
25
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
27.1 Financial Data Schedule
26
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<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Jun-30-1999
<CASH> 1,793
<SECURITIES> 4,550
<RECEIVABLES> 3,197
<ALLOWANCES> 0
<INVENTORY> 2,801
<CURRENT-ASSETS> 12,683
<PP&E> 27,681
<DEPRECIATION> 0
<TOTAL-ASSETS> 56,756
<CURRENT-LIABILITIES> 26,648
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0
0
<COMMON> 644
<OTHER-SE> 20,120
<TOTAL-LIABILITY-AND-EQUITY> 56,756
<SALES> 0
<TOTAL-REVENUES> 52,048
<CGS> 23,667
<TOTAL-COSTS> 23,667
<OTHER-EXPENSES> 29,673
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<INTEREST-EXPENSE> 62
<INCOME-PRETAX> 1,688
<INCOME-TAX> 609
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