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 March 31, 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 March 31, 1999 was 64,383,630 shares.
<PAGE>
WADE COOK FINANCIAL CORPORATION
Form 10-Q
Index
<TABLE>
Page
<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.....................................17
PART II --OTHER INFORMATION............................................................................18
Item 1. Legal Proceedings..............................................................................18
Item 2. Changes in Securities..........................................................................20
Item 3. Defaults Upon Senior Securities................................................................20
Item 4. Submission of Matters to a Vote of Security Holders............................................20
Item 5. Other Information..............................................................................20
Item 6. Exhibits and Reports on Form 8-K...............................................................22
</TABLE>
2
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1: Financial Statements
Wade Cook Financial Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
(in thousands) March 31, 1999 December 31, 1998
--------------------- --------------------------
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 2,114 $ 1,742
Marketable securities 3,866 2,870
Receivables, trade 4,194 3,112
Inventory 2,564 3,743
Receivables, related parties 84 177
Prepaid 330 354
--------------------- --------------------------
Total Current Assets 13,152 11,998
--------------------- --------------------------
Property and equipment,
net of depreciation 27,719 29,204
--------------------- --------------------------
Goodwill, net of amortization 3,167 3,061
--------------------- --------------------------
Other Assets
Non-marketable investments 8,779 9,494
Other Investments 255 255
Deposits 137 151
Notes receivable - employees 2,907 2,920
Receivable, related 1,559 1,617
--------------------- --------------------------
Total Other Assets 13,637 14,437
--------------------- --------------------------
TOTAL ASSETS $ 57,675 $ 58,700
===================== ==========================
</TABLE>
3
<PAGE>
<TABLE>
(in thousands) March 31, 1999 December 31, 1998
--------------------- --------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 3,749 $ 4,667
Accounts payable and accrued expenses 7,732 9,198
Margin loans in investment accounts 331 146
Payroll and other accrued taxes 193 163
Accrued income taxes 5,063 4,969
Deferred tax liability 1,081 642
Deferred revenue 6,916 5,662
Payables, related parties 2,525 3,109
Notes payable to officer 45 45
--------------------- --------------------------
Total Current Liabilities 27,635 28,601
Long-term Debt, net of current portion 8,615 9,474
--------------------- --------------------------
Total Liabilities 36,250 38,075
--------------------- --------------------------
Minority Interests 950 936
Shareholders' Equity
Preferred stock - -
Common stock 644 644
Paid-in capital 4,095 4,095
Prepaid advertising (500) (500)
Retained earnings 16,813 15,987
--------------------- --------------------------
21,052 20,226
Less: Treasury stock at cost (577) (537)
--------------------- --------------------------
Total Shareholders' Equity 20,475 19,689
--------------------- --------------------------
TOTAL LIABILITIES, MINORITY INTEREST, AND
SHAREHOLDERS' EQUITY $ 57,675 $ 58,700
===================== ==========================
</TABLE>
4
<PAGE>
Wade Cook Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
For the Quarter Ended
---------------------------------------------------
(in thousands, except per share data) March 31, 1999 March 31, 1998
---------------------- --------------------------
<S> <C> <C>
Revenues, net of returns and discounts $ 27,207 $ 30,545
Costs and expenses
Cost of revenue 12,122 12,979
Selling, general and administrative 15,059 17,268
---------------------- --------------------------
Total Operating Costs 27,181 30,247
Income from Operation 26 298
---------------------- --------------------------
Other Income (Expenses)
Gain (loss) on trading securities, investment income
and expense 416 858
Interest expenses (62) (136)
Other 886 118
---------------------- --------------------------
Total Other Income (Expenses) 1,240 840
---------------------- --------------------------
Income before Income Taxes 1,266 1,138
Provision for Income Taxes 443 398
Minority Interest 3 8
---------------------- --------------------------
Income from continuing operations 826 748
---------------------- --------------------------
Discontinued operations:
Entity Planners, Inc. to be disposed of (net of - 341
income tax of $183 in 1998)
Operating income of Entity Planners, Inc.
During phase-out period - -
---------------------- --------------------------
- 341
====================== ==========================
Net income $ 826 $ 1,089
====================== ==========================
</TABLE>
5
<PAGE>
<TABLE>
For the Quarter Ended
---------------------------------------------------
(in thousands, except per share data) March 31, 1999 March 31, 1998
---------------------- --------------------------
<S> <C> <C>
Earnings per share
Income from continuing operations 0.01 0.02
Income from discontinued operations - -
Income during phase-out period - -
---------------------- --------------------------
Net income per share 0.01 0.02
====================== ==========================
Weighted average number of common shares
Outstanding 64,088 63,888
</TABLE>
6
<PAGE>
Wade Cook Financial Corporation and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
For the Quarter Ended
-------------------------------------------------
(in thousands) March 31, 1999 March 31, 1998
---------------------- ------------------------
<S> <C> <C>
Cash Provided by (Used in) Operation $ (349) $ 2,818
Cash Provided by (Used in) Investing Activities 1,580 (8,812)
Cash Provided by (Used in) Financial Activities
Net borrowings (Payments) (859) 5,777
---------------------- ------------------------
Net Increase (Decrease) in Cash $ 372 $ (217)
====================== ========================
</TABLE>
7
<PAGE>
Wade Cook Financial Corporation and Subsidiaries
Notes to Interim Financial Statements
March 31, 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 March 31, 1999 are not necessarily indicative of
the results that may be expected for the year ending December 31, 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. The agreement provides for aggregate
licensing fees of up to $17.470 million payable with the future cash flows
of the business transferred. The payment schedule requires, on a weekly
basis, the remittance of an amount ranging from 70 to 75 percent of net
sales or 30 percent of gross sales, whichever is greater, for a period of
five years. The licensing agreement contains a renewal option.
8
<PAGE>
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 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 markets 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, interest in real estate ventures, and an
inter-company advertising agency.
Information on the Company's business segments for the quarters ended March
31,
<TABLE>
(in thousands) 1999 1998 1997
-------------------- ------------------- ------------------
<S> <C> <C> <C>
Net revenues and sales
Seminars $ 18,280 $ 23,448 $ 14,498
Product sales 7,014 6,640 4,031
Hotels 821 118 -
Pager service 608 752 -
Travel service 552 702 -
Other 1,455 3,336 59
Less: inter-company sales (1,523) (4,451) -
==================== =================== ==================
$ 27,207 $ 30,545 $ 18,588
==================== =================== ==================
</TABLE>
9
<PAGE>
<TABLE>
(in thousands) 1999 1998 1997
-------------------- ------------------- ------------------
<S> <C> <C> <C>
Cost of sales
Seminars $ 7,517 $ 9,454 $ 5,800
Product sales 3,753 1,993 1,716
Hotels 311 47 -
Pager service 64 240 -
Travel service - - -
Other 989 2,545 34
Less: inter-company sales (512) (1,300)
==================== =================== ==================
$ 12,122 $ 12,979 $ 7,550
==================== =================== ==================
Operating income
Seminars $ 927 $ (839) $ 1,747
Product sales 395 177 447
Hotels (289) (13) -
Pager service 477 395 -
Travel service 73 248 -
Other (184) 330 84
Less: inter-company sales (1,373) -
==================== =================== ==================
$ 26 $ 298 $ 2,278
==================== =================== ==================
Identifiable assets
Seminars $ - $ - $ -
Product sales 3,245 3,044 1,812
Hotels 13,485 5,287 -
Pager service 1,513 3 -
Travel service 23 - -
-------------------- ------------------- ------------------
Segmented assets 18,266 8,334 1,812
Corporate assets 13,335 10,175 10,639
-------------------- ------------------- ------------------
Total identifiable assets $ 31,601 $ 18,509 $ 12,451
-------------------- ------------------- ------------------
</TABLE>
10
<PAGE>
<TABLE>
(in thousands) 1999 1998 1997
-------------------- ------------------- ------------------
<S> <C> <C> <C>
Accumulated depreciation and
Amortization
Seminars $ - $ - $ -
Product sales 876 292 -
Hotels 363 639 -
Pager service 169 - -
Travel service 1 - -
-------------------- ------------------- ------------------
Segmented asset depreciation and
Amortization 1,409 931 -
Corporate asset depreciation and
Amortization 2,473 1,064 -
-------------------- ------------------- ------------------
Total accumulated depreciation and
Amortization 3,882 1,995 -
-------------------- ------------------- ------------------
Net identifiable assets $ 27,719 $ 16,514 $ 12,451
==================== =================== ==================
Capital Expenditures
Seminars $ - $ -
Product sales - -
Hotels - 6,089
Pager service - -
Travel service - -
-------------------- ------------------- ------------------
Total segment expenditure - 6,089
Corporate expenditures (sales) (1,585) 801
==================== =================== ==================
Total capital expenditures $ (1,585) $ 6,890
==================== =================== ==================
</TABLE>
7. Reclassification
Certain amounts in the condensed consolidated financial statements for the
three months ended March 31, 1998 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 management's 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 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 domination of the
management of the Company by Mr. Cook, the possibility of adverse outcomes in
pending or threatened litigation involving the Company, consequences associated
with the Company's failure to pay state and federal income tax when due, the
Company's policy of committing available cash to additional investments, 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 expectations, estimates and projections 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 changes in management's opinions,
expectations, estimates or projections. 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
wholly-owned subsidiary Wade Cook Seminars, Inc. ("WCSI"), conducts educational
investment and business seminars and produces and sells video and audio tapes,
books and other written materials focused on investment strategies, financial
planning and personal wealth management. The Company's core business is
financial education, though its seminar and publishing concerns. These core
businesses are complemented by bookstores that focus on financial education, a
pager service that provides stock quotes and other financial information, 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.
In 1997, the Company acquired Ideal Travel Concepts, Inc., which provides
travel agent services to the Company and also markets services to travel agents.
Also during 1997, the Company expanded its publishing activities by acquiring
three small publishing and book distribution businesses, Worldwide Publishers,
Inc., Origin Book Sales, Inc. and Gold Leaf Press, Inc.
In 1998, the Company acquired Information Quest, Inc. (distribution of
paging devices that transmit stock market data), exchanged stock for the
assignment of all rights and interests of Quantum Marketing, Inc. (local sales
and marketing offices) and acquired all the rights and interests in Get Ahead
Bookstores, Inc. (bookstores). Also in 1998, the Company disposed of the
business of Entity Planners, Inc. ("EPI"), its entity formation business. The
buyer paid $250,000 to the Company for the stock of EPI, and agreed to pay up to
$17.5 million to the Company in royalty payments based on future sales of the
business. The Company accounts for EPI as a discontinued business operation.
12
<PAGE>
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. In 1998, the Company also increased its
25% interest in the Airport Ramada Suites in Salt Lake City, Utah to 75% in
exchange for interests in other hotel properties held by the Company. The
financial results of each of these properties is 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 quarter 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.*
Although the Company has been profitable in the past, it has experienced
dramatic growth, acquired or established new businesses, increased general and
administrative expenses, made investments in hotel and other projects outside
the traditional business of WCSI. These activities have reduced profits in
recent periods. In addition, revenue from WCSI has been lower in recent periods
than in previous comparable periods. The Company cannot predict the effect that
recent 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
operation will be profitable in the future.
Liquidity and Capital Resources
At March 31, 1999, the Company had current assets of $13.2 million and
current liabilities of $27.6 million, resulting in a working capital deficit of
$14.4 million compared with a working capital deficit of $16.6 million at
December 31, 1998. The working capital deficit was reduced primarily due to
repayment by the Company of $859,000 of the current portion of its long-term
debt and a reduction in current accounts payable and accrued expenses. Current
liabilities at March 31, 1999 include $6.9 million in deferred revenue, which
results principally from payments received from persons who have signed up and
paid in advance for future pager services from Information Quest, subscriptions
to the WIN website or revenues from seminars not yet attended. Current
liabilities at March 31, 1999 also include $5.1 million in taxes payable,
including estimated interest, which are delinquent payments owed on 1998 and
1997 state and federal income taxes. The Company has not made estimated tax
payments with respect to income taxes in 1999. The accrued liabilities do not
include penalties, which may be material.
At March 31, 1999, the Company had payables to related parties of $2.5
million which represent primarily royalties owed to Mr. Cook.
The market value of the Company's marketable securities increased from $2.9
million at December 31, 1998 to $3.9 million at March 31, 1999, due to realized
gains of $585,000 on sales of securities, and additional investments using cash
received upon the sale of real estate by a wholly-owned subsidiary of the
Company. The Company also had an unrealized loss of $127,000 due to lower market
values attributable to the Company's retained portfolio. Inventory decreased
from $3.7 million at December 31, 1998 to $2.6 million at March 31, 1999 due
primarily to the imposition of inventory controls which reduced excess
inventory. At March 31, 1999 the Company also had receivables from related
parties of $2.9 million consisting principally of term loans to employees and
directors, the majority of which are secured by mortgages on real property, as
well as receivables of $1.6 million from companies owned by Wade B. Cook and
from relatives of Mr. Cook.
The Company's principal source of cash in the past has been from the
operation of its investment seminars and sales of tapes, books and other
materials focused on stock market and real estate strategies, financial planning
and personal wealth management. The Company does not have an established bank
line of credit. Cash used by operations was $349,000 in the quarter ended March
31, 1999. This represents
13
<PAGE>
losses from businesses acquired or begun in 1997 and 1998 combined with a
reduction in revenue from the Company's seminars and related businesses in the
quarter ended March 31, 1999.
Cash used for debt repayment was $859,000 for the quarter ended March 31,
1999, compared with $5.8 million in net borrowings during the quarter ended
March 31, 1998 which was primarily attributable to the assumption of notes
during the acquisition of other businesses and properties. In March 1999, the
Company was obligated to make an $895,000 payment on a term loan assumed in
connection with the acquisition of the Best Western McCarran House hotel in
Sparks, Nevada. The Company renegotiated the debt and paid $600,000 plus accrued
interest and a 4% late fee in March 1999, and agreed to pay the balance of
$295,000 on April 10, 1999. The Company subsequently renegotiated the repayment
of the remaining balance and agreed to pay the remaining balance in three
monthly installments of approximately $100,000, including interest. The Company
has paid the installments due in April and May of 1999. The final installment is
due in June 1999.
In addition to cash received from its own operations, the Company is
entitled to receive payment under its license agreement with EPI based on a
percentage of sales, but not less than $35,539 per week which represents the
minimum weekly payment due ($40,385) less 12% payable to Mr. Cook personally
pursuant to a prior understanding between Mr. Cook and the Company. Receipt of
these payments may, as a practical matter, be dependent on the success of the
business in the hands of the buyers. To date, EPI has made all payments when
due.
Non-marketable investments decreased from $9.5 million at December 31, 1998
to $8.8 million at March 31, 1999, due principally to the sale of real estate
owned by one of the Company's wholly-owned subsidiaries and the reinvestment of
a portion of the proceeds in marketable investments.
The Company's non-marketable investments include the following:
Investment
Description of Investment (in thousands)
- ------------------------------------------ -------------------
Oil and gas properties $ 1,325
Hotel and motel investments 5,190
Investments in undeveloped land 792
Private companies -- Various industries 1,650
Less: undistributed income (loss) 178
-------------------
Total non-marketable investments $ 8,779
===================
The Company has continued to fund recently formed and acquired business.
The Company's policy of using available cash to acquire or fund developing
businesses and non-marketable investments and its working capital deficit have
resulted in constraints on liquidity, including failure to pay tax obligations
when due. The Company has significant cash commitments and requirements in
future periods, including its unpaid taxes and other current payables, $3.7
million in current maturities of long-term debt at March 31, 1999 and $672,000
in lease payments accruing through December 31, 1999.
The Company also anticipates spending up to $600,000 over the next six
months for improvements to it hotel properties, but this amount could be
exceeded.*
The Company has not acquired any new businesses in the first quarter 1999.
Instead it has focused on its currently owned and core businesses and repayment
of debt. Cash flow from operations, which has historically been the Company's
principal source of cash for working capital, has decreased in
14
<PAGE>
recent periods due principally to a reduction in revenues attributable to the
Company's seminar segment, continuing operating losses in the Company's hotel
segment and ongoing funding requirements of recently acquired or formed
businesses.
If the Company is required to generate cash for working capital purposes
from its non-marketable investments, it may not be able to liquidate investments
in a timely manner, in a manner that allows the Company to realize the full
value of the investments, or at all. Failure to generate adequate cash resources
for working capital could require the Company to cut back operations, delay
expansion and development projects, or cause the Company to be unable to meet
obligations in a timely manner.
The Company is a party to various government investigations and legal
proceedings. See Part II, Item 1 of this report for descriptions of certain of
these proceedings. Although the Company does not presently anticipate material
liability under any of these matters, 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.* 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 of these
proceedings, the liability could be material.* In addition, if government
agencies charge the Company with violation of certain consumer protection or
other laws and establish such violations, they could seek to require the Company
to pay material penalties or to refund money paid to the Company by seminar
attendees within their jurisdiction 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
Revenue. Revenue from continuing operations decreased from $30.5 million
for the quarter ended March 31, 1998 to $27.2 million the comparable quarter in
1999. The decrease is due primarily to reduced sales in the seminar segment from
$23.4 million during the first quarter of 1998 to $18.3 million during the
quarter ended March 31, 1999. The Company believes that the decline in seminar
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. Revenues from
product sales increased by $269,000 from $6.6 million in the first quarter of
1998 to $7.0 million during the quarter ended March 31, 1999 due to increased
sales of books and other materials marketed by the Company.
Revenue attributable to the Company's hotel operations increased from
$118,000 for the quarter ended March 31, 1998 to $821,000 for the comparable
period in 1999 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 addition, revenue in the pager segment decreased by $144,000
from $752,000 in the quarter ended March 31, 1998 to $608,000 for the comparable
period of 1999. The reduction in pager revenue resulted primarily from a reduced
amounts of pager subscriptions sold by the Company during the first quarter of
1999.
Revenue from the Company's travel segment decreased by $150,000 from
$702,000 during the quarter ended March 31, 1998 to $552,000 for the comparable
period of 1999 principally because the Company no longer requires its seminar
speakers to book their travel arrangements with Ideal Travel, Inc., a
wholly-owned subsidiary of the Company. The other segment, consisting primarily
of the Company's retail bookstores and advertising agency, decreased from $3.3
million in the quarter ended March 31, 1998 to $1.5 million during the
comparable period of 1999 principally from decreased advertising fees paid by
the Company to its wholly-owned advertising agency.
15
<PAGE>
Cost of Revenue. Cost of revenue for the quarter ended March 31, 1999 was
$12.1 million (44% of revenue) compared with $13.0 million (43% of revenue) for
the comparable period in 1998. The overall decrease in cost of revenue in the
quarter ended March 31, 1999 was primarily due to reduced sales in the seminar
segment, more efficient management of inventory and stricter cost controls.
Cost of revenue attributable to the Company's seminar segment declined from
$9.5 million (40% of seminar segment revenue) during the quarter ended March 31,
1998 to $7.5 million (41% of seminar segment revenue) during the quarter ended
March 31, 1999 primarily due to reduced advertising expenses. Cost of product
sales increased from $2.0 (30% of product segment revenue) million in the
quarter ended March 31, 1998 to $3.8 million (53% of product segment revenue)
for the comparable period of 1999 primarily due to costs related to disposal of
excess inventory during the quarter. Cost of revenue in the hotel segment
increased to $311,000 for the quarter ended March 31, 1999 compared with $47,000
for the comparable period of the prior year due to the acquisition of additional
hotel properties during 1998.
Cost of revenue for the pager segment was $64,000 (10% of pager segment
revenue) for the quarter ended March 31, 1999 compared with $240,000 (32% of
pager segment revenue) for the comparable period in 1998. The lower costs in the
pager segment resulted primarily from a reduction in staff. Cost of revenue in
the other segment decreased by $1.6 million from $2.5 million in the quarter
ended March 31, 1998 to $989,000 for the comparable period in 1999 primarily due
the reduced activities of the Company's wholly-owned advertising subsidiary.
Selling, General and Administrative Expenses. Selling, general and
administrative costs for the quarter ended March 31, 1999 were $15.1 million
(55.5% of revenue) compared with $17.3 million (57% of revenue) in the
comparable period in 1998. The decrease in selling, general and administrative
costs is principally the result of stricter cost controls and a reduced
advertising expenses paid to third parties.
Operating Income. Operating income for the quarter ended March 31, 1999 was
$26,000 compared to $298,000 for the comparable period in 1998. The reduction in
operating income resulted principally from reduced revenues combined with
additional expenses related to the Company's recently acquired hotel properties.
Operating income in the seminar segment increased by $1.8 million from a loss of
$839,000 in the quarter ended March 31, 1998 to income of $927,000 in the
quarter ended March 31, 1999. Much of this increase was attributable to a
reduction in advertising fees paid to the Company's advertising subsidiary, as
well as the imposition of stricter cost controls and more aggressive inventory
management, which has reduced operating expenses in this segment. Operating
income attributable to the product sales segment increased by $218,000 from
$177,000 in the quarter ended March 31, 1998 to $395,000 in the quarter ended
March 31, 1999 primarily as a result of reduced operating expenses.
The Company realized a loss in the hotel segment of $289,000 in the quarter
ended March 31, 1999 compared with a loss of $13,000 during the comparable
period of 1998. In addition, operating income in the travel segment decreased by
$175,000 from $248,000 for the quarter ended March 31, 1998 to $73,000 for the
quarter ended March 31, 1999 primarily because the Company no longer requires
its seminar speakers to use its travel agent services. Operating income in the
pager segment increased from $395,000 in the quarter ended March 31, 1998 to
$477,000 for the quarter ended March 31, 1999 primarily due to reduced expenses
associated with a reduction in staff. The other segment realized a loss of
$184,000 in the quarter ended March 31, 1999 compared with operating income of
$330,000 during the comparable period of 1998 primarily because the Company
reduced the amount of advertising fees it paid to its advertising subsidiary.
Other Income. Other income was $1.2 million for the quarter ended March 31,
1999, compared with $840,000 in the comparable period of 1998. During the
quarter ended March 31, 1999, the Company experienced a gain on trading
securities and sales of fixed assets of $416,000, which amount includes
unrealized losses attributable to the Company's real estate investments. 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
16
<PAGE>
securities to market value, thereby reflecting changes in market value through
the income statement in the current period. The other income during the quarter
ended March 31, 1999 also included $765,000 in license fees from EPI, which was
discontinued in June 1998.
Income before income taxes for the quarter ended March 31, 1999 was $1.3
million (4.8% of revenue), compared with $1.1 million (3.7% of revenue) in the
comparable periods in 1998. Provisions for income taxes were $443,000 (1.6% of
revenue) in the quarter ended March 31, 1999, compared with $398,000 (1.3% of
revenue) in the comparable period in 1998. Income taxes reflect 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 receivable. 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.
17
<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:
Litigation with ART and ITEX. On February 4, 1998, the Company filed a
complaint against Associated Reciprocal Traders, Ltd. ("ART") and its parent
corporation ITEX, in the Superior Court of King County in the state of
Washington. In the complaint, the Company alleged that ITEX/ART breached the
terms of an agreement dated December 29, 1995 between the Company and ITEX/ART
(the "Advertising Agreement") by not providing the Company $500,000 worth of
media credits for radio advertising. On the same day, ITEX/ART filed a lawsuit
against the Company alleging that the Company had failed to deliver an aggregate
of 1,800,000 shares of the Company to ART as required under the Advertising
Agreement and seeking to lift the stop transfer order placed on the shares by
the Company. In July 1998, the Court issued a preliminary ruling stating that
the Company is not required to deliver stock certificates to ITEX/ART and may
refuse to allow the stock to be sold until the issue of whether or not ITEX/ART
has breached the contract is decided. ITEX/ART is also seeking to recover lost
profits related to the stock, if any. A trial date has been set for June 21,
1999.
Wade Cook Seminars, Inc. v. Anthony Robbins, Options Management, Inc.,
Charles Mellon, and Robbins Research International, Inc. On October 4, 1996,
WCSI and Mr. Cook filed a complaint in the Superior Court of King County in the
state of Washington against Charles Mellon, Anthony Robbins, Robbins Management,
Inc., and Robbins Research International, Inc. seeking damages and injunctive
relief for unfair competition, misappropriation of trade secrets, breach of a
non-compete agreement and inducement to breach the non-compete agreement. WCSI
and Mr. Cook were granted a voluntary dismissal without prejudice on the claims
relating to the non-compete agreement. On November 26, 1997, the unfair
competition and misappropriation of trade secrets claims were dismissed. The
Company and Mr. Cook appealed the dismissal with the Washington State Court of
Appeals. On April 12, 1999, the Washington State Court of Appeals reversed the
trial court's dismissal of the misappropriation of trade secrets and unfair
competition claims and remanded the case for further proceedings.
Wade B. Cook v. Anthony Robbins, Robbins Research International, Inc. and
Charles Mellon. On June 18, 1997, the Company filed a copyright infringement
suit on behalf of Mr. Cook in the United States District Court, Western District
of Washington, against Tony Robbins and Robbins' Research International, Inc.
seeking damages and injunctive relief. On October 1, 1998, the defendants were
ordered to pay damages in the amount of $655,900. On December 16, 1998, the
United States District Court for the Western District of Washington filed an
order vacating the damages awarded in favor of Mr. Cook. Mr. Cook appealed the
order to vacate judgement.
State of Texas v. Wade B. Cook and Wade Cook Seminars, Inc. On May 1, 1998,
the Attorney General of Texas filed a lawsuit in the District Court of Bexar
County, Texas. The state of Texas contends that the Company has engaged in
false, deceptive and misleading acts and practices in the course of trade and
commerce as defined in the Texas Deceptive Trade Practices-Consumer Protection
Act. Specifically, the state of Texas contends that the Company's sales
contracts fail to have the statutorily required notice of the three day right to
cancel. The petition seeks a temporary injunction, restitution and penalties
against the Company. The Company currently provides its customers seven days to
cancel all sales contracts. The Company believes that it has not intentionally
engaged in false, deceptive and misleading business and has retained local
counsel to contest this lawsuit. 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.
Texas Unauthorized Practice of Law Committee. In March 1998, the District 4
Subcommittee of the Unauthorized Practice of Law Committee in the state of Texas
sent a request to WCSI (f/k/a United Support Association) and two former
employees of the Company asking that the parties sign an agreement
18
<PAGE>
to voluntarily cease and desist in activities which may constitute the
unauthorized practice of law in Texas. The Committee alleged that WCSI offered
to set up Nevada corporations, Living Trusts, Keogh Plans and Corporate Pension
Plans, Family Limited Partnerships, Massachusetts Business Trusts, and
Charitable Remainder Trusts. The Committee further alleged that WCSI advised
clients about legal structuring, legal advantages and legal strategies
associated with such entities, and provided specific proposals for structuring
an individual's assets and businesses. WCSI declined to enter into a voluntary
agreement to cease and desist on behalf of the former employees named in the
request because they no longer work for WCSI. The Company has subsequently
divested EPI, that portion of its business associated with the activities
specified in the request and, in any event, does not believe that such
activities constitute the unauthorized practice of law in Texas.
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 alleges fraud and negligent misrepresentation
relating to the Company's attempted purchase of PDC and requests restitution in
the amount of $420,000 in addition to other relief. PDC has filed counterclaims
against the Company alleging fraud, breach of fiduciary duty and conversion. No
trial date has been set.
State of California vs. Wade Cook Financial Corporation, Wade Cook
Seminars, Inc., Entity Planners, Inc., Information Quest, Inc., Money Chef,
Inc., and Wade B. Cook. On January 11, 1999, a civil suit was filed in the
Superior Court of the state of California by the California State Attorney
General's office alleging violations of Sections 1678.20 through 1693 of the
California Civil Code. The Attorney General alleges that the Company: (1) made
or caused to be made and disseminated untrue or misleading statements in
violation of the California Business and Professions Code; and (2) engaged in
unlawful and unfair or fraudulent practices and unfair, deceptive and untrue or
misleading advertising. The suit seeks: (1) an injunction against the Company
from directly or indirectly engaging in the alleged unlawful behavior, (2)
disgorgement of money or property acquired in violation of state or federal law;
(3) a penalty of $2,500 for each violation, but in any event not less than four
million dollars ($4,000,000) in the aggregate, (4) imposition of a constructive
trust on the money or property acquired in violation of state and federal law;
(5) payment of court costs. The Company intends to defend itself in this
matter.* 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.
Investigation by the U.S. Securities and Exchange Commission. In 1997, the
Company was advised by the Securities and Exchange Commission ("SEC") that it
was the subject of an investigation, In the Matter of Wade Cook Seminars, Inc.,
pursuant to which the SEC is investigating possible violations of Sections 5(a),
5(c) and 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule
10b-5 thereunder, and Sections 203(a) and 206(1) and (2) of the Investment
Advisers Act. The Company's legal counsel responded to the SEC's requests for
documents and other information in late 1997. Since that time, the Company has
not received any contact with the SEC regarding the investigation or its status.
No enforcement action has been taken, and the SEC has advised the Company that
the inquiry should not be construed as an adverse reflection on the merits of
the securities involved or on any person or entity.
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. 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 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
19
<PAGE>
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.*
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. 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 vs. Wade Cook Financial Corporation. On April 16,
1999 the Hewlett Packard Company ("HP") 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. The Company is currently assessing the validity of
the claim. If the Company were to be found liable, payment of any significant
penalty may materially impact the Company's cash flow.*
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the quarter
covered by this report.
Item 5. Other Information.
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
June 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 affect on the Company.
20
<PAGE>
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.
Such upgrades and replacements are expected to be completed by the end of the
second quarter of 1999.*
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 total cost of the Company's year 2000 plan is not material to the
Company's financial condition. The estimated total cost of the plan is expected
to be under $10,000 and is being funded through operating cash flow.* As at
March 31, 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 second 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.
Share Repurchase
On April 2, 1999, the Company repurchased fifty-four thousand one hundred
and eighty two (54,182) shares of Wade Cook Financial Corporation Common Stock
from Curtis E. Ledbetter for a total purchase price of forty thousand dollars
($40,000). In addition to the sale of the shares, Mr. Ledbetter agreed to
relinquish all his contractual rights and liabilities related to Eagle Bay
Resources, Inc., any of its subsidiaries and assigns, Standard American Oil,
Inc., a 49%-owned subsidiary of the Company, and William Skokos. Eagle Bay is
the predecessor of Standard American Oil. William Skokos is the current
President and Chief Executive Officer of Standard American Oil.
Amendment to Open-Ended Product Agreement With Wade B. Cook
On May 7, 1999, and effective as of January 1, 1999, the Company and Wade
B. Cook entered into an amendment to the Open-Ended Product Agreement originally
dated March 20, 1998 and amended on November 13, 1998 (the "Amendment"). The
Amendment modifies royalties payable to Mr. Cook
21
<PAGE>
under the agreement from 10% of gross sales of all licensed products to a
minimum yearly royalty of $5,000,000 or five percent (5%) of gross sales revenue
of all licensed products, whichever is greater. In addition, the Amendment
provides that the Board of Directors may authorize additional royalties of up to
five percent (5%) of gross sales revenue, in its sole discretion. Under the
terms of the Amendment, Mr. Cook is entitled to take draws against his royalties
up to a maximum of $1,250,000 per quarter.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Amendment to Open-Ended Product Agreement between Wade Cook
Financial Corporation and Wade B. Cook
27.1 Financial Data Schedule
(b) Reports on Form 8-K
(1) On February 10, 1999, the registrant filed a current report
on Form 8-K announcing that the state of California suit
filed against the registrant for alleged violations of
Sections 1678.20 to 1693 of the California Civil Code and
also announcing the resignation of Burr Cline from the Board
of Directors.
(2) On February 24, 1999, the registrant filed a current report
on Form 8-K announcing the resignations of Dan Ditto and
Eric Marler as members of the Board of Directors of the
Company.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Form 10-Q, period ending March 31, 1999 to be
signed on its behalf by the undersigned duly authorized.
WADE COOK FINANCIAL CORPORATION
May 14, 1999 /s/ Wade B. Cook
------------------------------------------
Wade B. Cook, Chief Executive Officer
May 14, 1999 /s/ Richard Smith
------------------------------------------
Richard Smith, Chief Financial Officer
Exhibit 10.1
AMENDMENT TO OPEN-ENDED PRODUCT AGREEMENT
WHEREAS, on March 20, 1998 Wade Cook Financial Corporation, a Nevada corporation
("WCFC") and/or its assigns and Wade B. Cook, a resident of Washington State
("Cook") and/or his assigns entered into an Open-Ended Product Agreement (the
"Agreement") whereby Cook provided WCFC with a non-exclusive worldwide license
to all Cook intellectual property as listed in Exhibit A of the Agreement.
Whereas, the Agreement provided for a royalty rate of ten percent (10%) of all
gross sales for Products licensed thereunder.
Whereas, Cook is a substantial shareholder in WCFC and Cook has a vested
interest in the continuing profitability of WCFC.
NOW THEREFORE, in consideration of the foregoing recitals and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree that effective as of January 1,
1999 Paragraph 5 of the Agreement shall be deleted in its entirety and replaced
with the following:
5. Royalties
WCFC shall pay Cook a minimum yearly royalty that is the greater of
$5,000,000 or five percent (5%) of gross sales revenue received from sales
of Products listed hereunder minus refunds, returns, and sales taxes
collected, if any ("Gross Sales Revenue"). No royalties shall be due on
Products given away for free. Royalties shall be paid quarterly on or
before May 1, August 1, November 1 and February 1 for all Gross Sales
Revenue received in the quarter ending the previous March 31, June 30,
September 30, and December 31, respectively. Cook shall be entitled to take
draws against royalties up to a maximum of $1,250,000 per quarter.
Beginning the first quarter of the year 2000, and during the first quarter
of every year throughout the term of this Agreement, WCFC's Compensation
Committee shall meet to determine whether an additional royalty of up to
another five percent (5%) of Gross Sales Revenue shall be paid to Cook. In
determining whether to pay such additional royalties, the Compensation
Committee shall consider, among other things, WCFC's audited net income
before royalty expenses for the previous year and WCFC's cash flow
requirements at the time the possible payment of additional royalties is
being considered. The Compensation Committee shall submit its decision
before the end of the first quarter each year to WCFC's Board of Directors.
Additional royalties may be paid only if such payment is approved by a
majority vote of the members of the Board of Directors who have no direct
personal financial interest in the payment of such additional royalties,
which vote shall be held before the end of the first quarter each year.
WCFC may pay any such additional royalties approved by the Board of
Directors as WCFC's cash flow needs allow, but in no event less often than
annually for each year during the term hereof.
1
<PAGE>
Any capitalized terms not defined herein shall have the same meaning
ascribed to such terms in the Agreement. The other terms and conditions of
the Agreement remain unchanged, binding, and in effect.
EXECUTED in duplicate this 7th day of May, 1999.
WADE COOK FINANCIAL CORPORATION,
a Nevada corporation
By: /s/ Richard Smith
------------------------------------
Name: Richard Smith
Title: Chief Financial Officer
/s/ Wade B. Cook
------------------------------------
Wade B. Cook
2
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Mar-31-1999
<CASH> 2,114
<SECURITIES> 3,866
<RECEIVABLES> 4,194
<ALLOWANCES> 0
<INVENTORY> 2,564
<CURRENT-ASSETS> 13,152
<PP&E> 27,719
<DEPRECIATION> 0
<TOTAL-ASSETS> 57,675
<CURRENT-LIABILITIES> 27,635
<BONDS> 0
0
0
<COMMON> 644
<OTHER-SE> 19,832
<TOTAL-LIABILITY-AND-EQUITY> 57,675
<SALES> 0
<TOTAL-REVENUES> 27,207
<CGS> 12,122
<TOTAL-COSTS> 12,122
<OTHER-EXPENSES> 15,059
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62
<INCOME-PRETAX> 1,266
<INCOME-TAX> 443
<INCOME-CONTINUING> 826
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 826
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0
</TABLE>
