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, 2000
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to __________________
Commission file number 000-29342
WADE COOK FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 91-1772094
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
14675 Interurban Avenue South
Seattle, Washington, 98168
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 901-3000
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed by section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of outstanding shares of the registrant's common stock, $0.001 par
value, as of June 30, 2000 was 64,058,948 shares.
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WADE COOK FINANCIAL CORPORATION
Form 10-Q
Index
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Page
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PART I -- FINANCIAL INFORMATION...........................................................................1
Item 1: Financial Statements.............................................................................1
Item 2: Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................................9
Item 3: Quantitative and Qualitative Disclosures About Market Risk......................................16
PART II -- OTHER INFORMATION...........................................................................16
Item 1. Legal Proceedings...............................................................................16
Item 2. Changes in Securities...........................................................................16
Item 3. Defaults Upon Senior Securities.................................................................16
Item 4. Submission of Matters to a Vote of Security Holders.............................................17
Item 5. Other Information...............................................................................17
Item 6. Exhibits and Reports on Form 8-K................................................................17
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PART I -- FINANCIAL INFORMATION
Item 1: Financial Statements
Wade Cook Financial Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
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(in thousands) June 30, 2000 December 31, 1999
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Assets:
Current Assets:
Cash and cash equivalents $ 78 $1,854
Marketable securities 1,072 1,914
Receivables, trade 1,774 1,212
Inventory 2,757 2,597
Notes receivables, Employees, Current Portion 113 119
Receivables, related parties 28 124
Deferred tax assets 456 456
Income tax refund receivable 1,832 1,199
Notes receivable 362 362
Prepaid 311 363
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Total current assets 8,780 10,200
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Property, plant and equipment, net of depreciation 11,279 12,098
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Goodwill, net of amortization 2,055 2,140
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Other assets:
Other investments 5,270 4,213
Deposits 0 23
Notes receivable - employees 2,475 2,361
Notes receivable 2,050 2,050
Due from related parties 22 520
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Total other assets 9,817 9,167
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Total assets $31,931 $33,605
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(in thousands) June 30, 2000 December 31, 1999
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Liabilities and Shareholders' Equity:
Current liabilities:
Current portion of long-term debt 717 730
Accounts payable and accrued expenses 6,424 7,530
Margin loans in investment accounts 254 179
Payroll and other accrued taxes 285 134
Accrued income taxes 0 108
Deferred tax liabilities 0 0
Deferred revenue 2,745 2,441
Payables, related parties 1,725 1,867
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Total current liabilities 12,150 12,989
Long-term liabilities:
Long-term debt, deferred revenue 450 372
Long-term debt 3,370 3,455
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Total long-term liabilities 3,820 3,827
Total liabilities 15,970 16,816
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Minority interest 401 404
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Shareholders' Equity
Preferred stock - -
Common stock 64 64
Paid-in capital 4,702 4,845
Prepaid advertising (170) (170)
Unearned Compensation - (56)
Retained Earnings 11,566 12,239
--------------- -------------------
16,162 16,922
Less: common stock in treasury at cost: (603) (537)
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Total shareholders' equity 15,559 16,385
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Total liabilities, minority interest, and stockholders'
Equity $31,931 $33,605
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Wade Cook Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
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For the Three Months Ended For the Six Month Ended
------------------------------------- ---------------------------------------
(in thousands, except per share data) June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue, net of returns and discounts $15,774 $24,841 $34,921 $52,048
---------------- ----------------- -------------- ---------------
Costs and expenses:
Cost of revenue 4,769 11,546 11,205 23,667
Selling, general and administrative 11,732 14,614 24,330 29,673
---------------- ----------------- -------------- ---------------
Total operating costs 16,501 26,160 35,535 53,340
---------------- ----------------- -------------- ---------------
Income from operations (727) (1,319) (614) (1,292)
---------------- ----------------- -------------- ---------------
Other income (expense):
Interest and dividends 70 52 121 126
Gain (loss) on Marketable securities (1,652) 669 (1,437) 1,154
Interest expense (165) - (227) (62)
Gain on Non-Marketable Securities 21 69 54 69
Other 346 950 787 1,693
---------------- ----------------- -------------- ---------------
Total other income (expenses) (1,380) 1,740 (702) 2,980
---------------- ----------------- -------------- ---------------
Income before income taxes (2,107) 421 (1,316) 1,688
---------------- ----------------- -------------- ---------------
Provision for income taxes (tax (866) 165 (639) 609
benefits)
Minority Interest - 33 3 36
---------------- ----------------- -------------- ---------------
Income from continuing operations $(1,241) $289 $(674) $1,115
---------------- ----------------- -------------- ---------------
Net income $(1,241) $289 $ (674) $1,115
================ ================= ============== ================
Earnings per share
Income from continuing operations $- $0.01 $ - $0.02
Income from discontinuing operations - - - -
Income during phase-out period - - - -
---------------- ----------------- ------------------ ---------------
Net income $0.01 $- $- $0.02
================ ================= ================== ===============
Weighted average number of shares 64,064 64,064 64,064 64,064
================ ================= ================== ===============
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Wade Cook Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flow
(Unaudited)
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Six Months Ended
----------------------------------------------------
(in thousands) June 30, 2000 June 30, 1999
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<S> <C> <C>
Cash provided by (used in) operations ($403) $(150)
Cash provided by (used in) investing activities (1,354) 1,862
Cash used in financing activities:
Net (payments) borrowings (22) (1,661)
------------------------ -----------------------
Net increase (decrease) in cash ($1,779) $51
======================== ========================
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Wade Cook Financial Corporation and Subsidiaries
Notes to Interim Financial Statements
June 30, 2000
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
six-month period ended June 30, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000. 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, 1999.
2. Earnings per Share
Basic earnings per share are computed by dividing net income available to
common stockholders by the weighted average number of common shares
outstanding during the period.
3. Discontinued Operations
In June 1998, the Company, through SMIL entered into a Stock
Purchase/Licensing Agreement pursuant to which it divested its interest in
Entity Planners, Inc. ("EPI") in exchange for $250,000. Under the Licensing
portion of the Agreement, the Company entered into a five year licensing
agreement pursuant to which the Company was entitled to receive up to an
aggregate of $17,470,000 in licensing fees. Berry, Childers, & Associates
was the purchaser of EPI.
4. Licensing Agreement
After the sale of EPI to Berry, Childers, and Associates, EPI was
subsequently sold to the Anderson Law Group, P.C. ("ALG"). In June of 1999,
the five year licensing agreement with EPI was mutually terminated by the
parties and the Company entered into a temporary licensing arrangement with
EPI. Under the temporary licensing arrangement, the Company receives
payments in the form of marketing fees equal to 35% of EPI's gross
proceeds. The Company currently conducts business in association with EPI
under the terms of the temporary licensing arrangement.
5. Contingencies
The Company is subject to various legal proceedings and claims, which were
discussed in detail in the 1999 Form 10K, and other documents previously
filed with the Securities and Exchange Commission. 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 many of the 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
5
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operating segments, based on the approach that management utilizes to
organize the segments for management reporting and decision making.
The Company operates through five business segments: Seminars, Product
Sales, Pager Services, Travel Services, and Other. The Seminar segment
primarily conducts educational seminars on strategies for trading in the
stock market and buying and selling real estate. The Product Sales segment
includes the publishing and distribution of books, videotapes, audio tapes,
and written materials designed to teach various trading and cash flow
strategies for trading in the stock market, asset protection and
accumulation techniques. 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, interest in real estate ventures, and an
inter-company advertising agency.
Until December 31, 1999, the Company maintained a Hotel segment due to its
participation in the management and operation of a number of hotels.
However, during 1999 the Company disposed of its interests in such hotels,
and thereby ended its active involvement in the hospitality industry.
Although the Company retains minority interests in three hotels, the
Company no longer maintains separate Hotel segment accounting. Presently,
the remaining minority hotel interests are accounted for under Other
Investments.
Information on the Company's business segments for the three months ended
June 30,
<TABLE>
(in thousands) 2000 1999 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
Net revenues and sales
Seminars $12,973 $16,562 $16,069
Product sales 2,624 5,783 6,247
Hotels - 992 763
Pager service 188 353 1,334
Travel service 450 710 598
Other 641 1,621 1,967
Less: inter-company sales (1,102) (1,180) (2,106)
--------------- --------------- ---------------
$15,774 $24,841 $24,872
=============== =============== ===============
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6
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<TABLE>
(in thousands) 2000 1999 1998
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Cost of sales
Seminars $4,144 $7,145 $5,314
Product sales 1,141 3,062 2,731
Hotels - 396 379
Pager service 87 26 240
Travel service - 15 33
Other 394 1,095 1,784
Less: inter-company sales (997) (193) (1,007)
--------------- --------------- ---------------
$4,769 $11,546 $9,474
=============== =============== ===============
Operating income
Seminars $(310) $(527) $66
Product sales (332) (432) 27
Hotels - (184) (3)
Pager service 25 171 345
Travel service (78) 102 11
Other (31) (361) (177)
Less: inter-company sales - (88) -
--------------- --------------- ---------------
$(727) $(1,319) $269
=============== =============== ===============
</TABLE>
Information on the Company's business segments for the six months ended
June 30,
<TABLE>
(in thousands) 2000 1999 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
Net revenues and sales
Seminars $28,421 $34,842 $39,517
Product sales 5,266 12,797 12,887
Hotels - 1,813 881
Pager service 526 961 2,086
Travel service 1,134 1,262 1,300
Other 1,407 3,076 5,303
Less: inter-company sales (1,833) (2,703) (5,249)
--------------- --------------- ---------------
$34,921 $52,048 $56,725
=============== =============== ===============
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7
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<TABLE>
(in thousands) 2000 1999 1998
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<S> <C> <C> <C>
Cost of sales
Seminars $9,314 $14,349 $14,768
Product sales 2,523 6,823 4,724
Hotels - 707 426
Pager service 197 90 480
Travel service - 15 33
Other 862 2,084 4,329
Less: inter-company sales (1,691) (401) (2,496)
--------------- --------------- ---------------
$11,205 $23,667 $22,264
=============== =============== ===============
Operating income
Seminars $(231) $(3) $660
Product sales (396) (496) 204
Hotels - (473) (16)
Pager service 132 648 1,508
Travel service (12) 175 259
Other (37) (603) 153
Less: inter-company sales (70) (540) (639)
--------------- --------------- ---------------
$(614) $(1,292) $2,129
=============== =============== ===============
Net Identifiable assets
Seminars $ - $ - $ -
Product sales 1,082 2,301 2,563
Hotels - 13,335 9,301
Pager service 743 1,441 996
Travel service 156 39 9
Other 1,350 1,502 1,135
--------------- --------------- ---------------
Segmented assets 3,331 18,618 14,004
Corporate assets 4,832 9,063 8,342
--------------- --------------- ---------------
Total identifiable assets $8,163 $27,681 $22,346
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8. Subsequent Events
8
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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, 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, 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, 1999. 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, Stock Market Institute of Learning ("SMIL" formerly known as Wade
Cook Seminars, Inc.), 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. These core businesses are complemented by 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.
SMIL hosts the Wealth Information Network ("WIN"), an Internet web site that
allows subscribers to log on and obtain information related to the stock market
at http://www.wadecook.com. Two of the Company's operating subsidiaries, Left
Coast Advertising, Inc., and Lighthouse Publishing Group, Inc., conduct
advertising and publishing services respectively.
Also in 1998, the Company disposed of the business Entity Planners, Inc.
("EPI"), an entity formation business. Berry, Childers, and Associates was the
purchaser. In connection with the sale of EPI, the Company granted a five year
license to the purchasers of EPI to use certain intellectual property. After the
sale of EPI to Berry, Childers, and Associates, EPI was subsequently sold to the
Anderson Law Group, P.C. ("ALG"). In June of 1999, the five year licensing
agreement with EPI was mutually terminated by the parties and the Company
entered into a temporary licensing arrangement with EPI. Under the temporary
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licensing arrangement, the Company receives payments in the form of marketing
fees equal to 35% of EPI's gross proceeds. The Company currently conducts
business in association with EPI under the terms of the temporary licensing
arrangement.
The Company regularly evaluates other acquisition and investment opportunities,
and additional cash resources may be devoted to pursuing such opportunities. In
the fourth quarter of 1999, the Company, through SMIL, executed agreements to
invest in Surfbuzz.com, Inc. The Company purchased 450,000 shares of
Surfbuzz.com, Inc. common stock for $450,000 through a private placement. In
January 2000, the Company purchased an additional 100,000 shares of
Surfbuzz.com, Inc. common stock for an additional $100,000. The investment was
accounted for using the Cost Method. In May of 2000, the Company was informed by
the management of Surfbuzz.com, Inc., that Surfbuzz.com, Inc. was a defendant of
a patent infringement suit with respect technology integral to the operation of
that business. As a result of the patent infringement suit, operations at
Surfbuzz.com, Inc. were halted. Currently, the Company is assessing its options
in the matter.
During 1998, the Company acquired majority interests in several hotel properties
located in the western United States in exchange for cash, and in some cases, in
exchange for relinquishing or reducing certain interests in other properties. In
May 1999, the Company sold its majority interest in the Fairfield Inn in Provo,
Utah for $800,000. The Company received $600,000 of the purchase price in the
form of cash, debt assumption, and the payment of management fees. The remainder
of the purchase price was paid in the form of a parcel of undeveloped land
appraised at $200,000 which is located in Temp View Quail Valley Drive, Provo,
Utah. During December 1999, the Company sold its majority hotel interests in the
Bestwestern Macarren House, the Four Points by Sheraton, St. George, and the
Airport Ramada Suites. The Company sold the three hotels for a total sales price
of $12,700,000, of which $9,890,000 represented debt assumed by the buyer. As a
result of the sale of these hotel interests, the Company is no longer actively
engaged in the hospitality industry, and does not maintain separate Hotel
Segment accounting.
The Company retains minority interests in the Hampton Inn/Fairfield Inn in
Murray, UT, Woods Cross Fairfield Inn in Woods Cross, UT, and the Park City
Hampton Inn & Suites in Park City, UT. The minority interests, which are 12%,
7%, and 4% respectively, are held through the Company's ownership interest in
Western States Lodging.
Liquidity and Capital Resources
At June 30, 2000, the Company had current assets and current liabilities in
the amounts of $8.8 million and $12.1 million, respectively, resulting in a
working capital deficit of $3.3 million. The working capital deficit at December
31, 1999 was $2.8 million. The primary reason for the increase in the capital
deficit was the Company's use of cash assets to pay accounts payable and to fund
continuing operations, and a decrease in the value of the Company's marketable
securities. Current liabilities at June 30, 2000 include $2.7 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. The Company has not made estimated tax
payments with respect to the year 2000 income taxes.
At June 30, 2000, the Company had payables to related parties in the amount
$1.7 million, which primarily represents royalties owed to Mr. Wade B. Cook.
The market value of the Company's marketable securities decreased by
$800,000 from $1.9 million at December 31, 1999 to $1.1 million at June 30,
2000, due primarily to a general downturn in the securities market which
resulted in a reduction in the over-all net worth of securities and options held
in the Company's brokerage accounts. Inventory increased by $200,000 from $2.6
million at December 31, 1999 to $2.8 million at June 30, 2000 primarily as a
result of the development of new product. At June 30, 2000 the Company also had
current receivables from related parties in the amount of $141,000 consisting
primarily of term loans to employees and directors, the majority of which are
secured by mortgages on real property.
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The Company's principal source of cash has been from the operation of its
educational seminars and sales of related tapes, books and other materials. The
Company does not have an established bank line of credit. There was a loss from
continuing operations of ($700,000) for the six months ended June, 2000, as
compared to ($1.1) million as of June 30, 1999. This improvement is primarily
attributable to management's implementation of cost controls, restructuring of
the Seminar segment, and the more efficient use of existing Company resources.
Cash in the amount of $100,000 was used toward debt repayment for the six
months ended June 30, 2000, compared with $1.7 million for the same period of
1999. This reduction in comparable debt repayment is primarily attributable the
elimination obligations associated with the Company's discontinued Hotel
segment.
In addition to cash received from its own operations, the Company is
entitled to receive payments under a temporary marketing arrangement with ALG,
the current owner of EPI, which provides for payments to the Company equal to
35% of EPI's gross proceeds. The agreement may be terminated at any time.
Receipt of these payments may, as a practical matter, be dependent on the
success of the business in the hands of ALG. To date, ALG has made all payments
when due.
Other investments increased by $1.1 from $4.2 million at December 31, 1999
to $5.3 million at June 30, 2000, due to the purchase of stock in three private
companies: Ceristar, Inc, E-automate, Inc., and Surfbuzz.com, Inc.
The Company's Other investments include the following:
Investment
Description of Investment (in thousands)
----------------------------------------------------------------
Oil and gas properties $691
Hotel and motel investments 601
Investments in undeveloped land 2,064
Private companies -- Various industries 1,914
----------------
Total non-marketable investments $5,270
================
The Company has tried to focus on its core and currently owned businesses,
the repayment of debt and making additional expenditures to fund existing
operations, including advertising in the six months ended June 30, 2000. Cash
flow from operations, which has historically been the Company's principal source
of cash for working capital, has shown periods of improvement during the six
months ended June 30, 2000, principally due to efforts of management to contain
costs and reduce discretionary spending. However, cash flow remains insufficient
to meet all of the Company's operational needs.
The Company continues to fund existing 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 some
obligations as they have come due. The Company has in some cases not paid
accounts payable and refunds in a timely manner. However, as of June 30, 2000,
the Company had approximately $6.4 million in accounts payable, a decrease of
$1.1 million from the $7.5 million in accounts payable due as of December 31,
1999.
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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, as well as other public documents filed with the Securities and
Exchange Commission. The Company has not yet made an estimate of its potential
exposure in several pending proceedings and investigations or determined the
impact of adverse results in such matters on its financial statements.* The
outcome of these matters is difficult to predict and subject to uncertainty, and
the legal fees and other costs involved may be material.* Adverse publicity
resulting from these matters may be negatively affecting the Company's business,
and further adverse publicity could have further negative effects.* Were the
Company 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 affect the
Company's financial condition or results of operations.*
Results of Operations
Three Months Ended June 30, 2000 Compared with the Three Months Ended June 30,
1999
Revenue. Revenue from continuing operations was $15.8 million for the
quarter ended June 30, 2000, compared with $24.8 in the second quarter of 1999.
The decrease of $9 million is primarily attributable to lower sales in the
Company's Seminar, Product Sales, Hotel, and Other Segments. The Company
suspects that its business may be seasonal with seasonal dips in sales occurring
during the summer months as well as at the year end; however, currently the data
is inconclusive. During the second quarter of 2000, sales in Seminar segment
decreased by $3.6 million from $16.6 million second quarter of 1999 to $13
million for a comparable period in 2000. This decrease was a result of
restructuring of the Seminar segment which resulted in a reduction of the
over-all number of seminars presented, volatility in the stock market, negative
press coverage, and to some extent the saturation of the Company's services in
certain markets. Revenues from product sales decreased by $3.2 million from $5.8
million during the second quarter of 1999 to $2.6 million during a comparable
period in 2000. The decrease in Product Sales is primarily due to reduced demand
for existing titles promoted by the Company's publishing subsidiaries, the
closing of several of the Company's retail locations, negative press coverage,
and restructuring of the Seminar segment (discussed above) where the Company's
products are marketed and sold.
The Company discontinued the operation of its Hotel segment as of December
31, 1999 and as a result did not realize revenue in that Segment during the
second quarter of 2000. Revenue in the pager segment decreased by $200,000 from
$400,000 for the quarter ended June 30, 1999 to $200,000 for the quarter ended
June 30, 2000. The decrease in pager revenue resulted primarily from reduced
demand for one-way paging technology, reduced renewal rates, and restructuring
of the Seminar segment (discussed above) where the Pager products are marketed
and sold.
Revenue from the Company's travel segment decreased by $200,000 from
$700,000 the quarter ended June 30, 1999 to $500,000 for the comparable period
of 2000. The decrease is attributable to reduced travel bookings. Revenues in
the Other segment, consisting primarily of the Company's real estate development
operations, retail sales locations, and advertising agency, decreased by $1
million from $1.6 the quarter ended June 30, 1999 to $600,000 during the
comparable period in 2000. The decrease in Other
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revenues is principally due to a restructuring of the Other segment which
resulted in the elimination of six retail store locations.
Cost of Revenue. Cost of revenue decreased by $6.7 million from $11.5
million for the quarter ended June 30, 1999 to $4.8 million in the quarter ended
June 30, 2000. This decrease in cost of revenue is primarily due to management's
recent implementation of cost controls, restructuring of the Company's Seminar
segment, the discontinuance of unprofitable ventures and segments, the more
efficient use of existing Company resources, and a lower volume of sales in the
Company's operating segments.
Cost of revenue attributable to the Company's Seminar segment decreased by
$3 million from $7.1 million for the quarter ended June 30, 1999 to $4.1 million
for the comparable quarter in 2000 primarily due to management's recent
implementation of cost controls, restructuring of the Company's Seminar segment,
the discontinuance of unprofitable ventures and segments, the more efficient use
of existing Company resources, and a lower volume of sales in the Company's
Seminar segment. Cost of Product Sales decreased by $2 million from $3.1 million
for the quarter ended June 30, 1999 to $1.1 million for the comparable period of
2000 primarily due to the same factors discussed with respect to the Cost of
revenue in the Seminar segment.
The Company discontinued the operation of its Hotel segment as of December
31, 1999 and as a result did not incur any cost in that Segment during the
second quarter of 2000. The costs of revenue for the Pager services segment
increased by $61,000 from $26,000 for the quarter ended June 30, 1999 to $87,000
for the quarter ended June 30, 2000 due to research and development costs
associated with the development of existing pager technology. The change in the
cost of revenue for the Travel Service segment was insignificant for the quarter
ended June 30, 2000. The Other segment cost of revenue decreased by $700,000
from $1.1 million the quarter ended June 30, 1999 to $400,000 for the comparable
period in 2000. The decrease is primarily due to restructuring in the Other
segment which resulted in the elimination of six retail sales locations.
Selling, General and Administrative Expenses. Selling, general and
administrative costs for the three months ended June 30, 2000 were $11.7 million
compared with $14.6 million in the comparable period in 1999. The decrease of
$2.9 million is primarily attributable to the implementation of cost controls by
management, more efficient use of Company resources, and a reduction in certain
legal and accounting expenses.
Operating Income. The Company's use of cash in operations improved by
$600,000 from ($1.3) million for the quarter ended June 30, 1999 to ($700,000)
for the quarter ended June 30, 2000. This improvement is the principal result of
less cash being consumed in the operation of the Seminar, Products Sales, and
Other segments combined with the elimination of the Hotel segment at December
31, 1999 and six retail sales locations.
Cash used in the operation of the Seminar segment improved by $200,000 from
($500,000) for the quarter ended June 30, 1999 to ($300,000) for the comparable
period in 2000. Much of this improvement was attributable to more efficient use
of existing resources, the implementation of cost controls, budgeting, and
restructuring in the Seminar segment. Operating income the Product Sales segment
improved by $100,000 from ($400,000) for the quarter ended June 30, 1999 to
($300,000) for the comparable period in 2000. The improvement is primarily
attributable to more efficient use of existing resources, the implementation of
cost controls, and budgeting. Improvements made to Company's over-all operating
income figures for the Seminar and Product Sales segment, through a decrease in
the over-all cost of revenue, were to some extent offset by increases in
advertising and marketing expenses during the three months ended June 30, 2000.
The Company discontinued the operation of its Hotel segment as of December
31, 1999 and as a result did not experience any gain or loss in operation for
that Segment during the second quarter of 2000. Operating income in the Pager
segment decreased by $146,000 from $171,000 in the quarter ended June 30, 1999
to $25,000 for the quarter ended June 30, 2000 primarily due to reduced sales
and increased expenditures for research and development of existing pager
technology. Operating income in the Travel Services segment decreased by
$180,000 from $102,000 for the quarter ended June 30, 1999 to ($78,000)
13
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for the comparable period in 2000. The decrease is primarily attributable to the
expenditures made by the Company to develop Travel segments compliment of
services, and related advertising expenses. Operating income in the Other
segment improved by $330,000 from ($361,000) the quarter ended June 30, 1999 to
($31,000) for the quarter ended June 30, 2000. The improvement is primarily due
to restructuring which resulted in the elimination of six retail locations.
Improvements in the Other segment were to some extent offset by initial capital
expenditures associated with the Company's continued participation in the
development of residential property.
Other Income (Expenses). Total other expense was ($1.4) million for the
three months ended June 30, 2000, compared with income of $1.7 million for a
comparable period in 1999. This is primarily attributable to losses on
Marketable Securities. During the quarter ending June 30, 2000, the Company
experienced a realized and unrealized loss on the trading of securities in the
amount of ($1.7) million compared with a gain of $700,000 in a comparable period
of 1999. The losses on the Company's marketable securities are due primarily to
an over-all downturn in the equities market. 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.
The Company experienced loss from continuing operations for the quarter
ending June 30, 2000 of ($1.2) million, compared with income of $300,000 for the
comparable period in 1999. The Company has not made any tax payments at this
time due to the net operating loss. However, the Company intends offset any
federal income taxes accruing during the year 2000 with its Income Tax Refund
Receivable.
Six Months Ended June 30, 2000 Compared with the Six Months Ended June 30, 1999
Revenue. Revenue from continuing operations was $34.9 million for the six
months ended June 30, 2000, compared with $52.0 million as of June 30, 1999. The
decrease of $17.1 million is primarily attributable to lower sales in the
Company's Seminar, Product Sales, Hotel, and Other Segments. The Company
suspects that its business may be seasonal with seasonal dips in sales occurring
during the summer months as well as at year end; however, currently the data is
inconclusive. During the first six months of 2000, sales in the Seminar segment
decreased by $6.4 million from $34.8 million in the first six months of 1999 to
$28.4 million in 2000. This decrease was a result of restructuring of the
Seminar segment which resulted in a reduction of the over-all number of seminars
presented, volatility in the stock market, negative press coverage, and so some
extent the saturation of the Company's services in certain markets. Revenues
from product sales decreased by $7.5 million from $12.8 million in the first six
months of 1999 to $5.3 million during the first six months of 2000. The decrease
in Product Sales is primarily due to reduced demand for existing titles promoted
by the Company's publishing subsidiaries, the closing of several of the
Company's retail locations, negative press coverage, and restructuring of the
Seminar segment (discussed above) where the Company's products are marketed and
sold.
The Company discontinued the operation of its Hotel segment as of December
31, 1999 and as a result did not realize revenue in that Segment during the
first six months of 2000. Revenue in the pager segment decreased by $500,000
from $1 million at June 30, 1999 to $500,000 for the comparable period of 2000.
The decrease in pager revenue resulted primarily from a reduced demand for
one-way paging technology, reduced renewal rates, and restructuring of the
Seminar segment (discussed above) where the Pager products are marketed and
sold.
Revenue from the Company's Travel segment decreased by $200,000 from $1.3
million at June 30, 1999 to $1.1 million at June 30, 2000. The decrease is
primarily attributable reduced travel bookings in the first quarter. The Other
segment, consisting primarily of the Company's real estate development
operations, retail sales locations, and advertising agency, decreased by $1.6
million from $3 million at June 30, 1999 to $1.4 million during the comparable
period in 2000. The decrease in revenues is principally due a restructuring of
the Other segment which resulted in the elimination of six retail store
locations.
14
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Cost of Revenue. Cost of revenue decreased by $12.5 million from $23.7
million for the six months ended June 30, 1999 to $11.2 million for the six
months ended June 30, 2000. This decrease in cost of revenue is primarily due to
management's implementation of cost controls, restructuring of the Company's
Seminar segment, the discontinuance of unprofitable ventures and segments, the
more efficient use of existing Company resources, and a lower volume of sales in
the Company's operating segments.
Cost of revenue attributable to the Company's Seminar segment decreased by
$5.0 million from $14.3 million for the six months ended June 30, 1999 to $9.3
million for the comparable quarter in 2000 primarily due to management's
implementation of cost controls, restructuring of the Company's Seminar segment,
the discontinuance of unprofitable ventures and segments, the more efficient use
of existing Company resources, and a lower volume of sales in the Company's
Seminar segment. Cost of Product Sales decreased by $4.3 from $6.8 million for
the six months ended June 30, 1999 to $2.5 million for the comparable period of
2000 primarily due to the same factors discussed with respect to the Cost of
revenue in the Seminar segment.
The Company discontinued the operation of its Hotel segment as of December
31, 1999 and as a result did not incur any costs in that Segment during the
first six months of 2000. The cost of revenue for the Pager services segment
increased by $107,000 from $90,0000 for the six months ended June 30, 1999 to
$197,000 for the six months ended June 30, 2000 due to research and development
costs associated with the development of existing pager technology. The cost of
revenue for Travel Service segment did not show significant change from prior
comparable periods. The Other segment cost of revenue decreased by $1.2 million
from $2.1 million for the six months ended June 30, 1999 to $900,000 for the six
months ended June 30, 2000. The decrease is primarily due to restructuring in
the Other segment which resulted in the elimination of six retail sales
locations.
Selling, General and Administrative Expenses. Selling, general and
administrative costs for the six months ended June 30, 2000 were $24.3 million
compared with $29.7 million in the comparable period in 1999. The decrease of
$5.4 million in such costs is primarily attributable to the implementation of
cost controls by management, more efficient use of Company resources, and a
reduction in certain legal and accounting expenses.
Operating Income. The Company's operating income improved by $700,000 from
($1.3) million for the period ended June 30, 1999 to ($600,000) for the period
ended June 30, 2000. The improvement in operating income is the principal result
of a decrease in the amount of cash being consumed in the operation of the
Seminar, Products Sales, and Other segments combined with the elimination of the
Hotel segment at December 31, 1999, the closing of certain retail locations, and
the contribution of the Company's Pager and Travel segments.
Operating income used by the Seminar segment increased by $228,000 from
($3,000) for the period ended June 30, 1999 to ($231,000) for the period ended
June 30, 2000. This increase is primarily attributable to increased spending on
marketing and advertising. Operating income attributable to the Product Sales
segment improved by $100,000 from ($500,000) for the period ended June 30, 1999
to ($400,000) for the period ended June 30, 2000. The improvement is primarily
the result of more efficient use of existing resources, the implementation of
cost controls, and budgeting. Improvements to Company's over-all operating
income figures for the Seminar and Product Sales segment, made through a
decrease in the over-all cost of revenue, were to some extent offset by
increases in advertising and marketing expenses during the six month ended June
30, 2000.
The Company discontinued the operation of its Hotel segment as of December
31, 1999 and as a result did not experience any gain or loss in operation for
that Segment during the first six months of 2000. Operating income in the Pager
segment decreased by $500,000 from $600,000 in the six months ended June 30,
1999 to $100,000 for the six months ended June 30, 2000 primarily due to an
over-all reduction in sales from prior comparable periods combined with research
and development costs. In addition, operating income in the Travel Services
segment decreased by $187,000 from $175,000 for the six months ended June 30,
1999 to ($12,000) for the six months ended June 30, 2000 due in part to reduced
sales in that segment combined with increased advertising and marketing
expenditures. Operating income in the Other segment improved by $566,000 from
($603,000) for the six months ended June 30, 1999 to ($37,000) for the six
months ended June 30, 2000. The improvement is primarily due to restructuring
which resulted in the elimination of six retail locations.
15
<PAGE>
Other Income (Expenses). Total other expense was ($702) for the six months
ended June 30, 2000, compared with $3 million in income for a comparable period
in 1999. The decrease primarily reflects losses on marketable securities,
options, and related interest expenses. Please see the three month period
analysis for further information. During the period ending June 30, 2000, the
Company experienced a realized and unrealized loss on the trading of securities
in the amount of ($1.4) million compared with a gain of $1.2 million in a
comparable period of 1999. Please see the three month period analysis for
further information. 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.
The Company experienced loss from operation for the six months ending June
30, 2000 of ($700,000) million, compared with income of $1.1 million for the
comparable period in 1999. The Company has not made any tax payments at this
time due to the net operating loss. However, the Company intends offset any
federal income taxes accruing during the year 2000 with its Income Tax Refund
Receivable.
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 investments in 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.
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:
Himmelman and Love vs. Wade Cook Seminars., 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. On July 10, 2000, the court
granted the plaintiff's motion to dismiss the suit without prejudice and without
settlement.
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's Annual Meeting of the Stockholders was held on June 8, 2000
in Seattle/Tacoma Washington.
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The following nominees were elected as directors, each to hold office,
until his/her successor is elected and qualified, by vote set forth below:
NAME FOR AGAINST WITHHELD
Robin Anderson 58,152,320 119,235 450,361
Joel Black 58,268,505 3050 334,176
Robert Hondel 58,156,400 115,155 446,281
Dan Wagner 58,147,270 124,285 455,411
In addition, Gene Stevens, appointed to the Board of Directors on February
16, 2000 was ratified as a member of the Board of Directors by the Stockholders
on June 8, 2000.
For Against Withheld
Gene Stevens 58,245,454 326,683 30,544
In addition, the following directors' terms continued after the Annual
Meeting:
Laura M. Cook
Wade B. Cook
Nick Dettman
Janice Leysath
Angela Pirtle
Item 5. Other Information.
Repurchase of Company Common Stock.
On February 16, 2000, the Board of Directors authorized the repurchase of
up to two million shares of the Company's common stock in the open market on or
before December 31, 2000. On June 8, 2000, the Company was authorized to
repurchase up to one million additional shares or its common stock during a
period ending on June 8, 2001. The repurchase of Company shares will be
conducted in accordance with Rule 10b-18 under the Exchange Act . Currently, the
Company has repurchased $250,000 shares of stock on the open market.
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
17
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WADE COOK FINANCIAL CORPORATION
August 14, 2000 /s/ Wade B. Cook
---------------------------------------------
Wade B. Cook, Chief Executive Officer
August 14, 2000 /s/ Cynthia Britten
---------------------------------------------
Cynthia C. Britten, Chief Financial Officer,
Chief Accounting Officer
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
27.1 Financial Data Schedule
