-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RpWngZlEOrvOpSUptEAAKi0TEGa4xSeE+3sq+U8iC/uvHZmzP8+3ljdSOyCxPPx/ Cz+WqwJjurcIFy2AnlXjvA== 0001047469-98-027228.txt : 19980720 0001047469-98-027228.hdr.sgml : 19980720 ACCESSION NUMBER: 0001047469-98-027228 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980714 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WADE COOK FINANCIAL CORP CENTRAL INDEX KEY: 0000894417 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EDUCATIONAL SERVICES [8200] IRS NUMBER: 911772094 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-29342 FILM NUMBER: 98665702 BUSINESS ADDRESS: STREET 1: 14675 INTERURBAN AVE S CITY: SEATTLE STATE: WA ZIP: 98168 BUSINESS PHONE: 2069013000 MAIL ADDRESS: STREET 1: 14675 INTERURBAN AVENUE SOUTH CITY: SEATTLE STATE: WA ZIP: 98168-4664 10-K/A 1 10-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________to ___________ Commission file number: 000-29342 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 98168-4664 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (206) 901-3000 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED - -------------------- ------------------------------------------ NONE NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01 PAR VALUE Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ X ] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained in this Form 10-K, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] 1 The aggregate market value of the voting stock of the registrant held by non-affiliates of the registrant on March 13, 1998 based on the closing price on the OTC BB System of such stock on such date was $70,373,778. Registrant's Common Stock outstanding at March 13, 1998 was 64,223,685 shares. DOCUMENTS INCORPORATED BY REFERENCE None. 2 WADE COOK FINANCIAL CORPORATION INDEX TO ANNUAL REPORT ON FORM 10-K
CAPTION PAGE - ------------- -------- PART I Item 1. - BUSINESS ........................................................ 4 Item 2. - PROPERTIES ...................................................... 16 Item 3. - LEGAL PROCEEDINGS ............................................... 17 Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............. 19 PART II Item 5. - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ................................. 20 Item 6. - SELECTED FINANCIAL DATA ......................................... 21 Item 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ................... 23 Item 8. - FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA ...................... 27 Item 9. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ........................................ 27 PART III Item 10. - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ............. 27 Item 11. - EXECUTIVE COMPENSATION ......................................... 31 Item 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ................................................. 35 Item 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................. 36 PART IV Item 14. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K ............................................ 39
3 NOTE REGARDING FORWARD LOOKING INFORMATION This Form 10-K contains forward looking statements identified by the use of "believes", "expects", "anticipates", and similar expressions. Such statements are subject to risk and uncertainties that could cause actual results to differ from those contemplated by the forward looking statement. Such risks and uncertainties include any change in the market acceptance of the Company's products and services, the risk of the Company being able to finance its business operations, and other similar business and market risks. Readers are cautioned not to place undue reliance on such forward looking statements. PART I ITEM 1. - BUSINESS GENERAL Wade Cook Financial Corporation (OTC BB:WADE) is a Nevada corporation which serves as a holding company for the common stock and other ownership interests of a group of business entities collectively referred to in this Form 10-K as "WCFC" or the "Company." The most significant asset of the Company is its wholly owned subsidiary Wade Cook Seminars, Inc. ("WCSI") through which the Company conducts its educational seminar business. Prior to May 1995, the Company's educational seminar business was conducted by United Support Association, Inc. ("USAI"), a Nevada corporation founded in 1989 by Wade B. Cook. Profit Financial Corporation, a publicly traded shell corporation at the time of the reverse merger described below, was formed in 1979 as a Utah corporation under the name Profiteer Corporation ("Profit"). In May 1995, USAI engaged in a transaction with Profit effectively constituting a reverse merger. Profit was the legal acquirer and USAI was the accounting acquirer. As a result of the transaction, Profit became the holding company and parent of USAI which was renamed Wade Cook Seminars, Inc. in February 1997. Another corporation owned or controlled by Wade B. Cook named USA/Wade Cook Seminars, Inc. was renamed Money Chef, Inc. ("Money Chef") which corporation is an affiliate of the Company. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." Profit Financial Corporation changed its name to Wade Cook Financial Corporation in September 1997 which change of name was ratified by the shareholders of the Company at the annual meeting of shareholders held in December 1997 (the "Annual Meeting"). The shareholders of the Company also authorized at the Annual Meeting, among other things, the reincorporation of the Company from the State of Utah to the State of Nevada. On December 19, 1997, WCFC filed the Articles of Merger, Agreement and Plan of Merger, Articles of Incorporation, and Articles of Amendment to the Articles of Incorporation of WCFC in Nevada. On December 22, 1997, the Articles of Merger and Agreement and Plan of Merger were filed in the State of Utah. On December 24, 1997 a Certificate of Correction was filed in the state of Nevada, correcting a technical error in a prior filing. These filings changed the state of incorporation for WCFC from the State of Utah to the State of Nevada and increased the total authorized number of the common stock of the Company (the "Common Stock") from 60,000,000 shares to 140,000,000 shares. The designation of the common stock of the Utah corporation as "Class A" was not carried forward to the new Nevada corporation but the par value of $.01 remained unchanged. The Company's headquarters address is 14675 Interurban Avenue South, Seattle, Washington 98168-4664 and its telephone number is (206) 901-3000. Subsidiary Companies The Company's wholly-owned subsidiaries are: 4
Corporation Name Abbreviation State of Incorporation ---------------- ------------ ---------------------- Wade Cook Seminars, Inc. WCSI NV Lighthouse Publishing Group, Inc. Lighthouse NV Left Coast Advertising, Inc. Left Coast NV Bountiful Investment Group, Inc. BIG NV Entity Planners, Inc. EPI NV Ideal Travel Concepts, Inc. Ideal NV Origin Book Sales, Inc. Origin UT Worldwide Publishers, Inc. Worldwide UT Gold Leaf Press, Inc. Gold Leaf NV Get Ahead Bookstores, Inc. Get Ahead NV Quantum Marketing, Inc. Quantum NV Information Quest, Inc. IQI NV American Newsletter Co., Inc. ANC NV Unlimited Potential, Inc. Unlimited NV Hotel Associates Management #1, Inc. Hotel Associates NV Entity Planners International, Inc. EPII NV
Of the subsidiaries listed above, only Unlimited, Hotel Associates and EPI do not carry on a trade or business and therefore are not further described in this Form 10-K. Not listed above is Evergreen Lodging, L.P., a limited partnership in which WCSI owns a 65% limited partnership interest and an affiliate of Wade B. Cook is the general partner. Evergreen Lodging, L.P. is consolidated in the consolidated financial statements of the Company presented elsewhere in this Form 10-K. Wade Cook Seminars, Inc. Wade Cook Seminars, Inc., ("WCSI"), creates, designs, produces, owns, markets and sells a variety of seminars and workshops focused on investment strategies, financial planning and personal wealth management. WCSI also produces and sells audio tapes, videotapes, books and other written materials designed to teach various investment strategies and financial planning techniques. In addition, WCSI hosts a web site on the Internet at http://www.wadecook.com as an additional tool to recruit students and market its programs, products and services. WCSI accounted for approximately 91% of the Company's net sales for the fiscal year ended December 31, 1997, approximately 97% of the Company's net sales for the fiscal year ended December 31, 1996, and approximately 100% of net sales for the fiscal year ended December 31, 1995. In 1997, WCSI conducted approximately 3,293 seminars in approximately 379 cities across the United States. Average attendance at the seminars was 123 persons. In 1996, WCSI conducted approximately 437 seminars in 42 cities with an average attendance of 81 persons. Prior to 1996, the Company did not keep records sufficient to provide the data necessary to determine statistics for prior periods similar to the statistics presented for 1996 and 1997. Seminars Offered by WCSI The Financial Clinic is a three-hour seminar explaining the various financial education products and services offered by WCSI and providing an introduction to investing in the stock market. The Financial Clinic is designed to serve as an introduction to the Wall Street Workshop. This seminar is currently taught nationwide 43 times a week. The price to attend the Financial Clinic is $22 to $33 depending on whether the customer pre-pays the price of attendance. Occasionally, the Financial Clinic is offered for free to serve the promotional purposes of WCSI. The Wall Street Work Shop ("WSWS") is a two-day seminar teaching investors the investment strategies set forth in Mr. Cook's books, Wall Street Money Machine and Stock Market Miracles. Students are taught basic stock market terminology, how to choose a brokerage firm, stock market strategies, and how to place an order to buy and sell securities ( a "trade"). Students are taught how to practice paper trades in class. The seminar is taught nationwide 7 times a week and is taught in conjunction with the Business Entity Skills Training seminar. The price to attend Wall Street Workshop ranges from $695 for individuals who have attended Cook University to $4,695 depending on the particular options selected by the person or persons attending the seminar and depending on the particular discount or promotion in effect 5 at the time of payment to attend the seminar. The Company also offers the seminar Youth Wall Street for younger individuals. This seminar is taught 2 times per week nationwide. The Youth Wall Street is free to registrants 18 years of age and younger. Fortify Your Income ("FYI") is a half-day seminar reviewing the strategies taught at the Wall Street Workshop. FYI is a refresher course offered to WSWS graduates at no cost. FYI was taught nationwide 30 times during 1997 and 60 times during the first three months of 1998. The Entity Structuring Workshop ("ESW") is a half-day seminar explaining the use of entities to protect assets and reduce taxes. The ESW is designed to serve as an introduction to the Business Entity Skills Training seminar. The workshop was taught nationwide 210 times throughout 1997. The price to attend the workshop ranges from $22 to $33. Business Entity Skills Training ("BEST") is a one-day seminar teaching students personal finance management strategies such as asset protection and tax reduction using corporations, limited partnerships, qualified pensions, and living trusts. BEST is taught immediately after the last day of each WSWS, either in the evening or the following day. The price to attend BEST is $995 if no other seminar is also attended. Otherwise, the price of Best is included in the price of attending certain companion seminars. WINSTOCK is a two-day workshop teaching stock market strategies and various related topics in a roundtable forum. WINSTOCK was taught for the first time in 1997 to 620 attendees. The workshop is taught in conjunction with the Super BEST and is priced at $997. The Super BEST is a one-day seminar taught the third day following WINSTOCK. Super BEST teaches students personal finance strategies such as asset protection and tax reduction strategies using corporations, limited partnerships, qualified pensions, and living trusts. The seminar was introduced in and taught once during 1997. The seminar is priced at $997 and includes WINSTOCK. The Next Step is a two-day seminar for participants who have already attended the WSWS. Advanced stock market investment strategies are taught in a format in which students can actively participate in making investments. Next Step was taught nationwide seven times in 1997 and has been taught three times in the first three months of 1998. The price to attend Next Step ranges from $1,495 to $7,995, depending on whether it is attended separately or with other seminars offered by the Company and depending on the particular discount or promotion in effect at the time of payment to attend the seminar. The Wealth Academy, now known as the Wealth Institute, is a three-day seminar teaching wealth accumulation and asset protection formulas using various business strategies and corporate income tax planning to assist students in better managing their personal finance and business activities. The Wealth Institute is currently taught nationwide ten times a year. The price to attend Wealth Institute ranges from $4,995 to $7,995 depending on whether it is attended separately or with other seminars offered by the Company and depending on the particular discount or promotion in effect at the time of payment to attend the seminar. The Executive Retreat is a two-day workshop designed for participants who own or control Nevada corporations to gain a broader understanding of the mechanics of using a corporation for tax advantages, limited liability and estate planning purposes. The workshop is currently taught four times a year. The price to attend the Executive Retreat ranges from $1,295 to $2,495 depending on whether it is attended separately or with other seminars offered by the Company and depending on the particular discount or promotion in effect at the time of payment to attend the seminar. Cook University is a package of workshops and products promoted by WCSI that are individually tailored to the needs of the student. The package generally sells for $12,345 to $16,345 depending on the combination of seminars and products selected and the discount or promotions in effect at the time of 6 payment to attend the seminars. Building Perpetual Income ("BPI") is a three-hour workshop introduced in 1997, which summarizes cash-flow strategies related to the real estate market. This workshop is intended to serve as an introduction to the Real Estate Workshop. BPI was offered three times in 1997 and has been offered four times to date in 1998. The price to attend the Building Perpetual Income seminar is $22 to $33 depending on whether the student pre-pays. The Real Estate Workshop is a one-day event introduced in 1997, which teaches students the strategies outlined in Mr. Cook's book The Real Estate Money Machine. Students are taught how to look for real estate investments and how to turn them into cash-flow investments. The Real Estate Workshop was offered once in 1997. The price to attend the Real Estate Workshop ranges from $995 to $1,495 depending on the discounts or promotion in effect at the time of payment to attend the seminar. The Real Estate Bootcamp is a two and one-half day event introduced in 1997 which teaches students the strategies outlined in Mr. Cook's book The Real Estate Money Machine in greater detail. The class often takes a field trip to various parts of the local area in an effort to become more familiar with the types of real estate available. The Real Estate Bootcamp was offered once in 1997. The price to attend the Real Estate Bootcamp ranges from $3495 to $4495 depending on the discounts or promotion in effect at the time of payment to attend the seminar. High Octane Options Performance Seminar ("HOOPS") is a one-day seminar created for WCSI and introduced in 1997 by speaker Steve Wirrick. Mr. Wirrick goes into greater detail about investing in options. HOOPS was offered sixteen times in 1997 and has been offered fifteen times during the first three months of 1998. The price to attend HOOPS ranges from $1995 to $3295 depending on the discounts or promotion in effect at the time of payment to attend the seminar. The Options Bootcamp is a two-day seminar created for WCSI by speaker Steve Wirrick which was introduced in 1997. Mr. Wirrick expands on his HOOPS workshop in greater detail relating to his option investing. Students take a tour of the Option Exchange in Chicago as a part of the class. The Options Bootcamp was offered five times during 1997 and has been offered three times during the first quarter of 1998. The price to attend the Options Bootcamp ranges from $2995 to $5995 depending on the discounts or promotion in effect at the time of payment. WCSI typically conducts its seminars and workshops in major cities in the United States with populations of over 100,000. The majority of WCSI's seminars are held in Los Angeles, California; Denver, Colorado; Seattle, Washington; Las Vegas, Nevada; Washington, D.C.; Orlando, Florida; and Dallas, Texas. WCSI derived more than 10% of its revenues in fiscal 1997 from seminars taught in the states of California and Florida. As of March 13, 1998, approximately sixty-nine speakers conducted seminars for the Company throughout the United States, of which the majority were independent contractors. The Company provides training to the speakers, including two-day, bi-monthly workshops with an experienced trainer. Most speakers review training tapes and attend training sessions for six months prior to becoming "technicians" and graduate to becoming "second speakers" on tour. The best of these second speakers eventually rise to the role of primary speaker. Typically, the speakers are required to enter into an agreement not to compete with the Company for a period of generally three years after the termination of their contract with the Company. The seminars provided by WCSI accounted for approximately 70%, 52%, and 53% of the Company's net sales in 1997, 1996, and 1995, respectively. Products and Services marketed by WCSI WCSI's seminars and programs are supplemented by audio tapes, video tapes, books and other printed materials that are licensed to the Company. Sales of these products accounted for 20%, 22% and 20% of the net sales of the Company for 1997, 1996 and 1995, respectively. 7 The books promoted and marketed by WCSI include best-selling books written by Wade B. Cook such as the Wall Street Money Machine, Stock Market Miracles, Bear Market Baloney and Business Buy the Bible. The Company also sells Brilliant Deductions, The Real Estate Money Machine, How to Pick Up Foreclosures, Owner Financing, Cook's Book on Creative Real Estate, 101 Ways to Buy Real Estate without Cash, Cook's Book on Creative Real Estate, Don't Set Goals, How to Build a Real Estate Money Machine, Real Estate for Real People, Unlimited Wealth, Wealth 101, and 555 Clean Jokes. Each of these books was written by Mr. Cook. These books are sold at prices ranging from $12.95 to $26.95 depending on the title, excluding shipping and handling. Other publications licensed from author Wade B. Cook and marketed by WCSI include: 12 Special Reports, The Incorporation Handbook, How to Incorporate in Nevada Special Report, Legal Forms, Owner Financing, Property Analysis Forms, Real Estate Record Keeping System, Real Estate Special Reports, Stock Analysis Forms, The Corporation Kit, and To S or Not to S Special Report. Publications licensed from author Steve Wirrick and marketed by WCSI include: 7 Special Reports, High Octane Reference Charts, High Octane Options Supplemental Charts, Use of Profit and Loss Charts Special Report, The Secret to Pricing Options---Never Pay Too Much Again Special Report, and Owner Financing. These publications are sold at prices ranging from $6.50 to $34.95 depending on the title, excluding shipping and handling. The audio tapes promoted and sold by WCSI and authored by Wade B. Cook include the multi-tape audio seminars Financial Fortress Home Study and Zero to Zillions. In addition, WCSI sells single tapes that generally address the ideas and concepts taught in its seminars. The single audio tapes include: Financial 4x4, Financial Power Pack, Paper Tigers, Unlimited Wealth, High Octane Performance Entities, Retirement Prosperity, Money Mysteries of the Millionaires, The Power of Nevada Corporations, Entity Structuring, Outrageous Returns, Double Your Money Update, Everything You Ever Wanted to Know About: Cook University, Everything You Ever Wanted to Know About: The Wall Street Workshop, Everything You Ever Wanted to Know About: The Real Estate Cash Flow Boot Camp, Everything You Ever Wanted to Know About: Becoming a Travel Agent, Income Formulas, Income Streams, Stock Market Power Strategies, Smarter Money, 100 Fold Return, Are We Headed for a Bear Market, Covered Calls, Financial Jump Start, Living Loving Trusts, Money Machine I, Money Machine II, Red Hot Financial Seminars, Paper Chase, Pension Power, Real Estate Start-up, Sail Through Life, SAIL: Scriptural Applications in Life, Stock Market Power Strategies, Wealth Academy and Wealth, Riches, & Covenants. Mr. Cook is the primary speaker in each of these tapes. These audio tapes are sold at prices ranging from $26.95 to $1,695 depending upon the title of the audio tape or collection of audio tapes. From time to time, WCSI distributes free "Update Tapes" which are recorded by Wade B. Cook in an effort to promote the products of WCSI. The videotapes promoted and sold by the Company include the multi-tape video versions of the Company's seminars Wall Street Workshop and Next Step, as well as single-tape videos on Dynamic Dollars, Entity Structuring, 180 Cash Flow Turnaround Seminar: 180 Degrees in 180 Minutes, Financial 4 x 4, Financial Jump Start, High Octane Performance Entities, Second to None, Seven Strategies to Success, and Winning Ways. Videos are sold at prices ranging from $33 to $2,995. Entity Formation Services In 1997, WCSI provided information, form packages and assistance to individuals interested in preparing Nevada Corporations, Living Trusts, Pension Plans, Limited Partnerships, Charitable Remainder Trusts, and various business office services. After teaching students about the various entities, the majority of actual entities which were formed were provided by various independent outside vendors for a fee. Prices for the Company's entity formation services range from $895 to $5,995 depending on the nature and the number of the entities purchased. The entity formation services of the Company accounted for 6%, 14%, and 20% of the Company's net sales in 1997, 1996 and 1995, respectively. In 1998, the entity formation service activities were separated from WCSI and placed in Entity Planners, Inc., a wholly-owned subsidiary. 8 WIN Subscriptions Wealth Information Network ("WIN") is a subscription service provided by the Company which can be accessed over the Internet 24 hours a day. WIN provides detailed information on the trades made by the Company, its subsidiaries, and by Mr. Cook personally, using the investment strategies discussed in Wall Street Money Machine and Stock Market Miracles and taught at WCSI seminars. WIN also provides stock information and updates on the Company's programs and products, including a schedule of events and seminars provided by WCSI. The subscription rate for the WIN service ranges from $695 to $3,695 per year, depending on the length of service, promotion offered at the time of sale, and whether a subscriber is also an attendee at a seminar offered by WCSI. Subscription to WIN accounted for 4% 12%, and 7% of the Company's net sales in 1997, 1996 and 1995, respectively. Other Products Marketed by WCSI WCSI has various marketing agreements or arrangements with other companies to market and sell the products of these other companies and share in the revenue generated by such sales. During 1997, WCSI obtained exclusive marketing rights to the IQ Pager from Information Quest, Inc., a Nevada corporation ("IQI"). Revenues generated by WCSI from sales of the IQ Pager were split equally with IQI through December 31, 1997. On March 20, 1998, all of the common stock of IQI was acquired by WCFC effective as of January 1, 1998. As a result of such acquisition, 100% of the revenue generated by WCFC from IQ Pager sales will be retained by WCFC. On September 12, 1997, WCFC entered into a purchase agreement with Applied Voice Recognition, Inc. to purchase wholesale 10,000 units of a private label automated speech recognition system including a self-contained contact manager. WCFC received inventory under the purchase agreement in late 1997 of 2,500 units and will begin marketing the devices in 1998. On January 20, 1997, WCFC entered into a software development agreement with KnowWonder, Inc. ("KnowWonder") for the development of a family finance software package. The software is to be completed for release on or about August, 1998. Under the agreement, WCFC will own the intellectual property for the software and will have non-exclusive rights to distribute the software. KnowWonder will pay a royalty to WCFC for sales of the software. Sales and Marketing The Company creates interest and demand for its programs, products and services through a mix of radio and television advertising, direct mail advertising, Internet marketing and sports promotions. Radio & Television Advertising The Company's primary means of advertising to potential customers is through various commercial radio spots nationwide, including radio infomercials. Generally, the radio advertising contains information relating to a strategy taught by Wade B. Cook and promotes a financial clinic to be offered within the coming few weeks in the local area of the advertising. The customer may call the toll-free number provided in the advertisement and, if he does, will be encouraged to reserve a seat at the upcoming Financial Clinic. During 1997, the Company advertised on a limited basis on television in connection with the Company's sports promotion advertising and in a few other select markets. 9 Direct Mail Marketing and Advertising The Company markets its programs, products and services through direct mailing to its mailing list of over 500,000 individuals, many of whom have previously attended one of the Company's seminars or purchased the Company's products. A centralized marketing department develops the Company's catalogs, brochures and advertisements. Sales Team The Company's sales force consists of approximately 130 people who are responsible for responding to phone, e-mail, Internet and facsimile orders and inquiries received by the Company, as well as for following up with existing clients to promote additional programs, products and services. The Company provides its sales staff daily training aimed at refining their sales skills and providing updates on new products, programs and services being offered by the Company. Internet Marketing The Company maintains an Internet web site at http://www.wadecook.com to market and promote its programs, products and services. The web site has information on the Company's programs, products and services and certain limited information on stock and investment strategies. A WIN subscriber can access WIN through the web site. A web site visitor can purchase a limited number of the Company's products on-line at the web site. In the future, the Company intends to expand products offered at the web site to all of the Company's products. Sports Promotions The Company sponsors a variety of sporting events including several games of the Seattle Seahawks and Seattle Super Sonics. These sponsorships enable the Company to advertise via giveaways which have in the past included packages containing a free book, audio tape, video tape and other promotional publications of the Company. All giveaway packages contain information about the Company's products and the toll free telephone number to call to register for a Financial Clinic or other upcoming seminar. Lighthouse Publishing Group, Inc. Lighthouse is engaged in the business of producing and publishing books, audio and video tapes, and other written materials, mainly in the categories of business, finance, real estate, and self-improvement. Many of the current books are authored by Wade B. Cook, including "Real Estate Money Machine", "Business Buy the Bible", "Bear Market Baloney", "Stock Market Miracles", and "Wall Street Money Machine." Lighthouse Publishing contributed approximately 5% of the consolidated revenues of the Company in 1997, 12% of consolidated revenues of the Company in 1996 and no contribution to consolidated revenue in 1996. Left Coast Advertising, Inc. Left Coast is engaged in the business of producing and placing advertising in various media including radio, television, newspaper, and magazines. Left Coast is a fully licensed advertising agency whose primary client is WCFC and its subsidiaries. Left Coast contributed less than one per cent of the consolidated revenues of the Company in the year 1997, 1996 and 1995. Bountiful Investment Group, Inc. Bountiful Investment Group, Inc. (formerly Profit Financial Real Estate Management Company) ("BIG") was formed in 1997 to manage and oversee the real estate investment portfolio of the Company, primarily consisting of hotel investments. 10 BIG contributed less than one per cent of the consolidated revenues of the Company in 1997. Hotel Investment Properties WCSI owns a 25 percent interest in Airport Lodging Associates, L.C. which owns the Airport Ramada Ltd. Suites. WCSI's purchase price for their interest acquired was $250,000. The hotel is a new structure that opened in November 1997. The Ramada Ltd. Suites has 58 rooms and 1 suite, and is located at 315 North Admiral Boulevard in Salt Lake City, Utah. WCSI owns a 12 percent interest in 45th South Hotel Partners, L.C., a limited liability corporation, which owns the Murray Hampton Inn and the Murray Fairfield Inn. The 12 percent interest was purchased for $220,000, which was paid $160,000 in cash and 10,000 shares of Common Stock in the Company. The Hampton Inn is a 65 room hotel located at 606 West 4500 South in Murray, Utah. The Fairfield Inn is a 61 room hotel located at 4500 South in Murray, Utah. WCSI owns a 10 percent interest in Airport Hilton Partners, L.C., which owns the Airport Sheraton Suites. The hotel is located at 307 North Admiral Boulevard in Salt Lake City, Utah. The purchase price for the interest acquired was $250,000. The Sheraton Suites is due to open in April 1998 with 108 suite-style rooms. WCSI purchased a 7 percent interest in Woods Cross Hotel Partners, L.C. which owns the Woods Cross Fairfield Inn. The 7 percent interest was purchased for $119,269 paid in the form of 11,636 shares of Common Stock of the Company at $10.50 a share. The Woods Cross Fairfield Inn has 80 rooms and is located at 2437 South Wildcat Way in Woods Cross, Utah. WCSI owns a 4 percent interest in the Park City Hampton Inn & Suites. WCSI paid $225,002 for its 4% interest which consisted of $200,000 in cash and 4,167 shares of Common Stock in the Company. The hotel has 61 rooms and 20 suites and is located at 6609 North Landmark Drive in Park City, Utah. BIG owns a 100 percent direct ownership interest in the Best Western McCarran House. The total purchase price was $5,250,000 with a commitment to make $1,000,000 in renovations. The payment for renovations is to be made in installments over the course of 1998. The Best Western McCarran House has 220 units and is located at 55 East Nugget in Sparks, Nevada. BIG owns a 50 percent interest in Red Rock Lodging Associates, L.C. an entity which owns the St. George Hilton Inn. The purchase price was $3,850,000 of which BIG has contributed $800,000 in cash. The Hilton Inn has 98 rooms and 2 suites and is located at 1450 South Hilton Drive in St. George, Utah. Rising Tide Limited Partnership had negotiated to purchase a 100 percent ownership interest in the Provo Fairfield Inn for $3,450,000, of which $1,310,000 has been placed in escrow. In order to retain the Marriott franchise, the ownership of the Fairfield Inn is being restructured such that the original franchisee will retain 51 percent ownership interest and the Company will obtain a 49 percent interest. This transaction is scheduled to close in the second quarter of 1998. The Company intends to have its interest in the Provo Fairfield Inn held in Bountiful Investment Group, Inc.. Any funds that have been paid in excess of the 49 percent purchase price will either be returned to the Company or credited towards the acquisition of other hotel properties. The Provo Fairfield Inn has 66 rooms and 6 suites and is located at 1515 South University Avenue in Provo, Utah. BIG has made an offer to purchase the St. George Sleep Inn. If the sale goes through, BIG would own a 100 percent interest in the hotel. The purchase price is $1,200,000. Additionally, BIG would have a commitment to make approximately $130,000 in renovations. The Sleep Inn has 68 rooms and is located at 1481 South Sunland Drive in St. George, Utah Raw Land WCSI owns a 65% percent interest in Evergreen Lodging, L.P.. Evergreen owns a 100% interest in undeveloped property located near the 7200 South off-ramp of the I-15 Interstate near Salt Lake City, Utah. Evergreen purchased the land for $690,000. The land was purchased with the original intent of building a hotel on the property. WCSI owns a 42 percent interest in Lake View Lodging Associates, L.C. which owns the property located at 215 West 1300 South in Orem, Utah. The purchase price for its interest acquired was $560,000. BIG owns a 100 percent interest in an undeveloped lot located in Reno, Nevada. BIG purchased the property for $590,000. Entity Planners, Inc. EPI provides entity planning information and education to WCSI customers attending Business Entity Structuring Skills Training and Entity Structuring Workshop. EPI had no financial activity in 1997. Ideal Travel Concepts, Inc. As of August 1, 1997, the Company acquired Ideal from a director of the Company. In addition to providing travel arrangements for the Company, the Company markets travel agency training kits at its seminars for a price of $495. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" Origin Book Sales, Inc. In August 1997, WCFC acquired all of the issued and outstanding common stock of Origin in exchange for the issuance of 30,269 shares of restricted Common Stock of the Company pursuant to a Share Exchange Agreement effective as of August 15, 1997. Origin, a Utah corporation, is a book distribution company which sells books on consignment. Origin also offers select titles to national bookstore chains. Origin is the exclusive distributor of products for Worldwide Publishers Inc. Worldwide Publishers, Inc. In August 1997, WCFC purchased all of the issued and outstanding common stock of Worldwide for $1.00 pursuant to a Stock Purchase Agrement effective as of August 8, 1997. Additional consideration for the acquisition of Worldwide was the extinguishment of the obligation of Worldwide to repay two promissory notes in the total amount of $275,000. The obligation to repay the amounts loaned to Worldwide are eliminated as intercompany transactions. Worldwide is a Utah corporation doing business under the identifying publishing insignias ("imprints") as Aspen Books and Buckaroo Books. Aspen Books publishes religious books or books with a spiritual emphasis. Buckaroo Books publishes children's books and books of whimsy. Gold Leaf Press, Inc. In August 1997, WCFC acquired all of the outstanding common stock of Gold Leaf in exchange for 7,692 shares of the restricted Common Stock of the Company pursuant to a Stock Exchange Agreement effective as of August 15, 1997. Gold Leaf publishes fiction and non-fiction books. Get Ahead Bookstores, Inc. Effective January 1, 1998, WCFC acquired Get Ahead Bookstores, Inc., a Nevada corporation. Get Ahead is housed within Wade Cook Financial Education Centers in both Seattle and Tacoma. Get Ahead is staffed by Quantum Marketing personnel in an effort to coordinate Quantum sales of WCFC products and services. Get Ahead is a retail outlet for books, audio and video recordings primarily related to finance, education, investments, and business and personal development. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" Quantum Marketing, Inc. Quantum Marketing, Inc., a Nevada corporation, was established in 1997 by Robert Hondel, a member of the Company's Board of Directors, to provide alternative marketing of the Company's products and services. Currently, Quantum maintains its own website on the Internet and provides local marketing through its offices located within Wade Cook Financial Education Centers in Tacoma & Seattle, Washington and Newport Beach, California. Another Quantum office is to open in Santa Ana, California in 1998. Quantum pays WCFC a gross royalty of 70 percent on all products and services sold by Quantum through WCSI. Quantum provides WCFC with a 30 percent royalty on all products and services sold by Quantum through its Wade Cook Financial Education Centers. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." The first Wade Cook Financial Education Center was established in 1997 in Tacoma, Washington. 11 Each Wade Cook Financial Education Center contains a Winvest Center where WCFC alumni can meet to network and obtain additional financial investment information and information related to other WCFC products and services. Effective January 1, 1998, the Company acquired Quantum as a wholly-owned subsidiary. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." Information Quest, Inc. Information Quest, Inc. was organized in 1997 for the primary purpose of marketing the IQ Pager. The Company acquired IQI effective January 1, 1998 as a wholly-owned subsidiary. IQI is the distributor of the IQ Pager, a one-way receiving paging device. IQI transmits stock market updates and various financial information over the IQ Pager to subscribers. In addition, IQI provides all supplies, packaging, and distribution of the IQ Pager and provides all of the organizational support and maintains all contracts relating to the base paging service. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." American Newsletter Company, Inc. American Newsletter Company, Inc., a Nevada corporation, was incorporated August 28, 1997 as a wholly-owned subsidiary of WCFC. American Newsletter Company designs, produces, and distributes newsletters for commercial purposes. Current products include the Navigator, a bi-monthly, single-sheet, marketing newsletter targeted to bookstores which promotes Lighthouse publications. American Newsletter Company also publishes EXPLANATIONS, a promotional newsletter for WCSI products and services. EXPLANATIONS provides continuing education focusing on cash flow generation and wealth strategies taught by WCSI. EXPLANATIONS is a sixteen page monthly newsletter which is shipped to WCFC customers at a retail subscription rate of $144 per year. NET SALES BY OPERATING SUBSIDIARIES The following table sets forth the Company's net sales by subsidiary: PROFORMA NET SALES BREAKDOWN BY SUBSIDIARY FOR THE YEAR ENDING DECEMBER 31, (unaudited) (Amounts in 000's)
1997 1996 1995 Subsidiary Sales % Sales % Sales % - ---------- ------------------- ------------------- ------------------- WCSI $ 99,616 89.85% $ 39,256 85% $ 7,567 46% Left Coast $ -- 0.00% $ -- 0% $ 0%
12 Lighthouse $ 4,840 4.37% $ 1,469 3% $ 0% Origin $ 1,510 1.36% $ 1 801 4% $ 1 0% Gold Leaf $ 26 0.02% $ 1 462 3% $ 1,330 8% Worldwide $ 555 0.50% $ 971 2% $ 7,209 44% Ideal Travel $ 4,321 3.90% $ 1,023 2% $ 182 1% ---------------------- --------------------- --------------------- $110,868 100.00% $45, 982 100% $ 16,289 100% ---------------------- --------------------- --------------------- ---------------------- --------------------- ---------------------
CORPORATE CONTROL BY WADE B. COOK Wade B. Cook is the founder, majority shareholder, Chairman of the Board of Directors, President, Treasurer, acting Chief Financial Officer and CEO of the Company. Mr. Cook's wife is the Secretary of the Company and is a member of the Board of Directors. Several of Mr. Cook's siblings and relatives are in management positions at the Company. Mr. Cook maintains control of nearly every aspect of the Company including, but not limited to, setting corporate policy, determining strategic direction and determining each acquisition of a company or assets made by the Company and the material terms of such acquisition. Mr. Cook selects and approves every product and seminar sponsored by the Company. Mr. Cook directs most marketing efforts of the Company. Mr. Cook dominates the management of the Company. CONTROL BY MANAGEMENT As of March 13, 1998, senior management of the Company collectively owns approximately 64% of the outstanding shares of Common Stock. Mr. Cook and entities affiliated with Mr. Cook own approximately 62% of the outstanding shares of Common Stock. Consequently, the senior management, and Mr. Cook in particular, will continue to have a significant influence over the policies and procedures of the Company and will be in a position to determine the outcome of corporate actions requiring stockholder approval, including the election of directors, the adoption of amendments to the Company's corporate documents and the approval of mergers and sales of the Company's assets. See "Security Ownership of Certain Beneficial Owners and Management." BUSINESS STRATEGY WCFC's business strategy is to generate revenue and earnings growth through further market penetration of domestic markets for sales of the Company's existing products, and the introduction of new product lines that complement and supplement existing product lines which can be sold through the same channels of distribution. To accomplish its strategic objectives, WCFC has: (i) acquired companies; (ii) increased advertising expenditures; (iii) further expanded into smaller markets; (iv) developed and introduced new and ancillary product categories; (v) continued to acquire licenses from Mr. Cook and to seek out new licenses from new authors; (vi) and entered into relationships with others to develop and market new products. Substantially all of the Company's programs, products and services are based on the financial and investment strategies of Mr. Cook. The Company has the non-exclusive right to promote, produce and sell these programs, products and services pursuant to the terms of a Product Agreement with Mr. Cook dated March 20, 1998. Mr. Cook has based his programs and products on his belief that people need to: (a) increase their wealth by increasing their cash flow; (b) learn how to minimize their federal and state income taxes; (c) use entities, such as Nevada corporations, family limited partnerships, living trusts, qualified pensions and business trusts, to protect their assets; (d) be able to retire with sufficient income from their assets to maintain a good standard of living; and (e) be able to pass on their wealth and assets to their loved ones without the problems of probate. 13 COMPETITION The Company does not generally conduct market research on competitive companies or competitive products and does not therefore have meaningful statistical data on competitors or competitive products. The Company believes that the highly competitive market in which the Company operates is fragmented and decentralized, with low barriers to entry. The Company's competitors include other companies and individuals who promote and conduct seminars and provide products on topics relating to investments, financial planning and personal wealth management. Some of these competitors offer courses and products similar to the Company at lower prices. In addition, many of the Company's competitors sponsor and conduct seminars free of charge as a marketing tool for other business. These competitors include stockbrokers, franchisers of business opportunities and portfolio and tax consultants. LICENSING FROM WADE B. COOK On March 20, 1998, the Company entered into a new Open Ended Product Agreement with Wade B. Cook to be effective July 1, 1997 and expiring June 30, 2000. This agreement amended the previous Product Agreement dated June 25, 1997. Pursuant to this Open Ended Product Agreement, the Company has a non-exclusive license with Mr. Cook which permits the Company to produce, market and sell licensed original products and intellectual property in exchange for a royalty of ten percent of the gross sales of the licensed products. Royalties are paid to Mr. Cook on a quarterly basis under the terms of the agreement; however, Mr. Cook is CEO of the Company and is authorized to set Company policy which allows him to take draws against royalties in amounts which he determines to be reasonable. In such cases, the royalties owing under the license are then reconciled quarterly with the draws Mr. Cook has taken. The license also grants the Company the right to use Mr. Cook's name, likeness, identity, trademarks, and trade symbols. The Agreement is open-ended in that it allows for future products developed by Mr. Cook to be licensed under the same terms and conditions upon the execution of a form "License Order". The Company does not have a contract which gives it the first right to license or otherwise obtain the right to produce, market or sell any future products developed by Mr. Cook. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." 14 RETURNS AND REFUNDS POLICY Due to the nature of the intellectual property contained in the majority of the Company's products and the ease with which the materials could be copied, the Company has an "all sales are final" policy except as otherwise required by state and federal law. The Company adopted a policy in May to provide a 7-day right of cancellation on all sales contracts. Additionally, the Company has given and continues to give refunds on a case by case basis as determined by the Refund Manager and/or the General Counsel. During 1997, the average return refund rate was under 2% of sales. INTELLECTUAL PROPERTY The Company regards its seminars, products and other materials as proprietary and relies primarily on a combination of statutory and common laws regarding copyrights, trademarks and trade secrets to protect such rights. Additionally, employee and third-party nondisclosure agreements and other methods to protect said propriety rights are relied on by the Company. The Company is currently attempting to identify and protect the intellectual property of the Company. In general, Wade B. Cook selects the trademarks for all products and the names of all corporate subsidiaries and promotions based on his personal preferences. Mr. Cook has, in the past, generally selected names which have common appeal and which contain descriptive terms and/or descriptive acronyms such as "Business Entity Skills Workshop" or "B.E.S.T." The Company has chosen not to register most existing trademarks currently used by the Company. 15 EMPLOYEES As of December 31, 1997, the Company had 532 employees, including 422 full-time employees, 110 part-time employees and approximately 70 independent contractors. As of March 13, 1998, WCFC had approximately 519 employees of which 114 are part-time. The Company's employees are not covered by collective bargaining agreements. The Company believes its relationship with its employees is good. SEASONALITY The Company's business is not seasonal. ITEM 2. - PROPERTIES Commercial Property The Company's headquarters is a three-story 63,000 square feet building owned by it and located at 14675 Interurban Avenue South, Seattle, Washington 98168. The majority of the Company's operations, such as corporate offices, in-house sales staff, in-house seminar staff, art department, accounting department and legal department are based at this location. In addition, the headquarters has 3 seminar rooms which the Company uses to hold some of its seminars. The Company leases space at 4479 South 134th Place, Seattle, Washington 98168, for its shipping and warehouse operations. The shipping warehouse is approximately 10,000 square feet. The majority of the Company's shipping is conducted at this location. Worldwide leases 2,400 square feet of office space located at 6208 Stratler in Salt Lake City, Utah. Worldwide conducts the majority of its operations out of this facility. Origin leases 7,200 square feet of office space located at 6208 Stratler in Salt Lake City, Utah. Origin conducts the majority of its business out of this facility. 16 ITEM 3. - LEGAL PROCEEDINGS Investigation by the Securities and Exchange Commission 17 The Company is subject to a private investigation by the Securities and Exchange Commission ("SEC") in the Matter of Wade Cook Seminars, Inc. The SEC is investigating the possible violation of Sections 5(a), 5(c) and 17(a) of the Securities Act, Section 1(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 203(a) and 206(1) and (2) of the Investment Advisers Act. The SEC has stated that the investigation should not be construed as an indication by the SEC or its staff that any violations of law have occurred, nor should it be construed as an adverse reflection on the merits of the securities involved or on any person or entity. The Company does not believe it or its executive officers and directors have violated applicable laws, and the Company intends to continue to cooperate with the investigation. The Company does not believe it or its executive officer and directors have violated applicable laws. Investigation by the State of Washington The Assistant Attorney General for the State of Washington's Department of Financial Institutions, Securities Division commenced an investigation of Mr. Cook, WCSI, and the Company in September, 1996. Since that time, the State of Washington's Department of Financial Institutions, Securities Division has issued subpoenas to Mr. Cook, WCSI, the Company, the General Counsel, and the former General Counsel requesting information related to the investigation. The Company has not been informed as to the specific basis for the State of Washington's investigation. The Company does not believe it or its executive officer and directors have violated applicable laws. Wade Cook Seminars, Inc. v. Charles Mellon, Anthony Robbins, Options Management, Inc. and Robbins Research International, Inc. On October 4, 1996, WCSI and Mr. Cook filed a complaint in King County Superior Court, State of Washington against Robbins Research International, Inc., Anthony Robbins, Charles Mellon, and Options Management, 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. On November 26, 1997, WCSI and Mr. Cook's unfair competition and misappropriation of trade secrets claims were dismissed in a hearing on a Motion for Summary Judgment brought by the Defendant. The Company and Mr. Cook are appealing the decision to the Ninth Circuit Court of Appeals. WCSI and Mr. Cook filed for a voluntary dismissal on the non-compete issues and were granted a dismissal without prejudice. Wade B. Cook v. Anthony Robbins, Robbins Research International, Inc. and Charles Mellon On June 18, 1997, Mr. Cook filed a copyright infringement suit in the United States District Court, Western District of Washington, against Anthony Robbins and Robbins Research International, Inc. seeking damages and injunctive relief. Charles Mellon, a former speaker for Wade Cook Seminars, Inc., was added as a defendant on August 5, 1997. Mr. Cook alleges Anthony Robbins copied or caused to be copied significant portions of his best selling book, Wall Street Money Machine. Mr. Cook authored and copyrighted the book which he claims defendants used in creating their new seminar entitled "Financial Power". A trial is scheduled for September 28, 1998. Litigation with ART and ITEX On February 4, 1998, WCFC filed a complaint against Associated Reciprocal Traders, Ltd. ("ART") and its parent corporation, ITEX, in the King County Superior Court, State of Washington in Seattle, Washington. On the same day, Associated Reciprocal Traders, Ltd. filed a complaint against WCFC in the King County Superior Court, State of Washington in Kent, Washington. Both complaints have been consolidated and are related to a dispute over the ownership of 1,800,000 shares of common stock that originally was issued as 100,000 shares of common stock of WCFC on September 10, 1996 in exchange for $500,000 worth of media credits for radio spots to Associated Reciprocal Traders, Ltd. pursuant to an agreement dated December 29, 1995. 18 County of Fresno Investigation On March 5, 1998, the Company received a letter from the County of Fresno, California, Office of District Attorney Business Affairs Unit ("BAU"), informing the Company that the BAU believed that the seminar sales contracts used in California by the Company were not in compliance with sections 1678.20 through 1693 of the California Civil Code which provide for a three-day right of cancellation on seminar sales solicitation contracts. According to the BAU, potential penalties for such actions could include restitution and civil penalties up to $2,500 for each violation. The BAU has afforded the Company the opportunity to negotiate a settlement with the BAU prior to any legal action being taken against the Company and a meeting has been scheduled in April for such purposes. The Company is now offering a 7-day right of cancellation in all of its seminar sales contracts. ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The 1997 Annual Meeting of Shareholders of the Company (the "Annual Meeting") was held at the Company's headquarters on December 10, 1997. At the meeting the shareholders of the Company approved the following: (i) the election of management's slate of directors for the forthcoming year; (ii) the ratification of the Company's name change from Profit Financial Corporation to Wade Cook Financial Corporation; (iii) the authorization of reincorporating the Company in the State of Nevada; (iv) the adoption of the 1997 Stock Incentive Plan; and (v) the authorization of an increase in the total number of authorized Common Stock of the Company to 140,000,000 shares from 60,000,000 shares. The directors nominated by management and elected by the shareholders were: Wade B. Cook, Laura Cook, John Childers, Sr., Nicholas Dettman, Eric Marler, Robert Hondel, Cheryle Hamilton, Pamela Andersen and Robin Anderson. Dr. Warren Chaney was not nominated to stand for election as a director notwithstanding the fact that his name was included in the Proxy Statement delivered to shareholders prior to the meeting. Voting Results The total number of outstanding shares representing the total possible number of votes that could be cast at the Annual Meeting was 6,715,032. The actual number of votes cast by proxy or in person excluding abstentions and broker non-votes was 4,118,659. The following table sets forth the actual numbers of votes cast for, against and those abstaining on each of the items voted on:
ITEM FOR AGAINST ABSTAIN - ---- --- ------- ------- #1. Election of Directors 4,118,411 248 N/A #2. Name Change 4,118,439 180 40 #3. Reincorporation 4,118,431 188 40 #4. Stock Incentive Plan 4,118,047 408 204 #5. Share Increase 4,117,809 284 566
19 PART II ITEM 5. - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock has been traded in the OTC BB Market under the symbol "WADE" since August 11, 1997. Prior to that time, the Company's Common Stock was quoted under the stock symbol "PFNL" in the over-the-counter market. The following table sets forth the approximate high and low bid quotations for the Company's Common Stock for the calendar periods indicated. The quotations reflect inter-dealer prices which may include retail markups, markdowns or commissions and may not reflect actual transactions.
HIGH BID LOW BID --------- ------- 1997 - -------------------------------------------------------------------------------- Quarter Ended March 31 4.25 2.00 Quarter ended June 30 5.94 2.63 Quarter ended September 30 13.88 4.88 Quarter ended December 31 15.44 7.63 1996 - -------------------------------------------------------------------------------- Quarter Ended March 31 2.12 2.00 Quarter Ended June 30 2.62 2.25 Quarter Ended September 30 3.75 3.50 Quarter Ended December 31 3.12 2.62 1995 - -------------------------------------------------------------------------------- Quarter Ended March 31 1.75 1.50 Quarter Ended June 30 2.37 2.12 Quarter Ended September 30 2.50 2.25 Quarter Ended December 31 2.00 1.87 1994 - -------------------------------------------------------------------------------- Quarter Ended March 31 1.87 1.62 Quarter Ended June 30 1.75 1.50 Quarter Ended September 30 1.75 1.50 Quarter Ended December 31 1.75 1.50
(1) Prices reported reflect a 3 for 1 stock split effective September 15, 1997, a 3 for 1 stock split effective December 23, 1997, and a 2 for 1 stock split effective September 9, 1996. 20 On March 13, 1998, there were approximately 1,373 shareholders of record of the Company's Common Stock and approximately 9,333 beneficial holders. On March 13, 1998, the closing bid price of the Company's Common Stock on the OTC BB Market was $3.03 per share. In February 1998, the Company changed stock transfer agents to American Stock Transfer and Trust Company, New York, New York. The Company has never paid cash dividends on its Common Stock and does not anticipate that it will pay dividends in the foreseeable future. Instead, the Company intends to retain earnings to expand and develop its business. RECENT SALES OF UNREGISTERED SECURITIES The issuances of shares of unregistered Common Stock disclosed below were made in reliance primarily on the exemption from registration of securities contained in Section 4(2) of the Securities Act of 1933, the rules and regulations promulgated thereunder by its Securities and Exchange Commission, and applicable provisions of state securities laws. On August 13, 1997, the Company authorized the issuance of 3,224,997 restricted shares of Common Stock for the acquisition of Ideal Travel Concepts Inc., under a Stock Purchase Agreement dated August 1, 1997. On September 12, 1997, the Company issued 500 post split shares of its restricted Class A Common Stock at $5 per share (pre splits) to Kathleen Mikos for payment in full of subscription notes receivables. On September 12, 1997, the Company issued 20,000 shares of its restricted Class A Common Stock at $1.00 per share ($3 per share pre split) to Baker Street Investments, L.P. under the stock options available to Board members. On October 13, 1997, the Company issued 5,000 shares of its restricted Class A Common Stock at $5.00 per share to Paul Christensen for a finder's fee in the purchase of the Fairfield Inn in Provo, Utah. On October 13, 1997, the Company issued 5,000 shares of its restricted Class A Common Stock at $5.00 per share to Rex Griffiths for a finder's fee in the purchase of the Fairfield Inn in Provo, Utah. On October 13, 1997, the Company issued 2,084 shares of its restricted Class A Common Stock at $6.00 per share to Paul Christensen for the acquisition of the Hampton Inn & Suites in Park City, Utah. On October 13, 1997, the Company issued 2,083 shares of its restricted Class A Common Stock at $6.00 per share to Rex Griffiths for the acquisition of the Hampton Inn & Suites in Park City, Utah. On November 17, 1997, the Company issued 11,538 post split shares of its restricted Class A Common Stock to Stan Zenk in exchange for 12,500 shares of Common Stock in Gold Leaf Press, Inc. for the acquisition of Gold Leaf Press, Inc. On November 17, 1997, the Company issued 11,538 post split shares of its restricted Class A Common to Curtis Taylor in exchange for 12,500 shares of Common Stock in Gold Leaf Press, Inc. for the acquisition of Gold Leaf Press, Inc. On December 19, 1997, the Company issued 3,637 shares of its restricted Class A Common Stock at $10.50 per share to Rex Griffiths for the purchase of a seven percent interest in Woods Cross Hotel Partners, L.C. On December 19, 1997, the Company issued 6,545 shares of its restricted Class A Common Stock at $10.50 per share to Paul Christensen for the purchase of a seven percent interest in Woods Cross Hotel Partners, L.C. On February 24, 1998, the Company issued a total of 13,650 shares of restricted common stock for the issuance of 25 shares of Common stock to all employees of record on December 22, 1997 as a year-end holiday bonus and the issuance of 50 shares of its Common stock to all management personnel of record on December 22, 1997. On August 15, 1997, the Company issued 30,269 shares of its restricted Common Stock to the following individuals in exchange for all of the issued and authorized shares in Origin Book Sales, Inc.: Stan Zenk, Curtis Taylor, Michael Hurst, Clarence Taylor, Delvin Jenks, Lonnie Hester, Stuart Taylor, Mark Mendenhall, Susan Coon, Diane Mower, and Isaac Taylor. On August 12, 1997, the Company issued 20,000 shares of restricted common stock (10,000 pre split) at $3.00 per share to John Childers, Sr. under the stock options available to employees and directors. ITEM 6. - SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with the Company's consolidated financial statements and the related notes and with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY" included elsewhere in this Form 10-K. The selected consolidated balance sheet data presented below as of December 31, 1996 and 1997 and of the consolidated statement of operations data presented below for the years ended December 31, 1995, 1996 and 1997 are derived from the consolidated financial statements of the Company included elsewhere in this Form 10-K, which financial statements have been audited by Miller and Company, independent certified public accountants. The selected consolidated balance sheet data presented below as of December 31, 1995 and 1994 and the consolidated 21 statement of operations data for the year ended 1994 are derived from financial statements of the Company not included in this Form 10-K which have been audited by Miller and Co., independent certified public accountants. The selected consolidated balance sheet data and selected consolidated statement of operation data presented below as of December 31, 1993 and for the year ended December 31, 1993 are derived from financial statements of the Company audited by other auditors not included in this Form 10-K. SELECTED CONSOLIDATED FINANCIAL DATA WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES YEAR ENDED DECEMBER 31, (IN THOUSANDS, EXCEPT PER SHARE DATA)
1993 1994 1995 1996 1997 CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net sales $ 728 $ 1,973 $ 6,504 $ 40,725 $ 104,908 Cost of sales $ 147 $ 862 $ 2,877 $ 15,683 $ 39,068 ------- --------- --------- ---------- ---------- Gross profit $ 581 $ 1,111 $ 3,627 $ 25,042 $ 65,840 Operating expenses $ 116 $ 1,134 $ 3,333 $ 20,302 $ 50,099 ------- --------- --------- ---------- ---------- Income (loss) from operations $ 465 $ (23) $ 294 $ 4,470 $ 15,741 Other expenses $ 114 $ 181 $ 55 $ 74 $ 706 ------- --------- --------- ---------- ---------- Income (loss) from continuing operations $ 351 $ (204) $ 239 $ 4,666 $ 15,035 ------- --------- --------- ---------- ---------- PRO FORMA INCOME FROM CONTINUING OPERATIONS DATA (1,2): Income (loss) before income taxes, minority interest and acquired operations as reported $ 351 $ (204) $ 239 $ 4,666 $ 15,035 Pro forma provision (benefit) for income taxes $ -- $ (8) $ 171 $ 1,061 $ 6,063 ---------- Minority interest in loss of subsidiary $ $ $ $ $ 21 - - - - ---------- Pro forma net income (loss) $ 351 $ (196) $ 68 $ 3,605 $ 8,993 ------- --------- --------- ---------- ---------- ------- --------- --------- ---------- ---------- PER SHARE DATA: Pro forma (loss income from continuing operations per share $0.007 (.003) .001 0.05 0.14 ------- --------- --------- ---------- ---------- ------- --------- --------- ---------- ---------- Weighted average shares outstanding 50,961,951 59,585,798 57,585,798 59,609,520 63,362,984
22 (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: 1993 1994 1995 1996 1997(1) Total assets $ 2,787 $ 206 $ 2,283 $ 16,938 $ 41,404 Total debt, including $ 688 $ 134 $ 1,458 $ 12,618 $ 24,649 current portion ------- --------- ---------- ---------- ----------- Stockholders' equity $ 2,099 $ 72 $ 825 $ 4,320 $ 16,755
(1) In the fourth quarter of 1997, the Board of Directors changed the fiscal year of WCSI from a fiscal year ending January 31 to a calendar fiscal year. The effect of the change was to exclude January 1998 from the consolidated financial statements of the Company and shorten the 1997 results of WCSI to an eleven month period. ITEM 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following discussion is intended to provide information to facilitate the understanding and assessment of significant changes and trends related to the financial condition of the Company and the results of its operations. This discussion and analysis should be read in conjunction with the Company's audited consolidated financial statements and the notes thereto included elsewhere in this Form 10-K. Overview and Outlook WCFC is a holding company that, through its operating subsidiary WCSI, conducts educational investment seminars and produces and sells audio tapes, videotapes, books and other written materials focused on investment strategies, financial planning and personal wealth management. The Company also invests in marketable securities, real estate, gold, oil and gas venture capital limited partnerships and private companies. WCSI hosts WIN, an Internet web site that allows subscribers to log on for information related to the stock market at http://www.wadecook.com. Two of the Company's operating subsidiaries, Left Coast Advertising, Inc. and Lighthouse Publishing Group, Inc. conduct advertising and publishing services, respectively, for the Company. In 1997 the Company acquired Worldwide, Origin, Gold Leaf and Ideal Travel. The following tables set forth the net sales, total cost of sales and gross profit of each of the operating subsidiaries of WCFC for the years ended December 31, 1995, 1996 and 1997. 23 SELECTED CONSOLIDATED FINANCIAL DATA WADE COOK FINANCIAL CORPORATION SUBSIDIARIES YEARS ENDED DECEMBER 31, (IN THOUSANDS)
1995 - ---------------------------------------------------------------------------------------------------------------------------------- Gold Ideal WCSI Lighthouse Origin Leaf Worldwide Travel Total - ---------------------------------------------------------------------------------------------------------------------------------- NET SALES $ 6,504 $ -- $ -- $-- $-- $ -- $ 6,504 - ---------------------------------------------------------------------------------------------------------------------------------- COST OF GOODS SOLD 2,122 2,122 - ---------------------------------------------------------------------------------------------------------------------------------- LICENSE AND ROYALTY EXPENSE 755 0 755 - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL COST OF SALES 2,877 0 0 0 0 0 2,877 - ---------------------------------------------------------------------------------------------------------------------------------- GROSS PROFIT 3,627 -- -- -- -- -- 3,627 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
1996 - ---------------------------------------------------------------------------------------------------------------------------------- Gold Ideal WCSI Lighthouse Origin Leaf Worldwide Travel Total - ---------------------------------------------------------------------------------------------------------------------------------- NET SALES $39,256 $1,469 -- -- -- -- 40,725 - ---------------------------------------------------------------------------------------------------------------------------------- COST OF GOODS SOLD 3,972 394 -- -- -- -- 4,366 - ---------------------------------------------------------------------------------------------------------------------------------- LICENSE AND ROYALTY EXPENSE 10,950 367 -- -- -- -- 11,317 - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL COST OF SALES 14,922 761 -- -- -- -- 15,683 - ---------------------------------------------------------------------------------------------------------------------------------- GROSS PROFIT 24,334 708 -- -- -- -- 25,042 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
1997 - ---------------------------------------------------------------------------------------------------------------------------------- Gold Ideal WCSI Lighthouse Origin* Leaf* Worldwide* Travel** Total - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- NET SALES $94,984 $4,733 $1,496 $26 $48 $ 3,620 $104,907 - ---------------------------------------------------------------------------------------------------------------------------------- COST OF GOODS SOLD 23,319 1,576 1,016 -- 17 2,964 28,892 - ---------------------------------------------------------------------------------------------------------------------------------- LICENSE AND ROYALTY EXPENSE 8,994 1,130 -- 13 39 -- 10,176 - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL COST OF SALES 32,313 2,706 1,016 13 56 2,964 39,068 - ---------------------------------------------------------------------------------------------------------------------------------- GROSS PROFIT 62,671 2,027 480 13 (8) 656 65,839 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
* - Acquired effective August 27, 1997 ** - Acquired effective August 1, 1997 24 Intercompany transactions have been eliminated. Results of Operations 1997 versus 1996 ---------------- Revenues for the year ended December 31, 1997 were $104.9 million as compared to revenues of $40.7 million for the year ended December 31, 1996. These results include the results of WCSI for only eleven months due to a change in WCSI's fiscal year end from January 31 to December 31. Revenues grew significantly due to several factors, including a substantial increase in advertising, and the fact that several books authored by Wade Cook appeared on the New York Times' Business Best Seller List, resulting in greater recognition for Wade Cook in the investment educational market. Seminar sales grew from $25 million in 1996 to more than $56 million in 1997, an increase of over 120%. Book sales rose from $9 million in 1996 to more than $33 million in 1997, an increase of over 267%. WIN subscribers have increased. The increase in overall revenues may also be attributed to the acquisition of related businesses in 1997. Costs of revenues increased from $15.7 million to $39 million, an increase of over 149%. However, the costs of revenues as a percentage of net revenues have decreased from 38.4% in 1996 compared to 37.2% in 1997. The Company believes it is taking advantage of the economies of scale in the distribution, travel, and publishing areas. The increase in costs was primarily attributed to revenue growth. Selling, general and administrative expenses increased by almost $30 million to $50.1 million in 1997 as compared to $20 million in 1996. The increase was attributable to increases in labor and related costs ($7 million in 1996, comapred to $16 million in 1997), advertising ($6 million in 1996 compared to almost $14 million in 1997), and postage and freight ($2.2 million in 1996 compared to $4.2 million in 1997). For the year ended December 31, 1997, the Company's net other income/expense was $706 thousand as compared to $74 thousand in 1996. The increase in expense was due to the costs associated with the purchase of the Company's headquarters building coupled with a net investment loss of over $800 thousand. The net investment loss can be attributed to the losses incurred in the brokerage accounts used by seminar instructors to make demonstration trades as well as a downturn in the stock and securities markets at the end of 1997. The provision for income taxes of $6 million and $1.6 million for the years ended 1997 and 1996, respectively, reflect taxes payable in respect of profitable operations. The Company anticipates that existing cash, together with internally generated funds aided by continuing increase in revenues, will provide the Company with the resources that are needed to satisfy the Company's working capital requirements in 1998. 1996 versus 1995 ---------------- Net revenues increased over $34 million or 526% during 1996 in comparison with 1995. This result was primarily attributable to the growth in both seminar ($26 million or 750%) and book sales ($8 million or 546%) coupled with the fact that 1995 consisted of only nine months. Costs of revenues increased almost $13 million or 445% during 1996 in comparison with 1995. The increase was primarily due to revenue growth. Cost of revenues for 1995 was 44% of sales compared to 39% in 1996. The reduction was principally due to the creation of its wholly owned subsidiary, Lighthouse Publishing, Inc., which cut the distribution and publishing costs of its books. Selling, general, and administrative expenses were $20 million (50% of revenues) for 1996 compared to almost $3 million (50% of revenues) in 1995. Selling, general, and administrative expenses increased by $17 million or 528% in 1996 primarily due to increases in labor ($7 million) and advertising ($6 million) costs. In 1995 the Company recorded a one-time non-cash pre-tax charge of $99 thousand to write down the carrying value of the land investment in Michigan. There were no additional impairment charges recognized in 1996. Investment income in 1996 was $190 thousand compared to $76 thousand in 1995. The increase is due to increases in investment in marketable securities. However, in 1995 the Company wrote down the value of its investment in a privately held company by $107 thousand. Interest expense in 1996 increased by $240 thousand due to margin loans on brokerage accounts. The provision for income taxes of $1.6 million and $171 thousand reflect taxes payable in respect of profitable operations. The 1995 provision reflects an additional provision for state income taxes of 10% of anticipated taxable income in the respective states. 25 LIQUIDITY AND CAPITAL RESOURCES At December 31, 1997, the Company's cash and cash equivalents and marketable securities totaled $6.7 million dollars. The Company's negative working capital was approximately $11,000,000 in 1997. The Company's negative working capital grew from $763,000 in 1995 to $3.9 million in 1996. The Company expects, therefore, that the negative working capital of the Company will increase in 1998. The primary reason for the increase in negative working capital is the Company's practice of funding long term investments with working capital as opposed to using other forms of financing including the issuance of equity and debt. 26 EFFECTS OF INFLATION The Company's management believes that inflation will not have a significant effect on the Company's results of operations. SEASONALITY The Company's business is not seasonal. ITEM 8. - FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE The Financial Statements of the Company and financial statement schedule filed as part of this report on Form 10-K are listed in Item 14(a). ITEM 9. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Company's Board of Directors is divided into three classes of directors, with the directors in each class elected for three-year staggered terms. Class I consists of three (3) directors whose term expires at the annual shareholders' meeting in 2000. Class II consists of three (3) directors whose term expires at the annual shareholders' meeting in 1999. Class III consists of four (4) directors whose term expires at the annual shareholders' meeting in 1998. Officers serve on the Board of Directors, subject to restrictions set forth in their employment agreements, if any. See "EXECUTIVE COMPENSATION--Employment Agreements." The following table sets forth information with respect to each director and executive officer of the Company:
NAME AGE POSITION CLASS DIRECTOR SINCE - ---- ---- -------- ----- -------------- Wade B. Cook 47 Chairman of the Board* I June, 1995 Laura M. Cook 45 Secretary and Director* I June, 1995 Cheryle Hamilton 46 Director* III June, 1997 Robert T. Hondel 54 Director* III June, 1997 Warren H. Chaney 54 Director (1) August, 1996 John V. Childers 52 Director I Sept., 1995 Nicholas Dettman 49 Director II Sept., 1995 Eric W. Marler 40 Director (3) II December, 1996 Pamela Andersen 46 Director* (2) III August, 1997 Robin Anderson 34 Director* III June, 1997 Christopher M. Carde Director, General Counsel and Interim CEO(4) Andrew T. Rice Comptroller, Treasurer and Chief Financial Officer(5) Caesar Regosa Comptroller and Director(6)
- ----------------- * Indicates members who are presently executive officers or employees of the Company. 27 (1) Did not stand for re-election at the 1997 Annual Shareholders' Meeting. Certain biographical information regarding Mr. Chaney has been omitted below. (2) Resigned from the Board, effective March 17, 1998. (3) Eric W. Marler served as the Chief Financial Officer of the Company from December, 1996 to June, 1997 when he resigned in order to take advantage of another business opportunity. He remains on the Board of Directors and continues to work for a company, Cascade Management Associates, L.P. that provides speaker services to the Company. (4) Christopher M. Carde was terminated by the Company pursuant to a confidential termination agreement dated August 21, 1997. Mr. Carde did not receive any additional severance compensation and agreed to continue to uphold his non-compete agreement. Certain biographical information regarding Mr. Carde has been omitted below. (5) Andrew T. Rice served as Comptroller from June to December 1997. During that time Mr. Rice became Treasurer and CFO of the Company. Mr. Rice resigned as CFO of the Company in December 1997 and left the Company just prior to the year-end. Certain biographical information regarding Mr. Rice has been omitted below. WADE B. COOK is the Chairman of the Board, CEO, President and interim Treasurer and Chief Financial Officer of the Company and has occupied at least one of those positions since June of 1995. Mr. Cook also served as Treasurer and President of WCSI since 1989. Mr. Cook is an author of numerous books on finance, real estate, asset protection and the stock market, a trainer and speaker on these topics, and the developer of educational products on investing and personal wealth management. Mr. Cook is the husband of Laura M. Cook. The State of Arizona commenced an administrative proceeding against Wade B. Cook and his former businesses American Business Alliance and Monarch Funding Corporation in February, 1989. The State of Arizona issued an administrative order, on or about May 1989, concluding that Mr. Cook and his businesses had violated various securities laws, including anti-fraud provisions, and as a result, ordered them to (1) pay over $390,000 in restitution, (2) jointly and severally pay a $150,000 administrative penalty, and (3) to cease and desist the allegedly fraudulent conduct. This matter has been concluded and all fines and penalties have been paid. LAURA M. COOK is the Secretary and a member of the Board of Directors of the Company. Mrs. Cook has also served as an officer and operational manager in several subsidiaries of the Company. Mrs. Cook has managed accounting systems for various corporations for 15 years. CHERYLE HAMILTON is the Director of Lighthouse Publishing. From March, 1996 to February, 1997, Ms. Hamilton served as Human Resources Director for the Company. Prior to her involvement with the Company, Ms. Hamilton was Executive Assistant of Sunsportswear, Inc., a clothing manufacturer located in Seattle, Washington. She also provided intellectual property and marketing consulting on a contract basis from 1991 to 1994. ROBERT T. HONDEL is a Director of the Company and is the President and a director of Quantum Marketing, Inc., a wholly-owned subsidiary, and was the General Sales Manager of WCSI until December 1997. Mr. Hondel left retirement to join the Company. Prior to joining the Company, Mr. Hondel spent 18 years as the Director and President of the Knapp College of Business in Tacoma, Washington. Mr. Hondel is the uncle of Robin Anderson. JOHN V. CHILDERS, SR. is a Director of the Company. In addition to his duties as Director, Mr. Childers acts as a speaker trainer of the Company. Mr. Childers is the former President of Ideal Travel Concepts, Inc., a travel company with locations in Tennessee and Florida which was recently acquired by the Company. 28 NICHOLAS DETTMAN is a Director of the Company. He is a captain for Delta Airlines and has been with that company for over 30 years. He is the owner and operator of Kalowai Plantation, an orchid ranch in Kauai, Hawaii. ERIC W. MARLER is a Director of the Company and has been a speaker for the Company since September, 1996. Mr. Marler also served as Chief Financial Officer of the Company from December, 1996 to June, 1997. Mr. Marler is Vice President of Cascade Management Associates, L.P., a firm that provides tax consulting. Prior to his involvement with the Company, Mr. Marler practiced as a Certified Public Accountant giving advice on income tax and profitability planning with Martin/Grambush, P.C., an accounting firm located in Kirkland, Washington. PAMELA S. ANDERSEN was a Director of the Company until March 1998. Ms. Andersen joined WCSI in October, 1994, as a director of Left Coast Advertising, Inc., a subsidiary of the Company. She currently serves as Manager of Real Estate Investments for the Company. Prior to her association with the Company, Ms. Andersen worked with Bromar, Inc., Harris/3M and NEC, and has experience in the fields of sales and real estate. ROBIN ANDERSON is a Director of the Company. Ms. Anderson is the Sales Manager for the Company and has been with the Company since 1994. Ms. Anderson is the niece of Robert T. Hondel. COMPENSATION OF DIRECTORS The Company pays each director a fee of $3,000, payable quarterly, in advance. In addition, the Company reimburses non-employee directors for reasonable travel and out-of-pocket expenses incurred in connection with their activities on behalf of the Company. Directors of the Company are eligible for participation in the Wade Cook Financial Corporation 1997 Stock Incentive Plan. See "The 1997 Stock Incentive Plan". The 1997 Stock Incentive Plan is administered by the Board of Directors. The 1997 Stock Incentive Plan The Company's 1997 Stock Incentive Plan ("Plan") provides for the granting of Stock Options ("Options"), including Incentive Stock Options ("ISOs") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and Non-Qualified Stock Options ("NQSOs"). In addition, Stock Appreciation Rights ("SARs") may be granted under the Plan, either accompanying an Option grant (a "Tandem SAR") or independent of an Option grant (a "Stand-Alone SAR"). The Plan also provides for the granting of shares of Restricted Stock, shares of Phantom Stock, stock bonuses and other stock-based awards. The Plan is administered by the Board. The Board has the right to grant awards to eligible recipients and to determine the terms and conditions of Award Agreements ("Agreements"), including, but not limited to, the vesting schedule and exercise price of such awards, and to make all other determinations deemed necessary or advisable for the administration of the Plan. The persons who will be eligible to receive awards pursuant to the Plan will be such directors, officers, consultants and other employees of the Company as the Board selects ("Participants"). 29 The maximum number of shares of Company stock reserved for issuance under the Plan is 1,000,000 shares (subject to adjustment as provided in this Form 10-K). Such shares may be authorized but unissued Company stock or authorized and issued Company stock held in the Company's treasury. The Board has the authority to make any and all equitable changes or adjustments it deems necessary or appropriate in the event any dividend or other distribution (whether in the form of cash, Company stock, or other property), recapitalization, Company stock split, reverse Company stock split, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other similar corporate transaction or event, affects the Company stock such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of Participants under the Plan. The Board will determine the expiration date of each Option, provided however, that no ISO will be exercisable more than 10 years after the date of grant. The exercisability of Options may be based on a predetermined vesting schedule or may be subject to the attainment by the Company of performance goals pre-established by the Board. The option exercise price per share will be determined by the Board; provided, however, that in the case of an ISO, the option exercise price will in no event be less than the fair market value of a share of Company stock on the date the ISO is granted. The Plan provides that the Board will have the authority to specify, at the time of grant, or with respect to NQSOs, at or after the time of grant, that a Participant shall be granted a new NQSO (a "Reload Option") for a number of shares equal to the number of shares surrendered by the Participant upon exercise of all or a part of an Option, subject to the availability of shares of Company stock under the Plan at the time of such exercise. The Board may grant Common Stock as a bonus. Other forms of awards valued in whole or in part by reference to, or otherwise based on, Company stock may be granted either alone or in addition to other awards under the Plan. The Board will determine the persons to whom and the time or times at which such awards will be granted. The number of shares of Company stock to be granted pursuant to such awards and all other conditions of such awards. The Board may suspend, terminate or amend the Plan at any time, provided however, that stockholder approval will be required if and to the extent the Board determines that such approval is appropriate for purposes of satisfying Section 422 of the Code or Rule 16b-3 as promulgated under the SEC. BOARD MEETINGS AND COMMITTEES During 1997, the Board of Directors held 10 meetings, and as of March 13, 1998, has met two times. Each current member attended at least 100% of the meetings of the Board of Directors for which they were eligible to attend. Board Committees The Executive Committee has the authority to approve the acquisition, financing and disposition of investments for the Company and execute certain contracts and agreements, including those related to borrowing money by the Company, and generally will exercise all other powers of the Board of Directors except for those which require action by the Board of Directors under the Articles of Incorporation, By-laws or applicable law. The members of the Executive Committee are Wade B. Cook and Laura M. Cook. The Audit Committee consists of directors who are not employees and who are, in the opinion of the Board of Directors, free from any relationship that would interfere with their exercise of independent judgment as Audit Committee members. The Audit Committee has been established to make recommendations concerning the engagement of independent public accountants, review with the independent public accountants the plans and results of the audit engagement, approve professional services provided by the independent accountants, review the independence of the independent public accountants, consider the range of audit and non-audit fees and review the adequacy of the Company's 30 internal accounting controls. The members of the Audit Committee are Eric W. Marler and Nicholas Dettman. The Audit Committee held three meetings in 1997 and, as of March 13, 1998, has held one meeting in 1998. The Compensation Committee consists of directors who may be employees and non-employees of the Company and has been established to review the Company's general compensation strategy, establish the salaries of, and review the benefit programs for, the Chairman and Chief Executive Officer and set the salaries of, and review the benefit programs for, those persons who report directly to the Chief Executive Officer, and to approve certain employment contracts. The members of the Compensation Committee are John V. Childers, Cheryle Hamilton, and Robert T. Hondel. The Compensation Committee held no meetings in 1997 and, as of March 13, 1998 has held two meetings. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's officers and directors and persons who own more than ten percent (10%) of a registered class of the Company's equity securities to file reports of ownership and changes in ownership on Forms 3,4 and 5 with the Securities and Exchange Commission. Based solely on the Company's review of the copies of such forms it has received and written representations from certain reporting persons that they were not required to file Form 5 for fiscal year 1997, the Company believes that all its officers, directors and greater than ten percent (10%) beneficial owners complied with all filing requirements applicable to them with respect to transactions during 1997. ITEM 11. - EXECUTIVE COMPENSATION SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION The following table sets forth certain compensation information for each of the last three fiscal years for the Chief Executive Officer and each of the next four most highly compensated executive officers whose compensation exceeded $100,000 and two additional persons for whom disclosure would have been required had such persons been executive officers of the Company.
NAME AND POSITION YEAR SALARY OTHER BENEFITS OTHER COMPENSATION - ----------------- ----- ------- -------------- ------------------ Wade B. Cook 1997 $238,240 $7,500(1) $9,996,840(2) Chairman, President 1996 $ 90,628 -- $4,366,183(3) and CEO 1995 $755,550 -- $ 82,923 Robert T. Hondel 1997 $112,231 -- $ 81,403 General Sales 1996 $179,532 -- -- Manager 1995 $ 62,500 -- -- Kim Brydson, 1997 $182,185 -- -- Director of Marketing 1996 $ 63,120 -- $ 17,923 1995 -- -- $ 2,550 Cheryle Hamilton 1997 $120,446 -- -- Director of Lighthouse 1996 $ 34,781 -- -- Publishing 1995 -- -- -- Scott Curry 1997 $124,645 -- -- Sales Representative 1996 $ 21,527 -- -- 1995 -- -- --
31 Certain of the Company's executive officers received personal benefits in addition to salary and cash bonuses, including car allowances or the use of a car owned by the Company. The aggregate amount of such personal benefits, however, does not exceed the lesser of $50,000 or 10% of the total of the annual salary and bonus reported for the named executive officers. - ------------------------ (1) Represents payment of the annual premium for a Life Insurance Policy on Wade B. Cook with Laura M. Cook as beneficiary. (2) Represents amounts paid by WCSI to Mr. Cook or his affiliates pursuant to a Product Agreement. See "Certain Relationships and Related Transactions." (3) Amounts shown are accrued royalties payable for the year 1996. The amount actually paid to Wade B. Cook and affiliates was $2,999,130. EMPLOYMENT AND TERMINATION AGREEMENTS Pursuant to an Employment Agreement, dated as of June 25, 1997 and effective as of July 1, 1997, Mr. Cook is employed as Chief Executive Officer and President of the Company. The Employment Agreement provides for a three-year term in which Mr. Cook will receive an annual base salary of $240,000 in Year 1, $265,000 in Year 2 and $290,000 in Year 3. According to the Employment Agreement, Mr. Cook may receive additional bonuses for work as approved by the Board of Directors of the Company. To date, no such bonuses have been requested or approved. In addition, Mr. Cook is entitled to reimbursement for reasonable travel and business entertainment expenses authorized by the Company, as well as certain fringe benefits. Christopher Carde was terminated by the Company pursuant to a confidential termination agreement dated August 21, 1997. Mr. Carde did not receive any additional severance compensation and agreed to continue to uphold his non-compete agreement. OPTION GRANTS IN LAST FISCAL YEAR Shown below is information concerning grants of options during fiscal 1997 to the Named Officers. Option Grants in the Last Fiscal Year Individual Grants(l)
Securities % of Securities Potential Realizable Value at Assumed Underlying Underlying Actual Rates of Stock Price Appreciation Options Options Granted for Option Term (2) Granted to Employees in Exercise Price Expiration --------------------------------------- Name (#) (1) Fiscal Year ($/Share) Date(s) 5% ($) 10% ($) - ------------------------------------------------------------------------------------------------------------------------------------ Wade B. Cook, Chairman Laura M. Cook, Secretary --NONE GRANTED--
(1) Under the terms of the Stock Option and Stock Award Plan all options to purchase the Company's Common Stock granted have ten-year terms. The per share exercise price in each case is equal to or greater than the closing price of the Company's Common Stock on the date of grant as reported on the OTC BB. The purchase price of Common Stock acquired by the exercise of options may 32 be paid by the delivery of shares of Common Stock previously acquired by the optionee. The Board has broad discretion and authority to amend outstanding options and re-price such options, whether through an exchange of options or amendments thereto. (2) Potential realizable value is based on an assumption that the stock price of the Common Stock appreciates at the annual rate shown (compounded annually) from the date of grant until the end of the option term. These numbers are calculated based on the requirements of the Securities and Exchange Commission and do not reflect the Company's estimate of future stock price performance. The number of shares acquired upon exercise of options and the value realized from any such exercise, during fiscal year 1997, and the number of shares subject to exercisable and unexercisable options held and their values at December 31, 1997 for each of the Named Officers are set forth in the following table. AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES Shown below is information with respect to the unexercised options to purchase the Company's Common Stock granted in fiscal 1997 under the Company's 1997 Stock Option Plan to the Named Officers. None of the Named Officers exercised any stock options during fiscal 1997. Aggregated Option Exercises in the Last Fiscal Year and FY-End Option Values
Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options at Options at Shares FY-End (#) FY-End ($) Acquired on Value Exercisable/ Exercisable/ Name Exercise(#)(1) Realized($)(1) Unexercisable Unexercisable (2) Wade B. Cook, Chairman Laura M. Cook, Secretary
(1) No options were exercised during 1997. (2) No options were in-the-money at the time of grant or at fiscal year end. "In-the-money" means that the market price of the underlying shares is higher than the price at which shares can be purchased by exercise of an option. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company has formed a Compensation Committee. No executive officer of the Company has served as a member of the board of directors or compensation committee of any company in which another Board member is an executive officer. 33 COMPENSATION REPORT OF THE BOARD OF DIRECTORS The Board of Directors is responsible for establishing compensation policy and administering the compensation programs of the Company's executive officers. See "Directors and Executive Officers of the Registrant--Board Meetings and Committees." The purpose of this report is to inform shareholders of the Company's compensation policies for executive officers and rationale for the compensation paid to executive officers in fiscal year 1997. The amount of compensation paid by the Company to each of its directors and officers and the terms of employment were determined solely by Wade B. Cook except as otherwise noted below. The Company believes that the compensation paid to its directors and officers, including Wade B. Cook, is competitive with that paid by similar companies. The compensations and benefits for 1997 of the Chief Executive Officer and the other executive officers of the Company are determined by oral employment agreements (except as otherwise noted below). The terms of such agreements were negotiated with Wade B. Cook. Mr. Cook's employment agreement for 1997 to 2000 was negotiated through the Company's General Counsel and was based on a general consideration of the compensation of similarly situated chief executive officers in the Pacific Northwest region of the United States. COMPENSATION OF CHIEF EXECUTIVE OFFICER Wade B. Cook's minimum base salary for 1997 was paid pursuant to his Employment Agreement. COMPENSATION OF ALL EXECUTIVE OFFICERS All executive officers of the Company are compensated based on a performance based system of generating sales and opportunities to and for the Company in exchange for salaries and bonuses. Mr. Cook negotiates all salaries. The Company believes that the levels of compensation and benefits set for executive officers is within the range of those set in similar companies for persons performing the same or similar functions. In one instance in 1997, employees, including executive officers, were granted small direct awards of the Company's Common Stock. The Board of Directors believes that the use of direct stock awards is appropriate for employees and in the future intends to use direct stock awards to reward outstanding service to the Company or to attract and retain individuals with exceptional talent and credentials. The use of incentives such as stock options or awards is intended to further align the interests of executive officers and other key employees with those of the Company's shareholders. The Omnibus Budget Reconciliation Act of 1993 as codified in the Internal Revenue Code established certain criteria for the tax deductibility of compensation in excess of $1 million paid to any one of the Company's executive officers. The effect of Section 162(m) of the Internal Revenue Code is that starting with tax years beginning after January 1, 1994, a publicly held corporation may not deduct compensation paid to its chief executive officer and its four other most-highly compensated officers in excess of $1 million per officer during a corporate taxable year except to the extent such amounts in excess of $1 million qualify for an exception to this limitation. To qualify for this exception, such amounts must be determined on the basis of pre-established, objective, nondiscretionary formulae that meet certain shareholder and outside director approval requirements. Submitted by the Board of Directors Wade B. Cook STOCK PERFORMANCE GRAPH 34 The following graph compares the Company's cumulative total shareholder return since the Common Stock became registered under Section 12 of the Securites Exchange Act of 1934 on June 30, 1997 with the Russell 2000 Index and an index of certain companies having the same Standard Industrial Classification Code. The graph assumes that the value of an investment in the Company's Common Stock at June 30, 1997 at the closing price of $1.68 per share and each index was $100.00 on June 30, 1997. [GRAPH]
6/30/97 7/31/97 8/29/97 9/30/97 10/31/97 11/28/97 12/31/97 1/30/98 2/27/98 K FINANC 100.00 106.91 311.45 184.18 202.27 190.91 76.14 59.66 54.55 CODE IND 100.00 104.13 99.92 105.73 109.62 104.31 108.01 114.95 126.86 ELL 2000 IN 100.00 104.64 107.03 114.86 109.82 109.11 111.02 109.26 117.34
1 The Industry Index chosen was: Sic Code 2741--Miscellaneous Publishing The Current composition of the industry index is as follows: American Education PRD Global One Distrib&Merch Harte Hanks Communicatns Pacific Chemical Inc Publishing Co N America Topps Co Inc Tro Learning Inc Visual Data Corp 2 The Broad Market Index chosen was: Russell 2000 Index ITEM 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the ownership of shares of the Common Stock as of March 13, 1998 (except as otherwise noted) by (i) each person known by the Company to beneficially own more than 5% of the outstanding shares of Common Stock, (ii) each director of the Company, (iii) each executive officer of the Company, and (iv) all directors and executive officers of the Company as a group. Except as noted below each person named in the table has sole voting and dispositive power with respect to all shares of Common Stock shown as beneficially owned.
SHARES BENEFICIALLY PERCENT OF BENEFICIAL OWNER (1) OWNED (2) CLASS (3) Officers and Directors: Wade B. Cook 39,789,860(4) 62% Laura M. Cook 39,789,860(4) 62% Cheryle Hamilton 1,310 * Robert T. Hondel 166,310 * John V. Childers 1,148,810 1.8% Nicholas Dettman 0 * Eric W. Marler 23,480 * Pamela Andersen 1,310 *
35 Robin Anderson 18,050 * All executive officers and directors of the Company as a group (9 persons) 41,149,130 64% Non-management 5% Shareholders -- --
- ------------------------ * Represents beneficial ownership of less than 1% of the outstanding shares of the Common Stock (1) Unless otherwise indicated, the address of the beneficial owner is c/o Wade Cook Financial Corporation, 14675 Interurban Avenue South, Seattle, Washington 98168-4664. (2) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of Common Stock subject to stock options and warrants currently exercisable or exercisable within 60 days are deemed to be outstanding for calculating the percentage ownership of the person holding such options and the percentage ownership of any group of which the holder is a member, but are not deemed outstanding for calculating the percentage of any other person. Except as indicated by footnote, and except for voting or investment power held jointly with a person's spouse, the persons named in the table have sole voting and investment power with respect to all shares of capital stock shown beneficially owned by them. (3) Percentage is calculated based upon 64,223,685 shares of Common Stock outstanding on March 13, 1998 and takes into account a 3:1 stock split approved by the Board of Directors effective September 15, 1997 and a 3:1 stock split approved by the Board of Directors effective December 23, 1997. (4) Includes (a) 7,508,345 shares of Common Stock owned of record by Mr. Cook, (b) 3,600,140 shares owned by the Wade Cook Family Trust, a trust established for the benefit of Mr. and Mrs. Cook's family, (c) 7,500 shares of Common Stock held by Money Chef, Inc., and (d) shared voting and investment power over 24,200,000 shares of Common Stock owned by the Wade B. Cook and Laura M. Cook Family Trust, a trust established for the benefit of Mr. & Mrs. Cook's family. Wade B. Cook and Laura M. Cook are husband and wife. All shares held by Mr. Cook are held as community property. Mr. Cook is the trustee of the named trusts. ITEM 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On March 20, 1998, Mr. Cook and the Company entered into a new Product Agreement adding additional licensed materials. As with the previous Open Ended Product Agreement the license is nonexclusive, provides Mr. Cook with a 10% royalty rate of all gross sales for the products licensed, and will remain in effect until June 30, 2002. The Company paid royalties to Mr. Cook or entities controlled by Mr. Cook of $9,996,840 in 1997, $2,199,130 in 1996, and $755,550 in 1995. The Company has licensed the rights to various books authored by Mr. Cook. See Licensing from Wade B. Cook. Under the terms of each Publishing Agreement, Mr. Cook is paid a royalty of ten percent (10%) of the retail price of each book sold. The amount of royalties paid to Mr. Cook and his affiliates under the Publishing Agreements in 1997, 1996, and 1995 is included in the amounts stated above as paid royalties. WCSI has two loans to Paul Cook, Mr. Cook's brother, in the amount of seventy-five thousand dollars ($75,000) and thirteen thousand dollars ($13,000). The first loan in the amount of seventy-five thousand dollars ($75,000) was executed on June 18, 1997 for a two-year term at an interest rate of 11 36 percent (11%) per annum. The second loan for thirteen thousand dollars ($13,000) was executed on January 1, 1998 for a one year term at an interest rate of eleven percent (11%) per annum. Both loans are secured by a deed of trust on Paul Cook's home in Salt Lake City, Utah. The Company contracts with Grand Teton, a company owned or controlled by Paul Cook, to provide speaker services. The Company paid to Paul Cook and Grand Teton $178,700, $46,648 and $3,500 in 1997, 1996 and 1995, respectively. Scott Scheuerman, Mr. Cook's brother-in-law, is president of USA Corporate Services, Inc. (USA), BOSS Services, Inc., (BOSS), and Acorn Services, Inc. and is also secretary and treasurer of Black Ink, ("Black Ink") all of which are Nevada corporations. Boss and Acorn provide business office support services and registered agent services respectively, and both have corporate offices in Nevada. USA and Black Ink provide incorporation services and corporate documentation. USA and Black Inks's corporate offices are located in WCFC's headquarters in Seattle, Washington. USA and Black Ink leases the office space for their corporate headquarters from Wade Cook Seminars, Inc.. The Company markets the services of USA, BOSS, Acorn, and Black Ink to its seminar attendees. In 1997, the Company paid approximately $1,990 to Acorn, approximately $1,027,501 to USA, and approximately $91,725 to Black Ink. The Company paid $117,866 and $123,242 to these entities in 1996 and 1995, respectively. Eric W. Marler, the former Chief Financial Officer of the Company and a current Director and speaker for the Company, is the owner of 50% of the issued units of Cascade Management Associates, L.P. ("Cascade"). Cascade provides WCSI with the speaking services of Mr. Marler. The Company paid $103,009 to Cascade in 1997 and $35,555 in 1996. There is no record of payment to Cascade in prior years. John V. Childers, Sr., a Director of the Company, contracts with WCSI through Speaker Services, Inc. ("Speaker Services"), a corporation owned or controlled by Mr. Childers, to develop & direct speaker trainer programs for WCSI. Mr. Childers receives a commission based on the gross sales of Financial Clinic and Wall Street Workshops. The Company paid Speaker Services $254,422 and Seminar Services $166,860 in 1997, $22,710 in 1996, and $3,080 in 1995. The Company paid Mr. Childers $421,282 in 1997 and has no record of direct payment to him in prior years. Additionally, Mr. Childers is the former president and director of Ideal Travel Concepts Inc. ("Ideal"). WCFC executed a stock purchase agreement with Ideal effective August 1, 1997 to purchase Ideal for 358,333 shares of restricted Common Stock of the Company for a total purchase price of $2,150,000. Ideal provides travel services to the Company and others and has offices in Tennessee and Florida. Ideal also provides travel agent training kits which are marketed by WCSI. Effective January 1, 1998, the Company acquired Quantum Marketing, Inc. ("Quantum") from Robert Hondel, a Director of the Company in exchange for 45,000 restricted shares of Common Stock in the Company. Quantum provides retail and local marketing of the products of the Company through individual Wade Cook Financial Education Centers. Most centers contain a business bookstore, a sales office, and an alumni center. Mr. Hondel will remain as the President of Quantum. Hondel also assigned all rights and interests in Wade Cook Financial Education Centers, Inc., a Nevada corporation to the Company for $1. On January 9, 1998, WCSI executed a loan to Robert Hondel, a Director and the President of Quantum Marketing, Inc., which is now a wholly-owned subsidiary of the Company. The loan was in the amount of forty-thousand dollars ($40,000) for a term of 4 years at an interest rate of 10% per annum. On July 31, 1997 Robert Hondel executed a promissory note in the principal amount of $300,000 in favor of WCSI. The note is secured by a lien on Mr. Hondel's real property located in Graham, Washington and bears interest at a rate of 10% per year payable in monthly installments of $2,500 plus 50% of all monthly income received by Quantum Marketing and its affiliates in excess of $8,000 per month beginning September 5, 1997 until paid in full. Money Chef, Inc., an affiliate of Wade B. Cook has a 50% ownership interest in Newstart Centre, Inc., a Utah corporation ("Newstart") that specializes in automobile sales and leasing to consumers unable to obtain financing from traditional sources. Money Chef, Inc. also purchased the property which is currently leased to Newstart. The Company originally planned to purchase the interest of Newstart, and the land leased by Newstart 37 at the time of the acquisition by Money Chef, Inc., but was not in a position to do so at the time of closing. With the approval of the Board, Mr. Cook, made the acquisition personally through his interest in Money Chef, Inc. which enabled the Company further time to consider the investment. The Board has subsequently agreed to purchase both the land and the 50% interest in Newstart for a $1 above that which Mr. Cook and/or Money Chef has invested to date for said property and 50% interest in Newstart. The Company intends to complete this acquisition in the next quarter. WCSI, Left Coast Advertising, Inc., and Information Quest, Inc. have a total of eight outstanding loans to Newstart. On May 23, June 20, and July 25 of 1997 and January 20, 1998, WCSI executed four loans with Newstart. Each loan was in the amount of one-hundred and twenty-five thousand dollars ($125,000) for a term of 4 years. All of the loans executed in 1997 were at an interest rate of seventeen percent (17%) per year. The loan executed on January 20, 1998 was at an interest rate of fifteen percent (15%) per year. On August 22, and October 9, of 1997, Information Quest executed two loans with Newstart for one hundred and twenty-five thousand dollars ($125,000) each for a term of four (4) years at an interest rate of seventeen percent (17%) per year. Left Coast Advertising executed two separate loans with Newstart, on August 19, and October 9, of 1997. These loans were in the amount of one hundred and twenty-five thousand dollars ($125,000) for a term of four years at an interest rate of 17% per year. All of these loans are secured by titles to automobiles purchased with these funds. Effective January 1, 1998, WCFC acquired all of the stock in Information Quest, Inc., a Nevada corporation ("IQI"), from Thomas and Linnet Cloward in exchange for 45,000 restricted shares of common stock in the Company. Mr. Cloward was the former Chief Information Officer of the Company and will continue as President of IQI under the terms of an Employment Agreement effective April 1, 1998 and terminating December 31, 1998. The Employment Agreement provides for a base salary of $60,000 and a one percent commission override on IQI sales. The Employment Agreement further provides Cloward the option to purchase 45,000 restricted shares of WADE at $2.00 per share on September 1, 1998 and an additional 45,000 shares of restricted stock of WADE at $2.33 per share on September 1, 1999. Ms. Cloward is an employee of the Company. Information Quest, Inc. is a provider of subscription paging service related to stock market developments. The Company has also licensed the rights to the IQ Pager, the primary product of IQI, from Mr. Cloward, the inventor, in exchange for a two and one-half percent (2.5%) royalty of gross revenues related to the product. Prior to the acquisition of IQI and the license from Cloward, the Company had a marketing arrangement with IQI wherein the Company split equally the gross income of all IQ Pagers sold by the Company. Effective January 1, 1998, WCFC acquired all of the stock in Get Ahead Bookstores, Inc., a Nevada corporation ("Get Ahead") from Glendon H. Sypher for an Assignment of all of his right, title and interest in and to for $1. Mr. Sypher was hired to begin Get Ahead operations from funds advanced by the Company. 38 PART IV ITEM 14. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K The following documents are filed as part of this report: PAGE REFERENCE (a)(1) FINANCIAL STATEMENTS. FORM 10-K Independent Auditors' Report ...................................... F-1 Consolidated Balance Sheets as of December 31, 1996 and 1997 ................................................... F-2 Consolidated Statements of Operations for each of the three years in the period ended December 31, 1997 .............................................. F- Consolidated Statements of Stockholders' (Deficiency) Equity for each of the three years in the period ended December 31, 1997 ......................................... F- Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1997 .............. F- Notes to Consolidated Financial Statements ....................... F-
(a)(2) FINANCIAL STATEMENT SCHEDULE. Independent Auditors' Report....................................... S-1 Schedule I - Condensed Financial Information of Registrant......... S-2 (a)(3) EXHIBITS. 2.1(a)**** Articles of Merger, dated September 10, 1997, filed on December 19, 1997 in the State of Nevada. (previously filed as Exhibit 19.14) 2.1(b)**** Articles of Merger, dated December 20, 1997, filed on December 22, 1997 in the State of Utah. (previously filed as Exhibit 99.14) 2.1(c)**** Agreement and Plan of Merger, dated August 15, 1997, filed on December 19, 1997 in the State of Nevada and filed on December 22, 1997 in the State of Utah. (previously filed as Exhibit 99.14) 2.1(d)**** Certificate of Correction dated and filed on December 24, 1997 in the State of Nevada. (previously filed as Exhibit 99.14) 2.1(e)**** Articles of Incorporation, dated and filed December 19, 1997, in the State of Nevada. (previously filed as Exhibit 99.14) 2.1(f)**** Minutes of Annual Shareholders' meeting of Wade Cook Financial Corporation held on December 10, 1997 filed on December 19, 1997 in the State of Nevada. (previously filed as Exhibit 99.14) 2.1(g)**** Corporate Charter for Wade Cook Financial Corporation. (previously filed as Exhibit 99.14) 2.1(h)**** Corporate Resolution, dated December 18, 1997, to increase total authorized common stock of Wade Cook Financial Corporation. (previously filed as Exhibit 99.14) 3.1(a)* Articles of Incorporation of Profiteer Corporation 3.1(b)* Amendment to Articles of Incorporation of Profiteer Corporation dated September 2, 1984 3.1(c)* Amendment to the Articles of Incorporation of Profiteer Corporation dated August 10, 1988 3.1(d)** Amendment to the Articles of Incorporation of Profiteer Corporation dated September 10, 1991 3.1(e)**** Amendment to the Articles of Incorporation of Profit Financial Corporation dated September 14, 1997 (previously filed as Exhibit 99.14) 3.2**** Bylaws of Wade Cook Financial Corporation (previously filed as Exhibit 99.17) 3.2(a)* Bylaws of Profiteer Corporation 4.1*** Form of Profit Financial Corporation's Class A Common Stock Certificate 4.1(a)**** Form of Wade Cook Financial Corporation's Common Stock Certificate (previously filed as Exhibit 99.7) 10.1(a)** Product Agreement, Dated January 3, 1993, between United Support Association, Inc. as the purchaser, and Money Chef, Inc., previously known as USA/Wade Cook Seminars, Inc. as the seller 10.1(b)*** Product Agreement, dated June 25, 1997, and effective as of July 1, 1997, among Wade Cook Seminars, Inc., Money Chef, Inc., and Wade B. Cook 10.1(c)**** 1997 Stock Incentive Plan of Wade Cook Financial Corporation (previously filed as Exhibit 99.19) 10.1(d)**** Notice of Grant of Stock Option of Wade Cook Financial Corporation (previously filed as Exhibit 99.18) 10.1(e)**** Certificate of Appointment of American Stock Transfer & Trust Company (previously filed as Exhibit 99.15) 10.1(f) Form of Indemnification Agreement of Wade Cook Financial Corporation (previously filed as Exhibit 99.16) 39 10.2* Agreement dated May 18, 1995, by and among Profit Financial Corporation, Yeaman Enterprises, Inc., Four Star Ranch, Inc., United Support Association, Inc. and Wade B. Cook 10.3(a)* Agreement dated February 1, 1996, between Wade B. Cook and Lighthouse Publishing Group, Inc. (for Wall Street Money Machine) 10.3(b)** Amended Agreement, dated June 26, 1997, between Wade B. Cook and Lighthouse Publishing Group, Inc. (for Wall Street Money Machine) 10.4(a)* Agreement Dated January 1, 1997, between Wade B. Cook and Lighthouse Publishing Group, Inc. (for Stock Market Miracles) 10.4(b)** Amended Agreement dated June 26, 1997, between Wade B. Cook and Lighthouse Publishing Group, Inc. (for Stock Market Miracles) 10.5** Agreement dated March 1, 1997, between Wade B. Cook and Lighthouse Publishing Group, Inc. (for Bear Market Baloney) 10.6** Agreement dated May 1, 1997, between Wade B. Cook and Lighthouse Publishing Group, Inc. (for Business Buy The Bible) 10.7** Purchase and Sale Agreement, dated July 4, 1996, between United Support Association and Seller 10.8** Employment Agreement dated June 26, 1997, by and between Wade Cook Seminars, Inc., and Wade B. Cook 10.9** Commercial Lease dated June 25, 1997, by and between Wade Cook Seminars, Inc. and U.S.A. Corporate Services, Inc. 10.10** Agreement dated November 1, 1996, between Wade B. Cook and Lighthouse Publishing Group, Inc. (for Real Estate Money Machine) 10.11*** All Inclusive Trust Deed dated March 8, 1997, for the purchase and assumption of certain real-estate by Rising Tide, LTD from East Bay Lodging Association, LTD 10.12*** Secured Loan Agreement and Promissory Note (Secured) between U.S.A., Wade Cook Seminars, Inc. and Newstart Centre, Inc. 10.13**** Open-Ended Product Agreement, dated March 20, 1998, between Wade Cook Financial Corporation and Wade B. Cook (previously filed as Exhibit 99.10) 10.14 Product Agreement, dated March 23, 1998, between Planet Cash, Inc., Steven Allyn Wirrick and Wade Cook Financial Corporation 10.15 Stock Assignment Agreement, dated January 1, 1998, between Get Ahead Bookstores, Inc., Glendon H. Sypher and Wade Cook Financial Corporation 10.16**** Employment Agreement, dated March 23, 1998, between Wade Cook Financial Corporation and Thomas Cloward (previously filed as Exhibit 99.6) 10.17**** Product Agreement, dated March 23, 1998, between Wade Cook Financial Corporation, Information Quest, Inc. and Thomas Cloward (previously filed as Exhibit 99.6) 10.18**** Share Exchange Agreement, dated January 1, 1998, between Wade Cook Financial Corporation and Information Quest, Inc. (previously filed as Exhibit 99.6) 10.19**** Stock Purchase Agreement, dated August 8, 1997, between Profit Financial Corporation and Curtis A. Taylor and Stanley J. Zenk regarding Worldwide Acquisition. (previously filed as Exhibit 99.3) 10.20**** Stock Purchase Agreement, dated August 1, 1997, between Wade Cook Financial Corporation and John V. Childers, Sr., Brenda Childers, Tracy Allan Childers and John V. Childers, Jr. regarding Ideal Acquisition. (previously filed as Exhibit 99.4) 10.21**** Share Exchange Agreement, dated September 12, 1997, between Profit Financial Corporation and Applied Voice Recognition, Inc. (previously filed as Exhibit 99.1) 10.22**** Publishing Agreement, effective October 1, 1997 and signed January 12, 1998, between Lighthouse Publishing Group, Inc. and Wade B. Cook (re: Don't Set Goals (the Old Way)) (previously filed as Exhibit 99.11) 10.23**** Distribution Agreement, effective September 21, 1997 and signed October 1, 1997, between Lighthouse Publishing Group, Inc. and Origin Trade Books, Inc. (re: Don't Set Goals (the Old Way)) (previously filed as Exhibit 99.11) 10.24**** Distribution Agreement, effective September 21, 1997 and signed October 1, 1997, between Lighthouse Publishing Group, Inc. and Origin Trade Books, Inc. for several Wade B. Cook's books (previously filed as Exhibit 99.11) 10.25**** Secured Loan Agreement, Promissory Note, and Certificate of Delivery and Receipt of Documents, dated May 23, 1997, between USA/Wade Cook Seminars, Inc. and Newstart Centre, Inc. (previously filed as Exhibit 99.20) 10.26**** Secured Loan Agreement, Promissory Note, and Certificate of Delivery and Receipt of Documents, dated June 20, 1997, between Wade Cook Seminars, Inc. and Newstart Centre, Inc. (previously filed as Exhibit 99.20) 10.27**** Secured Loan Agreement, Promissory Note, and Certificate of Delivery and Receipt of Documents, dated July 25, 1997, between Wade Cook Seminars, Inc. and Newstart Centre, Inc. (previously filed as Exhibit 99.20) 10.28**** Secured Loan Agreement, Promissory Note, and Certificate of Delivery and Receipt of Documents, dated August 22, 1997, between Information Quest, Inc. and Newstart Centre, Inc. (previously filed as Exhibit 99.20) 10.29**** Secured Loan Agreement, Promissory Note and Certificate of Delivery and Receipt of Documents, dated October 9, 1997, between Information Quest, Inc. and Newstart Centre, Inc. (previously filed as Exhibit 99.20) 10.30**** Secured Loan Agreement, Promissory Note and Certificate of Delivery and Receipt of Documents, dated October 9, 1997, between Left Coast Advertising, Inc. and Newstart Centre, Inc. (previously filed as Exhibit 99.20) 10.31**** Secured Loan Agreement, Promissory Note and Certificate of Delivery and Receipt of Documents dated August 19, 1997, between Left Coast Advertising, Inc. and Newstart Centre, Inc. (previously filed as Exhibit 99.20) 10.32 Secured Loan Agreement, Promissory Note and Certificate of Delivery and Receipt of Documents, dated January 20, 1998, between Wade Cook Seminars, Inc. and Newstart Centre, Inc. 10.33**** Secured Promissory Note, dated July 31, 1997, between Wade Cook Seminars, Inc. and Robert and Meda Hondel. (previously filed as Exhibit 99.6) 10.34**** Share Exchange Agreement, dated August 15, 1997, between Profit Financial Corporation and Gold Leaf Press, Inc. (previously filed as Exhibit 99.21) 10.35**** Share Exchange Agreement, dated August 15, 1997, between Profit Financial Corporation and Origin Book Sales, Inc. (previously filed as Exhibit 99.22) 10.36 Secured Promissory Note, dated June 18, 1997, between Paul and Laurie Cook and Wade Cook Seminars, Inc. 10.37 Secured Promissory Note, dated January 1, 1998, between Paul and Laurie Cook and Wade Cook Seminars, Inc. 10.38**** Purchase Order Form, dated September 12, 1997, between Profit Financial Corporation and Applied Voice Recognition, Inc. (previously filed as Exhibit 99.23) 10.39 Articles of Organization of Lake View Lodging Associates, L.C. effective as of September 22, 1997 10.40 Assignment and Assumption of Interest, Consent Agreement, Memorandum of Terms re: Airport Hotel Partners, L.L.C. 10.41 Limited Liability Company Interest Purchase Agreement re: Woods Cross Hotel Partners, L.C. dated November 29, 1997 10.42 Limited Liability Company Interest Purchase Agreement with exhibits re: Park City Hotel Partners, L.C. dated February 4, 1997 10.43 Memorandum of Terms, Assignment and Assumption of Interest, Warranty Deed re: Airport Lodging Associates, L.C. 10.44 Warranty Deed, Articles of Organization re: Red Rock Lodging Associates, L.C. 16.1*** Letter re: Change in Certifying Accountant 21.1* List of Profit Financial Corporation Subsidiaries 23.1 Consent of Miller and Company 24**** Powers of Attorney 27 Financial Data Schedule
- -------------------------- * Previously filed as an exhibit to the Company's Form 10-12G filed with the SEC on April 30, 1997 and incorporated in this Form 10-K by reference. 40 ** Previously filed as an exhibit to the Company's Form 10/A-1 filed with the SEC on June 29, 1997 and incorporated in this Form 10-K by reference. *** Previously filed as an exhibit to the Company's Form 10-12G/POS AM filed with the SEC on September 24, 1997 and incorporated in this Form 10-K by reference. **** Previously filed as an exhibit to the Company's Form 10-K filed with the SEC on March 31, 1998 and incorporated in this Form 10-K/A by reference. (b) REPORTS ON FORM 8-K. In the Company's last fiscal quarter ended December 31, 1997, the Company did not file with the Securities and Exchange Commission a Current Report on Form 8-K. 41 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report on Form 10K, as amended, to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Seattle, Washington, on July 13, 1998. WADE COOK FINANCIAL CORPORATION By: /s/ Wade B. Cook ------------------------------------ Wade B. Cook, Chief Executive Officer By: /s/ Wade B. Cook ------------------------------------ Wade B. Cook, Interim Chief Financial Officer 42 REPORT OF INDEPENDENT AUDITORS Board of Directors Wade Cook Financial Corporation and Subsidiaries Seattle, Washington We have audited the accompanying consolidated balance sheets of Wade Cook Financial Corporation and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, changes in shareholders' equity,and cash flows for the years ended December 31, 1997 and 1996, and the nine months ended December 31, 1995 (restated). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Wade Cook Financial Corporation and subsidiaries as of December 31, 1997 and 1996,and the results of their consolidated operations and their consolidated cashflows for the years ended December 31, 1997 and 1996, and the nine months ended December 31, 1995 (restated) in conformity with generally accepted accounting principles. As discussed in Note-B to the financial statements, the Company has restated its 1998 earnings per share. As described in Note-I to the financial statements, the Company changed in 1995, its method of accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of in accordance with the Statement of Financial Accounting Standards No. 121. As discussed in Note-V to the financial statements, the Company has restated its 1995 financial statements to conform with reversed acquisition under the purchase method of accounting. Before the restatement the acquisition was previously accounted for under the pooling of interests method. /s/ Miller and Co. ------------------------------- Miller and Co. Certified Public Accountants Santa Monica, California February 26, 1998, except Notes V & W, for which the date is March 26, 1998 F-1 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
CURRENT ASSETS NOTES 1997 1996 - ----------------------------------------------------------------------- ---------- ------------- ------------- Cash and cash equivalents.............................................. A,L,V $ 540,763 $ 635,141 Marketable securities................................................ A,C,G,L 6,162,733 3,801,039 Trade and credit card receivables.................................... 3,283,183 859,660 Inventory............................................................ A 1,312,366 395,743 Due from related parties............................................. E 749,726 -- Notes receivable -- employees, current portion....................... 242,537 329,060 Notes receivable from officers, current portion...................... -- 13,191 Prepaid expenses..................................................... 235,840 93,196 Deferred royalties to related party.................................. -- 48,781 Deferred tax asset................................................... A,N 251,015 783,064 ---------- ------------- ------------- TOTAL CURRENT ASSETS................................................. 12,778,163 6,958,875 ---------- ------------- ------------- PROPERTY AND EQUIPMENT................................................. A,H 10,425,159 7,135,205 ---------- ------------- ------------- GOODWILL............................................................... A,Q 2,637,669 -- ---------- ------------- ------------- OTHER ASSETS Non-marketable investments........................................... I,L 7,330,460 522,600 Other investments.................................................... 246,848 -- Deposits............................................................. U 4,093,334 35,423 Notes receivable -- employees........................................ E 3,293,182 1,385,742 Notes receivable from officers....................................... -- 236,413 Due from related parties............................................. E 599,323 663,401 ---------- ------------- ------------- TOTAL OTHER ASSETS................................................... 15,563,147 2,843,579 ---------- ------------- ------------- TOTAL ASSETS....................................................... $ 41,404,138 $ 16,937,659 ---------- ------------- ------------- ---------- ------------- -------------
The accompanying notes are an integral part of these consolidated financial statements. F-2 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY
DECEMBER 31, ---------------------------- CURRENT LIABILITIES NOTES 1997 1996 - ------------------------------------------------------------------------ --------- ------------- ------------- Current portion of long-term debt..................................... J $ 1,445,000 $ 660,708 Book overdrafts....................................................... U 2,156,305 -- Accounts payable and accrued expenses................................. 6,450,485 976,644 Margin loans in investment accounts................................... L 2,766,824 1,103,936 Payroll and other taxes withheld and accrued.......................... 163,363 807,414 Income taxes payable.................................................. A,N 5,253,700 2,075,872 Deferred revenue...................................................... A 4,764,441 5,160,999 Due to related parties................................................ E 782,752 19,000 Notes payable to officer.............................................. J 45,000 45,000 ------------- ------------- TOTAL CURRENT LIABILITIES............................................. 23,827,870 10,849,573 LONG -TERM DEBT......................................................... J,L 821,182 1,768,762 ------------- ------------- TOTAL LIABILITIES..................................................... 24,649,052 12,618,335 ------------- ------------- COMMITMENTS & CONTINGENCIES............................................. D,M,W MINORITY INTEREST....................................................... 687,945 617,300 ------------- ------------- SHAREHOLDERS' EQUITY Preferred stock, 5,000,000 shares authorized at $10 par value, none issued and outstanding................................................ -- -- Common stock, 140,000,000 shares authorized at $0.01 par value, 64,245,923 shares and 6,680,864 shares outstanding as of December 31, 1997 and 1996, respectively........................................... 642,459 66,807 Paid-in capital......................................................... 3,691,386 894,408 Prepaid advertising..................................................... K,T (500,000) (500,000) Retained earnings....................................................... 12,233,296 3,240,809 ------------- ------------- TOTAL SHAREHOLDERS' EQUITY........................................ 16,067,141 3,702,024 ------------- ------------- TOTAL LIABILITIES, MINORITY INTEREST, AND SHAREHOLDERS' EQUITY.......................................... $ 41,404,138 $ 16,937,659 ------------- ------------- ------------- -------------
The accompanying notes are an integral part of these consolidated financial statements. F-3 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED NINE MONTHS DECEMBER 31, ENDED ----------------------------- (restated) NOTES 1997 1996 1995 ------------- -------------- ------------- ------------ REVENUES, NET OF RETURNS AND DISCOUNTS.................... $ 104,907,650 $ 40,724,515 $ 6,504,011 COSTS OF REVENUES......................................... O Royalties to related party.............................. 9,996,840 4,366,183 649,172 Speaker fees to related party........................... 166,661 131,337 -- Other costs of revenues................................. 28,904,364 11,185,416 2,227,737 -------------- ------------- ------------ TOTAL COSTS OF REVENUES................................... 39,067,865 15,682,936 2,876,909 -------------- ------------- ------------ GROSS PROFIT............................................ 65,839,785 25,041,579 3,627,102 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.............. 50,099,355 20,301,703 3,233,884 IMPAIRMENT OF LONG-LIVED ASSETS........................... I -- -- 99,000 -------------- ------------- ------------ INCOME FROM OPERATIONS.................................. 15,740,430 4,739,876 294,218 -------------- ------------- ------------ OTHER INCOME (EXPENSE) Dividends and interest.................................. 385,338 60,028 5,548 Gain (loss) on trading securities....................... G (804,493) 92,711 69,297 Other income............................................ 128,171 58,513 742 Loss on investment on non-marketable securities......... (106,099) -- (107,400) Loss on disposition of fixed assets..................... -- (21,960) -- Interest expense........................................ (308,796) (263,285) (23,047) -------------- ------------- ------------ TOTAL OTHER EXPENSES.................................... (705,879) (73,993) (54,860) -------------- ------------- ------------ INCOME BEFORE INCOME TAXES................................ 15,034,551 4,665,883 239,358 PROVISION FOR INCOME TAXES................................ N 6,063,387 1,601,244 171,740 -------------- ------------- ------------ INCOME BEFORE MINORITY INTEREST......................... 8,971,164 3,064,639 67,618 MINORITY INTEREST IN LOSS OF SUBSIDIARY................... 21,323 -- -- -------------- ------------- ------------ NET INCOME.............................................. $ 8,992,487 $ 3,064,639 $ 67,618 -------------- ------------- ------------ -------------- ------------- ------------ EARNINGS PER SHARE........................................ $ 0.14 $ 0.05 -- -------------- ------------- ------------ -------------- ------------- ------------ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING...... 63,362,984 59,609,520 57,585,798 -------------- ------------- ------------ -------------- ------------- ------------
The accompanying notes are an integral part of these consolidated financial statements. F-4 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
COMMON STOCK --------------------- ADDITIONAL TOTAL PAID-IN RETAINED PREPAID SHAREHOLDERS NOTES SHARES AMOUNT CAPITAL EARNINGS ADVERTISING EQUITY ----- ---------- --------- ---------- ------------ ----------- ------------ Balances--December 31, 1995 as restated, Note...................... V 3,199,211 $ 31,991 $ 320,738 $ 176,170 $ 528,899 Issuance of restricted stock.......... 26,000 260 77,740 78,000 Issuance of restricted stock in exchange prepaid advertising........ 100,000 1,000 499,000 500,000 Prepaid Advertising................... (500,000) (500,000) Effect of 2 for 1 stock split......... 3,325,231 33,252 (33,252) Issuance of restricted stock for additional compensation............. 30,422 304 75,746 76,050 Subscriptions receivable.............. (45,564) (45,564) Net income for year ended December 31, 1996................................ 3,064,639 3,064,639 ---------- --------- ---------- ------------ ----------- ------------ Balances -- December 31, 1996 as restated............................ V 6,680,864 $ 66,807 $ 894,408 $ 3,240,809 $ (500,000) $3,702,024 ---------- --------- ---------- ------------ ----------- ------------ Issuance of restricted stock in exchange for finders' fees relating to purchase of interest in Fairfield Inn, Provo, Utah.................... 10,000 100 33,650 33,750 Issuance of restricted stock.......... 10,660 107 31,874 31,981 Issuance of restricted stock in exchange for finders' fees relating to purchase of interest in Hampton Inn & Suites, Park City, Utah........ 4,167 42 52,046 52,088 Issuance of restricted stock for 12% interest in 45th South Hotel Partners, LC........................ 10,000 100 59,900 60,000 Authorized but unissued restricted stock in exchange for stock of Ideal Travel Concepts, Inc., at August 1,1997.............................. 358,333 3,583 2,146,417 2,150,000 Issuance of restricted stock in exchange for the common stock of Origin Book Sales, Inc. at August 27, 1997............................ 30,269 303 196,446 196,749
The accompanying notes are an integral part of these consolidated financial statements. F-5 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
COMMON STOCK ----------------------- ADDITIONAL TOTAL PAID-IN RETAINED PREPAID SHAREHOLDERS NOTES SHARES AMOUNT CAPITAL EARNINGS ADVERTISING EQUITY ----- ------------ --------- ------------ ------------- ----------- ------------- Issuance of restricted stock in exchange for the common stock of Gold Leaf Press,Inc. at August 27, 1997................ 7,692 77 49,921 49,999 Issuance of restricted stock..... 20,500 205 32,295 32,500 Effect of 3 for 1 stock split.... 14,264,970 142,650 (142,649) Issuance of restricted shares in exchange for 7% interest in Wood Cross Hotel Partners, LC....... 11,636 116 119,153 119,269 Issuance of restricted stock..... 2,000 20 7,980 8,000 Effect of 3 for 1 stock split.... 42,821,182 428,212 (428,212) Authorized but unissued restricted stock for employee bonus....... 13,650 137 (137) Return of Stock Sale Profits by Officer........................ B 632,710 632,710 Collection of subscription receivable..................... 5,584 5,584 Net Income for year ended December 31, 1997.............. 8,992,487 8,992,487 ------------ --------- ------------ ------------- ----------- ------------- Balances--December 31, 1997...... 64,245,923 642,459 $ 3,691,386 $ 12,233,296 $ (500,000) $ 16,067,141 ------------ --------- ------------ ------------- ----------- ------------- ------------ --------- ------------ ------------- ----------- -------------
The accompanying notes are an integral part of these consolidated financial statements. F-6 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED CASH FLOW STATEMENTS
YEARS ENDED NINE MONTHS DECEMBER 31, ENDED -------------------------------- (restated) CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996 1995 - ----------------------------------------------------------------- ----------------- ------------- ------------ Net income....................................................... $ 8,992,487 $ 3,064,639 $ 67,618 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................................. 1,287,153 344,991 38,816 (Gain) loss on trading securities.............................. 804,493 (92,711) (69,297) Loss on disposition of fixed assets............................ -- 21,960 -- Impairment of long-lived assets................................ -- -- 99,000 Loss on investment in non-marketable securities................ 106,099 -- 107,400 Purchases of trading securities................................ (20,805,975) (11,290,111) (1,059,197) Proceeds from sale of trading securities....................... 19,318,577 9,034,925 920,395 Changes in assets and liabilities, net of effects from purchase of companies: Receivables.................................................... (2,423,523) (3,249,764) (133,219) Inventory...................................................... (582,092) (349,604) (4,688) Prepaid expenses............................................... (142,644) (141,381) (6,297) Deferred taxes................................................. 532,149 (775,724) 540 Deposits....................................................... (4,057,911) (303) (29,752) Accounts payable and accrued expenses.......................... 8,535,921 475,084 340,741 Payroll and other taxes withheld and accrued................... (687,968) 693,324 60,191 Income taxes payable........................................... 3,177,728 1,980,672 105,200 Deferred revenue............................................... (396,558) 4,808,674 352,325 Due to related party........................................... 118,273 -- -- Royalties payable.............................................. 171,603 (136,238) 87,139 ----------------- ------------- ------------ TOTAL ADJUSTMENTS................................................ 4,955,325 1,323,794 809,297 ----------------- ------------- ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES........................ 13,947,812 4,388,433 876,915 ----------------- ------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Notes receivable from employees and officers..................... (1,571,313) -- -- Capital expenditures............................................. (4,157,082) (4,729,382) (186,098) Purchase of non-marketable investments........................... (6,285,709) -- -- Subsidiary's investment........................................... (769,000) (87,500) (1,113,100) Return of subsidiary's investment................................ -- 800,000 -- Payment for purchase of companies, net of cash acquired.......... (1,748,230) -- -- ----------------- ------------- ------------ NET CASH USED FOR INVESTING ACTIVITIES........................... (14,531,334) (4,016,882) (1,299,198) ----------------- ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of subsidiary's minority interest......... 70,645 321,496 340,904 Short-term borrowings............................................ -- -- 141,175 Repayment on short-term borrowings............................... (292,276) (193,232) (32,956) Issuance of common stock......................................... 72,481 108,486 -- Collection on subscription receivables and return of stock profits by officer............................................. 638,294 -- -- ----------------- ------------- ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES........................ 489,144 236,750 449,123 ----------------- ------------- ------------ NET INCREASE (DECREASE) IN CASH.................................. (94,378) 608,301 26,840 CASH, beginning of year.......................................... 635,141 26,840 -- ----------------- ------------- ------------ CASH, end of year................................................ $ 540,763 $ 635,141 $ 26,840 ----------------- ------------- ------------ ----------------- ------------- ------------
The accompanying notes are an integral part of these consolidated financial statements. F-7 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS Wade Cook Financial Corporation (WCFC), or Company, is the legal successor to Profit Financial Corporation (PFC), is a holding company, whose principal operating subsidiaries are Wade Cook Seminars, Inc. (WCS), formerly known as United Support Association, Inc., Lighthouse Publishing Group, Inc., and Left Coast Advertising, Inc. In 1997, WCFC acquired Origin Book Sales, Inc., Worldwide Publishers, Inc., Gold Leaf Press, Inc., and Ideal Travel Concepts, Inc. WCS conducts educational investment and business seminars and produces 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, and business structuring for minimizing federal or state income taxes, deferral of income and estate taxes, development of liability protection, and elimination of the impact of probate on the transition of family owned businesses to the public. WCS also hosts a subscriber internet service, Wealth Information Network (WIN), which allows subscribers to log on for information related to the stock market. In 1997, WCFC began investing heavily in hotel/motel properties and other real estate investments. Lighthouse Publishing Inc. publishes books on investment, financial and motivational topics. Left Coast Advertising, Inc. is an advertising agency. Worldwide Publishers, Inc. and Gold Leaf Press, Inc. are book publishers. Origin Book Sales, Inc. is a book distributor of primarily religious topics. Ideal Travel Concepts, Inc. is a travel agency, also in the business of selling travel agent training kits. The copyrights to most seminars, video and audio tapes, and written materials which were colicensed by Money Chef, Inc., formerly known as USA/Wade Cook Seminars, Inc., a related party, are now fully owned by Wade B. Cook. As used hereafter, "Company" refers to Wade Cook Financial Corporation and its consolidated subsidiaries. REORGANIZATION AND BUSINESS COMBINATION Prior to the acquisition of WCS, PFC had been operating in two different businesses for over five years, namely its farming and ranching operations in Uintah County, Utah, and its investment consulting business. On January 1, 1995, PFC transferred its ranch operations and all related assets and liabilities to Four Star, Inc. (Four Star) in exchange for all of Four Star's outstanding common stock pursuant to a plan of reorganization under the Internal Revenue Code section 368 (a)(1)(d). All of Four Star's stock was then distributed to Yeaman Enterprises, Inc. (Yeaman)in exchange for 1,880,000 shares of the Company's stock as part of the reorganization. The consolidated financial statements for the periods presented have been restated to exclude the accounts related to the ranch operations. F-8 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The following assets and liabilities were transferred to Four Star from PFC in there organization: Cash............................................................................. $ 5,266 Receivables...................................................................... 277,944 Inventories...................................................................... 113,445 Securities....................................................................... 335,333 Property and equipment........................................................... 1,433,642 Accounts payable................................................................. 1,588 Accrued expenses................................................................. 61,257 Long-term debt................................................................... 380,986
The condensed financial positions of WCFC before and after the transfer are as follows:
DECEMBER 31, 1994 TRANSFER JANUARY 1,1995 ----------------- ------------ -------------- Cash............................................................. $ 5,266 $ 5,266 $ -- Receivables...................................................... 277,944 277,944 -- Inventory........................................................ 113,445 113,445 -- Property and Equipment........................................... 1,433,642 1,433,642 -- Investment in land............................................... 247,500 -- 247,500 Investment in securities......................................... 461,333 335,333 126,000 ----------------- ------------ -------------- TOTAL ASSETS..................................................... $ 2,539,130 $ 2,165,630 $ 373,500 ----------------- ------------ -------------- ----------------- ------------ -------------- Long-term debt................................................... $ 380,986 $ 380,986 $ -- Accounts payable................................................. 13,321 1,588 11,733 Accrued expenses................................................. 72,295 61,257 11,038 ----------------- ------------ -------------- TOTAL LIABILITIES................................................ 466,602 443,831 22,771 ----------------- ------------ -------------- Common Stock..................................................... 31,991 18,800 13,191 Additional paid-in capital....................................... 4,093,794 3,578,056 515,738 Retained earnings................................................ (2,053,257) (1,875,057) (178,200) ----------------- ------------ -------------- TOTAL SHAREHOLDERS' EQUITY....................................... 2,072,528 1,721,799 350,729 ----------------- ------------ -------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY....................... $ 2,539,130 $ 2,165,630 $ 373,500 ----------------- ------------ -------------- ----------------- ------------ --------------
On April 1, 1995, PFC acquired all of the outstanding shares of common stock of WCS for 1,880,000 shares of the commonstock of PFC. The transaction was previously accounted for as a pooling of interest but is restated to be accounted for on the purchase accounting method based on a recharacterization of the transaction as a reverse-acquisition (NoteV). F-9 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ACCOUNTING PRINCIPLES AND CONSOLIDATION POLICY The accompanying consolidated financial statements include the accounts of Wade Cook Financial Corporation and its majority-owned subsidiaries. WCS had a fiscal year end of January 31, and the balances as of January 31, 1997 and 1996 have been used to prepare the consolidated financial statements as of December 31, 1996 and 1995. In 1997, WCS changed its fiscal year end to December 31, and the balances as of December 31, 1997 do not include activity for the month of January 31, 1997 and January 31, 1998. All significant inter-company transactions and balances have been eliminated in the consolidation. During 1997, WCFC acquired Ideal, Origin, Worldwide, and Gold Leaf and used the purchase method of accounting to account for such acquisitions (Note Q). The consolidated financial statements include the activity of each identified acquisition from the effective date of acquisition through December 31, 1997. All significant inter-company transactions and balances have been eliminated in the consolidation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes to financial statements. Changes in such estimates may affect amounts reported in future periods. CASH AND CASH EQUIVALENTS The Company considers highly liquid investments with the original maturity of three months or less to be cash and cash equivalents. Included in these amounts are money market funds of $50,022,and $581,558 as of December 31, 1997 and 1996, respectively. MARKETABLE SECURITIES Brokerage accounts were used by seminar instructors during the seminars to demonstrate how to buy and sell securities using a broker. Marketable securities consist mainly of stocks and options. They have been categorized as trading securities and, as a result, are stated at market value. All changes in trading securities' fair values are reported in earnings as they occur. Realized gains and losses on the sale of securities are determined using the specific-identification method. INVENTORY Inventory, which consists primarily of finished goods, is valued at the lower of cost or market. Cost is determined using the first-in, first-out method. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is computed using an accelerated method over the estimated useful lives of the related assets for both financial reporting and tax reporting purposes. Leasehold improvements are amortized using F-10 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) the straight-line method over the shorter of the estimated life of the asset or the remaining term of the lease. Maintenance and repairs are charged to operations when incurred. Betterments and renewals are capitalized. When property and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations. The Company evaluates impairment of long-lived assets in accordance with the Financial Accounting Standards Board's (FASB) Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of SFAS No. 121 requires the Company to assess whether an asset (or group of assets) that will continue to be used is impaired and needs to be adjusted. Other long-lived assets to be disposed of (either by sale or abandonment unrelated to the disposal of a business segment) should be written down to fair value less the cost to sell such assets. INTANGIBLE The 1997 acquisitions (Note Q) resulted in the Company recording $2,851,886 for goodwill, which represents the excess of the cost of the assets purchased over their fair value. Amortization is computed using the straight-line method over the estimated useful life of the intangible asset or 40 years, whichever is shorter. NON-MARKETABLE INVESTMENTS The Company accounts for non-marketable investments, at cost, if the Company owns less than 20% of the investee; and at equity, if the Company owns 20% to 50% of the investee. REVENUE RECOGNITION Tuition revenues for seminars are recognized when services are rendered. Subscription revenues for WIN (Wealth Information Network) membership generally are received for up to one year in advance and are recorded and presented in the financial statements as deferred revenue until earned. Although a typical subscription binds the subscriber to prepay, the subscription term begins when the customer receives his logon code. The deferred revenues are recognized on a monthly basis over the term of the contract. If a subscriber cancels within the first twelve months of the service period, any remaining unearned subscription revenue will be recognized into income at the time of the cancellation because the subscription is a binding nonrefundable contract. Other revenues are recognized when finished products are shipped to customers or services have been rendered. F-11 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ADVERTISING COSTS Advertising costs are expensed when incurred. Advertising costs amounted to $13,685,893, $6,094,922 and $751,533 for the years ended December 31, 1997, 1996 and 1995, respectively. INCOME TAXES Income taxes are provided for tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes. Deferred taxes are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes. BARTER TRANSACTIONS The Company is accounting for barter credits in accordance with APB Opinion No. 29, Accounting for Non-monetary Transactions, and EITF issue No. 93-11, Accounting for Barter Transactions, involving barter credits which presumes that the fair value of the non-monetary asset exchanged is more clearly evident than the fair value of the barter credit received, and that the barter credit should be reported at the fair value of the non-monetary asset exchanged. The Company purchased radio air time advertising in exchange for common stock. The transaction is discussed in Note K. EARNINGS PER SHARE The Company is accounting for earnings per share in accordance with FASB No. 128. Earnings per share are based on the weighted average number of shares of common stock and common stock equivalents outstanding during each year. RECLASSIFICATION OF FINANCIAL STATEMENT PRESENTATION Certain reclassifications have been made to the 1996 and 1995 financial statements to conform with the 1997 financial statement presentation. Such reclassifications had no effect on net income as previously reported. NEW ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board (FASB) issued in February 1997, SFAS No. 128, Earnings per Share, which establishes standards for computing and presenting earnings per share (EPS) and applies to entities with publicly held common stock or potential common stock. The Company does not have a complex capital structure. The Company has not issued potential common stock, i.e., securities such as options, warrants, convertible securities, or contingent stock agreements. The Company believes that SFAS No. 128 did not have a material effect on its computation of EPS. The FASB issued in February 1997, SFAS No. 129, Disclosure of Information About Capital Structure. SFAS No. 129 requires disclosure of descriptive information about F-12 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) securities, e.g., rights and privileges of the various securities outstanding, the number of shares issued upon conversion, exercise, or satisfaction of required conditions, and the liquidation preference of preferred stock. The Company is authorized to issue preferred stock but none was issued or outstanding. The Company does not have any plans to issue preferred stock. The Company adopted on October 14, 1997 a stock incentive plan and reserved for issuance 1,000,000 of the Company's common stock. The stock incentive plan provides that the Board of Directors may grant restricted stock, stock options, stock appreciation rights or other stock based awards to eligible employees, directors, or consultants. The Board of Directors did not issue any incentive awards from the plan as of December 31, 1997. The Company believes that SFAS No. 129 did not have material effect on its disclosure of information about capital structure. The FASB issued in June 1997, SFAS No.130, Reporting Comprehensive Income. SFAS No. 130 establishes standards for reporting comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general purpose financial statements. SFAS No. 130 requires that the Company a) classify items of other comprehensive income by their nature in a financial statement and b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. The Company did not have any other comprehensive income in 1997, 1996, or 1995. The FASB issued in June 1997, SFAS No.131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131 requires that the Company disclose a) factors used to identify the Company's reportable segments, including the basis of organization, and types of products and services from which each reportable segment derives its revenues, b) information about reportable segment profit or loss, including certain revenues and expenses included in reported segment profit or loss, segment assets, and the basis of measurement, c) reconciliations of the totals of segment revenues, reported profit or loss, assets, and other significant items to corresponding Company amounts, and d) if complete sets of financial statements are provided for more than one period, the information required by SFAS No. 131 shall be reported for each period presented. The Company will implement SFAS No. 131 for the year ending December 31, 1998. NOTE B--SHAREHOLDERS' EQUITY The Company did not declare or pay any dividends for the years shown in these financial statements. On August 13, 1997, and December 10, 1997, the Board of Directors declared three-for-one stock splits on the Company's common stock, effected in the form of a stock dividend to the shareholders of record on September 1, 1997 and December 19, 1997, respectively. The number of shares issued at September 1, 1997 and December 19, 1997, after giving effect to the stock split were 21,397,455 and 64,232,273 common shares, respectively, F-13 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE B--SHAREHOLDERS' EQUITY (CONTINUED) (7,132,485 and 21,411,091 common shares before the split, respectively). On August 6, 1996, the Board of Directors declared a two-for-one stock split on the Company's common stock, effected in the form of a stock dividend to shareholders of record on July 15, 1996. The number of shares issued at September 10, 1996 after giving effect to the split was 6,650,442 common shares (3,325,211 common shares before the split). The effects of the stock splits are accounted for in all share and per share data included in these consolidated financial statements. The Company has corrected its comparative weighted average number of common shares outstanding from 26,674,666 to 59,609,520 for 1996 and from 25,593,688 to 57,585,798 for 1995. Earnings per share changed from $0.12 to $0.05 in 1996. Earnings per share was not meaningful in 1995, at less than $0.01. RETURN OF STOCK SALE PROFITS BY OFFICER In connection with the purchase and sale of stock in 1997, it was determined that certain transactions required the return to the Company of profits made on such transactions. In that regard, $632,710 has been returned to the Company by Wade B. Cook. NOTE C--CONCENTRATION OF RISKS Cash in banks, based on bank balances, exceeded federally insured limits by $186,708 and $574,388 as of December 31, 1997 and 1996, respectively. Receivables from four credit card companies aggregated approximately $487,693 and $376,256 at December 31, 1997 and 1996 respectively. The Company invests the majority of its excess cash in marketable securities. Marketable securities are carried at fair market value, which amounted to $6,162,733 and $3,801,039 as of December 31, 1997, and 1996, and accounted for 15% and 22% of the Company's consolidated assets as of December 31, 1997 and 1996 respectively. The following table shows the percentage of revenues:
1997 1996 1995 ----- ----- ----- Seminars................................................................... 70% 52% 46% WIN subcription............................................................ 4% 12% 7% Entity formation services.................................................. 6% 14% 24% Product sales.............................................................. 20% 22% 23%
The following table shows the states from which the Company derived over 10% of its seminar revenues:
1997 1996 1995 ----- ----- ----- California................................................................. 15% 15% 27% Colorado................................................................... 3% 7% 11% Washington................................................................. 9% 13% 13% Florida.................................................................... 10% 8% 7%
NOTE D--ECONOMIC DEPENDENCY AND SIGNIFICANT RISKS AND UNCERTAINTIES The Company derived a majority of its revenues solely through the sponsoring and promoting of products, seminars and services authored by Wade B. Cook. This individual was the named defendant of a fraud charge in the State of Arizona. Prior to February, 1997, defense counsel successfully reduced the case from eighteen charges to one remaining charge. In February 1997, the remaining charge was dismissed with prejudice. F-14 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE D--ECONOMIC DEPENDENCY AND SIGNIFICANT RISKS AND UNCERTAINTIES (CONTINUED) In March 1996, the Securities and Exchange Commission (the "Commission") entered an order directing a private investigation of the Company. The Company's legal counsel has responded to the Commission's requests for documents and information on behalf of the corporation. No enforcement action has been taken, and the Commission has advised that the inquiry should not be construed as an adverse reflection on the securities involved or on any person or entity. The Company has also received subpoenas from the State of Washington's Department of Financial Institutions, Securities Division requesting information related to WCFC, WCS and the Company's president. NOTE E--RELATED PARTY TRANSACTIONS The Company entered into a product agreement with Money Chef, Inc. to obtain the rights to promote and sponsor seminars, entity formation services and products owned and controlled by Wade B. Cook and Money Chef, Inc. for royalty payments. Royalty expenses totaled $9,996,840, $4,366,183, and $649,172 for the years-ended December 31, 1997, 1996, and 1995 respectively. No royalties were prepaid or unpaid as of December 31, 1997 and $48,781 of royalties was prepaid as of December 31, 1996. The Company obtained services from seminar speakers provided by companies owned by directors of the Company. Total speaker fees paid to such companies totaled $166,661 and $131,337 for the years ended December 31, 1997 and 1996, and none for year 1995. There were no additional amounts due to such companies as of December 31, 1997 and 1996. Due from related parties in the amounts of $749,726 (current) and $599,323 (non-current) represent advances to the following:
NAME OF RELATED PARTIES RELATIONSHIP CURRENT NON-CURRENT - --------------------------- --------------------------- --------------------------- --------------------------- Newstart Centre, Inc. 50% owned and controlled by President/ CEO of WCFC or his affiliates $43,283 $599,323 Get Ahead Bookstores Majority stockholder is an employee of WCFC 155,989 -- Quantum Marketing Majority stockholder is a director of WCFC 524,854 -- Five Star Consulting, Inc. General partner is President/CEO of WCFC 25,000 -- Employees' advance Employees of WCFC 600 -- -------- -------- Total $749,726 $599,323 -------- -------- -------- --------
F-15 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE E--RELATED PARTY TRANSACTIONS (CONTINUED) At December 31, 1997, due to related parties totaled $782,752, all of which was current and consists of the following:
NAME OF RELATED PARTIES RELATIONSHIP CURRENT - -------------------------------------------------- -------------------------------------------------- ---------- Information Quest, Inc. Majority stockholder is employee of WCFC $682,576 Board of Directors advance Directors of WCFC 100,176 -------- Total $782,752 -------- --------
In 1995, the Company accepted a single family home, subject to a mortgage balance of $119,825, from an employee in full settlement of a 10.5% note receivable with an outstanding balance of $17,661. The single family home was recorded in the Company's books at $137,486, and no gain or loss was charged to operations. The employee entered into an agreement with the Company to rent the property for a monthly rent of $1,300 through July 2000. Under the agreement, the employee had an option to repurchase the property at specified amounts through July 2000. In 1996, the Company sold the property to another employee for $137,352, after the option was waived and received a note bearing 8% interest per annum as consideration. The Company has various notes receivable from employees and officers. Original maturity dates are from 12 months to 360 months. Annual interest rates range from 5.45% to 12%. The manner of settlement is by salary deduction or payment. The majority of notes receivable are secured by real property or personal property. The Company evaluates notes receivables in accordance with Statement of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan. Statement No. 114 requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate. Statement No. 118, Income Recognition and Disclosures, amends Statement No. 114 to allow a creditor to use existing methods for recognizing interest income on an impaired loan. There were no impaired notes receivable as of December 31,1996. At December 31, 1997, a reduction in the note receivable of $287,264 was recorded to reflect impaired notes. Substantially all of the reduction was from unsecured receivables from employees who are no longer with the company. Future cash flow was not expected, due to the uncertainty of repayment. At December 31, 1997, due from employees amounted to $3,535,719, of which, $242,537 has been classified as current. Amounts due from employees represent loans both secured and unsecured:
LOAN AMOUNT ---------- ------------- Secured............................................ $ 3,097,408 Unsecured.......................................... 438,311 ------------ Total.............................................. $ 3,535,719 ------------ ------------
F-16 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE E--RELATED PARTY TRANSACTIONS (CONTINUED) For the year ended December 31, 1997, interest income resulting from the employee note receivables was $199,663. Interest income was calculated by multiplying the outstanding balance of unimpaired loans with their respective interest rate. Interest income was not calculated on impaired loans. NOTE F--RECEIVABLES Following is a summary of receivables:
DECEMBER 31, -------------------------- 1997 1996 ------------ ------------ Trade and credit card receivables...................................................... $ 3,242,151 $ 848,282 Notes receivable -- employees.......................................................... 3,535,719 1,714,802 Notes receivable from officer.......................................................... -- 249,604 Due from related parties............................................................... 1,471,049 663,401 Other................................................................................. 41,032 11,378 ------------ ------------ Total................................................................................. $ 8,289,951 $ 3,487,467 ------------ ------------ ------------ ------------
In 1996, management estimated that substantially all receivables were collectible. In 1997, an allowance for uncollectible accounts was maintained, and at December 31, 1997 the allowance amounted to $58,163. Amounts reported on the balance sheet are shown net of the allowance. NOTE G--MARKETABLE SECURITIES The net unrealized gain (loss) in trading securities that has been included in earnings during the period amounted to $(755,437), $92,711, and $88,719, for the years ended December 31, 1997, 1996, and 1995, respectively. NOTE H--PROPERTY AND EQUIPMENT The following is a summary of property and equipment:
DECEMBER 31, --------------------------- 1997 1996 ------------- ------------ Land................................................................................. $ 532,000 $ 532,000 Building............................................................................. 6,021,788 4,183,361 Equipment............................................................................ 2,446,895 1,270,583 Automobiles.......................................................................... 1,279,972 828,604 Furniture and fixtures............................................................... 1,774,284 681,425 ------------- ------------ 12,054,939 7,495,973 Less: Accumulated depreciation....................................................... (1,629,780) (360,768) ------------- ------------ Total................................................................................ $ 10,425,159 $ 7,135,205 ------------- ------------ ------------- ------------
Depreciation expense charged to operations was $1,073,224, $344,991 and $38,816 in December 31, 1997, 1996, and 1995, respectively. F-17 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE I--NON-MARKETABLE INVESTMENTS AND ACCOUNTING CHANGES Non-marketable investments consist of investments in venture capital partnerships and private companies, primarily comprised of hotel/motel properties and other real estate investments. The estimated non-marketable investments approximated the carrying amount at December 31, 1997 and 1996. The fair values of investments in venture capital partnerships and private companies were estimated based on financial condition and operating results, or other pertinent information. No dividends were received from non-marketable investments during the years shown. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of in 1995. The Company recorded a non-cash pre-tax charge of $99,000 for the year ending December 31, 1995 to write-down the carrying value of the land investment in the county of Atrim, Michigan. The Company considers the sale prices of comparable lots in the recreational development project as indicators of fair value. Non-marketable investments consist of the following:
DECEMBER 31, ------------------------ 1997 1996 ------------ ---------- Cost method: Oil and gas............................................................................. $ 650,000 $ -- Hotels/motels........................................................................... 1,177,350 268,000 Real estate............................................................................. 1,385,780 148,500 Private companies....................................................................... 1,250,000 106,100 Equity method: Hotels/motels........................................................................... 2,562,750 -- Real estate............................................................................. 304,580 -- ------------ ---------- Total................................................................................... $ 7,330,460 $ 522,600 ------------ ---------- ------------ ----------
Private companies in 1997 are comprised of a privately held computer software company ($750,000) and a wireless reseller company ($500,000) which acquired an inactive public company through a reverse acquisition in 1998. Investees are in the development stage. Accumulation deficit during the development stage was not material in 1997 and 1996. F-18 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE J--LONG-TERM DEBT
DECEMBER 31, -------------------------- 1997 1996 ------------ ------------ Note payable due May 2002, has a monthly installment of $418, including interest at 9.75% per annum, secured by an automobile........................................... 16,347 -- Note payable to a credit union assumed by the Company on behalf of an employee, due December 2003, including interest at 9.25% per annum, secured by an automobile...... -- $ 36,178 Note payable due July 2000, has a monthly installment of $514, including interest at 9% per annum, secured by equipment.................................................. 28,298 -- Note payable due June 2001, has a monthly installment of $1,325, including interest at 8.5% per annum, secured by computers................................................ 44,823 -- Unsecured note payable to a related party, originally due October 15, 1996, including interest at 10% per annum, due on demand............................................ -- 19,000 Unsecured note payable to a related party, originally due October 15, 1996; including interest at 10% per annum, due on demand............................................ 45,000 45,000 Note payable to a bank with monthly installments of $300, including interest at 16% per annum, secured by an automobile................................................. 11,413 -- Mortgage payable, secured by land and building, due in monthly installments of principal and interest of $50,000 from September 1, 1996 through August 1, 1997, $100,000 from September 1, 1997 to February 1, 1999 and $555,862 on March 1, 1999, including interest at 9% per annum.................................................. 1,825,302 2,393,292 Real estate contract payable, secured by land and building,payable in monthly installments of $2,157, including interest at 7(6)%, maturity date September 1, 1998................................................................................ 339,999 -- Total Long Term Debt.............................................................. $ 2,311,182 $ 2,493,470 ------------ ------------ Less: Current maturities Others.............................................................................. (1,445,000) (660,708) related parties..................................................................... -- (19,000) officer............................................................................. (45,000) (45,000) ------------ ------------ Net Long Term Debt.................................................................... $ 821,182 $ 1,768,762 ------------ ------------ ------------ ------------
F-19 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE J--LONG-TERM DEBT (CONTINUED) The following are maturities of long-term debt for each of the next five years: 1998............................................................................ $1,490,000 1999............................................................................ 770,393 2000............................................................................ 25,046 2001............................................................................ 18,051 2002............................................................................ 7,692 Thereafter...................................................................... -- ---------- Total........................................................................... 2,311,182 ---------- ----------
NOTE K--PREPAID ADVERTISING In 1995, the Company entered into an agreement with Associated Reciprocal Traders, Ltd. (ART) to purchase from ART 20,000 Investor Relations-Advertising-Infomercial radio air time spots, priced at $25 per ad spot, per station, for a sum total of $500,000. In payment of the foregoing, the Company issued 100,000 shares of common stock to ART on September 10, 1996. The prepaid advertising is shown as a reduction of shareholders' equity rather than as an asset (Note T). NOTE L--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS Financial Accounting Standards Board("FASB") has issued Statement of Financial Accounting Standards (SFAS) No.107, Disclosures About Fair Value of Financial Instruments, as part of a continuing process by the FASB to improve information regarding financial instruments. The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and cash equivalents--The carrying amount of cash and cash equivalents approximates its fair value. Notes receivables from Employees and Officers--The carrying amount of notes receivable approximates its fair value. Marketable securities--The fair value of marketable securities was estimated based on quotes obtained from brokers for those instruments. Non-Marketable Investments--The fair value of non-marketable investments is determined by financial positions of the investee companies and market conditions. Margin loans in investment accounts--The carrying amount of margin loans approximates its fair value. Long-Term Debt--The fair values of the Company's long-term debt either approximates fair value or estimates using discounted cash flow analyses based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. F-20 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) Note L--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) The carrying amounts and fair values of the Company's financial instruments at December 31, 1997 and 1996 are as follows:
1997 1996 ---------------------- ---------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ---------- ---------- ---------- ---------- Cash and cash equivalents..................................... $ 540,763 $ 540,763 $ 635,141 $ 635,141 Marketable securities......................................... 6,040,733 6,040,733 3,801,039 3,801,039 Receivables from employees and officers....................... 3,535,719 3,535,719 1,964,406 1,964,406 Non-marketable investments.................................... 7,330,460 7,330,460 522,600 522,600 Margin loans in investment accounts........................... 2,766,824 2,766,824 1,103,936 1,103,936 Long-term debt................................................ 821,182 821,182 1,768,762 1,768,762
The carrying amounts in the table are included on the balance sheet under the indicated captions, except for notes receivable which has several components on the balance sheet. NOTE M--LEASE AND OTHER COMMITMENTS Operating lease commitments are primarily for the Company's shipping warehouse and equipment rentals. Rental expense amounted to $135,476, $294,918, and $109,133 for the years ended December 31, 1997, 1996, and 1995 respectively. Future minimum rental commitments are as follows: 1998.............................................................................. $ 61,779 1999.............................................................................. 54,621 2000.............................................................................. 12,760 2001.............................................................................. -- --------- Total............................................................................. $ 129,160 --------- ---------
The Company entered into an employment agreement in June 1997 with Wade Cook, the president and CEO of the Company. The agreement provided for a minimum salary of $240,000 for the first year, $265,000 for the second year, and $290,000 for the final year of the agreement. Cook will be paid in accordance with the Company's standard method of payment for executives. Cook may receive additional bonuses for work as approved by the Board of Directors. The Company is committed to purchase 8,000 additional units from Applied Voice Recognition, Inc. at $60.00 per unit (voice recognition software), but no time limit is provided for in the agreement. There is a minimum purchase requirement of 2,000 units per order and payment is due in advance of shipment (Note U). F-21 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE M--LEASE AND OTHER COMMITMENTS (CONTINUED) The Company is committed to purchase 50,000 units (computer programs) from KnowWonder, Inc. (the computer software company described in Note I) at $10.00 per unit. The $500,000 is payable in eight (8) monthly installments of $62,500 beginning January 1998 on the first of each month thereafter. NOTE N--INCOME TAXES Provisions for income taxes in the consolidated statements of income consist of the following components:
YEARS ENDED DECEMBER 31, -------------------------------------- 1995 1997 1996 (restated) ------------ ------------ ---------- Current - ------- Federal................................................................... $ 4,659,610 $ 2,321,968 $ 171,200 State..................................................................... -- -- -- Other States.............................................................. 458,000 55,000 ------------ ------------ ---------- 5,117,610 2,376,968 171,200 ------------ ------------ ---------- Deferred - -------- Federal................................................................... 945,777 (775,724) 540 State..................................................................... -- -- -- 945,777 (775,724) 540 ------------ ------------ ---------- Total income taxes........................................................ $ 6,063,387 $ 1,601,244 $ 171,740 ------------ ------------ ---------- ------------ ------------ ----------
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:
DECEMBER 31, ---------------------- DEFERRED TAX ASSETS: 1997 1996 - ------------------------------------------------------------------------------------------ ---------- ---------- Unrealized loss on trading securities..................................................... $ 254,096 $ 79,192 Deferred revenues......................................................................... -- 806,294 State income tax.......................................................................... 160,300 19,250 ---------- ---------- Total deferred tax assets................................................................. 414,396 904,736 ---------- ---------- Deferred tax liabilities: Accelerated depreciation.................................................................. 69,800 61,691 State income tax.......................................................................... 93,581 59,981 ---------- ---------- Total deferred liabilities................................................................ 163,381 121,672 ---------- ---------- Net deferred tax assets................................................................... $ 251,015 $ 783,064 ---------- ---------- ---------- ----------
F-22 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE N--INCOME TAXES (CONTINUED) The reconciliation of the effective income tax rate to the Federal statutory rate is as follows:
1995 1997 1996 (restated) --------- --------- --------- Federal income tax rate..................................................................... 35.0% 35.0% 35.0% Unrealized loss on trading securities....................................................... 6.2 1.7 7.2 Deferred revenues........................................................................... -- 17.3 19.5 Accelerated depreciation.................................................................... (1.3) (1.3) -- Capitalized interest........................................................................ -- (1.3) -- State income tax ........................................................................... .4 0.4 10.0 Effective income tax rate................................................................... 40.3% 51.8% 71.7%
NOTE O--REVENUES AND OTHER COST OF REVENUES
TRAVEL SEMINAR PRODUCT ENTITY WIN RELATED REVENUES SALES FORMATIONS SUBSCRIPTIONS SERVICES TOTAL ------------- ------------- ------------ ------------ ------------ -------------- Year ended December 31, 1997: Revenues, net of returns & discounts..................... $ 66,725,225 $ 25,336,102 $ 5,598,409 $4,049,646 $ 3,198,268 $ 104,907,650 Royalties to related party...... 4,709,067 3,438,418 1,849,355 -- -- 9,996,840 Speaker fees to related party... 153,760 12,901 -- -- -- 166,661 Other cost of revenues: Cost of goods sold.............. -- 9,020,702 -- -- 2,963,579 11,984,281 Credit card fees................ 1,655,339 393,248 120,253 87,312 -- 2,256,152 Cost of meeting rooms........... 3,953,888 -- -- -- -- 3,953,888 Speaker fees.................... 6,502,497 -- 557,357 -- -- 7,059,854 Travel.......................... 3,367,636 -- 282,553 -- -- 3,650,189 ------------- ------------- ------------ ------------ ------------ -------------- Total Cost of Revenues.......... $ 20,342,187 $ 12,865,269 $ 2,809,518 -- $ 2,963,579 $ 39,067,865 ------------- ------------- ------------ ------------ ------------ -------------- Gross Profit.................... $ 46,383,038 $ 12,470,833 $ 2,788,891 $3,962,334 $ 234,689 65,839,785 ------------- ------------- ------------ ------------ ------------ --------------
TRAVEL SEMINAR PRODUCT ENTITY WIN RELATED REVENUES SALES FORMATIONS SUBSCRIPTIONS SERVICES TOTAL ------------- ------------- ------------ ------------ ------------- ------------- Year ended December 31, 1996: Revenues, net of returns & discounts........................... $ 23,817,315 $ 10,608,421 $ 3,716,528 $2,582,251 -- $ 40,724,515 Royalties to related party............ 2,933,688 1,060,842 371,653 -- -- 4,366,183 Speaker fees to related party......... 113,609 -- 17,728 -- -- 131,337 Other cost of revenues: Cost of goods sold.................... -- 5,017,027 -- -- -- 5,017,027 Credit card fees...................... 556,663 247,942 86,864 60,353 -- 951,822 Cost of meeting rooms................. 1,488,212 -- -- -- -- 1,488,212 Speaker fees.......................... 1,373,855 -- 764,312 -- -- 2,138,167 Travel................................ 1,383,464 -- 206,724 -- -- 1,590,188 ------------- ------------- ------------ ------------ ------ ------------- Total Cost of Revenues................ $ 7,849,491 $ 6,325,811 $ 1,447,281 $ 60,353 -- $ 15,682,936 ------------- ------------- ------------ ------------ ------ ------------- Gross Profit.......................... $ 15,967,824 $ 4,282,610 $ 2,269,247 $2,521,898 -- 25,041,579 ------------- ------------- ------------ ------------ ------ -------------
F-23 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE O--REVENUES AND OTHER COST OF REVENUES (CONTINUED)
TRAVEL SEMINAR PRODUCT ENTITY WIN RELATED REVENUES SALES FORMATIONS SUBSCRIPTIONS SERVICES TOTAL ------------ ------------ ------------ ------------ ------------- ------------ Nine Months ended December 31, 1995 (restated): Revenues, net of returns & discounts.... $ 2,986,036 $ 1,477,200 $ 1,538,459 $ 502,316 -- $ 6,504,011 Royalties to related party................ 326,691 157,964 164,517 -- -- 649,172 Speaker fees to related party............. -- -- -- -- -- -- Other cost of revenues: Cost of goods sold........................ -- 1,121,336 -- -- -- 1,121,336 Credit card fees.......................... 90,359 32,963 34,330 11,209 -- 168,861 Cost of meeting rooms..................... 99,720 -- -- -- -- 99,720 Speaker fees.............................. 158,589 101,937 282,520 -- -- 543,046 Travel.................................... 162,447 -- 132,327 -- -- 294,774 ------------ ------------ ------------ ------------ ------ ------------ Total Cost of Revenues.................... $ 837,806 $ 1,414,200 $ 613,694 $ 11,209 -- $ 2,876,909 ------------ ------------ ------------ ------------ ------ ------------ Gross Profit.............................. $ 2,148,230 $ 63,000 $ 924,765 $ 491,107 -- $ 3,627,102 ------------ ------------ ------------ ------------ ------ ------------
NOTE P--SUPPLEMENTARY DISCLOSURE OF CASHFLOW INFORMATION The Company paid $308,796, $263,285 and $23,047 in interest, and $2,485,111, $100,000 and $78,000 for income taxes, in the years ended December 31, 1997, 1996 and 1995 respectively. The Company purchased a three-story commercial building in July 1996, and relocated in January 1997. The $3,300,000 purchase was financed with a $2,550,000 mortgage with an interest rate of 9% per annum, and a down payment of $750,000. NOTE Q- ACQUISITIONS During 1997, WCFC completed the acquisition of Ideal Travel Concepts, Inc. (Ideal), Worldwide Publishers, Inc.(Worldwide), Origin Book Sales, Inc. (Origin), and Gold Leaf Press, Inc. (GoldLeaf). All of the outstanding stock of Ideal was acquired on August 1, 1997, in exchange for 358,333 shares of Wade Cook Financial Corporation (WCFC) stock to be issued at a later date (Note T). On that date, the market value of the stock issued was $2,150,000. The acquisition was accounted for as a purchase, resulting in assets of $215,719, goodwill of $2,008,294 less liabilities assumed of $74,013. All of the outstanding stock of Worldwide was acquired on August 27, 1997, for $1. The acquisition was accounted for as a purchase resulting in assets of $315,352, goodwill of $311,976 less liabilities assumed of $627,327. F-24 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE Q- ACQUISITIONS (continued) All of the outstanding stock of Origin was acquired on August 27, 1997, in exchange for 30,269 shares of WCFC stock. On that date, the market value of the stock issued was $196,749. The acquisition was accounted for as a purchase resulting in assets of $809,730, goodwill of $469,496 less liabilities assumed of $1,082,477. All of the outstanding stock of Gold Leaf was acquired on August 27, 1997, in exchange for 7,692 shares of Wade Cook Financial Corporation (WCFC) stock. On that date, the market value of the stock issued was $49,998. The acquisition was accounted for as a purchase resulting in assets of $8,263, goodwill of $62,119 less liabilities assumed of $20,384. Total goodwill is $2,851,885, accumulated amortization is $214,217, creating net goodwill of $2,637,669. NOTE R--PROFORMA FINANCIAL STATEMENTS The following unaudited proforma information is presented for the years ended December 31, 1997, 1996, and 1995, as if the Ideal, Worldwide, Origin, and Gold Leaf acquisitions had been combined as of the beginning of the period. Ideal, Worldwide, Origin, and Gold Leaf amounts represent historical values without acquisition adjustments as describe in Note Q.
AMOUNTS IN THOUSANDS, EXCEPT EPS FISCAL YEAR ENDED DECEMBER 31, 1997 BALANCE SHEET WCFC IDEAL WORLDWIDE ORIGIN GOLD LEAF TOTAL - ----------------------------------------------------------- --------- --------- ------------- --------- ------------ ------- Assets..................................................... $ 38,982 $ 656 $ 459 $ 1,386 $ -- 41,483 Liabilities................................................ 22,769 417 735 1,621 -- 25,542 Stockholders' equity....................................... 16,213 239 (276) (235) -- 15,941 INCOME STATEMENT Revenues................................................... 104,456 4,321 555 1,510 26 110,868 Expenses................................................... 95,469 4,100 519 1,472 14 101,573 --------- --------- ----- --------- --- --------- Net income................................................. $ 8,987 $ 221 $ 36 $ 38 $ 12 $ 9,294 --------- --------- ----- --------- --- --------- EPS........................................................ $ 0.15 --------- --------- ----- --------- --- ---------
AMOUNTS IN THOUSANDS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 BALANCE SHEET WCFC IDEAL WORLDWIDE ORIGIN GOLD LEAF TOTAL - ----------------------------------------------------------- --------- --------- ------------- --------- ----------- --------- Assets..................................................... $ 16,938 $ 237 $ 529 $ 3,902 $ 8,263 $ 29,869 Liabilities................................................ 12,619 277 453 3,834 20,384 37,567 Stockholders' equity....................................... 4,319 (40) 76 68 (12,121) (7,698) INCOME STATEMENT Revenues................................................... 40,725 1,023 971 1,801 1,462 45,982 Expenses................................................... 37,660 1,057 935 1,830 1,462 42,944 --------- --------- ----- --------- ----------- --------- Net income (loss).......................................... $ 3,065 $ (34) $ 36 $ (29) $ -- $ 3,038 --------- --------- ----- --------- ----------- --------- EPS........................................................ $ [0.05] --------- --------- ----- --------- ----------- ---------
F-25 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE R--PROFORMA FINANCIAL STATEMENTS (CONTINUED)
AMOUNTS IN THOUSANDS FOR THE NINE MONTHS ENDED DECEMBER 31, 1995 BALANCE SHEET WCFC IDEAL WORLDWIDE ORIGIN GOLD LEAF TOTAL - ----------------------------------------------------------- --------- ----- ----------- --------- --------- --------- Assets..................................................... $ 2,283 $ 65 $ 994 $ 71 $ 294 $ 3,707 Liabilities................................................ 1,458 80 953 38 284 2,813 Stockholders' equity....................................... 825 (15) 41 33 10 894 INCOME STATEMENT Revenues................................................... $ 6,504 182 7,209 1 1,330 $ 15,226 Expenses................................................... 6,436 169 7,196 18 1,333 15,152 --------- --- ----- --- ----- --------- Net income (loss).......................................... $ 68 $ 13 $ 13 $ (17) $ (3) $ 74 --------- --- ----- --- ----- --------- EPS........................................................ -- --------- --- ----- --- ----- ---------
NOTE S--PENDING LITIGATION On September 16, 1996, Wade Cook Seminars, Inc. v. Mellon, Charles E. and Robbins Research International, Inc., et al., was filed, for breach of non-compete contract. The court in a partial summary judgment dismissed this claim on November 26, 1997. Defendants subsequently made a motion for an award of attorney's fees of approximately $71,000, which was denied in January 1998. Both the order of dismissal and the denial of the award of attorney's fees have been appealed. NOTE T--SUBSEQUENT EVENTS On February 5, 1998, a claim was filed by WCFC against Associated Reciprocal Traders, Ltd. (ART) in the King County Superior Court based on a dispute over the ownership of 100,000 restricted shares of WADE stock (now 1,800,000 shares) issued pursuant to a Media for Stock Agreement dated December 29, 1995. On the same day ART filed a complaint against the Company based on substantially the same claims. A motion has been granted to consolidate the two claims. On January 14, 1998, WCFC issued 3,224,997 shares of its common stock in full settlement of the Ideal Travel Concepts, Inc. acquisition. (Note Q) WCFC is negotiating for the acquisition of Get Ahead Bookstores, Inc. (Get Ahead), Information Quest, Inc. (Info Quest),and Quantum Marketing, Inc. (Quantum), all related parties (Note E). In each transaction, substantially all of the outstanding stock of each company will be purchased by issuing common stock of WCFC. It is anticipated that all of the transactions will be accounted for under the purchase method. Get Ahead is a retail bookstore, selling primarily business related books, periodicals, and related materials. Info Quest sells a pager system that provides the customer with up to the minute stock quotes. Quantum is a marketing company. F-26 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE U- DEPOSITS AND BOOK OVERDRAFTS Deposits as of December 31, 1997 and 1996 amounted to $4,093,334 and $35,423 respectively. Deposits represent the following:
DECEMBER 31, ----------------------- DESCRIPTION 1997 1996 - ----------------------------------------------------------------------------------------- ------------ --------- Held by credit card processor............................................................ $ 2,050,000 -- Held for purchase of hotel............................................................... 1,913,790 -- Purchase of AVRI equipment............................................................... 120,000 -- Held for security on buildings........................................................... 9,544 35,423 ------------ --------- Totals................................................................................... $ 4,093,334 $ 35,423 ------------ --------- ------------ ---------
None of the deposits accrue interest. Book overdrafts amounted to $2,156,305 as of December 31, 1997 and none as of December 31, 1996. Under the Company's cash management system, checks issued but not presented to banks frequently result in overdraft balances for accounting purposes and are classified as "book overdrafts" in the balance sheet. NOTE V- PRIOR PERIOD ADJUSTMENTS The Company has restated its previously issued 1995 and 1994 financial statements to reflect adjustments principally related to the business combination described in Note A. The business combination was previously accounted for as a pooling of interest but has been restated to a reverse-acquisition whereby WCS is deemed to have acquired PFC. The adjustments relate primarily to the 1995 recapitalization under the reverse acquisition and the three month timing difference in income recognition under the pooling of interest (January 1, 1995 to December 31, 1995) and the purchase method, i.e., a reverse acquisition (April 1, 1995 to December 31, 1995).
AS PREVIOUSLY AS REPORTED RESTATED ------------ ------------ Net income for year ended December 31, 1995........................................... $ 123,798 $ 67,618 Earnings per share.................................................................... $ 0.02 $ 0.01 Additional paid in capital at December 31, 1995....................................... $ 498,938 $ 320,738 Additional paid in capital at December 31, 1996....................................... $ 1,072,608 $ 894,408 Retained earnings (deficit) at December 31, 1995...................................... $ (2,030) $ 176,170 Retained earnings at December 31, 1996................................................ $ 3,062,609 $ 3,240,809
F-27 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE V- PRIOR PERIOD ADJUSTMENTS (CONTINUED) Changes in shareholders' equity to reflect the restatement are calculated as follows:
TOTAL NUMBER OF PAID IN RETAINED SHAREHOLDERS' SHARES AMOUNT CAPITAL EARNINGS EQUITY --------- ----------- ------------ ------------- ------------ Prior to acquisition................ 3,199,211 $ 31,991 $ 4,093,794 $ (2,053,257) $2,072,528 WCFC Reorganization under section 368(a)(1)(D) of the IRC........... (1,880,000) (18,800) (3,578,056) 1,875,057 (1,721,799) ----------- ----------- ------------ ------------ ---------- Balance January 1, 1995 (Note A).... 1,319,211 13,191 515,738 (178,200) 350,729 Issuance of Company shares to acquire assets of WCS............. 1,880,000 18,800 (16,800) 108,552 110,552 Net income December 31, 1995, as previously reported............... 123,798 123,798 ----------- ----------- ------------ ------------ ---------- Balance, December 31, 1995, as previously reported............... 3,199,211 31,991 498,938 (2,030) 528,899 Issuance of shares: As previously reported.............. (1,880,000) (18,800) 16,800 (52,372) (54,372) As restated......................... 1,880,000 18,800 (16,800) 108,552 110,552 1995 recapitalization of WCFC....... (178,200) 178,200 Net income, December 31, 1995: As previously reported.............. (123,798) (123,798) As restated......................... 67,618 67,618 ----------- ----------- ------------ ------------ ---------- Balance, December 31, 1995, as restated.......................... 3,199,211 31,991 320,738 176,170 528,899 ----------- ----------- ------------ ------------ ---------- ----------- ----------- ------------ ------------ ----------
Based upon the term of the business combination, the transaction for financial reporting and accounting purposes has been accounted for as a reverse acquisition whereby, WCS (formerly known as USA) is deemed to have acquired WCFC (formerly known as PFC). However, WCFC is the continuing entity and registrant for both the Securities and Exchange Commission filing purposes and income tax reporting purposes. Consistent with reverse acquisition accounting treatment, WCFC has carried forward the historical basis of the acquired assets and assumed liabilities of WCS and has revalued the basis of its net assets which was at fair value even before the business combination. The following unaudited proforma combined statements of income for the twelve months ended December 31, 1995 and January 31, 1995 are presented as if the combination had occurred as of January 1, 1994. The proforma information is not necessarily indicative of the actual results of operation which would have occurred had the transactions occurred on such dates.
TWELVE MONTHS ENDED TWELVE MONTHS ENDED DECEMBER 31, 1995 JANUARY 31, 1995 ------------------- ------------------- Revenues............................................................... $ 7,567,335 $ 1,973,145 Cost of revenues....................................................... (3,373,888) (861,734) Other income (loss).................................................... (4,069,649) (1,307,141) ------------------- ------------------- Net income (loss)...................................................... $ 123,798 $ (195,730) ------------------- ------------------- ------------------- ------------------- Net income (loss) per share............................................ $ 0.02 $ (0.03) ------------------- ------------------- ------------------- -------------------
F-28 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE W- COUNTY OF FRESNO INVESTIGATION On March 5, 1998, the Company received a letter from the County of Fresno, California, Office of District Attorney Business Affairs Unit ("BAU"), which informed the Company that the BAU believed that the seminar sales contracts used in California by the Company were not in compliance with section 1678.20 through 1693 of the California Civil Code which provide for a three-day right of cancellation on seminar sales solicitation contracts. The Company has not yet determined any impact on its financial statements. No provision for losses have been made. F-29 REPORT OF INDEPENDENT AUDITORS Board of Directors Wade Cook Financial Corporation Seattle, Washington The audits referred to in our report to the Board of Directors of Wade Cook Financial Corporation and subsidiaries dated February 26, 1998, except Notes V and W, for which the date is March 26, 1998, relating to the consolidated financial statements of Wade Cook Financial Corporation and subsidiaries included the audit of schedules listed under Item 14 of Form 10-K for the years ended December 31, 1997 and 1996. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based upon our audit. In our opinion such financial statement schedules present fairly, in all material respects, the information set forth therein. Certified Public Accountants Santa Monica, California February 26, 1998, except Notes V and W, for which the date is March 26, 1998 S-1 WADE COOK FINANCIAL CORPORATION SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEETS ASSETS
DECEMBER 31, ------------------------ CURRENT ASSETS 1997 1996 - ---------------------------------------------------------------------------------------- ------------ ---------- Cash.................................................................................... $ 32,500 -- Investment in subsidiaries.............................................................. 2,703,379 $ 110,552 Investment in land...................................................................... 1,245,358 148,500 Investment in non-marketable securities................................................. 4,828,101 18,600 Other receivable........................................................................ -- 1,378 Due from subsidiary..................................................................... -- 48,013 ------------ ---------- TOTAL ASSETS............................................................................ $ 8,809,338 $ 327,043 ------------ ---------- ------------ ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
DECEMBER 31, ------------------------ CURRENT LIABILITIES 1997 1996 - ---------------------------------------------------------------------------------------- ------------ ---------- Accounts payable and accrued expenses................................................... $ -- $ 22,080 Due to subsidiaries..................................................................... 5,055,870 -- ------------ ---------- TOTAL LIABILITIES....................................................................... 5,055,870 22,080 ------------ ---------- SHAREHOLDERS' EQUITY Preferred stock......................................................................... -- -- Common stock............................................................................ 636,459 66,807 Paid-in capital......................................................................... 3,875,586 894,408 Prepaid advertising..................................................................... (500,000) (500,000) Retained earnings (deficit)............................................................. (258,577) (156,252) ------------ ---------- TOTAL SHAREHOLDERS' EQUITY.............................................................. 3,753,468 304,963 ------------ ---------- TOTAL LIABILITIES, MINORITY INTEREST, AND SHAREHOLDERS' EQUITY.......................... $ 8,809,338 $ 327,043 ------------ ---------- ------------ ----------
S-2 WADE COOK FINANCIAL CORPORATION SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
YEARS ENDED DECEMBER31, ------------------------------------- 1997 1996 1995 ----------- ----------- ----------- INTEREST INCOME............................................................ $ -- $ 2,013 $ -- GENERAL AND ADMINISTRATIVE EXPENSES........................................ (83,725) (41,792) (18,625) LOSS ON NON-MARKETABLE SECURITIES.......................................... (18,600) -- (107,400) IMPAIRMENT OF LONG-LIVED ASSETS............................................ -- -- (99,000) ----------- ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES.......................................... (102,325) (39,779) (225,025) PROVISION FOR INCOME TAXES................................................. -- -- -- ----------- ----------- ----------- NET LOSS................................................................... $ (102,325) $ (39,779) $ (225,025) ACCUMULATED DEFICIT, BEGINNING............................................. (156,252) (116,473) (178,200) ISSUANCE OF COMMON STOCK IN EXCHANGE FOR INVESTMENT IN SUBSIDIARY.......... -- -- 286,752 ----------- ----------- ----------- ACCUMULATED DEFICIT, ENDING................................................ $ (258,577) $ (156,252) $ (116,473) ----------- ----------- ----------- ----------- ----------- -----------
S-3 WADE COOK FINANCIAL CORPORATION SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF CASHFLOWS
YEARS ENDED DECEMBER 31, ------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996 1995 - --------------------------------------------------------------------------- ----------- ---------- ----------- Net income (loss).......................................................... $ (102,325) $ (39,779) $ (225,025) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of long-lived assets............................................ -- -- 99,000 Loss on investment in non-marketable securities............................ 18,600 -- 107,400 Changes in assets and liabilities, net of effects from purchase of companies: Receivables................................................................ 1,378 (1,378) -- Due from subsidiaries...................................................... 7,099,341 (48,013) -- Accounts payable and accrued expenses...................................... (22,080) (19,316) 18,625 ----------- ---------- ----------- TOTAL ADJUSTMENTS.......................................................... 7,097,239 (68,707) 225,025 ----------- ---------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES.................................. 6,994,914 (108,486) -0- ----------- ---------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of non-marketable securities...................................... (4,828,101) -- -- Capital expenditures....................................................... (1,096,858) -- -- Payment for purchase of companies, net of cash acquired.................... (1,748,230) -- -- ----------- ---------- ----------- NET CASH USED FOR INVESTING ACTIVITIES..................................... (7,673,189) -- -- ----------- ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock................................................... 72,481 108,486 -- Collection on subscription receivables and return of stock profits by officer.................................................................. 638,294 -- -- ----------- ---------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES.................................. 710,775 108,486 -- ----------- ---------- ----------- NET INCREASE IN CASH....................................................... 32,500 -0- -- CASH, beginning of year.................................................... -- -- -- ----------- ---------- ----------- CASH, end of year.......................................................... $ 32,500 $ -- $ -- ----------- ---------- ----------- ----------- ---------- -----------
S-4 EX-10.14 2 EXHIBIT 10.14 Product License Agreement 1. Parties: This Agreement is between Planet Cash, Inc., a Nevada corporation with its principal place of business at 3885 S. Decatur Blvd., Suite 2010, Las Vegas, Nevada, 89103, ("Planet Cash"),Steven Allyn Wirrick, an individual residing in Bellevue,Washington, 98006, ("Wirrick"), and Wade Cook Financial Corporation, a Nevada corporation with its principal place of business at 14675 Interurban Avenue South, Seattle, Washington, 98168, and/or its agents and assigns, including any subsidiary ("WCFC"). 2. Term: This Agreement shall take effect September 1, 1997 and remain in effect through September 1, 2002. At the sole option of WCFC this Agreement may be extended for two additional 5-year periods upon 30 days written notice. This Agreement may be further extneded upon mutual agreement between the parties. 3. Agreement: WCFC hereby agrees to license from Planet Cash and Wirrick rights in the Planet Cash/Wirrick IP, which Planet Cash or Wirrick either owns or controls,for the purpose of producing and marketing seminars, audio tapes,videotapes, documents and writings related to the Planet Cash/Wirrick IP. This license shall be an exclusive world-wide license. A list of current Products to which WCFC currently has the rights under the terms of this Agreement is attached as "Exhibit A." Additional works owned or controlled by Planet Cash or Wirrick shall be licensed to WCFC under the terms of this master license Agreement by executing individual "Intellectual Property License Orders" ("IP Orders") in the form of "Exhibit B." Specific IP Orders shall be signed and dated by the licensor of the intellectual property (Planet Cash or Wirrick) and by the licensee (WCFC or its subsidiaries) in order to be effective. The term of each IP Order shall be for the remainder of the term of this Agreement unless otherwise specified in writing. 4. Earned Royalties: WCFC shall pay to Planet Cash, Wirrick, or its/his agent as requested by Wirrick in writing, a royalty of ten percent (10%) of all gross sales for Products licensed hereunder. No royalty shall be payable on copies furnished gratis to Planet Cash or Wirrick or for review, returned products, destroyed products, products given away free for publicity, promotional purposes, or to introduce additional sales. Royalties shall be paid quarterly according to WCFC Accounting Department's standard payment schedule. 5. Marketing and Promotion: WCFC shall have the right to promote and advertise Products as it deems appropriate. 6. Author's Warranty: Planet Cash and Wirrick each represent and warrant to WCFC that the work is original and that Warrick is the sole author and proprietor thereof, and has full power to enter into this Agreement, Planet Cash and Wirrick agree to indemnify and hold harmless WCFC against any damage or judgment, including court costs and attorneys' fees, which may be sustained or recovered against WCFC by reason of the publication, marketing,or sale of any of the Products subject to this Agreement or arising from anything contained therein. Planet Cash and Wirrick also agree to reimburse WCFC for all expenses, including court costs, attorneys' fees, and amounts paid in settlement, sustained by WCFC in resisting any claim, demand, suit, action or proceeding asserted or instituted against WCFC as a result of the sale of any Product or by reason of anything contained therein. 7. Rights to Use Likeness: Planet Cash and Wirrick hereby consent to the use of Planet Cash's and/or Wirrick's name, likeness, identity, trademarks and trade symbols, for the purposes of fulfilling this Agreement and in connection with the promotion, advertising, distribution, financing, marketing and production of the Products or derivatives therefrom, and for general organizational promotional purposes. Wirrick agrees to participate in the production of video recordings and/or audio recordings at the request of WCFC, consents to the use and reproduction by WCFC of such video and reproduction by WCFC of such video and audio recordings. Wirrick releases WCFC from any and all liabilities arising from the use of Wirrick's image. 8. Examination of Books: WCFC shall make available to Planet Cash and/or Wirrick, within 30 days written notice, at its headquarters, the financial books related to payment of royalties hereunder. 9. Copyright: WCFC will, in all published versions of the Products, place a Copyright Notice in a form and place that complies with the requirement of the United States Copyright law, showing that the owner of the copyright rights in and to the Products is Wirrick or Planet Cash and that said rights have been licensed to WCFC and/or its publishing subsidiary. Such notice shall not be construed as in any way affecting or diminishing any of the rights granted to WCFC under this Agreement. Wirrick or Planet Cash shall execute and deliver to WCFC and documents necessary or desirable to evidence or effectuate the rights granted to WCFC under this Agreement. The "copyright laws" shall be construed to be those now or hereafter in force in the United States. Wirrick agrees to register and maintain said copyright with the U.S. Copyright Office in accordance with directions provided by WCFC. 10. Derivative Work: WCFC reserves the exclusive right to publish audio and/or video derivations of any written publications licensed herein. The same terms and conditions as set forth herein shall apply to each such audio and video derivations of the Products. WCFC shall have exclusive rights to create derivative works for promotional purposes. WCFC shall have sole copyright for any such derivative works created by WCFC. Planet Cash and Wirrick acknowledge that WCFC is in the seminar and publication business related to investments and will continue to market products similar to those licensed herein. 11. Promotional Materials: WCFC shall own any and all promotional materials created by WCFC to sell the Products including titles, packaging design,and marketing materials. Upon termination of the Agreement, all rights of ownership of said promotional materials shall remain with WCFC. All copyrighted materials owned by Planed Cash or Wirrick included in the Products shall remain the property of Planet Cash or Wirrick. 12. Infringement of Copyright: If during the existence of this Agreement the copyright shall be infringed or a claim for unfair competition shall arise from the unauthorized use of the Products or any part thereof, but not limited to, the format thereof of the characters or situations contained herein, and if the parties proceed jointly, the expenses and recoveries, if any, shall be shares equally, and if they do not proceed jointly, either party shall have the right to prosecute such action, and such party shall bear the expenses thereof, and any recoveries shall belong to such party. If such party shall not hold the record title of the copyright, the other party hereby consents that the action be brought in its or his name. WCFC shall not be liable to Planet Cash or Wirrick for failure to take such legal steps. 13. Disputes: Any dispute between the parties arising out of this Agreement which cannot be amicably settled shall be referred to arbitration upon written notice by either party to the other. The arbitration shall be governed by the laws of the State of Washington. Said arbitration is to be held in Seattle, Washington. Any award rendered in arbitration shall be binding and conclusive upon the parties and shall not be subject to appeals or retrying by the court. 14. ATTORNEY FEES: In the event this Agreement is placed in the hands of an attorney due to a default in the payment or performance of any of its terms, the defaulting party shall pay, immediately upon demand, the other party's reasonable attorney fees, collection costs, costs of either litigation, mediation, or arbitration (whichever is appropriate), whether or not a suit or action is filed, and any other fees or expenses reasonably incurred by the none-defaulting party. 15. JURISDICTION: This Agreement shall be governed by the laws of Washington. 16. FINAL AGREEMENT: This Agreement is the entire, final and complete agreement of the parties and supersedes all written and oral agreements heretofore made or existing by and between the parties or their representatives. IN WITNESS WHEREOF the parties hereto have executed and duly witnessed this Agreement as of the day and year written below. PLANET CASH, INC. By: /s/ JOHN V. CHILDERS, JR., PRES. --------------------------------- John V. Childers, Jr., President Dated: March 23, 1998 STEVEN ALLYN WIRRICK, INDIVIDUALLY /s/ STEVEN ALLYN WIRRICK - ---------------------------------- Steven Allyn Wirrick Dated: March 23, 1998 WADE COOK FINANCIAL CORPORATION By: /s/ WADE B. COOK - ---------------------------------- Wade B. Cook, President and CEO Dated: EXHIBIT A A list of current products to which Planet Cash currently has the rights to and is licensing to WCFC: 1. Seven Special Reports A) #701 - S Strategy for Success B) #702 - The Psychology of Trading C) #703 - Measuring Market Sentiment D) #704 - A Day late and a Dollar Short E) #705 - A Picture is Worth a Thousands of Dollars F) #706 - Know When to Hold 'em, Know When to Fold 'em G) #707 - Commandments of Trading 2. High Octane Options Audio Set A) #8101 - Psychology of Trading B) #8102 - Psychology of the Market C) #8103 - Trend Analysis D) #8104 - Timing is Crucial E) #8105 - Options 101 F) #8106 - Strategies G) #8107 - Chart Patterns H) #8108 - Rules of Thumb and Money Management 3. Workbook Titles: A) High Octane Options - Audio Edition B) High Octane Options - Reference Charts C) High Octane Options - Supplemental Charts 4. High Impact Trading Audio Set A) #4001 - Option Basics B) #4002 - The Trend is Your Friend C) #4003 - High Octane Options Overview D) #4004 - The Greatest Money Making Secret in the World E) #4005 - Take the Money and Run F) #4006 - The Buck Starts Here G) #4007 - Road Map to Riches H) #4008 - Use of Profit & Loss Charts Special Report I) #4009 - The Secret to Pricing Options - Never Pay Too Much Again Special Report 5. High Octane Options Seminar or High Octane Option Play Strategies - One day event to learn the strategies created by Steve Wirrick about trading in the options market. 6. Options Bootcamp - Two day event covering advanced options strategies created by Steve Wirrick. EXHIBIT B LICENSE ORDER EFFECTIVE DATE: EXECUTION DATE: LICENSOR: LICENSEE: ENDING DATE: PRODUCTS: PUBLICATIONS, VIDEO & AUDIO TAPES: WADE COOK FINANCIAL CORPORATION By: ---------------------------- Name: Title: STEVEN ALLYN WIRRICK By: ---------------------------- Name: EX-10.15 3 EXHIBIT 10.15 STOCK ASSIGNMENT AGREEMENT THIS STOCK PURCHASE ASSIGNMENT (the "Assignment") for the transfer of all interest in Get Ahead Bookstores, Inc., a Nevada corporation (the "Corporation") is made effective January 1, 1998, between Wade Cook Financial Corporation, a Nevada corporation ("Buyer") and Glendon H. Sypher, a resident of the State of Washington ("Seller"). RECITALS WHEREAS, the parties hereto desire to complete the Assignment upon the terms and conditions hereinafter stated in order for the Corporation to become a wholly owned subsidiary of the Buyer; NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, it is agreed as follows: AGREEMENT 1. SALE OF STOCK. Seller hereby agrees to assign all interests, rights and claims in the Corporation to Buyer. 2. PURCHASE PRICE. The purchase price for the Assignment shall be One Dollar and no cents ($1.00). 3. OPERATION OF BUSINESS. Seller shall continue to manage and direct the operation of the Corporation including service on the Board of Directors as agreed under the terms and conditions set forth in the Employment Agreement effective September 15, 1997 and/or as subsequently modified. 4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants to Buyer as follows: a. STOCK. Seller represents that none of the stock in the Corporation has been issued, however, to the extent that there are any issued and outstanding shares in the Corporation, Seller hereby assigns said interest to Buyer. 5. INDEMNIFICATION. Purchaser agrees to indemnify and hold Seller harmless from and against all damages that Seller may suffer, sustain, incur or become subject to whether directly or indirectly, arising out of, based upon, resulting from or in connection with the operation of the Corporation or ownership of the assets of the Corporation before the Closing Date, including without limitation liabilities arising from the sale of products sold by Seller before the Closing Date. 6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each party hereto covenants and agrees that its representations and warranties contained in this Agreement, and in any document delivered or to be delivered pursuant to this Agreement in connection with Closing hereunder, shall survive Closing. 7. SUCCESSORS. This Agreement shall inure to the benefit of and be binding upon the parties hereto, their successors, heirs, personal representatives, and assigns. 8. NOTICES. All notices, requests, demands, and other communications which are required or may be given under this Agreement shall be in writing, unless otherwise specified in this Agreement, and shall be deemed to have been duly given if delivered personally or sent by certified mail, return receipt requested, postage prepaid, addressed as follows: If to Seller: Glendon H. Sypher P. O. Box 553 Fall City, WA 98024 If to the Buyer: Kiman Lucas, Esq. General Counsel Wade Cook Financial Corporation 14675 Interurban Avenue South Seattle, WA 98168-4664 or to such other addresses any party shall have specified by notice in writing to the other. 9. APPLICABLE LAW. This Agreement and the legal relations between the parties hereto shall be governed by and in accordance with the law of the State of Washington. 10. ATTORNEY'S FEES. In any action or proceeding brought by any party against the other, the substantially prevailing party shall, in addition to other allowable costs, by entitled to an award of reasonable attorney's fees. 11. HEADINGS. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning and interpretation of this Agreement. 12. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ASSIGNOR: /s/ GLENDON H. SYPHER ------------------------------------ Glendon H. Sypher ASSIGNEE: Wade Cook Financial Corporation By: /s/ Wade B. Cook -------------------------------- Name: Wade B. Cook Its: Chairman and Chief Executive Officer EX-10.32 4 EXHIBIT 10.32 SECURED LOAN AGREEMENT THIS SECURED LOAN AGREEMENT (hereinafter referred to as "Agreement") is made and entered into on this 20th day of JANUARY, 1998, by and between NEWSTART CENTRE, INC., a Utah Corporation with its principal place of business in Salt Lake County, State of Utah, (hereinafter referred to as "Debtor") and WADE COOK SEMINARS, INC. of 14675 INTERURBAN AVE. SOUTH, SEATTLE, WA 98168 (hereinafter referred to as "Secured Party"). CAPTIONS AND HEADINGS. The captions and headings throughout this Agreement are for convenience of reference only, and the words contained therein shall in no way be held or deemed to define, limit, describe, explain, modify, amplify or add to the interpretation, construction or meaning of any provisions of or the scope or intent of this Agreement or in any way affect this Agreement. RECITALS: A. WHEREAS, DEBTOR is engaged in the business of buying, leasing and selling motor vehicles to the general public, and B. WHEREAS, DEBTOR desires to borrow working capital for the purchase of automobiles to sale or lease, and C. WHEREAS, Secured Party desires to loan working capital to Debtor, NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties hereto hereby agree as follows: 1. Loan. Secured Party hereby lends to Debtor, receipt of which is hereby acknowledged, the sum of $125,000.00 payable to Debtor in certified funds concurrent with the execution of this Agreement and the other documents/instruments referred to below. 2. Loan Documents. a) Execution and delivery by Debtor. Debtor hereby agrees to execute, by and through its authorized representatives, and to deliver to Secured Party, the following instruments/documents to effect the loan described in paragraph 1 above. 1) Promissory Note dated the 20th day of JANUARY, 1998, a copy of which is attached hereto as Exhibit "A". 2) Certificate of Delivery and Receipt of Documents, a copy of which is attached hereto as Exhibit "B". b) Execution and delivery by Secured Party. Secured Party hereby agrees to execute and deliver to Debtor the Certificate of Delivery and Receipt of Documents dated the 20th of JANUARY, 1998, (Exhibit "B"). 3. Grant of Lien. Debtor hereby grants to Secured Party a continuing lien against each vehicle (hereinafter the "vehicles") purchased with Secured Party's funds to secure the payment and performance of each and every obligation, liability and undertaking of Debtor under the loan documents and Debtor hereby represents and warrants to secured Party that Debtor is or, after acquisition by Debtor, will be the owner of the vehicles and possesses all requisite power and authority to execute and deliver this Agreement and to grant to Secured Party a lien as to all of the vehicles or any replacements thereof. 4. No Other Security Interests/Liens. No financing statement or lien covering the vehicles has been given or filed by Debtor with any filing officer, and the said vehicles are or will be free from any adverse liens, security interests, claims or encumbrances of any kind. 5. Taxes and Assessments. All taxes, assessments and other governmental charges including Utah State sales tax, county property tax, and license and registration fees upon the vehicles will, to the best of Debtor's knowledge, have been paid and shall continue to be paid as they become due and payable. 6. Substitution of Collateral. Secured Party consents and acknowledges that Debtor, from time to time, January sell, transfer or assign any or all of the said vehicles or leases covering the vehicles. Secured Party further agrees to cooperate with and to execute and deliver to Debtor such additional documents as January be necessary to sell or otherwise dispose of any of the vehicles provided Debtor, within a reasonable time, replaces such vehicle(s) with other vehicle(s) of equal or greater value and lists Secured Party as the sole lien holder on the titles to any such replacement vehicles. 7. Evidence of Title. Debtor shall, within thirty (30) days after the receipt thereof, deliver to Secured Party copies of any and all title and/or registration documents relating to any of the motor vehicles covered by this Agreement showing Secured Party as the sole lienholder. Debtor shall not further mortgage, pledge, grant or permit to exist any lien against or security interest in, or encumbrance on, any of the vehicles without the prior written consent of Secured Party. 8. Insurance. Debtor shall maintain, or cause Lessees to maintain, at Debtor's or Lessee's expense, proper insurance coverage on the vehicles covered by this Agreement upon terms and with limits of coverage reasonably required by the existing custom and usage in the motor vehicle leasing industry and all rights, duties and obligations of Debtor and Lessees with respect to insurance coverage of the vehicles, including, without limitation, payment of premiums, use of proceeds and disposition of policies shall be as are standard in the auto leasing industry. 9. Licenses and Permits. Debtor shall keep in effect all licenses, permits and franchises required by law or contract relating to the vehicles and shall pay, when due, all fees and other charges pertaining thereto. 10. Miscellaneous. (a) Entire Agreement. This Agreement, together with all of the documents/instruments listed herein constitute the entire agreement between the parties. There are no terms, obligations, covenants, representations, statements, or conditions between the parties, other than those contained herein. No variations or modifications of this Agreement or waiver of any of the terms or provisions hereof shall be deemed valid unless in writing and signed by both parties. (b) Grace Period. In the event of a non-monetary default, Debtor shall have thirty (30) days after receipt of written notice thereof from Secured Party in which to cure such default. (c) Amendments. Neither this Agreement nor any provisions hereof January be changed, waived, discharged or terminated orally and January only be modified or amended by an instrument in writing, signed by Secured Party and Debtor. (d) Binding Effect. This Agreement shall be binding upon Debtor and Debtor's successors and assigns. This Agreement shall inure to the benefit of Secured Party, and Secured Party's heirs, personal representatives, successors and assigns. (e) Notices. Except as otherwise provided herein, all notices and other communications under this Agreement shall be in writing and shall be deemed given when delivered or, if mailed, then when mailed, if mailed by registered or certified mail, postage prepaid, addressed as follows: If to Secured Party, to: If to Debtor, to: WADE COOK SEMINARS, INC. NEWSTART CENTRE, INC. C/O 14676 INTERURBAN AVE. SOUTH 5200 SOUTH STATE STREET SEATTLE, WA. 98168 MURRAY, UTAH 84107 Such addresses January be changed by notice to the other parties given in the same manner as above provided. Any notice given hereunder shall be deemed given as of the date delivered or mailed. (f) Severability. If any term or provision of this Agreement shall, to any extent, be determined by a court of competent jurisdiction to be void, voidable or unenforceable, such void, voidable or unenforceable term or provision shall not affect any other term or provision of this Agreement. (g) Governing Law. This Agreement and all matters relating hereto shall be governed by, construed and interpreted in accordance with the laws of the State of Utah, County of Salt Lake. (h) Termination. This Agreement shall terminate upon the full and complete performance and satisfaction by Debtor of all of its obligations to Secured Party under this Agreement or any other instrument referred to herein requiring performance by Debtor. IN WITNESS WHEREOF, Debtor and Secured Party have executed this Secured Loan Agreement effective as of the date first above written. DEBTOR: NEWSTART CENTRE, INC. By /s/ Robert J. Atmore ------------------------------- Robert J. Atmore, President SECURED PARTY: Wade Cook Seminars, Inc. By /s/ Wade B. Cook ------------------------------- Wade B. Cook PROMISSORY NOTE (Secured) $ $125,000.00 Date: January 20, 1998 FOR VALUE RECEIVED the undersigned hereby promise to pay to WADE COOK SEMINARS, INC. at 14675 INTERURBAN AVE. SOUTH, SEATTLE, WA 98168 or at such other place as the holder hereof January designate in writing, the principal sum of One Hundred Twenty Five Thousand dollars and no/100 ($ $125,000.00), payable in forty-eight (48) consecutive equal monthly payments, including interest as provided below, of ($3,503.15) each, commencing with the first payment on the 6th day of March, 1998, and continuing with a like payment on the 6th day of each and every consecutive month thereafter until the entire remaining unpaid principal balance has been paid in full, subject to the following additional terms and conditions: 1. Interest. Interest shall accrue on the unpaid principal balance at the simple rate of fifteen percent (15.00%) per annum. 2. Application of Payments. Payments shall be applied first toward the payment and satisfaction of accrued and unpaid interest, if any, and the remainder shall be applied toward the reduction of principal. Principal and interest shall be payable only in lawful money of the United States of America. 3. Prepayment. The undersigned shall have the right, without penalty, to pre-pay any part or all of the unpaid principal balance due hereunder, in which event subsequent monthly payments shall be reduced proportionately, or, upon payment in full of all interest, principal and any other amounts due hereunder, payments shall terminate. In any event, the entire principal balance, together with all accrued interest and any accrued costs or attorney's fees, as provided herein, shall be paid in full on or before March, 2002. 4. Default/Late Charges/Acceleration. In the event any installment payment due hereunder or any portion thereof is not made within thirty (30) days after its due date and such default is occasioned by the default of any lessee, then, to that extent, Debtor shall have sixty (60) days from such due date to repossess the subject motor vehicle(s), re-lease the same and resume making monthly installment payments pursuant to the Note. Any installment payment or any portion thereof not paid within the said sixty-day (60) period shall be added on to the end of the term covered by the Note and the final due date for such payment or part thereof, together with any accrued interest thereon shall be extended by one month for each such installment payment missed. 5. No Waiver. The acceptance of any installment or payment after the occurrence of a default or event giving rise to the right of acceleration provided for in the previous paragraph shall not constitute a waiver of such right of acceleration with respect to any subsequent default or event. 6. Costs of Collection/Attorneys' Fees, etc. In the event any payment due under this Note is not made, or any obligation provided to be satisfied or performed under any instrument given to secure payment of the obligations evidenced hereby is not satisfied or performed, at the time and in the manner required, the undersigned agrees to pay all costs and expenses (regardless of the particular nature thereof and whether incurred with or without suit and before or after judgment) which January be incurred by the holder hereof in connection with the enforcement of any of his rights under this Note or under any such other instrument, or any right arising out of the breach thereof, including but not limited to, reasonable expenses incurred in foreclosing on the collateral securing payment hereof, court costs, and reasonable attorneys' fees. 7. Notice. Any notice or demand hereunder shall be deemed to have been given to and received by the undersigned when personally delivered or when deposited in the U.S. mail, certified or registered mail, return receipt requested, postage pre-paid, and addressed to the undersigned at the address set forth below or at such other address as the undersigned January hereafter designate in writing to the holder hereof. This note shall be governed and construed in accordance with the laws of the State of Utah. NEWSTART CENTRE, INC. By /s/ Robert J. Atmore --------------------------- Robert J. Atmore, President CERTIFICATE OF DELIVERY AND RECEIPT OF DOCUMENTS I, ROBERT J. ATMORE, of/for NEWSTART CENTRE, INC. do hereby certify that on the 20TH day of JANUARY, 1998 I delivered to WADE COOK SEMINARS, INC. of 14675 INTERURBAN AVE. SOUTH, SEATTLE, WA 98168 one (1) original and/or one (1) copy of each of the following documents: (i) Secured Loan Agreement dated the 20TH day of JANUARY, 1998, between NEWSTART CENTRE, INC., as Debtor, and WADE COOK SEMINARS, INC. as Secured Party. (ii) Promissory Note dated the 20TH day of JANUARY, 1998. DATED this 20TH day of JANUARY, 1998. NEWSTART CENTRE, INC. By /s/ Robert J. Atmore --------------------------- Robert J. Atmore, President RECEIPT The undersigned do hereby acknowledge receipt of each of the documents or copies thereof listed above and attached to this Certificate. DATED this 20TH day of JANUARY, 1998. Name: WADE COOK SEMINARS, INC. By: /s/ Wade B. Cook Fed EIN# ------------------ ------------------ Wade B. Cook EX-10.36 5 EXHIBIT 10.36 Secured Home Promissory Note $75,000.00 Washington June 18, 1997 For value received, Paul and Laurie Cook, (Promissor) promise to pay to the order of Wade Cook Seminars, Inc. a Nevada corporation, at its office at 14675 Interurban Ave., S, Seattle, Washington, 98168 or at such other place as the holder of it may from time to time designate in writing, the principal sum of seventy five thousand dollars and no cents, ($75,000.00), which sum, together with interest from the date of this Note on the unpaid principal balance at the rate of eleven (11.00%) percent per year, shall be payable in monthly installments of seven hundred and fifty dollars ($750.00) each, beginning July 1, 1997, and continuing on thereafter for two years for a total of twenty four payments. A Balloon payment of sixty five thousand, one hundred and sixty nine dollars and seventy cents ($65,169.70) will be due upon the last payment made. The undersigned reserves the right to prepay this Note in whole or in part at any time, provided that all interest accrued to the date of the prepayment shall first have been paid. Secured Property: Lot 24, Overlook at Old Mill subdivision, according to the Plat thereof. As recorded in the Office of the County Recorder of Said County. The address to the house is: 6611 South Lindie CT, Salt Lake City, Utah 84058 In the event that the monthly payments provided for in this Note have not been paid and actually received by Promisee on or within five (5) days of their due date, a late charge of twenty-five dollars ($25.00) shall be accessed by Promisee to cover the extra expense involved in handling delinquent payments. Promisee shall not be obligated to accept any monthly payment made after its due date, unless that monthly payment shall be accompanied by the full amount of the late charges assessed by Promisee as provided in this Note: however, in the event that a late monthly payment is accepted, that payment shall first by applied to late charges. Any legal holder of this Note may, without notice and without releasing the liability of any maker or guarantor of this Note, grant extensions or renewals of this Note from time to time and for any term or terms. Any legal holder of this Page 1 of 2 Secured Promissory Note Paul and Laurie Cook Page 2 Note shall not be liable for or prejudice by failure to collect or for lack of diligence in bringing suit on this Note or any renewal or extension of this Note. Promissor waives presentement of nonpayment, protest and notice of protest. Should this Note be placed in the hands of an attorney for collection, or if action be instituted on it, all parties now or in the future liable for indebtedness evidenced by this Note, jointly and severally agree to pay all costs and expenses of the collection or enforcement action with reasonable attorney fees in addition to the amount found due. /s/ Paul Cook - ------------------------------- Paul Cook 6-19-97 - ------------------------------- Date /s/ Laurie Cook - ------------------------------- Laurie Cook 6/19/97 - ------------------------------- Date EX-10.37 6 EXHIBIT 10.37 Secured Home Promissory Note $13,000.00 Washington January 1, 1998 For value received, Paul D. Cook and Laurie C. Cook, (Promissor) promise to pay to the order of Wade Cook Seminars, Inc., a Nevada corporation, at its office at 14675 Interurban Ave. S, Seattle, Washington, 98168 or at such other place as the holder of it may from time to time designate in writing, the principal sum of thirteen thousand dollars and no cents, ($13,000.00), which sum, together with interest from the date of this Note on the unpaid principal sum, together with interest from the date of this Note on the unpaid principal balance at the rate of eleven (11.00%) percent per year, shall be payable in monthly installments of Four Hundred Dollars and no/100 ($400.00) each, beginning February 1, 1998, and continuing on thereafter for one year for a total of twelve payments. A Balloon payment of Nine Thousand, Eight Hundred Fifty Four Dollars and Eighty cents ($9,854.80) will be due upon the last payment made. It is further agreed and understood that for as long as Promissor is an employee/independent contractor of Wade Cook Seminars, Inc. he authorizes said monthly payment to be automatically deducted from his monthly commission. If Promissor is terminated or leaves said company, Promissor shall continue to be bound by the obligations as set forth in this agreement. The undersigned reserves the right to prepay this Note in whole or in part at any time, provided that all interest accrued to the date of the prepayment shall first have been paid. Secured Property: Lot 24, Overlook at Old Mill Subdivision, according to the Plat thereof; as recorded in the Office of the County Recorder of Said County. The address to the house is: 6611 South Lindie CT, Sale Lake City, Utah 84058 In the event that the monthly payments provided for in this Note have not been paid and actually received by Promisee on or within five (5) days of their due date, a late charge of twenty-five dollars ($25.00) shall be accessed by Promisee to cover the extra expense involved in handling delinquent payments. Promisee shall not be obligated to accept any monthly payment made after its due date, unless that monthly payment shall be accompanied by the full amount of the late charges assessed by Promisee as provided in this Note; however, in the event that a late monthly payment is accepted, that payment shall first be applied to late charges. Secured Promissory Note Paul D. Cook and Laurie C. Cook Page 2 Any legal holder of this Note may, without notice and without releasing the liability of any maker or guarantor of this Note, grant extensions or renewals of this Note from time to time and for any term or terms. Any legal holder of this Note shall not be liable for or prejudice by failure to collect or for lack of diligence in bringing suit on this Note or any renewal or extension of this Note. Promissor waives presentment for payment, notice of nonpayment, protest and notice of protest. Should this Note be placed in the hands of an attorney for collection, or if action be instituted on it, all parties now or in the future liable for indebtedness evidenced by this Note, jointly and severally agree to pay all costs and expenses of the collection or enforcement action with reasonable attorney fees in addition to the amount found due. Dated this 30th day of December, 1997. /s/ Paul D. Cook /s/ Laurie C. Cook - ---------------------- -------------------------- Paul D. Cook Laurie C. Cook EX-10.39 7 EXHIBIT 10.39 [SEAL] ARTICLES OF ORGANIZATION OF LAKE VIEW LODGING ASSOCIATES, L.C. The undersigned two or more persons hereby form a limited liability company under the Utah Limited Liability Company Act and adopt and certify as the Articles of Organization of such limited liability company the following: I. NAME: The name of the limited liability company is: Lake View Lodging Associates, L.C. II. DURATION: The period of its duration: The duration of the company shall be thirty-nine years from the date of filing of these Articles of Organization with the Division of Corporations of the State of Utah. III. PURPOSE: The business purpose for which this limited liability company is organized includes, but is not limited to, the following: The Company shall engage in the business of acquisition, development and operation of lodging facilities, and other related hotel activities, including but not limited to the development of hotel or motel properties. In addition, the Company shall have unlimited power to engage in and do any lawful act concerning any or all lawful businesses for which limited liability companies may be organized according to the laws of the State of Utah, excluding banking and insurance, including all powers and purposes now and hereafter permitted by law to a limited liability company. IV. AGENT: A. The address of the registered office in Utah is: 2601 North Canyon Road, Suite 203 Provo, UT 84604 B. The name and address of the registered agent at the office in Utah is: Glen A. Overton 2601 North Canyon Road, Suite 203 Provo, UT 84604 I, Glen A. Overton, do this date hereby voluntarily accept and agree to serve as Registered Agent for Lake View Lodging Associates, L.C. /s/ Glen A. Overton -------------------------------- Glen A. Overton, Registered Agent V. DIVISION APPOINTMENT: The Utah Division of Corporations is hereby appointed the agent of this limited liability company for service of process if the registered agent has resigned, the agent's authority had been revoked or the agent cannot be found or served with the exercise of reasonable diligence. VI. CAPITOL: The total amount of cash and a description and agreed value of property other than cash initially contributed to the Company is: A minimum One Thousand Dollars cash The total additional contributions, if any, agreed to be made by all members and the times at which or events upon the happening of which they shall be made: Additional equity contributions shall be made at such times and in such amounts as may be agreed by the Company and the members or as provided in the Operating Agreement of the Company. Loans from members maybe made to and accepted by the company and are authorized to be repaid on a preferential loan basis. VII. OWNERSHIP: The right, if given, of the members to admit additional members, and the terms and conditions of the admission: Additional members may be submitted at such times and on such terms and conditions as all members may unanimously agree and as provided in the Operating Agreement of the Company. Ownership interest may be transferred only upon the prior approval of all members. VIII. TERMINATION: This business and association shall terminate and dissolve upon the death, retirement, resignation, expulsion, or bankruptcy of any member. The right of the remaining members of the limited liability company to continue the business on the death, retirement, resignation, expulsion, bankruptcy, or dissolution of a member or occurrence of any other event which terminated the continued membership of a member in the limited liability company is as permitted by statute and as follows: The remaining members of the Company may continue the business upon the termination of membership of a member on the Company upon unanimous agreement and as provided in the Operating Agreement of the Company. IX. MANAGEMENT. The Company is to be managed by its members: Zion Management and Development Company, Inc., through its designated officers and agents, 2601 North Canyon Road, Suite 203, Provo, Utah 84604 and Fitch Properties L.C., through its designated officers and agents, 550 West 700 South, Orem, Utah 84058, and Bountiful Investment Group, Inc., formerly Profit Financial Real Estate Management Company, through its designated officers and agents, 14675 Interurban Avenue South, Seattle, Washington 98168. The members of the company are: (1) Zions Management and Development Company Inc., as to a 25% ownership as a member being a Utah Corporation, (2) Fitch Family Properties L.C., as to a 33% ownership as a member being a Utah Corporation, and (3) Bountiful Investment Group, Inc., as to a 42% ownership as a member being a Nevada Corporation; with such capital accounts, management control, and percentage ownerships and rights to receive profits and losses as are set fourth in the Operating Agreement, Membership Certificates and such other written agreements between the members. X. INDEMNIFICATION: Other provisions for the regulations of the internal affairs of the limited liability company are: 1. The Company shall indemnify any individual made a party to a proceeding because he is or was a manager, officer, organizer, employee or agent of the Company against liability incurred in the proceeding if: a. He conducted himself in good faith; b. He reasonably believed that his conduct was in or at least not opposed to the Company's best interest; and c. In the case of any criminal proceeding, he had no reasonable cause to believe his conduct was unlawful. 2. Indemnification shall also be provided for an individual's conduct with respect to an employee benefit plan if the individual reasonably believed his conduct to be in the interest of the participants in and beneficiaries of such plan. 3. The Company shall pay for or reimburse the reasonable expenses incurred by a manager, officer, organizer, employee or agent of the Company who is a party to a proceeding in advance of final disposition of the proceeding if: a. The individual furnishes the Company a written affirmation of his good faith belief that he has met the standard of conduct described herein; b. The individual furnishes the Company a written undertaking executed personally or on his behalf to repay the advance of it is ultimately determined That he did not meet the standard of conduct; and c. A determination is made that the facts then known to those making the determination would not preclude indemnification under the law. The undertaking required by this paragraph shall be an unlimited general obligation, but need not be secured and may be accepted without reference to financial ability to make repayment. 4. The indemnification and advance of expense authorized herein shall not be exclusive to any other rights to which any manager, officer, organizer, employee or agent may be entitled under any Operating Agreement, by-law, agreement, vote of members or disinterest managers or otherwise. The Articles of Organization shall not be interpreted to limit in any manner the indemnification or right to advancement for expenses of an individual who would otherwise be entitled thereto. These Articles of Organization shall be interpreted as mandating indemnification and advancement of expenses to the extent permitted by law. 5. In addition to the foregoing, the Company shall indemnify and save the organizers harmless for all acts taken by them as organizers of the Company, and shall pay all costs and expenses incurred by or imposed upon them as a result of the same, including compensation based upon the usual charges for expenditures required of them in pursuit of the defense against any liability arising on the account of acting as organizers or on account of enforcing the indemnification right hereunder, and the Company releases them from all liability for any such act as organizers not involving willful or grossly negligent misconduct. IN WITNESS WHEREOF, the Articles of Organization are executed under penalties of perjury by all of the members of the Limited Liability Company effective as of the 22nd day of September, 1997. /s/ Glen A. Overton ----------------------------------- Glen A. Overton, President East Bay Lodging Associates L.C. /s/ Wade B. Cook ----------------------------------- Wade B. Cook, President Bountiful Investment Group formerly Profit Financial Real Estate Management Company /s/ Robert H. Fitch ----------------------------------- Robert H. Fitch, Manager Fitch Family Properties L.C. STATE OF UTAH ) )ss. COUNTY OF UTAH ) On the 4 day of December, 1977 personally appeared before me Glen A. Overton signer of the above instrument, who duly acknowledged to me that he executed the same. My Commission Expires /s/ Deborah A. Whitlock November 15, 1999 ------------------------------- - --------------------- Notary Public [SEAL] Residing at: Provo, Utah ------------------------------- STATE OF WASHINGTON ) )ss. COUNTY OF KING ) On the 2nd day of December, 1997 personally appeared before me Wade B. Cook signer of the above instrument, who duly acknowledged to me that he executed the same. My Commission Expires /s/ ILLEGIBLE October 1997 ------------------------------- - ------------------- Notary Public Residing at: Bellevue, Wa. ------------------------------- STATE OF UTAH ) )ss. COUNTY OF UTAH ) On the 4 day of December, 1997 personally appeared before me Robert H. Fitch signer of the above instrument, who duly acknowledged to me that he executed the same. My Commission Expires /s/ Deborah A. Whitlock Nov. 1999 ------------------------------- - ------------------- Notary Public Residing at: Provo, UT ------------------------------- [SEAL] EX-10.40 8 EXHIBIT 10.40 ASSIGNMENT AND ASSUMPTION OF INTEREST THIS ASSIGNMENT AND ASSUMPTION OF INTEREST is made this 10th day of September, 1997 by Zions Management and Development Co. (herein "Zions"), a Utah corporation, to Airport Hotel Partners, L.L.C. (Herein "AHP") and Wade Cook Seminars. RECITALS: A. Zions owns ten percent (10%) interest in Airport Hotel Partners, L.L.C. B. Zions agrees to relinquish all of its rights being ten percent (10%) in AHP, L.L.C. to Wade Cook Seminars and Wade Cook Seminars agrees to accept the assignment for the sum of $250,000. AGREEMENT: 1. Zions hereby assigns to Wade Cook Seminars a ten percent (10%) interest in "AHP". 2. Wade Cook Seminars agrees to buy the foregoing interest in AHP for the sum of $250,000 and agrees to perform any and all obligations which it may thereby have under the Articles of Organization or Operating Agreement of AHP. IN WITNESS WHEREOF, the parties have entered into this Agreement the day and year first above written. ZIONS MANAGEMENT AND DEVELOPMENT CO. By /s/ Glen A. Overton --------------------------------- Glen A. Overton, President AIRPORT LODGING ASSOCIATES, L.C. By /s/ Glen A. Overton --------------------------------- Zions Management and Development Co., Managing Member WADE COOK SEMINARS By --------------------------------- Wade B. Cook, President On this 19 day of September, 1997, Glen A. Overton did personally appear before me, who being duly sworn did say that he the said Glen A. Overton is the President of Zions Management and Development Co. And that the within and foregoing instrument was signed in behalf of the said corporation. /s/ Deborah A. Whitlock --------------------------------- NOTARY PUBLIC Residing in: [ILLEGIBLE] --------------------------------- My Commission Expires: [STAMP] 1999 - ---------------------- On this ____ day of September, 1997, Wade B. Cook did personally appear before me, who being duly sworn did say that he the said Wade B. Cook is the President of Wade Cook Seminars. And that the within and foregoing instrument was signed in behalf of the said corporation. ------------------------------------ NOTARY PUBLIC Residing in: ------------------------ My Commission Expires: - ---------------------- CONSENT AGREEMENT Admission of New Member In compliance with the "Operating Agreement" of Airport Hotel Partners, LLC, as stated in item number 14 of that agreement. 14. ADMISSION OF NEW MEMBERS The Members may admit new Members (or transferees of any interests of existing Members) into the Limited Liability Company by the affirmative vote of consent of Members holding a majority of the Members' Percentage Interests. MGR Investment Group, LLC agrees to allow Investment Lodging Corp. To transfer 10% of its interest to Wade Cook Seminars, Inc. Wade Cook Seminars, Inc. Will become a member of Airport Partners, LLC after the hotel is completed and open for business operations. INVESTMENT LODGING CORP. MGR INVESTMENT GROUP, LLC. BY /s/ [ILLEGIBLE] BY /s/ Grant Taylor -------------------------------- ------------------------------ PRESIDENT MEMBER GRANT TAYLOR TO: Wade R. Cook FROM: Glen Overton SUBJECT: Property # UT-015, Salt Lake City Airport DATE: August 15, 1997 SHERATON SUITES, AIRPORT PROPERTY - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- LOCATION: 307 North Admiral Byrd Salt Lake City International Center Salt Lake City, UT 84101 Property sets on 2.45 acres - 2 miles west of the Salt Lake City Airport DESCRIPTION: 104 units, combination of large studio suites and luxury 1 and 2 bedroom suites. Has a two-story lobby, lounge, restaurant, meeting rooms, exercise facility, and outdoor pool and hot tub. This will be the most upscale 4-star property at the International Center. TIME LINE: Construction began 03/97 Projected opening 11/20/97 HOTEL COST: Total project cost estimated at $8.5 million EQUITY DIST. Ownership to be held in in an L.L.C. - MGR Investment Group, L.L.C. and related parties to hold 78% ownership - Investment Lodging, Inc. and related parties to hold a 12% ownership - WADE COOK SEMINARS, INC. TO HOLD A 10% OWNERSHIP INVESTMENT: Total equity contribution to date totals $2,500,000 - Wade Cook Seminars, Inc. to pay to Investment Lodging, Inc. $250,000 directly to acquire 10% of Investment Lodging, Inc. interest. COOK PAYMENTS: $250,000 to be received by check to MGR Investment Group Bank Wire Agreement Accepted by /s/ Wade B. Cook 8-22-97 - --------------------------- -------------------- Wade Cook Seminars, Inc by Date Wade Cook EX-10.41 9 EXHIBIT 10.41 LIMITED LIABILITY COMPANY INTEREST PURCHASE AGREEMENT THIS LIMITED LIABILITY COMPANY INTEREST PURCHASE AGREEMENT ("Agreement") is entered into as of this 29th day of November, 1997, by and between Wade Cook Seminars, Inc., a Nevada corporation ("Buyer") and Wespac Holdings, L.C., a Utah limited liability company ("Seller"). WITNESSETH: A. Seller owns a seven percent (7%) membership, capital and profits interest (the "Interest") in Woods Cross Hotel Partners, L.C., a Utah limited liability Company (the "Company"). The Company has developed and owns and operates a Fairfield Inn by Marriott located near the intersection of 2600 South and Wildcat Way (on the I-15 Freeway frontage road) in Woods Cross, Utah. B. Seller desires to sell the Interest to Buyer and Buyer desires to buy from Seller the Interest pursuant to the terms and subject to the conditions set forth in this Agreement. AGREEMENT --------- In consideration of the foregoing and the mutual promises contained herein, the parties agree as follows: 1. PURCHASE AND SALE OF INTEREST. Upon the terms and subject to the conditions set forth in this Agreement, hereby sells, assigns, transfers and conveys the Interest to Buyer, and Buyer hereby purchases, obtains and acquires the Interest form Seller. 2. PURCHASE PRICE. In consideration of and in exchange for the sale, assignment, transfer and conveyance of the Interest, Buyer agrees to assign and transfer to Seller, Ten Thousand One Hundred Eighty Two (10,182) shares of the common stock of Wade Cook Financial Corporation, a Utah corporation, (the "Stock"). The Stock shall be delivered to Seller through certificates, properly endorsed for transfer, on the Closing Date as follows: Number of Name Shares of Stock ---- --------------- Paul d. Christensen 6,545 Rex K. Griffiths 3,637 The Stock shall be registered and capable subject to no restrictions or limitation, other than not more than a one year restriction on transfer, as of the Closing Date. 3. CLOSING. Subject to the satisfaction of the conditions set forth in this Agreement and compliance with the other provisions hereof, the closing of the transaction contemplated by this Agreement (the "Closing") shall take place at SLC Utah on 11/29/97 at 10:00 a.m., local time, or at such other place and time as shall be mutually agreeable to the parties hereto (the "(Closing Date"). At the Closing, Buyer shall deliver to Seller certificates evidencing the number of shares of Stock specified in Sections 2 hereof, properly endorsed for transfer, and Seller shall each deliver to Buyer an assignment of the Interest, in the form attached as Exhibit A. 4. ASSIGNMENT OF THE INTEREST. From and after the Closing, all equitable and legal rights, title and interests in and to the Interest shall be owned, held and exercised by Buyer. All captial calls, obligations and liabilities, if any, under the Company's Operating Agreement shall be the sole responsibility of Buyer. 5. ASSIGNMENTS OF THE STOCK. From and after the Closing, all equitable and legal rights, title and interests in and to the Stock shall be owned, held and exercised by each member of Seller in the proportions specified in Sections 2 above. Wade Cook Financial Corporation shall, upon surrender of certificates no. _____ evidencing the Stock, cancel the old certificates and issue new certificates to each member of Seller (or as they may direct) for the number of shares of Stock as specified in Section 2 above. 6. INVESTMENT REPRESENTATIONS OF BUYER. Buyer hereby represents and warrants to each of Sellers as follows: (a) Buyer understands that the Interest has not been registered under the Securities Act of 1933 (the "1933 Act") or the laws of any state, and the transactions contemplated hereby are being undertaken in reliance upon an exemption from the registration requirements of the 1933 Act, and reliance upon such exemption is based upon Buyer's representations, warranties and agreements contained in this Agreement. (b) Buyer has received and carefully reviewed all information necessary to enable Buyer to evaluate his investment in the Company. Buyer has been given the opportunity to ask questions of and to receive answers from the Company concerning its business and the Interest, and to obtain such additional written information necessary to verify the accuracy thereof. (c) Buy is aware the purchase of the Interest is speculative and involves a high degree of risk. Buyer is aware that there is no guarantee that Buyer will realize any gain from his acquisition of the Interest. Buyer further understands that Buyer could lose the entire amount of his investment. (d) Buyer understands that no federal or state agency or other authority has made any finding or determination regarding the fairness of the offer, sale and/or issuance of the Interest or has made any recommendation or endorsement thereof or has passed in any way upon this Agreement. 2 (e) Buyer: (i) is acquiring the Interest solely for Buyer's own account for investment purposes only and not with a view toward resale or distribution thereof, in whole or in part, (ii) has no tract, undertaking, agreement or arrangement, in existence or contemplated, to sell, pledge, assign or otherwise transfer the Interest to any other person, and (iii) agrees not to sell or otherwise transfer the Interest unless and until it is subsequently registered under the 1933 Act and any applicable state securities laws, or unless an exemption from any such requirement is available. (f) Buyer is financially able to bear the economic risk of an investment in the Interest, including the ability to hold the Interest indefinitely and to afford a complete loss of his investment in the Interest. Buyer has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the acquisition of the Interest. 7. INVESTMENT REPRESENTATIONS OF SELLERS. The Seller hereby represents and warrants to Buyer as follows: (a) Seller has received and carefully reviewed all information necessary to enable Seller to evaluate the investment represented by the Stock in Wade Cook Financial Corporation. Seller has been given the opportunity to ask questions of and to receive answers from Wade Cook Financial Corporation concerning its business and the Stock, and to obtain such additional written information necessary to verify the accuracy thereof. (b) Seller is aware that the Stock is speculative and involves a high degree of risk. Seller is aware that there is no guarantee that Seller will realize any gain form ownership of the Stock. Seller further understands that it could lose the entire amount of their investment. (c) Seller is financially able to bear the economic risk of an investment in the Stock, including the ability to hold the Stock indefinitely and to afford a complete loss of their investment in the Stock. Seller has knowledge and experience in financial and business matters as to be capable of evaluating the merits and risk of the acquisition of the Stock. 8. CONDITIONS TO OBLIGATIONS OF BUYER. The obligation of Buyer to consummate the transactions contemplated by this Agreement is subject to the fulfillment of each of the following conditions: (a) On the Closing Date, Seller shall be the sole legal and beneficial owner of the Interest, free and clear of all claims, liens, mortgages, charges, security interests, encumbrances and other restrictions and limitations of any kind and nature whatsoever. (b) By the Closing Date, any and all necessary consents, authorizations, orders or approvals for transfer of the Interest shall have been obtained. (c) Neither the execution or delivery of this Agreement nor the performance of its obligations hereunder will conflict with or result in a breach of or constitute a default under or result in the creation of or an imposition of a lien upon any of the properties or assets of Seller or any agreement too which Seller may be a party or by which its property or assets may be subject. 3 9. CONDITIONS TO OBLIGATIONS OF SELLER. The obligation of Seller to consummate the transactions contemplated by this Agreement is subject to the fulfillment of each of the following conditions: (a) On of the Closing Date, Buyer shall be the sole legal and beneficial owner of the Stock, free and clear of all claims, liens, charges, security interest, encumbrances and other restrictions and limitations of any kind or nature whatsoever. (b) On the Closing Date, any and all necessary consents, authorizations, orders or approvals for transfer of the Stock shall have been obtained. (c) Neither the execution or delivery of this Agreement nor the performance of its obligation hereunder will conflict with or result in a breach of or constitute a default under or result in the creation of or an imposition of a lien upon any of the properties or assets of Buyer or any agreement to which Buyer may be a party or by which it property or assets may be subject. (d) Wade Cook Financial Corporation shall provide assurances of the registration of the Stock and its willingness, upon presentation and endorsement, to cancel certificate no. ____ and issue new certificates in the names of the members of Seller (or as they may direct) evidencing their ownership of the Stock as specified in Section 2 above. 10. MISCELLANEOUS. (a) This Agreement represents the entire agreement between the parties hereto with respect to the transactions contemplated hereby and supersedes all prior agreements with respect thereto, whether written or oral. (b) This Agreement shall be governed by and construed in accordance with the laws of the State of Utah, without regard, however, to such jurisdiction's principles of conflict of laws. (c) This Agreement may be executed in counterpart originals, each of which shall be an original, but all of which shall constitute only one Agreement. A facsimile signature of any party will be binding on that party, and any facsimile communication shall be immediately followed by a hard copy containing such signature. DATED as of the date first written above,. BUYER WADE COOK SEMINARS, INC., a Nevada corporation By: /s/ Wade B. Cook ---------------------------------- Wade B. Cook, President 4 SELLERS: WESPAC HOLDINGS, L.C., a Utah limited liability company By: /s/ Paul E. Christian ------------------------------- Paul E. Christian, member By: /s/ Rex K. Griffith ------------------------------- Rex K. Griffith, member 5 EXHIBIT A ASSIGNMENT OF MEMBERSHIP INTEREST FOR VALUE RECEIVED, Wespac Holdings, L.C., a Utah limited liability company ("Assignor"), herewith sells, assigns, transfers and conveys to Wade Cook Seminars, Inc,. a Nevada corporations ("Assignee"), the entirety of Assignor's rights, title and interests as member of and in Woods Cross Hotel Partners, L.C., a Utah limited liability company (the "Company"), which shall include, without limitation, Assignor's seven percent (7%) capital and profits interest in the Company, Assignor's capital account balance in the Company, Assignor's distributions and liquidation rights in the Company and Assignor's voting and management rights and powers in the Company. This Assignment of Membership Interest in the Company is made, delivered and shall be effective on the date hereof in accordance with and in complete satisfaction of the requirements of Article VII of the Operating Agreement of Woods Cross Hotel Partners, L.C. dated as of November 11, 1994. IN WITNESS WHEREOF, Assignor has executed this Assignment by and through its members this ___ day of November, 1997. WESPAC HOLDINGS, L.C., a Utah limited liability company By: /s/ Paul E. Christensen ---------------------------------------- Paul E. Christensen, member By: /s/ Rex K. Griffiths ---------------------------------------- Rex K. Griffiths, member 1 Acknowledged, consented, approved and agreed to by Woods Cross Hotel Partners, L.C., a Utah limited liability company (the "Company"), and each of its members this 29th day of November, 1997, that Wade Cook Seminars Inc., a Nevada corporation pursuant to the attached Assignment of Membership Interest has become and at all times hereafter shall be a substitute member of the Company as provided by Section 7.3 of the Operating Agreement of the Company dated as of November 11, 1994, with all rights, title and interest in the Company provided therein, and the rights and limitations of the members under Section 7.1 of the Operating Agreement of the Company dated as of November 11, 1994 with respect to the attached Assignment of Membership Interest to Money Chef Inc. are hereby waived and released. WOODS CROSS HOTEL PARTNERS, L.C., a Utah limited liability company BY: ITS MEMBERS WESTERN STATES LODGING AND DEVELOPMENT, L.C., a Utah limited liability company By: The Miles Group, L.L.C., a Utah limited liability company By: /s/ Richard L. Miles ------------------------------- Richard L. Miles, member By: /s/ Stephen P. Miles ------------------------------- Stephen P. Miles, member By: EXMAR Company, L.C. a Utah limited liability company By: /s/ Gary K. Griffiths ------------------------------- Gary K. Griffiths, member By: /s/ Laura Jo Griffiths ------------------------------- Laura Jo Griffiths, member By: /s/ David R. Webster ------------------------------- David R. Webster, member By: /s/ Sylvia N. Webster ------------------------------- Sylvia N. Webster, member 2 WESPAC HOLDINGS, L.C., a Utah limited liability company By: /s/ Paul E. Christensen ---------------------------------------- Paul E. Christensen, member By: /s/ Rex K. Griffiths ---------------------------------------- Rex K. Griffiths, member RJT ENTERPRISES, L.C., a Utah limited liability company By: /s/ Ray C. Thomas ---------------------------------------- Ray C. Thomas, member By: /s/ Jean Thomas ---------------------------------------- Jean Thomas, member 3 EX-10.42 10 EXHIBIT 10.42 LIMITED LIABILITY COMPANY INTEREST PURCHASE AGREEMENT THIS LIMITED LIABILITY COMPANY INTEREST PURCHASE AGREEMENT (this "Agreement") is entered into as of this 4th day of Feb, 1997, by and between United Support Association, Inc., a Nevada corporation ("Buyer") and Wespac Holdings, L.C., a Utah limited liability company ("Seller"). RECITALS A. Seller owns an eight and 88/100 percent (8.88%) capital and profits membership interest (the "Interest") in Park City Hotel Partners, L.C., a Utah limited liability company (the "Company"). B. Seller desires to sell the Interest to Buyer, and Buyer desires to buy from Seller the Interest pursuant to the terms and subject to the conditions set forth in this Agreement. AGREEMENT In consideration of the foregoing Recitals and the mutual promises contained herein, the parties agree as follows: 1. PURCHASE AND SALE OF INTEREST. Upon the terms and subject to the conditions set forth in this Agreement, Seller shall sell, assign, transfer and convey to Buyer, and Buyer shall purchase, obtain and acquire from Seller, all of Seller's right, title and interest in and to the Interest. 2. PURCHASE PRICE. In consideration of and in exchange for the Seller's sale, assignment, transfer and conveyance of the Interest, Buyer agrees to pay Seller Two Hundred Thousand Dollars ($200,000.00) payable as follows: (a) $25,000.00 down payment at the time of the execution and delivery of this Agreement; and (b) A promissory note in the face amount of $175,000.00 with interest at 9% per annum on the unpaid balance payable in 18 equal monthly installments of $10,429.59 each. A copy of the Promissory Note is attached as EXHIBIT A. (c) The promissory note shall be secured by a personal guarantee of Wade Cook, a copy of which is attached as EXHIBIT B, and a perfected security interest on the Interest to be entered into at such time as the Interest is assigned and transferred under Section 4 hereof. A copy of the Security Agreement is attached as EXHIBIT C. 3. CLOSING. Subject to the satisfaction of the conditions set forth in this Agreement and compliance with the other provisions hereof, the closing of the transactions contemplated by this Agreement (the "Closing") shall take place at _______________ on ___________ at 10:00 a.m., local time, or at such other place and time as shall be mutually agreeable to the parties hereto (the "Closing Date"). At the Closing, Buyer shall deliver the down payment and promissory note to Seller as provided in Section 2 above. At the time of the completion of the conditions of Section 4, Seller shall deliver an assignment of the Interest to Buyer. 4. ASSIGNMENT OF INTEREST. From and after the Closing, all equitable rights, title and interests in the Interest shall be owned, held and exercised by Buyer. All capital calls, obligations and liabilities, if any, under the Company's Operating Agreement shall be the sole responsibility of Buyer. The Company is in the process of obtaining permanent financing on the hotel being constructed. Following the obtaining of the permanent financing, Seller will deliver to Buyer an executed Assignment of Membership Interest relating to the Interest, a copy of which is attached as EXHIBIT D. 5. INVESTMENT REPRESENTATIONS OF BUYER. Buyer hereby represents and warrants to Seller as follows: (a) Buyer understands that the Interest has not been registered under the Securities Act of 1933 (the "1933 Act") or the laws of any state, and the transactions contemplated hereby are being undertaken in reliance upon an exemption from the registration requirements of the 1933 Act, and reliance upon such exemption is based upon Buyer's representations, warranties and agreements contained in this Agreement. (b) Buyer has received and carefully reviewed all information necessary to enable Buyer to evaluate his investment in the Company. Buyer has been given the opportunity to ask questions of and to receive answers from the Company concerning its business and the Interest, and to obtain such additional written information necessary to verify the accuracy thereof. (c) Buyer is aware that the purchase of the Interest is speculative and involves a high degree of risk. Buyer is aware that there is no guarantee that Buyer will realize any gain from his acquisition of the Interest. Buyer further understands that Buyer could lose the entire amount of his investment. (d) Buyer understands that no federal or state agency or other authority has made any finding or determination regarding the fairness of the offer, sale and/or issuance of the Interest or has made any recommendation or endorsement thereof or has passed in any way upon this Agreement. (e) Buyer: (i) is acquiring the Interest solely for Buyer's own account for investment purposes only and not with a view toward resale or distribution thereof, in whole or in part; (ii) has no contract, undertaking, agreement or other arrangement, in existence or contemplated, to sell, pledge, assign or otherwise transfer the Interest to any other person; and (iii) agrees not to sell or otherwise transfer the Interest unless and until it is subsequently registered under the 1933 Act and any applicable state securities laws, or unless an exemption from any such requirement is available. (f) Buyer is financially able to bear the economic risk of an investment in the Interest, including the ability to hold the Interest indefinitely and to afford a complete loss of his investment in the Interest. Buyer has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the acquisition of the Interest. 6. CONDITIONS TO OBLIGATIONS OF BUYER. The obligation of Buyer to consummate the transactions contemplated by this Agreement is subject to the fulfillment of each of the following conditions: (a) On and as of the Closing Date, Seller shall be the sole legal and beneficial owner of the Interest, which shall be free and clear of all claims, liens, mortgages, charges, security interests, encumbrances and other restrictions and limitations of any kind whatsoever. (b) By the Closing Date, any and all necessary consents, authorizations, orders or approvals shall have been obtained. (c) Neither the execution or delivery of this Agreement nor the performance of its obligations hereunder will conflict with or result in a breach of or constitute a default under or result in the creation of or an imposition of a lien upon any of the properties or assets of Seller or any Agreement to which Seller may be a party or by which its property or assets may be subject. 7. CONDITIONS TO OBLIGATIONS OF SELLER. The obligation of Seller to consummate the transactions contemplated by this Agreement is subject to the fulfillment of each of the following conditions: (a) By the Closing Date, any and all necessary consents, authorizations, orders or approvals shall have been obtained. (b) Neither the execution or delivery of this Agreement nor the performance of its obligations hereunder will conflict with or result in a breach of or constitute a default under or result in the creation of or an imposition of a lien upon any of the properties or assets of Buyer or any Agreement to which Buyer may be a party or by which its property or assets may be subject. 8. FINDER'S FEE. For the expertise, time, efforts and expense incurred by Paul E. Christensen and Rex K. Griffiths in bringing together the Buyer and Seller and obtaining the various approvals of the transaction by the members of the Company, Buyer shall pay to Paul E. Christensen and Rex K. Griffiths at Closing a commission of Twenty Five Thousand Dollars ($25,000) ($12,500 to Paul E. Christensen and $12,500 to Rex K. Griffiths). Except as provided by this Section 8, no other commissions, fees or compensation shall be due as a result of this Agreement or the transactions contemplated herein. 9. MISCELLANEOUS. (a) This Agreement represents the entire agreement between the parties hereto with respect to the transactions contemplated hereby and supersedes all prior agreements with respect thereto, whether written or oral. (b) This Agreement shall be governed by and construed in accordance with the laws of the State of Utah, without regard, however, to such jurisdiction's principles of conflict of laws. (c) This Agreement may be executed in counterparts, each of which shall be an original, but all of which shall constitute but one Agreement. DATED as of the date of first written above. UNITED SUPPORT ASSOCIATION, INC., a Nevada corporation By: /s/ Wade B. Cook -------------------------- Wade B. Cook, President --------------- WESPAC HOLDING, L.C., a Utah limited liability company By: /s/ Paul E. Christensen ------------------------------------ Paul E. Christensen, a member By: /s/ Rex K. Griffith ---------------------------------- Rex K. Griffith, a member Exhibit A PROMISSORY NOTE Amount: $175,000.00 Date: January 31, 1997 Place: Salt Lake City, Utah FOR VALUE RECEIVED, the undersigned, promises to pay to Wespac Holdings, L.C., a Utah limited liability company or order at 2932 Chippewa Way, Provo, Utah 84604 or such other place as the holder may designate in writing, the principal sum of One Hundred Seventy-Five Thousand Dollars ($175,000.00), together with interest thereon computed at the rate of nine percent (9%) per annum on the unpaid principal balance owing from time to time and charged on actual days the loan is outstanding. The principal and interest hereunder shall be payable in eighteen (18) equal monthly installments of Ten Thousand Four Hundred Twenty-Nine and 59/100 Dollars ($10,429.59) each, with the first installment due 30 days from the date hereof, and each installment thereafter due and on the same day of each succeeding month thereafter until paid in full. An installment payment which is paid in full within ten days after any scheduled due date is a timely payment, and no late fee will be assessed for that payment. If, however, a payment is not paid in full within ten days of a scheduled payment date, a late fee will be charged in the amount of $500.00. If any payment comes due on a day which is not a business day, it shall be due the next business day. All payments received shall be applied first to the amounts advanced by holder to protect its security, if any, then to accrued late fees, if any, and thereafter to the payment of interest and then to the payment of principal. If any payment hereunder is not paid within thirty days from the due date thereof, or if there is an event of default under the Security Agreement, then, at the option of the holder hereof, all obligations of principal, interest, costs and fees hereunder shall become immediately due and payable without presentment for payment, diligence, grace, exhibition of this Note, protest, dishonor, demand or notice of any kind, all of which are hereby expressly waived, and shall thereafter bear interest both before and after judgment until paid in full at the rate of twelve percent (12%) per annum. Maker shall pay all expenses and fees, including reasonable attorneys' fees and court costs, incurred in the collection of this Note and/or incurred in any bankruptcy or insolvency proceeding. Maker may prepay this Note at any time without penalty. Maker and all endorsers or guarantors of this Note waive presentment, demand, notice, protest and all other notices in connection with the delivery, acceptance, default or enforcement of this Note and agree that holder may, from time to time, without their consent, renew, modify or extend performance of obligation of Maker hereunder, and also each specifically consent to the release of a part of all of any collateral that may secure this Note and to the addition or release of any party primarily or secondarily liable hereon. The interpretation, construction and enforcement of this Note shall be governed by the laws of the State of Utah. If any provision or portions thereof in this Note or the Security Agreement is found by any court to be unenforceable or to violate any law or juridical decision, or if such court should declare such portion or provision to be illegal, invalid, unlawful, void or unenforceable as written, then it is the intent of all parties hereto that such portion, provision or provisions shall be given force to the fullest possible extent that they are legal, valid and enforceable and that the remainder of this Note and the Security Agreement shall be construed as if such illegal, invalid, unlawful, void or unenforceable portion, provision or provisions were not contained therein and that the rights, obligations and interests of the maker and holder thereof, under the remainder of this Note and the Security Agreement, shall continue in full force and effect. IN WITNESS WHEREOF, Maker has caused this Note to be executed as of the date set forth above, and as authorized in accordance with the duly and regularly adopted and existing resolution of the Board of Directors of the Maker. MAKER: UNITED SUPPORT ASSOCIATION, INC., a Nevada corporation By: /s/ Wade B. Cook --------------------- Wade B. Cook, Pres. ----------- Salt Lake City, Utah Wade B. Cook January 31, 1997 GUARANTY For and in consideration of the sum of Ten Dollars and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Wade B. Cook ("Guarantor") hereby unconditionally guarantees to Wespac Holdings, L.C., a Utah limited liability company ("Wespac"), the due and punctual payment, performance and observance by United Support Association, Inc., a Nevada corporation ("United") of each and every obligation, covenant and condition to be performed and observed by United, to the same extent as if Guarantor had directly entered into those transactions with Wespac, under that certain Limited Liability Company Interest Purchase Agreement and Promissory Note dated of even date herewith, between Wespac and United, as the same may hereafter be extended or amended (collectively, the "Obligations"), together with all costs and expenses (including reasonable attorneys' fees) incurred by Wespac in enforcing its rights hereunder. This Guaranty is a guarantee of payment and performance and not of collection. Guarantor waives notice of any extension, modification, indulgence, amendment, or variation of the terms of any such obligation or agreement of United with Wespac, and the liability of Guarantor hereunder shall not be affected by the insolvency, bankruptcy, or receivership of United. Notice of any default of United shall, however, be promptly provided to Guarantor but the failure to give such notice shall not affect Wespac's rights hereunder. Guarantor shall not exercise any rights that it may acquire by way of subrogation, by any payment made under this Guaranty or otherwise, until all the Obligations have been paid in full. If any amount is paid to the Guarantor on account of subrogation rights under this Guaranty at any time when all the Obligations have not been paid in full, the amount shall be held in trust for the benefit of Wespac and shall be promptly paid to Wespac to be credited and applied to the Obligations when due. If the Guarantor makes payment to Wespac of all or any part of the Obligations and all the Obligations are paid in full, and so long as no other sums are owing hereunder or in connection with the Obligations, Wespac shall, at the request of Guarantor, execute and deliver to Guarantor appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer by subrogation to the Guarantor of an interest in the Obligations resulting from the payment. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any Obligation is rescinded or must otherwise be returned by Wespac upon the insolvency, bankruptcy or reorganization of United or otherwise, all as though such payment had not been made. Absent the prior written consent of Guarantor, Wespac shall not assign or transfer in whole or in part, any of its rights herein. The construction and enforcement of this Guaranty shall be governed by the internal laws of the State of Utah. IN WITNESS WHEREOF, Wade Cook has caused this Guaranty to be executed this 31 day of January, 1997. /s/ WADE B. COOK ---------------------------------- Wade B. Cook 2 SECURITY AGREEMENT THIS SECURITY AGREEMENT ("Agreement") is made effective as of the 31 day of January, 1997, by and between United Support Association, Inc., a Nevada corporation ("Maker") and Wespac Holdings, L.C., a Utah limited liability company ("Wespac"). WHEREAS, Maker has purchased membership interests in Park City Hotel Partners, L.C., a Utah limited liability company (the "Company") from Wespac pursuant to a Limited Liability Company Interest Purchase Agreement dated the date hereof (the "Purchase Agreement") and owe Wespac the principal sum of One Hundred Seventy-Five Thousand Dollars ($175,000), as evidenced by that certain promissory note between Maker, as maker, and Wespac of even date herewith (the "Note"). WHEREAS, pursuant to the Purchase Agreement, Maker agreed to grant Wespac a security interest to secure the performance by Maker of its obligations under the Note and the Purchase Agreement. WHEREAS, the parties desire to memorialize the grant of such security interest by executing this Agreement. A G R E E M E N T : NOW, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. COLLATERAL. Maker's performance hereunder and under the Note and Purchase Agreement shall be secured by, and Maker hereby specifically grants to Wespac a continuing security interest in and to, and lien upon, the property more particularly described on Exhibit "1" attached hereto (the "Collateral"). Maker agrees to execute and deliver to Wespac a UCC-1 financing statement, and shall perform, in a timely fashion, all additional acts, as from time to time may be necessary in the opinion of counsel to Wespac, to perfect, verify and acknowledge the security interest of Wespac in the Collateral. 2. DEFAULT. It shall be an event of default hereunder if (i) Maker shall fail to make any payment called for by the Note and any agreements or documents executed and delivered in connection therewith, or (ii) any party other than Wespac shall default in the performance of any obligation under the Note and the Purchase Agreement. Any default hereunder shall be deemed to be a default under the Note and this Agreement, and vice versa. 3. REMEDIES UPON DEFAULT. Upon the occurrence of any event of default, Wespac may declare immediately due and payable all amounts under the Note, including all accrued interest and late fees thereon, and shall have all of the remedies of a secured party under the laws of the State of Utah. 4. RELEASE OF LIEN. Upon payment in full of all obligations of Maker to Wespac, and the performance by Maker of all obligations imposed upon it by the Note, and the Purchase Agreement, this Agreement shall be terminated, the liens and security interests arising hereunder shall be terminated and released and Wespac shall take any action necessary to evidence such release. 5. OBLIGATIONS OF WESPAC. Wespac, by accepting the security interest provided for herein, shall not be subject to any obligation, liability or any duty to perform any of the terms, covenants, provisions, conditions or agreements made or assumed by Maker in connection with Maker's interest in the Collateral, but such obligations shall continue to be performed by Maker as though this Agreement had not been made. Wespac shall have the right, however, upon any event of default hereunder, to assume any and all of such obligations, liabilities or duties, and shall be entitled to the benefits of any such assumption. 6. MISCELLANEOUS. (a) GOVERNING LAW. The law of the State of Utah shall govern the interpretation and enforcement of this Agreement. (b) BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. (c) SEVERABILITY; INTEGRATION. The inapplicability or unenforceability of any provision of this Agreement shall not limit or impair the operation or validity of any other provision of this Agreement. This Agreement, together with the documents executed in connection herewith (including the Note and any personal guarantees), constitute the entire agreement between the parties with respect to the subject matter hereof, and no modification or waiver shall be effective unless in writing and signed by the party to be charged. (d) COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which, when executed and delivered, shall be an original, but all of which shall together constitute one and the same instrument. The agreement may be executed by facsimile signature, and such execution shall be deemed to have the same force and effect as original signatures. (e) ASSIGNABILITY. The rights of Westpac under this Agreement are assignable in part or wholly, and any assignee of Wespac shall succeed to and be possessed of the rights of Westpac to the extent of the assignment made. The rights and obligations of Maker hereunder shall not be assignable without the prior written consent of Westpac, and any attempt by Maker to assign its rights and obligations hereunder without such consent shall be a default hereunder. (f) WAIVER OF DEFAULT. The waiver by Wespac of any breach of default by Maker under any of the terms of this Agreement shall not be deemed to be a waiver of any subsequent breach or default on the part of Maker under the same. 7. ATTORNEYS' FEES. In the event of any litigation by any party hereto to enforce the terms of this Agreement, the prevailing party in such litigation shall be entitled to receive from the other party payment of attorneys' fees incurred (before or after the commencement of such litigation) by the prevailing party. IN WITNESS WHEREOF, the parties have executed this agreement as of the day and year first above written. UNITED SUPPORT ASSOCIATION, INC., a Nevada corporation By: /s/ Wade B. Cook ---------------------------------- Wade B. Cook, Pres ------------------- WESPAC HOLDINGS, L.C., a Utah limited liability company By: /s/ Paul E. Christensen ---------------------------------- Paul E. Christensen, Member By: /s/ Rex K. Griffiths ---------------------------------- Rex K. Griffiths, Member 3 EXHIBIT "1" SECURITY AGREEMENT DESCRIPTION OF COLLATERAL All of Maker's right, title and interest as a member of and in Park City Hotel Partners, L.C., a Utah limited liability company (the "Company") which shall include, without limitation, Maker's eight and 88/100 percent (8.88%) capital and profits interest in the Company, Maker's capital account balance in the Company, Maker's distribution and liquidation rights in the Company and Maker's voting and management rights and powers in the Company. 4 Exhibit D ASSIGNMENT OF MEMBERSHIP INTEREST FOR VALUE RECEIVED, Wespac Holdings, L.C., a Utah limited liability company ("Assignor"), herewith sells, assigns, transfers and conveys to United Support Association, Inc., a Nevada corporation ("Assignee"), the entirety of Assignor's right, title and interest as a member of and in Park City Hotel Partners, L.C., a Utah limited liability company (the "Company"), which shall include, without limitation, Assignor's eight and 88/100 percent (8.88%) capital and profits interest in the Company, Assignor's capital account balance in the Company, Assignor's distributions and liquidation rights in the Company and Assignor's voting and management rights and powers in the Company. This Assignment of the Membership Interest is made, delivered and shall be effective on the date of this Assignment in accordance with and in satisfaction of the requirements of Article VII of the Operating Agreement of the Company dated as of October 4, 1995. IN WITNESS WHEREOF, Assignor has executed this Assignment by and through its members this 3rd day of February, 1997. WESPAC HOLDINGS, L.C., a Utah limited liability company By /s/ Paul E. Christensen ------------------------------------- Paul E. Christensen, Member By /s/ Rex K. Griffiths ------------------------------------- Rex K. Griffiths, Member Acknowledged and approved by Park City Hotel Partners, L.C., and its members this 3rd day of February, 1997 that United Support Association, Inc., a Nevada corporation is and at all times hereunder shall be a substituted member of the Company as provided by Section 7.3 of the Operating Agreement of the Company dated as of October 4, 1995 with all rights, title and interest in the Company provided therein. PARK CITY HOTEL PARTNERS, L.C., A UTAH LIMITED LIABILITY COMPANY BY: ITS MEMBERS KJ HOTEL PARTNERS, L.C., A UTAH LIMITED LIABILITY COMPANY By: Western States Lodging and Development, L.C., a Utah limited liability company By: The Miles Group, L.C., a Utah limited liability company By: /s/ Richard Miles -------------------------------- Richard Miles, Member By: /s/ Stephen Miles -------------------------------- Steven Miles, Member By: EXMAR Company, L.C., a Utah limited liability company By: /s/ Gary K. Griffiths -------------------------------- Gary K. Griffiths, Member By: /s/ Laura Jo Griffiths -------------------------------- Laura Jo Griffiths, Member By: /s/ David R. Webster -------------------------------- David Webster, Member By: /s/ Sylvia Webster -------------------------------- Sylvia Webster, Member 2 LODGING DEVELOPMENT COMPANY, L.C., A UTAH LIMITED LIABILITY COMPANY By: /s/ Thomas A. Hulbert -------------------------------- Thomas A. Hulbert, Member By: /s/ Heather Hulbert -------------------------------- Heather Hulbert, Member WESPAC HOLDINGS, L.C., A UTAH LIMITED LIABILITY COMPANY By: /s/ Paul E. Christensen -------------------------------- Paul E. Christensen, Member By: /s/ Rex K. Griffiths -------------------------------- Rex K. Griffiths, Member 3 EX-10.43 11 EXHIBIT 10.43 TO: Wade R. Cook FROM: Glen Overton SUBJECT: Property # UT-010, Salt Lake City Airport DATE: August 15, 1997 RAMADA LTD. SUITES, AIRPORT PROPERTY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LOCATION: 315 North Admiral Byrd Salt Lake City International Center Salt Lake City, UT 84101 Property sets on 1.4 acres - 2 miles west of the Salt Lake City Airport DESCRIPTION: 59 units, combination of standard rooms and mini-suites decorated in a country theme. Has a two-story lobby, breakfast area, meeting rooms, exercise facility, and outdoor pool and hot tub. This is the BEST LOOKING PROPERTY at the airport -- without a doubt! TIME LINE: Construction began 11/96 Projected Opening 10/10/97 HOTEL COST: Total project cost estimated at $2.5 million First year NOI estimate of $347k = a hotel cap rate of 13.88 EQUITY DIST. Ownership to be held in Airport Lodging Associates, L.C. --Zions Management & Development Co. to hold 25% ownership --Investment Lodging, Inc. to hold a 35% ownership --THH Ltd. to hold a 15% ownership --WADE COOK SEMINARS, INC. TO HOLD A 25% OWNERSHIP INVESTMENT: --Zions Management contributed financing, cash, franchise, and other services valued at $350,000 --Investment Lodging contributed land, supervision, plans, etc. valued at $500,000 --THH Ltd. contributed cash and note transfer valued at $175,000 --Wade Cook Seminars, Inc. to contribute $250,000 cash COOK PAYMENTS: $250,000 to be received by 08/25/97 Agreement Accepted by /s/ Wade B. Cook 8-22-97 - ------------------------------- -------- Wade Cook Seminars, Inc by Date Wade Cook ASSIGNMENT AND ASSUMPTION OF INTEREST THIS ASSIGNMENT AND ASSUMPTION OF INTEREST is made this 22nd day of August, 1996 by Zions Management and Development Co. (herein "Zions"), a Utah corporation, to Airport Lodging Associates, L.C. (Herein "ALA") and Wade Cook Seminars. RECITALS: A. Zions owns fifty percent (50%) interest in ALA. B. Zions agrees to relinquish the rights to twenty five percent (25%) to ALA. C. ALA agrees to sell and assign the acquired twenty five percent (25%) to Wade Cook Seminars and Wade Cook Seminars agrees to accept the assignment for the sum of $250,000. AGREEMENT: 1. Zions hereby assigns to ALA a twenty five percent (25%) interest in and to ALA. 2. ALA accepts the foregoing assignment and agrees to sell this interest to Wade Cook Seminars. 3. Wade Cook Seminars agrees to buy the foregoing interest in ALA for the sum of $250,000 and agrees to perform any and all obligations which it may thereby have under the Articles of Organization or Operating Agreement of ALA. IN WITNESS WHEREOF, the parties have entered into this Agreement the day and year first above written. ZIONS MANAGEMENT AND DEVELOPMENT CO. /s/ Glen A. Overton ------------------------------------------------- Glen A. Overton, President AIRPORT LODGING ASSOCIATES, L.C. By /s/ Glen A. Overton ------------------------------------------------- Zions Management and Development Co., Managing Member WADE COOK SEMINARS By ------------------------------------------------- Wade R. Cook, President On this 22 day of August, 1997, Glen A. Overton did personally appear before me, who being duly sworn did say that he the said Glen A. Overton is the President of Zions Management and Development Co. And that the within and fore going instrument was signed in behalf of the said corporation. /s/ Deborah Whitlock ------------------------------------------------- NOTARY PUBLIC Residing in: Provo, UT ------------------------------------- My Commission Expires: 1999 [SEAL] - --------------------- AFTER RECORDING, MAIL TO: Wayne G. Petty MOYLE & DRAPER, P.C. City Centre I, Suite 900 175 East Fourth South Salt Lake City, Utah 84111 WARRANTY DEED Garrick Development Company, L.L.C., Grantor, of Salt Lake City, County of Salt Lake, State of Utah, hereby conveys and warrants to Airport Lodging Associates, L.C., Grantee, whose address is 175 East 400 South, Suite 900, Salt Lake City, Utah 84111, for the sum of TEN AND NO/100 DOLLARS, the following described tract of land in Salt Lake County, State of Utah: Lot 7B as shown on the Amended Plat of Lot 7, Salt Lake International Center, Plat 8 as recorded in the office of the Salt Lake County Recorder and being located in the Southwest Quarter of Section 36, Township 1 North, Range 2 West, Salt Lake Base & Meridian. WITNESS, the hand of said Grantor, this 17 day of July, 1996. GARRICK DEVELOPMENT COMPANY, L.L.C. By /s/ F. S. Prince Jr. ------------------------------------------ F. S. Prince, Jr. Manager STATE OF UTAH ) :ss. COUNTY OF SALT LAKE ) On the 17 day of July 1996, personally appeared before me F. S. Prince, Jr. the signer of the within instrument, who duly acknowledged to me that he executed the same as Manager of Garrick Development Company, L.L.C. Colleen G. Bailey -------------------------------------------- NOTARY PUBLIC Residing at: S. L. COUNTY -------------------------------- My Commission Expires: 10-24-98 [SEAL] - ---------------------- STATE OF UTAH ) :ss. COUNTY OF SALT LAKE ) On the 19 day of August, 1996, personally appeared before me Wayne G. Petty, the signer of the within instrument who duly acknowledged to me that he executed the same. Colleen G. Bailey -------------------------------------------- NOTARY PUBLIC Residing at: S. L. COUNTY -------------------------------- My Commission Expires: 10-24-98 [SEAL] - ---------------------- EX-10.44 12 EXHIBIT 10.44 WHEN RECORDED MAIL TO: RED ROCK LODGING ASSOCIATES, L.C. 2601 NO. CANYON ROAD, SUITE 203 PROVO, UT 84604 WARRANTY DEED 11640 East Bay Lodging Associates, Ltd., a Utah limited partnership, grantor, of Provo, State of Utah, hereby CONVEY and WARRANT to Red Rock Lodging Associates, L.C., a Utah limited liability company grantee, of PROVO, County of UTAH, State of Utah, for the sum of Ten dollars and other good and valuable consideration, the following tract of land in WASHINGTON County, State of Utah, to-wit: SG-5-2-31-3342-1 See Attached Exhibit "A" WITNESS the hand of said grantor, this day of , 199 . Signed in the presence of EAST BAY LODGING ASSOCIATES, LTD. A Utah limited partnership - ------------------------------------- /s/ David A. Peterson By /s/ Glen A. Overton - ------------------------------------- ---------------------------------- GLEN A. OVERTON, partner /s/ David A. Peterson By /s/ Kim Overton - ------------------------------------- ---------------------------------- KIM OVERTON, partner STATE OF UTAH COUNTY OF On the 24th day of December, 1997, personally appeared before me GLEN A. OVERTON and KIM OVERTON as partners of EAST BAY LODGING ASSOCIATES, LTD., a Utah limited partnership, the signer(s) of the foregoing instrument, who duly acknowledged to me that they executed the same, for and on behalf of said partnership, with power to do so given by the partnership agreement and/or amendments thereto, of said EAST BAY LODGING ASSOCIATES, LTD., a Utah limited partnership. /s/ Deborah A. Whitlock --------------------------------- Notary Public My commission Expires 11/1999 PROVO, UTAH [SEAL] EXHIBIT A BEGINNING at a point S 0DEG. 48' 46" E 4.86 feet along the section line and N 89DEG. 12' 12" E, 196.18 feet from the Northwest Corner of the Southwest 1/4, of the Southwest 1/4 of Section 31, Township 42 South, Range 15 West, Salt Lake Base and Meridian; thence N 89DEG. 12' 12" E, 410.58 feet to the West Line of the I-15 Frontage Road and a point on a curve to the right, the radius point of which bears S 73DEG. 30' 44" W, 1349.86 feet; thence Southeasterly 362.02 feet along the arc of said curve and the west line of said frontage road; thence S 89DEG. 00' 06" W, 813.06 feet; thence S 0DEG. 59' 54" E, 144.20 feet to a point on the North line of 1470 South Street; thence N 89DEG. 03' 46" W, 261.58 feet along the North line of said 1470 South Street; thence N 0DEG. 48' 46" W, 61.00 feet; thence N 89DEG. 02' 33" E, 16.48 feet; thence N 0DEG. 48' 46" W, 99.72 feet; thence S 89DEG. 02' 33" W, 33.00 feet; thence N 01DEG. 27' 42" W, 17.58 feet; thence S 88DEG. 32' 18" W, 8.44 feet; thence N 0DEG. 58' 28" W, 36.63 feet; thence N 0DEG. 56' 15" E, 279.68 feet to the point of Beginning. NON-FOREIGN CERTIFICATION [CORPORATION, PARTNERSHIP, TRUST, OF ESTATE TRANSFEROR(S)] 1. SECTION 1445 OF THE INTERNAL REVENUE CODE PROVIDES THAT A TRANSFEREE OF A UNITED STATES REAL PROPERTY INTEREST MUST WITHHOLD TAX IF THE TRANSFEROR IS A FOREIGN CORPORATION, FOREIGN PARTNERSHIP, FOREIGN TRUST, OR FOREIGN ESTATE. 2. IN ORDER TO INFORM THE TRANSFEREE THAT WITHHOLDING OF TAX IS NOT REQUIRED UPON THE DISPOSITION OF THE UNITED STATES REAL PROPERTY DESCRIBED AS FOLLOWS: SEE ATTACHED EXHIBIT "A" THE UNDERSIGNED HEREBY CERTIFIES THE FOLLOWING ON BEHALF OF THE TRANSFEROR: A. EAST BAY LODGING ASSOCIATES, LTD. [NAME OF TRANSFEROR] IS NOT A FOREIGN CORPORATION, FOREIGN PARTNERSHIP, FOREIGN TRUST, OR FOREIGN ESTATE (AS THOSE TERMS ARE DEFINED IN THE INTERNAL REVENUE CODE AND INCOME TAX REGULATIONS): B. EAST BAY LODGING ASSOCIATES, LTD. [NAME OF TRANSFEROR]'S U.S. EMPLOYER IDENTIFICATION NUMBER IS __________________________, AND C. EAST BAY LODGING ASSOCIATES, LTD. [NAME OF TRANSFEROR]'S OFFICE ADDRESS IS _____________________________________________________________ ________________________________________________________________________ D. THERE ARE NO OTHER PERSONS OR ENTITIES THAT HAVE AN OWNERSHIP INTEREST IN THE ABOVE DESCRIBED PROPERTY OTHER THAN THAT SET FORTH ABOVE IN SUBPARAGRAPH B. 3. THE UNDERSIGNED HEREBY FURTHER CERTIFIES AND DECLARES A. I (WE) UNDERSTAND THAT THE PURCHASER OF THE ABOVE DESCRIBED PROPERTY INTENDS TO RELY ON THE FOREGOING REPRESENTATIONS IN CONNECTION WITH THE UNITED STATES FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT. (94 STAT 2682 AS AMENDED). B. I (WE) UNDERSTAND THIS CERTIFICATION MAY BE DISCLOSED TO THE INTERNAL REVENUE SERVICE BY TRANSFEREE AND THAT ANY FALSE STATEMENT CONTAINED IN THIS CERTIFICATION MAY BE PUNISHED BY FINE, IMPRISONMENT, OR BOTH. UNDER PENALTIES OF PERJURY I (WE) DECLARE I (WE) HAVE EXAMINED THIS CERTIFICATION AND TO THE BEST OF MY KNOWLEDGE AND BELIEF, IT IS TRUE, CORRECT AND COMPLETE AND I (WE) FURTHER DECLARE THAT I (WE) HAVE AUTHORITY TO SIGN THIS DOCUMENT ON BEHALF OF EAST BAY LODGING ASSOCIATES, LTD. [NAME OF TRANSFEROR] DATE: 12/24/97 ------------------- OWNER: /s/ Glen A. Overton ------------------------------------ BY: /s/ Glen Overton TITLE: President --------------------------------------- -------------------------- BY: TITLE: --------------------------------------- -------------------------- (THIS DOCUMENT MUST BE RETAINED UNTIL THE END OF THE FIFTH TAXABLE YEAR FOLLOWING THE TAXABLE YEAR IN WHICH THE TRANSFER TAKES PLACE) CONSULT YOUR ATTORNEY AND/OR TAX ADVISOR--NO REPRESENTATION OR RECOMMENDATION IS MADE BY FIRST TITLE OF UTAH, INC. CONCERNING THE LEGAL SUFFICIENCY AND/OR TAX CONSEQUENCES OF THIS DOCUMENT. YOU MAY BE REQUIRED TO FILE A COPY OF THIS DOCUMENT WITH THE INTERNAL REVENUE SERVICE. THESE ARE QUESTIONS FOR YOUR ATTORNEY OR TAX ADVISOR. [SEAL] ARTICLES OF ORGANIZATION OF RED ROCK LODGING ASSOCIATES, L.C. The undersigned two or more persons hereby form a limited liability company under the Utah Limited Liability Company Act and adopt and certify as the Articles of Organization of such limited liability company the following: I. NAME: The name of the limited liability company is: Red Rock Lodging Associates, L.C. II. DURATION: The period of its duration: The duration of the company shall be thirty-nine years from the date of filing of these Articles of Organization with the Division of Corporations of the State of Utah. III. PURPOSE: The business purpose for which this limited liability company is organized includes, but is not limited to, the following: The Company shall engage in the business of acquisition, development and operation of lodging facilities, and other related hotel activities, including but not limited to the development of hotel or motel properties. In addition, the Company shall have unlimited power to engage in and do any lawful act concerning any or all lawful businesses for which limited liability companies may be organized according to the laws of the State of Utah, excluding banking and insurance, including all powers and purposes now and hereafter permitted by law to a limited liability company. IV. AGENT: A. The address of the registered office in Utah is: 2601 North Canyon Road, Suite 203 Provo, UT 84604 B. The name and address of the registered agent at the office in Utah is: Glen A. Overton 2601 North Canyon Road, Suite 203 Provo, UT 84604 I, Glen A. Overton, do this date hereby voluntarily accept and agree to serve as Registered Agent for Red Rock Lodging Associates, L.C. /s/ Glen A. Overton --------------------------------- Glen A. Overton, Registered Agent V. DIVISION APPOINTMENT: The Utah Division of Corporations is hereby appointed the agent of this limited liability company for service of process if the registered agent has resigned, the agent's authority had been revoked or the agent cannot be found or served with the exercise of reasonable diligence. VI. CAPITOL: The total amount of cash and a description and agreed value of property other than cash initially contributed to the Company is: A minimum One Thousand Dollars cash The total additional contributions, if any, agreed to be made by all members and the times at which or events upon the happening of which they shall be made: Additional equity contributions shall be made at such times and in such amounts as may be agreed by the Company and the members or as provided in the Operating Agreement of the Company. Loans from members maybe made to and accepted by the company and are authorized to be repaid on a preferential loan basis. VII. OWNERSHIP: The right, if given, of the members to admit additional members, and the terms and conditions of the admission: Additional members may be submitted at such times and on such terms and conditions as all members may unanimously agree and as provided in the Operating Agreement of the Company. Ownership interest may be transferred only upon the prior approval of all members. VIII. TERMINATION: This business and association shall terminate and dissolve upon the death, retirement, resignation, expulsion, or bankruptcy of any member. The right of the remaining members of the limited liability company to continue the business on the death, retirement, resignation, expulsion, bankruptcy, or dissolution of a member or occurrence of any other event which terminated the continued membership of a member in the limited liability company is as permitted by statute and as follows: The remaining members of the Company may continue the business upon the termination of membership of a member on the Company upon unanimous agreement and as provided in the Operating Agreement of the Company. IX. MANAGEMENT: The Company is to be managed by its members: East Bay Lodging Associates, Ltd., through its designated officers and agents, 2601 North Canyon Road, Suite 203, Provo, Utah 84604, and Bountiful Investment Group, through its designated officers and agents, 14675 Interurban Avenue South, Seattle, Washington 98168. The members of the company are: (1) East Bay Lodging Associates, Ltd., a Utah Limited Partnership, as to a 50% ownership as a member, and (2) Bountiful Investment Group, as to a 50% ownership as a member, being a Neveda Corporation; with such capital accounts, management control, and percentage ownerships and rights to receive profits and losses as are set forth in the Operating Agreement, Membership Certificates and such other written agreements between the members. X. INDEMNIFICATION: Other provisions for the regulation of the internal affairs of the limited liability company are: 1. The Company shall indemnify any individual made a party to a proceeding because he is or was a manager, officer, organizer, employee or agent of the Company against liability incurred in the proceeding if: a. He conducted himself in good faith; b. He reasonably believed that his conduct was in or at least not opposed to the Company's best interest; and c. In the case of any criminal proceeding, he had no reasonable cause to believe his conduct was unlawful. 2. Indemnification shall also be provided for an individual's conduct with respect to an employee benefit plan if the individual reasonably believed his conduct to be in the interests of the participants in and beneficiaries of such plan. 3. The Company shall pay for or reimburse the reasonable expenses incurred by a manager, officer, organizer, employee or agent of the Company who is a party to a proceeding in advance of final disposition of the proceeding if: a. The individual furnishes the Company a written affirmation of his good faith belief that he has met the standard of conduct described herein; b. The individual furnishes the Company a written undertaking executed personally or on his behalf to repay the advance of it is ultimately determined that he did not meet the standard of conduct; and 3 c. A determination is made that the facts then known to those making the determination would not preclude indemnification under the law. The undertaking required by this paragraph shall be an unlimited general obligation, but need not be secured and may be accepted without reference to financial ability to make repayment. 4. The indemnification and advance of expense authorized herein shall not be exclusive to any other rights to which any manager, officer, organizer, employee or agent may be entitled under any Operating Agreement, by-law, agreement, vote of members or disinterest managers or otherwise. The Articles of Organization shall not be interpreted to limit in any manner the indemnification or right to advancement for expenses of an individual who would otherwise be entitled thereto. These Articles of Organization shall be interpreted as mandating indemnification and advancement of expenses to the extent permitted by law. 5. In addition to the foregoing, the Company shall indemnify and save the organizers harmless for all acts taken by them as organizers of the Company, and shall pay all costs and expenses incurred by or imposed upon them as a result of the same, including compensation based upon the usual charges for expenditures required of them in pursuit of the defense against any liability arising on the account of acting as organizers or on account of enforcing the indemnification right hereunder, and the Company releases them from all liability for any such act as organizers not involving willful or grossly negligent misconduct. IN WITNESS WHEREOF, the Articles of Organization are executed under penalties of perjury by all of the members of the Limited Liability Company effective as of the 22nd day of September, 1997. /s/ GLEN A. OVERTON - ---------------------------------- Glen A. Overton, General Partner East Bay Lodging Associates, Ltd. /s/ WADE B. COOK - ---------------------------------- Wade B. Cook, President Bountiful Investment Group formerly Profit Financial Real Estate Management Company STATE OF UTAH ) ) SS. COUNTY OF UTAH ) On the 4 day of DECEMBER, 1997 personally appeared before me GLEN A. OVERTON signer of the above instrument, who duly acknowledged to me that he executed the same. My Commission Expires /s/ Deborah A. Whitlock NOVEMBER 1999 ------------------------- Notary Public [STAMP] Residing at Provo, UT ------------------------- STATE OF WASHINGTON ) ) ss. COUNTY OF KING ) On the 2nd day of DECEMBER, 1997 personally appeared before me WADE B. COOK signer of the above instrument, who duly acknowledged to me that he executed the same. My Commission Expires /s/ [ILLEGIBLE] OCTOBER 1999 ------------------------- Notary Public [STAMP] Residing at Bellevue, WA ------------------------- EX-23.1 13 EXHIBIT 23.1 MILLER AND CO. Letterhead June 30, 1998 Wade Cook Financial Corporation 14675 Interurban Avenue South Seattle, Washington 98168 Dear Wade Cook Financial Corporation: We hereby consent to the inclusion in the Form 10-K, as amended, for the period ended December 31, 1997, as filed by Wade Cook Financial Corporation, of the financial statements and financial statement schedules audited by Miller and Co. for the fiscal years ending 1997, 1996, and 1995, the notes thereto and our reports and opinions thereon. Very truly yours, MILLER AND CO. /s/ Marlon G. Buno - ------------------------- Marlon G. Buno, Partner EX-27 14 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE SHEETS, STATEMENTS OF INCOME CHANGES IN SHAREHOLDERS EQUITY AND CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR YEAR 9-MOS DEC-31-1997 DEC-31-1996 DEC-31-1995 JAN-01-1997 JAN-01-1996 JAN-01-1995 DEC-31-1997 DEC-31-1996 DEC-31-1995 541 635 0 6,163 3,801 0 8,168 3,536 0 0 0 0 1,312 396 0 12,778 6,959 0 10,425 7,135 0 1,287 345 0 41,404 16,938 0 23,828 10,850 0 821 1,769 0 0 0 0 0 0 0 642 67 0 15,425 3,635 0 41,404 16,938 0 0 0 6,504 104,908 40,724 6,504 39,068 15,683 2,877 39,068 15,683 2,877 50,099 20,302 3,234 0 0 0 309 263 23 15,035 4,666 239 6,063 1,601 171 8,992 3,064 68 0 0 0 0 0 0 0 0 0 8,992 3,064 68 0.14 0.05 .002 0.14 0.05 .002
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