** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM10-Q**

** **
| ý |   | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                   |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                           |
|   |   | **For  the quarterly period ended September 30, 2002**                                                                                                                                                         |
|   |   |                                                                                                                                                                                                           |
|   |   | **OR**                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                           |
| o      |   | **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 registrantas specified in its charter)

 
| **NEVADA**                        |   | **91-1772094**         |
|-----------------------------------|--------|------------------------|
| (State or other jurisdiction      |   | (I.R.S. employer       |
| of incorporation or organization) |   | identification number) |

** **

**14675 Interurban Avenue South**

**Seattle, Washington, 98168**

(Address of principalexecutive offices) (Zip Code)

 

Registrant’s telephonenumber, including area code:  **(206)901-3000**

 

Indicate by check mark whether the registrant (1) has filed alldocuments and reports required to be filed by section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter 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  ý  No  o

 

The number of outstanding shares of the registrant’s common stock,$0.001 par value, as of September 30, 2002 was 6,519,035 shares.  Reported total outstanding shares includes areverse 1-for-10 reverse stock split effective September 3, 2002.

 

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WADE COOKFINANCIAL CORPORATION

Form 10-Q

Index

 
| PART I 3⁄4  FINANCIAL INFORMATION |                                                                                        |
|--------------------------------------|---------------------------------------------------------------------------------------------|
| Item 1:                              | Financial Statements                                                                        |   |
| Item  2:                             | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   |
| Item  3:                             | Quantitative  and Qualitative Disclosures About Market Risk                                 |   |
| Item 4:                              | Controls and Procedures                                                                     |   |
| PART II 3⁄4  OTHER INFORMATION    |                                                                                        |
| Item  1.                             | Legal  Proceedings.                                                                         |   |
| Item 2.                              | Changes in Securities.                                                                      |   |
| Item 3.                              | Defaults Upon  Senior Securities.                                                           |   |
| Item  4.                             | Submission  of Matters to a Vote of Security Holders.                                       |   |
| Item  5.                             | Other  Information.                                                                         |   |
| Item 6.                              | Exhibits and  Reports on Form 8-K.                                                          |   |
|                                      |                                                                                             |  |  |

 

 

2

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**PARTI****3⁄4****FINANCIAL INFORMATION**

 

**Item1: Financial Statements**

 

**Wade Cook Financial Corporation and Subsidiaries**

**Condensed Consolidated Balance Sheets**

 

 
| **(in  thousands)**                                 |   | **September  30, 2002  (unaudited)** |   | **December  31,  2001** |   |
|-----------------------------------------------------|--------|--------------------------------------|--------|-------------------------|--------|
| Assets:                                             |   |                                 |   |                    |   |
| Current assets:                                     |   |                                 |   |                    |   |
| Cash and cash  equivalents                          |   | $                                    | 13     |                    | $      | 643 |   |
| Marketable  securities                              |   | 116                                  |   | 155                     |   |
| Receivable from  construction loan                  |   | —                               |   | 809                     |   |
| Receivables,  trade and credit card                 |   | 1,843                                |   | 1,803                   |   |
| Inventory                                           |   | 985                                  |   | 1,510                   |   |
| Notes receivable  — employees, current portion |   | 78                                   |   | 84                      |   |
| Due from related  parties                           |   | 75                                   |   | 119                     |   |
| Deferred tax  assets                                |   | 320                                  |   | 936                     |   |
| Income tax  refund receivable                       |   | 2,179                                |   | 3,053                   |   |
| Prepaid expenses                                    |   | 69                                   |   | 45                      |   |
| Total current  assets                               |   | 5,678                                |   | 9,157                   |   |
|                                                |   |                                 |   |                    |   |
| Property, plant  and equipment, net of depreciation |   | 6,445                                |   | 7,446                   |   |
| Goodwill, net of  amortization                      |   | 94                                   |   | 1,149                   |   |
|                                                |   |                                 |   |                    |   |
| Other assets:                                       |   |                                 |   |                    |   |
| Other  investments                                  |   | 5,485                                |   | 4,553                   |   |
| Deposits in  other assets                           |   | 444                                  |   | 408                     |   |
| Notes  receivable, employees                        |   | 1,012                                |   | 1,047                   |   |
| Total other  assets                                 |   | 6,941                                |   | 6,008                   |   |
|                                                |   |                                 |   |                    |   |
| Total assets                                        |   | $                                    | 19,158 |                    | $      | 23,760 |   |

 

 

3

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|                                                                 |   | **September  30, 2002 (unaudited)** |   | **December  31, 2001** |   |
|----------------------------------------------------------------------|--------|-------------------------------------|--------|------------------------|--------|
| Liabilities and  shareholders’ equity:                          |   |                                |   |                   |   |
| Current  liabilities:                                                |   |                                |   |                   |   |
| Current portion  of long-term debt                                   |   | $                                   | 2,816  |                   | $      | 2,625 |   |
| Accrued expenses                                                     |   | 1,515                               |   | 1,730                  |   |
| Accounts payable                                                     |   | 5,480                               |   | 3,596                  |   |
| Margin loans in  investment accounts                                 |   | —                              |   | 2                      |   |
| Payroll, payroll  tax and other accrued taxes                        |   | 633                                 |   | 214                    |   |
| Deferred revenue                                                     |   | 728                                 |   | 1,270                  |   |
| Payables,  related parties                                           |   | 360                                 |   | 317                    |   |
| Total current  liabilities                                           |   | 11,532                              |   | 9,754                  |   |
|                                                                 |   |                                |   |                   |   |
| Due to related  party, long term                                     |   | 2,045                               |   | 2,045                  |   |
| Long-term debt                                                       |   | 4,661                               |   | 4,569                  |   |
| Deferred revenue                                                     |   | 743                                 |   | 1,083                  |   |
| Total long-term  liabilities                                         |   | 7,449                               |   | 7,697                  |   |
| Total  liabilities                                                   |   | 18,981                              |   | 17,451                 |   |
|                                                                 |   |                                |   |                   |   |
| Minority interest                                                    |   | 673                                 |   | 668                    |   |
|                                                                 |   |                                |   |                   |   |
| Shareholders’  equity:                                          |   |                                |   |                   |   |
| Preferred stock                                                      |   | —                              |   | —                 |   |
| Common stock                                                         |   | 64                                  |   | 64                     |   |
| Paid-in capital                                                      |   | 4,845                               |   | 4,845                  |   |
| Prepaid  advertising                                                 |   | (61                                 | )      | (110                   | )      |
| Retained  earnings (accumulated deficit)                             |   | (4,704                              | )      | 1,469                  |   |
|                                                                 |   | 144                                 |   | 6,268                  |   |
| Less: common  stock in treasury at cost:                             |   | (640                                | )      | (627                   | )      |
| Total  shareholders’ equity                                     |   | (496                                | )      | 5,641                  |   |
| Total  liabilities, minority interest, and stockholders’ Equity |   | $                                   | 19,158 |                   | $      | 23,760 |   |

 

 

4

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**Wade Cook FinancialCorporation and Subsidiaries**

**CondensedConsolidated Statements of Operations**

**(Unaudited)**

 
|                                                                                        |   | **For the Three Months Ended** |   | **For the Nine Months Ended** |   |
|---------------------------------------------------------------------------------------------|--------|--------------------------------|--------|-------------------------------|--------|
| **(in thousands, except per share data)**                                                   |   | **Sept. 30, 2002**             |   | **Sept. 30, 2001**            |   | **Sept. 30, 2002** |   | **Sept. 30, 2001** |   |
| Revenue, net of returns and discounts                                                       |   | $                              | 3,473  |                          | $      | 6,669 |   | $ | 14,168 |   | $ | 29,341 |   |
|                                                                                        |   |                           |   |                          |   |   |   |   |   |
| Costs and expenses:                                                                         |   |                           |   |                          |   |   |   |   |   |
| Cost of revenue                                                                             |   | 1,507                          |   | 1,534                         |   | 5,699 |   | 9,063 |   |
| Selling, general and administrative                                                         |   | 3,634                          |   | 5,350                         |   | 13,763 |   | 21,079 |   |
| Total operating costs                                                                       |   | 5,141                          |   | 6,884                         |   | 19,462 |   | 30,142 |   |
|                                                                                        |   |                           |   |                          |   |   |   |   |   |
| Loss from operations                                                                        |   | (1,668                         | )      | (215                          | )      | (5,294 | ) | (801 | ) |
|                                                                                        |   |                           |   |                          |   |   |   |   |   |
| Other income (expense):                                                                     |   |                           |   |                          |   |   |   |   |   |
| Interest and dividends                                                                      |   | 20                             |   | 182                           |   | 87 |   | 301 |   |
| Loss on trading securities                                                                  |   | (14                            | )      | (416                          | )      | (189 | ) | (1,276 | ) |
| Interest expense                                                                            |   | (339                           | )      | (209                          | )      | (796 | ) | (445 | ) |
| Loss on disposition of assets(s)                                                            |   | —                         |   | —                        |   | (46 | ) | (190 | ) |
| Other income                                                                                |   | 32                             |   | 262                           |   | 344 |   | 1,442 |   |
| Total other income (expenses)                                                               |   | (301                           | )      | (181                          | )      | (600 | ) | (168 | ) |
|                                                                                        |   |                           |   |                          |   |   |   |   |   |
| Loss before income taxes                                                                    |   | (1,969                         | )      | (396                          | )      | (5,894 | ) | (969 | ) |
| Income tax expense (benefit)                                                                |   | 207                            |   | (108                          | )      | (388 | ) | (334 | ) |
| Minority interest                                                                           |   | —                         |   | 3                             |   | 5 |   | 10 |   |
| Loss from continuing operations                                                             |   | (2,176                         | )      | (291                          | )      | (5,511 | ) | (645 | ) |
| Extraordinary loss (net of income tax benefit of $15)                                       |   | —                         |   | —                        |   | (29 | ) | — |   |
| Cumulative effect of accounting change (net of tax benefit of  $189 and $404, respectively) |   | (295                           | )      | —                        |   | (632 | ) | — |   |
| Net loss                                                                                    |   | $                              | (2,471 | )                             | $      | (291 | ) | $ | (6,172 | ) | $ | (645 | ) |
|                                                                                        |   |                           |   |                          |   |   |   |   |   |
| Earnings per share:                                                                         |   |                           |   |                          |   |   |   |   |   |
| Net loss                                                                                    |   | $                              | (0.38  | )                             | $      | (0.05 | ) | $ | (0.95 | ) | $ | (0.10 | ) |
|                                                                                        |   |                           |   |                          |   |   |   |   |   |
| Weighted average number of shares                                                           |   | 6,519                          |   | 6,361                         |   | 6,519 |   | 6,376 |   |

 

 

 

**Wade Cook Financial Corporation and Subsidiaries**

**Condensed Consolidated Statements ofCash Flow**

**(Unaudited)**

 
|                                             |   | **Nine  Months Ended** |   |
|--------------------------------------------------|--------|------------------------|--------|
| **(in  thousands)**                              |   | **Sept. 30,  2002**    |   | **Sept. 30,  2001** |   |
| Cash used  operations                            |   | $                      | (814   | ) | $ | (2,993 | ) |
| Cash provided by  (used in) investing activities |   | (936                   | )      | 32 |   |
| Cash provided by  financing activities:          |   |                   |   |   |   |
| Net borrowings                                   |   | 1,120                  |   | 2,121 |   |
| Net decrease in  cash                            |   | $                      | (630   | ) | $ | (840 | ) |

 

5

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**Wade Cook Financial Corporation and Subsidiaries**

**Notes to Interim Financial Statements**

**September 30, 2002**

 

 

**1.     Basisfor Presentation**

The accompanyingunaudited financial statements have been prepared in accordance with generallyaccepted accounting principles for interim financial information and with theinstructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of theinformation and footnotes required by generally accepted accounting principlesfor complete financial statements.  Inthe opinion of management, all adjustments (consisting of normal recurringaccruals) considered necessary for a fair presentation have been included.  Operating results for the nine month periodended September 30, 2002 are not necessarily indicative of the results that maybe expected for the year ending December 31, 2002.  For further information, refer to “Factors Affecting FutureResults,” and to the financial statements and footnotes thereto included in theCompany’s Annual Report on Form 10-K for the year ended December 31, 2001 (the“Form 10-K”) and the risk factors contained in Exhibit 99.2 attached hereto.

 

**2.     Earningsper Share**

Basic earnings pershare are computed by dividing net income available to common shareholders bythe weighted average number of common shares outstanding during the period.

 

**3.     Changein Accounting Principle**

**       **The changes in the carrying amount ofgoodwill for the nine months ended September 30, 2002 are as follows (inthousands):

 
| Balance as of  January 1, 2002          |   | $     | 1,130  |   |
|-----------------------------------------|--------|-------|--------|--------|
| Cumulative  effect of accounting change |   | 1,036 |   |
| Balance as of  September 30, 2002       |   | $     | 94     |   |

 

**The Company performed atransitional impairment test of its goodwill as of June 30, 2002 and again asof September 30, 2002. Due to, among other things, the overall softening of thetravel market and the related decline in seminar segment, the Company recordedgoodwill transitional impairment losses of $552 thousand and $484 thousandwhich were recorded during the second and third quarters, respectively, as thecumulative effect of an accounting change in the Company’s ConsolidatedStatements of Operations. The fair value of the reporting unit giving rise tothe transitional impairment loss was estimated using the expected present valueof future cash flows.**

** **

Due to the adoption of SFAS 142 on January 1, 2002,the Company ceased amortizing goodwill. Had SFAS 142 been in effect during thethree and nine months ended September 30, 2001, the Company would not haverecorded goodwill amortization expense of $13 thousand and $40 thousand,respectively. The following summarizes net loss adjusted to exclude goodwillamortization expense, and the related tax effect, that is no longer subject toamortization (in thousands, except per share amounts):

 
|                                   |   | **Three  Months Ended Sept.30,** |   | **Nine  Months Ended Sept. 30,** |   |
|----------------------------------------|--------|----------------------------------|--------|----------------------------------|--------|
|                                   |   | **2002**                         |   | **2001**                         |   | **2002** |   | **2001** |   |
| Reported net  loss                     |   | $                                | 2,471  |                             | $      | 291 |   | $ | 6,172 |   | $ | 645 |   |
| Goodwill  amortization, net of tax     |   | —                           |   | 8                                |   | — |   | 24 |   |
| Adjusted net  loss                     |   | $                                | 2,471  |                             | $      | 283 |   | $ | 6,172 |   | $ | 621 |   |
|                                   |   |                             |   |                             |   |   |   |   |   |
| Earnings per  share — as reported |   | $                                | (0.38  | )                                | $      | (0.05 | ) | $ | (0.95 | ) | $ | (0.10 | ) |
| Earnings per  share — adjusted    |   | $                                | (0.38  | )                                | $      | (0.04 | ) | $ | (0.95 | ) | $ | (0.10 | ) |

 

6

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**4.     LicensingArrangement**

In June of 1999,the Company initiated an informal licensing arrangement with the Anderson LawGroup (“ALG”) with respect to licensing of certain intellectual property. Underthe temporary licensing arrangement, the Company receives payments in the formof marketing fees equal to 35% of ALG’s gross proceeds from select services. Asof the third fiscal quarter of 2002, the Company had received  $330,000 in marketing fees from ALG.  Proceeds from ALG are accounted for underthe “Other income” classification under “Other Income and Expense” on theCompany’s Consolidated Statements of Operations.

 

**5.     Contingencies**

The Company issubject to legal proceedings and claims, which were discussed in detail in the2001 Form 10-K, and other documents previously filed with the Securities andExchange Commission.  The Company isalso subject to certain other legal proceedings and claims which have arisen inthe ordinary course of business and which have not been fully adjudicated.  The results of the Company’s legalproceedings cannot be predicted with certainty; however, although managementdoes not presently anticipate liability related to many of the legalproceedings and claims that would have a material adverse effect on its financialcondition or results of operations, it has not yet made an estimate of itspotential exposure in several pending proceedings and investigations ordetermined the impact of adverse results in such matters on its financialstatements.

 

**6.     SegmentReporting**

During 1998, the Companyadopted SFAS No. 131, “Disclosures About Segments of an Enterprise and RelatedInformation,” which establishes standards for the way that companies reportinformation about operating segments, based on the approach that managementutilizes to organize the segments for management reporting and decision making.

 

TheCompany operates through five business segments: Seminars, Product Sales,Pager/informational alert services, Travel services, and Other.  The *Seminars segment* primarily conductseducational seminars on strategies for trading in the stock market and buyingand selling real estate.  The *ProductSales**segment* includes the publishing of books, CDs, videotapes,audio tapes, and written materials designed to teach various trading and cashflow strategies for trading in the stock market, asset protection, and assetaccumulation techniques.  The P*ager/informationalalert service segment* produces the IQ Pager and Daily IQ.  The IQ Pager offers subscribers with one-waypaging services for receiving stock market related information.  In the first quarter of 2002, the Companylaunched Daily IQ.  Daily IQ is aninteractive information alert service that allows subscribers to customizestock market informational alerts. Unlike the IQ Pager, Daily IQ can be accessed on any email-enableddevice including Palm Pilots, computers, and cell phones. Daily IQ is expectedto replace the IQ Pager by the end of 2002.  The T*ravelservice segment* is a travel agency that is also in the business of sellingtravel agent training kits.  The *Othersegment primarily* includes residential real estate developmentprojects, and an inter-company advertising agency.  The Company entered into a sales and distribution agreement withrespect to a line of skin care products identified under the brand name FreshCleanse®.  As of the third quarter of2002, the Company had neither executed sales of the Fresh Cleanse product linenor commenced significant operations related thereto.  As a result, the Company has not provided separate accountingrelating to the Fresh Cleanse product line.

 

Information on the Company’s business segments is presented below:

 
|                               |   | **For the Three Months Ended** |   | **For the Nine Months Ended** |   |
|------------------------------------|--------|--------------------------------|--------|-------------------------------|--------|
| **(in thousands)**                 |   | **Sept. 30, 2002**             |   | **Sept. 30, 2001**            |   | **Sept. 30, 2002** |   | **Sept. 30, 2001** |   |
| Net revenues and sales             |   |                           |   |                          |   |   |   |   |   |
| Seminars                           |   | $                              | 2,798  |                          | $      | 5,138 |   | $ | 11,624 |   | $ | 23,547 |   |
| Product sales                      |   | 439                            |   | 979                           |   | 1,561 |   | 3,944 |   |
| Pager/informational alert services |   | 103                            |   | 228                           |   | 401 |   | 859 |   |
| Travel service                     |   | 124                            |   | 341                           |   | 547 |   | 1,103 |   |
| Other                              |   | 8                              |   | 152                           |   | 41 |   | 1,520 |   |
| Less: inter-company sales          |   | 1                              |   | (169                          | )      | (6 | ) | (1,632 | ) |
|                               |   | $                              | 3,473  |                          | $      | 6,669 |   | $ | 14,168 |   | $ | 29,341 |   |

 

7

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|                               |   | **For the Three Months Ended** |   | **For the Nine Months Ended** |   |
|------------------------------------|--------|--------------------------------|--------|-------------------------------|--------|
| **(in thousands)**                 |   | **Sept. 30, 2002**             |   | **Sept. 30, 2001**            |   | **Sept. 30, 2002** |   | **Sept. 30, 2001** |   |
| Cost of sales                      |   |                           |   |                          |   |   |   |   |   |
| Seminars                           |   | $                              | 944    |                          | $      | 1,083 |   | $ | 4,466 |   | $ | 7,307 |   |
| Product sales                      |   | 507                            |   | 389                           |   | 1,067 |   | 1,649 |   |
| Pager/informational alert services |   | 56                             |   | 68                            |   | 166 |   | 213 |   |
| Travel service                     |   | —                         |   | —                        |   | — |   | 2 |   |
| Other                              |   | —                         |   | 191                           |   | — |   | 1,350 |   |
| Less: inter-company sales          |   | —                         |   | (197                          | )      | — |   | (1,458 | ) |
|                               |   | $                              | 1,507  |                          | $      | 1,534 |   | $ | 5,699 |   | $ | 9,063 |   |
|                               |   |                           |   |                          |   |   |   |   |   |
| Operating income                   |   |                           |   |                          |   |   |   |   |   |
| Seminars                           |   | $                              | (897   | )                             | $      | (172 | ) | $ | (3,732 | ) | $ | (1,020 | ) |
| Product sales                      |   | (648                           | )      | (89                           | )      | (1,234 | ) | (382 | ) |
| Pager/informational alert services |   | (15                            | )      | 124                           |   | (7 | ) | 545 |   |
| Travel service                     |   | (58                            | )      | 4                             |   | (128 | ) | 49 |   |
| Other                              |   | (51                            | )      | (68                           | )      | (194 | ) | 47 |   |
| Less: inter-company sales          |   | 1                              |   | (14                           | )      | 1 |   | (40 | ) |
|                               |   | $                              | (1,668 | )                             | $      | (215 | ) | $ | (5,294 | ) | $ | (801 | ) |

 

 
| **(in  thousands)**                |   | **September  30,  2002** |   | **December  31,  2001** |   |
|------------------------------------|--------|--------------------------|--------|-------------------------|--------|
| Net Identifiable assets            |   |                     |   |                    |   |
| Seminars                           |   | $                        | — |                    | $      | — |   |
| Product sales                      |   | 270                      |   | 508                     |   |
| Pager/informational alert services |   | 1,232                    |   | 1,232                   |   |
| Travel service                     |   | 84                       |   | 71                      |   |
| Other                              |   | 50                       |   | 50                      |   |
| Segmented assets                   |   | 1,636                    |   | 1,861                   |   |
| Corporate assets                   |   | 12,922                   |   | 12,922                  |   |
| Total identifiable assets          |   | $                        | 14,558 |                    | $      | 14,783 |   |
|                               |   |                     |   |                    |   |
| Accumulated Depreciation           |   |                     |   |                    |   |
| Seminars                           |   | $                        | — |                    | $      | — |   |
| Product sales                      |   | 257                      |   | 431                     |   |
| Pager/informational alert services |   | 1,029                    |   | 845                     |   |
| Travel service                     |   | 70                       |   | 59                      |   |
| Other                              |   | 30                       |   | 19                      |   |
| Segmented assets depreciation      |   | 1,386                    |   | 1,354                   |   |
| Corporate assets depreciation      |   | 6,727                    |   | 5,983                   |   |
| Total accumulated depreciation     |   | $                        | 8,113  |                    | $      | 7,337 |   |
|                               |   |                     |   |                    |   |
| Net identifiable  assets           |   | $                        | 6,445  |                    | $      | 7,446 |   |

 

**7.     OtherEvents.**

Earthquakeand Flooding Damage. On February 28, 2001, an earthquake (the “Earthquake”)measuring 6.8 on the Richter scale struck Western Washington. In concert withthe earthquake, Wade Cook Financial Corporation’s (“WCFC”) corporateheadquarters (the “Headquarters”), located in Seattle, Washington, experiencedsevere localized water damage (the “Flooding”). The Headquarters is home toWCFC, as well as the Stock Market Institute of Learning, Inc. (“SMILe”),Lighthouse Publishing Group, Inc. (“Lighthouse”), and Information Quest, Inc.(“IQ”), all wholly owned subsidiaries of WCFC. Collectively SMILe, Lighthouse,and IQ account for the majority of WCFC’s annual revenues.  The Company-owned Headquarters serves as thebase of operations for the Company’s executive management and houses theCompany’s sales, legal, accounting, support, and administrative departments.

** **

**8**

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** **

Thecombination of the Earthquake and Flooding caused the Company to significantlyreduce operations for a period, and rendered one half of the Headquarterstemporarily unusable until July of 2001. It is not presently known when the corporate headquarters will again befully restored. The inability to fully restore the corporate headquarters hascaused and continues to cause the Company to incur substantial continuing andextra expenses. At this time, the Company does not have a final estimate of thefull extent of property damage, lost profits, goodwill, and associated expensesincurred on account of the Earthquake and the Flooding, but believes suchcombined losses could exceed $5,000,000. Currently, the Company is engaged in litigation with Caliber OneIndemnity Company to obtain proceeds under the Company’s relevant commercialproperty insurance policy *(for a more complete description of this litigationsee “Legal Proceedings” of the Form 10-Q for the fiscal period ended March 31,2002 and other previously filed reports)*.

 

**8.     GoingConcern.**

Theaccompanying financial statements have been prepared in conformity withgenerally accepted accounting principles, which contemplates continuation ofthe Company as a going concern. However, the Company has sustained significant operating losses for theyears ended December 31, 2001, 2000, and 1999. In addition, the Company has used substantial amounts of working capitalin its operations.  Furthermore, atDecember 31, 2001, 2000, and 1999, current liabilities exceeded current assetsby $215,000, $1.3 million, and $2.7 million respectively.  Also at June 30, 2002, the Company entered aretained earnings deficit.  In view ofthese matters, realization of a major portion of assets in the accompanyingbalance sheets is dependant upon continued operations of the Company, which inturn is dependant upon the Company’s ability to meet its working capitalrequirements, and the success of its future operations.  Management has taken steps to reduce costs,and promote profitability and liquidity in past fiscal periods, and contemplatessimilar steps in future fiscal periods. By closing many the Company’s unprofitable Education and DistributionCenters, the Company has been able to redirect significant attention and focuson its core business of conducting education investment seminars.  In addition, the reduction of total employeework-force and management’s continued monitoring of variable costs has had someeffect on general efficiency and a decrease in selling, general, andadministrative expenses.  Whilemanagement makes no guarantees that the steps it has taken  (or will take) shall be successful, itbelieves that the actions presently being taken to revise the Company’soperations and financial requirements provide the opportunity for the Companyto continue as a going concern.

 

**9.     DeferredTax Asset and Valuation Allowance**.

The realization of the deferred tax asset is dependenton future earnings, if any. Due to the uncertainty of the Company’s ability torealize this benefit, the Company has recorded a valuation allowance amountingto $806,000 as of September 30, 2002. The deferred tax asset, before valuationallowances, is approximately $1,126,000. The remaining net deferred tax assetof $320,000 represents the tax benefit that can be claimed against theavailable remaining carryback.

 

**10.  SubsequentEvents**

**On October 25, 2002, the Companysold one of the two residential luxury homes it had included in OtherInvestments at September 30, 2002. The property, which had a carrying cost of$1.5 million, was sold for $1.1 million resulting in a loss before tax of approximately$400,000. The proceeds of the loan were used to satisfy construction and otherloans on the property. The loss will be included in the results of operationsduring the fourth quarter under the “Other” segment of the Company.**

 

 

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**Item2: Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

 

**Note Regarding Forward LookingInformation**

 

This report containsforward-looking statements within the meaning of Section 21E of the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”).  Any statements that express or involvediscussions with respect to predictions, expectations, beliefs, plans,objectives, assumptions or future events or performance (often, but not always,using words and phrases such as “expects,” “believe,” “believes,” “plan”“plans,” “anticipate,” “anticipates,” “is anticipated,” or stating that certainactions, events or results “will,” “may,” “should,” or “can” be taken, occur orbe achieved) are not statements of historical fact and may be “forward-lookingstatements.” Forward-looking statements are based on expectations, estimatesand projections of the Company’s management at the time the statements are madethat involve a number of risks and uncertainties which could cause actualresults or events to differ materially from those anticipated by theCompany.  Such risks and uncertaintiesinclude, but are not limited to, the Company’s working capital deficiency andliquidity constraints, the effects of the Company’s technical noncompliancewith Form 10-K filed for the year ending December 31, 2000, the effect thatvolatility in the stock market may have on the interest of customers in theCompany’s seminars, products and services and on the Company’s own investments,the level of resources that may be required by the Company’s consumer redressprogram, the Company’s continuing compliance with state and federal agreements,the Company’s ability to manage its growth and to integrate recent acquisitions,fluctuations in the commercial real estate market, adverse economic conditions,the influence on the management of the Company by Wade B. Cook, the Company’sChief Executive Officer (“Mr. Cook”), the possibility of adverse outcomes inpending or threatened litigation and actions involving the Company,consequences associated with the Company’s policy of committing available cashto additional investments, lack of liquidity in the Company’s investments,damage and disruption to operations caused by the February 28, 2001 earthquakeand flooding, delayed payment of payroll obligations, continuation of corporateinsurance policies, recent director resignations,****and other risks anduncertainties discussed herein and those detailed in the Company’s otherSecurities and Exchange Commission (the “SEC”) filings.  Investors are cautioned not to place unduereliance on forward-looking statements, which reflect management’s analysis,estimates and opinions as of the date hereof. The Company undertakes no obligation to update forward-lookingstatements if circumstances, or management’s analysis, estimates or opinionsshould change.  For the convenience ofthe reader, the Company has attempted to identify forward-looking statementscontained in this report with an asterisk (*). However, the omission of an asterisk should not be presumed to mean thata statement is not a forward-looking statement within the meaning of Section27A of the Securities Act and Section 21E of the Exchange Act.

 

**General**

 

                Wade Cook Financial Corporation is a holding companythat, through its operating subsidiary, Stock Market Institute of Learning(“SMILe” formerly known as Wade Cook Seminars, Inc.), conducts financialeducation seminars and produces and sells related video and audio tapes, booksand other written materials.  TheCompany’s core business is financial education, through its seminar andpublishing concerns.  These corebusinesses are complemented by a financial information one-way pager service(“IQ Pager”), an interactive informational alert service (“Daily IQ”), and asubscription based online bulletin service (“Wealth Information Network”, or“WIN”) that provides stock market information and illustrates the strategiestaught in the Company’s seminars and publications.

 

Two of the Company’ssubsidiaries, Left Coast Advertising, Inc., and Lighthouse Publishing Group,Inc., conduct advertising and publishing services respectively.  During the first nine months of 2002, theCompany did not rely on Left Cost Advertising, Inc., but rather relied onoutside third party vendors to fulfill the Company’s marketing needs.

 

                In August 1997, the Company was assigned allinterests and rights in Worldwide Publishers, Inc. (“Worldwide”), a publisherof inspirational and children’s books, Origin Book Sales, Inc. (“Origin”), aseller of books, audio cassettes, art and software and the exclusivedistributor for Worldwide (“Worldwide”); Gold Leaf Press, Inc. (“Gold Leaf”), apublisher of fiction and non-fiction books; and Ideal Travel Concepts, Inc. (“Ideal”),a provider of travel related services and travel agent training. The aggregateconsideration in these acquisitions consisted of a cancellation of $275,000 inindebtedness to the Company and 423,294 shares of the Company’s common stock(before the reverse 1-for-10 stock split effective September 3, 2002).

 

 

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                In January 1998, the Company acquired QuantumMarketing, Inc. (“Quantum”), a corporation that provides local marketing ofSMILe products and services. The Company acquired all the issued andoutstanding capital stock of Quantum in exchange for 45,000 shares of theCompany’s common stock (before the reverse 1-for-10 stock split effectiveSeptember 3, 2002) for a deemed purchase price of $189,000.  The Company discontinued the operations ofOrigin and Quantum in the fiscal year ended 2001 *(for a more complete description ofthese events see “Item 1. Business” of the Company’s Form 10-K for the yearended December 31, 2001).*

 

                In January 1998, the Company was assigned allinterests in Information Quest, Inc. (“IQ”), a corporation that markets apaging service which provides subscribers with up-to-date stock market andfinancial information. The Company received all the issued and outstandingcapital stock of IQ in exchange for 45,000 shares of the Company’s common stock(before the reverse 1-for-10 stock split effective September 3, 2002) for adeemed purchase price of $188,000.

 

**Investments**

 

The Company regularlyevaluates acquisition and investment opportunities, and additional cashresources may be devoted to pursuing such opportunities.  In February 2002, the Company, through itswholly owned subsidiary SMILe, entered into a Stock Purchase Agreement topurchase the common stock of Ardayme Development Corporation (“Aradyme”).  Under this stock purchase agreement, theCompany purchased 62,096 shares of Aradyme restricted common stock for apurchase price of $25,000.  Aradyme is aprivately held corporation that has been involved in the development of alternativenew user friendly database applications.  Aradyme’s alternative database technology seeks to allow users to modifydatabase parameters without deconstructing and re-constructing the underlyingdatabase information involved.

 

The Company holds additionalinvestments in oil and gas properties, private and public companies, realestate, and a minority interest in a hotels (*for a more complete description ofthese investments see “Item 1. Business — Investments” in the Company’s Form10-K for the year ended December 31, 2001).*

 

 

**Liquidityand Capital Resources**

 

At September 30, 2002, the Company had current assetsand current liabilities in the amounts of $5.7 million and $11.5 million,respectively, resulting in a working capital deficit of $5.8 million.  The working capital deficit at December 31,2001 was $600,000.  The increase in theworking capital deficit in the first nine months of 2002 is primarily theresult of a significant increase in accounts payable, the utilization of fundsfrom a construction loan, increased current portion of long-term debt anddecreases in inventory and income tax refund receivable *(for a more complete description ofchanges in the Company’s assets and liabilities see below).*

 

The Company’s currentassets decreased by $3.5 million from $9.2 million at December 31, 2001 to $5.7million at September 30, 2002.  Thisdecrease in current assets is primarily the result of decreases in theCompany’s cash and cash equivalents, inventory, construction loan receivable,income tax refund receivable and deferred tax assets.

 

The Company’s cash andcash equivalents decreased by $600,000 from $600,000 at December 31, 2002 to$13,000 at September 30, 2002.  Thisdecrease arose primarily out of Company spending for current operations.

 

The market value of theCompany’s marketable securities was $100,000 at September 30, 2002 and did notshow a significant change from December 31, 2001.

 

The receivable fromconstruction loan decreased by $800,000 from $800,000 at December 31, 2002 to$-0- at September 30, 2002.  Thisdecrease is attributable to the use of construction loan proceeds infurtherance of progress and development of a Company residential home project.The receivable from construction loan consisted of proceeds available to the Companyunder a course of construction loan *(for a more complete description of this course ofconstruction loan see “Item 7 Management’s Discussion and Analysis of Financial*

* *

 

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*Condition— Liquidity and Capital Resources” in the Company’s Form 10-K for the yearended December 31, 2001).*

 

The Company’s trade and credit card receivables were$1.8 million at September 30, 2002 and did not show a significant change fromDecember 31, 2001.  Trade and credit cardreceivables consist principally of restricted cash held in reserve by theCompany’s credit card processor for refunds and charge-backs.

 

 Inventory decreased by $500,000 from $1.5million at December 31, 2001 to $1.0 million as of September 30, 2002.  The decrease in inventory is primarilyattributed to the continued consumption of existing inventory to meet currentproduct and marketing needs.    Companyinventory includes tapes, cassettes, manuals and books published by theCompany, various related marketing materials, supplies and other assorteditems.

 

At September 30, 2002 the Company had currentreceivables from related parties in the amount of $100,000 consisting primarilyof loans to employees secured by real property.

 

The Company’s accrueddeferred tax assets decreased by $600,000 from $900,000 at December 31, 2001 to$300,000 at September 30, 2002.  Thedecrease in deferred tax assets principally reflects a valuation reserve *(see Note 9— Deferred Tax Asset and valuation Allowance)* decreasing the taxbenefits related to timing and deductions and the write-down of goodwillrelating to the Company’s travel segment *(for a more complete description of this write-off ofgoodwill see below).*

 

The Company’s income taxrefund receivable decreased by $900,000 from $3.1 million at December 31, 2001to $2.2 million at September 30, 2002. The decrease in the income tax refund receivable is primarilyattributable to the collection of refunds in August 2002 partially offset bythe tax effect of operating losses during 2002.  The Company’s income tax refund receivable consists primarily ofa $200,000 balance of the $2.5 million tax refund filed by the Company for thefiscal year ended December 31, 2001, and the tax benefit from operating lossesduring the first nine months of 2002*.*

 

Property, plant and equipment net of depreciationchanged from $7.4 million at December 31, 2001 to $6.4 million at September 30,2002.

 

Goodwill decreased by $1 million from $1.1 million atDecember 31, 2001 to $100,000 at September 30, 2002 due primarily to thewrite-down of goodwill relating to Ideal Travel Concepts, Inc. (“Ideal”).  Ideal is a wholly owned subsidiary of theCompany that provides retail travel agency services and sells travel agenttraining kits.  Ideal’s operating resultsare accounted for under the Company’s Travel segment.  The Company determined that in light of Ideal’s operating resultsand its estimated future cash flows that goodwill acquired in the purchase ofIdeal had been impaired and should be written-down.

 

                Currentliabilities increased by $1.7 million from $9.8 million at December 31, 2001 to$11.5 million at September 30, 2002. This increase in current liabilities is primarily attributable toincreases in payroll, payroll tax and other accrued taxes; accounts payable;and the current portion of long-term debt.

 

The current portion of long-term debt increased by$200,000 from $2.6 million at December 31, 2001 to $2.8 million at September30, 2002.  The current portion oflong-term debt consists principally of those portions of Company loans thatcome due within 12 *months. (For a more complete description of theCompany’s loans see “Item 7 Management’s Discussion and Analysis of FinancialCondition — Liquidity and Capital Resources” in the Company’s Form 10-K for theyear ended December 31, 2001 and the Notes to the Financial Statements)*.  This increase is primarily due to increasedborrowing and the delayed payment of certain obligations.

 

Accounts payable was $5.5 million at September 30,2002 compared with $3.6 million at December 31, 2001.  The Company attributes the increase in accounts payable primarilyto liquidity constraints that have lead to delays in the satisfaction ofcertain new and existing accounts payable.

 

The Company had accrued expenses of $1.5 million atSeptember 30, 2002 compared with $1.7 million at December 31, 2001.  Accrued expenses consist primarily ofaccruals for refund payments due under the Company’s consumer redress program.  The decrease in accrued expenses isprimarily attributable to the payment

 

 

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of refunds under the Company’s consumer redress program during thefirst nine months of 2002 partially offset by increased liabilities forinterest, taxes and other expenses.

 

Payroll, payroll tax and other accrued taxes increasedby $400,000 from $200,000 at December 31, 2001 to $600,000 at September 30,2002.  This increase is primarily due todelayed and accrued payroll and payroll taxes (as discussed further in thissection).

 

Short-term deferred revenue decreased by $600,000 from$1.3 million at December 31, 2001 to $700,000 at September 30, 2002. Short-termdeferred revenue consists primarily of revenues from seminars not yet attended,prepayments for future Pager/informational alert services from InformationQuest, and/or subscriptions to the WIN online service.  The decrease in short-term deferred revenueis primarily attributable to a decrease in revenues in the Company’s operating segments*(for amore complete description of the decrease in Revenue see “Item 2. Management’sDiscussion of Financial Condition - Results of Operations” in this Report).*

 

At September 30, 2002 the Company had payables torelated parties in the amount $400,000, which primarily represent royaltiesowed to Mr. Wade B. Cook.

 

Other Investmentsincreased by $900,000 from $4.6 million at December 31, 2001 to $5.5 million atSeptember 30, 2002, due primarily to continued development of residentialluxury homes on property owned by the Company * (for a more complete description of the Company’s residentialluxury home projects see “Item 1 Business” of the Company’s Form 10-K for theyear ended December 31, 2001).*

 

The Company’s Other investments include the following:

 
|                                         |   | **Investment  (in thousands)** |   |
|----------------------------------------------|--------|--------------------------------|--------|
| **Description  of Investment**               |   | **September  30, 2002**        |   | **December  31, 2001** |   |
| Oil and gas  properties                      |   | $                              | 281    |   | $ | 281 |   |
| Hotel and motel  investments                 |   | 488                            |   | 488 |   |
| Investments in  undeveloped land             |   | 3,616                          |   | 2,684 |   |
| Private  companies 3⁄4 Various industries |   | 1,100                          |   | 1,100 |   |
| Total Other  investments                     |   | $                              | 5,485  |   | $ | 4,553 |   |

 

**The Company’s principal source ofcash in the past has been from the operation of its investment seminars andsales of tapes, books and other materials focused on business strategies andfinancial and personal wealth management. The Company does not have anestablished bank line of credit. The net decrease in cash was $600,000 as ofSeptember 30, 2002 compared with $800,000 at September 30, 2001.  The Company primarily attributes thisoverall change to cash used in investing activities, and continuing operationallosses.**

 

Cash used ininvesting activities was $900,000 at September 30, 2002, compared with cashprovided by investing activities in the amount of $32,000 at September 30,2001.   Investing activities as of September30, 2002 principally reflects cash used in the Company’s development ofresidential luxury homes in Western Washington.  Cash provided by investing activities at September 30, 2001primarily reflects the sale of a Company owned building inTacoma, Washington, which was almost completely offset by cash used in thedevelopment of homes mentioned above.

 

Cash provided byfinancing activities was $1.1 million at September 30, 2002 compared to $2.1million at September 30, 2001. Financing activities as of September 30, 2002 principally reflectdisbursement of additional funds from the Company’s course of constructionloan, and receipt of proceeds from commercial loans secured during the firstnine months of 2002.

 

On January 30,2002, the Company secured a loan (the “Loan”) for the principal amount of$530,000 to fund certain operational expenses. Centrum Financial Services, Inc. holds the promissory note (the “Note”)for this Loan.  The Note is due andpayable in full by February 1, 2003. From January 30, 2002 until February 1, 2003, the Company has theminimum obligation to make monthly interest payments on the Loan.   Interest payments are equal to the greaterof 15%, or the prime lending rate established by Bank of America for commercialloans in the Seattle (“Prime”) area plus 6%, per annum.  This Loan is secured by two parcels ofproperty owned by the Company: Lot 31 and raw land adjacent to the corporateheadquarters *(for a more complete description of Lot 31 see “Item 1. Business” ofthe Company’s Form 10-K for the year ended December*

* *

 

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*31, 2001)*.  If there isdefault in the payment of the Loan, or default in any of the Note’s terms andconditions, the principal and interest under the Note could become dueimmediately (upon the option of the Note holder).  Additionally, upon Default the Note would bear interest at a ratethat is the greater of 36% or the then existing rate of interest on the Noteplus 20%, per annum.  Currently, theCompany has made interest only payments on the note and is current in theseinterest obligations.

 

                During the secondquarter of 2002, the Company took out several additional loans.  On June 28, 2002, the Company executed apromissory note between Brookhaven Homes, LP, a Company affiliated entity, andNever Ending Wealth, LP (“NEW”), an entity controlled by Mr. Cook.  Under the promissory note, NEW loaned theCompany $34,300.  The promissory notebears a rate of interest of 10% per annum. The promissory note is secured by a deed of trust on property owned bythe Company.  The note provides forinterest only payments until September 28, 2002 when the promissory note was tobe paid off in full.  The parties arerenegotiating the loans and the Company expects to extend these loans until thesale of the secured properties takes place. The funds are being used to helpcomplete residential luxury home development projects commenced throughBrookhaven Homes, LP.  On April 22,2002, the Company executed a promissory note in favor of Business Office SuiteServices (“BOSS”), an entity controlled by the Anderson Law Group.  The amount loaned was $20,000 and bears arate of interest of 12% per annum.  Thepromissory note requires the Company to make monthly payments of $5,000 to BOSSbeginning June of 2002 and ending when the promissory note is paid infull.  Funds from this loan have beenused to meet certain operational expenses. On June 28, 2002, the Company executed a promissory in favor of AcornCorporate Service, Inc. (“ACORN”). ACORN is an entity controlled by Mr. Cook’s brother-in-law.  The amount loaned was $35,000 and bears arate of interest of 12% per annum.  Thepromissory note requires the Company to make monthly payments of $5,000 toACORN beginning July of 2002 and ending when the promissory note is paid infull.  ACORN has agreed to accept “rentin lieu of payment” on this loan.  Fundsfrom this loan have been used to meet certain operational expenses*.*

 

The Company’s practice of using available cash to fundsubsidiaries and new non-marketable investments, its working capital deficit,the current deficit in cash-flow, the Company’s significant long and short termobligations, previous earthquake damage, costs associated with the Company’sconsumer redress program, the continuing effects of the September 11 terroristattack, the fact that the Company’s segments are not generating cash as in thepast, and the significant losses in the Company’s Other Income have resulted insubstantial constraints on liquidity. Consequently, the Company has been unable to pay many of the Company’saccounts payable, refunds, vendors, corporate insurance premiums, loan andmortgage obligations, and other similar obligations in a timely manner; has hadto delay certain payroll, payroll tax and employee benefit obligations as wellas to actively seek out additional financing through the re-capitalization ofCompany assets *(for a more complete description of these items affecting liquidity see“Item 7 Management’s Discussion and Analysis of Financial Condition — Liquidityand Capital Resources” in  the Company’sForm 10-K for the year ended December 31, 2001).* The Company is notcurrent in the payment of payroll taxes accrued for the third quarter as wellas several loan and mortgage obligations that became due during that same timeperiod.  Management continues to takesteps toward improving the Company’s capital resource situation, includingcontinued reduction of certain variable costs and the significant reduction inthe Company’s employee workforce.

 

                If the Company is required to generate cash forworking capital purposes from its properties and Other investments, it may notbe able to liquidate these assets in a timely manner, or in a manner thatallows the Company to realize the full value of the assets.   Moreover, much of the Company’s owned realproperty has been collateralized for loans, resulting in diminished equityavailable for refinancing. The Company is two months in arrears on payment ofseveral of its loans. This arrearage could result in penalty interest and theacceleration of principle.  *(For a morecomplete description of these loans see “Item 7 Management’s Discussion andAnalysis of Financial Condition — Liquidity and Capital Resources” of theCompany’s Annual Report on the Form 10-K for the year ended December 31, 2001and “ Item 2.” of this Report).* Failure to generate adequate cashresources for loan payments and working capital could require the Company tocut back operations, delay or cancel expansion and development projects, seekcreditor protection, dispose of properties, businesses or investments onunfavorable terms, or cause the Company to be unable to meet obligations orresult in the sale of certain collateralized properties.

 

                In July of 2002,the Company filed for a federal tax refund of approximately $2.5 million.  The Company has received approximately $2.3million pursuant to the refund requested. The Company’s refund is the result of changes to the federal tax lawduring 2001 that allowed businesses to carry-back net operating losses

 

 

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over a period of five years. The Company used the income tax refund to satisfy certain existingobligations, including but not limited to consumer redress refunds, payroll taxes,accounts payable, loan expenses, and other obligations.  The Company is awaiting the receipt of thebalance of the requested tax refund pending final approval of the InternalRevenue Service.

 

The Company is a party to a limited number of legalproceedings.  See Part II, Item 1 ofthis report for as well as other public documents filed with the Securities andExchange Commission for a more complete description.  The Company has not yet made an estimate of its potentialexposure in several pending proceedings and investigations or determined theimpact of adverse results in such matters on its financial statements.*  The outcome of these matters is difficult topredict and subject to uncertainty, and the legal fees and other costs involvedmay be material and have been higher in recent periods.*  Adverse publicity resulting from thesematters may be negatively affecting the Company’s business, and further adversepublicity could have further negative effects.*  If the Company were found to be liable in certain of theseproceedings, the liability could be material.

 

 

*Critical Accounting Policies*

 

                Below are some of the Company’s accounting policiesthat involved significant judgment in ascertaining the underlying estimates andassumptions affecting reported financial conditions and operating results, aswell as disclosure of contingent assets and liabilities as of the date of theconsolidated financial statements. Management periodically looks at the accuracy of these estimates andassumptions.  Actual results may differfrom estimates, as these estimates involve assumptions that are inherentlyuncertain.

 

                In August 2001, the FSAB issued Statement ofFinancial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairmentor Disposal of Long-Lives Assets” which replaces SFAS 121, “Accounting forLong-Lived Assets and for Long-Lived Assets to be Disposed Of.”  SFAS effects financial statements issued forfiscal years commencing after December 15, 2001.  The Company does not presently believe the adoption of SFAS No.144 will have a material effect on the Company’s results of operations.  For the fiscal year ended December 31, 2001,the Company continued to apply FSAS No. 121 in assessing long-lived assets.  The Company’s long-lived assets includeinvestments in oil and gas properties, stock investments in private companies,goodwill, identifiable intangibles, minority interests in hotels, and propertyand equipment.

 

                Property and equipment are stated at historical costsand depreciated on a straight-line basis over the estimated useful lives of theunderlying assets.  The estimated usefullives of furniture, fixtures, equipment and other similar items generally rangefrom three to seven years.  Goodwill wasobtained through the acquisition of the Company’s subsidiaries and it testedfor impairment according to FSAS 142 “Goodwill and Other Intangible Assets” *(for a morecomplete description see Item 7 — Management’s Discussion and Analysis ofFinancial Condition in the Company’s Form 10-K for the year ended December 31,2001).*

 

                Long-lived assets, including goodwill, are presentlyassessed for impairment if situations indicate that the carrying amount ofthose assets needs to be adjusted. Impairment is determined by looking at the present carrying value of thelong-lived asset and comparing the asset’s present value of its expected futurecash flows.  Where long-lived assetshave a readily ascertainable market value, impairments will be determined bycomparing book value to market value.  Where a market value is not readily ascertainable, management will applyan undiscounted cash flows approach using its best estimate of future expectedundiscounted cash flows to determine present value.  Cash-flow projections are used by management to make theseassessments and involve a degree of judgement. If management’s projections show that impairment exists, then write-downor write-off would be recognized in amount by which the carrying value exceedsthe present fair value.

 

Revenue RecognitionPolicy:

 

                The Company’s revenues aredivided into five (5) segments *(as disclosed in Note W to the Company’s Form 10-Kfor the year ended December 31, 2001*):

*                Seminar: *Revenues for seminars are recognized when services arerendered. Subscription revenues for WIN membership generally are received forup to one year in advance and are recorded and presented in the financialstatements as deferred revenue until earned. Although a typical subscription binds the subscriber to

 

 

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prepay, thesubscription term begins when the customer receives his log on code.  The deferred revenues are recognized on amonthly basis over the term of the contract.  If a subscriber cancels within the first twelve months of the serviceperiod, any remaining unearned subscription revenue will be recognized intoincome at the time of the cancellation because the subscription is a bindingnonrefundable contract. The Company gives free access to WIN ranging from threemonths to twelve months, when it sells various live seminars and self-studycourses.  The Company accounts for freeaccess to WIN as a sales incentive.  TheCompany’s total cost to operate WIN is immaterial.  In 2000, the Company recognized revenue on the free access to WINwhen the Company recognized revenue for the live seminar and self-studycourses.  In 2001, the Company changedits estimates of recognizing revenue for free access to WIN over the period offree access to WIN.

 

*                ProductSales*: includesthe publishing and distribution of video tapes, audio tapes and writtenmaterials designed to teach various investment and cash flow strategies forinvesting in the stock market, asset protection and asset accumulationtechniques or strategies. Revenues are recognized when finished products areshipped to customers or services have been rendered.

 

*                Pager/informationalalert services:*TheCompany sells IQ pager services in twelve or twenty-four month contractsubscriptions, but receives the revenue in advance, which is presented in thefinancial statements as deferred revenue until earned.  The Company has also begun to sell anInformational Alert Service called Daily IQ. Subscriptions to Daily IQ are offered in the same manner assubscriptions to the IQ Pager.  Thedeferred revenues for the IQ Pager and Daily IQ are recognized on a monthlybasis over the term of the contract.

 

            *Travel Service*: commissions are receivedfor travel related services, which include domestic and international airlinereservations, hotel reservation, car rental and tour packages. The Company alsomarkets and sells travel agent training packages.  Revenue on travel services is recognized at the time thecustomers have already traveled. On the other hand, revenues on travel agent trainingpackages are recorded when these are shipped to customers.

 

*            Other:  a*dvertising/marketingrevenue is only inter-company which is eliminated in the consolidation process.

 

*Accountingfor Company’s Marketable Securities:* The Company records its investment in tradingsecurities in accordance with Statement of Financial Accounting Standards No.115, *Accountingfor Certain Investments in Debt and Equity Securities*, and thereforeadjusts marketable securities to market value, thereby reflecting changes inmarket value through the income statement in the current period.

 

**Resultsof Operations**

 

***Three Months Ended September 30, 2002Compared with the Three Months Ended September 30, 2001***

 

*Revenue.* Revenue from continuing operations was $3.5 million for the three monthsended September 30, 2002, compared with $6.7 million for the three months endedSeptember 30, 2001.  The decrease of$3.2 million is primarily attributable to an over-all reduction in revenuesfrom the Company’s operating segments.

 

During the three months ended September 30, 2002 Seminarsegment revenues decreased $2.3 million from $5.1 million for the three monthsended September 30, 2001 to $2.8 million for the three months ended September30, 2002. The Company believes that the lower overall Seminar segment revenuewas primarily the result of lower sales due to a general economic downturn inthe U.S. economy that has caused consumer spending to falter in recent periods;reduced attendance at the Company’s seminars following the September 11thterrorist attacks causing a reluctance by the public to travel to Companyseminars; the continuing erratic movements in the stock and option markets; theeffects of negative press coverage related to recent Federal Trade Commissionaction; and to some extent liquidity constraints**.** The Company also believesthat the business of the Seminar segment is seasonal with demand for theCompany’s products and services slowing during the summer months, as well as atthe year-end. The Company’s seminars serve as the primary vehicle for marketingand selling products and services offered though the Company’s Product Sales,Pager/Informational Alert Services and Travel segments.  Therefore, the Company believes that thefactors affecting the Seminars segment exert a similar effect on these otheroperating segments.

 

 

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The U.S. economy has suffered a general economicdownturn in recent fiscal quarters.  Asa result of the economic downturn, the pace of consumer spending has likewisefaltered in most sectors of the economy. In short, the Company believes that the recent economic downturn hasresulted in fewer customers making fewer expenditures on the Company’sseminars.  The Company is attempting tocounter-balance the effects of the current economic downturn by offeringrebates and discounts in order to attract greater customer interest.  While the Company is taking steps tocounter-balance the effects of this economic downturn, the Company cannotguarantee that these steps will be successful.

 

The September 11, 2001 terrorist attack (the “Attack”)on the World Trade Center in New York and the Pentagon in Virginia has had anadverse impact on the Company’s operations and ability to supply seminarservices to its clientele.  As a resultof the Attack, some U.S. residents seem to be choosing to travel lessfrequently, and if they must travel, to take alternative means to airtransport.  The Company believes thisreluctance to travel has influenced some potential customers not to attendCompany’s seminars which in turn has resulted in lowers revenues.  Historically, a significant portion of thosecustomers who attend the Company’s events travel by airplane.  The Company’s revenues in future periodscould be adversely effected, if a large percentage of the Company’s potentialcustomers choose not to travel to Company events.  The Company’s management has begun modification of its BusinessPlan in order to limit its overall dependence on customers who travel by air.  Such modification includes tailoringmarketing efforts to attract a larger percentage of event attendees from thelocations where events are held.  Whilethe Company intends on taking steps to reduce the potential negative effects ofthe Attack on operations, the Company cannot guarantee that these steps will besuccessful.*

 

The stock and option markets have experiencedsignificant volatility in recent periods as well as a general decline in valueduring 2001.  The Company believes thatthis volatility and the general decline in the markets has caused individualinvestors to limit or avoid participating in trading activities during thefirst nine months of 2002.  In turn, theCompany believes that this decline in interest in trading in the stock andoptions markets has led to a similar decline in the public’s interest in theCompany’s products and services.  TheCompany’s products and services are primarily geared toward educatingindividual investors about strategies for trading in the capital markets.

 

On February 20, 2002, the FTC filed an application fora motion for contempt (the “Application”) in the Federal District Court forWestern Washington, claiming that the Company had allegedly violated provisionsof a previous voluntary Order *(for a more complete description of the “Order” seethe Company’s Form 10-Q for the fiscal period ended September 30, 2000).*   According to the FTC, the allegedviolations involve disclosure of the Company’s rate of return, substantiationof promotional claims, and compliance with consumer redress program deadlinesand payment obligations. On November 7, 2002, the Company and FTC agreed to aStipulated Order. The terms of this order include extending the Redress Programto consumers who paid to attend seminars between October 13, 2000 and February20, 2002, and who did not subsequently make purchases from the Company, TheCompany is required to send a Notice and Proof of Claim to each eligibleconsumer no later than sixty days after entry of the order.   As a result of the FTC’s Application, theCompany experienced a great deal of negative press coverage both locally andnationally.  The Company believes thatthis negative press coverage may have persuaded many potential customers eithernot to purchase the Company’s seminars (and products), or to request a refundfor seminars (and products) already purchased.

 

The Company also believes that current liquidityconstraints may be playing a role in the decline in over-all revenues.  Due to declining revenues the Company hasexperienced liquidity constraints in the last several fiscal periods.  To some extent during the first nine monthsof 2002, liquidity constraints have hampered the Company’s ability to advertiseits products and services, have interfered with the functioning of vendor relationships,and have caused the Company to reduce its total workforce.  In turn, these effects have made it moredifficult to attract customers, develop new products/services, and provide thefull compliment of the Company’s seminars and client support features.

 

Revenues from the Product sales segment decreased by$600,000 from $1.0 million for the three months ended September 30, 2001 to$400,000 for the three months ended September 30, 2002. The decrease in ProductSales is primarily due to the same factors affecting the Seminar segment as theCompany’s Products sales are typically marketed and executed along with Seminarsegment sales.

 

 

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                Revenue in the Pager/informational alert servicessegment decreased by $100,000 from $200,000 for the three months endedSeptember 30, 2001 to $100,000 for the three months ended at September 30,2002. The decrease in Pager/informational alert services revenue resulted fromreduced demand for this segment’s products and services, and fewer renewals ofexisting subscriptions. The Company believes this decrease is the result oflower overall sales due the same factors affecting the Seminar segment(Pager/Informational Alert Services are primarily marketed at Company seminarsand/or in related marketing materials) discussed above. The Company alsobelieves that recent advancements in two-way paging technology and in thetelecommunications industry have lead to intense competitive pressures withinthis segment’s  “Pager” market niche,and ultimately has resulted in a decline in interest in the Company’s originalone-way pager service called the IQ Pager. In response to such competition, the Company reformatted its pagerservices in the form of an interactive Informational/Alert Service called DailyIQ.   The Company believes Daily IQprovides greater customer value than the IQ Pager, and is better designed tomeet competitive market pressures.   Infuture periods, this segment’s revenues shall be derived solely from Daily IQ *(for a morecomplete description of Daily IQ see “Item 2. Management’s Discussion andAnalysis of Financial Condition - General” of this Report).*

 

Revenue from the Company’s Travel segment decreased by$200,000 from $300,000 during the three months ended September 30, 2001 to$100,000 for the comparable period of 2002. The decrease is primarily attributable to the continuing negativeeffects of the Attack (as described above), a decline in the Company’s over-alluse of its travel agency services to book air and travel accommodations, anindustry-wide decrease in commissions received on travel bookings, and thosefactors generally affecting the Seminar segment described above.  The Company is the primary client of itswholly owned travel agency Ideal Travel Concepts, Inc.

 

                The Other segment revenue, consisting primarily ofthe Company’s real estate development operations and advertising agency,decreased by approximately $200,000 from $200,000 during the three months endedSeptember 30, 2001 to $8,000 during the comparable period in 2002. This decreaseis primarily due to the Company’s reduced reliance on its in-house advertisingagency during the three months ended September 30, 2002. The Company’s over-allreduction in the amount of advertising placed through its in-house advertisingagency resulted in a decline in related advertising commissions due theCompany. Reduced reliance on the Company’s in-house advertising agency isprimarily attributable to the Company’s reduction in over-all advertisingexpense during 2002 and the Company’s greater reliance on third party vendorsto place its marketing materials. The Company does not presently anticipatesignificant use of its advertising agency during the fourth quarter of 2002.

 

***                Cost of Sales.***  Cost of sales was relatively unchanged at$1.5 million for both the three months ended September 30, 2001 and for thethree months ended September 30, 2002. This lack of change is primarily due to increased inventory adjustmentsand the reclassification of certain expenses from selling, general andadministrative expense to cost of sales. These changes offset decreases in thecost of sales of the Company’s Seminar, Pager/informational alert services andOther segments. The Company believes that this trend for costs of sales may bethe result of negative press coverage in the first nine months of 2002 thatdeterred some customers from purchasing the Company’s products andservices.   Furthermore, the Companybelieves that the resulting decline in revenue may have occurred after manyvariable costs had already been incurred. The Company also partially attributes this change in trend to a $400,000reclassification of certain expenses from selling, general and administrativeexpense to cost of sales.  (*for a morecomplete description of the factors affecting Revenue see “Item 2. Management’sDiscussion and Analysis of Financial Condition” — Results of Operations” inthis Report).*

 

Cost of sales attributable to the Company’s Seminarsegment decreased by $200,000 from $1.1 million for the three months endedSeptember 30, 2001 to $900,000 for the three months ended September 30,2002.  This decrease was primarily theresult of a reduction in revenues in the Seminar segment.  The Company believes that decreases in costof sales for the Seminars segment were offset to some extent by thereclassification and negative press coverage described above.

 

Cost of Product Sales increased by $100,000 from$400,000 in the three months ended September 30, 2001 to $500,000 for the threemonths ended September 30, 2002.  Thisincrease of cost of sales in the Product Sales segment is primarilyattributable to inventory adjustments and cost reclassifications.

 

 

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The cost of sales for the Pager/informational alertservices segment was $100,000 at September 30, 2002 and did not changesignificantly from the comparable quarter in 2001.

 

The cost of sales for Travel Service segment wasnegligible for the three months ended September 30, 2002, and did not fluctuatesignificantly from the three months ended September 30, 2001.

 

The Other segment cost of sales decreased byapproximately $200,000 from $200,000 for the three months ended September 30,2001 to $-0- for the three months ended September 30, 2002.  The decrease primarily represents the Company’sreduced reliance on its in-house advertising agency as described above.

 

*Selling, General and Administrative Expenses*. Selling, general and administrative expenses for the three months endedSeptember 30, 2001 were $5.4 million compared with $3.6 million during thecomparable period of 2002. The decrease of $1.8 million is primarilyattributable to a significant decline in payroll expense, and declines inpostage, purchases and marketing.  Whileselling, general and administrative expenses decreased during the third quarterof 2002, this decrease was not as proportionally great as the decrease in theCompany’s consolidated revenues.  Thereduction in costs were partially offset by non re-occurring items, principallyconsisting of an accounts receivable write-down of $100,000 and the $500,000accrual for several recent state tax assessments.

 

*Operatingloss*.  The Company’s operating loss increased by$1.5 million from $(200,000) for the three months ended September 30, 2001 to$(1.7 million) for the three months ended September 30, 2002.  This change in operating loss resultedprincipally from a decline in revenues in the Company’s operating segmentswithout a corresponding proportional decline in selling, general andadministrative expenses and cost of sales.

 

Operating losses in the Seminar segment increased by$700,000 from $(200,000) for the three months ended September 30, 2001 to$(900,000) for the three months ended September 30, 2002. This change wasprimarily attributable to a decline in revenues without a correspondingproportional decline in selling, general and administrative expenses and costof sales.

 

Operating losses in the Product Sales segmentincreased by approximately $500,000 from $(100,000) for the three months endedSeptember 30, 2001 to $(600,000) for the three months ended September 30, 2002.This change was primarily attributable to a decline in revenues without acorresponding proportional decline in selling, general and administrativeexpenses and cost of sales.

 

Operating income in the Pager/informational alertservices segment changed by approximately $(100,000) from $100,000 in the threemonths ended September 30, 2001 to $(15,000) for the three months endedSeptember 30, 2002. This change was primarily attributable to a decline insegment revenues without a corresponding proportional decline in selling,general and administrative expenses and cost of sales.

 

Operating losses in the Travel services segment were$(58,000) for the three months ended September 30, 2002, a decrease of $62,000from the three months ended September 30, 2001. The decrease was due todecrease revenue as discussed above.

 

Other segment operating losses were $(51,000) atSeptember 30, 2002, and did not fluctuate significantly from the three monthsended September 30, 2001.

 

*OtherIncome (Expense)*.  Other expense was $(200,000) for the threemonths ended September 30, 2001 compared to $(300,000) for the three monthsended September 30, 2002.  The decreasein Other income is primarily attributable to increased interest expenses.  During the three months ended September 30,2002, the Company experienced realized and unrealized losses on the trading ofsecurities in the amount of $14,000 compared to losses of $(400,000) for thethree months ended September 30, 2001. Interest expense increased by $100,000 from $200,000 for the threemonths ended September 30, 2001 to $300,000 to the three months ended September30, 2002.  The other portion of OtherIncome decreased by $300,000 from $300,000 for the three months ended September30, 2001 to $32,000 for the three months ended September 30, 2002.  The principal reason for this decrease is adecline in marketing fees from the Anderson Law *Group (for a more complete descriptionof these marketing fees see  “Note 3” ofthe “Notes to Interim Financial Statements” of this Report).*

 

 

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Loss before income taxes for the quarter endedSeptember 30, 2001 was $(400,000), compared to $(2.0 million) for three monthsended September 30, 2002.

 

*IncomeTaxes*. TheCompany’s financial statements reflect an Income tax accrual of $200,000 and abenefit of $(100,000) for the three months ended September 30, 2002 and 2001,respectively, reflecting a valuation reserve recorded in the third quarter of2002 compared to the benefit related to a loss in the prior year.  The Company’s effective tax rates havehistorically differed from the federal statutory rate primarily because ofcertain deferred revenues, unrealized gains and losses on trading securities,accelerated depreciation and state taxes.

As a result of the foregoing, the Company experienceda net loss from operations of $(300,000) in the three months ended September30, 2001, compared with a net loss of $(2.2 million) for the comparable period of 2002.

 

*CumulativeEffect of Accounting Change*. During the third quarter of 2002 the Companyrecorded a $295,000 impairment of goodwill, net of income tax benefits of  $189,000, related to the Company’s Travel *segment (fora more complete description of the goodwill impairment see “Item 2.Management’s Discussion and Analysis of Financial Condition — Liquidity andCapital Resources” in this Report).*

 

 

 

***Nine Months Ended September 30, 2002Compared with the Nine Months Ended September 30, 2001***

 

*Revenue.* Revenue from continuing operations was $14.2 million for the nine monthsended September 30, 2002, compared with $29.3 million for the nine months endedSeptember 30, 2001.  The decrease of$15.1 million is primarily attributable to an over-all decline in revenues fromthe Company’s operating segments.

 

During the nine months ended September 30, 2002,Seminar segment revenues decreased by $11.9 million from $23.5 million in thenine months ended September 30, 2001 to $11.6 million in the nine months endedSeptember 30, 2002. The Company believes that the lower overall Seminar segmentrevenue was primarily the result of lower sales due to a general economicdownturn in the U.S. economy that has caused consumer spending to falter inrecent periods; reduced attendance at the Company’s seminars following theSeptember 11th terrorist attacks causing a reluctance by the publicto travel to Company seminars; the continuing erratic movements in the stockand option markets; the effects of negative press coverage related to recentFederal Trade Commission action; and to some extent liquidity constraints.  The Company also believes that the businessof the Seminar segment is seasonal with demand for the Company’s products andservices slowing during the summer months, as well as at the year-end. TheCompany’s seminars serve as the primary vehicle for marketing and the sellingproducts and services offered though the Company’s Product Sales,Pager/Informational Alert Services, and Travel segments.  Therefore, the factors affecting theSeminars segment exert a similar effect on these other operating segments *(for a morecomplete description of these factors see “Item 2. Management’s Discussion andAnalysis of Financial Condition and Operations — Results of Operations” of thisReport for the three month period).*

 

Revenues from the Product sales segment decreased by$2.3 million from $3.9 million in the nine months ended September 30, 2001 to$1.6 million during the nine months ended September 30, 2002.  The decrease in Product Sales is primarilydue to the same factors affecting the Seminar segment as the Company’s productssales are typically marketed and executed along with Seminar segment sales.

 

Revenue in the Pager/informational alert servicessegment decreased by $500,000 from $900,000 for the nine months ended September30, 2001 to $400,000 for the nine months ended September 30, 2002. The decreasein Pager/informational alert services revenue resulted from reduced demand forthis segment’s products and services, and fewer renewals of existingsubscriptions. *(for a more complete discussion see “Item 2. Management’s Discussionand Analysis of Financial Conditions - Result of Operations — Cost of Sales” ofthis Report for the three month period).*

 

Revenue from the Company’s Travel segment decreased by$600,000 from $1.1 million during the nine months ended September 30, 2001 to$500,000 for the nine months ended September 30, 2002.  The decrease is

 

 

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primarily attributable to the factors described under the Travelsegment above *(for a more complete discussion see “Item 2. Management’s Discussionand Analysis of Financial Conditions - Results of Operations” of this Reportfor the three month period).*

 

The Other segment, consisting primarily of theCompany’s real estate development operations and advertising agency, decreasedby approximately $1.5 million from $1.5 million during the nine months endedSeptember 30, 2001 to $41,000 during the comparable period in 2002. Thisdecrease is primarily due to the Company’s reduced reliance on its in-houseadvertising agency during the nine months ended September 30, 2002 *(for a morecomplete discussion see “Item 2. Management’s Discussion and Analysis ofFinancial Conditions - Results of Operations” of this Report for the threemonth period).*

 

*Costof Sales.*  Cost of sales decreased by $3.4 million from$9.1 million in the nine months ended September 30, 2001 to $5.7 million forthe nine months ended September 30, 2002. This decrease in cost of sales is due a decrease in the Cost of sales ofthe Company’s Seminar, Product Sales, Pager/information alert and Othersegments *(fora more complete discussion see “Item 2. Management’s Discussion and Analysis ofFinancial Conditions - Results of Operations” of this Report for the threemonth period).*

 

Cost of sales attributable to the Company’s Seminarsegment decreased by $2.8 million from $7.3 million for the nine months endedSeptember 30, 2001 to $4.5 million for the nine months ended September 30,2002. Cost of sales decreased primarily due to the reduction in the Company’srevenue described above *(for a more complete discussion see “Item 2.Management’s Discussion and Analysis of Financial Conditions - Result ofOperations” of this Report for the three month period).*

 

Cost of product sales decreased by $500,000 from $1.6million for the nine months ended September 30, 2001 to $1.1 million for thenine months ended September 30, 2002. Cost of sales decreased due primarily to the decrease in revenue *(for a morecomplete discussion see “Item 2. Management’s Discussion and Analysis ofFinancial Conditions - Result of Operations” of this Report for the three monthperiod).*

 

Cost of sales for the Pager/informational alertservices segment was $200,000 for the nine months ended September 30, 2002 anddid not fluctuate significantly from the comparable period in 2001.

 

The Cost of sales for Travel Service segment wasinsignificant for the nine months ended September 30, 2002 and did not fluctuatematerially from the nine months ended September 30, 2001.

 

The Other segment cost of sales decreased by $1.4million from $1.4 million for the nine months ended September 30, 2001 to $0for the nine months ended September 30, 2002. The decrease primarily represents the Company’s reduced reliance on itsin-house advertising agency as described above.

 

*Selling, General and Administrative Expenses*. Selling, general and administrative expenses for the nine months endedSeptember 30, 2001 were $21.1 million compared to $13.8 million during thecomparable period of 2002. The decrease of $7.3 million is primarilyattributable to a significant decline in payroll expense, and declines inpostage, purchases and marketing.  Whileselling, general and administrative expenses decreased during the first ninemonths of 2002, this decrease was not as proportionally as great as thedecrease in the Company’s consolidated revenues due in part to variousnon-reoccurring items.  Thenon-recurring items principally consist of the write-off of a $300,000uncollectible judgment, increased allowances for bad debts and  $700,000 in accruals for several state taxassessments.

 

*Operatingloss*.  The Company’s operating loss changed by $4.5million from $(800,000) for the nine months ended September 30, 2001 to $(5.3million) for the nine months ended September 30, 2002.  This change resulted principally from adecline in revenues in the Company’s operating segments without a correspondingproportional decline in selling, general and administrative expenses and costof sales.

 

Operating losses in the Seminar segment changed by$2.7 million from $(1.0 million) for the nine months ended September 30, 2001to $(3.7 million) for the nine months ended September 30, 2002. This change wasprimarily attributable to a decline in revenues without a correspondingproportional decline in selling general and administrative expensesattributable to the Seminar segment and cost of sales.

 

Operating loss in the Product Sales segment changed by$(800,000) from $(400,000) for the nine months ended September 30, 2001 to$(1.2 million) for the nine months ended September 30, 2002. This change was

 

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primarily attributable to a decline in revenues without a correspondingproportional decline in selling general and administrative expenses and cost ofsales.

 

Operating income in the Pager/informational alertservices segment changed by approximately $500,000 from $500,000 in the ninemonths ended September 30, 2001 to $(7,000) for the nine months ended September30, 2002. This change was primarily attributable to a decline in segmentrevenues without a corresponding proportional decline in selling, general andadministrative expenses and cost of sales.

 

Operating loss in the Travel services segment changedby approximately $200,000 from $49,000 for the nine months ended September 30,2001 to $(128,000) for the nine months ended September 30, 2002. This changewas primarily attributable to a decline in revenues without a correspondingproportional decline in Selling, general and administrative expenses.

 

Other segment operating income changed by $200,000from $47,000 for the nine months ended September 30, 2001 to $(200,000) for thenine months ended September 30, 2002. This change was primarily attributable toa decline in revenues without a corresponding proportional decline in selling,general and administrative expenses.

 

## ***Other Income (Expenses)***. Other expense was $(168,000) for the nine months ended September 30,2001 compared to $(600,000) for the nine months ended September 30, 2002. Thedecrease in Other income is primarily attributable to increased interestcosts.  During the nine months endedSeptember 30, 2002, the Company experienced realized and unrealized losses onthe trading of securities in the amount of $(200,000) compared with a loss of$(1.3 million) during the nine months ended September 30, 2001. The Companyattributes the $1.1 million improvement to a general improvement in the U.S.capital markets resulting in larger unrealized gain in the value of Companyheld securities.   Interest expenseincreased by $400,000 from $(400,000) for the nine months ended September 30,2001 to $(800,000) to the nine months ended September 30, 2002. The otherportion of Other Income decreased by $1.1 million from $1.4 million for thenine months ended September 30, 2001 to $300,000 for the nine months endedSeptember 30, 2002.  The principalreason for this decrease is declines in marketing fees from the Anderson Law *Group  (for a more complete description of thesemarketing fees see  “Note 3” of the“Notes to Interim Financial Statements” of this Report).*

 

Loss before income taxes for the nine months endedSeptember 30, 2001 was $(1.0 million), compared with  $(5.9 million) for the nine months ended September 30, 2002.

 

Income Taxes. The Company’s financial statementsreflect income tax benefit of $(300,000) and $(400,000) for the nine monthsended September 30, 2001 and 2002, respectively, reflecting a loss for theCompany during those periods, partially offset by a valuation reserve recordedin the third quarter of 2002.  TheCompany’s effective tax rates have historically differed from the federalstatutory rate primarily because of certain deferred revenues, unrealized gainsand losses on trading securities, accelerated depreciation and state taxes.

As a result of the foregoing, the Company experienceda net loss from operations of $(600,000) in the nine months ended September 30,2001, compared with a net loss of  $(5.5million) for the comparable period of 2002.

 

*CumulativeEffect of Accounting Change*. During the first nine months of 2002 the Companyrecorded a $632,000 impairment of goodwill, net of income tax benefits of  $404,000, related to the Company’s Travel *segment (fora more complete description of the goodwill impairment see “Item 2.Management’s Discussion and Analysis of Financial Condition — Liquidity andCapital Resources” in this Report).*

 

**Item 3: Quantitative and QualitativeDisclosures About Market Risk**

 

                See Note M to the Company’saudited financial statements included under Item 8 of the Company’s Form 10-Kfor the year ended December 31, 2001.

 

                The Company is exposed tochanges in interest rates affecting the return on its notes receivable andinvestments. In the normal course of business, the Company employs establishedpolicies and procedures to manage its exposure to fluctuations in interestrates.

 

                The Company’sexposure to market rate risk for changes in interest rates relates primarily tothe Company’s investments and notes receivable. The Company has not usedderivative financial instruments in its investment portfolio. The Companyplaces many of their non-marketable investments with enterprises with which ithas majority control and thus limits the amount of credit exposure to any oneissuer. The Company protects and preserves its invested funds by limitingdefault, market and reinvestment risk. Company payables are at fixed rates andtherefore are not affected by market forces.

 

**Item4.    Controls and Procedures****.**

 

(a) Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management,including our Chief Executive Officer and Chief Financial Officer, we plan toevaluate the effectiveness of the design and operation of our disclosurecontrols and procedures (as defined in Rule 13a-14(c) and 15d-14(c) under theExchange Act) in conjunction with the Company’s annual audit. Based upon apreliminary evaluation, the Chief Executive Officer (who is also the ChiefFinancial Officer) concluded that our disclosure controls and procedures wereeffective in timely alerting management to the material information relating tothe Company required to be included in our periodic

 

 

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SEC filings and Form 8-K reports**.**

 

(b)    Changes in InternalControls

There were no significantchanges made in our internal controls during the period covered by this reportor, to our knowledge, in other factors that could significantly affect thesecontrols subsequent to the date of their evaluation.

 

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**PART II ****3⁄4****  OTHER INFORMATION**

 

**Item 1.    Legal Proceedings****.**

 

**This section generally contains adescription of previously unreported material threatened or pending legalproceedings and updated information regarding previously reported materialthreatened or pending legal proceedings to which the Company or any of itssubsidiaries is a party or which any of their properties is subject as to whichthere were material developments during the period since the last report.  The Company has established a thresholdamount for determining whether particular legal proceedings will be deemed amaterial event to the Company.  For thepurposes of this section, the Company shall consider as material and reportthose legal proceedings in which potential liabilities (excluding legalexpenses) that exceed $300,000. Disclosure of Legal Proceedings required to be reported by Item 103 ofRegulation S-K regardless of threshold dollar amounts will continue to bereported as in the past.**

 

**Michael Glover and MMD Investments Limited Partnership v.Wade Bruce Cook, Wade Cook Seminars, Inc., Wade Cook Financial Corporation, etal.** On September14, 1999, Michael Glover and MMD Investments (the “Plaintiffs”) filed suit inthe 11th Judicial District Court of San Juan, New Mexico against the Company.The complaint alleges that Wade Cook and the Company violated the New MexicoUnfair Practices Act section 57-12-1 et seq. through the commission of fraud;civil conspiracy, civil aiding and abetting, and negligent misrepresentation.The plaintiffs allege that they have suffered actual damages of $356,000encompassing trading losses and lost wages, and in addition to demanding suchactual damages are seeking treble damages, attorney fees, and exemplarydamages.  In August of 2001, Plaintiffssecured a default judgment, as to liability only, as a discovery sanction foran alleged failure by the Company and other defendants to comply with discoveryrequests.  The default judgement doesnot award any damages, or otherwise imply that the Plaintiff’s are entitled toany damages whatsoever.  Trialrescheduled for July 15 -18, 2002 was rescheduled again to September 9 - 11, 2002.  On September 6, 2002 the case was settled bya confidential settlement agreement. This settlement is included in theCompany’s results of operations for the periods ended September 30, 2002.

 

**Bendahan, et al v. WadeCook Financial Corporation et al.**  On April 19, 2001, a group of former Companycustomers (the “Plaintiffs”) filed a civil lawsuit against the Company in theSuperior Court for King County in the State of Washington.  The complaint alleges violations of variousconsumer statutes; breach of fiduciary duty; racketeering; civil conspiracy andaiding and abetting.  The Plaintiffsseek actual damages to be proved at trial, treble damages for allegedviolations of the various consumer statutes, exemplary damages, attorneys’ feesand interest.  The Company is currentlyin the discovery stage of litigation. The Company has worked out individual confidential settlements resultingin the dismissal of 1 Plaintiff from this action.  Trial was set for October 28, 2002, and is currently in progress.The Company believes that it has not engaged in any unlawful practices andintends to defend itself vigorously in this matter.  The Company has not yet determined the impact on its financialstatements, and has not made provision for losses, if any.

 

**Federal Trade Commission v. Wade Cook Financial Corporationand Wade Cook Seminars, Inc.**  As discussedthroughout this Report, the Company is a party to a number of voluntary ConsentDecrees (the “Agreements”) with the Federal Trade Commission (“FTC”) and theconsumer affairs divisions of 14 states *(for a more complete description of the “Order” seethe Company’s Form 10-Q for the fiscal period ended September 30, 2000).* On February 20, 2002, the FTC filed anapplication for a motion for contempt (the “Application”) in the FederalDistrict Court for Western Washington, claiming that the Company had allegedlyviolated provision of the Agreements *(for more information concerning the Application seethe Company’s form 8-K filed on February 25, 2002).* The FTC’salleged violations involve disclosure of the Company’s rate of return,substantiation of promotional claims, and compliance with consumer redressprogram deadlines and payment obligations. While the Company believes that it has complied with the terms of theAgreement, the Company has been working closely with the FTC to resolve thematter and has made substantial progress toward that end.  To this end, the hearing on the Applicationoriginally scheduled on June 28, 2002 had been moved to September 2002.  On November 7, 2002, the Company and FTCagreed to a Stipulated Order. The terms of this order include extending theRedress Program to consumers who paid to attend seminars between October 13,2000 and February 20, 2002, and who did not subsequently make purchases fromthe Company, The Company is required to send a Notice and Proof of Claim toeach eligible consumer no later than sixty days after entry of the order.  The Company hasnot yet determined the impact on its financial statements, and has not madeprovision for

 

 

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losses, if any.

 

**Caliber One IndemnityCompany v. Wade Cook Financial Corporation.**  On July 23, 2001, the Caliber One IndemnityCompany (“Caliber One”) filed suit for declaratory judgment to determinecoverage sub-limits under the Company’s Commercial Property Insurance Policy(the “Policy”).  During the thirdquarter of 2002, the trial court ruled in favor of Caliber One. This rulinglimits amounts due for earthquake and related damage to the $500,000 that wasreceived in 2001.  The Company hasappealed this ruling and is considering additional legal action.

 

**Vendor Suits.**During the third quarter of 2002, one of the Company’s previous vendors secureda default judgment for approximately $500,000. The judgment represents invoicesthat are included in accounts payable. The Company is reviewing the matter and expects to appeal the judgment.

 

 

 

**Item2.    Changes in Securities****.**

 

None

 

 

**Item3.    Defaults Upon Senior Securities****.**

 

None.

 

 

**Item4.    Submission of Matters to a Vote ofSecurity Holders****.**

 

                None.

 

 

**Item 5.    Other Information****.**

 

***Recent Director Resignations***

On August 13, 2002, Joel Black resigned his positionas a member of the Company’s Board of Directors and as a provisional member ofthe Company’s Executive/Audit Committee.

 

On September 6, 2002, Everett Sparks resigned hisposition as a member of the Company’s Board of Directors and as a provisionalmember of the Company’s Executive/Audit Committee.

 

 

***Evaluation of Company Expenditures andInternal Accounting Controls***.

On August 30, 2002, the Company received a letter fromits outside auditors, Vasquez and Company, LLP (“Vasquez”), requesting theCompany’s assistance in performing special audit of the Company’s Expendituresand Internal Accounting Controls (the “Audit”).  The Audit was requested in order for Vasquez to address andevaluate certain assertions contained in the resignation letter of one of theCompany’s former Board of Director members *(for a more complete description of this matter seethe Company’s Form 8-K filed for June of 2002).*  The Company iscurrently working with Vasquez to schedule the Audit, and intends to completesaid Audit in conjunction with its annual audit of the year ending December 31,2002. The Company believes that the findings of this audit will show that theassertions included in this letter have no merit.

 

***Executive/Audit Committee***.

As of September 30, 2002, the Company’sExecutive/Audit Committee had no standing members.  To resolve this situation, the Company is in the process ofrecruiting qualified independent candidates to fill all vacant Executive/AuditCommittee positions.  However, in theinterim period, the Company’s Board of Directors shall perform Executive/AuditCommittee functions.  The Company’s Directorsare as follows: Wade B. Cook, Laura M. Cook, Robert T. Hondel, Robin Anderson,Craig McKenzie and Toby Mathis.

 

25

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***Sale of Building***

On June 17, 2002, the Company entered into a tentativePurchase and Sale Agreement (the “Agreement”) to sell the Company’s corporateheadquarters.  The purchase price of thecorporate headquarters under the Agreement is $5,652,000.  The Agreement will become binding 90 daysfrom June 17, 2002 in the event certain due diligence conditions are met underthe buildings “Inspection Contingency” provision.  The majority of the purchase price will be used to satisfymortgages on the corporate headquarters. The Company expects to receive sale proceeds of approximately $650,000.  Some or all of these proceeds may be used tosatisfy existing Company obligations. The Agreement will be attached as an exhibit to the Company’s periodicfilings pending successful resolution of the “Inspection Contingency”.  The sale, as of the date of this filing, isin progress and is expected to be finalized in the near future. In the eventthat the sale of the Company’s corporate headquarters is finalized, the Companyis entitled to, and intends to, lease back a portion of the corporateheadquarters from the purchaser.

 

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**Item6.    Exhibits and Reports on Form 8-K****.**

 

**(a)           Exhibits**

 
| **Exhibit No.** |   | **Description**                                                                                                                                                                                                    |
|-----------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1(5)          |   | Stock Purchase Agreement dated  June 30, 1998, by and among the Company, Entity Planners, Inc., and Berry,  Childers & Associates, L.L.C.                                                                      |
| 2.2(5)          |   | Amendment to Stock Purchase  Agreement dated September 30, 1998 by and among the Company, Entity Planners  Inc. and Berry, Childers & Associates, L.L.C.                                                       |
| 2.3(1)          |   | Purchase and Sale Agreement,  dated July 4, 1996, between United Support Association and Seller                                                                                                                    |
| 2.4(1)          |   | 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                                                  |
| 2.5(2)          |   | Share Exchange Agreement,  dated January 1, 1998, between Wade Cook Financial Corporation and  Information Quest, Inc.                                                                                             |
| 2.6(2)          |   | Stock Purchase Agreement,  dated August 8, 1997, between Profit Financial Corporation and Curtis A.  Taylor and Stanley J. Zenk regarding Worldwide Acquisition.                                                   |
| 2.7(2)          |   | 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. |
| 2.8(2)          |   | Share Exchange Agreement,  dated August 15, 1997, between Profit Financial Corporation and Gold Leaf  Press, Inc.                                                                                                  |
| 2.9(2)          |   | Share Exchange Agreement,  dated August 15, 1997, between Profit Financial Corporation and Origin Book  Sales, Inc.                                                                                                |
| 2.10(3)         |   | Assignment and Assumption of  Interest, Consent Agreement, Memorandum of Terms re: Airport Hotel Partners,  L.L.C.                                                                                                 |
| 2.11(3)         |   | Limited Liability Company  Interest Purchase Agreement re: Woods Cross Hotel Partners, L.C. dated  November 29, 1997.                                                                                              |
| 2.12(3)         |   | Limited Liability Company  Interest Purchase Agreement with exhibits re: Park City Hotel Partners, L.C.  dated February 4, 1997                                                                                    |
| 2.13(3)         |   | Memorandum of Terms,  Assignment and Assumption of Interest, Warranty Deed re: Airport Lodging  Associates, L.L.C.                                                                                                 |
| 2.14(4)         |   | Share Exchange Agreement,  dated January 1, 1998, between WCFC & Quantum Marketing, Inc.                                                                                                                       |
| 2.15(4)         |   | Stock Assignment Agreement  dated January 1, 1998, between WCFC & Glendon H. Sypher                                                                                                                            |
| 3.1(2)          |   | Articles of Incorporation of  Wade Cook Financial Corporation                                                                                                                                                      |
| 3.2(2)          |   | Bylaws of Wade Cook Financial  Corporation                                                                                                                                                                         |
| 4.1(2)          |   | Form of Wade Cook Financial  Corporation’s Common Stock Certificate                                                                                                                                           |
| *10.1(2)        |   | 1997 Stock Incentive Plan of  Wade Cook Financial Corporation                                                                                                                                                      |
| 10.2(2)         |   | Form of Indemnification  Agreement of Wade Cook Financial Corporation                                                                                                                                              |
| 10.3(1)         |   | 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                                                                     |
| 10.4(1)         |   | Agreement dated February 1,  1996, between Wade B. Cook and Lighthouse Publishing Group, Inc.                                                                                                                      |

 

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| 10.5(1)   |   | Amended Agreement, dated June  26, 1997, between Wade B. Cook and Lighthouse Publishing Group, Inc.                                                                                   |
|-----------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.6(1)   |   | Agreement dated January 1,  1997, between Wade B. Cook and Lighthouse Publishing Group, Inc.                                                                                          |
| 10.7(1)   |   | Amended Agreement dated June  26, 1997, between Wade B. Cook and Lighthouse Publishing Group, Inc.                                                                                    |
| 10.8(1)   |   | Agreement dated March 1, 1997,  between Wade B. Cook and Lighthouse Publishing Group, Inc.                                                                                            |
| 10.9(1)   |   | Agreement dated May 1, 1997,  between Wade B. Cook and Lighthouse Publishing Group, Inc.                                                                                              |
| *10.10(1) |   | Employment Agreement dated  June 26, 1997, by and between Wade Cook Seminars, Inc., and Wade B. Cook                                                                                  |
| 10.11(1)  |   | Commercial Lease dated June  25, 1997, by and between Wade Cook Seminars, Inc. and U.S.A. Corporate  Services, Inc.                                                                   |
| 10.12(1)  |   | Agreement dated November 1,  1996, between Wade B. Cook and Lighthouse Publishing Group, Inc.                                                                                         |
| 10.13(1)  |   | Secured Loan Agreement and  Promissory Note (Secured) between U.S.A., Wade Cook Seminars, Inc. and  Newstart Centre, Inc.                                                             |
| 10.14(2)  |   | Open-Ended Product Agreement,  dated March 20, 1998, between Wade Cook Financial Corporation and Wade B.  Cook                                                                        |
| 10.15(3)  |   | Product Agreement, dated March  23, 1998, between Planet Cash, Inc., Steven Allyn Wirrick and Wade Cook  Financial Corporation                                                        |
| 10.16(3)  |   | Stock Assignment Agreement,  dated January 1, 1998, between Get Ahead Bookstores, Inc., Glendon H. Sypher  and Wade Cook Financial Corporation                                        |
| 10.17(2)  |   | Product Agreement, dated March  23, 1998, between Wade Cook Financial Corporation, Information Quest, Inc.  and Thomas Cloward                                                        |
| 10.18(2)  |   | Share Exchange Agreement,  dated September 12, 1997, between Profit Financial Corporation and Applied  Voice Recognition, Inc.                                                        |
| 10.19(2)  |   | Publishing Agreement,  effective October 1, 1997 and signed January 12, 1998, between Lighthouse  Publishing Group, Inc. and Wade B. Cook                                             |
| 10.20(2)  |   | 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.   |
| 10.21(2)  |   | 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.      |
| 10.22(2)  |   | 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.      |
| 10.23(2)  |   | 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.     |
| 10.24(2)  |   | 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.      |
| 10.25(2)  |   | 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. |

 

28

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| 10.26(2)   |   | 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. |
|------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.27(3)   |   | 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.    |
| 10.28(2)   |   | Secured Promissory Note, dated  July 31, 1997, between Wade Cook Seminars, Inc. and Robert and Meda Hondel                                                                            |
| 10.29(3)   |   | Secured Promissory Note, dated  June 18, 1997, between Paul and Laurie Cook and Wade Cook Seminars, Inc.                                                                              |
| 10.30(3)   |   | Secured Promissory Note, dated  January 1, 1998, between Paul and Laurie Cook and Wade Cook Seminars, Inc.                                                                            |
| 10.31(3)   |   | Warranty Deed, Articles of  Organization re: Red Rock Lodging Associates                                                                                                              |
| 10.32(4)   |   | Contract for Sale of Real  Estate dated January 20, 1998 by and between Ideal Travel Concepts, Inc.  and/or assigns and Kenneth B. Lenoir                                             |
| 10.33(5)   |   | Exclusive Product License  Agreement dated June 30, 1998 by and between Wade B. Cook, and Entity Planners,  Inc.                                                                      |
| 10.34(5)   |   | Exclusive Product License  Agreement dated June 30, 1998 by and between Wade Cook Financial Corporation,  and Entity Planners, Inc.                                                   |
| 10.35(5)   |   | Open Ended Product Agreement  between the Company and Wade Cook dated March 20, 1998                                                                                                  |
| 10.36(5)   |   | Amendment to the Open Ended  Product Agreement dated November 13, 1998 by and between the Company and Wade  Cook                                                                      |
| 10.37(6)   |   | Assignment and Assumption of  Interest dated August 22, 1996 by and between Zion’s Management and  Development Co., Airport Lodging Associates L.C. and Wade Cook Seminars, Inc. |
| 10.38(6)   |   | Real Estate Purchase Contract  dated August 22, 1997 (St. George Hilton)                                                                                                              |
| 10.39(6)   |   | Addendum No. 1/Counteroffer to  Real Estate Purchase Contract dated August 1997 (St. George Hilton                                                                                    |
| 10.40(6)   |   | Real Estate Lease dated July  16, 1998 between Origin Book Sales, Inc. and California Avenue Associates,  LLC.                                                                        |
| 10.41(6)   |   | Form of Speaker Agreement                                                                                                                                                             |
| 10.42(6)   |   | Agreement dated December 11,  1998 between THH Ventures L.C. and the Company                                                                                                          |
| 10.43(7)   |   | Assignment Agreement dated  December 15, 1999 by and between Wade Cook Financial Corporation and Never  Ending Wealth, L.P.                                                           |
| 10.44(7)   |   | Purchase and Sale Agreement  for Hotel Properties dated December 1999 by and between Bountiful Investment  Group, Inc. and Eagle Rock Finance, L.C.                                   |
| 10.45(7)   |   | Promissory Note dated December  20, 2000 made by Stock Market Institute of Learning, Inc. in favor of Sun  Life Assurance Company of Canada                                           |
| 10.46(7)   |   | Promissory Note dated June  1999 made by Quantum Marketing, Inc. in favor of Habib American Bank                                                                                      |
| 10.47(8)   |   | Promissory Note in favor of  Never Ending Wealth, L.P. dated September 30, 2000                                                                                                       |
| *10.48(10) |   | Employment Agreement dated  June 30, 2000 Wade B. Cook, individual and Wade Cook Financial Corporation                                                                                |

 

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| *10.49(10) |   | Employment Agreement dated  November 11, 2000 Wade B. Cook president of Wade Cook Financial Corporation  and Cynthia C. Britten CPA                                                                                                                                                                                                                                                                                                                                                                         |
|------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.50(10)  |   | Sublease dated September 2000  between Papercraft, LLC, a Delaware limited liability company (“Subleasor”),  and Wade Cook Financial Corporation (WCFC) d.b.a. Quantum Marketing, Inc                                                                                                                                                                                                                                                                                                             |
| 10.51(10)  |   | Amendment to Open-ended  Product Agreement dated March 15, 2000 between Wade Cook Financial  Corporation and Wade B. Cook                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.52(11)  |   | Promissory Note in favor of  Centrum Financial Services, Inc. dated May 30, 2001                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.53(12)  |   | Promissory Note in favor of  Centrum Financial Services, Inc. dated August 10, 2001                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.54(12)  |   | Promissory Note in favor of  Seattle Funding Group Ltd. Dated July 26, 2001                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.55(12)  |   | Promissory Note in favor of  Bismarck Mortgage Company, LLC dated September 28, 2001                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.56(12)  |   | Meeting and Retail Sale  Distribution Agreement dated November 9, 2001 between Wade Cook Financial  Corporation and First Scientific, Incorporated                                                                                                                                                                                                                                                                                                                                                          |
| 10.57(12)  |   | Licensing Agreement dated  September 2001 between Stock Market Institute of Learning, Inc. and  B4Utrade.com                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.58(12)  |   | Amendment to Open-Ended  Product Agreement dated June 30, 2001 between Wade Cook Financial Corporation  and Wade B. Cook                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.59(13)  |   | Promissory Note in favor of  Centrum Financial Services, Inc. dated January 30, 2002                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 16.1(9)    |   | Letter re: Change in  Certifying Accountant                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 99.1(8)    |   | Voluntary Consent Decree  between the Federal Trade Commission, as plaintiff, and Company, as  defendant, with the U.S. District Court, Western District of Washington on  October 13, 2000 (Confidential treatment has been granted as to certain  portions of this exhibit.  Omitted  promotions have been filed separately with the Securities and Exchange Commission.  Consent Decree serves as a ‘form of”  document for similar orders filed with respect to fourteen state AGs. |
| 99.2 **    |   | Private Securities Act of 1995  — Safe Harbor For Forward Looking Statements                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 99.3 **    |   | Pursuant to 18 U.S.C. section  1350, certification Chief Executive and Chief Financial Officers pursuant to  the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                 |

 

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*       Thisdocument has been identified as a management contract or compensatory plan orarrangement.

**    Filed as anexhibit to the Company’s Form 10-Q filed with the SEC in August 2002.

 

(1)    Previouslyfiled as an exhibit to the Company’s registration statement on Form 10 filedwith the SEC on April 30, 1997, as amended on June 29, 1997 and September 24,1997

(2)    Previouslyfiled as an exhibit to the Company’s Form 10-K filed with the SEC on March 31,1998

(3)    Previouslyfiled as an exhibit to the Company’s Form 10-K/A filed with the SEC on July 20,1998

(4)    Previouslyfiled as an exhibit to the Company’s Form 10-Q filed with the SEC on August 8,1998

(5)    Previouslyfiled as an exhibit to the Company’s Form 10-Q filed with the SEC on November16, 1998

(6)    Previouslyfiled as an exhibit to the Company’s Form 10-K filed with the SEC on March 31,1999

(7)    Previouslyfiled as an exhibit to the Company’s Form 10-K filed with the SEC on March 31,2000

(8)    Previouslyfiled as an exhibit to the Company’s Form 10-Q filed with the SEC on November14, 2000

(9)    Previouslyfiled as an exhibit to the Company’s Form 8-K filed with the SEC on December 4,2000.

(10)  Previouslyfiled as an exhibit to the Company’s Form 10-K filed with the SEC on April 16,2001

(11)  Previouslyfiled as an exhibit to the Company’s Form 10-Q filed with the SEC on August 14,2001

(12)  Previouslyfiled as an exhibit to the Company’s Form 10-K filed with the SEC on April 26,2002

 

** **

**30**

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** **

**(b)   Reports on Form 8-K**

** **

On February 25, 2002, theCompany filed a Form 8-K with the Securities and Exchange Commission.  The Form 8-K addressed two items.  First, the Form 8-K disclosed that the Companywas postponing a 1-for-10 reverse stock split scheduled to occur on February28, 2002.  The Company did not select analternative reverse split date.  Second,the Form 8-K also addressed the Federal Trade Commission’s (“FTC”) Applicationfor a Motion for Contempt.  TheApplication alleged the Company’s non-compliance with the voluntary ConsentDecree entered into between the Company and the FTC on October 5, 2000.

 

On August 6, 2002, theCompany filed a Form 8-K with the Securities and Exchange Commission.  The Form 8-K addressed the resignations ofKen Roberts, Angela Pirtle, and Janice Leysath as members of the Company’sBoard of Directors and Executive/Audit Committee.  The Form 8-K also addressed the appointment of Craig McKenzie tothe Company’s Board of Directors.

 

 

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SIGNATURES

 

 

        Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this Form 10-Q,to be signed on its behalf by the undersigned duly authorized.

 
|              |   | WADE COOK FINANCIAL  CORPORATION                                                                                                                |
|-------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|
|              |   |                                                                                                                                            |
| November 29, 2002 |   | /s/  Wade Cook                                                                                                                             |
|              |   | Wade B. Cook, Chief Executive Officer, and Chief  Accounting Officer (Principal Financial and Accounting Officer and Only  Authorized Officer). |

 

 

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CertificationCERTIFICATION PURSUANT TO18 U.S.C. §1350,AS ADOPTED PURSUANT TOSECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

 

I, Wade B. Cook, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Wade CookFinancial Corporation;

 

2. Based on my knowledge, this quarterly report does not contain anyuntrue statement of a material fact or omit to state a material fact necessaryto make the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period covered by thisquarterly report;

 

3. Based on my knowledge, the financial statements, and other financialinformation included in this quarterly report, fairly present in all materialrespects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this quarterly report;

 

4. I, as the registrant’s certifying officer, am responsible forestablishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-14 and 15d-14) for the registrant and we have**:**

 

a) designed such disclosure controls and procedures to ensure thatmaterial information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularlyduring the period in which this quarterly report is being prepared;

 

b) evaluated the effectiveness of the registrant’s disclosure controlsand procedures as of a date within 90 days prior to the filing date of thisquarterly report (the “Evaluation Date”); and

 

c) presented in this quarterly report our conclusions about theeffectiveness of the disclosure controls and procedures based on our evaluationas of the Evaluation Date;

 

5. The registrant’s other certifying officers and I have disclosed,based on our most recent evaluation, to the registrant’s auditors and the auditcommittee of registrant’s board of directors (or persons performing theequivalent function):

 

a) all significant deficiencies in the design or operation of internalcontrols which could adversely affect the registrant’s ability to record,process, summarize and report financial data and have identified for theregistrant’s auditors any material weaknesses in internal controls; and

 

b) any fraud, whether or not material, that involves management orother employees who have a significant role in the registrant’s internalcontrols; and

 

6. I have indicated in this quarterly report whether or not there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

Date: November 29, 2002

 

/s/    Wade Cook

Wade B.Cook

Chief Executive Officer and Chief Financial Officer

 

 

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