**UNITEDSTATES**

**SECURITIESAND 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 June 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                         ** |

 

**Commissionfile number 000-29342**

 

**WADE COOK FINANCIAL CORPORATION**

(Exact name ofregistrant as specified in its charter)

 

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

 

**14675Interurban Avenue South**

**Seattle,Washington, 98168**

(Address ofprincipal executive offices) (Zip Code)

Registrant’stelephone number, including area code:  **(206) 901-3000**

 

Indicate by check markwhether the registrant (1) has filed all documents and reports required to befiled by section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes  ý No  o

 

The number of outstandingshares of the registrant’s common stock, $0.001 par value, as of June 30, 2002was 65,190,348 shares.  Reported totaloutstanding shares includes a downward adjustment of 55,000 shares of commonstock which corrects a clerical error made with respect to the registrant’stotal outstanding shares as reported in Form 10-Q for the fiscal period endedMarch 31, 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                                 |   |
| 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.                                                          |   |

 

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**PART I****3⁄4****FINANCIAL INFORMATION**

** **

**Item 1:Financial Statements**

** **

**Wade Cook Financial Corporation and Subsidiaries**

**Condensed Consolidated Balance Sheets**

**(Unaudited)**

 
| **(in  thousands)**                                 |   | **June 30,  2002** |   | **December  31, 2001** |   |
|-----------------------------------------------------|--------|--------------------|--------|------------------------|--------|
| Assets:                                             |   |               |   |                   |   |
| Current assets:                                     |   |               |   |                   |   |
| Cash and cash  equivalents                          |   | $                  | — |                   | $      | 643 |   |
| Marketable  securities                              |   | 101                |   | 155                    |   |
| Receivable from  construction loan                  |   | 234                |   | 809                    |   |
| Receivables,  trade and credit card                 |   | 1,845              |   | 1,803                  |   |
| Inventory                                           |   | 1,240              |   | 1,510                  |   |
| Notes receivable  — employees, current portion |   | 84                 |   | 84                     |   |
| Due from related  parties                           |   | 132                |   | 119                    |   |
| Deferred tax  assets                                |   | 1,127              |   | 936                    |   |
| Income tax  refund receivable                       |   | 3,687              |   | 3,053                  |   |
| Prepaid expenses                                    |   | 86                 |   | 45                     |   |
|                                                |   |               |   |                   |   |
| Total current  assets                               |   | 8,536              |   | 9,157                  |   |
|                                                |   |               |   |                   |   |
| Property, plant  and equipment, net of depreciation |   | 6,851              |   | 7,446                  |   |
|                                                |   |               |   |                   |   |
| Goodwill, net of  amortization                      |   | 578                |   | 1,149                  |   |
|                                                |   |               |   |                   |   |
| Other assets:                                       |   |               |   |                   |   |
| Other  investments                                  |   | 5,202              |   | 4,553                  |   |
| Deposits in  other assets                           |   | 326                |   | 408                    |   |
| Notes  receivable, employees                        |   | 1,005              |   | 1,047                  |   |
|                                                |   |               |   |                   |   |
| Total other  assets                                 |   | 6,533              |   | 6,008                  |   |
|                                                |   |               |   |                   |   |
| Total assets                                        |   | $                  | 22,498 |                   | $      | 23,760 |   |

 

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|                                                                 |   | **June 30,  2002** |   | **December  31, 2001** |   |
|----------------------------------------------------------------------|--------|--------------------|--------|------------------------|--------|
| Liabilities and  shareholders’ equity:                          |   |               |   |                   |   |
| Current  liabilities:                                                |   |               |   |                   |   |
| Bank overdraft                                                       |   | $                  | 362    |                   | $      | — |   |
| Current portion  of long-term debt                                   |   | 2,765              |   | 2,625                  |   |
| Accrued expenses                                                     |   | 1,457              |   | 1,730                  |   |
| Accounts payable                                                     |   | 5,018              |   | 3,596                  |   |
| Margin loans in  investment accounts                                 |   | —             |   | 2                      |   |
| Payroll, payroll  tax and other accrued taxes                        |   | 909                |   | 214                    |   |
| Deferred revenue                                                     |   | 884                |   | 1,270                  |   |
| Payables,  related parties                                           |   | 349                |   | 317                    |   |
| Total current  liabilities                                           |   | 11,744             |   | 9,754                  |   |
| Due to related  party, long term                                     |   | 2,045              |   | 2,045                  |   |
| Long-term debt                                                       |   | 4,648              |   | 4,569                  |   |
| Deferred revenue                                                     |   | 1,413              |   | 1,083                  |   |
| Total long-term  liabilities                                         |   | 8,106              |   | 7,697                  |   |
|                                                                 |   |               |   |                   |   |
| Total  liabilities                                                   |   | 19,850             |   | 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)                             |   | (2,233             | )      | 1,469                  |   |
|                                                                 |   | 2,615              |   | 6,268                  |   |
|                                                                 |   |               |   |                   |   |
| Less: common  stock in treasury at cost:                             |   | (640               | )      | (627                   | )      |
|                                                                 |   |               |   |                   |   |
| Total  shareholders’ equity                                     |   | 1,975              |   | 5,641                  |   |
| Total  liabilities, minority interest, and stockholders’ Equity |   | $                  | 22,498 |                   | $      | 23,760 |   |

 

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**Wade Cook FinancialCorporation and Subsidiaries**

**Condensed ConsolidatedStatements of Operations**

**(Unaudited)**

 
|                                                  |   | **For the Three Months Ended** |   | **For the Six Months Ended** |   |
|-------------------------------------------------------|--------|--------------------------------|--------|------------------------------|--------|
| **(in thousands, except per share data)**             |   | **June 30, 2002**              |   | **June 30, 2001**            |   | **June 30, 2002** |   | **June 30, 2001** |   |
| Revenue, net of returns and discounts                 |   | $                              | 4,922  |                         | $      | 10,395 |   | $ | 10,695 |   | $ | 22,672 |   |
|                                                  |   |                           |   |                         |   |   |   |   |   |
| Costs and expenses:                                   |   |                           |   |                         |   |   |   |   |   |
| Cost of revenue                                       |   | 2,243                          |   | 3,780                        |   | 4,192 |   | 8,688 |   |
| Selling, general and administrative                   |   | 5,255                          |   | 6,859                        |   | 10,129 |   | 14,570 |   |
| Total operating costs                                 |   | 7,498                          |   | 10,639                       |   | 14,321 |   | 23,258 |   |
|                                                  |   |                           |   |                         |   |   |   |   |   |
| Loss from operations                                  |   | (2,576                         | )      | (244                         | )      | (3,626 | ) | (586 | ) |
|                                                  |   |                           |   |                         |   |   |   |   |   |
| Other income (expense):                               |   |                           |   |                         |   |   |   |   |   |
| Interest and dividends                                |   | 33                             |   | 57                           |   | 67 |   | 119 |   |
| Loss on trading securities                            |   | (152                           | )      | (181                         | )      | (175 | ) | (860 | ) |
| Interest expense                                      |   | (277                           | )      | (127                         | )      | (457 | ) | (236 | ) |
| Loss on disposition of assets(s)                      |   | —                         |   | (190                         | )      | (46 | ) | (190 | ) |
| Other income                                          |   | 117                            |   | 479                          |   | 312 |   | 1,180 |   |
| Goodwill impairment                                   |   | (552                           | )      | —                       |   | (552 | ) | — |   |
| Total other income (expenses)                         |   | (831                           | )      | 38                           |   | (851 | ) | 13 |   |
|                                                  |   |                           |   |                         |   |   |   |   |   |
| Loss before income taxes                              |   | (3,407                         | )      | (206                         | )      | (4,477 | ) | (573 | ) |
| Tax benefit                                           |   | (626                           | )      | (79                          | )      | (810 | ) | (226 | ) |
| Minority interest                                     |   | —                         |   | 3                            |   | 5 |   | 7 |   |
|                                                  |   |                           |   |                         |   |   |   |   |   |
| Loss from continuing operations                       |   | $                              | (2,781 | )                            | $      | (130 | ) | $ | (3,672 | ) | $ | (354 | ) |
|                                                  |   |                           |   |                         |   |   |   |   |   |
| Extraordinary loss (net of income tax benefit of $15) |   | —                         |   | —                       |   | (29 | ) | — |   |
|                                                  |   |                           |   |                         |   |   |   |   |   |
| Net loss                                              |   | $                              | (2,781 | )                            | $      | (130 | ) | $ | (3,701 | ) | $ | (354 | ) |
|                                                  |   |                           |   |                         |   |   |   |   |   |
| Earnings per share:                                   |   |                           |   |                         |   |   |   |   |   |
| Net loss                                              |   | $                              | (0.04  | )                            | $      | — |   | $ | (0.06 | ) | $ | (0.01 | ) |
|                                                  |   |                           |   |                         |   |   |   |   |   |
| Weighted average number of shares                     |   | 64,615                         |   | 64,064                       |   | 64,615 |   | 64,064 |   |

 

5

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**Wade Cook Financial Corporation and Subsidiaries**

**CondensedConsolidated Statements of Cash Flow**

**(Unaudited)**

 
|                                             |   | **Six Months  Ended** |   |
|--------------------------------------------------|--------|-----------------------|--------|
| **(in  thousands)**                              |   | **June 30,  2002**    |   | **June 30,  2001** |   |
| Cash used  operations                            |   | $                     | (813   | ) | $ | (1,726 | ) |
|                                             |   |                  |   |   |   |
| Cash provided by  (used in) investing activities |   | (641                  | )      | 663 |   |
|                                             |   |                  |   |   |   |
| Cash provided by  financing activities:          |   |                  |   |   |   |
| Net borrowings                                   |   | 811                   |   | 526 |   |
|                                             |   |                  |   |   |   |
| Net decrease in  cash                            |   | $                     | (643   | ) | $ | (537 | ) |

 

**Wad****e Cook Financial Corporation and Subsidiaries**

**Notes to Interim Financial Statements**

**June 30, 2002**

 

 

**1.****             ****Basis for 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 six-month periodended June 30, 2002 are not necessarily indicative of the results that may beexpected 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.****             ****Earnings per 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.****             **The changes in the carrying amount ofgoodwill for the six months ended June 30, 2002 are as follows (in thousands):

 
| Balance as of  January 1, 2002          |   | $   | 1,130  |   |
|-----------------------------------------|--------|-----|--------|--------|
| Cumulative  effect of accounting change |   | 552 |   |
| Balance as of  June 30, 2002            |   | 578 |   |

 

**The Company performed atransitional impairment test of its goodwill as of June 30, 2002. Due to, amongother things, the overall softening of the travel market and the relateddecline in seminar segment, the Company recorded a goodwill transitionalimpairment loss of $552 thousand, which was recorded during the second quarteras a cumulative 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 six months ended June 30, 2001, the Company would not have recordedgoodwill amortization expense of $13 thousand and $27 thousand, respectively.The following summarizes net loss adjusted to exclude goodwill amortizationexpense, and the related tax effect, that is no longer subject to amortization(in thousands, except per share amounts):

 
|                                   |   | **Three  Months  Ended June 30,** |   | **Six Months  Ended June 30,** |   |
|----------------------------------------|--------|-----------------------------------|--------|--------------------------------|--------|
|                                   |   | **2002**                          |   | **2001**                       |   | **2002** |   | **2001** |   |
| Reported net  loss                     |   | $                                 | 2,781  |                           | $      | 130 |   | $ | 3,672 |   | $ | 354 |   |
| Goodwill amortization,  net of tax     |   | —                            |   | 8                              |   | — |   | 16 |   |
| Adjusted net  loss                     |   | $                                 | 2,781  |                           | $      | 122 |   | $ | 3,672 |   | $ | 338 |   |
|                                   |   |                              |   |                           |   |   |   |   |   |
| Earnings per  share — as reported |   | $                                 | (.04   | )                              | $      | — |   | $ | (.06 | ) | $ | (.01 | ) |
| Earnings per  share — adjusted    |   | $                                 | (.04   | )                              | $      | — |   | $ | (.06 | ) | $ | (.01 | ) |

 

**4.****             ****Licensing Arrangement**

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 second fiscal quarter of 2002, the Company had received  $298,000 in marketing fees from ALG.  Proceeds from ALG are accounted for underthe “Other 

 

6

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income”classification under “Other Income and Expense” on the Company’s ConsolidatedStatements 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 legal proceedingsand claims that would have a material adverse effect on its financial conditionor results of operations, it 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.

 

**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 ofselling travel 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 second 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.

 

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Information on the Company’s business segments for the threemonths ended June 30,

 
| **(in thousands)**                 |   | **2002** |   | **2001** |   |
|------------------------------------|--------|----------|--------|----------|--------|
| Net revenues and sales             |   |     |   |     |   |
| Seminars                           |   | $        | 4,066  |     | $      | 8,383 |   |
| Product sales                      |   | 507      |   | 1,442    |   |
| Pager/informational alert services |   | 134      |   | 292      |   |
| Travel service                     |   | 183      |   | 333      |   |
| Other                              |   | 33       |   | 487      |   |
| Less: inter-company sales          |   | (1       | )      | (542     | )      |
|                               |   | $        | 4,922  |     | $      | 10,395 |   |
|                               |   |     |   |     |   |
| Cost of sales                      |   |     |   |     |   |
| Seminars                           |   | $        | 1,915  |     | $      | 2,745 |   |
| Product sales                      |   | 261      |   | 501      |   |
| Pager/informational alert services |   | 67       |   | 92       |   |
| Travel service                     |   | —   |   | 2        |   |
| Other                              |   | —   |   | 517      |   |
| Less: inter-company sales          |   | —   |   | (77      | )      |
|                               |   | $        | 2,243  |     | $      | 3,780 |   |
|                               |   |     |   |     |   |
| Operating income                   |   |     |   |     |   |
| Seminars                           |   | $        | (2,171 | )        | $      | (337 | ) |
| Product sales                      |   | (350     | )      | 24       |   |
| Pager/informational alert services |   | (21      | )      | 199      |   |
| Travel service                     |   | (35      | )      | (55      | )      |
| Other                              |   | 1        |   | (64      | )      |
| Less: inter-company sales          |   | —   |   | (11      | )      |
|                               |   | $        | (2,576 | )        | $      | (244 | ) |

 

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Information on the Company’s business segments for the six monthsended June 30,

 
| **(in thousands)**                 |   | **2002** |   | **2001** | ** ** |
|------------------------------------|--------|----------|--------|----------|------------|
| Net revenues and sales             |   |     |   |     |       |
| Seminars                           |   | $        | 8,826  |     | $          | 18,409 |   |
| Product sales                      |   | 1,122    |   | 2,965    |       |
| Pager/informational alert services |   | 298      |   | 631      |       |
| Travel service                     |   | 423      |   | 762      |       |
| Other                              |   | 33       |   | 1,368    |       |
| Less: inter-company sales          |   | (7       | )      | (1,463   | )          |
|                               |   | $        | 10,695 |     | $          | 22,672 |   |
|                               |   |     |   |     |       |
| Cost of sales                      |   |     |   |     |       |
| Seminars                           |   | $        | 3,522  |     | $          | 6,224 |   |
| Product sales                      |   | 560      |   | 1,260    |       |
| Pager/informational alert services |   | 110      |   | 145      |       |
| Travel service                     |   | —   |   | 2        |       |
| Other                              |   | —   |   | 1,159    |       |
| Less: inter-company sales          |   | —   |   | (102     | )          |
|                               |   | $        | 4,192  |     | $          | 8,688 |   |
|                               |   |     |   |     |       |
| Operating income                   |   |     |   |     |       |
| Seminars                           |   | $        | (2,835 | )        | $          | (848 | ) |
| Product sales                      |   | (586     | )      | (293     | )          |
| Pager/informational alert services |   | 8        |   | 421      |       |
| Travel service                     |   | (70      | )      | 45       |       |
| Other                              |   | (143     | )      | 115      |       |
| Less: inter-company sales          |   | —   |   | (26      | )          |
|                               |   | $        | (3,626 | )        | $          | (586 | ) |

 

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| **(in thousands)**                 |   | **June 30, 2002** |   | **December 31, 2001** | ** ** |
|------------------------------------|--------|-------------------|--------|-----------------------|------------|
| Net Identifiable assets            |   |              |   |                  |       |
| Seminars                           |   | $                 | — |                  | $          | — |   |
| Product sales                      |   | 270               |   | 508                   |       |
| Pager/informational alert services |   | 1,232             |   | 1,232                 |       |
| Travel service                     |   | 83                |   | 71                    |       |
| Other                              |   | 50                |   | 50                    |       |
| Segmented assets                   |   | 1,635             |   | 1,861                 |       |
| Corporate assets                   |   | 12,922            |   | 12,922                |       |
| Total identifiable assets          |   | $                 | 14,557 |                  | $          | 14,783 |   |
|                               |   |              |   |                  |       |   |   |
| Accumulated Depreciation           |   |              |   |                  |       |
| Seminars                           |   | $                 | — |                  | $          | — |   |
| Product sales                      |   | 252               |   | 431                   |       |
| Pager/informational alert services |   | 968               |   | 845                   |       |
| Travel service                     |   | 62                |   | 59                    |       |
| Other                              |   | 26                |   | 19                    |       |
| Segmented assets depreciation      |   | 1,308             |   | 1,354                 |       |
| Corporate assets depreciation      |   | 6,398             |   | 5,983                 |       |
| Total accumulated depreciation     |   | $                 | 7,706  |                  | $          | 7,337 |   |
| Net identifiable  assets           |   | $                 | 6,851  |                  | $          | 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 the Company’ssales, legal, accounting, support, and administrative departments.

** **

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 morecomplete description of this litigation see “ Legal Proceedings” of  the Form 10-K for the fiscal period endedMarch 31, 2002 and other previously filed reports)*.

 

**8.     Going Concern.**

Theaccompanying financial statements have been prepared in conformity withgenerally accepted 

 

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accountingprinciples, which contemplates continuation of the Company as a goingconcern.  However, the Company hassustained significant operating losses for the years ended December 31, 2001,2000, and 1999.  In addition, theCompany has used substantial amounts of working capital in its operations.  Furthermore, at December 31, 2001, 2000, and1999, current liabilities exceeded current assets by $215,000, $1.3 million,and $2.7 million respectively.  Also atJune 30, 2002, the Company entered a retained earnings deficit.  In view of these matters, realization of amajor portion of assets in the accompanying balance sheets is dependant uponcontinued operations of the Company, which in turn is dependant upon theCompany’s ability to meet its working capital requirements, and the success ofits future operations.  Management hastaken steps to reduce costs, and promote profitability and liquidity in pastfiscal periods, and contemplates similar steps in future fiscal periods.  By closing many the Company’s unprofitableEducation and Distribution Centers, the Company been able to redirectsignificant attention and focus on its core business of conducting educationinvestment seminars.  In addition, thereduction of total employee work-force and management’s continued monitoring ofvariable costs has had some effect on general efficiency and a decrease inselling, general, and administrative expenses. While management 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.

 

**Item 2: Management’s Discussion andAnalysis of Financial Condition and Results of Operations**

 

**Note Regarding Forward LookingInformation**

 

This reportcontains forward-looking statements within the meaning of Section 21E of theSecurities Exchange 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, estimates andprojections 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 the Company.  Such risks and uncertainties include, butare not limited to, the Company’s working capital deficiency and liquidityconstraints, the effects of the Company’s technical noncompliance with Form10-K filed in the year ending December 31, 2000, the effect that volatility inthe stock market may have on the interest of customers in the Company’sseminars, products and services and on the Company’s own investments, the levelof resources that may be required by the Company’s consumer redress program,the Company’s continuing compliance with state and federal agreements, theCompany’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, potential future deferment of accrued payroll obligations, recentdirector resignations,****and other risks and uncertaintiesdiscussed herein and those detailed in the Company’s other Securities andExchange Commission (the “SEC”) filings. Investors are cautioned not to place undue reliance on forward-lookingstatements, which reflect management’s analysis, estimates and opinions as ofthe date hereof.  The Company undertakesno obligation to update forward-looking statements if circumstances, ormanagement’s analysis, estimates or opinions should change.  For the convenience of the reader, theCompany has attempted to identify forward-looking statements contained in thisreport with an asterisk (*).  However,the omission of an asterisk should not be presumed to mean that a statement isnot a forward-looking statement 

 

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within the meaning of Section 27Aof 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 strategies taught inthe Company’s seminars and publications.

 

Two of theCompany’s operating subsidiaries, Left Coast Advertising, Inc., and LighthousePublishing Group, Inc., conduct advertising and publishing servicesrespectively.  During the first sixmonths of 2002, the Company did not rely on Left Cost Advertising, Inc., butrather relied on outside third party vendors to fulfill the Company’s marketingneeds.

 

                In August 1997, the Company was assigned allinterests and rights in Worldwide Publishers, Inc. (“Worldwide”), a publisherof inspirational and childrens’ books, Origin Book Sales, Inc. (“Origin”), aseller of books, audio cassettes, art and software and the exclusive distributorfor Worldwide (“Worldwide”); Gold Leaf Press, Inc. (“Gold Leaf”), a publisherof fiction and non-fiction books; and Ideal Travel Concepts, Inc. (“Ideal”), aprovider 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.

 

                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 for a deemed purchase price of $189,000.  The Company discontinued the operations of Originand Quantum in the fiscal year ended 2001 *(for a more complete description of these events see“Item 1. Business” of the Company’s Form 10-K for the year ended 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 stockfor a deemed 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 ofalternative new user friendly data-base applications.   Aradyme’s alternative database technology seeks to allow usersto modify database parameters without deconstructing and re-constructing theunderlying database information involved.

 

The Company holdsadditional investments in oil and gas properties, private and public companies,real estate, and a minority interest in a hotels (f*or a more complete description of theseinvestments see “Item 1. Business — Investments”  in the Company’s Form 10-K for the fiscal  period ended December 31, 2001).*

 

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**Liquidity and Capital Resources**

 

At June 30, 2002, the Company had current assets andcurrent liabilities in the amounts of $8.5 million and $11.7 million,respectively, resulting in a working capital deficit of $3.2 million.  The working capital deficit at December 31,2001 was $600,000.  The increase in theworking capital deficit in the first six months of 2002 is primarily the resultof a significant increase in accounts payable, and the occurrence of a bankoverdraft *(fora more complete description of changes in the Company’s assets and liabilitiessee below).*

 

The Company’s currentassets decreased by $700,000 from $9.2 million at December 31, 2001 to $8.5million at June 30, 2002.  This decreasein current assets is primarily the result of decreases in the Company’s cashand cash equivalents, inventory, and continued consumption of its constructionloan receivable.  These decreases werepartially offset by increases in the Company’s deferred tax assets and itsincome tax refund receivable.

 

The Company’s cash andcash equivalents decreased by $600,000 from $600,000 at December 31, 2002 to $0at June 30, 2002.  This decrease aroseprimarily out of Company spending and resulted in a bank overdraft.  The bank overdraft has been accounted for inthe Company’s financial statements under current liabilities.

 

The market value of theCompany’s marketable securities was $100,000 at June 30, 2002 and did not showa significant change from December 31, 2001.

 

The receivable fromconstruction loan decreased by $600,000 from $800,000 at December 31, 2002 to$200,000 at June 30, 2002.  Thisdecrease is primarily attributable to use of construction loan proceeds infurtherance of progress and development of a Company residential home project.The receivable from construction loan consists of proceeds available to theCompany under a course of construction loan *(for a more complete description of this course ofconstruction loan see “Item 7 Management’s Discussion and Analysis of FinancialCondition — Liquidity and Capital Resources” in the Company’s Form 10-K for thefiscal period ended December 31, 2001).*

 

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

 

 Inventory decreased by $300,000 from $1.5million at December 31, 2001 to $1.2 million as of June 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 June 30, 2002 the Company had current receivablesfrom related parties in the amount of $100,000 consisting primarily of loans toemployees secured by real property.

 

The Company’s accrueddeferred tax assets increased by $200,000 from $900,000 at December 31, 2001 to$1.1 million at June 30, 2002.  Theincrease in deferred tax assets principally reflects the tax benefits relatedto timing and deductions and the write-down of goodwill relating to theCompany’s travel segment *(for a more complete description of this write-off ofgoodwill see below).*  TheCompany’s income tax refund receivable increased by $600,000 from $3.1 millionat December 31, 2001 to $3.7 million at June 30, 2002.  The increase in the income tax refund receivableis primarily attributable to operating losses during 2002.  The Company’s income tax refund receivableprincipally consists primarily of a $2.5 million tax refund filed by theCompany for the fiscal year ended December 31, 2001, and the tax benefit fromoperating losses during the first six months of 2002*.*

 

Property, plant and equipment net of depreciationchanged from $7.4 million at December 31, 

 

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2001 to $6.9 million at June 30, 2002.

 

Goodwill decreased by $500,000 from $1.1 million atDecember 31, 2001 to $600,000 at June 30, 2002 due primarily to the write-downof 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 operatingresults are accounted for under the Company’s Travel segment.  The Company determined that in light ofIdeal’s recent operating results and its estimated future cash flows thatgoodwill acquired in the purchase of Ideal had been impaired and should bewritten-down.

 

                Currentliabilities increased by $1.9 million from $9.8 million at December 31, 2001 to$11.7 million at June 30, 2002.  Thisincrease in current liabilities is primarily attributable a bank overdraft;payroll, payroll tax and other accrued taxes; increases in accounts payable;and increases in the current portion of long-term debt.

 

At June 30, 2002 the Company had a bank-overdraft inthe amount of $400,000.  This bankover-draft is primarily attributable to the effect of spending that resulted inissued checks being returned non-sufficient funds.   The Company is evaluating alternative solutions to resolve thissituation.

 

The current portion of long-term debt increased by$200,000 from $2.6 million at December 31, 2001 to $2.8 million at June 30,2002.  The current portion of long-termdebt consists principally of those portions of Company loans that come duewithin 12 *months(for a more complete description of the Company’s loans see “Item 7Management’s Discussion and Analysis of Financial Condition — Liquidity andCapital Resources” in the Company’s Form 10-K for the fiscal period endedDecember 31, 2001 and the Notes to the Financial Statements)*.  Accounts payable was $5.0 million at June30, 2002 compared with $3.6 million at December 31, 2001.  The Company attributes the increase inaccounts payable primarily to liquidity constraints that have lead to delays inthe satisfaction of certain new and existing accounts payable.  The Company had accrued expenses of $1.5million at June 30, 2002 compared with $1.7 million at December 31, 2001.  Accrued expenses consist primarily of accrualsfor refund payments due under the Company’s consumer redress program.  The decrease of $200,000 in accrued expensesis primarily attributable to the payment of these refunds under the Company’sconsumer redress program during the first quarter of 2002.

 

Payroll, payroll tax and other accrued taxes increasedby $700,000 from $200,000 at December 31, 2001 to $900,000 at June 30,2002.  This increase is primarily due tothe Company’s delayed payment of accrued payroll taxes.  All second quarter payroll taxes weresatisfied.

 

Short-term deferred revenue decreased by $400,000 from$1.3 million at December 31, 2001 to $900,000 at June 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 operatingsegments *(fora more complete description of the decrease in Revenue see “Item 2.Management’s Discussion of Financial Condition -  Results of Operations” in this Report).*

 

At June 30, 2002 the Company had payables to relatedparties in the amount $300,000, which primarily represent royalties owed to Mr.Wade B. Cook.

 

Other Investmentsincreased by $600,000 from $4.6 million at December 31, 2001 to $5.2 million atJune 30, 2002, due primarily to continued development of residential luxuryhomes on property owned by the Company * (for a morecomplete description of the Company’s residential luxury home projects see“Item 1 Business” of the Company’s Form 10-K for the fiscal period endedDecember 31, 2001).*

 

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The Company’s Other investments include the following:

 

| **Description  of Investment**               |   |               |   | **Investment  (in thousands)** |   |
|----------------------------------------------|--------|--------------------|--------|--------------------------------|--------|
|                                         |   | **June 30,  2002** |   | **December  31, 2001**         |   |
| Oil and gas  properties                      |   | $                  | 281    |                           | $      | 281 |   |
|                                         |   |               |   |                           |   |
| Hotel and motel  investments                 |   | 488                |   | 488                            |   |
|                                         |   |               |   |                           |   |
| Investments in  undeveloped land             |   | 3,332              |   | 2,684                          |   |
|                                         |   |               |   |                           |   |
| Private  companies 3⁄4 Various industries |   | 1,100              |   | 1,100                          |   |
|                                         |   |               |   |                           |   |
| Total Other  investments                     |   | $                  | 5,202  |                           | $      | 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 ofJune 30, 2002 compared with $500,000 at June 30, 2001.  The Company primarily attributes thisoverall change to increases in cash used in investing activities, andcontinuing operational losses.**

 

Cash used ininvesting activities was $600,000 at June 30, 2002, compared with cash providedby investing activities in the amount of $700,000 at June 30, 2001.   Investing activities as of June 30, 2002principally reflects cash used in the Company’s development of residentialluxury homes in Western Washington. Cash provided by investing activities at June 30, 2001 primarilyreflects the sale of a Company owned building in Tacoma, Washington.

 

Cash provided byfinancing activities was $800,000 at June 30, 2002 compared to $500,000 at June30, 2001.  Financing activities as ofJune 30, 2002 principally reflect disbursement of additional funds from theCompany’s course of construction loan, and receipt of proceeds from commercialloans secured during the first six 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 31and raw land adjacent to the corporate headquarters *(for a more complete description of Lot31 see “Item 1. Business”  of theCompany’s Form 10-K for the period ended December 31, 2001)*.  If there is a default in the payment of theLoan, or a default in any of the Note’s terms and conditions, the principal andinterest under the Note could become due immediately (upon the option of theNote holder).  Additionally, uponDefault the Note would bear interest at a rate that is the greater of 36%, or thethen existing rate of interest on the Note plus 20%, per annum.  Currently, the Company has made interestonly payments on the note and is current in these interest 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 is tobe paid off in full.  The funds arebeing used to help complete residential luxury home development projectscommenced through Brookhaven Homes, LP. On April 22, 2002, the Company executed a promissory note in favor ofBusiness Office Suite Services (“BOSS”), an entity controlled by the AndersonLaw Group.  The amount loaned was 

 

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$20,000 and bears a rate of interest of 12% per annum.  The promissory note requires the Company tomake monthly payments of $5,000 to BOSS beginning June of 2002 and ending whenthe promissory note is paid in full. Funds from this loan have been used to meet certain operationalexpenses.  On June 28, 2002, the Companyexecuted a promissory in favor of Acorn Corporate Service, Inc. (“ACORN”).  ACORN is an entity controlled by Mr. Cook’sbrother-in-law.  The amount loaned was$35,000 and bears a rate of interest of 12% per annum.  The promissory note requires the Company tomake monthly payments of $5,000 to ACORN beginning July of 2002 and ending whenthe promissory note is paid in full. Funds from 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 bank overdraft, the current deficit in cash-flow, the Company’s significantlong and short term obligations, recent earthquake damage, costs associatedwith the Company’s consumer redress program, the continuing effects of  the September 11 terrorist attack, the factthat the Company’s segments are not generating cash as in the past, and thesignificant losses in the Company’s Other Income have resulted in substantialconstraints on liquidity.  Consequently,the Company has been unable to pay many of the Company’s accounts payable,refunds, vendors, loan and mortgage obligations, and other similar obligationsin a timely manner; has had to delay certain payroll tax obligations as well asto 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 fiscal period ended December 31, 2001).*  Currently, the Company had paid all delaypayroll taxes accrued through June 30, 2002, and all loan and mortgageobligations during that same time period. Management continues to take steps toward improving the Company’s capitalresource situation, including continued reduction of certain variable costs,and the significant reduction in the 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. *(for a more complete description of these loans see“Item 7 Management’s Discussion and Analysis of Financial Condition — Liquidityand Capital Resources” of  the Company’sAnnual Report on the Form 10-K for the fiscal period ended December 31, 2001and “ Item 2.”  of  this Report).*   Failure to generate adequate cash resourcesfor working capital could require the Company to cut back operations, delay orcancel expansion and development projects, dispose of properties, businesses orinvestments on unfavorable terms, or cause the Company to be unable to meetobligations or result in the sale of certain collateralized properties.

 

                In July of 2002,the Company filed for a federal tax refund of approximately $2.4 million.   At the time of the filing of this Report,the Company had received approximately $2.3 million pursuant to this federaltax refund request.  The Company’srefund is the result of changes to the federal tax law during 2001 that allowedbusinesses to carry-back net operating losses over a period of five years.  The Company intends to use the income taxrefund to satisfy certain existing obligations, including but not limited toconsumer redress refunds, 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.

 

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*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 generallyranges from three to seven years. Goodwill was obtained through the acquisition of the Company’ssubsidiaries and it tested for impairment according to FSAS 142 “Goodwill andOther Intangible Assets” *(for a more complete description see Item 7 —Management’s Discussion and Analysis of Financial Condition in the Company’sForm 10-K for the fiscal period 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 un-discounted cash flows approach using its best estimate of future expectedun-discounted 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 an impairment exists, thenwrite-down or write-off would be recognized in amount by which the carryingvalue exceeds the present fair value.

 

Revenue Recognition Policy:

 

                The Company’s revenues aredivided into five (5) segments *(as disclosed in Note W to the Company’s Form 10-Kfor the fiscal period 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 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 sell 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 

 

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revenue on thefree access to WIN when the Company recognized revenue for the live seminar andself-study courses.  In 2001, theCompany changed its estimates of recognizing revenue for free access to WINover the period of free 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: *The Company sells IQ pager services intwelve or twenty-four month contract subscriptions, but receives the revenue inadvance, which is presented in the financial statements as deferred revenueuntil earned.  The Company has alsobegun to sell an Informational Alert Service called Daily IQ.  Subscriptions to Daily IQ are offered in thesame manner as subscriptions to the IQ Pager. The deferred revenues for the IQ Pager and Daily IQ are recognized on amonthly basis over the term of the contract.

 

            *Travel Service*:  commissions are received for travel related services, whichinclude domestic and international airline reservations, hotel reservation, carrental and tour packages. The Company also markets and sells travel agenttraining packages.  Revenue on travelservices is recognized at the time the customers have already traveled. On theother hand, revenues on travel agent training packages are recorded when theseare shipped to customers.

 

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

 

Accounting for 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.

 

**Results of Operations**

** **

***Three Months Ended June 30, 2002 Compared with the ThreeMonths Ended June 30, 2001***

** **

*Revenue.* Revenue from continuing operations was $4.9 million for the three monthsended June 30, 2002, compared with $10.4 million for the three months endedJune 30, 2001.  The decrease of $5.5million is primarily attributable to an over-all reduction in revenues from theCompany’s operating segments.

 

During the three months ended June 30 2002 Seminarsegment revenues decreased by $4.4 million from $8.4 million for the threemonths ended June 30, 2001 to $4.0 million for the three months ended June 30,2002. The Company believes that the lower overall Seminar segment revenue wasprimarily the result of lower sales due to a general economic downturn in theU.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, 

 

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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.

 

The U.S. economy has suffered a general economicdown-turn 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 and second quarters of 2002.  Inturn, the Company believes that this decline in interest in trading in thestock and options markets has led to a similar decline in the public’s interestin the Company’s products and services. The Company’s products and services are primarily geared towardeducating individual investors about strategies for trading in the capitalmarkets.

 

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. The Company has reviewed the Application and ispreparing a response for the hearing on the Application scheduled for Septemberof 2002.  While the Company believesthat it has complied with the terms of the Order, the Company has been workingclosely with the FTC to resolve the matter and has made substantial progresstoward that end.  The Company believesit is nearing a resolution with the FTC in this matter, and is optimistic thatthe parties will not need to go to court.* While the Company is optimistic about an amicable resolution to thismatter, the Company cannot guarantee that its efforts will be successful.   However, as a result of the FTC’sApplication, the Company experienced a great deal of negative press coverageboth locally and nationally.  TheCompany believes that this negative press coverage may have persuaded manypotential customers either not to purchase the Company’s seminars (andproducts), or to request a refund for seminars (and products) alreadypurchased.

 

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 and secondquarters of 2002, liquidity constraints have hampered the Company’s ability toadvertise its products and services, have interfered with the functioning ofvendor relationships, and have caused the Company to reduce its total workforce. In turn, 

 

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these effects have made it more difficult to attract customers, developnew products/services, and provide the full compliment of the Company’sseminars and client support features.

 

Revenues from the Product sales segment decreased by$900,000 from $1.4 million for the three months ended June 30, 2001 to $500,000for the three months ended June 30, 2002. The decrease in Product Sales isprimarily due to the same factors affecting the Seminar segment as theCompany’s Products sales are typically marketed and executed along with Seminarsegment sales.

 

                Revenuein the Pager/informational alert services segment decreased by $200,000 from$300,000 for the three months ended June 30, 2001 to $100,000 for the threemonths ended at June 30, 2002. The decrease in Pager/informational alertservices revenue resulted from reduced demand for this segment’s products andservices, and fewer renewals of existing subscriptions. The Company believesthis decrease is the result of lower overall sales due the same factorsaffecting the Seminar segment (Pager/Informational Alert Services are primarilymarketed at Company seminars and/or in related marketing materials) discussedabove. The Company believes that recent advancements in two-way pagingtechnology and in the tele-communications industry have lead to intensecompetitive pressures within this segment’s “Pager” market niche, and ultimately has resulted in a decline ininterest in the Company’s original one-way pager service called the IQPager.  In response to such competition,the Company reformatted its pager services in the form of an interactiveInformational/Alert Service called Daily IQ.  The Company believes Daily IQ provides greater customer value than theIQ Pager, and is better designed to meet competitive market pressures.   In future periods, this segment’s revenuesshall be derived solely from Daily IQ *(for a more complete description of Daily IQ see*“*Item2.  Management’s Discussion and Analysisof Financial Condition - General” of this Report).*

 

Revenue from the Company’s Travel segment decreased by$100,000 from $300,000 during the three months ended June 30, 2001 to $200,000for the comparable period of 2002.  Thedecrease is primarily attributable to the continuing negative effects of theAttack (as described above), a decline in the Company’s over-all use of itstravel agency services to book air and travel accommodations, an industry-widedecrease in commissions received on travel bookings, and those factorsgenerally 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 $500,000 from $500,000 during the three months endedJune 30, 2001 to $33,000 during the comparable period in 2002. This decrease isprimarily due to the Company’s reduced reliance on its in-house advertisingagency during the three months ended June 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 the Company.Reduced reliance on the Company’s in-house advertising agency is primarilyattributable to the Company’s reduction in over-all advertising expense during2002 and the Company’s greater reliance on third party vendors to place itsmarketing materials. The Company does not presently anticipate significant useof its advertising agency during the third quarter of 2002.

 

***                Cost of Sales.***  Cost of sales decreased by $1.6 million from$3.8 million in the three months ended June 30, 2001 to $2.2 million for the threemonths ended of June 30, 2002.  Thisdecrease in cost of sales is primarily due a decrease in the cost of sales ofthe Company’s Seminar, Pager/informational alert services, and Other segments.   Generally, the overall cost of sales hasdecreased at a more rapid rate than overall decreases in revenue.  However, the second quarter drop in over-allrevenue was proportionally greater than reductions in second quarter over-allcost of sales.   The Company intends toevaluate this situation.   However, theCompany believes that this reversal in the trend for costs of sales may be theresult of negative press coverage in the first and second quarters of 2002 thatdeterred some customers from purchasing the Company’s products and services.   Furthermore, the Company believes that theresulting decline in revenue may have occurred after many variable costs hadalready been incurred.  The Company alsopartially attributes this change in trend to a $300,000 reclassification ofcertain expenses from selling, general and administrative expense to cost ofsales.  (*for a more complete description of thefactors*

** **

**20**

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** **

***affecting Revenuesee “Item 2. Management’s Discussion and Analysis of Financial Condition” —Results of Operations” in this Report).***

 

Cost of sales attributable to the Company’s Seminarsegment decreased by $800,000 from $2.7 million for the three months ended June30, 2001 to $1.9 million for the three months ended June 30, 2002.  This decrease was primarily the result of areduction in revenues in the Seminar segment. The Company believes that decreases in cost of sales for the Seminarssegment were offset to some extent by the reclassification and negative press coveragedescribed above.

 

Cost of Product Sales decreased by $200,000 from$500,000 in the three months ended June 30, 2001 to $300,000 for the threemonths ended June 30, 2002.  Decrease ofcost of sales in the Product Sales segment are primarily attributable toreduction in revenues in this segment. The Company believes that decreases in cost of sales for the Productsales segment were offset to some extent by the reclassification and negativepress coverage described above.

 

The cost of sales for the Pager/informational alertservices segment was $100,000 at June 30, 2002 and did not change significantlyfrom the comparable quarter in 2001. The cost of sales for Travel Service segment was insignificant for thethree months ended June 30, 2002, and did not fluctuate significantly from thethree months ended June 30, 2001.

 

The Other segment cost of sales decreased byapproximately $500,000 from $500,000 for the three months ended June 30, 2001to $1,000 for the three months ended June 30, 2002.  The decrease primarily represents the Company’s reduced relianceon its in-house advertising agency as described above.

 

*Selling, General and Administrative Expenses*. Selling, general and administrative expenses for the three months endedJune 30, 2001 were $6.9 million compared with $5.3 million during thecomparable period of 2002. The decrease of $1.6 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 quarterof 2002, this decrease was not as proportionally great as the decrease in theCompany’s consolidated revenues due in part to various non-reoccurringitems.  The non re-occurring itemsprincipally consist of the write-off of a $300,000 un-collectible judgment anda $200,000 accrual for a recent state tax assessment.

 

*Operatingloss*.  The Company’s operating loss changed by $2.4million from $(200,000) for the three months ended June 30, 2001 to $(2.6)million for the three months ended June 30, 2002.  This change in operating loss resulted principally from a declinein revenues in the Company’s operating segments without a correspondingproportional decline in selling, general and administrative expenses and costof sales.

 

Operating loss in the Seminar segment changed by $1.9million from $(300,000) for the three months ended June 30, 2001 to $(2.2)million for the three months ended June 30, 2002. This change was primarilyattributable to a decline in revenues without a corresponding proportionaldecline in selling, general and administrative expenses and cost of sales.   Operating income in the Product Salessegment changed by approximately $400,000 from $24,000 for the three monthsended June 30, 2001 to $(400,000) for the three months ended June 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 $(200,000) from $200,000 in the threemonths ended June 30, 2001 to $(21,000) for the three months ended June 30,2002. This change was primarily attributable to a decline in segment revenueswithout a corresponding proportional decline in selling, general andadministrative expenses and cost of sales.

 

Operating income in the Travel services segment was$(35,000) at June 30, 2002 and did not fluctuate significantly from the threemonths ended June 30, 2001

 

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Other segment operating income was $(1,000) at June30, 2002, and did not fluctuate significantly from the three months ended June30, 2001.

 

*Other Income (Expense)*.  Other income was $38,000 for the three months ended June 30, 2001compared to $(800,000) for the three months ended June 30, 2002.  The decrease in Other income is primarilyattributable to a $600,000 impairment of goodwill related to the Company’sTravel *segment(for a more complete description of the goodwill impairment see “Item 2.Management’s Discussion and Analysis of Financial Condition — Liquidity andCapital Resources” in this Report).* During the three months ended June 30, 2002, the Company experienced arealized and unrealized loss on the trading of securities in the amount of$200,000 which did not fluctuate significantly from the three months ended June30, 2001.  Interest expense increased by$200,000 from $100,000 for the three months ended June 30, 2001 to $300,000 tothe three months ended June 30, 2002. The other portion of Other Income decreased by $400,000 from $500,000for the three months ended June 30, 2001 to $100,000 for the three months endedJune 30, 2002.  The principal reason forthis decrease is a decline in marketing fees from the Anderson Law *Group (for amore complete description of these marketing fees see  “Note 3” of  the “Notes toInterim Financial Statements” of this Report).*

 

Loss before income taxes for the quarter ended June30, 2001 was $(200,000), compared with $(3.4) million for three months ended June 30, 2002.

 

Income Taxes. The Company’s financial statementsreflect an Income tax benefit accrual of $(600,000) and $(100,000) for thethree months ended June 30, 2002 and 2001, respectively, reflecting a loss forthose years, and which includes the write-down of goodwill associated with theCompany’s travel segment. The Company’s effective tax rates have historicallydiffered from the federal statutory rate primarily because of certain deferredrevenues, unrealized gains and losses on trading securities, accelerateddepreciation and state taxes. As a result of the foregoing, the Companyexperienced a net loss from operations of $(100,000) in the three months endedJune 30, 2001, compared with a net loss of $(2.8) million for the comparable period of 2002.

 

***Six Months EndedJune 30, 2002 Compared with the Six Months Ended June 30, 2001***

 

*Revenue.* Revenue from continuing operations was $10.7 million for the six monthsended June 30, 2002, compared with $22.7 million for the six months ended June30, 2001.  The decrease of $12.0 millionis primarily attributable to an over-all decline in revenues from the Company’soperating segments.

 

During the six months ended June 30, 2002, Seminarsegment revenues decreased by $9.6 million from $18.4 million in the six monthsended June 30, 2001 to $8.8 million in the six months ended June 30, 2002. TheCompany believes that the lower overall Seminar segment revenue was primarilythe result of lower sales due to a general economic downturn in the U.S.economy that has caused consumer spending to falter in recent periods; reducedattendance 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 [any others].  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$1.9 million from $3.0 million in the six months ended June 30, 2001 to $1.1million during the six months ended June 30, 2002.  The decrease in Product Sales is primarily due to the samefactors affecting the Seminar segment as the Company’s products 

 

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sales are typically marketed and executed along with Seminar segmentsales.

 

Revenue in the Pager/informational alert servicessegment decreased by $300,000 from $600,000 for the six months ended June 30,2001 to $300,000 for the six months ended at June 30, 2002. The decrease inPager/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$400,000 from $800,000 during the six months ended June 30, 2001 to $400,000for the six months ended June 30, 2002. The decrease is primarily attributable to the factors described underthe Travel segment above *(for a more complete discussion see “Item 2.Management’s Discussion and Analysis of Financial Conditions - Results ofOperations” of this Report for the three month period).*

 

The Other segment, consisting primarily of theCompany’s real estate development operations and advertising agency, decreasedby approximately $1.4 million from $1.4 million during the six months endedJune 30, 2001 to $33,000 during the comparable period in 2002. This decrease isprimarily due to the Company’s reduced reliance on its in-house advertisingagency during the six months ended June 30, 2002 *(for a more complete discussion see“Item 2. Management’s Discussion and Analysis of Financial Conditions - Resultsof Operations” of this Report for the three month period).*

 

*Costof Sales.*  Cost of sales decreased by $4.5 million from$8.7 million in the six months ended June 30, 2001 to $4.2 million for the sixmonths ended of June 30, 2002.  Thisdecrease in cost of sales is due a decrease in the Cost of sales of theCompany’s Seminar, Product Sales and Pager/information alert segments *(for a morecomplete 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 $2.7 million from $6.2 million for the six months endedJune 30, 2001 to $3.5 million for the six months ended June 30, 2002. Cost ofsales decreased primarily due to the reduction in the Company’s revenuedescribed above *(for a more complete discussion see “Item 2. Management’s Discussionand Analysis of Financial Conditions - Result of Operations” of this Report forthe three month period).*

 

Cost of product sales decreased by $700,000 from $1.3million for the six months ended June 30, 2001 to $600,000 for the six monthsended June 30, 2002.  Cost of salesdecreased due primarily to the decrease in revenue *(for a more complete discussion see“Item 2. Management’s Discussion and Analysis of Financial Conditions - Resultof Operations” of this Report for the three month period).*

 

Cost of sales for the Pager/informational alertservices segment was $100,000 for the six months ended June 30, 2002 and didnot fluctuate significantly from the comparable period in 2001.  The Cost of sales for Travel Service segmentwas insignificant for the six months ended June 30, 2002 and did not fluctuatematerially from the six months ended June 30, 2001.

 

The Other segment cost of sales decreased by $1.2million from $1.2 million for the six months ended June 30, 2001 to $0 for thesix months ended June 30, 2002.  Thedecrease primarily represents the Company’s reduced reliance on its in-houseadvertising agency as described above.

 

*Selling, General and Administrative Expenses*. Selling, general and administrative expenses for the six months endedJune 30, 2001 were $14.6 million compared with $10.1 million during thecomparable period of 2002. The decrease of $4.5 million is primarilyattributable to a significant decline in payroll expense, and declines inpostage, purchases, and marketing. While selling, general and administrative expenses decreased during thefirst six months of 2002, this decrease was not as proportionally as great asthe decrease in the Company’s consolidated revenues due in part to variousnon-reoccurring items.  The non 

 

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re-occurring items principally consist of thewrite-off of a $300,000 un-collectible judgment and a $200,000 accrual for arecent state tax assessment.

 

*Operatingloss*.  The Company’s operating loss changed by $3.0million from $(600,000) for the six months ended June 30, 2001 to $(3.6)million for the six months ended June 30, 2002.  This change resulted principally from a decline in revenues inthe Company’s operating segments without a corresponding proportional declinein selling, general and administrative expenses and cost of sales.

 

Operating loss in the Seminar segment changed by $2.0million from $(800,000) for the six months ended June 30, 2001 to $(2.8)million for the six months ended June 30, 2002. This change was primarilyattributable to a decline in revenues without a corresponding proportionaldecline in selling general and administrative expenses attributable to theSeminar segment and cost of sales.

 

Operating loss in the Product Sales segment changed by$(300,000) from $(300,000) for the six months ended June 30, 2001 to $(600,000)for the six months ended June 30, 2002. This change was primarily attributableto a decline in revenues without a corresponding proportional decline inselling general and administrative expenses and cost of sales.

 

Operating income in the Pager/informational alertservices segment changed by approximately $400,000 from $400,000 in the sixmonths ended June 30, 2001 to $8,000 for the six months ended June 30, 2002.This change was primarily attributable to a decline in segment revenues withouta corresponding proportional decline in selling, general and administrativeexpenses and cost of sales.

 

Operating loss in the Travel services segment changedby approximately $100,000 from $45,0000 for the six months ended June 30, 2001to $(100,000) for the six months ended June 30, 2002. This change was primarilyattributable to a decline in revenues without a corresponding proportionaldecline in Selling, general and administrative expenses.

 

Other segment operating income changed by $200,000from $100,000 for the six months ended June 30, 2001 compared to $(100,000) forthe six months ended June 30, 2002. This change was primarily attributable to adecline in revenues without a corresponding proportional decline in selling,general and administrative expenses.

 

## ***Other Income (Expenses)***. Other income was $13,000 for the six months ended June 30, 2001 comparedto $(900,000) for the six months ended June 30, 2002. The decrease in Otherincome is primarily attributable to a $600,000 impairment of goodwill relatedto the Company’s Travel *segment (for a more complete description of thegoodwill impairment see “Item 2. Management’s Discussion and Analysis ofFinancial Condition — Liquidity and Capital Resources” in this Report).*  During the six months ended June 30, 2002,the Company experienced a realized and unrealized loss on the trading ofsecurities in the amount of $(200,000) compared with a loss of $(900,000)during the six months ended June 30, 2001. The Company attributes the $700,000 improvementto a general improvement in the U.S. capital markets resulting in largerunrealized gain in the value of Company held securities.   Interest expense increased by $(300,000)from $(200,000) for the six months ended June 30, 2001 to $(500,000) to the sixmonths ended June 30, 2002. The other portion of Other Income decreased by$900,000 from $1.2 million for the six months ended June 30, 2001 to $300,000for the six months ended June 30, 2002. The principal reason for this decrease is declines in marketing feesfrom the Anderson Law *Group  (for amore complete description of these marketing fees see  “Note 3” of  the “Notes toInterim Financial Statements” of this Report).*

 

Loss before income taxes for the six months ended June30, 2001 was $(600,000), compared with $(4.5) million for six months ended June 30, 2002.

 

Income Taxes. The Company’s financial statementsreflect income tax benefit of $(200,000) and $(800,000) for the years ended2001 and 2002, respectively, reflecting a loss for the Company during thoseyears, and which includes the write-down of goodwill associated with theCompany’s Travel segment.  The Company’seffective tax rates have historically differed from the federal statutory rateprimarily because of 

 

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certain deferred revenues, unrealized gains and losses on tradingsecurities, accelerated depreciation and state taxes. As a result of theforegoing, the Company experienced a net loss from operations of $(400,000) inthe six months ended June 30, 2001, compared with a net loss of  $(3.7) million for the comparable period of2002.

 

**PARTII ****3⁄4****  OTHER INFORMATION**

** **

**Item1.    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, et.al.** 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 has been rescheduled again to September 9 -11, 2002.  At trial the Plaintiffs willattempt to prove what, if any, damages they may be entitled to. The Companybelieves that it has not engaged in any unlawful practices and believes nodamages are merited, and intends to defend itself vigorously with regards tolitigation on damages. The Company has not yet determined the impact on itsfinancial statements in this matter, and has not made provision for losses, ifany.  In the event of an adversedecision at trial, the Company intends to appeal the case to a higher court.*

 

**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.  Trail has been set for October 28, 2002. The Company believesthat it has not engaged in any unlawful practices and intends to defend itselfvigorously in this matter.  The Companyhas not yet determined the impact on its financial statements, and has not madeprovision 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 provisions of the Agreements *(for more information concerning*

 

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* the Application see the Company’s form 8-Kfiled on February 25, 2002).* The FTC’s alleged violations involve disclosure ofthe Company’s rate of return, substantiation of promotional claims, andcompliance with consumer redress program deadlines and paymentobligations.  While the Company believesthat it has complied with the terms of the Agreement, the Company has beenworking closely with the FTC to resolve the matter and has made substantialprogress toward that end.  To this end,the hearing on the Application originally scheduled on June 28, 2002 has beenmoved to September 2002.  The Companybelieves it is nearing a resolution with the FTC, and is optimistic that thematter will not go to court.   However,in the event that discussions with the FTC are unsuccessful, the Companyintends to vigorously defend its rights. The Company hasnot yet determined the impact on its financial statements, and has not madeprovision for losses, if any.

 

**Item 2.    Changes in Securities.**

 

None

 

**Item 3.    Defaults Upon Senior Securities.**

 

None.

 

**Item 4.    Submission of Matters to a Vote of Security Holders.**

 

                The Company’s Annual Meeting of the Stockholders washeld on June 10, 2002, at the Company’s corporate headquarters in Seattle,Washington.

 

                The only matter tobe voted on at the Annual Meeting of Stockholders was the routine election ofdirectors.   The following nominees wereelected as directors, each to hold office, until his/her successor is electedand qualified or appointed, by vote set forth below:

 
| **NAME**         |   | **FOR**    |   | **WITHHELD** |
|------------------|--------|------------|--------|--------------|
| Laura Cook       |   | 48,510,263 |   | 295,350      |
| Ken Roberts(1)   |   | 48,545,358 |   | 260,255      |
| Angela Pirtle(1) |   | 48,536,269 |   | 269,344      |
| Everett Sparks   |   | 48,552,769 |   | 252,844      |

 

                In addition, thefollowing directors’ terms continued after the Annual Meeting:

 

Wade Cook

Robert Hondel

Joel Black

Robin Anderson

Craig McKenzie(2)

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(1)           Ken Roberts and Angela Pirtle decidednot to continue as directors following their election at the June 10, 2002Annual Meeting of Stockholders *(for a more complete description of theseresignation’s see “Item 5. Other Events” contained in this Report).*

 

(2)           On June 25, 2002, Craig McKenzie wasappointed to replace Ken Roberts.

 

**Item5.    Other Information.**

 

Recent Director Resignations

 

During the secondfiscal quarter of 2002, Ken Roberts, Angela Pirtle, and Janice Leysathindividually resigned as members of the Company’s Board of Directors and asmembers of the Company’s Executive/audit committee.  The Company announced these resignations on June 10, 2002 on theForm 8-K filed with the Securities and Exchange Commission *(see the Company’s Form 8-K filed forJune 10, 2002*

 

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* for amore complete description of these resignations).*

 

Appointment of Craig McKenzie to Company’s Board of Directors

 

On June 26, 2002, Craig McKenzie was appointed to theCompany’s Board of Directors.  Mr.McKenzie fills the Board vacancy left by the resignation of Ken Roberts.   For the past eight years, Mr. McKenzie hasserved as President and General Contractor for Alpine Homes, Inc. (“Alpine”), aprivate corporation involved in the construction of high-end speculative homeslocated in Kirkland, Washington.     Mr.McKenzie attended Green River Community College and University of Washington *(for a morecomplete description of this appointment see the Company’s Form 8-K filed forJune 10, 2002)*.

 

Reverse Stock Split

 

In a first quarterpress release, the Company announced that the Board had authorized a 1-for-10

reverse stocksplit.  The intention of the reversestock split was to add to shareholder value by reducing the outstanding floatof the Company’s common stock, and in connection, assist the Company in itsplan to be listed on NASDAQ.  TheCompany selected February 28, 2002 as the original effective and record date ofthe proposed reverse stock split.  Dueto market conditions in February 2002, the Company’s Board of Directors madethe decision to postpone the reverse stock split  *(for a more complete description of the postponement of the reversestock split see the Company’s Form 8-K filed on February 26, 2002).*Finding market conditions more favorable in the third quarter of 2002, theCompany’s Board of Directors has rescheduled the reverse stock split, selectingAugust 30, 2002 at the new record date and September 3, 2002 as the neweffective date.

 

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 satisfy mortgageson the corporate headquarters.  TheCompany 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”.  In the event that the sale of the Company’scorporate headquarters is finalized, the Company is entitled to, and intendsto, lease back a portion of the corporate headquarters from the purchaser.

 

**Item 6.    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 |

 

27

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| **Exhibit No.** |   | **Description**                                                                                                                                                                                                    |
|-----------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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.                                                                                                                      |
| 10.5(1)         |   | Amended Agreement, dated June  26, 1997, between Wade B. Cook and Lighthouse Publishing Group, Inc.                                                                                                                |

 

28

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| **Exhibit No.** |   | **Description**                                                                                                                                                                     |
|-----------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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.    |

 

29

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| **Exhibit No.** |   | **Description**                                                                                                                                                                        |
|-----------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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. |
| 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                                                                       |

 

30

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| **Exhibit No.** |   | **Description**                                                                                                                                                                                 |
|-----------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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                                                                                          |
| *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                                              |

 

31

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| **Exhibit No.** |   | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|-----------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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(13)        |   | Private Securities Act of 1995  — Safe Harbor For Forward Looking Statements                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 99.3(13)        |   | Pursuant to 18 U.S.C. section  1350, certification Chief Executive and Chief Financial Officers pursuant to  the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                   |

 

----

*              This document has been identified as a managementcontract or compensatory plan or arrangement.

 

(1)             Previously filed as an exhibit to the Company’sregistration statement on Form 10 filed with the SEC on April 30, 1997, asamended on June 29, 1997 and September 24, 1997

(2)             Previously filed as an exhibit to the Company’s Form10-K filed with the SEC on March 31, 1998

(3)             Previously filed as an exhibit to the Company’s Form10-K/A filed with the SEC on July 20, 1998

(4)             Previously filed as an exhibit to the Company’s Form10-Q filed with the SEC on August 8, 1998

(5)             Previously filed as an exhibit to the Company’s Form10-Q filed with the SEC on November 16, 1998

(6)             Previously filed as an exhibit to the Company’s Form10-K filed with the SEC on March 31, 1999

(7)             Previously filed as an exhibit to the Company’s Form10-K filed with the SEC on March 31, 2000

(8)             Previously filed as an exhibit to the Company’s Form10-Q filed with the SEC on November 14, 2000

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

(10)       Previously filed as an exhibit to the Company’s Form10-K filed with the SEC on April 16, 2001

(11)       Previously filed as an exhibit to the Company’s Form10-Q filed with the SEC on August 14, 2001

(12)       Previously filed as an exhibit to the Company’s Form10-K filed with the SEC on April 26, 2002

(13)       Filed as an exhibit to the Company’s Form 10-Q filedwith the SEC in August 2002.

** **

**(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 theCompany was postponing a 1-for-10 reverse stock split scheduled to occur onFebruary 28, 2002.  The Company did notselect an alternative reverse split date. Second, the Form 8-K also addressed the Federal Trade Commission’s(“FTC”) Application for a Motion for Contempt. The Application alleged the Company’s non-compliance with the voluntaryConsent Decree 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’s Boardof Directors and Executive/Audit Committee. The Form 8-K also addressed the appointment of Craig McKenzie to theCompany’s Board of Directors.

 

32

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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                                                                                                                |
|-----------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|
|            |   |                                                                                                                                            |
| August 27, 2002 |   | /s/  Wade Cook                                                                                                                             |
|            |   | Wade B. Cook, Chief Executive Officer, and Chief Accounting  Officer (Principal Financial and Accounting Officer and Only Authorized  Officer). |

 

 

33

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**EXHIBIT INDEX**

** **
| **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                                                                                                                                                                         |

 

34

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| **Exhibit No.** |   | **Description**                                                                                                                                |
|-----------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------|
| 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.                                                  |
| 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                 |

 

35

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| **Exhibit No.** |   | **Description**                                                                                                                                                                        |
|-----------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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. |
| 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                                              |

 

36

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| **Exhibit No.** |   | **Description**                                                                                                                                                                                  |
|-----------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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, 199 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.                                                                                          |
| *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.                                                                       |

 

37

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| **Exhibit No.** |   | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|-----------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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(13)        |   | Private Securities Act of 1995  — Safe Harbor For Forward Looking Statements.                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 99.3(13)        |   | 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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*              This document has been identified as a managementcontract or compensatory plan or arrangement.

 

(1)          Previously filed asan exhibit to the Company’s registration statement on Form 10 filed with theSEC on April 30, 1997, as amended on June 29, 1997 and September 24, 1997

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

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

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

(5)          Previously filed asan exhibit to the Company’s Form 10-Q filed with the SEC on November 16, 1998

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

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

(8)          Previously filed asan exhibit to the Company’s Form 10-Q filed with the SEC on November 14, 2000

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

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

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

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

(13)    Filed as an exhibitto the Company’s Form 10-Q filed with the SEC in August 2002.

 

**38**

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