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**EXHIBIT 99.2**

 

PRIVATESECURITIES LITIGATION REFORM ACT OF

 

1995- SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

 

 

The Private Securities Litigation Reform Actof 1995 provides a safe harbor for forward looking statements made by publiccompanies. This safe harbor protects a company from securities law liability inconnection with forward-looking statements if the company complies with therequirements of the safe harbor. As a public company, Wade Cook FinancialCorporation has relied and will continue to rely on the protection of the safeharbor in connection with its written and oral forward-looking statements.

 

When evaluating Wade Cook FinancialCorporation’s business, you should consider:

 

•                    all of theinformation in this quarterly report on Form 10-Q;

 

•                    or the riskfactors described in the Company’s Annual report for the year ended December31, 2001 filed with the Securities and Exchange Commission; and

 

•                     the riskfactors described below.

 

 

RISKFACTORS

 

Corporate Control By Wade B. Cook

 

Wade B. Cook is the founder, majoritystockholder, Chairman of the Board, Chief Executive Officer and President ofthe Company. Laura Cook, Mr. Cook’s wife, is the Secretary of the Company, andfrequently serves as a consultant to the Company’s executive management. Severalof Mr. Cook’s relatives work at the Company. Mr. Cook maintains control overmost aspects of the Company including, but not limited to, setting corporatepolicy, determining strategic direction, determining the acquisition or sale ofassets by the Company, setting the material terms of acquisitions anddetermining the material provisions of many of the Company contracts. Mr. Cookprovides input on practically every product and seminar sponsored by theCompany. Mr. Cook also directs most marketing efforts of the Company and has asubstantial influence on the management of the Company. Mr. Cook will continueto have a significant influence over the policies and procedures of the Companyand will be in a position to determine the outcome of corporate actionsrequiring stockholder approval, including the election of Directors, the 1adoption of amendments to the Company’s corporate documents, the approval ofmergers and the sale of the Company assets.

 

 

Dependence on Wade B. Cook

 

The Company’s business is highly dependent onthe continuing effective involvement of Mr. Cook. Mr. Cook personally directsmost aspects of the Company’s business. The Company has a non-exclusive licensewhich expires June 30, 2002 to use Mr. Cook’s products, intellectual property, name,image, identity, trademarks and trade symbols which are featured prominently inmany of the Company’s services and products. Mr. Cook is not prohibited fromcompeting with the Company or granting licenses to competitors. See “Business -Intellectual Property.” The business of the Company would be materiallyadversely affected if Mr. Cook’s services were not available to the Company, orif Mr. Cook should compete with the Company or grant licenses or otherassistance to competitors.

 

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Working Capital Deficiency, LiquidityConstraints

 

At December 31, 2001, the Company had currentassets of $9.1 million and current liabilities of $10.3 million, resulting in aworking capital deficit of $1.2 million (See “Management’s Discussion andAnalysis of Financial Condition and Results of Operations - Liquidity andCapital Resources”). The Company’s principal source of cash has been from itseducation seminars and its sale of books, tapes and other materials focused onbusiness strategies, financial planning and personal wealth management. See“Management’s Discussion and Analysis of Financial Condition and Results ofOperations - Results of Operations and Liquidity and Capital Resources.”

 

The Company’s practice of using availablecash to fund subsidiaries and new non-marketable investments, its workingcapital deficit, the Company’s significant long and short term obligations,recent earthquake damage, costs associated with the Company’s consumer redressprogram, the September 11 terrorist attack, the fact that the Company’ssegments are not generating cash as in the past, and the significant lossesexperienced in the Company’s Other Income have resulted in substantialconstraints on liquidity.

 

If the Company is required to generate cashfrom its non-marketable investments to satisfy its current obligations, it maynot be able to liquidate these investments in a timely manner or in a mannerthat allows it to receive the full value of the investments. Failure to generateadequate cash resources could require the Company to cut back operations, delayexpansion or development projects, or cause the Company to be unable to meetits obligations when due.

 

Legal Proceedings and GovernmentalInvestigations

 

The Company is a party to a small number oflegal proceedings. See Item 3. Legal Proceedings. The Company, based upon theinformation available to date (including information supplied by counsel) andparticularly in light of the Company’s past history of settling previous legaldisputes out of court, does not presently expect material liability in thesematters or any others. However, the outcome of such matters is difficult topredict and subject to uncertainty, and the legal fees and other costs involvedcould be material. Any negative finding as a result of this investigation couldhave a materially adverse effect on the Company’s financial condition andresults of operations. Effect of Securities Market Conditions on the Company’sBusiness The Company believes that the level of public interest in investing,particularly in the securities and option markets as well as electronic tradinghas significantly influenced the market for its products and services. Thesecurities markets have experienced substantial volatility in recent periods. Asharp drop or sustained or gradual decline in securities prices or otherdevelopments in the securities markets typically could cause individualinvestors to be less inclined to invest in the securities markets, which wouldbe likely to result in reduced interest in the Company’s seminars and relatedproducts and services. Declines in the securities markets also adverselyaffects the value of the Company’s investment portfolio.

 

Management of Growth and Integration ofAcquisitions

 

In 1999, the Company’s business declined interms of revenue, number of employees and scope of activities in which itengages. During the year 2000, the Company showed similar declines in revenue,number of employees, and scope of business activities. During 1997, the Companyacquired all interests and rights in Worldwide, Origin, Gold Leaf and Ideal,and during 1998, the Company acquired all rights and interests in IQ(distribution of paging devices that distributed stock market data). TheCompany discontinued Origin’s operations as of December 31, 2001. The Companycurrently has a minority interest in one hotel. During 2001, Brookhaven HomesLimited Partnership, a Company controlled entity, become involved in theconstruction and development of luxury homes in the Western Washington area.Additionally, in the beginning of 2002, the Company through Health and Wealth,Inc., a wholly owned subsidiary, became involved in the sale and distributionof the Fresh Cleanse(R) skin care product line. Some of these acquiredbusinesses, investments, and recent diversification have not performed as wellas expected by the Company. In the past, such growth has placed significantstrains on the Company’s management, accounting, financial and other resourcesand systems, and on its cash resources and working capital. Failure to managesuccessfully the growth in size and scope of the Company’s business and tosuccessfully integrate and manage the Company’s recently acquired businessescould have a material adverse effect on the Company’s results of operations andfinancial condition.

 

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State and Federal Government Relations

 

As discussed throughout this report, theCompany is a party to a number of voluntary Consent Decrees (the “Agreements”)with the Federal Trade Commission and the consumer affairs divisions of 14states. The Agreements relate to the Company’s future advertising practices andthe implementation of a consumer redress program. While the Company fullyintends to comply with these Agreements, failure to comply with the terms ofthese Agreements could result in legal action by the respective state andfederal authorities. Legal remedies could include injunctions against violatingrespective consumer laws, recession of prior customer contracts, customerrefunds, contempt, and/or disgorgement. 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. According to an FTC press release datedFebruary 21, 2002, the alleged violations involve disclosure of the Company’srate of return, substantiation of promotional claims, and compliance withconsumer redress program deadlines and payment obligations. The Company isreviewing the Application. While the Company believes that the FTC’s actionsare unmerited and has been working closely with the FTC in resolving thematter, failure to successfully resolve this matter could have a materialadverse affect on the Company’s results of operations, operations, andfinancial condition (For a more complete description of recent events see Item3. Legal Proceedings).

 

February 28, 2001 Earthquake

 

On February 28, 2001, an earthquake (the“Earthquake”) measuring 6.8 on the Richter scale struck Western Washington. Inconcert with the earthquake, Wade Cook Financial Corporation’s (“WCFC”)corporate headquarters (the “Headquarters”), located in Seattle, Washington,experienced severe localized resulting water damage (the “Flooding”). TheHeadquarters is home to WCFC, as well as the Stock Market Institute ofLearning, Inc. (“SMILe”), Lighthouse Publishing Group, Inc. (“Lighthouse”),Ideal Travel Concepts, Inc. (“Ideal”), and Information Quest, Inc. (“IQ”), allwholly owned subsidiaries of WCFC. Collectively SMILe, Lighthouse, Ideal, andIQ account for the majority of WCFC’s annual revenues. The combination of theEarthquake and the Flooding has caused the Company to significantly reduceoperations, and rendered one half of the Headquarters unusable for an extendedperiod of time. Occupation was restored to the corporate headquarters in Julyof 2001. All repairs have not yet been completed, and it is not presently knownwhen the Company headquarters will be fully restored. The inability to completerestoration or to fully resume operations for a number of months caused andcontinues to cause the Company to lose a significant amount of revenue, as wellas the attendant loss of profits, and to incur substantial continuing and extraexpenses. As of December 31, 2001, the Company was still in the process ofestimating the extent of full property damage, lost profits, loss of goodwill,and associated expenses incurred on account of the Earthquake and the Flooding.However, initial estimates of physical damage to the Headquarters and relatedfurniture, fixtures and inventory indicate that the repair, reconstruction,and/or replacement costs for these items may equal $5,000,000. The Company hasreceived approximately $800,000 in insurance proceeds from its 3 commercialproperty insurance carrier Caliber One Indemnity Company thus far. The Companyis seeking additional insurance proceeds from Caliber One Indemnity Company tofund continued restoration of the Company’s headquarters and to compensate itfor various losses caused by the earthquake and subsequent flooding, includingdamaged and destroyed equipment, lost business income, and extra expenses.Failure to properly resolve coverage issues arising out of recent Flooding andEarthquake or inadequate insurance coverage could have a material adverseeffect on operations and the Company’s financial condition.

 

Audited Financials for the Year EndedDecember 31, 1999

 

Filed in April 2001 In May of 2001, theCompany was contacted by the SEC concerning technical filing error with respectto its Annual Report on the Form 10-K (“Annual Report”) for the year endedDecember 31, 2000. The asserted technical filing error involved the Company’sfiling of the Annual Report without including a written consent (“Consent”) byMiller and Co. LLP (“Miller”) relating to the Company’s financial report forthe year ended December 31, 1999. Miller, the Company’s former auditor, wasdismissed in November of 2000. On December 4, 2000, the Company filed a SpecialReport on the Form 8-K (“8-K”) disclosing Miller’s dismissal. Miller attached aletter to the 8-K, agreeing substantially that Miller’s reports for 1998 and1999 do not contain an adverse opinion or disclaimer, and that there had beenno disagreements with Miller on matters relating to accounting principles orpractices, financial statement disclosure, or auditing scope and procedurewhich were not resolved to Miller’s satisfaction. Furthermore, there were no reportableevents as described in Item 304 (a) (1)

 

 

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(iv) of Regulation S-K, or any reportableevent, as the term is defined in Item 304(a)(1)(v) of Regulation S-K. (Foradditional information concerning this event please see the Company’s SpecialReport on Form 8-K filed December 4, 2000). Shortly before filing the AnnualReport, the Company requested Miller’s written Consent to refile the prioraudited financials in the current Annual Report. In a letter dated April 9,2001, Miller stated “it is our understanding that we are not required toauthorize the release of the firm’s report.” In reliance on Miller’sstatements, the Company believed that Miller’s Consent was either implicitlygiven and/or would not be needed to file the Annual Report, and actedaccordingly. Subsequent to filing the Annual Report, the SEC contacted theCompany, informing Company representatives that absent Miller’s writtenConsent, the financials from prior audit years (1998 - 1999) would be deemed asunaudited by the SEC. The SEC also disclosed that as a result of thissituation, the Company would be unable to raise capital through publicofferings until the matter was resolved. The Company is not aware of anyassertions by Miller, claiming that its prior audit information is inaccurate,misleading, or has otherwise been impacted by subsequent events. The Companycontacted Miller to solicit express written consent. The Company also contactedMiller in effort to gain access to the Company’s client records and relevantwork papers held by Miller that would be needed to perform a re-audit of theCompany’s prior financials should Miller choose not to issue a written consent.However, the Company was unable, after lengthy discussions, to come to termswith Miller regarding either their written consent or access to the Company’sclient records and relevant work papers. Consequently in August 2001, theCompany filed a lawsuit against Miller to resolve this situation (for a morecomplete description of the lawsuit against Miller, please see Item 3 - LegalProceedings of this Report). While the Company is attempting to resolve thissituation, the Company can make no assurances as to whether it will besuccessful. Failure to resolve this situation could adversely affect theCompany’s reporting relationship with the SEC or ability to raise capitalthrough public offering.

 

September 11, 2001 Terrorist Attacks

 

The September 11, 2001 terrorist attack (the“Attack”) on the World Trade Center in New York and the Pentagon in Virginiahad an adverse impact on the Company’s operations and ability to supply seminarservices to its clientele. Initially after the Attack, the Company was forcedto cancel some of its previously scheduled seminars during the months ofSeptember through November, and to reschedule others. Cancellation andrescheduling resulted in the loss and/or deferment of significant revenue. Alsoas a result of the Attack, some U.S. residents seem to be choosing to travelless frequently, and if they must travel, to take alternative means to airtransport. A significant portion of customers who attend the Company’s eventstravel by airplane. While the Company is taking steps to lessen the potentialfuture effects of September 11, 2001, the Company’s revenues in future periodscould be adversely effected, if a large percentage of the Company’s futurecustomers choose not to travel to Company events or to use the Company’s travelagency to book travel plans.

 

 

General Economic Conditions

 

Any negative changes in economic conditions,significant price increases, inflation, or adverse events related to theseminar, travel and/or tourism, commercial real estate, or information servicesindustries such as the cost and availability of fuel, the price of real estate,or the willingness of individual investors to trade could harm discretionaryconsumer spending and have a material adverse effect on the Company’s business,results of operations and financial condition. These types of economicconditions, including recession, could also adversely affect the availabilityto secure future financing transaction on terms favorable to the Company.Furthermore, adverse changes in economic conditions could negatively affect thecollectability of Company’s notes receivable.

 

Delay ofpayroll obligations.

 

Duringthe first nine months of 2002, the Company experienced certain liquidityconstraints that caused the Company to delay satisfying its third quarteraccrued payroll taxes.  The Company’sintention was to delay payment of these payroll taxes until the end of thequarter (as permitted by federal law). These taxes have not been paid as of thefiling date. In future fiscal periods the Company’s liquidity situation maycause the Company to make similar tax delays. If the Company makes such delays but is unable to satisfy thoseobligations when due, the Company’s operations and financial condition could benegatively affected, and the Company and/or its officers could face significantfines and penalties.

 

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RecentDirector Resignations

 

Duringthe second fiscal quarter of 2002, Ken Roberts, Angela Pirtle, and JaniceLeysath individually resigned as members of the Company’s Board of Directors,and as members of the Company’s Executive/Audit committee.  The Company announced these resignations onJune 10, 2002 on the Form 8-K filed with the Securities and ExchangeCommission.  Ms. Leysath’s letter ofresignation was attached, per her request, as an exhibit to the Form 8-K.  Ms. Leysath’s letter of resignationcontained certain inflammatory allegations regarding the Company and resultedin some negative press coverage. Negative press coverage relating to this resignation or the resignationsof the other directors, could have an adverse impact on the Company’s effortsto attract new and existing customers, obtain favorable financing, and gainaccess to new business opportunities. Any adverse impact on these items could negatively affect Companyoperations and/or financial condition.

 

 

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