Wade Cook Revisited
Wade Cook Financial: An Investment Update
By David Forrest (TMF Bogey)
April 22, 1999
Wade Cook Financial (OTC BB: WADE) is a holding company for Wade Cook Seminars, Lighthouse Publishing, and several subsidiaries and subcorporations. Here's a quick look at those two major holdings:
-- Wade Cook Seminars Inc. (WCSI) conducts all of the seminars where Wade and his instructors teach his methods. These seminars charge big bucks to attend. The material taught in these seminars is not owned by WCSI. Wade Cook Seminars Inc. licenses all of the material they teach from a company called "Money Chef." Guess who owns 100% of Money Chef? Wade Cook.
-- Lighthouse Publishing Inc. is 100% owned by Wade Cook Financial and publishes all of the written, audio, and video material. The publishing deal is basically structured as a 50-50 split between Mr. Cook and Lighthouse. Again, he's grabbing 50% of the money for himself and not sharing that with Wade Cook Financial shareholders. Additionally, all of the expenses associated with the publishing of the materials are incurred by Lighthouse, thus further reducing an already diminished revenue stream. Not very shareholder friendly.
Last time we checked in with Wade Cook Financial, it was actually named "Profit Financial." The company's decision to move away from the "Profit" tag would be a foreshadowing of epic proportions. If you recall, the company filed in 1997 to be listed on the Nasdaq exchange. No dice. Wade Cook Financial still trades as a penny stock on the OTC bulletin board listings. All companies must meet minimum financial requirements to be listed on the Nasdaq, and apparently Wade Cook Financial didn't make the grade.
In the past 18 months, the stock has fallen 89% even while revenues have risen to $118 million from $105 million. Heck, with 22 wholly owned subsidiaries and minority stakes in 8 other businesses, you'd think Wade Cook Financial would be rolling in the dough. Not so. In fact, the company is delinquent to the tune of $5 million in federal taxes for the 1997 and 1998 fiscal years. Profits fell by more than 63% from 1997 to 1998.
How can this be given the rise in demand for the company's products and services? Part of it may be the fact that Wade Cook, the principle shareholder, took in a fat $8 million in royalties last year. Yep, he has organized things so that he can collect between 10-50% of the revenue from Wade Cook Seminars in the form of royalties.
This is a company with a market capitalization of just $31 million, and Wade Cook is taking a paycheck of $8 million. Now that sounds like a shareholder friendly company, huh? To offer a little context, Jack Welch, CEO of the $360 billion General Electric (NYSE: GE) took a total compensation package of just $40 million in 1997. And, that $40 million that Welch took was in a year that GE rose by $120 billion in market cap. Wade Cook's company falls 89% and he takes more than 25% of the market cap? What a country.
To top it all off, Wade Cook Financial has serious liquidity problems. Its net working capital (which is its current assets minus current liabilities) is a negative $16 million. For those who get confused by financial jargon, it owes $16 million more than it can pay. It's like having $5,000 in monthly bills and only $2,000 in your checking account. Needless to say, this isn't good.
The bottom line is that profitability is fading away at Wade Cook Financial. It can't pay its bills and it owes the IRS millions. The stock has plummeted over the last 18 months and the company is structured in such a way to make one person rich -- Wade Cook. Should you invest in Wade Cook Financial? You tell me.
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