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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2001
Whitney Information Network, Inc.
(Exact name of registrant as specified in its charter)
Colorado 0-27403 84-1475486
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
4818 Coronado Parkway, Cape Coral, Florida 33904
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (941) 542-8999
(Former name or former address, if changed since last report)
Securities registered under Section 12 (b) of the Exchange Act:
NONE
Securities registered under Section 12 (g) of the Exchange Act:
COMMON STOCK
NO par value per share
(Title of Class)
Check whether the Issuer (1) has filed all reports required to be filed by Section 13 or 15
(d) of the Exchange Act during the past 12 months (or for such shorter period that the
Issuer was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation
S-K contained in this form, and no disclosure will be contained, to the best of the
Issuer's knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
The Issuer's revenues for the fiscal year ended December 31, 2001, were $42,157,740.The
aggregate market value of the voting and non-voting common stock held by non-affiliates of
the Issuer, computed by reference to the closing sale price of such common stock as quoted
on the OTCBB as of March 28, 2002 was about $ 1,372,000. (Aggregate market value has been
estimated solely for the purpose of this report. For the purpose of this report it has been
assumed that all officers and directors are affiliates of the Registrant. The statements
made herein shall not be construed as an admission for the purposes of determining the
affiliate status of any person.)
The Issuer had 7,878,023 common shares of common stock outstanding as of December 31, 2001.
Documents incorporated by reference: See ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
PART I
ITEM 1. BUSINESS
History
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Whitney Information Network, Inc. (the 'Company') was incorporated under the laws of the
state of Colorado on February 23, 1996 as Gimmel Enterprises, Inc. On August 18, 1998, the
Company acquired all of the issued and outstanding shares of common stock of Whitney
Education Group, Inc., formerly, Win Systems, Inc., hereinafter 'WSI,' a corporation
incorporated under the laws of the state of Florida, on November 12, 1992. Thereafter, WSI
became a wholly owned subsidiary corporation of the Company. On August 10, 1998, the
Company changed its name to WIN Systems International, Inc. and on February 11, 1999, the
Company again changed its name to Whitney Information Network, Inc.
General
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The Company is engaged in the business of providing educational and training services
through its publications and lectures to create wealth, achieve financial independence and
protect it. The Company currently concentrates its principal efforts in the area of real
estate training.
The Company is currently holding approximately 156 basic real estate courses and real
estate training academies per month and approximately 16 to 20 advanced programs per month.
The Company has 45 instructors and has approximately 24,000 students per month registering
for its programs.
The Company trains its students in locations throughout the United States. The Company
utilizes hotels and conference facilities throughout the United States and Canada to
conduct its training academies. The Company also utilizes its facilities in Cape Coral,
Florida to conduct its training academies. The Company is presently constructing a
conference and training center in Costa Rica.
Publications
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The Company currently produces approximately 25 publications, which are promoted by the
Company to the general public and for use at the Company's training and educational
classes. The publications are written by the Company. The Company then retains independent
publishers to produce the publications. The publications are sold to the public or
incorporated in the cost of training courses. The Company does not rely exclusively on any
one publishing firm. In the event that one publisher ceased operations or refused to
continue to publish the Company's products, the Company could easily retain another
publisher.
Software
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The Company sells a line of software primarily for the real estate and small business
industry. The software is developed and licensed by Precision Software Services, Inc., a
wholly owned subsidiary of the Company.
Lectures
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The Company delivers a series of introductory courses and training programs which relate to
its publications and software. The Company charges fees for its training programs, however,
the Company does not charge for its free informational courses. The Company has many
instructors that teach throughout the United States and Canada, while at the same time
promoting the Company's publications, software, and the Company's programs to succeed in
business, successfully invest in real estate, achieve financial independence and protect
assets. The Company promotes an initial program outlining how to invest in real estate and
how to succeed via small business ownership. Upon completion of the Company's initial real
estate investment training, the Company offers additional programs that allow a customer to
concentrate on a specialized area. Each lecture topic is supplemented with the Company's
publications.
Real Estate Programs
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The Company's base program is a three-day training program relating to basic real estate
investing. The program is supplemented with its publications and software. Upon completion
of the basic real estate investing course, the Company promotes an intensified training
camp, which is designed to expand the knowledge gained at the basic real estate investing
program. The intensified training camp is held at the Company's corporate offices in Cape
Coral, Florida.
The Company also operates eleven regional training camps at locations in the United States
and Canada that emphasize specific areas of real estate investing, small business and asset
protection. The camps consist of on-site training and interactive dialogue between the
instructor and student. The specific areas of concentration are: wholesale buying;
foreclosure; property management, landlording; purchase/lease option; asset protection;
commercial properties; discount notes and mortgages; creative financing of real estate,
mobile homes, and international finance and asset protection.
Mentoring
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The Company provides a program whereby trained personnel travel to a customer's hometown
and assist the customer in implementing the knowledge gained at the Company's lectures
within the customer's community. The Company currently has 30 mentors providing services
to its students.
Financial Management
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In addition to the real estate investment programs, the Company also provides additional
ancillary programs relating to enhancing the customer's knowledge of managing and
protecting his money.
Internet
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Whitney Internet Services, Inc. provides web programming and maintenance services to the
Company in which all of the Companies products and services are offered for sale on its web
site along with up to date information about the Company, its products and services.
Marketing
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The Company markets its publications, videos, and introductory training courses through a
number of media, including newspapers, periodic publications, direct mail, telemarketing,
television, radio and word of mouth. The Company has retained Professional Marketing
International, Inc. of Lehigh, Utah to provide telemarketing services. Further, the
Company's wholly owned subsidiary corporation, Whitney Consulting Services, Inc. also
furnishes telemarketing and mail services to the Company.
Certification
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The Company is accredited by the state of Texas as a Certified Proprietary School. No other
state has accredited the Company in any manner and there is no assurance that the Company
will ever be accredited by any other state for any reason.
Subsidiary Corporations
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The Company conducts its business through the following wholly owned subsidiary
corporations: Whitney Education Group, Inc. (formerly, Win Systems, Inc.); Whitney Internet
Services, Inc.; Russ Whitney's Wealth Education Centers, Inc. and its wholly owned
subsidiary corporations, Russ Whitney's Wealth Education Center of Jackson, MS, Inc. and
Russ Whitney's Wealth Education Center of Atlanta, Georgia; Whitney Consulting Services,
Inc.; Whitney Canada, Inc.; Wealth Intelligence Network, Inc.; and 1612 E. Cape Coral
Parkway Land Trust; Precision Software Services, Inc.; Whitney Mortgage.com, Inc. and
Whitney UK, Limited.
Trademarks and Copyrights
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The Company has licenses to sell and distribute all of its products. It is currently
seeking trademark protection on certain names and marks. The Company entered into
confidential agreements with all technical employees and consultants and with third parties
in connection with the Company's license agreements. Despite these precautions, it may be
possible for a third party to copy or otherwise obtain proprietary information without
authorization. Third parties may also develop similar technology or methods independent of
the Company.
Competition
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The Company is involved in a highly competitive business. There are several other entities,
which manufacture, publish, and conduct training programs, some of which are much larger
companies possessing substantially greater financial resources and facilities than the
Company. However, said corporations are not using the same marketing and distribution
channels for their products as is the Company. The Company believes that the principal
competitive factors in its marketing are: (1) brand recognition; (2) a broad selection of
products and services; (3) comprehensive courses and in-depth curricula; (4) quality and
responsiveness of customer service; and, (5) ease of use of the Company's products.
The Company is currently enhancing its advertising and marketing to keep its name prominent
among those providing similar services. The Company is developing new courses and new
markets for its existing courses.
The Company believes that its responsiveness to its student's needs has created customer
satisfaction. The foregoing is reflected in information solicited from the Company's
students at the conclusion of the Company's training sessions.
Company's Office
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The Company's headquarters are located 4818 Coronado Parkway, Cape Coral, Florida 33904 and
the telephone number is (941) 542-8999.
Employees
- ----------
The Company employs approximately 168 full time employees and 6 part-time employees.
RISK FACTORS
(1) DEVELOPMENT AND MARKET ACCEPTANCE OF PRODUCTS. The Company's success and growth will
depend upon the Company's ability to market its existing products and services, of
which there is no assurance. See 'Business - Real Estate Programs'.
(2) LIQUIDITY; NEED FOR ADDITIONAL FINANCING. The Company believes that it has the cash
it needs for at least the next twelve months based upon its internally prepared
budget. The Company's cash requirements, however, are not easily predictable and
there is a possibility that its budget estimates will prove to be inaccurate. If the
Company is unable to generate a positive cash flow before its cash is depleted, it
will be required to curtail operations substantially, or seek additional capital.
There is no assurance that the Company will be able to obtain additional capital if
required, or if capital is available, to obtain it on terms favorable to the Company.
The Company may suffer from a lack of liquidity in the future, which could impair its
short-term marketing and sales efforts and adversely affect its results of
operations. See Management's Discussion and Analysis or Plan of Operation.
(3) COMPETITION. Some of the Company's competitors have substantially greater financial,
technical and marketing resources than the Company. In addition, the Company's
products compete indirectly with numerous other products. As the market for the
Company's products expand, the Company expects that additional competition will
emerge and that existing competitors may commit more resources to those markets. See
Business - Competition.
(4) RELIANCE UPON DIRECTORS AND OFFICERS. The Company is wholly dependent, at the
present, upon the personal efforts and abilities of its Officers and Directors,
Russell A. Whitney, Chief Executive Officer and Chairman of the Board of Directors;
Richard W. Brevoort, President and a member of the Board of Directors; and Ronald S.
Simon, Secretary/Treasurer and a member of the Board of Directors, who exercise
control over the day to day affairs of the Company. See Business and Management.
(5) ISSUANCE OF ADDITIONAL SHARES. 17,121,977 shares of Common Stock or 69% of the
25,000,000 authorized shares of Common Stock of the Company are unissued. The Board
of Directors has the power to issue such shares, subject to shareholder approval, in
some instances. Although the Company presently has no commitments, contracts or
intentions to issue any additional shares to other persons, other than in the
exercise of options and warrants, the Company may in the future attempt to issue
shares to acquire products, equipment or properties, or for other corporate purposes.
Any additional issuance by the Company, from its authorized but unissued shares,
would have the effect of diluting the interest of existing shareholders. See
Description of Securities.
(6) INDEMNIFICATION OF OFFICERS AND DIRECTORS FOR SECURITIES LIABILITIES. The Company's
Articles of Incorporation provide that the Company will indemnify any director,
officer, agent and/or employee as to those liabilities and on those terms and
conditions as are specified in The Company Act of the State of Colorado. Further, the
Company may purchase and maintain insurance on behalf of any such persons whether or
not the Company would have the power to indemnify such person against the liability
insured against. The foregoing could result in substantial expenditures by the
Company and prevent any recovery from such officers, directors, agents and employees
for losses incurred by the Company as a result of their actions. Further, the Company
has been advised that in the opinion of the Securities and Exchange Commission,
indemnification is against public policy as expressed in the Securities Act of 1933,
as amended, and is, therefore, unenforceable.
(7) CUMULATIVE VOTING, PREEMPTIVE RIGHTS AND CONTROL. There are no preemptive rights in
connection with the Company's Common Stock. Shareholders may be further diluted in
their percentage ownership of the Company in the event additional shares are issued
by the Company in the future. Cumulative voting in the election of Directors is not
provided for. Accordingly, the holders of a majority of the shares of Common Stock,
present in person or by proxy, will be able to elect all of the Company's Board of
Directors. See Description of Securities.
(8) NO DIVIDENDS ANTICIPATED. At the present time the Company does not anticipate paying
dividends, cash or otherwise, on it's Common Stock in the foreseeable future. Future
dividends will depend on earnings, if any, of the Company, its financial requirements
and other factors. See Dividend Policy.
ITEM 2. PROPERTIES
The Company leases office space from Russ Whitney, Chief Executive Officer and Chairman of
the Board of Directors, pursuant to the terms of a three-year lease, which commenced on
September 1, 1999 and terminates on October 31, 2002 with a monthly rental payment of
$5,805. Russ Whitney is the President of the Company and a member of its Board of
Directors. The terms of the lease are no less favorable as can be obtained from independent
third parties.
Whitney Consulting Services, Inc. leases 6,840 square feet of office space from Draper
Business Park L.C. at Suite 230, Building #7, 12244 South Business Park Drive, Draper, Utah
pursuant to a written lease agreement. The term of the lease is from November 1, 2001 to
October 31, 2006. The aggregate monthly rental is $6,128 per month.
Whitney Canada, Inc. leases an office building at Unit 20, 3780-14th Avenue, Ontario,
Canada, pursuant to a written lease agreement. The term of the lease is from May 1, 2000
to April 30, 2003. The monthly rental is $1,081 for the first year and $1,654 for the
second in Canadian dollars.
Cape Coral Parkway Land Trust owns an office building at 1612 E. Cape Coral, Cape Coral,
FL. The Company has been leasing space to two tenants pursuant to written lease
agreements. One of the leases expires in 2005 and the other lease was cancelled as of
March 1, 2002. The Company will occupy the vacated premises in 2002.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party defendant in any material pending or threatened litigation and
to its knowledge, no action, suit or proceedings has been threatened against its officers
and its directors.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year covered by this report
to a vote of security holders, through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's shares are traded on the Bulletin Board operated by the National Association
of Securities Dealers, Inc. (the 'Bulletin Board') under the trading symbol 'RUSS.' The
Company's shares began trading in August 1998. These quotations reflected inter-dealer
prices, without retail mark-up, markdown or commissions and may not represent actual
transactions. Summary trading by quarter for the 2001, 2000 and 1999 fiscal years are as
follows:
Fiscal quarter 2001 High Ask Low Bid
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Fourth Quarter $ 1.85 $ 1.50
Third Quarter $ 2.95 $ 1.65
Second Quarter $ 1.90 $ 1.05
First Quarter $ 2.00 $ .95
Fiscal quarter 2000
Fourth Quarter $ 1.25 $ 1.00
Third Quarter $ 1.25 $ 1.05
Second Quarter $ 4.00 $ 3.25
First Quarter $ 3.87 $ 3.50
Fiscal quarter 1999
Fourth Quarter $ 2.50 $ 1.88
Third Quarter $ 2.00 $ 1.44
Second Quarter $ 2.00 $ 1.87
First Quarter $ 2.00 $ 1.75
The source for the foregoing high and low bid information was Michael Kirby a registered
representative of Spencer Edwards, Inc. a market maker in the Company's common stock and
from Big Charts.com on the Internet.
As of December 31, 2001, the Company had 172 holders of record of its Common Stock.
The Company has not paid any dividends since its inception and does not anticipate paying
any dividends on its Common Stock in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
The Company has 7,878,023 shares of Common Stock issued and outstanding as of December 31,
2001. Of the shares of the Company's Common Stock outstanding, 750,023 shares are freely
tradable and 7,128,000 shares can only be resold in compliance with Reg. 144 adopted under
the Securities Act of 1933 (the 'Act').
In general, under Rule 144 as currently in effect, a person (or persons whose Shares are
aggregated) who has beneficially owned Shares privately acquired directly or indirectly
from the Company or from an affiliate, for at least one year, or who is an affiliate, is
entitled to sell within any three month period a number of such Shares that does not exceed
the greater of 1% of the then outstanding shares of the Company's Common Stock or the
average weekly trading volume in the Company's Common Stock during the four calendar weeks,
immediately preceding such sale. Sales under Rule 144 are also subject to certain manner of
sale provisions, notice requirements and the availability of current public information
about the Company. A person (or persons whose Shares are aggregated) who is not deemed to
have been an affiliate at any time during the 90 day preceding a sale, and who has
beneficially owned Restricted Shares for at least two years, is entitled to sell all such
Shares under Rule 144 without regard to the volume limitations, current public information
requirements, manner of sale provisions or notice requirements.
In 1996, the Company issued 976,200 shares of common stock to its officers, directors and
others pursuant to Reg. 504 of the Securities Act of 1933.
On or about August 18, 1998, the Company reverse split its shares of common stock on a
1-for-1.3016 basis.
On or about August 18, 1998, the Company issued 93,750 Class A Warrants to Earnest Mathis,
Jr. in consideration of $100.00 and 93,750 Class A Warrants to Gary Agron in consideration
of $100.00. Mathis and Agron are former directors of the Company. The Class A Warrants were
issued pursuant to Section 4(2) of the Securities Act of 1933 (the 'Act') and are deemed
'restricted' securities as that term is defined in Reg. 144 of the Act. As of the date
hereof, Messrs. Mathis and Agron have not exercised any of the foregoing Class A Warrants.
For a description of the Class A Warrants, see 'Description of Securities.'
On August 18, 1998, the Company acquired all of the issued and outstanding shares of common
stock of Win Systems, Inc., a corporation controlled by Russell Whitney, the Company's
Chief Executive Officer and Chairman of the Board of Directors in consideration of
6,750,000 shares of the Company's common stock and 340,000 Class B Warrant entitling the
holders thereof to acquire an additional 340,000 shares of the Company's common stock at an
exercise price of $4.00 per share up to August 18, 2002. The shares of common stock and
warrants were issued pursuant to Section 4(2) of the Securities Act of 1933. For a
description of the Class B Warrants, see 'Description of Securities.'
On February 1, 1999, the Company issued 20,000 shares of its common stock in exchange for
all the outstanding stock of Wealth Intelligence Network, Inc. The shares were valued at
$2.50 each for a total purchase price of $50,000. Wealth Intelligence Network, Inc.
publishes a monthly financial newsletter and provides and promotes financial education and
training. In addition, the Company issued 8,000 shares to a financial public relations firm
for financial public relations services in the amount of $14,500 (2,000 shares at $2.00 on
May 31, 1999; and 2,000 shares at $1.875 on June 30, 1999; and 2,000 at $1.75 on July 31,
1999; and 2,000 shares on August 31, 1999 at $1.625 per share). The issuances of the
foregoing shares were exempt from registration under the Securities Act of 1933 pursuant to
Section 4(2) of the Act.
On April 24, 2000, the Company converted their 340,000 class B warrants to stock options.
The exercise price of the warrants was changed from $4 to $2 in this transaction. This
transaction has since been accounted for using variable accounting in accordance with FIN44.
On or about November 1, 2001 the Company acquired 100% of the outstanding shares of
Precision Software Services, Inc. (which Russ Whitney, CEO and director owned 51% of the
issued and outstanding shares). The Company issued 333,334 shares of its common stock,
valued at $1.50 in exchange for the stock of Precision Software Services, Inc. (PSS) Mr.
Whitney received 170,000 shares and an employee/shareholder of PSS received the remaining
shares in the exchange.
Also, 16,667 shares (valued at $1.50) were issued to an instructor/trainer of the Company
for services on or about November 1, 2001.
ITEM 6. SELECTED FINANCIAL DATA (FOR 2001, 2000, 1999, 1998)
The following consolidated selected financial data, at the end of the four fiscal years of
existence, should be read in conjunction with our Consolidated Financial Statements and
related Notes thereto appearing elsewhere in this Report. The consolidated selected
financial data are derived from our consolidated financial statements which have been
audited by Ehrhardt Keefe Steiner Hottman PC and Larry Legel, CPA(1998 and 1999), our
independent auditors, as indicated in their report included herein. The selected financial
data provided below is not necessarily indicative of our future results of operations or
financial performance.
2001 2000 1999 1998
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Operating revenues 42,157,740 32,859,857 26,775,589 13,760,208
Profit(loss)from 2,281,363 (8,960,463) (1,962,266) (2,238,307)
continuing operations
Profit(loss)from
continuing operations per
share .30 (1.19) (.26) (.30)
Total assets 16,544,869 13,654,597 6,284,403 2,327,228
Long-term obligations 575,000 1,200,000 0 64,979
Cash flow from operations 5,276,500 3,545,361 1,250,950 619,468
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the consolidated financial
statements and notes thereto.
FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements within the meaning of the 'safe harbor'
provisions under section 21E of the Securities and Exchange Act of 1934 and the Private
Securities Litigation Act of 1995. The Company uses forward-looking statements in its
description of its plans and objectives for future operations and assumptions underlying
these plans and objectives. Forward-looking terminology includes the words 'may',
'expects', 'believes', 'anticipates', 'intends', 'forecasts', 'projects', or similar terms,
variations of such terms or the negative of such terms. These forward-looking statements
are based on management's current expectations and are subject to factors and uncertainties
which could cause actual results to differ materially from those described in such
forward-looking statements. The Company expressly disclaims any obligation or undertaking
to release publicly any updates or revisions to any forward-looking statements contained in
this Form 10-K to reflect any change in its expectations or any changes in events,
conditions or circumstances on which any forward-looking statement is based. Factors which
could cause such results to differ materially from those described in the forward-looking
statements include those set forth under 'Risk Factors,' and elsewhere, in or incorporated
by reference into this Form 10-K.
OVERVIEW
On August 18, 1998, Gimmel Enterprises, Inc., a shell company listed on the NASD OTC
Bulletin Board acquired all of the outstanding shares of Whitney Education Group, Inc.
(formerly Win Systems, Inc.). Prior to this Gimmel Enterprises, Inc. had no operations and
its activities consisted of efforts to establish a new business.
Gimmel Enterprises, Inc. changed its name to Whitney Information Network, Inc (WIN!).
Whitney Education Group, Inc was a privately held company formed in 1992. For financial
and reporting purposes the acquisition has been treated as a recapitalization of WIN! with
WIN! as the acquirer (a reverse merger). The historical financial statements prior to
August 19, 1998 are those of Whitney Education Group, Inc.
Whitney Information Network, Inc. (WIN!) is a provider of education in the areas of real
estate, finance, business success, and other post secondary career related training. Its
learning solutions are designed to deploy and manage knowledge practically and more
effectively for use as a competitive advantage. The Company has accomplished its position
in the market and growth through its innovative distribution channels, including classroom
education, one-on-one mentoring, group instruction, training centers, and Internet
marketing.
During 1999, the Company opened or acquired new subsidiaries and expanded its existing
subsidiaries: Whitney Internet Services, Inc., a Company organized to provide Internet
marketing and training. Russ Whitney's Wealth Education Centers, Inc. will provide the same
products and services locally in a brick and mortar facility that the parent does on a
national basis. Whitney Consulting Group, Inc. provides consulting and telemarketing
services to the public and to the affiliated group. Whitney Canada, Inc. provides the same
training and educational services in Canada that the parent Company provides in the US.
Wealth Intelligence Network, Inc. provides financial training and financial consulting
services. Whitney Mortgage.com, will provide a means for the Company's students to obtain
mortgages at reasonable rates, and Whitney Education Group, Inc is the Company's mainstay
educational and training company.
YEAR ENDED DECEMBER 31, 1999
Revenue
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Revenues for the year ended December 31, 1999 increased to $26,775,589 as compared with
$13,760,208 for the year ended December 31, 1998 an increase of $13,687,306, or 105%. The
increase in revenue is a direct result of increased basic and advance real estate courses
available to students along with a successful media campaign. Seminar expenses increased
$6,846,462 for the year ended December 31, 1999 from $4,682,850 for the year ended December
31, 1998.
During 1999, more than 25,000 new students registered for one or more of the Company's
programs each month. The Company's success can also be attributed to the fact that 71
percent of its gross annual revenue can be attributed to repeat business, a factor that
also indicates students find its training is effective.
Following a 144 percent sales growth from 1997 to 1998, the Company continued strong gains
with 97 percent sales growth in 1999. As the momentum continues through 2000, more than
206,896 students registered for training during the first six months of the year, up 25
percent when compared to the first six months of 1999, in which 165,708 students registered.
Advertising and Sales Expense
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Total Advertising and Sales Expense increased for the year ended December 31, 1999 to
$12,708,275 from $8,773,036 for the year ended December 31, 1998. This increase in
advertising and sales expenses represented management's decision to increase sales, expand
product lines, and offer the Company's students a greater variety of courses to choose
from. As a result there were a greater number of period costs incurred in the year ended
December 31, 1999 where certain marketing strategies were being tested and refined. Thus,
expenses increased proportionately with sales increases due to the higher expenditures in
1999.
Advertising, sales and marketing expenses consist primarily of TV and newspaper
advertising, direct mailings, travel, public relations, trade shows, and other marketing
literature and overhead allocations.
General and Administrative Expense
- ----------------------------------
General and Administrative Expenses (G & A) increased from $2,542,629 for the year ended
December 31, 1998 to $4,500,268 for the year ended December 31, 1999. The overall increase
in the year ended December 31, 1999 of $1,957,639 (or 76%) reflects the initial startup
expenses in adding more courses and crews in the last half of 1999 and development of
additional products in 1999 that were one time expenditures. General and administrative
expenses consist mainly of salaries and other personnel-related expenses for the Company's
administrative, executive, and finance personnel as well as outside legal and audit costs.
The net loss was $1,962,266 for the year ended December 31, 1999 compared with loss of
$2,238,307 for the year ended December 31, 1998, a decrease in loss of $276,041 or 22% over
the prior year. This resulted in loss of $.26 per share for the year ended December 31,
1999 as compared with $.30 for the year ended December 31, 1998.
Liquidity and Working Capital
- -----------------------------
At December 31, 1999 the Company had cash of $1,274,708 as compared with $370,571 at
December 31, 1998. This increase of $904,137 was attributable primarily to operations.
Deferred Educational Revenues
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Deferred educational revenues arise when a student purchases a course or courses and does
not attend those courses until after the balance sheet date. All courses must be scheduled
by the students within 90 days of registration and taken within one year. Deferred
revenues at December 31, 1999 were $9,311,574 as compared with those at December 31, 1998
of $3,958,244. This substantial increase represents a natural increase from higher volume
and an increase due to a change in emphasis from basic training to intensified training and
educational camps. Thus, a greater amount of revenue was deferred as a larger proportion
of educational products sold in 1999 were not realized until the student attended the
courses for which he/she was registered. In addition to the deferred revenues, there was a
commensurate amount of expenses associated with those revenues that is also deferred. As of
December 31, 1998 there were $676,899 of expenses that were deferred as compared to
$1,361,326 at December 31, 1999.
YEARS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000
Revenues for the year ended December 31, 2001 increased to $42,157,740 as compared with
$32,859,857 for the year ended December 31, 2000 an increase of $9,297,883 or 28%. Total
deferred revenues on the balance sheet were $23,937,349 and $22,640,442 at December 31,
2001 and 2000, respectively.
Seminar expenses decreased to $19,533,802 for the year ended December 31, 2001 from
$22,232,387 for the year ended December 31, 2000. Seminar expenses for the year ended
December 31, 2001 decreased due in part to a $3.4 million reduction in costs related to our
Internet division (see below), which ceased providing outside marketing services during
2001, partially offset by an increase in speaker fees related to the Company's seminars.
Speaker fees approximate 12% of revenues ($5,000,000 for 2001 and $4,000,000 for 2000).
The remainder of seminar expenses remained relatively constant from 2000 to 2001. While
the Company defers the speaker fees related to its deferred revenues, costs of the seminars
are expensed as incurred. Due to the $13 million increase in deferred revenue in 2000 over
1999 levels, these seminars are generally fulfilled in 2001 causing income from operations
to increase from a $8.9 million operating loss in 2000 to a $2.2 million operating income
in 2001.
Total Advertising, Selling and General and Administrative expenses increased for the year
ended December 31, 2001 to $20,342,575 from $19,587,933 in 2000. These substantial
increases in revenues and expenses in 2001 over 2000 reflect a general increase in business
activity, and reflect the results of the company's plan to expand its business into new
markets and develop new products.
Sales and marketing expenses consist primarily of TV and newspaper advertising, direct
mailings, travel, public relations, trade shows and other marketing literature and overhead
allocations. General and administrative expenses consist mainly of salaries and other
personnel-related expenses for the Company's administrative, executive and finance
personnel as well as outside legal and audit costs.
Net income of $2,534,247 for the year ended December 31, 2001 increased by $11,237,374 over
the net loss for the year ended December 31, 2000 of $8,703,127 or a gain of $1.49 per
share as compared with a loss of $1.16 a share for the prior year.
After continued losses in the internet division, the Company shut down the outside training
operations in 2001 and continued to maintain website operations and sales in that
division. Also, after a test period, the Company decided during 2001 not to proceed with
the Building Wealth Centers in Georgia and Mississippi due to unacceptable returns and
higher than anticipated fixed costs.
Earnings (Loss) Before Interest, Taxes, Depreciation and Amortization (EBITDA) for the year
ended December 31, 2001 and 2000 was $2,930,874 and $(8,523,186), respectively. EBITDA is
defined as net income (loss) before income taxes, interest and other income and expense,
net, plus depreciation and amortization including amortization of pending real estate sales
contracts.
Liquidity and Working Capital
- -----------------------------
At December 31, 2001 the Company had cash of $6,889,275 as compared with $3,316,905 at
December 31, 2000. This increase of $3,572,370 is attributable primarily to cash provided
by operations. The company anticipates that its cash flow from operations will be
sufficient to meet its needs in the next 12 months.
In addition, the Company from time to time evaluates potential acquisitions of business
products and/or technologies that complement the Company's business. To the extent that
resources are insufficient to fund the Company's activities, the Company may need to raise
additional funds. There can be no assurance that such additional funding, if needed, will
be available. If adequate funds are not available on acceptable terms, the Company may be
unable to expand its business, develop or enhance its products and services, take advantage
of future opportunities or respond to competitive pressures, any of which could have a
material adverse effect on the Company's business, operating results and financial
condition.
Fluctuations in Quarterly Operating Results
- -------------------------------------------
The Company's quarterly operating results have varied in the past and are expected to vary
in the future as a result of a variety of factors, some of which are outside the Company's
control. Factors that may adversely affect the Company's quarterly operating results
include the demand for technology-based training in general, and demand for online learning
solutions in particular: the size and timing of educational sessions and registrations, the
mix of revenue from products and services, the mix of products sold, market acceptance, etc.
September 11, 2001 Events and Effect on the Company
- ---------------------------------------------------
A large amount of recognized revenue is derived when students attend the intensified
training camps as well as the specialized training courses held around the country at
locations that routinely require air travel. Following the events of September 11th, the
Company experienced a downturn of students willing to travel during the following three
months and had to cancel or scale back many of these training camps during the fourth
quarter 2001, thereby significantly reducing revenues during the fourth quarter of 2001.
During the first quarter of 2002, attendance returned to normal levels. In addition, during
the 911 tragedy, many of our TV commercials (our major advertising source) were pre-empted
by the news coverage of the terrorists and the World Trade Center causing the amount of
students usually attending our events to be reduced to half.
Office Building
- ----------------
Whitney Information Network, Inc. entered into a purchase agreement on August 11, 2000 to
purchase real property in Cape Coral, Florida known as the SunBank Building at 1612 E. Cape
Coral Parkway at a purchase price of $2,200,000. The closing of this commercial office
building took place on November 9, 2000. A deposit of $500,000 was made on August 11, 2000
and an additional down payment of $500,000 was paid at closing.
The Seller took back a $1,200,000 purchase money balloon payment mortgage due November 9,
2004, interest payable monthly at an initial rate of 9% per annum due on the first of each
month. The interest rate of 9% is adjustable on a semi-annual basis by the amount of
change, if any, in the prime rate charged by the Chase Manhattan Bank, New York, using the
rate in effect each June 1st and each December 1st as the basis for the change. During the
first three years of this mortgage, the interest rate shall not exceed 10% or fall below
8%. During the fourth year the interest shall not be less than 8.5%. Principal payments
may be paid in whole or in part at any time without penalty.
Conference Center
- -----------------
The Company entered into an agreement to build an international conference center in Costa
Rica at an approximate cost of $550,000 (including land and building). The 7,000 square
foot conference center is expected be completed approximately the 3rd quarter of 2002.
Expenditures to December 31, 2001 were $105,562, with additional construction draws in
February and March of 2002 of approximately $145,000.
ITEM 8. FINANCIAL STATEMENTS
WHITNEY INFORMATION NETWORK, INC. AND SUBSIDIARIES
Consolidated Financial Statements
and
Independent Auditors' Reports
December 31, 2001 and 2000
Table of Contents
Independent Auditors' Reports
Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Colidated Statement of Changes in Stockholders' Deficit
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Whitney Information Network, Inc. and Subsidiaries
Cape Coral, Florida
We have audited the accompanying consolidated balance sheets of Whitney
Information Network, Inc. and Subsidiaries as of December 31, 2001 and 2000, and
the related consolidated statements of operations, changes in stockholders'
deficit and cash flows for the years then ended . These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Whitney Information
Network, Inc. and Subsidiaries as of December 31, 2001 and 2000, and the results
of their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.
/s/Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
March 20, 2002
Denver, Colorado
LARRY LEGEL, CPA
Practice Concentrating in
Taxation and Securities
5100 N. Federal Highway, Suite 409
Ft. Lauderdale, FL 33308
(954) 493-8900 Office
(954) 493-8300 Fax
e-mail: LarryLegel@aol.com
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of the
Whitney Information Network, Inc.
Cape Coral, FL 33907
I have audited the accompanying consolidated balance sheet of Whitney Information
Network, Inc. (formerly WIN Systems, International, Inc.) as of December 31,1999,
and the related statements of consolidated operations, changes in consolidated
stockholders' equity, and consolidated cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these consolidated financial
statements based on my audits.
I have conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, the financial position of Whitney Information Network, Inc. as of
December 31,1999, and the results of its consolidated operations and its
consolidated cash flows for the year then ended, in conformity with generally
accepted accounting principles consistently applied.
Larry Legel
s/s Larry Legel
Certified Public Accountant
January 19, 2001
Ft. Lauderdale, Florida
Consolidated Balance Sheets
December 31,
2001 2000
------------ -------------
Assets
Current assets
Cash and cash equivalents $ 6,889,275 $ 3,316,905
Accounts receivable, net of allowance of $0 (2001)
$91,885 (2000) 525,878 1,793,454
Due from affiliates, net 159,591 70,490
Prepaid advertising and other 953,661 625,028
Income taxes receivable and prepayments 497,499 1,893,999
Inventory 136,544 268,663
Deferred seminar expenses 3,638,556 2,644,404
-------------- -------------
Total current assets 12,801,004 10,612,943
-------------- -------------
Property and equipment, net 3,628,447 2,965,925
Investment in foreign corporation 82,500 -
Other assets 32,918 75,729
--------------- ------------
Total non-current assets 3,743,865 3,041,654
--------------- ------------
Total assets $ 16,544,869 $ 13,654,597
============= ==============
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable $ 1,152,337 $ 1,942,804
Accrued seminar expenses 435,360 349,341
Deferred revenue 23,937,349 22,640,442
Accrued expenses 702,548 458,982
Current portion of long-term debt 62,500 -
Current portion of note payable- officer/stockholder 62,500 -
------------- -------------
Total current liabilities 26,352,594 25,391,569
Long-term debt, less current portion 512,500 1,200,000
Note payable- officer/stockholder, less current portion 62,500 -
------------- -------------
Total liabilities 26,927,594 26,591,569
-------------- -------------
Commitments and contingencies
Stockholders' deficit
Preferred stock, no par value, 10,000,000 shares
authorized, no shares issued and outstanding - -
Common stock, no par value, 25,000,000 shares
authorized, issued and outstanding shares 7,878,023
(2001) and 7,528,022 (2000) 337,102 67,102
Paid-in capital 900 900
Accumulated deficit (10,720,727) (13,004,974)
------------- --------------
Total stockholders' deficit (10,382,725) (12,936,972)
------------- --------------
Total liabilities and stockholders' deficit $ 16,544,869 $ 13,654,597
============= ==============
See notes to consolidated financial statements.
Consolidated Statements of Income
For the Years Ended December 31,
2001 2000 1999
-------------- ------------- -------------
Sales $ 42,157,740 $ 32,859,857 $ 26,775,589
-------------- ------------- --------------
Expenses
Seminar expenses 19,533,802 22,232,387 11,529,312
Advertising and sales expense 12,044,713 12,529,615 12,708,275
General and administrative expense 8,297,862 7,058,318 4,500,268
-------------- ------------- --------------
Total expenses 39,876,377 41,820,320 28,737,855
-------------- ------------- --------------
Income (loss) from operations 2,281,363 (8,960,463) (1,962,266)
-------------- ------------- -------------
Other income (expense)
Interest and other income 356,989 267,344 -
Interest expense (104,105) (10,008) -
-------------- ------------- -------------
252,884 257,336 -
-------------- ------------- -------------
Net income (loss) $ 2,534,247 $ (8,703,127) $ (1,962,266)
============== ============= ==============
Basic and diluted weighted average
common shares outstanding 7,587,474 7,528,022 7,502,346
============== ============= ==============
Basic and diluted income (loss) per
common share $ 0.33 $ (1.16) $ (0.26)
============== ============== =============
See notes to consolidated financial statements.
Consolidated Statement of Changes in Stockholders' Deficit
For the Years Ended December 31, 2001, 2000 and 1999
Additional Total
Common Stock Paid-in Accumulated Stockholders'
------------------------
Shares Amount Capital Deficit Deficit
---------- ----------- ----------- ------------- ------------
Balance - December 31,
1998 7,500,047 $ 2,602 $ 900 $(2,339,581) $(2,336,079)
Issuance of stock 27,975 64,500 - - 64,500
Net loss - - - (1,962,266) (1,962,266)
----------- ----------- ----------- ------------ --------------
Balance - December 31,
1999 7,528,022 67,102 900 (4,301,847) (4,233,845)
Net loss - - - (8,703,127) (8,703,127)
----------- ------------ ---------- ------------ --------------
Balance - December 31,
2000 7,528,022 67,102 900 (13,004,974) (12,936,972)
Issuance of stock for
software 163,334 245,000 - - 245,000
Issuance of stock, cash
and note payable to
majority stockholder
for interest in
Precision Software
Services, Inc. 170,000 - - (250,000) (250,000)
Issuance of stock for
services 16,667 25,000 - - 25,000
Net income - - - 2,534,247 2,534,247
----------- ------------ ----------- ------------ -------------
Balance - December 31,
2001 7,878,023 $ 337,102 $ 900 $(10,720,727) $(10,382,725)
=========== ============ ============ ============ =============
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows
For the Years Ended December 31,
2001 2000 1999
-------------- ------------ -------------
Cash flows from operating activities
Net income (loss) $ 2,534,247 $ (8,703,127) $ (1,962,266)
-------------- ------------- --------------
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities
Allowance for doubtful accounts (91,885) 91,885 -
Depreciation and amortization 292,522 169,933 18,267
Loss on disposal of assets 72,485 - -
Stock issued for services 25,000 - -
Changes in assets and liabilities
Accounts receivable 1,359,461 (489,780) (415,296)
Prepaid advertising and other (328,633) 44,079 (527,659)
Income taxes receivable and
prepayments 1,396,500 (925,867) (968,132)
Inventory 132,119 (268,663) -
Deferred seminar expenses (994,152) (1,283,078) (684,427)
Other assets 42,811 36,658 (141,905)
Accounts payable (790,467) 1,346,341 31,755
Accrued seminar expenses 86,019 101,481 247,860
Deferred revenue 1,296,907 13,328,868 5,353,330
Accrued expenses 243,566 96,631 299,423
-------------- ------------- --------------
2,742,253 12,248,488 3,213,216
-------------- ------------- --------------
Net cash provided by operating
activities 5,276,500 3,545,361 1,250,950
-------------- ------------- --------------
Cash flows from investing activities
Purchase of property and equipment (657,529) (1,439,920) (278,540)
Loans to affiliates, net (89,101) (63,244) (120,345)
Investment in foreign corporation and
land (82,500) - -
-------------- ------------- -------------
Net cash used in investing
activities (829,130) (1,503,164) (398,885)
-------------- ------------- --------------
Cash flows from financing activities
Proceeds from sale of common stock - - 64,500
Payments of principal on long-term debt (750,000) - -
Distribution to officer/stockholder (125,000) - -
Net repayments of loans from affiliates - - (12,428)
-------------- -------------- -------------
Net cash (used in) provided by
financing activities (875,000) - 52,072
-------------- -------------- -------------
Net increase in cash and cash equivalents 3,572,370 2,042,197 904,137
Cash and cash equivalents - beginning of
year 3,316,905 1,274,708 370,571
-------------- -------------- ------------
Cash and cash equivalents - end of year $ 6,889,275 $ 3,316,905 $ 1,274,708
============== ============== ==============
Supplemental disclosure of cash flow information
Cash paid for income taxes was $0, $925,867 and $968,132 for 2001, 2000 and
1999, respectively.
Cash paid for interest was $104,105, $10,008 and $0 for 2001, 2000 and
1999, respectively.
Supplemental disclosure of non-cash activity:
During 2001, the Company acquired software rights of $370,000 through the
issuance of common stock of $245,000 and debt of $125,000.
During 2001, the Company acquired software rights owned by an
officer/shareholder through the issuance of stock at zero value and debt
of $125,000. These transactions were recorded as distributions in the
accompanying financial statements.
During 2000, a building was acquired through a mortgage note payable of
$1,200,000.
During 2000, $168,715 of fixed assets were acquired, at net book value,
from a related entity through related party advances.
Notes to Consolidated Financial Statements
Note 1 - Description of Business and Summary of Significant Accounting Policies
Organization and History
Whitney Information Network, Inc. and Subsidiaries (the Company) is engaged
primarily in the business of providing financial education and training services
through seminars, workshops and publications. The Company's educational and
training services are concentrated in the area of financial management and real
estate investment. The Company markets its services and products primarily
through periodic publications, telemarketing, television and radio.
Whitney Information Network, Inc., formerly known as Win Systems International,
Inc., incorporated in Colorado on February 23, 1996 under the name of Gimmel
Enterprises, Inc.
Whitney Education Group, Inc., formerly known as Win Systems, Inc., incorporated
in Florida on November 12, 1992. An exchange of shares was completed between the
shareholders of Win Systems, Inc. and Gimmel Enterprises, Inc. on August 18,
1998. Subsequently, the name of Gimmel Enterprises, Inc. was changed to Win
Systems International, Inc. on August 25, 1998, and that name was changed to
Whitney Information Network, Inc. on February 11, 1999. The name of Win Systems,
Inc. was changed to Whitney Education Group, Inc. on September 10, 1999.
Win Systems, Inc. has been operating in the educational seminars industry since
1992 and expanded its operation in the industry subsequent to the aforesaid
exchange of shares and name change to Whitney Education Group, Inc.
Whitney Education Group, Inc. is accredited by the State of Texas as a Certified
Proprietary School, effective January 8, 1999.
During 1998, Win Systems International, Inc. expanded its educational seminars
business into Canada through the opening of a wholly owned subsidiary, 1311448
Ontario, Inc. The Canadian operations continued to expand and at the end of 1999
the operations were transferred to Whitney Canada, Inc. through an amalgamation
of two wholly owned subsidiaries.
Whitney Canada, Inc. incorporated in Canada on October 5, 1998 and is the
surviving corporation of an amalgamation with 3667057 Canada, Inc. 3667057
Canada, Inc. was incorporated in Ontario, Canada on August 21, 1998 under the
name of 1311448 Ontario, Inc. The name was changed to 3667057 Canada, Inc. on
October 5, 1999 as a preliminary requirement of federalization of the
corporation, which had been an Ontario corporation, in order to qualify for the
amalgamation with Whitney Canada, Inc., which was completed January 6, 2000.
There are no significant differences on comprehensive income and foreign exchange.
Whitney Internet Services, Inc. incorporated in Wyoming on June 8, 1999, is
located in Cape Coral, Florida and provides web programming and maintenance
services to the Company. The Company's other operating subsidiaries use the site
to offer their products and services for sale and the site also includes general
information on the Company, its products and services.
Wealth Intelligence Network, Inc. incorporated in Florida on May 26, 1996 under
the name of Real Estate Link, Inc. The name was changed to Wealth Intelligence
Network, Inc. on September 20, 1998. Win Systems International, Inc. acquired
the shares of Wealth Intelligence Network, Inc. on November 18, 1998. Wealth
Intelligence Network, Inc. is an operating subsidiary marketing financial
training seminars, which represents an expansion from the real estate investment
training seminar business.
Whitney Mortgage.com, Inc. incorporated in Florida on September 30, 1999 and
operates as a full service internet mortgage broker affiliated with a national
internet mortgage provider. Brokering mortgages represents an expansion from
educational seminars into a different industry.
Russ Whitney's Wealth Education Centers, Inc. incorporated in Wyoming on June 8,
1999 as a wholly owned subsidiary of Whitney Information Network, Inc. and the
subsidiary is itself the parent corporation of two wholly owned subsidiaries
formed to operate permanent learning centers in Jackson, Mississippi and Atlanta,
Georgia. Russ Whitney's Wealth Education Center of Jackson, MS, Inc. incorporated
in Wyoming on June 8, 1999 and a school was opened in December, 1999. Russ
Whitney's Wealth Education Center of Atlanta, GA, Inc. incorporated in Wyoming on
July 22, 1999 and a school was opened in June 2000. The Wealth Education Centers
were closed during 2001.
Whitney Consulting Services, Inc. incorporated in Wyoming on July 28, 1998 under
the name of Financial Consulting Services, Inc. and the name was changed to
Whitney Consulting Group, Inc. on April 28, 1999 when that corporation was
acquired by Win Systems International, Inc. which then changed its name to
Whitney Consulting Services, Inc. on March 21, 2000. Whitney Consulting
Services, Inc. is located in Salt Lake City, Utah and is an operating subsidiary
telemarketing real estate investments and financial training seminars and an
individual one-on-one mentor program.
The 1612 E. Cape Coral Parkway Land Trust was organized in 2000 to take and hold
a property purchased in Cape Coral, Florida. The Company's Chief Financial
Officer has been designated as trustee and Whitney Information Network, Inc. is
the beneficiary of the trust.
Precision Software Services, Inc. was acquired during 2001. Precision Software
Services, Inc. was incorporated August 1993 and is a Florida corporation that
holds a license to distribute and sell certain real estate and business software
that several subsidiaries of the Company have been selling. Precision Software
Services, Inc. and was formerly owned 51% by the Chairman of the Board and
majority stockholder of the Company.
Whitney U.K. Limited is a British corporation formed and incorporated in October
2001 to engage in educational and training seminars throughout the United
Kingdom. This subsidiary had no significant operations in 2001.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Whitney Information Network, Inc. and the following wholly owned subsidiary
corporations: Whitney Education Group, Inc.; Whitney Internet Services, Inc.;
Russ Whitney's Wealth Education Centers, Inc. and its wholly owned subsidiary
corporations, Russ Whitney's Wealth Education Center of Jackson, MS, Inc. and
Russ Whitney's Wealth Education Center of Atlanta, GA, Inc.; Whitney Consulting
Services, Inc.; Whitney Canada, Inc.; Whitney Mortgage.com, Inc.; Wealth
Intelligence Network, Inc.; the 1612 E. Cape Coral Parkway Land Trust; Precision
Software Services, Inc.; and Whitney U.K. Limited. All material intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with an original
maturity of three months or less to be cash equivalents. The Company continually
monitors its positions with, and the credit quality of, the financial
institutions it invests with.
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to concentration of
credit risk consist principally of cash and short-term cash investments and
accounts receivable. The Company places its temporary cash investments with what
management believes are high-credit, quality financial institutions. As of the
balance sheet date, and periodically throughout the year, the Company has
maintained balances in various operating accounts in excess of federally insured
limits. The Company periodically performs credit analysis and monitors the
financial condition of its customers in order to minimize credit risk.
Inventory
Inventory consists primarily of books, videos and training materials and is
stated at the lower of cost or market, determined using the first-in, first-out
method (FIFO).
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash and cash
equivalents, short-term investments, receivables, deferred seminar expense,
accounts payable, accrued expenses, deferred educational revenues, and notes
payable approximated fair value as of December 31, 2001 because of the relatively
short maturity of these instruments.
Accounts Receivable
Accounts receivable consists of trade receivables from the sale of educational
products and services. The Company believes the allowance for doubtful accounts
is sufficient to cover any uncollectible amounts as of 2001 and 2000 and the
entire amount of revenue related to the net accounts receivable is deferred as
described below.
Revenue Recognition, Deferred Revenue and Deferred Expenses
The Company recognizes revenue at the time the sale is made. Revenue from
educational seminars is recorded (1) when the non-refundable deposit is received
for the seminars and the seminar has taken place; and (2) when it is reasonably
certain that the balance of the option to purchase additional programs will be
exercised and paid and the seminar has taken place. Deferred revenue is recorded
when the seminar proceeds are received in full prior to the related seminar
taking place. Expenses directly associated with future instructional programs
are deferred until the related revenue is recognized.
Advertising Expense and Prepaid Advertising
The Company expenses advertising costs as incurred. Advertising costs were
approximately $7,829,406, $7,340,540, and $4,696,000 for the years ended December
31, 2001, 2000 and 1999, respectively. Advertising paid for in advance is
recorded as prepaid until such time as the advertisement is published.
Advertising costs recorded as prepaid as of December 31, 2001 and 2000 were
$733,227 and $467,737 respectively.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided utilizing the
straight-line method over the estimated useful lives for owned assets, ranging
from 3 to 40 years.
Investment in Foreign Corporation
The Company acquired a 20% ownership interest in a Panama corporation in 2001.
The Company accounts for its investment using the equity method of accounting and
records its proportionate share of the corporation's profit or loss. Operations
of the investee corporation were not significant in 2001.
Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recovered. The Company looks primarily to the undiscounted future cash flows
in its assessment of whether or not long-lived assets have been impaired.
Income Taxes
The Company recognizes deferred tax liabilities and assets based on the
differences between the tax basis of assets and liabilities and their reported
amounts in the financial statements that will result in taxable or deductible
amounts in future years. The Company's temporary differences result primarily
from the recognition of deferred expenses for tax purposes.
Basic Loss Per Share
The Company applies the provisions of Statement of Financial Accounting Standard
No. 128, "Earnings Per Share" (FAS 128). All dilutive potential common shares
have an antidilutive effect on diluted per share amounts and therefore have been
excluded in determining net loss per share. The Company's basic and diluted loss
per share are equivalent and accordingly only basic loss per share has been
presented.
Recently Issued Accounting Pronouncements
In July 2001, the FASB issued SFAS Nos. 141 and 142 " Business Combinations " and
" Goodwill and other Intangible Assets ". Statement 141 requires all business
combinations initiated after June 30, 2001 to be accounted for using the purchase
method. Under the guidance of Statement 142, goodwill is no longer subject to
amortization over its estimated useful life. Rather, goodwill will be subject to
at least an annual assessment for impairment by applying a fair value base test.
Statement 142 is effective for financial statement dates beginning after January
1, 2001.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 requires the fair value of a liability for an asset
retirement obligation to be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset.
SFAS No. 143 is effective for the Company for fiscal years beginning after June
15, 2002. The Company believes the adoption of this statement will have no
material impact on its consolidated financial statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of
Disposal of Long-Lived Assets." SFAS No. 144 requires that those long-lived
assets be measured at the lower of carrying amount or fair value, less cost to
sell, whether reported in continuing operations or discontinued operations.
Therefore, discontinued operations will no longer be measured at net realizable
value or included amounts for operating losses that have not yet occurred. SFAS
No. 144 is effective for financial statements issued for fiscal years beginning
after December 15, 2001 and, generally, is to be applied prospectively.
Reclassifications
Certain amounts in the 2000 consolidated financial statements have been
reclassified to conform to the 2001 presentation.
Note 2 - Mergers, Acquisitions and Capital Accounts
On August 18, 1998, Whitney Education Group, Inc. (formerly Win Systems, Inc.)
was acquired by Whitney Information Network, Inc. (formerly Win Systems
International, Inc. and prior to that Gimmel Enterprises, Inc.) in a reverse
merger whereby Whitney Education group, Inc. exchanged 100% of its shares for 90%
of Gimmel's shares bringing the total shares of Whitney Information Network, Inc.
(issued and outstanding) at August 18, 1998 to 7,500,047. Whitney Education
Group, Inc. became a wholly owned subsidiary of Whitney Information Network, Inc.
(WIN). The financial statements from January 1, 1997 through December 31, 1999
are based upon the assumption that the companies were combined for the entire
period and all stock splits have been reflected in the statements as of the
beginning of the period. Also, on August 18, 1998, WIN issued 187,500 Class A
stock purchase warrants and 340,000 Class B stock purchase warrants. Both the
Class A and Class B warrants were exercisable at $4.00 per share.
The Company has Class A warrants and Class B warrants outstanding, which are
exercisable two years and four years, respectively, after the underlying stock is
registered. The Company also instituted a stock option plan for key personnel.
Under the plan, options are to be granted at the fair market value at the date of
the grant and exercisable for a ten-year period after the grant with a three-year
vesting schedule. The Company has reserved 2,000,000 shares for the stock option
plan of which 921,800 option shares have been granted, net of forfeitures and
cancellations, at exercise prices from $1.70 to $2.00 per share. No options have
been exercised.
On February 1, 1999, the Company purchased all of the assets of Wealth
Intelligence Network, Inc. for 20,000 shares of stock at $2.50 per share. In
addition, the Company issued (during the period from May to August 1999) 7,975
shares to a financial public relations firm in lieu of cash for services valued
at $14,500.
In April 2000, the Company converted their 340,000 class B warrants issued to
employees in August 1998 into stock options. In the conversion, the Company
reduced the exercise price from $4 to $2 (fair market value at date of
conversion). This transaction has since been accounted for using variable
accounting in accordance with FIN 44. No adjustment was made for the period
ending December 31, 2000 because the market price as of December 31, 2000 of the
stock was less than the $2 exercise price.
In November 2001, the Company issued 333,334 shares of common stock valued at
$500,000 for all of the outstanding stock of Precision Software Services, Inc.
which had a minimal net book value at the time of the acquisition. Precision
Software Services, Inc. was 51% owned by the Chairman and majority stockholder of
the Company who received 170,000 of the shares. The excess of the purchase price
over material, identifiable net assets relating to the minority interest was
allocated to software rights. The shares issued to the officer were recorded as
a distribution as the Company and Precision Software Services, Inc. are under
common control.
In November 2001, the Company paid $212,500 for a 20% interest in a Panama
corporation named Rancho Monterrey, S.A. which was formed in April 2001 to own,
operate, improve and sell certain real estate in Panama. As part of the
investment in Rancho Monterrey, S.A., the Company received a 12 acre parcel of
land valued at $130,000, resulting in a net investment of $82,500. An entity
affiliated with the majority stockholder of the Company purchased an additional
20% interest during 2001.
Note 3 - Related Party Transactions
The following balances due from (to) related parties are as follows:
December 31,
2001 2000
------------- ------------
Due from Whitney Leadership Group $ 232,126 $ 160,587
Due from RAW, Inc. 9,071 11,743
Due to Precision Software Services, Inc. - (32,425)
Due to Trade Marketing, Inc. (16,000) -
Due to MRS Equity Corp (65,606) (69,415)
-------------- -------------
$ 159,591 $ 70,490
============== =============
The Company has rented its corporate headquarters located in Cape Coral, Florida,
since 1992 from the Chairman of the Board and pays rent on annual leases.
Rentals under the related party lease were $86,944, $69,644 and $35,622 during
2001, 2000 and 1999, respectively. The Company leases approximately 8,700 square
feet and the lease expires in October 2002.
MRS Equity Corp. provides certain products and services for Whitney Information
Network, Inc. and Whitney Information Network, Inc. provides MRS Equity Corp.
with payroll services including leased employees. Whitney Information Network,
Inc. provided payroll services to MRS Equity Corp. in the amounts of $53,105,
$170,422 and $111,724 during 2001, 2000 and 1999, respectively. MRS Equity Corp.
provided Whitney Information Network, Inc. with $720,504, $273,525 and $254,826
for product costs during 2001, 2000 and 1999, respectively. MRS Equity Corp. is
a 100 percent subsidiary of Equity Corp. Holdings, Inc. of which the Chairman of
the Board of Whitney Information Network, Inc. owns a controlling interest.
Precision Software Services, Inc. is a company that develops and licenses
software primarily for the real estate and small business industries and was
acquired by the Company in 2001 (Note 1). Prior to November 2001, the Chairman
of the Board of Directors of Whitney Information Network, Inc. owned a majority
interest in Precision Software Services. During 2001 (prior to the acquisition),
2000 and 1999, Precision Software Services provided Whitney Information Network,
Inc. $371,644, $378,525 and $318,089 in product cost, respectively. Precision
Software Services sold products to Whitney Information Network, Inc. at a price
less than the prices offered to third parties. Whitney Information Network, Inc.
provided payroll services to Precision Software Services in the amount of $0,
$68,811 and $38,605 during 2001, 2000 and 1999, respectively.
Whitney Information Network, Inc. provided payroll services to Whitney Leadership
Group, Inc. in the amount of $0, $80,956 and $82,787 during 2001, 2000 and 1999,
respectively. During 2001, 2000 and 1999, Whitney Information Network made
payments of $279,313, $230,476 and $368,702 for registration fees and
commissions. The Chairman of the Board of Whitney Information Network, Inc. is
the President and Chief Operating Officer of Whitney Leadership Group, Inc.
Corporation Corp., formerly known as United States Fiduciary Corp, is a company
which provides telemarketing services for Whitney Information Network, Inc. The
Chairman of the Board of Directors and the Chief Financial Officer are also
members of the board of directors of Corporation Corp. During 2001, 2000 and
1999, Whitney Information Network, Inc. paid $458,877, $418,096 and $0 in
commissions to Corporation Corp.
RAW, Inc. is a company owned by the Chairman of the Board of Whitney Information
Network, Inc., which buys, sells and invests in real property. During
2000,Whitney Information Network Inc. provided $10,869 in payroll services to RAW,
Inc.
Trade Marketing, Inc. is a company owned by a relative of the Chairman of the
Board of Whitney Information Network, Inc.
Those items above that are reasonably expected to be collected within one year
are shown as current and those that are not expected to be collected during the
next year are shown as non-current.
Note 4 - Property and Equipment
Property and equipment consist of the following:
December 31,
2001 2000
------------- -------------
Building $ 2,266,053 $ 2,207,482
Equipment 1,158,694 517,718
Furniture and fixtures 364,893 316,770
Land 132,500 -
Construction in progress 103,063 -
Leasehold improvements 81,516 122,658
-------------- -------------
4,106,719 3,164,628
Less accumulated depreciation (478,272) (198,703)
--------------- ------------
$ 3,628,447 $ 2,965,925
=============== ============
Depreciation expense for the periods ended :
December 31,
--------------
2001 $ 289,682
2000 $ 166,434
1999 $ 18,267
Note 5 - Long-Term Debt and Note Payable - Related Party
Long-term debt consists of:
December 31,
2001 2000
------------- ------------
Note payable to seller of building, interest at a
variable interest rate, adjusted semi-annually based
on the prime rate (8.0% total as of December 31, 2001)
and shall not exceed 10% or fall below 8% during the
first three years of the mortgage. Monthly
interest-only payments of $9,000 are payable through
December 2004 at which time the note matures and all
principal and accrued interest is due. Collateralized
by real property. $ 450,000 $ 1,200,000
Note payable to the previous minority shareholder of
Precision Software Services, Inc. relating to the
Company's acquisition. Principal and interest
payments due beginning in January 2002. Interest at
the prime rate plus 1.5% (7.0% total at December 31,
2001). The note matures in December 2003. 125,000 -
-------------- ------------
575,000 1,200,000
Less current portion (62,500) -
-------------- ------------
$ 512,500 $ 1,200,000
============== =============
Note payable- related party consists of:
December 31,
2001 2000
-------------- -------------
Note payable to the previous majority shareholder of
Precision Software Services, Inc., an officer and
majority shareholder of the Company, relating to the
Company's acquisition. Principal and interest
payments due beginning in January 2002. Interest at
the prime rate plus 1.5% (7.0% total at December 31,
2001). The note matures in December 2003. $ 125,000 $ -
Less current portion (62,500) -
-------------- ------------
$ 62,500 $ -
============== ============
Maturities of long-term obligations are as follows:
Year Ending December 31, Related Party
Notes Other Notes Total
------------------------ -------------- ---------------- ----------
2002 $ 62,500 $ 62,500 $ 125,000
2003 62,500 62,500 125,000
2004 - 450,000 450,000
------------ ------------ ------------
$ 125,000 $ 575,000 $ 700,000
============ ============ ============
Note 6 - Commitments and Contingencies
Operating Leases
The Company leases the following properties: (1) its headquarters building in
Cape Coral, Florida (Note 3); (2) its telemarketing facility in Draper, Utah;
and (3) its Whitney Canada location in Ontario. These leases expire from May
2002 to October 2006.
Rent expense for all operating leases was:
Year Ending December 31,
------------------------
2001 $ 225,232
2000 $ 257,198
1999 $ 139,105
Future minimum lease payments under these leases are approximately as follows:
Year Ending December 31, Related Party
Leases Other Leases Total
------------------------ -------------- -------------- ----------
2002 $ 58,053 $ 79,321 $ 137,374
2003 - 78,771 78,771
2004 - 81,929 81,929
2005 - 85,199 85,199
2006 - 73,350 73,350
------------ ------------ -----------
$ 58,053 $ 398,570 $ 456,623
============= ============= ===========
Litigation
The Company is not involved in any material unasserted claims and action arising
out of the normal course of its business that in the opinion of the Company,
based upon knowledge of facts and advice of counsel, will result in a material
adverse effect on the Company's financial position.
Other
The Company carries liability insurance coverage, which it considers sufficient
to meet regulatory and consumer requirements and to protect the Company's
employees, assets and operations.
The Company, in the ordinary course of conducting its business, is subject to
various state and federal requirements. In the opinion of management, the
Company is in compliance with these requirements.
Construction Agreement
In 2001, the Company entered into an agreement to construct a 7,000 square-foot
international conference and training center in Panama at a total estimated cost
of $550,000. The Company had expenditures of approximately $105,000 through
December 31, 2001 and has since made additional construction draws of approximately
$145,000. Completion of the project is expected to occur in the third quarter of
2002.
Note 7 - Stockholders' Equity and Transactions
Stock Based Compensation Plans
The Company's stock option plans provide for the granting of stock options to key
employees. Under the terms and conditions of the plans, any time between the
grant date and two years of service, the employee may purchase up to 25% of the
option shares. After three years of continuous service, the employee may
purchase all remaining option shares. All options expire ten years from the date
of the grant.
The following table presents the activity for options outstanding:
Weighted
Options Not Average
Related To Exercise
A Plan Price
------------ ------------
Outstanding - December 31, 1998 369,000 $ 2.00
Granted 471,650 $ 1.88
Forfeited/canceled (52,850) $ (1.96)
------------
Outstanding - December 31, 1999 787,800 $ 1.92
Granted 385,000 $ 1.97
Forfeited/canceled (79,150) $ (1.92)
------------
Outstanding - December 31, 2000 1,093,650 $ 1.94
Granted 10,000 $ 1.70
Forfeited/canceled (181,850) $ (1.94)
------------
Outstanding - December 31, 2001 921,800 $ 1.94
============
The following table presents the composition of options outstanding and
exercisable:
Range of Exercise Prices Number of Options Price* Life*
- ------------------------ ----------------- ----------- ---------
$ 1.70 10,000 $ 1.70 9.74
$ 1.75 45,000 $ 1.75 8.35
$ 1.88 309,800 $ 1.88 7.68
$ 2.00 557,000 $ 2.00 7.61
-------
$1.70 to $2.00 921,800 $ 1.94 7.69
=============== ======= =========== ===========
*Price and Life reflect the weighted average exercise price and weighted average
remaining contractual life, respectively.
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost has been recognized for the stock option
plans. Had compensation cost for the Company's option plan been determined based
on the fair value at the grant date for awards consistent with the provisions of
SFAS No. 123, the Company's net income (loss) and basic income (loss) per common
share would have been changed to the pro forma amounts indicated below:
For the Years Ended December 31,
2001 2000 1999
-------------- ------------- --------------
Net income (loss) - as reported $ 2,534,247 $ (8,703,127) $ (1,962,266)
Net income (loss) - pro forma $ 2,519,497 $ (9,423,077) $ (2,764,071)
Basic income (loss) per common share -
as reported $ 0.33 $ (1.16) $ (0.26)
Basic income (loss) per common share -
pro forma $ 0.33 $ (1.25) $ (0.36)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used:
For the Years Ended December 31,
2001 2000 1999
-------------- -------------- --------------
Approximate risk free rate 6.00% 6.00% 6.00%
Average expected life 10 years 10 years 10 years
Dividend yield 0% 0% 0%
Volatility 85.00% 115.00% 115.00%
Estimated fair value of total options
granted $14,750 $719,950 $801,805
Note 8 - Income (Loss) Per Share
The following table sets forth the computation for basic and diluted earnings per
share:
For the Years Ended December 31,
2001 2000 1999
-------------- -------------- --------------
Numerator for diluted income (loss) per
common share $ 2,534,247 $ (8,703,127) (1,962,266)
============== ============== =============
Denominator for basic earnings per share
- weighted average shares 7,587,474 7,528,022 7,502,346
Effect of dilutive securities -
convertible debt, options and
warrants - - -
-------------- -------------- ------------
Denominator for diluted earnings per
share - adjusted weighted average
shares 7,587,474 7,528,022 7,502,346
============== ============== =============
Diluted income (loss) per common share $ 0.33 $ (1.16) $ (0.26)
============== ============== =============
Where the inclusion of potential common shares is anti-dilutive, such shares are
excluded from the computation.
Note 9 - Income Taxes
At December 31, 2001, the Company had net operating losses (NOLs) of approximately
$168,000 related to US federal, foreign and state jurisdictions. Utilization of
the net operating losses, which expire at various times starting in the years 2002
through 2021, may be subject to certain limitations under Section 382 of the
Internal Revenue Code of 1986, as amended, and other limitations under state and
foreign tax laws.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax asset are approximately as follows:
December 31,
2001 2000
-------------- ------------
Deferred tax asset from NOL carryforward $ 62,500 $ 5,252,000
Deferred tax asset (liability) from deferred
expense/revenue 3,041,000 (1,005,000)
-------------- -------------
Total deferred tax assets 3,103,500 4,247,000
Valuation allowance for deferred tax assets (3,103,500) (4,247,000)
-------------- -------------
Net deferred tax asset $ - $ -
============== ============
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On July 28, 2000, the Company replaced its auditor, Larry Legal CPA with BDO Siedman
effective August 17, 2000. During the period from August 17, 2000 to November 14, 2000,
the Company worked with BDO Siedman until the Board terminated their services. The series
of events that transpired from August 17, 2000 may appear to suggest a disagreement over
accounting; however, the Company does not believe a disagreement exists.
The matter is explained simply in that at the time that the Company terminated the services
of BDO Seidman, LLP there was no dispute with BDO Seidman inasmuch as the Company had
already agreed to restate the financial statements.
Please be advised of the chronology of related events:
11/14/00 The Company terminated BDO Seidman, LLP as auditors on November 14, 2000
subsequent to the Whitney Board of Directors meeting on that morning approving
both the termination of BDO Seidman and tentatively approving the restating of
the financial statements subject to evaluation of the results of the
forthcoming discussion to be held with the SEC on November 17, 2000 and
recommendation by management thereafter. BDO's last communication to the
Company was that BDO had agreed to prepare the financial statements either way
as long as the SEC approved the way that was chosen. The Company agreed with
BDO that the financial statements could be prepared either way subject to SEC
approval. Therefore, there was no disagreement with BDO at the time they were
terminated. The Company did not disagree with BDO over an accounting method,
but did disagree with BDO over their fees. The fees dispute is not the subject
of this filing.
11/17/00 The Company representatives attended a meeting in Washington, DC with SEC staff
re: deferred expenses at which time the SEC stated that the Company should
restate the financial statements.
11/20/00 The Company approved and filed Edgar Form 8-K reporting on the termination of
BDO Seidman, LLP without having received any letter from BDO Seidman, LLP.
Their letter was received later in the day on November 20, 2000.
11/21/00 Actual date of acceptance of transmission of 11/20 filing as accepted by
SEC/Edgar.
11/20/00 The Company received cessation of services letter from BDO Seidman, LLP which
was dated November 14, 2000, but not received until the afternoon of November
20, 2000.
11/22/00 The Company filed Edgar Form 8-K/A#1 reporting the BDO Seidman, LLP letter
received November 20, 2000.
11/29/00 The Company filed the third Edgar form on the issue, Form 8-K/A#2 with
corrections and additions required by the SEC pertaining to the BDO Seidman
auditor termination.
12/4/00 The Company's Board of Directors approved management's decision to restate
financial statements for change of accounting method.
12/4/00 Company received letter from SEC re: correcting the Forms 8K and 8-K/A to an
Item 4 matter instead of an Item 1 matter.
12/4/00 Company received second letter from BDO Seidman, LLP re: termination of
services, which letter included for the first time a notice by BDO Seidman of a
disagreement over accounting issues.
12/5/00 Company issued a Press Release which had been prepared days earlier announcing
the decision to restate financial statements.
12/7/00 Company approved for filing Edgar Form 8-K/A#3 reporting second BDO Seidman
letter.
12/7/00 The Company approved for filing Edgar Form 8-K reporting the Press Release.
12/8/00 The Company filed Edgar Form 8-K/A#3 reporting second BDO Seidman letter.
12/8/00 The Company filed Edgar Form 8-K reporting Press Release.
12/13/00 The Company received a fax from SEC requesting an additional Form 8-K/A filing
to explain the disagreement.
12/20/00 The Company filed Edgar Form 8-K/A#4 explaining that the timing differences
caused the appearance of a disagreement with BDO Seidman but actually at the
time BDO Seidman was terminated, there were no disagreements.
12/20/00 The Company sent a copy of Amendment #4 to BDO Seidman.
It should be further noted that BDO Seidman was hired by the Company in August, 2000. In
September, 2000, BDO sent an SOP 93-7 research paper which was marked preliminary draft
agreeing with the position of the Company.
At that time, the Miami partner of BDO Seidman and the audit manager agreed with the
position of the Company that the financial statements had been correctly prepared.
It was not until October, 2000 that the Chicago office and national SEC partner of BDO
Seidman overruled their Miami audit partners and reversed the position of BDO Seidman on
the issue. There was disagreement with the BDO partners over the issue. At that point,
there was also a disagreement between the revised and official BDO position and the
Company's position.
However, later, and prior to dismissing BDO Seidman, the Company did agree to accept the
SEC position which was also BDO's revised position. The Company has taken the position
that all interim disagreements with BDO Seidman had been resolved prior to the dismissal
and therefore were not required to be explained in Form 8-K, which requires the disclosure
of any disagreements at the time of the dismissal.
On February 8, 2000, the Board of Directors of Whitney Information Network, Inc. passed a
resolution to engage the audit services of Ehrhardt Keefe Steiner & Hottman, PC. There
have been no disagreements with Ehrhardt Keefe Steiner & Hottman, PC .
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The officers and directors of the Company are as follows:
Name Age Position
- ----------------------- ----- -------------------------------------------
Russell A. Whitney 44 Chief Executive Officer and Chairman of
the Board of Directors
Richard W. Brevoort 63 President and a member of the Board of
Directors
Ronald S. Simon 58 Secretary/Treasurer, Chief Financial
Officer, and a member of the Board of
Directors
Each director serves for a term of three years and one-third of the directors are elected
at the annual meeting of shareholders. The Company's officers are appointed by the Board of
Directors and hold office at the discretion of the Board.
Russell A. Whitney - Chief Executive Officer and Chairman of the Board of Directors
Mr. Whitney was a founder and has been the Chief Executive Officer and Chairman of the
Board of Directors of the Company and its predecessor, since 1987. Since 1992, Mr. Whitney
has been Chief Executive Officer of Whitney Education Group, Inc. (formerly Win Systems,
Inc.) that is engaged in the business of education and training. Since October 1998, Mr.
Whitney has been the President and a member of the Board of Directors of 1311448 Ontario,
Inc. 1311448 Ontario is in the business of education and training. Since October 1998, Mr.
Whitney has been the President and a member of the Board of Directors of Whitney Canada,
Inc. Whitney Canada is in the business of education and training. Since February 1999, Mr.
Whitney has been the President and a member of the Board of Directors of Wealth
Intelligence Network, Inc. Wealth Intelligence Network is in the business of education and
training. Since June 1999, Mr. Whitney has been the President and a member of the Board of
Directors of Whitney Internet Services, Inc. Whitney Internet Services is in the business
of providing Internet services, education and training. Since June 1999, Mr. Whitney has
been the President and a member of the Board of Directors of Whitney Consulting Services,
Inc. Whitney Consulting is in the business of providing telemarketing services. Since June
1999, Mr. Whitney has been the President and a member of the Board of Directors of Russ
Whitney's Wealth Education Centers, Inc. Russ Whitney's Wealth Education Centers are in the
business of education and training. Since June 1999, Mr. Whitney has been the President and
a member of the Board of Directors of Russ Whitney's Wealth Education Centers of Jackson,
Mississippi, Inc. Since March 1991, Mr. Whitney has been Chief Executive Officer of Whitney
Leadership Group, Inc., a Florida corporation located in Cape Coral, Florida engaged in the
business of publishing and marketing. Since February 1995, Mr. Whitney has been President
of RAW, Inc., a Florida corporation engaged in the business of buying, selling and
investing in real estate which is located in Cape Coral, Florida. From August 1993 to
November 2001, Mr. Whitney was the Vice President of Precision Software Services, Inc., a
Florida corporation located in Cape Coral, Florida, which is engaged in the business of
developing and licensing software primarily for the real estate and small business
industries. Precision Software Services, Inc. was acquired by Whitney Information Network
in November 2001. Since this time, Mr. Whitney has been the President and a member of the
Board of Precision Software Services, Inc. Since March 1992, Mr. Whitney has been
President of MRS Equity Corp., a Florida corporation located in Cape Coral, Florida, which
is engaged in the business of selling mortgage related products and services. Since
November 1996, Mr. Whitney has been affiliated with Teamwork Communications, Inc., a
company that provides sales and marketing services located in Cape Coral, Florida.
Richard W. Brevoort - President and a member of the Board of Directors.
Since August 1998, Mr. Brevoort has been a member of the Board of Directors of the Company
and spends substantially full-time on Company matters. Mr. Brevoort became the President of
Whitney Education Group, Inc. (formerly, Win Systems, Inc.) in February 1997, and President
of the Company in August 1998. From January 1984 to February 1991, Mr. Brevoort was the
President of the Hudson Agency, a marketing company based in New York City. From September
1970 to October 1975, Mr. Brevoort was a Deputy Finance Administrator and Commissioner of
Tax Collection. From June 1969 to August 1970, Mr. Brevoort was an Assistant Administrator
of Economic Development. From August 1968 to March 1969, Mr. Brevoort was a Deputy
Commissioner of Commerce. From March 1966 to November 1966, Mr. Brevoort was a Director of
Weights and Measures for the City of New York. From November 1975 to December 1983, Mr.
Brevoort was the Chief of Staff for the Democratic Party in the New York State Senate. From
1982 to 1987, Mr. Brevoort was a member of the Board of Directors of the New York City
Convention Center. From 1996 to 1997, Mr. Brevoort was an Instructional Supervisor of the
Trace Program at Bronx Community College. From 1968 to 1969, Mr. Brevoort was a member of
an Advisory Committee for the New York City Superintendent of Schools. Mr. Brevoort has
been included in the 1996 Who's Who in America and 1996 Who's Who in the World.
Ronald S. Simon - Secretary/Treasurer, Chief Financial Officer, and a member of the Board
of Directors.
Since August 1998, Mr. Simon has been the Secretary/Treasurer, Chief Financial Officer, and
a member of the Board of Directors of the Company and spends such time that is necessary on
Company matters. Since August 1998, Mr. Simon has been the Secretary/Treasurer and a
member of the Board of Directors of Whitney Education Group, Inc. (formerly, Win Systems,
Inc.). Whitney Education Group is in the business of education and training. Since August
1998, Mr. Simon has been the Secretary/Treasurer and a member of the Board of Directors of
Wealth Intelligence Network, Inc. Wealth Intelligence Network is in the business of
education and training. Since June 1999, Mr. Simon has been the Secretary/Treasurer and a
member of the Board of Directors of Whitney Consulting Group, Inc. Whitney Consulting Group
is in the business of telemarketing. From October 1995 to January 1999, Mr. Simon was the
President of On Line Services USA, Inc., an Internet service provider and web site design
company. Since 1971, Mr. Simon has been Certified Public Accountant in the states of
Florida and Illinois. Since 1993, Mr. Simon has had his real estate license in the state of
Florida. Since 1996,. Mr. Simon graduated from the University of Illinois with Bachelor of
Science degree in accounting.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers,
directors, and persons who own more than 10% of the registered class of the Company's
equity securities to file reports of ownership with the Securities and Exchange Commission.
Officers, directors and greater than 10% stockholders are required by the regulations of
the Securities and Exchange Commission to furnish the Company with copies of all Section
16(a)forms they file.
Based solely on a review of the Forms 3 and 4 furnished to the Company, the Company
believes that all filing requirements applicable to its officers, directors and greater
than 10% beneficial owners were complied with.
Form 5 is not required to be filed if there are not previously unreported transactions or
holdings to report. Nevertheless, the Company is required to disclose the name of
directors, executive officers and 10% shareholders who did not file a Form 5, unless the
Company has obtained a written statement that no filing is due. The Company has been
advised by those required to file Form 5 that no filings were due.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation.
- ----------------------
The following table sets forth the compensation paid by the Company during the last three
years, for each officer and director of the Company. This information includes the dollar
value of base salaries, bonus awards and number of stock options granted, and certain other
compensation, if any.
Underlying
Name and Other Stock
Principal Annual Compen Options/ LTIP All Compen-
Position Year Salary ($) Bonus sation ($) Award(s) Payouts sation ($)
-------- ---- ---------- ------ ---------- --------- -------- ----------
($) (#) ($)
Russell
Whitney, CEO 2001 $250,000 -- -- -- -- $250,000
2000 $250,000 -- -- -- -- $250,000
1999 $ 67,344 -- -- -- -- $ 67,344
Richard
Brevoort, 2001 $100,000 -- -- -- -- $100,000
President
2000 $ 75,000 -- -- -- -- $ 75,000
1999 $ 44,093 -- -- -- -- $ 44,093
Ronald Simon,
CFO 2001 $ 55,000 -- -- -- -- $ 55,000
2000 $ 47,500 -- -- -- -- $ 47,500
1999 $ 42,770 -- -- -- -- $ 42,770
There are no retirement, pension, or profit sharing plans for the benefit of the Company's
officers and directors. The Company has adopted a Non-Qualified Incentive Stock Option Plan
and the Company supplies health insurance to its officers, directors and employees.
The following grants of stock options, whether or not in tandem with stock appreciation
rights ('SARs') and freestanding SARs have been made to officers and/or directors:
Number of
Underlying
Number of Securities
Underlying Options/SARs
Securities Granted Exercise or No. of
Options/SARs During Base Options
Name Granted Last 12 Price ($/Sh) Exercised Expiration
---- ------- -------- ------------ --------- ----------
Months Date
------ ----
Richard 243,000 68,000 $ 2.00 -- 09/01/2008
Brevoort
Ronald Simon 218,000 68,000 $ 2.00 -- 09/01/2008
(1) 75,000 options were granted to Mr. Brevoort and 125,000 options were granted to Mr.
Simon, all at an exercise price of $1.875, on August 31, 1999. Mr. Brevoort and
Mr. Simon were previously granted 25,000 options each at an exercise price of
$2.00 on September 1, 1998. On May 1, 2000, Mr. Brevoort and Mr. Simon each held
68,000 warrants which were converted to option shares at an exercise price of
$2.00 per share. The expiration date of such option shares is September 1, 2008.
At the date of this report no options have been exercised.
Long-Term Incentive Plan Awards.
- ---------------------------------
The Company does not have any long-term incentive plans that provide compensation intended
to serve as incentive for performance.
Compensation of Directors.
- --------------------------
Directors do not receive any compensation for serving as members of the Board of Directors.
The Board has not implemented a plan to award options to any Directors. There are no
contractual arrangements with any member of the Board of Directors
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the Common Stock ownership of each person known by the
Company to be the beneficial owner of five percent or more of the Company's Common Stock,
each director individually and all officers and directors of the Company as a group. Each
person has sole voting and investment power with respect to the shares of Common Stock
shown, unless otherwise noted, and all ownership is of record and beneficial.
Name and Number of Percent of
Address of Owner Shares Position Class
- ------------------------ -------------- ---------------------- ------------
Russell A. Whitney Chief Executive Officer
4818 Coronado Parkway 6,650,000 and Chairman of the 84.41%
Cape Coral, Florida Board of Directors
33904
Richard W. Brevoort 146,500 President
4500 S.E. Fifth Place Director 1.86%
#206
Cape Coral, Florida
33904
Ronald S. Simon 34,000 Secretary/Treasurer
1402 Beechwood Trail Chief Financial Officer 0.43%
Fort Myers, Florida Director
33919
All officers and
directors as a 6,830,000 86.70%
group (3 persons)
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 18, 1998, the Company acquired all (100 shares) of the issued and outstanding
shares of common stock of Win Systems, Inc. in exchange for 6,750,000 shares, 187,500 Class
A Warrants, and 340,000 Class B Warrants. 97.5% of the shares of Win Systems, Inc. were
owned by Russell Whitney, the current Chief Executive Officer and Chairman of the Board of
Directors of the Company and the remaining shares were owned by other key personnel.
The Company has leased office space from Russ Whitney, its Chief Executive Officer and a
member of the Board of Directors pursuant to the terms of a three-year lease, which
commenced on September 1, 1999 and terminates on October 31, 2002 with a monthly rental
payment of $5,805.34. Russ Whitney is the Chief Executive Officer of the Company and
Chairman of its Board of Directors. The terms of the lease are no less favorable as can be
obtained from independent third parties.
In addition, the Company has receivables from Whitney Leadership Group, Inc. in the amount
of $232,126 for sales of products. The aforementioned corporation is controlled by Russ
Whitney.
MRS Equity Corp. provides products and services for the Company and the Company provides
MRS Equity Corp. with payroll services. MRS Equity is a wholly owned subsidiary
corporation of Equity Corp. Holdings, which is owned and controlled by Russell Whitney, the
Company's Chief Executive Officer and Chairman of the Board of Directors.
Precision Software Services, Inc. develops and licenses software to the Company. Russell
Whitney, the Company's Chief Executive Officer and Chairman of the Board of Directors,
owned controlling interest in Precision Software Services, Inc. Precision Software
Services, Inc. was acquired by the Company on November 1, 2001 in an exchange of stock with
Russell Whitney and an employee/shareholder of Precision Software Services, Inc. for
333,334 shares of the Company's common stock valued at $1.50 per share. Mr. Whitney
received 170,000 shares of the Company's stock.
The Company provides payroll services to Whitney Leadership Group, Inc. and in the past,
Whitney Leadership Group, Inc. has lent money to the Company. Russell Whitney, the
Company's Chief Executive Officer and Chairman of the Board of Directors President and
Chief Operating Officer of Whitney Leadership Group.
United States Fudiciary Corp. provides telemarketing and instructor services for the
Company. The Company's Chairman of the Board of Directors and Chief Financial Officer are
also members of the board of United States Fudiciary Corp.
The amount of purchased products (software books, tapes, and supplies) from affiliates is
as follows:
2001 2000 1999
-------- -------- --------
MRS Equity Corp. $ 720,504 $ 273,525 $ 254,826
Precision Software Services, Inc. $ 371,644 $ 378,525 $ 318,089
The amount of payments made for commissions and fees from affiliates is as follows:
2001 2000 1999
-------- -------- --------
Whitney Leadership Group, Inc. $ 279,313 $ 230,476 $ 368,702
Corporation Corp (formerly United
States Fuduciary Corp.) $ 458,877 $ 418,096 $ -
The payroll service amounts are as follows:
2001 2000 1999
-------- -------- --------
MRS Equity Corp. $ 53,105 $ 170,422 $ 111,724
Precision Software Services, Inc. $ - $ 68,811 $ 38,605
Whitney Leadership Group, Inc. $ - $ 80,956 $ 82,787
Raw, Inc. $ - $ 10,869 $ -
The terms of all of the transactions between related parties were no less favorable than
could be obtained from independent third parties.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the last quarter of the period covered by this
report.
Exhibit No. Description
- ----------- -----------
3.1* Articles of Incorporation.
3.2* Bylaws.
3.3* Amended Articles of Incorporation
3.4* Amended Articles of Incorporation
4.1* Specimen Stock Certificate.
27.1* Financial Data Schedule
99.1* Class A Warrant Agreement
99.2* Class B Warrant Agreement
99.3* Non-Qualified Incentive Stock Option Plan
99.4* Office Lease
* Incorporated by reference to exhibit filed with Form 10SB12G (Sec File No. 000-27403).
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
WHITNEY INFORMATION NETWORK, INC.
Dated: April 8, 2002 By:/s/Richard W. Brevoort
----------------------
Richard W. Brevoort
President
In accordance with the Exchange Act, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/Russell A. Whitney Chief Executive Officer Chairman April 8, 2002
- ---------------------
Russell A. Whitney
/s/Richard W. Brevoort President and Director April 8, 2002
- ----------------------
Richard W. Brevoort
/s/Richard S. Simon Secretary/Treasurer/Chief Financial April 8, 2002
- -------------------
Officer/
Ronald S. Simon Principal Accounting Officer and Director