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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended June 30, 2002
Whitney Information Network, Inc.
(Exact name of registrant as specified in its charter)
Colorado 0-27403 84-1475486
-------- ------- ----------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1612 Cape Coral Parkway, Suite A, Cape Coral, Florida 33904
- --------------------------------------------------------------------------------
(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 ___
---
The Issuer had 7,878,023 common shares of common stock outstanding as of June
30, 2002 and December 31, 2001.
PART I
Item 1. Financial Statements
Whitney Information Network, Inc.
Consolidated Financial Statements
As of June 30, 2002 and December 31, 2001
And for the Six Months Ended June 30, 2002 and 2001
Table of Contents
Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
WHITNEY INFORMATION NETWORK, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, December 31,
2002 2001
------------ ------------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $12,619,019 $ 6,889,275
Accounts receivable 1,075,664 525,878
Due from affiliates, net 185,978 159,591
Prepaid advertising and other 329,286 953,661
Income taxes receivable and prepayments 170,999 497,499
Inventory 361,108 136,544
Deferred seminar expenses 3,172,822 3,638,556
----------- -----------
Total current assets 17,914,876 12,801,004
----------- -----------
Other assets
Property and equipment, net 4,775,808 3,628,447
Note receivable 165,030 -
Investment in foreign corporation 82,500 82,500
Other assets 34,373 32,918
------------ -----------
Total other assets 5,057,711 3,743,865
------------ -----------
Total assets $22,972,587 $16,544,869
=========== ===========
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable $ 740,959 $ 1,152,337
Accrued seminar expenses 497,194 435,360
Deferred revenues 23,110,730 23,937,349
Accrued expenses 2,240,795 702,548
Current portion of long-term debt 27,826 62,500
Current portion of note payable-officer/stockholder 27,826 62,500
----------- -----------
Total current liabilities 26,645,330 26,352,594
Long-term debt, less current portion 512,500 512,500
Note payable-officer/stockholder 62,500 62,500
----------- -----------
Total liabilities 27,220,330 26,927,594
----------- -----------
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, 7,878,023 shares issued and outstanding 337,102 337,102
Paid in capital 900 900
Accumulated deficit (4,585,745) (10,720,727)
----------- -----------
Total stockholders' deficit (4,247,743) (10,382,725)
----------- -----------
Total liabilities and stockholders' deficit $22,972,587 $16,544,869
=========== ===========
See notes to consolidated financial statements.
F-2
WHITNEY INFORMATION NETWORK, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- -------------------------
2002 2001 2002 2001
----------- ----------- ----------- ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Sales $17,535,080 $11,950,654 $32,988,098 $23,184,332
----------- ----------- ----------- -----------
Expenses
Seminar expenses 6,178,397 5,517,334 12,326,600 9,962,069
Advertising and sales expense 4,444,758 3,638,757 7,519,025 6,485,887
General and administrative
expense 2,871,039 1,959,442 5,822,532 3,894,938
---------- ---------- ---------- ----------
Total expenses 13,494,194 11,115,533 25,668,157 20,342,894
---------- ---------- ---------- ----------
Income from operations 4,040,886 835,121 7,319,941 2,841,438
Other income (expense)
Interest and other income (11,146) 85,806 92,447 38,106
Interest expense (26,249) - (37,856) -
---------- ---------- ---------- ----------
Income before income taxes 4,003,491 920,927 7,374,532 2,879,544
Income taxes (1,239,550) - (1,239,550) -
---------- ---------- ---------- ----------
Net income $2,763,941 $ 920,927 $6,134,982 $2,879,544
========== ========== ========== ==========
Basic and fully diluted
income per share $ 0.35 $ .12 $ 0.78 $ .38
========== ========== ========== ==========
Weighted average shares
outstanding 7,878,023 7,528,022 7,878,023 7,528,022
========== ========== ========== ==========
See notes to consolidated financial statements.
F-3
WHITNEY INFORMATION NETWORK, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Six Months Ended
June 30,
--------------------------
2002 2001
---------- -----------
(Unaudited) (Unaudited)
Cash flows from operating activities
Net income $6,134,982 $2,879,544
---------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities
Allowance for doubtful accounts - 32,660
Depreciation and amortization 186,965 124,104
(Gain) loss of disposal of fixed assets (11,487) 41,410
Changes in assets and liabilities
Accounts receivable (549,786) (1,230,232)
Prepaid advertising and other 624,375 (432,838)
Income tax receivable and payments 326,500 -
Inventory (224,564) 104,057
Deferred seminar expenses 465,734 (586,200)
Other assets (1,455) 61,879
Accounts payable (411,378) (1,406,575)
Accrued seminar expense 61,834 59,148
Deferred revenues (826,619) 2,520,078
Other liabilities 1,538,247 653,027
----------- ----------
1,178,366 (59,482)
----------- -----------
Net cash provided by operating activities 7,313,348 2,820,062
----------- ----------
Cash flows from investing activities
Purchases of property and equipment (1,322,839) (90,278)
Notes receivable from investment (165,030) -
Loans (to) from affiliates, net (26,387) (88,585)
---------- ----------
Net cash used by investing activities (1,514,256) (178,863)
---------- ----------
Cash flows from financing activities
Payments on long-term debt (34,674) -
Payments on note payable - officer/stockholder (34,674) -
---------- ---------
Net cash used by financing activities (69,348) -
---------- ---------
Net increase in cash and cash equivalents 5,729,744 2,641,199
Cash and cash equivalents, beginning of year 6,889,275 3,316,905
---------- ----------
Cash and cash equivalents, end of period $12,619,019 $5,958,104
=========== ==========
Supplemental cash flow information:
Cash paid for income taxes was $0 for the six months ended June 30, 2002
and 2001, respectively.
Cash paid for interest was $38,000 and $54,000 for the six months ended
June 30, 2002 and 2001, respectively.
See notes to consolidated financial statements.
WHITNEY INFORMATION NETWORK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Significant Accounting Policies
The accompanying consolidated financial statements are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments), which are, in the
opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The consolidated
financial statements should be read in conjunction with the financial statements
and notes thereto contained in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission April 9, 2002, which includes
audited financial statements for the years ended December 31, 2001 and 2000. The
results of operations for the six months ended June 30, 2002, may not be
indicative of the results of operations for the year ended December 31, 2002.
Note 2 - Related Party Transactions
The Company has rented one of its locations 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 $36,922 for the six months ended June 30, 2002 and
2001, respectively. The Company leases approximately 8,700 square feet
presently.
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 $72,522 and
$71,197 for the six months ended June 30, 2002 and 2001, respectively. MRS
Equity Corp. provided Whitney Information Network, Inc. with $389,350 and
$367,950 for product costs for the six months ended June 30, 2002 and 2001,
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. (PSS) 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. The Chairman of the Board of Directors of
Whitney Information Network, Inc. owned a majority interest in PSS. During the
six months ended June 30, 2001, PSS provided Whitney Information Network, Inc.
$202,500 in product cost. PSS sells 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 PSS in the amount of
$72,066 for the six months ended June 30, 2001.
Whitney Information Network, Inc. provided payroll services to Whitney
Leadership Group, Inc. in the amount of $14,204 and $33,986 for the six months
ended June 30, 2002 and 2001, respectively. During 2002 and 2001, Whitney
Information Network made payments of $128,312 and $117,970, respectively, 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.
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.
The following balances are due from (to) related parties:
June 30, December 31,
2002 2001
------------- ------------
(Unaudited)
Due from Whitney Leadership Group $ 375,360 $ 232,126
Due from RAW, Inc. 6,215 9,071
Due to Trade Marketing, Inc. (16,000) (16,000)
Due to MRS Equity Corp (179,597) (65,606)
------------ ------------
$ 185,978 $ 159,591
============ ============
Note 3 - Commitments and Contingencies
Litigation
The Company is not involved in any material asserted or unasserted claims and
actions 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.
Note 4 - Income Taxes
As of June 30, 2002 and December 31, 2001, the Company has net operating loss
(NOL) carryforwards for tax purposes of approximately $0 and $168,000,
respectively, which expire in the years 2002 through 2022.
Deferred tax liabilities and assets are determined based on the difference
between the financial statement assets and liabilities and tax basis assets and
liabilities using the tax rates in effect for the year in which the differences
occur. The measurement of deferred tax assets is reduced, if necessary, by the
amount of any tax benefits that based on available evidence, are not expected to
be realized.
The accompanying balance sheet includes the following:
June 30, December 31,
2002 2001
----------- ------------
(Unaudited)
Deferred tax asset from NOL carryforward $ - $ 62,500
Deferred tax (liability) asset from deferred
expense/revenue recognition (1,007,000) 3,041,000
----------- -----------
Total deferred tax (liability) asset (1,007,000) 3,103,500
Valuation allowance for deferred tax asset - (3,103,500)
----------- -----------
Net deferred tax liability $(1,007,000) $ -
=========== ===========
Note 5 - Stockholders' Equity
In April 2002, the Board of Directors authorized the issuance of 591,250 stock
options to employees at an exercise price of $1.81, which was equal to market
value.
ITEM 2. 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.
None of the Company's business is subject to seasonal fluctuations.
Revenues: Total revenue for the six months ended June 30, 2002 was $32,988,098,
an increase of $9,803,766 or 42% compared to the same period in 2001 of
$23,184,332. Revenues for the three months ending June 30, 2002 were
$17,535,080, an increase of $5,584,426 over the prior quarter ending June 30,
2001 of $11,950,654. The combination of the increase in advance training courses
held, higher registrations, and co-marketing efforts via strategic alliances
with other educational training companies contributed to the increase above. In
addition, during the three months ending June 30, 2002, the Company recognized
approximately $4,500,000 on contracts with customers entered into prior to June
1, 2001. A large portion of this revenue was recognized because the customer's
contract period had expired and the Company changed its refund policies. Due to
minor changes in the Company's contract terms with its customers and its refund
policies, quarterly revenue levels may not be indicative of the Company's
performance going forward.
Advertising and Sales Expense: Advertising and sales expense, of which
advertising represents approximately 60% of the expenses for the six months
ended June 30, 2002, was $7,519,025, an increase of $1,033,138 or 16% compared
to the same period in 2001. The increase in advertising and sales expense for
the quarter ending June 30, 2002 was $806,001 or 22% resulting in advertising
and sales expense for the quarter of $4,444,758. The increase in advertising and
sales expense is due to increased media buying, and new marketing programs
entering the market in the second quarter of this year.
General and Administrative expenses increased to $5,822,532, an increase of
$1,927,594 or 49% over the comparable period in 2001 of $3,894,938. The increase
in general and administrative expenses to $2,871,039 for the quarter ended June
30, 2002 from $1,959,442 for the quarter ending June 30, 2001 was $911,957 or
47%. This increase is due primarily to increased personnel hired to handle the
increase in the Company's volume.
Seminar expenses increased disproportionately in comparison with the increase in
sales for the first six months of 2002 to $12,326,600 an increase of $2,364,531
or 24% over the prior comparable period in 2001 and to $,6,178,397 for the
quarter ending June 30, 2002 an increase of 12% over the comparable period in
2001. This was due primarily to a slight change in the product mix in addition
to the revenue realized due to the expiration of contracts as described above.
Net Income for the six months ending June 30, 2002 was $6,134,982 as compared
with net income of $2,879,544 for the six months ending June 30, 2001, an
increase of $3,255,438 or 113% or $.78 per share as compared to $.38 per share
for the prior period. Net Income for the three months ending June 30, 2002 was
$2,763,941 as compared with net income of $920,927 for the three months ending
June 30, 2001, an increase of $1,843,014 or 200% or $.35 per share as compared
to $.12 per share for the prior period. The increase is directly attributable to
increased sales in 2002 over the prior period, higher realization of deferred
revenues, increased production from marketing programs resulting in a larger
gross profit and a disproportionate increase in advertising expenses.
More than 20,000 new students register for one or more of the Company's programs
each month. The Company's success can also be attributed to the fact that a
large percentage of its gross annual revenue can be attributed to repeat
business, a factor that also indicates students find its training to be
effective.
Liquidity and Capital Resources
The Company's capital requirements consist primarily of working capital, capital
expenditures and acquisitions. Historically, the Company has funded its working
capital and capital expenditures using cash and cash equivalents on hand. Cash
increased by $6,660,915 to $12,619,019, an increase of 112% over the previous
comparable period in 2001 and an increase of $1,131,797 or 10% over the previous
quarter. The Company reduced its loan on its headquarters building by $250,000
in the third quarter of 2001.
The Company's cash provided by operating activities was $7.31 million and $2.82
million for the six months ended June 30, 2002 and 2001, respectively. In the
first half of 2002, cash flows from advanced training programs were positively
impacted by the increased collection efforts by the sales associates
accompanying the instructors and trainers at the training locations.
The Company's cash used in investing activities was $1,514,256 and $178,863 for
the six months ended June 30, 2002 and 2001, respectively. The Company's
investing activities for the three months ended June 30, 2002 and 2001 were
primarily attributable to the purchase of property and equipment.
FORWARD-LOOKING STATEMENTS
Certain information included in this report contains forward-looking statements
made pursuant to the Private Securities Litigation Reform Act of 1995 ("Reform
Act"). Such statements are based on current expectations and involve a number of
known and unknown risks and uncertainties that could cause the actual results
and performance of the Company to differ materially from any expected future
results or performance, expressed or implied, by the forward-looking statements.
In connection with the safe harbor provisions of the reform act, the Company has
identified important factors that could cause actual results to differ
materially from such expectations, including operating uncertainty, acquisition
uncertainty, uncertainties relating to economic and political conditions and
uncertainties regarding the impact of regulations, changes in government policy
and competition. Reference is made to all of the Company's SEC filings,
including the Company's Report on Form 10SB, incorporated herein by reference,
for a description of certain risk factors. The Company assumes no responsibility
to update forward-looking information contained herein.
PART II
ITEM 1. 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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The rights of the holders of the Company's securities have not been modified nor
have the rights evidenced by the securities been limited or qualified by the
issuance or modification of any other class of securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There are no senior securities issued by the Company.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matter was submitted during the three months ended June 30, 2002 to a vote of
security holders, through the solicitation of proxies or otherwise.
ITEM 6. 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.
(a) Exhibit No. Description
99.1 Certification of the Chief Executive Officer of Whitney
Information Network, Inc. Pursuant to 18 U.S.C. Section
1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of the Chief Financial Officer of Whitney
Information Network, Inc. Pursuant to 18 U.S.C. Section
1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended June 30, 2002
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: August 13, 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 August 13, 2002
Russell A. Whitney
/s/Richard W. Brevoort President and Director August 13, 2002
Richard W. Brevoort
/s/Ronald S. Simon Secretary/Treasurer/Chief Financial August 13, 2002
Ronald S. Simon Officer/Principal Accounting Officer
and Director