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 March 31, 2004
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 |
1612 Cape Coral Parkway, Suite A, Cape Coral, Florida 33904 |
|
(Address of principal executive offices) (Zip Code) |
Registrant’s telephone number, including area code (239) 542-8999
(Former name or former address, if changed since last report)
NONE
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 ý No o
Indicate by check mark whether the registrant is an accelerated filer as defined in rule 12b-2 of the Exchange Act. Yes o No ý
The Issuer had 8,560,199 and 8,547,749 common shares of common stock outstanding as of March 31, 2004 and December 31, 2003.
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.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
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.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2004 Compared to March 31, 2003
Total revenue for the three months ended March 31, 2004 was $ 38,508,675, an increase of $25,204,836, or 189% compared to the same period in 2003. This increase was directly attributable to an increase in the number of attendees at our training courses and to an increase in sales of other product and services. Revenue from our 3-Day Basic Training events increased to $11,711,809 increase of $7,678,044 over the comparable period in 2003. Revenue from our advanced training events increased to $16,196,768 an increase of 10,857,992 over the comparable period in 2003. And the sales of our products and other services increased to $10,294,929, also an increase over the prior year comparable period of $6,363,631. In addition, during the period ended March 31, 2004, the company sold land for investment for a profit of $305,169.
The following table will illustrate the number of events and the number of attendees for the comparative periods.
|
|
|
Quarter
Ending |
|
Quarter
Ending |
|
|
Number of Events |
|
|
|
|
|
|
Free Preview Training |
|
135 |
|
82 |
|
|
3 Day Basic Training |
|
93 |
|
73 |
|
|
Advanced Training |
|
199 |
|
108 |
|
|
Total |
|
427 |
|
263 |
|
|
|
|
|
|
|
|
|
Number of Attendees |
|
|
|
|
|
|
Free Preview Training |
|
76,680 |
|
31,012 |
|
|
3 Day Basic Training |
|
5,467 |
|
3,501 |
|
|
Advanced Training |
|
3,436 |
|
1,855 |
|
|
Total |
|
85,583 |
|
36,368 |
|
The increase in revenue over the comparable period in 2003 is a trend that is expected to continue throughout the year. The increase in the number of events and in the number of attendees is expected to continue as the Teach Me to Trade, Star Trader, and Cash Flow Generator brands are incorporated
2
into the normal operations of the company. As the marketing, logistics, and speaker training functions of these brands are more seasoned, they are expected to produce a continued increase in the number of events, both domestically and internationally. In addition, the trend of increased attendance at events for all brands is expected to continue through out the year
Direct Course Expenses
There are two components of costs included in direct course expenses. The first component is variable and is consistent with the costs associated with revenue received. These costs include instructor fees, facility costs, and travel expenses. The second component relates to the costs associated with the initial free preview training. This introductory course is offered to provide information to the student about our basic 3 Day training and products and services. There is no revenue associated with this course. The revenue that is generated relates to the future courses that the students enroll in. The costs relating to these initial courses then have a significant impact on the relationship between revenue and costs. In periods in which there is a significant amount of new initial courses, as compared to advanced courses, the percentage relationship between direct course expenses and revenue increases. In periods in which there are more advanced courses, as compared to initial courses, the percentage relationship between direct course expenses and revenue decreases. The only expenses that are deferred until the related revenue is realized is the related commissions paid.
Direct course expenses increased for the first quarter of 2004 to $15,418,290, an increase of $7,843,918, or 103% over the prior comparable period in 2003 of $7,574,372. This increase in expenses is consistent with the increase in the amount of all types of courses that were held during the periods in question. Direct course expenses improved as a percentage of revenue to 40.0% for the first quarter of 2004, as compared to 56.9% for the comparable period in 2003. This improvement in the ratio of expenses to revenue is expected to continue as the number of students attending advanced training courses increases. Variable course expenses did not change as a per cent of revenue, and they are not expected to in the future. Direct expenses as a percentage of revenue are lower for advanced training courses (25%) than for 3 Day training courses (72%). Variable course expenses did not change as a per cent of revenue, and they are not expected to in the future.
Advertising and Sales Expense
Advertising and selling expenses, of which advertising represented approximately 83% of these expenses for the three months ended March 31, 2004, was $12,837,773, an increase of $8,297,158, or 183%, compared to the same period in 2003. This increase is disproportionate to the increase in the amount of free preview training events held during the period (65%). It is caused by the more rapid expansion of the financial investing brands of the company, which have a higher advertising cost per attendee than do the real estate brands. Many improvements have been made over the past few months to improve the quality of media buys and better media scheduling. These improvements have been instrumental in continuing to attract increasing numbers of new enrollees into our programs. This trend in continued expansion of our markets is expected to continue throughout the year as many of the projects that are planned are introduced through the rest of the year. Sales expense as a percent of revenue did not change, and that trend is expected to continue.
General and Administrative Expenses
General and administrative expenses consist primarily of payroll, benefits, and related expenses, insurance, office and facility expenses, and depreciation and amortization expense.
General and administrative expenses increased to $10,205,668, an increase of $6,368,829, or 166% over the comparable period in 2003 of $3,836,939. Payroll and payroll benefits account for
3
approximately 65% of total general and administrative expenses. During the first quarter of 2004, the company hired an additional 75 employees, net of terminations. The departments which showed increases in employment were the field representatives and student services. In addition, managers and directors were hired in various departments to better facilitate speaker training, course delivery, human resources, and business development. Much of the hiring done in the past year has been in anticipation of significant increases in the demand for all administrative services. Accordingly, general and administrative expenses have been consistently rising. However, some economies of scale and general efficiencies have been realized, as demonstrated by the ratios of general and administrative expenses to revenues. The first three months of 2003, they were 28.8% of revenues. In 2004 they improved to 26.5% of revenue. As revenues continue to increase, these expenses will also increase, although at a lesser rate of growth.
Net Income
Net income for the three months ended March 31, 2004 was $207,612, as compared to a net loss of $1,411,379 for the three months ending March 31, 2003, an increase of $1,618,991. Net income per share was $.02 as compared to a net loss per share in 2003 for the same period of ($.17). This increase is directly attributable to an increase in the delivery of 3 Day basic training courses and advanced courses, realization of more efficient advertising, and improvements in reducing the growth of general and administrative costs. Deferred revenue, which is the net backlog of training courses purchased and not yet delivered, increased by $7,955,971 during the first three months of 2004, compared to an increase of $5,869,609 for the same comparable period in 2003. This occurred while sales for the three months ended March 31, 2004 increased by $25,204,836 over the same period in 2003. This reflects two things; the percentage of courses delivered is increasing as a percentage of sales, and the amount of sales is increasing substantially. . This change in net income is a trend that is expected to continue forward, as the backlog of course trainings purchased and undelivered grows, the amount of courses deliveries will continue to grow, and no significant change in the ratio of expense is anticipated.
The Company’s capital requirements consist primarily of working capital, capital expenditures and acquisitions. Historically, we have funded our working capital and capital expenditures using cash and cash equivalents on hand. Cash increased by $7,586,778 to $22,608,263, compared to an increase of $3,704,948 in the previous comparable period in 2003. This increase is generated almost exclusively from operating activities and is directly attributable to the increase in sales and net income.
The Company’s cash provided by operating activities was $7.42 million and $3.92 million for the three months ended March 31, 2004 and 2003, respectively. As long as sales and net income increase, as explained earlier, then cash flows will continue to increase.
The Company’s cash provided by (used) in investing activities was $267,488 and ($183,120) for the three months ended March 31, 2004 and 2003, respectively. Cash used to purchase fixed assets was $559,200 for the three months ended March 31, 2004 as compared to $67,313 for the same period in 2003. In addition, in 2004, cash was provided from the sale of land ($ 826,688) and in 2003 cash was loaned to affiliates ($115,807). The company will continue to invest in fixed assets in future periods for facility expansion, computer and software upgrades, and geographic expansion. Cash provided by or used in investing activities is not anticipated to change as a percentage of cash flows.
4
The Company’s cash used in financing activities was $165,459 and $29,222 for the three months ended March 31, 2004 and 2003, respectively. These activities consist primarily of reduction of long-term debt. Long-term debt was reduced $189,212 for the three months ended March 31, 2004 and $48,846 for the same period in 2003. As the company continues to generate cash flow from operations, it will consider additional reduction of long- term debt as a financing option. Cash used in investing activities is not anticipated to change as a percentage of cash flows.
At March 31, 2004 we had unused letters of credit to secure merchant accounts and certain state bonding requirements aggregating $1,500,000, which are supported by certificates of deposit. These letters of credit expire in January 2005 and October 2005 and the certificates of deposit carry an interest rate of 2.9% and 3.68%, respectively.
Historically, the Company has been able to fund all of its operations from existing working capital. The Company intends to continue to use working capital for operating purposes. From time to time, we evaluate potential acquisitions of business products or technologies that complement our business. To the extent that resources are insufficient to fund future activities, we may need to raise additional funds. However, there can be no assurance that additional funding, if needed, will be available. If adequate funds are not available on acceptable terms, we may be unable to expand our business, develop or enhance our products and services, take advantage of future opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, operating results and financial condition.
We believe our cash resources are more then sufficient to fund our operations and growth plans for the next 12 months.
The following reflects our commitments for capital expenditures, debt and other commitments.
|
|
|
Capital |
|
Debt |
|
Operating |
|
Total |
|
|
2004 |
|
— |
|
1,342,185 |
|
140,093 |
|
1,482,278 |
|
|
2005 |
|
— |
|
1,061,842 |
|
102,896 |
|
1,164,738 |
|
|
2006 |
|
— |
|
1,109,217 |
|
73,359 |
|
1,182,576 |
|
|
2007 |
|
— |
|
825,821 |
|
— |
|
825,821 |
|
|
2008 |
|
— |
|
6,359,880 |
|
— |
|
6,359,880 |
|
|
Thereafter |
|
— |
|
1,414,571 |
|
— |
|
1,414,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
— |
|
12,113,516 |
|
316,348 |
|
12,429,864 |
|
Item 4. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as such is defined in Rules 13a-13(c) and 15d-14(c).under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the period covered by this report. Based on such evaluation, such officers have concluded that, as of March 31, 2004, our disclosures and procedures are effective in alerting them on a timely basis to material information relating to our Company (including our controlled subsidiaries) required to be included in our reports filed or submitted under the Exchange Act.
5
In connection with the audit of the year ended December 31, 2003, there were no “Reportable Events” within the meaning of Item 304(a)(1)(v) of Regulation S-K. However, the company’s auditors communicated to the Registrant matters it considered to be a weakness in the Registrant’s internal controls relating to the adequacy of staffing of its accounting and finance department. This staffing situation contributed to certain accounts not being reconciled on a timely basis and certain business transactions not documented in an appropriate manner. The Registrant is in the process of developing an action plan regarding the adequacy and sufficiency of its accounting personnel.
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.
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.
There are no senior securities issued by the Company.
No matter was submitted during the three months ended March 31, 2004 to a vote of security holders, through the solicitation of proxies or otherwise.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
|
(a) |
|
Exhibit No. |
|
Description |
|
|
|
|
|
|
|
|
|
31.1 |
|
Certification of Periodic Report-Chief Executive Officer |
|
|
|
31.2 |
|
Certification of Periodic Report-Chief Financial Officer |
|
|
|
32.1 |
|
Certification of Periodic Report-Chief Executive Officer |
|
|
|
32.2 |
|
Certification of Periodic Report-Chief financial Officer |
|
(b) |
|
Reports on Form 8-K |
|
|
|
No reports were filed on Form 8-K during the quarter ended March 31, 2004. |
6
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: May 17, 2004 |
By: |
/s/Russell A. Whitney |
|
|
|
|
Russell A. Whitney |
|
|
|
|
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 |
|
|
President/Director/Chairman/ |
|
May 17, 2004 |
|||
|
Russell A. Whitney |
|
Chief Executive Officer |
|
|
||||
|
|
|
|
|
|
||||
|
/s/Richard S. Simon |
|
|
Secretary/Treasurer/Chief Financial Officer/ |
|
May 17, 2004 |
|||
|
Richard S. Simon |
|
Principal Accounting Officer and Director |
|
|
||||
|
|
|
|
|
|
||||
|
/s/Gonzalo DeRamon |
|
|
Director |
|
May 17, 2004 |
|||
|
Gonzalo DeRamon |
|
|
|
|
||||
|
|
|
|
|
|
||||
|
/s/Frederick A. Cardin |
|
|
Director |
|
May 17, 2004 |
|||
|
Frederick A. Cardin |
|
|
|
|
||||
|
|
|
|
|
|
||||
|
/s/Chester P. Schwartz |
|
|
Director |
|
May 17, 2004 |
|||
|
Chester P. Schwartz |
|
|
|
|
||||
7
PART I
Item 1. Financial Statements
Whitney Information Network, Inc.
Consolidated Financial Statements
As of March 31, 2004 and December 31, 2003
And for the Three Months Ended March 31, 2004 and 2003
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WHITNEY INFORMATION NETWORK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
|
|
|
March 31, |
|
December 31, |
|
||
|
|
|
(Unaudited) |
|
|
|
||
|
Assets |
|
|
|
|
|
||
|
Current assets |
|
|
|
|
|
||
|
Cash and cash equivalents |
|
$ |
22,608,263 |
|
$ |
15,021,485 |
|
|
Accounts receivable, net |
|
1,188,442 |
|
1,314,562 |
|
||
|
Accounts receivable, affiliates |
|
2,325,646 |
|
2,482,436 |
|
||
|
Prepaid advertising and other |
|
2,059,677 |
|
2,329,726 |
|
||
|
Inventory |
|
1,411,983 |
|
712,703 |
|
||
|
Deferred seminar expenses |
|
7,798,219 |
|
6,833,784 |
|
||
|
Total current assets |
|
37,392,230 |
|
28,694,696 |
|
||
|
|
|
|
|
|
|
||
|
Other assets |
|
|
|
|
|
||
|
Property and equipment, net of accumulated depreciation of $1,758,677 (2004) and $1,575,287 (2003) |
|
17,789,374 |
|
16,585,497 |
|
||
|
Intangible assets, net of accumulated amortization of $330,649 (2004) and $261,894 (2003) |
|
6,930,145 |
|
6,998,841 |
|
||
|
Goodwill |
|
1,000,000 |
|
1,000,000 |
|
||
|
Investment in foreign corporation |
|
734,757 |
|
734,757 |
|
||
|
Other assets |
|
— |
|
19,965 |
|
||
|
Total other assets |
|
26,454,276 |
|
25,339,060 |
|
||
|
|
|
|
|
|
|
||
|
Total assets |
|
$ |
63,846,506 |
|
$ |
54,033,756 |
|
|
|
|
|
|
|
|
||
|
Liabilities and Stockholders’ Deficit |
|
|
|
|
|
||
|
Current liabilities |
|
|
|
|
|
||
|
Accounts payable |
|
$ |
1,377,098 |
|
$ |
3,218,370 |
|
|
Accrued seminar expenses |
|
3,232,500 |
|
1,645,601 |
|
||
|
Deferred revenue |
|
46,549,101 |
|
38,593,130 |
|
||
|
Accrued expenses |
|
2,444,680 |
|
1,781,044 |
|
||
|
Current portion of long-term debt |
|
129,685 |
|
168,897 |
|
||
|
Current portion of note payable-officer/stockholder |
|
1,212,500 |
|
1,362,500 |
|
||
|
Total current liabilities |
|
54,945,564 |
|
46,769,542 |
|
||
|
|
|
|
|
|
|
||
|
Long-term debt, less current portion |
|
7,421,331 |
|
6,071,331 |
|
||
|
Note payable – officer/stockholder, less current portion |
|
3,350,000 |
|
3,350,000 |
|
||
|
Total liabilities |
|
65,716,895 |
|
56,190,873 |
|
||
|
|
|
|
|
|
|
||
|
Minority Interest |
|
2,000,000 |
|
2,000,000 |
|
||
|
|
|
|
|
|
|
||
|
Stockholders’ deficit |
|
|
|
|
|
||
|
Common stock, no par value, 25,000,000 shares authorized, 8,560,199 and 8,547,749 shares issued and outstanding |
|
3,014,508 |
|
2,990,755 |
|
||
|
Paid-in capital |
|
448,600 |
|
448,600 |
|
||
|
Foreign currency translation adjustment |
|
(292,463 |
) |
(347,826 |
) |
||
|
Accumulated deficit |
|
(7,041,034 |
) |
(7,248,646 |
) |
||
|
Total stockholders’ deficit |
|
(3,870,389 |
) |
(4,157,117 |
) |
||
|
|
|
|
|
|
|
||
|
Total liabilities and stockholders’ deficit |
|
$ |
63,846,506 |
|
$ |
54,033,756 |
|
F-2
WHITNEY INFORMATION NETWORK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Consolidated Statements of Operations
|
|
|
For the
Three Months Ended |
|
||||
|
|
|
2004 |
|
2003 |
|
||
|
|
|
(Unaudited) |
|
(Unaudited) |
|
||
|
|
|
|
|
|
|
||
|
Sales |
|
$ |
38,508,675 |
|
$ |
13,303,839 |
|
|
|
|
|
|
|
|
||
|
Expenses |
|
|
|
|
|
||
|
Direct course expenses |
|
15,418,290 |
|
7,574,372 |
|
||
|
Advertising and sales expense |
|
12,837,773 |
|
4,540,615 |
|
||
|
General and administrative expense |
|
10,205,668 |
|
3,836,939 |
|
||
|
Total expenses |
|
38,461,731 |
|
15,951,926 |
|
||
|
|
|
|
|
|
|
||
|
Income (loss) from operations |
|
46,944 |
|
(2,648,087 |
) |
||
|
|
|
|
|
|
|
||
|
Other income (expense) |
|
|
|
|
|
||
|
Interest and other income |
|
420,276 |
|
146,918 |
|
||
|
Interest expense |
|
(259,608 |
) |
(22,210 |
) |
||
|
|
|
|
|
|
|
||
|
Income (loss) before income taxes |
|
207,612 |
|
(2,523,379 |
) |
||
|
|
|
|
|
|
|
||
|
Income tax (expense) benefit |
|
— |
|
1,112,000 |
|
||
|
|
|
|
|
|
|
||
|
Net income (loss) |
|
$ |
207,612 |
|
$ |
(1,411,379 |
) |
|
|
|
|
|
|
|
||
|
Basic income (loss) per share |
|
$ |
0.02 |
|
$ |
(.17 |
) |
|
|
|
|
|
|
|
||
|
Weighted average shares outstanding |
|
8,559,898 |
|
8,099,152 |
|
||
|
|
|
|
|
|
|
||
|
Diluted income (loss) per common share |
|
$ |
0.02 |
|
$ |
(.17 |
) |
|
|
|
|
|
|
|
||
|
Diluted weighted average common shares outstanding |
|
9,580,274 |
|
8,099,152 |
|
||
F-3
WHITNEY INFORMATION NETWORK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Consolidated Statements of Cash Flows
|
|
|
For the
Three Months Ended |
|
||||
|
|
|
2004 |
|
2003 |
|
||
|
|
|
(Unaudited) |
|
(Unaudited) |
|
||
|
Cash flows from operating activities |
|
|
|
|
|
||
|
Net income (loss) |
|
$ |
207,612 |
|
$ |
(1,411,379 |
) |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities |
|
|
|
|
|
||
|
Depreciation and amortization |
|
252,500 |
|
232,172 |
|
||
|
Gain on sale of asset |
|
(305,169 |
) |
— |
|
||
|
Deferred tax asset |
|
— |
|
(1,112,000 |
) |
||
|
Changes in assets and liabilities |
|
|
|
|
|
||
|
Accounts receivable |
|
126,120 |
|
(127,833 |
) |
||
|
Accounts receivable, affiliates |
|
156,790 |
|
— |
|
||
|
Prepaid advertising and other |
|
270,049 |
|
(402,908 |
) |
||
|
Inventory |
|
(699,280 |
) |
66,735 |
|
||
|
Deferred seminar expenses |
|
(964,435 |
) |
(1,085,763 |
) |
||
|
Other assets |
|
19,965 |
|
27,128 |
|
||
|
Accounts payable |
|
(1,841,272 |
) |
1,514,063 |
|
||
|
Accrued seminar expense |
|
1,586,899 |
|
463,065 |
|
||
|
Deferred revenue |
|
7,955,971 |
|
5,869,609 |
|
||
|
Accrued expenses |
|
663,636 |
|
(115,599 |
) |
||
|
|
|
7,221,774 |
|
5,328,669 |
|
||
|
Net cash provided by operating activities |
|
7,429,386 |
|
3,917,290 |
|
||
|
|
|
|
|
|
|
||
|
Cash flows from investing activities |
|
|
|
|
|
||
|
Proceeds from sale of asset |
|
826,688 |
|
— |
|
||
|
Purchases of property and equipment |
|
(559,200 |
) |
(67,313 |
) |
||
|
Loans to affiliates, net |
|
— |
|
(115,807 |
) |
||
|
Net cash used in investing activities |
|
267,488 |
|
(183,120 |
) |
||
|
|
|
|
|
|
|
||
|
Cash flows from financing activities |
|
|
|
|
|
||
|
Principal payments on note payable – officer/stockholder |
|
(150,000 |
) |
(15,842 |
) |
||
|
Payments of principal on long-term debt |
|
(39,212 |
) |
(25,004 |
) |
||
|
Proceeds from exercise of stock options |
|
23,753 |
|
11,624 |
|
||
|
Net cash used in financing activities |
|
(165,459 |
) |
(29,222 |
) |
||
|
|
|
|
|
|
|
||
|
Net increase in cash and cash equivalents |
|
7,531,415 |
|
3,704,948 |
|
||
|
|
|
|
|
|
|
||
|
Foreign currency translation |
|
55,363 |
|
— |
|
||
|
|
|
|
|
|
|
||
|
Cash and cash equivalents, beginning of period |
|
15,021,485 |
|
12,080,553 |
|
||
|
|
|
|
|
|
|
||
|
Cash and cash equivalents, end of period |
|
$ |
22,608,263 |
|
$ |
15,785,501 |
|
F-4
WHITNEY INFORMATION NETWORK, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Supplemental cash flow information:
Cash paid for interest was $259,608 and $22,210 for the three months ended March 31, 2004 and 2003, respectively.
Supplemental disclosure of non-cash activity:
During 2004, the SCB Building, LLC, in which the Company has a 50% equity interest in, made improvements to the building of $1,350,000 through the use of proceeds of long-term debt.
During 2003, the Company issued 2,500 shares of common stock, valued at $10,000, in exchange for assets the Company recorded as intangible assets.
F-5
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 March 30, 2004, which includes audited financial statements for the years ended December 31, 2003 and 2002. The results of operations for the three months ended March 31, 2004, may not be indicative of the results of operations for the year ended December 31, 2004.
Recently Issued Accounting Pronouncements
In April 2003, FASB issued SFAS No. 149, “Accounting for Derivative Instruments and Hedging Activities,” which is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. This statement amends and clarifies financial accounting and reporting for derivative instruments including certain instruments embedded in other contracts and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The adoption of this standard did not have a material impact on the Company’s financial statements.
In May 2003, FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” which is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The adoption of this standard did not have a material impact on the Company’s financial statements.
In December 2003, the FASB issued Interpretation No. 46R, Consolidation of Variable Interest Entities, an interpretation of ARB 51 (FIN No. 46R) and replaces FIN No. 46. The primary objectives of FIN 46R are to provide guidance on the identification of entities for which control is achieved through means other than through voting rights (Variable Interest Entities or “VIEs”) and to determine when and which business enterprise should consolidate the VIE. This new model for consolidation applies to an entity which either (1) the equity investors (if any) do not have a controlling financial interest, (2) the equity investment at risk is insufficient to finance that entity’s activities without receiving additional subordinated financial support from other parties including equity holder or (3) voting rights of some investors are not proportional to the obligation to absorb future losses and/or receive expected residual returns or all activities of an entity are conducted on behalf of an investor that has disproportionate fewer voting rights. The disclosure requirements of FIN No. 46R became effective for financial statements issued after December 31, 2003. For all other variable interests public, non small businesses filers, shall apply the provisions of this Interpretation to that entity no later than the beginning of the first reporting period ending after March 15, 2004. The adoption of this statement impacted the Company’s financial statements in that an investment in a SCB Building, LLC has been consolidated.
F-6
Note 2 – Related Party Transactions
The Company has rented a training facility located in Cape Coral, Florida, since 1992 from the Chairman of the Board and pays rent on annual leases. There are currently two facilities under lease in 2004. Rentals under the related party lease were $47,471 and $15,148 for the three months ended March 31, 2004 and 2003, respectively. The lease terminated in January 2004. The Company currently pays rent on a month-to-month basis.
MRS Equity Corp. is a 100 percent subsidiary of Equity Corp. Holdings, Inc. which manages the processing of payments through customer’s accounts to the mortgage holder, was acquired by the Company in 2003. Prior to July 2003, the Vice President of Marketing of Whitney Information Network, Inc. owned and controlled MRS Equity Corp.
Whitney Leadership Group is a company that holds all the copyright and intellectual property rights associated with the educational materials and licenses the rights to the Company for payment, and was acquired by the Company in July 2003. Prior to July 2003 the Chairman of the Board of Whitney Information Network, Inc. was the President and Chief Operating Officer of Whitney Leadership Group, Inc.
Accounts receivable, affiliates are as follows:
|
|
|
March 31, |
|
December 31, |
|
||
|
Accounts receivable, foreign investment |
|
$ |
1,294,236 |
|
$ |
1,227,293 |
|
|
Accounts receivable, SDI |
|
547,020 |
|
631,210 |
|
||
|
Accounts receivable, commission overpayment |
|
484,390 |
|
623,933 |
|
||
|
|
|
|
|
|
|
||
|
Total accounts receivable, affiliates |
|
$ |
2,325,646 |
|
$ |
2,482,436 |
|
The following balances were the amount of payroll services provided to related parties for the periods ended:
|
|
|
Three Months Ended March 31, |
|
||||
|
|
|
2004 |
|
2003 |
|
||
|
|
|
|
|
|
|
||
|
MRS Equity Corp. (prior to the acquisition in 2003) |
|
$ |
— |
|
$ |
59,570 |
|
F-7
The following balances were the amount of products purchased and payments made for registration fees and commissions from related parties for the periods ended:
|
|
|
Three Months Ended March 31, |
|
||||
|
|
|
2004 |
|
2003 |
|
||
|
|
|
|
|
|
|
||
|
MRS Equity Corp. (prior to the acquisition in 2003) |
|
$ |
— |
|
$ |
164,400 |
|
|
Whitney Leadership Group, Inc. (prior to the acquisition in 2003) |
|
— |
|
31,375 |
|
||
|
|
|
|
|
|
|
||
|
|
|
$ |
— |
|
$ |
195,775 |
|
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 March 31, 2004 and December 31, 2003, the Company has net operating loss (NOL) carryforwards for tax purposes of approximately $13,250,000 and $10,225,000, respectively, which expire in the years 2004 through 2024.
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 sheets include the following:
|
|
|
March 31, |
|
December 31, |
|
||
|
|
|
(Unaudited) |
|
|
|
||
|
|
|
|
|
|
|
||
|
Deferred tax asset from NOL carryforward |
|
$ |
4,947,000 |
|
$ |
3,814,000 |
|
|
Deferred tax liability from deferred expense recognition |
|
(3,191,000 |
) |
(2,758,000 |
) |
||
|
Total deferred tax asset |
|
1,756,000 |
|
1,056,000 |
|
||
|
|
|
|
|
|
|
||
|
Valuation allowance for deferred tax asset |
|
(1,756,000 |
) |
(1,056,000 |
) |
||
|
|
|
|
|
|
|
||
|
Net deferred tax asset |
|
$ |
— |
|
$ |
— |
|
F-8
Note 5 - 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:
|
|
|
Options |
|
Weighted |
|
|
|
Outstanding - December 31, 2001 |
|
921,800 |
|
$ |
1.94 |
|
|
Granted |
|
651,750 |
|
$ |
1.81 |
|
|
Forfeited/canceled |
|
(141,000 |
) |
$ |
(1.98 |
) |
|
Exercised |
|
(26,375 |
) |
$ |
(2.13 |
) |
|
|
|
|
|
|
|
|
|
Outstanding - December 31, 2002 |
|
1,406,175 |
|
$ |
1.93 |
|
|
Granted |
|
202,500 |
|
$ |
3.80 |
|
|
Forfeited/canceled |
|
(180,300 |
) |
$ |
(2.19 |
) |
|
Exercised |
|
(6,125 |
) |
$ |
(2.60 |
) |
|
|
|
|
|
|
|
|
|
Outstanding - December 31, 2003 |
|
1,422,250 |
|
$ |
2.17 |
|
|
Granted |
|
415,000 |
|
$ |
4.50 |
|
|
Forfeited/canceled |
|
(14,950 |
) |
$ |
(1.98 |
) |
|
Exercised |
|
(11,075 |
) |
$ |
(1.88 |
) |
|
|
|
|
|
|
|
|
|
Outstanding – March 31, 2004 |
|
1,811,225 |
|
$ |
2.71 |
|
F-9
The following table presents the composition of options outstanding and exercisable:
|
Range of Exercise Prices |
|
Number of
Options |
|
Number of |
|
Price* |
|
Life* |
|
||
|
$ |
1.75 |
|
40,000 |
|
40,000 |
|
$ |
1.75 |
|
6.09 |
|
|
$ |
1.81 |
|
310,825 |
|
77,706 |
|
$ |
1.81 |
|
8.00 |
|
|
$ |
1.88 |
|
248,200 |
|
248,200 |
|
$ |
1.88 |
|
5.41 |
|
|
$ |
2.00 |
|
594,700 |
|
454,075 |
|
$ |
2.00 |
|
6.31 |
|
|
$ |
3.10 |
|
15,000 |
|
3,750 |
|
$ |
3.10 |
|
8.43 |
|
|
$ |
3.70 |
|
152,500 |
|
38,125 |
|
$ |
3.70 |
|
8.91 |
|
|
$ |
3.90 |
|
25,000 |
|
6,250 |
|
$ |
3.90 |
|
9.41 |
|
|
$ |
4.10 |
|
10,000 |
|
2,500 |
|
$ |
4.10 |
|
9.04 |
|
|
$ |
4.50 |
|
415,000 |
|
103,750 |
|
$ |
4.50 |
|
9.83 |
|
|
|
|
|
|
|
|
|
|
|
|
||
|
$ |
1.75 to $4.50 |
|
1,811,225 |
|
974,356 |
|
|
|
7.57 |
|
|
*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
Three Months Ended |
|
||||
|
|
|
2004 |
|
2003 |
|
||
|
Net income (loss) - as reported |
|
$ |
210,612 |
|
$ |
(1,411,379 |
) |
|
Net income (loss) - pro forma |
|
$ |
(267,617 |
) |
$ |
(1,742,617 |
) |
|
Basic income (loss) per common share - as reported |
|
$ |
0.02 |
|
$ |
(.17 |
) |
|
Basic income (loss) per common share - pro forma |
|
$ |
(.03 |
) |
$ |
(.22 |
) |
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
Periods Ended |
|
||||
|
|
|
2004 |
|
2003 |
|
||
|
Approximate risk free rate |
|
4.22 |
% |
3.83 |
% |
||
|
Average expected life |
|
10 years |
|
10 years |
|
||
|
Dividend yield |
|
0 |
% |
0 |
% |
||
|
Volatility |
|
48.35 |
% |
41.93 |
% |
||
|
|
|
|
|
|
|
||
|
Estimated fair value of total options granted |
|
$ |
475,229 |
|
$ |
331,238 |
|
F-10
Note 6 - Income (Loss) Per Share
The following table sets forth the computation for basic and diluted earnings per share:
|
|
|
For the
Periods Ended |
|
||||
|
|
|
2004 |
|
2003 |
|
||
|
Numerator for diluted income (loss) per common share |
|
$ |
207,612 |
|
$ |
(1,411,379 |
) |
|
|
|
|
|
|
|
||
|
Denominator for basic earnings per share - weighted average shares |
|
8,559,898 |
|
8,099,152 |
|
||
|
Effect of dilutive securities - options and warrants |
|
1,020,376 |
|
— |
|
||
|
Denominator for diluted earnings per share - adjusted weighted average shares |
|
9,580,274 |
|
8,099,152 |
|
||
|
|
|
|
|
|
|
||
|
Diluted income (loss) per common share |
|
$ |
0.02 |
|
$ |
(.17 |
) |
Where the inclusion of potential common shares is anti-dilutive, such shares are excluded from the computation.
F-11