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 September 30, 2001
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.)
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 ___
---
The Issuer had 7,528,022 common shares of common stock outstanding as of September 30, 2001
and December 31, 2000.
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 nine months ended September 30, 2001 was $32,423,386, an
increase of $3,433,404 or 12% compared to the same period in 2000 of $28,989,982. Revenues
for the three months ending September 30, 2001 were $9,239,054, a decrease of $2,332,906
over the prior quarter ending September 30, 2000 of $11,571,960. The combination of the
increase in advance training courses held and the higher registrations and revenue
contributed to the increase above. The decrease in the 3rd quarter was due to the
discontinuance of the Internet division's seminar programs.
Advertising and Sales Expense: Advertising and sales expense, of which advertising
represents approximately 60% of the expenses for the nine months ended September 30, 2001,
was $9,259,367, a decrease of $7,921,267 or 47% compared to the same period in 2000. The
decrease in advertising and sales expense for the quarter ending September 30, 2001 was
$3,594,133 or 57% resulting in advertising and sales expense for the quarter of $2,773,480.
The decrease in advertising and sales expense is due to discontinuing TV advertising for
the Internet division, more effective use of media buying and more effective marketing
programs hitting the market in the first and second quarters.
General and Administrative expenses decreased to $5,985,706, a decrease of $1,975,868 or
26% over the comparable period in 2000 of $7,871,574. The decrease in general and
administrative expenses to $2,000,768 for the quarter ended September 30, 2001 from
$4,801,660 for the quarter ending September 30, 2000 was $2,800,892 or 59%. This decrease
is due primarily to decreased personnel and expenditures due to discontinuing the Internet
seminar programs and the Wealth Centers.
Cost of Sales increased in comparison with the increase in sales for the first nine months
of 2001 to $14,176,616 an increase of $4,740,374 or 51% over the prior comparable period in
2000 and to $4,214,547 for the quarter ending September 30, 2001 an increase of 75% over
the comparable period in 2000.
Net Income for the nine months ending September 30, 2001 was $3,236,097 as compared with a
net loss of ($5,498,468) for the nine months ending September 30, 2000, an increase of
$8,734,565 or 159% or $.43 per share as compared to $(.73) per share for the prior period.
Net Income for the three months ending September 30, 2001 was $356,533 as compared with a
net loss of ($2,009,010) for the three months ending September 30, 2000, an increase of
$2,365,543 or 118% or $.05 per share as compared to $(.27) per share for the prior period.
The increase is directly attributable to increased sales in 2001 over the prior period,
higher realization of deferred revenues, increased production from marketing programs
resulting in a larger gross profit and a disproportionate reduction in advertising
expenses. The Company receives tuition today for courses that are taken in the future. The
Company defers the revenue to future periods when the courses are taken, but the expenses
that give rise to those revenues, primarily advertising, are a current period cost. In
2000 and prior years, the rate of growth in sales was so great that the amount of revenues
that were deferred was greater than the revenues that were realized in those periods, yet
substantially all of the costs that gave rise to the deferred revenues were period costs
(costs that were expensed in the current period). Therefore, the excess of the period
costs over the revenue that was not deferred created the losses in prior periods. In the
current year, the company was able to recognize both current year sales and prior periods
deferred revenues in excess of period costs.
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 effective.
The Internet division, although small as compared to the Company as a whole, continued to
be in a loss position. The Company discontinued its TV and marketing programs for this
division in October of 2000, and has embarked on a new method of marketing the division.
The Company expects the Internet division to become a mainstay division promoting the
Company and its products. The Company will be test marketing training and product sales on
the Internet in the last half of 2001. Management believes that the division will be
profitable by the end of the year.
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
$3,435,836 to $6,752,741, an increase of 104% over the previous comparable period in 2000
and an increase of $794,637 or 14% 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 $3.83 million and $2.99 million for
the nine months ended September 30, 2001 and 2000, respectively. In the first nine months
of 2001, 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 ($141,568) and $(444,058) for the nine
months ended September 30, 2001 and 2000, respectively. The Company's investing activities
for the nine months ended September 30, 2001 and 2000 were primarily attributable to the
purchase of office property and equipment and related party transactions described in the
accompanying financial statements.
Possible Effect of the September 11, 2001 Tragedy on the Financial Statements:
The management of the Company believes that the September 11, 2001 Tragedy will have little
or no effect on the financial statements. The effect of the loss of television marketing
time due to the extensive news coverage was minimal. The restrictions on air travel have
had little effect on our employee's ease of moving around the country and the attendance by
our students in our advanced courses is back to normal pre September 11, 2001 levels.
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 September 30, 2001 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.
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.
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: November ____, 2001 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 November 14, 2001
Russell A. Whitney
/s/Richard W. Brevoort President and Director November 14, 2001
Richard W. Brevoort
/s/Richard S. Simon Secretary/Treasurer/Chief Financial November 14, 2001
Richard S. Simon Officer/
Principal Accounting Officer and Director
PART I
Item 1. Financial Statements
Whitney Information Network, Inc. and Subsidiaries
Consolidated Financial Statements
As of September 30, 2001 and December 31, 2000
And for the Nine Months Ended September 30, 2001 and 2000
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
September 30, December 31,
2001 2000
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 6,752,741 $ 3,316,905
Accounts receivable (net of allowance of $241,275 and
$91,885, respectively) 3,729,504 1,793,454
Due from affiliates 108,247 70,490
Prepaid advertising and other 611,173 625,028
Income taxes receivable and prepayments 1,893,999 1,893,999
Inventory 400,786 268,663
Deferred seminar expenses 3,714,833 2,644,404
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Total current assets 17,211,283 10,612,943
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Other assets
Property and equipment (net accumulated depreciation
of $325,827 and $193,714, respectively) 2,803,607 2,920,597
Other assets 136,882 121,057
----------- -----------
Total other assets 2,940,489 3,041,654
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Total assets $20,151,772 $13,654,597
=========== ===========
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable $ 331,142 $ 1,942,804
Accrued seminar expenses 258,055 349,341
Deferred revenues 27,617,054 22,640,442
Other accrued liabilities 696,396 458,982
----------- -----------
Total current liabilities 28,902,647 25,391,569
Mortgage note payable 950,000 1,200,000
----------- -----------
Total liabilities 29,852,647 26,591,569
----------- -----------
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, 7,528,022 shares issued and outstanding. 67,102 67,102
Paid in capital 900 900
Accumulated deficit (9,768,877) (13,004,974)
----------- -----------
Total stockholders' deficit (9,700,875) (12,936,972)
----------- -----------
Total liabilities and stockholders' deficit $20,151,772 $13,654,597
=========== ===========
See notes to consolidated financial statements.
Consolidated Statements of Operations
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Sales $ 9,239,054 $11,571,960 $32,423,386 $28,989,982
Cost of sales 4,214,547 2,411,697 14,176,616 9,436,242
---------- ---------- ---------- ----------
Gross profit 5,024,507 9,160,263 18,246,770 19,553,740
---------- ---------- ---------- ----------
Expenses
Advertising and sales expense 2,773,480 6,367,613 9,259,367 17,180,634
General and administrative
expense 2,000,768 4,801,660 5,895,706 7,871,574
---------- ---------- ---------- ----------
Total expenses 4,774,248 11,169,273 15,155,073 25,052,208
---------- ---------- ---------- ----------
Income (loss) from operations 250,259 (2,009,010) 3,091,697 (5,498,468)
Other income (expense)
Interest income 130,775 - 222,881 -
Interest expense (24,481) - (78,481) -
---------- ---------- ---------- ---------
Income (loss) before income
taxes 356,553 (2,009,010) 3,236,097 (5,498,468)
Income taxes - - - -
---------- ---------- ---------- ---------
Net income (loss) $ 356,553 $(2,009,010) $3,236,097 $(5,498,468)
========== =========== ========== ===========
Basic and fully diluted
income (loss) per share $ .05 $ (.27) $ .43 $ (.73)
=========== =========== =========== ===========
Weighted average shares
outstanding 7,528,022 7,524,500 7,528,022 7,528,047
========== ========== ========== ==========
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows
For the Nine Months Ended
September 30,
2001 2000
(Unaudited) (Unaudited)
Cash flows from operating activities
Net income (loss) $3,236,097 $(5,498,468)
---------- ------------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Allowance for doubtful accounts 149,390
Depreciation and amortization 179,391 154,000
Loss of disposal of fixed assets 41,410
Changes in assets and liabilities
Accounts receivable (2,085,440) (2,243,940)
Prepaid advertising and other 13,855 (809,638)
Inventory (132,123)
Deferred seminar expenses (1,070,429) (1,806,262)
Other assets (15,825) (792,479)
Accounts payable (1,611,662) 347,850
Accrued seminar expense (91,286) 788,571
Deferred revenues 4,976,612 13,348,103
Other accrued liabilities 237,414 (492,641)
---------- -----------
591,307 8,493,564
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Net cash provided by operating activities 3,827,404 2,995,096
---------- ----------
Cash flows from investing activities
Purchases of property and equipment (103,811) (469,505)
Loans (to) from affiliates, net (37,757) 25,447
---------- ----------
Net cash used by investing activities (141,568) (444,058)
---------- -----------
Cash flows from financing activities
Principal payments on long-term debt (250,000) -
Adjustments to paid in capital - (900)
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Net cash used by financing activities (250,000) (900)
---------- -----------
Net increase in cash and cash equivalents 3,435,836 2,550,138
Cash and cash equivalents, beginning of period 3,316,905 1,274,708
---------- ----------
Cash and cash equivalents, end of period $6,752,741 $3,824,846
========== ==========
Supplemental cash flow information:
Cash paid for income taxes was $0 and $863,500 for the nine months ended
September 30, 2001 and 2000, respectively.
Cash paid for interest was $78,481 and $24,481 for the nine months ended
September 30, 2001 and 2000, respectively.
See notes to consolidated financial statements.
Notes to 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-KSB filed with the Securities and Exchange Commission April 2,
2001, which includes audited financial statements for the year ended December 31, 2000. The
results of operations for the three and nine months ended September 30, 2001, may not be
indicative of the results of operations for the year ended December 31, 2001.
Recently Issued Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued FASB Statements No. 141 and
142. These statements, among other items, deal with the accounting for business
acquisitions and intangible assets including goodwill. Among other items, these new
standards will change the accounting for amortization of goodwill expense and the
impairment of goodwill in a manner different than they have been in the past. The results
on the financial statements would not be material to the financial statements.
Note 2 - Related Party Transactions
The Company has rented its headquarters location 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 $55,383 for the nine months ended September 30, 2001 and 2000, 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 $27,864 and $58,510 for the nine months ended September
30, 2001 and 2000, respectively. MRS Equity Corp. provided Whitney Information Network,
Inc. with $45,650 and $322,400 for product costs for the nine months ended September 30,
2001 and 2000, respectively. MRS Equity Crop. 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. The Chairman of the Board of
Directors of Whitney Information Network, Inc. owns a majority interest in PSS. During the
nine months ended September 30, 2001 and 2000, PSS provided Whitney Information Network,
Inc. $30,000 and $199,775 in product cost, respectively. 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 $42,024
and $42,022 for the nine months ended September 30, 2001 and 2000, respectively.
Whitney Information Network, Inc. provided payroll services to Whitney Leadership Group,
Inc. in the amount of $48,247 and $58,570 for the nine months ended September 30, 2001 and
2000, respectively. During 2001, Whitney Information Network made payments of $184,105 and
$11,861 for registration fees and commissions, respectively. The Chairman of the Board of
Whitney Information Network, Inc. is the President and Chief Operating Officer of Whitney
Leadership Group, Inc.
United States Fiduciary Corp is a company that 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 United States Fiduciary Corp. During
2001, Whitney Information Network, Inc. paid $233,985 in commission payments to United
States Fiduciary 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. Whitney Information Network Inc.
provided payroll services to RAW, Inc. in the amount of $964 and $4,024 for the nine months
ended September 30, 2001 and 2000, respectively.
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.
Related party receivables and payables were as follows:
September 30, December 31,
2001 2000
------------- -------------
(Unaudited)
Receivables
Due from Whitney Leadership Group $ 224,566 $ 160,587
Due from RAW, Inc. 5,670 15,619
------------ ------------
230,236 176,206
------------ ------------
Payables
Amounts due to RAW, Inc. 21,265 3,876
Amounts due to MRS Equity Corp. 62,681 69,415
Amounts due to PSS 30,667 32,425
Amounts due to Whitney Leadership Group 7,376 -
------------ -----------
121,989 105,716
------------ ------------
Net receivable $ 108,247 $ 70,490
============ ============
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 September 30, 2001 and December 31, 2000, the Company has net operating loss (NOL)
carryforwards of approximately $11,480,000 and $12,831,000, respectively, which expire in
the years 2001 through 2021.
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:
September 30, December 31,
2001 2000
------------- ------------
(Unaudited)
Deferred tax asset from NOL carryforward $ 4,282,000 $ 4,786,000
Deferred tax asset from deferral of loss on conversion
to accrual basis taxpayer and other 511,000
Deferred tax liability from deferred expense recognition (1,386,000) (1,005,000)
----------- -----------
Net deferred tax asset 3,407,000 3,781,000
Valuation allowance (3,407,000) (3,781,000)
----------- -----------
$ - $ -
=========== ===========
Note 5 - Subsequent Events
In October 2001, the Company agreed to acquire 100% of the stock of PSS. The Chairman of
the Board of Directors of Whitney Information Network, Inc., owns a majority interest in
PSS. The Company intends to acquire PSS by issuing $500,000 in its common stock. In
addition, the Company, as part of this transaction, agreed to purchase the software rights
utilized by PSS for $500,000. These software rights are owned individually by the
stockholders of PSS.
