SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
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
- --------------------------------------------------------------------------------
(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
Whitney Information Network, Inc. (the "Company") was incorporated in 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. ("WEG"), a Florida corporation, organized on November 12,
1992 and WEG became a wholly owned subsidiary of the Company. On August 10,
1998, the Company changed its name to WIN Systems International, Inc. and on
February 11, 1999, the Company changed its name to Whitney Information Network,
Inc.
General
Since 1994, the Company has been a leading provider of educational and training
courses for students throughout the United States and more recently in Canada,
the United Kingdom and Central America. These courses provide instruction on
real estate investing, business strategies, stock market investment techniques,
entering international business markets, cash management and asset protection.
Initially, the Company focused on basic and advanced real estate training
programs. Although U.S. based real estate training represents the largest
educational segment of the Company's business, involving the training of over
12,000 students each month, the Company has gradually expanded its course
offerings and its markets.
Currently, the Company offers an average of 150 educational courses and training
programs per month covering 22 subjects to students in the United States,
Canada, the United Kingdom and Central America. Training is offered in the U.S.
and internationally in meeting facilities and conference centers, at the
Company's 11 regional training centers, and at the Company's 11,000 square foot
national training facility in Cape Coral, Florida. The Company is also
completing the construction of a 7,000 square foot training facility and
conference center in Central America.
The Company supports it educational training by providing its students with a
series of outlines, magazines, books, cassette tapes, CDs, Web-based interactive
discussions and learning tools and software programs. Currently, the Company
offers over 25 educational publications and software packages, which are
distributed to students registered in the Company's educational programs and
sold directly to the public.
Students are recruited by attending a free informational training session
related to a specific educational subject. The subject, date and location of
these training programs are advertised in local newspapers, in radio and
television advertisements and through direct mailings and telemarketing. The
Company employs over 45 trainers who educate over 15,000 students per year.
Following the initial training session, students interested in learning more on
the lecture subject may subscribe to the Company's periodic publications,
purchase books or software programs or attend advanced training courses. In
addition to its over 45 resource publications, the Company offers from three to
five day advanced training programs. These advanced training programs are held
at the Company's 11 regional training centers, at training centers in Canada,
the United Kingdom and Central America and at the Company's national training
center located in Cape Coral, Florida. The Company also provides post training
programs conducted by over 30 Company mentors who travel to the student's
hometown for "hands on" business training. Approximately 80% of the Company's
revenue is derived from its various real estate training courses, which include
leveraged residential and commercial real estate acquisition, real estate
financing techniques, the use of purchase/lease options, property management and
real estate foreclosure techniques. The balance of the Company's revenue is
divided between courses offering other business strategies, such as stock market
strategies, options trading, asset protection, acquisition of commercial
properties, creative financing techniques, international finance and other
topical business subjects.
The Company conducts its operations through 14 U.S. based and foreign corporate
subsidiaries. In recent years the Company has expanded its course offerings and
its marketing areas, which has resulted in significant revenue and earnings
growth. The Company's strategy is to continue its leadership in for-profit
educational services by adding new educational courses, continuing to increase
its number of course offerings and by further expanding its educational products
internationally. Additional emphases will also be placed upon the direct sale of
educational products and reference materials through media and direct mail
advertisements as well as through the Company's Web sites. The Company is
accredited as a proprietary school in Texas and may seek similar academic and
educational accreditation in other states and foreign countries.
The for-profit education industry is extremely varied in scope and intensely
competitive. In a broad sense, the Company competes with post-secondary
education companies that offer technical and industrial training and career
training, as well as courses leading to undergraduate and advanced degrees. More
specifically, the Company competes with a number of other companies that offer
training on specific business subjects including real estate and stock market
investing. Generally, competitive factors within the proprietary educational
market include the range and depth of course offerings, the quality of teachers
and trainers, the quality of reference materials provided in connection with
course studies and the cost of the educational process. The Company believes
that the range and depth of its course offerings and the "Whitney" brand name
offer it competitive advantages over most of its competitors. The Company also
believes that it competes favorably with respect to the remaining competitive
factors.
The Company employs over 160 full time employees.
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. The terms of the lease are no less favorable
as can be obtained from independent third parties.
A subsidiary of the Company 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 and is payable at the rate of $6,128
per month.
Whitney Canada, Inc., the Company's Canadian operating subsidiary, leases an
office building at Unit 20, 3780-14th Avenue, Ontario, Canada, pursuant to a
written lease agreement, expiring on April 30, 2003 at monthly rents ranging
from $1,081 to $1,654 in Canadian dollars.
A subsidiary of the Company 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.
The Company is building a 7,000 square foot international conference center in
Costa Rica at an approximate cost of $550,000. The conference center is expected
to be completed in 2002.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation nor has any such
litigation been threatened against it.
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" since August 1998. The quotations below reflect inter-dealer
prices, without retail mark-up, markdown or commissions and may not represent
actual transactions. Trading by quarters for 2001, 2000 and 1999 fiscal years
ended December 31 are as follows:
Fiscal quarter 2001 High Ask Low Bid
------------ ----------
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
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.
ITEM 6. SELECTED FINANCIAL DATA
The following consolidated selected financial data discloses financial
information during the Company's four years of operations and should be read in
conjunction with its Consolidated Financial Statements and related Notes thereto
appearing elsewhere in this report. The consolidated selected financial data has
been derived from the Company's consolidated financial statements which have
been audited by Ehrhardt Keefe Steiner & Hottman PC and Larry Legel, CPA,
independent auditors, as indicated in their report included herein.
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
continuing operations 2,281,363 (8,960,463) (1,962,266) (2,238,307)
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 report 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 report 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 economic conditions such as levels of employment and interest rates,
competitive conditions, the Company's ability to finance its growth, the
retention of key management personnel and other factors described in this report
and in the Company's filings with the SEC.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 COMPARED TO DECEMBER 31, 1998
Revenue
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 offered 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 12,000 new students registered for one or more of the
Company's programs each month. Improved revenue is also attributable 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.
Advertising and Sales Expense
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. 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 television and
newspaper advertising, direct mailings, travel, public relations, trade shows,
and preparation of marketing literature and overhead allocations.
General and Administrative Expense
General and administrative expenses 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 trainers 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 auditing 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
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 was $676,899 of
expenses that were deferred as compared to $1,361,326 at December 31, 1999.
YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999
Revenues for the year ended December 31, 2000 increased to $32,859,857 as
compared with $26,775,589 for the year ended December 31, 1999 an increase of
$6,084,268 or 23%. Total deferred revenues on the balance sheet were $22,640,442
and $9,311,574 at December 31, 2000 and 1999, respectively. Cost of sales
increased to $22,232,387 for the year ended December 31, 2000 from $11,529,312
in the year ended December 31, 1999.
Advertising, selling and general and administrative expenses increased for the
year ended December 31, 2000 to $19,587,933 from $17,208,543 as compared with
1999. These substantial increases in revenues and expenses in 2000 over 1999
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 television and newspaper
advertising, direct mailings, travel, public relations, trade shows and
preparation of 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 auditing costs.
Net loss of $8,703,127 for the year ended December 31, 2000 increased by 343%
over the net loss for the year ended December 31, 1999 of $1,962,266 or a loss
of $1.16 per share as compared with a loss of $.26 a share for the prior year.
Earnings (Loss) Before Interest, Taxes, Depreciation and Amortization (EBITDA)
for the year ended December 31, 2000 and 1999 was $(8,533,194) and $(1,923,999),
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, 2000 the company had cash of $3,316,905 as compared with
$1,274,708 at December 31, 1999. This increase of $2,042,197 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.
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. Due in part to a $3.4
million reduction in costs related to the Company's Internet division (see
below), which ceased providing outside marketing services during 2001, partially
offset by an increase in speaker fees paid by the Company for trainers who
conducted 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.
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
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 television and newspaper
advertising, direct mailings, travel, public relations, trade shows and
preparation of 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 auditing 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.
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 9/11 tragedy,
many of the Company's television commercials were pre-empted by 9/11 news
coverage reducing student enrollment by 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.
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
WHITNEY INFORMATION NETWORK, INC. AND SUBSIDIARIES
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.
WHITNEY INFORMATION NETWORK, INC. AND SUBSIDIARIES
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.
WHITNEY INFORMATION NETWORK, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Deficit
For the Years Ended December 31, 2001, 2000 and 1999
Common Stock Additional Total
------------------------ 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.
WHITNEY INFORMATION NETWORK, INC. AND SUBSIDIARIES
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.
WHITNEY INFORMATION NETWORK, INC. AND SUBSIDIARIES
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:
Related Party
Year Ending December 31, 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:
Related Party
Year Ending December 31, 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 terminated its auditor, Larry Legal CPA and, on
August 17, 2000 replaced that firm with BDO Seidman. On November 14, 2000 the
Company terminated BDO Seidman and, in February 2001, replaced that firm with
Ehrhardt Keefe Steiner & Hottman, P.C. There was no dispute with either firm as
to accounting policy or practice. In December 2000 the Company restated its
financial statements for the periods and years ended March 31, 2000, June 30,
2000, September 30, 2000, and December 31, 1999. A detailed timeline concerning
the November termination of BDO Seidman and the December 2000 restatement of
financial statements has been outlined in prior filings. The Company's decision
to restate its financial statements was made after discussions with the
Commission and without any formal action, prior or subsequent, by the
Commission. BDO Seidman confirmed to the Commission that it had do dispute with
the Company regarding accounting policy or practice.
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 Director
Ronald S. Simon 58 Secretary/Treasurer, Chief Financial
Officer and Director
Each director serves for a term of one year or until his or her successor is
duly elected. 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 is the founder and has been the Chief Executive Officer and Chairman
of the Board of Directors of the Company and its predecessor, since 1987. He is
the Chief Executive Officer and a director of all of the Company's wholly owned
subsidiaries. Mr. Whitney also invests actively in real estate.
Richard W. Brevoort - President and Director
Mr. Brevoort has been the President of Whitney Education Group, Inc. (formerly,
Win Systems, Inc.) since February 1997, and President of the Company since
August 1998. From 1996 to 1997, Mr. Brevoort was an Instructional Supervisor for
the Trace Program at Bronx Community College. He has been the Deputy
Commissioner of Commerce for New York City and the Chief of Staff for the
Democratic Party in the New York state senate.
Ronald S. Simon - Secretary/Treasurer, Chief Financial Officer, and Director
Since August 1998, Mr. Simon has been the Secretary/Treasurer, Chief Financial
Officer, and a member of the Board of Directors of the Company. He is also an
executive officer and director of certain of the Company's subsidiaries. Mr.
Simon has been a certified public accountant since 1971. He became a full time
executive officer of the Company on August 18, 1998. 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 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 Last Base Options
Name Granted 12 Months Price ($/Sh) Exercised Expiration Date
---- ------- -------- ------------ --------- ---------------
Richard Brevoort 168,000 -- $ 2.00 -- 09/01/2008
Ronald Simon 218,000 -- $ 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 6,650,000 Chief Executive Officer
4818 Coronado Parkway 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 35,175 Secretary/Treasurer
1402 Beechwood Trail Chief Financial Officer 0.43%
Fort Myers, Florida Director
33919
All officers and 6,830,000
directors as a 86.70%
group (3 persons)
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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.
At December 31, 2001, the Company was owed $232,126 by Whitney Leadership Group,
Inc., a company owned and controlled by Mr. 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 Mr. Whitney.
Precision Software Services, Inc., develops and licenses software to the
Company. Mr. Whitney owned a controlling interest in Precision Software
Services, Inc. until it was acquired by the Company on November 1, 2001 in an
exchange of stock with Mr. 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. Mr.
Whitney is President and Chief Operating Officer of Whitney Leadership Group.
United States Fiduciary Corp. provides telemarketing and instructor services for
the Company. Mr. Whitney and Mr. Simon are directors of the board of United
States Fiduciary 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 Fiduciary 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 amended report to be signed on its behalf by the undersigned,
thereunto duly authorized.
WHITNEY INFORMATION NETWORK, INC.
Dated: July 16, 2002 By:/s/Richard W. Brevoort
----------------------
Richard W. Brevoort
President
In accordance with the Exchange Act, this amended 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 July 16, 2002
- ---------------------
Russell A. Whitney
/s/Richard W. Brevoort President and Director July 16, 2002
- ----------------------
Richard W. Brevoort
/s/Richard S. Simon Secretary/Treasurer/Chief Financial July 16, 2002
- ------------------- Officer/Principal Accounting Officer
Ronald S. Simon and Director
