**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**Form 10-K/A**

 

**Annual Report Pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934**

 

**For the Fiscal Year Ended December 31, 2002**

 

**Whitney Information Network, Inc.**

(Exactname of registrant as specified in its charter)

 
| **Colorado**                                                                  |   | **0-27403**                |   | **84-1475486**                      |
|-------------------------------------------------------------------------------|--------|----------------------------|--------|-------------------------------------|
| (State  or other jurisdiction  of  Incorporation)                             |   | (Commission  File  Number) |   | (IRS  Employer  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** |
|                                                                          |
| 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)                                                             |

 

Indicate by check mark whether the Registrant(1) has filed all reports required to be filed by Section 13 or 15 (d) of theExchange Act during the preceding 12 months (or for such shorter period thatthe Registrant was required to file such reports) and (2) has been subject tosuch filing requirements for the past 90 days. Yes  ý    No  o

 

Indicate by check mark whetherthe registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act).  Yes  o  No  ý

 

The aggregate market value of the voting andnonvoting common equity held by nonaffiliates of the Registrant, computed byreference to the closing sale price of such common equity as quoted on the Overthe Counter Electronic Bulletin Board of $4.00 per share as of February 28,2003 was $5,867,396.

 

The Registrant had 8,096,624 common shares ofcommon stock outstanding as of February 28, 2003.

 

The Registrant’s revenues for the fiscal yearended December 31, 2002, were $62,145,237.

 

Documents incorporated by reference: None

 

Indicate by a check mark if disclosure ofdelinquent filers pursuant to Item 405 of Regulation S-K is not containedherein, and will not be contained, to the best of the Registrant’s knowledge,in definitive proxy or information statements incorporated by reference in PartIII of this Form 10-K or any amendment to this Form 10-K.  ý

 

 

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**PART I**

 

**ITEM 1. BUSINESS**

 

***History***

 

We were incorporated in Colorado in February1996 under the name Gimmel Enterprises, Inc. In August 1998, we acquired all ofthe outstanding common stock of Whitney Education Group, Inc., a Floridacorporation, organized in November 1992, and Whitney Education became ourwholly-owned subsidiary. In August 1998, we changed our name to WIN SystemsInternational, Inc., and in February 1999, we changed our name to WhitneyInformation Network, Inc. Our Web site is located at www.russwhitney.com.Information on our Web site is not a part of this Annual Report on Form 10-K.

 

In February 2003 we filed a RegistrationStatement on Form S-1 covering the sale of up to 1,150,000 units of oursecurities, through Newbridge Securities Corporation as our managingunderwriter, at a purchase price of between $5.00 and $6.00 per unit. Each unitconsists of one share of common stock and one common stock purchase warrant. InAugust 2003, we elected to postpone this offering.

 

***Current Operations***

 

Since 1992, we have provided post-secondaryeducational and training courses for students throughout the United States. Inrecent years we have expanded our operations to include course offerings tostudents in Canada and the United Kingdom. Our courses provide instruction in:

 

•      realestate investing;

 

•      businessstrategies;

 

•      stockmarket investment techniques;

 

•      enteringinternational business markets;

 

•      cashmanagement;

 

•      assetprotection; and

 

•      otherfinancially-oriented subjects.

 

We also develop and sell educational resourcematerials which we prepare to support our course offerings and for sale to thegeneral public. We do not sell real estate, securities or mortgage refinancingbusiness.

 

Initially, we focused primarily on basic andadvanced real estate training programs which we offered throughout the UnitedStates. Although our U.S. based real estate products & services representedapproximately 95% of our revenue in 2002, we have gradually expanded our courseofferings and geographical markets. We currently offer approximately 150educational courses and training programs per month covering more than 20financially-oriented subjects which we provide either for free or on a feebasis to over 12,000 attendees per month. For the year ended December 31, 2002,approximately 90% of our revenue was generated from domestic sales and 10% wasgenerated from sales made in Canada and the United Kingdom. For the year endedDecember 31, 2002, 60% of our revenue was generated from repeat customers.Tuition ranges from approximately $3,000 to $32,000 per course of study. Ourtraining is offered in the U.S. and internationally:

 

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•      inmeeting facilities and conference centers;

 

•      atregional training centers located in hotels or other temporarily rentedfacilities selected by us; and

 

•      atour 7,000 square foot international training facility and conference center inCosta Rica.

 

Our students are initially recruited byattending a free informational training session related to a specificeducational subject which is hosted by one of our trainers and is held at alocal hotel or other rented auditorium facility. The subject, date and locationof the training session is advertised in local newspapers, on our Web site, intelevision advertisements and through direct mailings and telemarketing. Wehold these sessions in major metropolitan areas throughout the United States,Canada and the United Kingdom. In August 2002, we purchased for approximately$2,100,000 an airplane which we use to transport some of training personnelwhen commercial travel is unavailable. Following the free informationaltraining session, the student may purchase reference materials on the subjectdiscussed or may elect to receive further fee-based training in the manyfinancial subjects we offer either in the student’s hometown or in regionaltraining centers which we rent temporarily in hotels. We engage over 70trainers, instructors and mentors in connection with our various educationalcourse offerings.

 

Following the first fee-based trainingsession, students interested in learning more on the course topics may alsosubscribe to our periodic publications, purchase books or software programs orattend advanced training courses. In addition to our over 25 resourcepublications, we offer three-day advanced training programs throughout theUnited States, in Canada and the United Kingdom. We also provide post-trainingprograms conducted by our over 30 mentors, who travel to students’ hometownsfor “hands on” business training.

 

Some of our sales are generatedby one of our subsidiaries that provides telemarketing services.  Our telemarketing business is responsiblefor approximately 12% of total revenues. We telemarket our products andservices to four types of people: Those who registered to attend one of ourfree preview trainings, but did not attend; those who attended one of ourtraining events, who purchased another of our trainings, and who have completedthe trainings within the last six months; those who attended one of our freepreview trainings and who chose not to purchase any trainings or products; andthose people who contact us through the Internet and express an interest inbeing contacted. Our telemarketing division sells the same products andtrainings as our live events, and also sells personal coaching, which is notoffered at our live trainings.

 

Currently, approximately 80% of our revenue isderived from our various real estate training courses, which include leveragedresidential and commercial real estate acquisition, real estate financingtechniques, the use of purchase/lease options, property management and realestate foreclosure techniques. The balance of our revenue is divided betweencourses offering other business strategies, such as stock market strategies,options trading, asset protection, acquisition of commercial real estateproperties, creative financing techniques, international finance and topicalbusiness subjects along with the sale of reference materials.

 

In June 2002, we acquired the Teach Me ToTrade division of Maverick Trading LLC for $1,438,000 in cash and 189,655shares of our common stock. Teach Me To Trade offers courses similar to ours,but focuses on stock market investment strategies. We subsequently integratedthe Teach Me To Trade courses into our own training sessions.

 

We support our educational training byproviding our students with a series of outlines, magazines, books, cassettetapes, CDs, Web-based interactive discussions and learning tools and softwareprograms. Currently, we offer over 25 educational publications and softwarepackages, which are distributed to students registered in our educationalprograms and sold directly to the public.

 

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**Our Strategy**

 

We believe we have the opportunity tosignificantly expand our leadership position in the financial educationindustry. In order to do so, we have implemented a strategy that includes:

 

•                       *Increasing the number andtype of our course offerings.*We intend to continue to increase the number and type of our educational courseofferings in order to attract more students. New courses will further diversifyour financial educational products and will include subjects which we believeare gaining in interest and popularity among students, such as courses onacquisition of mobile and manufactured homes and real estate portfoliomanagement.

 

•                       *Expanding our marketsoutside the United States.*Consistent with our earlier expansions to Canada and the United Kingdom, weintend to add new markets in order to attract students we do not currentlyreach. Initially, we expect to focus our expansion efforts on English speakingEuropean countries, beginning with Ireland and Scotland. However, we expect tooffer courses in non-English speaking countries in the near future, beginningwith French-speaking Canada and France.

 

•                       *Marketing our referencematerials and online courses.*We intend to emphasize the direct marketing of educational products andreference materials which we currently use primarily to support our trainingprograms. These products will be marketed on a stand alone basis through directmail campaigns and promotions on our Web sites. We also intend to developselected courses electronically, primarily online, as well as throughtraditional student-attended programs and classes. Our electronic courses willbe used to supplement our existing courses and will be marketed usingtelevision infomercials developed and produced by us. Responses generated fromour direct mail and infomercial campaigns will also be used to market ourexisting training programs and courses to those who responded.

 

•                       *Diversifying our mediaadvertising.* We intend toincrease our print and television advertising and test new forms of marketing,including direct mail campaigns, e-mail campaigns and attending real estate andfinancial product shows, seminars and conventions. We also intend to developand produce infomercials to specifically market our reference materials and ourelectronic courses.

 

•                       *Developing or acquiringaccredited or licensed proprietary schools.* We are licensed in Texas as a proprietary school and intend to developthis portion of our financial education business. We may seek to expand ourproprietary school operations by developing new schools that offerpost-secondary education technical courses or by acquiring existing schoolsfrom third parties. We have no understandings or agreements to develop oracquire such schools at the present time.

 

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**EducationalTraining**

 

Following a free informational trainingsession, we offer our students a variety of educational courses, which we alsorefer to as “programs” as well as educational materials. These programs providethe opportunity to train either in the student’s home town or at local orregional camps. Our trainers take students step-by-step through a curriculumthat stresses a broad range of financial educational training, money managementand asset protection. Our financial educational training is taught to studentsin the United States, Canada and the United Kingdom through traditional coursestudy and hands-on training, and includes the following subjects.

 

*Basic Training*

 

Following the free educational trainingsession, our students may elect to learn more about the subject by attending abasic course in the student’s home town.

 

*Real Estate*. Our Real Estate Training Academy is a localtraining program offering a curriculum that focuses on the general business ofreal estate and teaches the fundamentals of negotiating real estate purchaseswith sellers, rehabilitating distressed properties, leasing rental units to tenantsand using a database to generate multiple sources of cash flow. Students aretaught the mechanics of completing a real estate transaction in theircommunity, from writing a contract to closing the transaction, with emphasisupon creative financing strategies.

 

*Business*. Our three-day business local trainingworkshops currently are in development and are being designed to teach studentshow to organize and build a business, how to broker or buy discount notes andmortgages, how to fund a retirement plan at maximum levels, how to purchaseproperty at discount prices through auctions or online trading and how toarrange E-commerce accounts for clients and customers.

 

*Financial*. Our Teach Me To Trade Training Academy is alocal training program offering a curriculum that focuses on stock markettrading strategies and uses proprietary software and specific teachingtechniques designed by us. Students are taught to understand the stock markets,investment strategies, risks and how to maximize returns in bull and bearmarkets.

 

*Advanced Real Estate Training*

 

Upon completion of a local basic trainingprogram, students may seek more advanced training at our specialized regionaltraining centers, which are generally three days in length and are held inlocations around the country. Most of these programs offer local tours so thatstudents can observe negotiating techniques and view properties in the area.Students are led through real estate acquisition and financing transactionsfrom beginning to end and are provided with a number of real estate acquisitionstrategies.

 

*IntensifiedReal Estate Training*.Our Intensified Real Estate Training course is offered at our corporateheadquarters in Cape Coral, Florida. This course expands upon the students’knowledge of real estate gained from our basic course. During Intensified RealEstate Training, students learn how to locate and analyze various propertytypes and how to effectively analyze

 

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property income and expense. Studentstelephone actual sellers and then tour properties offered for sale throughoutthe Cape Coral and Fort Myers, Florida areas. Students then conduct real estateinvestment negotiations and may complete transactions under the supervision oftheir instructor. Guest speakers including investors, property managers,developers, grant officers, loan officers, realtors and mortgage brokersexplain how students can locate financing for a variety of transactions, frommulti-unit apartment complexes to unimproved land.

 

*WholesaleBuying*. Our WholesaleBuying training course instructs students on the fundamentals of identifying,locating, negotiating, financing and disposing of wholesale properties.Students are also taught how to develop an investor database and how to manageout-of-state properties. While enrolled in this program, students develop afive-year investment plan with the help of our instructors. This program isfocused upon taking students from the level of novice investor to a proficiencyin managing a real estate investment portfolio.

 

*Foreclosure*. Our Foreclosure Training course teaches theintricacies of the real estate foreclosure process, how and why foreclosuresoccur, the role of secured lenders in foreclosure actions and discusses lawsthat affect lenders and borrowers. Students visit a local county courthouse tosearch foreclosure records and review title and tax information. Students visitwith owners of properties that are in foreclosure and learn how to negotiatetransactions for properties in foreclosure. Our instructors also teach studentshow to read foreclosure notices and how to refinance their acquisitions togenerate cash at the closing. Students also learn how to inspect, estimate thevalue of and rehabilitate houses.

 

*Purchase Options*. Our Purchase Option training course isdesigned to teach students how to control an equitable interest in propertywithout actually owning the property and how to create lease options onproperties. Students learn how to structure lease options and purchase optionsand how to generate cash from purchase real estate transactions. Included withthe course is a field trip and detailed information on how to selectappropriate properties for option or purchase. Other sessions includenegotiating with prospective sellers and prospecting for tenants, buyers andlessees.

 

*PropertyManagement Cash Flow*.Our Property Management & Cash Flow training course teaches students how tomanage their rental properties, including how to analyze monthly cash flows.Students also learn how to earn income by managing the properties of others andhow to find and retain tenants. The course curriculum includes numerousapproaches to resolving tenant-landlord problems such as delinquent rents,raising rents and evicting tenants. Our instructors discuss governmentalregulations and the tax implications associated with real estate. Studentslearn about the profit potential for acquiring student housing and roominghouses as well as learning how to find and rehabilitate distressed properties.The program also teaches basic marketing techniques to increase profits.

 

*Investingin Mobile Homes*. OurManufactured/Mobile Homes & RV Parks training course teaches students howto buy, sell and rent mobile homes and parks, an often overlooked segment ofthe real estate market. While mobile homes cost far less than frame constructedhomes, they can yield a significant rate of return on investment. Othersubjects include developing and operating a mobile home park, expanding rental“pads” and lots to hold more units, obtaining

 

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standard and unconventional financings,estimating fix-up, improvement and moving costs, obtaining seller financingterms and identifying attractive properties at foreclosures and repossessions.

 

*CommercialReal Estate Investing*.Our Commercial Real Estate Investing training course highlights thefundamentals of analyzing, buying, managing and disposing of commercialproperties. Students also learn how to establish relationships with lenders andgovernment financing agencies. This course, like many of our courses, teachesstudents how to rehabilitate properties and how to locate and pre-qualifytenants. Our trainers also teach students about various leasing arrangements anddescribe various legal forms used in commercial property management. Studentsfinish their training with a four-hour analysis tour of commercial properties.

 

*Keys toCreative Real Estate Financing*. Our Keys to Creative Real Estate Financing course teaches students howto create and refinance mortgages, how to exchange properties without taxconsequences and how to structure financings in light of prior credit problems.Discussions also include determining home equity, engaging in real estatenegotiations and the use of hard-money lenders.

 

*Business Success Training*

 

Our Business Success programs offer a seriesof training courses associated with starting a business, growing a business andprotecting assets.

 

*AssetProtection and Tax Relief*. Our Asset Protection and Tax Relief training course describes variouslegal entities used to hold property such as partnerships, corporations, andland and international trusts and the use of these entities to protect assets.Students also learn how to minimize income tax and estate tax liabilities andto develop their own personal investment plans.

 

*DiscountNotes and Mortgages*.Our Discount Notes and Mortgages training course teaches students how to brokerand buy commercial paper at a discount. Students learn how to locate fundingsources for discounted notes and mortgages. Trainers also teach students how todiscount other sources of debt such as business leases, business notes,inheritances, lotteries, life insurance policies and structured settlements.

 

*Financial Training Programs*

 

Our Financial Training programs are designedto help students learn about stock market and international equity investing.

 

*MasterTrader*. Our MasterTrader Advanced Training course is a three-day program offering intensifiedtraining designed to provide traders and investors with the knowledge needed toprosper in various market environments. This program offers the students aselection of long and short-term strategies and uses state of the artproprietary software. Course work includes technical analysis, fundamentalanalysis and our Master Training techniques.

 

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*TradingP.I.T.* Our TradingP.I.T. (pros-in-training) course describes the trading approaches of top moneymanagers. The course teaches students how to create an income stream using moreconservative trading techniques and other strategies designed to limit riskwhile increasing the probability of success. Strategies covered include anumber of trading approaches such as bidirectional trading, hedged directionaltrading, nondirectional trading, floor-trading strategies and capitalpreservation. Our 5-Point STAR Trader Formula allows users to quickly scan themarket, generate forecasts and select strategies.

 

*SingleStock Futures*. Our SingleStock Futures course addresses changes in rules regarding single stock futures.We discuss new tools associated with spread trading and leveraged trading.Students are taught the legal framework of single stock futures, set-ups andstrategies and where single stock futures fit into their diversifiedportfolios.

 

*AdvancedP.I.T. Training Camp*.Our Advanced P.I.T. Training course offers our students the opportunity toexperience the market from the inside— directly from the floor of an organizedexchange during a market visit followed by a simulated floor trading sessionafter the market closes. Instruction is provided by our options trainers.Subjects include advanced spread trading strategies, CPR (current portfoliorepair) and creating a personal mutual fund.

 

*InternationalFinance and Investment Training Course*. We have recently developed a new advanced training program ininternational finance and investment which is offered in our Costa RicaConference Center. This program offers a curriculum that includes wealthbuilding and investment opportunities overseas. The training also addresses thebenefits of establishing a business internationally, investing in foreignmarkets, raising venture and working capital internationally and assetprotection.

 

*Mentoring Programs*

 

We offer advanced training programs conductedby our over 30 mentors, who travel to the students’ home towns for “hands-on”business training.

 

*Real Estate*. Our Real Estate mentoring program appliesthe curriculum of the basic real estate camps to the student’s city of choice.Under this program, one of our mentors travels to the student’s city for fourdays to guide the student through an investment transaction. Students reviewthe real estate acquisition techniques involved and learn the real estatecharacteristics of the local market. Students can put to practice the skillsthey have gained while working directly with an experienced mentor.

 

*Financial*. For mentored financial training, ourstudents travel to a brokerage firm and spend three and one-half days coachedby an experienced stock market trader.

 

*Additional Products*

 

We market directly to customers a wide rangeof educational and reference products that supplement our training programs,such as our Building Wealth Real Estate Home Study Course; Real Estate SuccessSystem Software; Business Success System Software; Discount Notes and

 

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Mortgages Home Study Course; self-help coursesand manuals that provide students with information about their credit alongwith first-time homebuyers’ manuals. We are planning to develop on-line coursescovering a number of our educational training subjects and expect to marketthese courses in the second half of 2003.

 

**Sales andMarketing**

 

We create interest in and demand for oureducational programs, products and services through a mix of televisionadvertising, print advertising, direct mail, attendance at trade shows andInternet marketing. We employ a sales force of over 100 individuals trained to handlethe needs of new students, to promote new products and services to existing andformer students and to respond to customer inquiries via phone, e-mail or theInternet.

 

Our marketing programs include:

 

•                       Television advertising, which is our primary meansfor promoting our educational courses. We generally concentrate our televisionadvertising in the cities where our courses are scheduled to be held.Television advertising is often used in coordination with direct mail marketingin order to maximize sales efforts and create greater name recognition withinthe target population. In the future we intend to develop televisioninfomercials to sell our new electronic course offerings.

 

•                       Limited news print advertising, which we alsopurchase in markets where our training courses are scheduled to be held.

 

•                       Direct mail and e-mail marketing, which we usein promoting our educational training courses and marketing new educationalproducts, programs and services to our current and former students and toprospects whose names have been provided to us by third party vendors.

 

•                       Internet marketing, which is primarily focusedon our Web site at http://www.russwhitney.com. The site contains informationabout our products, programs and services, many of which may be purchasedonline.

 

•                       Cross promotional advertising campaigns, whichwe employ from time to time in conjunction with other financial educationservice providers.

 

**Competition**

 

The financial education training business ishighly-fragmented and intensely competitive. In a broad sense, we compete withnational and international post-secondary education companies, such as ApolloGroup, Devry Educational, Sylvan and New Horizon, that offer technical andindustrial training and career training. We do not, however, compete with theseor other companies that offer undergraduate or advanced degrees or continuingeducation programs. More specifically, we compete with a number of smallercompanies, such as Wyse Trade and Robbins Research International, that offertraining on specific business subjects including real

 

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estate and stock market investing. Generally,competitive factors within the proprietary educational market include the rangeand depth of course offerings, the quality of teachers and trainers, thequality of reference materials provided in connection with course studies andthe cost of the educational process. We believe that the range and depth of ourcourse offerings and our brand name offer competitive advantages over many ofour direct competitors. We train our own teachers and trainers and we preparemost of our own course materials which we believe offer us competitiveadvantages over companies that do not train their own teachers or develop theirown educational materials. As a result of constantly attending the trainingsessions of our competitors, we believe that the quality of our teachers,trainers and reference materials are consistent or superior to those of ourcompetitors. Our charges for our educational courses are also consistent withthose of our competitors. Many of our competitors have financial and marketingresources and name recognition superior to ours.

 

**IntellectualProperty**

 

We regard our educational materials andproducts, trademarks, servicemarks and trade symbols as proprietary and we relyprimarily on statutory and common law protections, such as copyrights andtrademarks, to protect our interests in these materials. While some of ourproducts and trade names are commonly used terms and do not afford ussignificant copyright or trademark protection, we also use employee andthird-party noncompetition and nondisclosure agreements and other contractualmethods of protecting proprietary rights to safeguard our intellectualproperty.

 

**Employees**

 

At December 31, 2002, we had approximately 250employees, plus over 70 independent contractors who act as trainers,instructors and mentors. Our employees are not represented by a labor union,and we believe our relations with our employees are satisfactory.

 

**Risk Factors**

 

Investors should consider the following risksprior to investing in our securities.

 

*If We DoNot Successfully Introduce New Programs, Products and Services, Our Growth Rateand Revenue Will be Reduced.*

 

Our growth strategy is dependent on ourability to sell existing training programs, products and services to newstudents, to open new markets and to develop and introduce new educationalprograms, products and services. If we are unable to expand our markets andproducts, our growth rate and revenue will be reduced. Market conditions andthe level of customer interest may be different for our current products thanfor new products, and there can be no assurance that we will be able to competefavorably with, and obtain market acceptance for, any such new programs,products or services.

 

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*Volatilityin the Securities Markets May Reduce Interest in Our Stock Market Courses.*

 

The level of public interest in investing,particularly in the securities and option markets as well as electronictrading, significantly influences the demand for our stock market programs andrelated financial education products and services. The securities markets haveexperienced weakness and substantial volatility over the last few years. Afurther decline in securities prices or other negative developments in thesecurities markets could cause a reduced demand for these programs, productsand services.

 

*Failure toComply with State Laws Regulating the Marketing and Sale of ProprietaryEducational Courses Could Harm Our Reputation and the Demand for Our CourseOfferings.*

 

Many states regulate the marketing and sale ofproprietary educational courses, including the content of advertisements toattract students. Failure to comply with these regulations could result inlegal action instituted by the states, including cease and desist andinjunction actions. In the event we are subject to such legal action, ourreputation would be harmed and the demand for our course offerings could besignificantly reduced.

 

*If OurPlanned Expansion Into Foreign Markets is Unsuccessful, Our Profits Will beReduced.*

 

Our business strategy calls for us to expandinto foreign markets, including English-speaking countries in Europe, as wellas French Canada and France. We have limited experience providing education andtraining outside North America and no such experience in non-English speakingmarkets. Accordingly, there is a higher degree of risk associated with ourexpansion into foreign markets than that which is associated with our ongoingexpansion in the United States. Should our expansion provide unsuccessful, ourprofitability could be reduced.

 

**ITEM2. PROPERTIES**

 

Our executive offices are located in a 30,000square foot office building we own at 1612 E. Cape Coral, Cape Coral, Florida33902. We use 19,000 square feet for our corporate headquarters andadministrative facilities and lease 11,000 square feet to nonaffiliates. Wealso own a 7,000 square foot conference and training center in Costa Rica,which we designed and built in 2002.

 

We lease 2,242 square feet of office space andtraining facilities at 4818 Coronado Parkway, Cape Coral, Florida 33904 fromRussell A. Whitney, our Chairman and Chief Executive Officer, under amonth-to-month lease, at $2,242 per month. The terms of the lease are no lessfavorable than those which we could obtain from an independent third party.

 

We lease 6,840 square feet of office space at12244 South Business Park Drive, Suite 230, in Draper, Utah. The lease expiresin October 2006 and is payable at the rate of $6,128 per month.

 

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Our Canadian subsidiary leases 1,200 squarefeet of office space at 3780-14thAvenue, Unit 20,Ontario, Canada. The lease expires in April 2003 and is payable at ratesincreasing from $1,081 to $1,654 per month over the term of the lease.

 

We recently purchased an approximatelythree-acre building site in Cape Coral, Florida, which we may use in the futurefor a new or additional corporate headquarters and administrative facilities.

 

We locate what we refer to as regionaltraining centers in hotels in a number of cities across our market areas. Werent, generally for three to five days, meeting rooms in these hotels for usein training our students.

 

**ITEM3.    LEGAL PROCEEDINGS**

 

None

 

**ITEM4.    SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS**

 

None

 

**PART II**

 

**ITEM5.    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERMATTERS**

 

Our common stock has traded on the ElectronicBulletin Board operated by the National Association of Securities Dealers, Inc.under the trading symbol “RUSS” since August 1998. The high and low closingprices of our common stock for the last two years, by calendar quarter, are setforth below. These quotations reflect inter-dealer prices, without retailmark-up, markdown or commissions and may not represent actual transactions.

 
|                         |   | **High Closing  Price** |   | **Low Closing  Price** |   |
|------------------------------|--------|------------------------------|--------|-----------------------------|--------|
| Year Ended December 31, 2002 |   |                         |   |                        |   |
| Fourth Quarter               |   | $                            | 4.20   |                        | $      | 2.20 |   |
| Third Quarter                |   | $                            | 3.35   |                        | $      | 2.20 |   |
| Second Quarter               |   | $                            | 3.25   |                        | $      | 1.45 |   |
| First Quarter                |   | $                            | 3.60   |                        | $      | 1.15 |   |
|                         |   |                         |   |                        |   |

 
|                         |   | **High  Closing  Price** |   | **Low  Closing  Price** |   |
|------------------------------|--------|--------------------------|--------|-------------------------|--------|
| Year Ended December 31, 2001 |   |                     |   |                    |   |
| Fourth Quarter               |   | $                        | 1.85   |                    | $      | 1.50 |   |
| Third Quarter                |   | $                        | 2.95   |                    | $      | 1.65 |   |
| Second Quarter               |   | $                        | 4.00   |                    | $      | 3.25 |   |
| First Quarter                |   | $                        | 3.87   |                    | $      | 3.50 |   |

 

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As of February 28, 2003, we had approximately320 record and beneficial stockholders, and the closing price of our commonstock on that date was $ 4.00 per share.

 

**ITEM6.    SELECTED FINANCIAL DATA**

 

The following table sets forth ourconsolidated selected financial data as of and for the five year period endedDecember 31, 2002. The data for the five years has been derived from our consolidatedfinancial statements, which have been audited by Ehrhardt, Keefe, Steiner andHottman, PC for 2000, 2001 and 2002 and Larry Legel CPA, for 1998 and 1999,independent certified public auditors, and which appear elsewhere in thisprospectus. The following selected consolidated financial data should be readin conjunction with the consolidated financial statements and the notesthereto.

 
|                                |   | **Year Ended  December 31,** |       |
|-------------------------------------|--------|------------------------------|------------|
|                                |   | **2002**                     |       | **2001** |   | **2000** |   | **1999** |   | **1998** |   |
| Operating revenue                   |   | $                            | 62,145,237 |   | $ | 42,157,740 |   | $ | 32,859,857 |   | $ | 26,775,589 |   | $ | 13,760,208 |   |
| Net income (loss)                   |   | $                            | 6,229,740  |   | $ | 2,534,247 |   | $ | (8,703,127 | ) | $ | (1,962,266 | ) | $ | (2,238,307 | ) |
| Net income (loss) per share         |   | $                            | .78        |   | $ | .33 |   | $ | (1.16 | ) | $ | (.26 | ) | $ | (.30 | ) |
| Total assets                        |   | $                            | 26,167,287 |   | $ | 16,626,475 |   | $ | 13,654,597 |   | $ | 6,284,403 |   | $ | 2,327,228 |   |
| Long-term obligations               |   | $                            | 1,606,410  |   | $ | 575,000 |   | $ | 1,200,000 |   | $ | — |   | $ | 64,979 |   |
| Stockholders’ (deficit) equity |   | $                            | (3,102,555 | ) | $ | (10,382,725 | ) | $ | (12,936,972 | ) | $ | 4,233,845 |   | $ | 2,336,079 |   |
| Cash flow from operations           |   | $                            | 9,731,185  |   | $ | 5,276,500 |   | $ | 3,545,361 |   | $ | 1,250,950 |   | $ | 619,468 |   |

 

**ITEM7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

 

The following discussion of our financialcondition and results of operations for the periods indicated should be read inconjunction with our financial statements, the notes related thereto and theother financial data included elsewhere in this Report.

 

**CriticalAccounting Policies**

 

We are engaged primarily in the business ofproviding financial education through training courses, which we also refer toas “programs” as well as educational materials. We record the revenue fromtraining programs as deferred revenue when the proceeds are received in fulland until the training program takes place. The revenue is recognized (earned)when the student attends the training program or at the expiration of ourobligation to provide training, whichever comes first. Students pay for thecourses in advance, the fees are generally non-refundable, and the students areallowed one year to complete their program.  A student of a advancedtraining course may request and receive a refund before the start of the secondday of training.  A student may also receive a refund within three days oftheir purchase by exercising a right of recision.  In such cases, thecorresponding amount of deferred revenue is relieved with no impact on theconsolidated statement of operations.

 

Speaker fee commission payments for revenuegenerated are deferred until such time as the revenue is earned. We expenseadvertising costs as incurred. Advertising paid in advance is recorded asprepaid until such time as the advertisement is published.

 

12

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Our business strategy involves geographicallyfocused advertising which attracts potential students to a free trainingsession which tells them about opportunities we offer. If students areinterested, they may enter into a contract for future training. Historically,the amount of advertising we incur is directly related to the amount of revenuewe generally earn in the form of course revenue. The revenue from the trainingcourses can be recognized as much as one year after the initial advertising.From a financial reporting standpoint, this business model, coupled with thenature of our expenditures, will create increased losses, or reduced netincome, in periods in which we accelerate our advertising expenditures inrelation to prior periods and create income, or reduced losses, in periods in whichwe decrease our advertising expenditures in relation to prior periods.

 

From a balance sheet prospective, theliability, which we designate as “deferred revenue,” will increase in times ofbusiness growth and decrease in times of business contraction. Furthermore,since we generally receive cash in advance of providing the training, we mustretain sufficient cash to pay both income taxes on future profits and finaltraining costs. A significant decrease in the number of students completing ourtraining courses on an ongoing basis will cause our deferred revenue todecrease and therefore increase our taxable income.

 

**Results OfOperations**

 

**Year EndedDecember 31, 2002 Compared to December 31, 2001**

 

*Revenue*

 

Total revenue for the year ended December 31,2002 was $62,145,000, an increase of $19,945,000 or 47% compared to the sameperiod in 2001 of $42,200,000. Revenue earned from deferred revenue was$32,900,000 for the year ended December 31, 2002 compared to $23,600,000 forthe comparable period in 2001. Of these amounts, $20,332,000 and $12,557,000,respectively was recognized due to the expiration of a student’s contractperiod. Attendance at advanced training courses accounted for approximately$7,000,000 in additional revenue combined with approximately $4,000,000additional revenue through co-marketing efforts with business joint ventures. Alarge portion of this revenue was recognized because our customers’ contractperiods had expired and we had previously made changes in our internal policiesconcerning contract terms with our customers. Specifically, in the past, we hadpermitted customers to extend their contract period which caused an extensionof the time revenue was deferred. Our contract terms no longer permit studentsto extend contracts, therefore, we effectively recognized revenue previouslydeferred under the old policy.  Weexpect to grow our business both domestically and internationally.  Our business plan looks to expanddomestically, with the addition of additional brands through acquisitions andthe expansion in the number of courses offered.  Our plans internationally, are to expand one additional brand(Teach Me To Trade) into the UK and into Canada. We are also calling forexpansion of the real estate brand (Building Wealth) into non-English speakingcountries, beginning with Spain. International expansion requires developing manuals that comply withlocal and national laws and translation of our existing manuals to conform withlocal and national law.  We have donethis in Canada, England, Ireland, Scotland and Whales.  We have found a formula and developed achecklist for expansion into a new country, and each expansion becomeseasier.  The amount of the capitalrequired varies between countries due to the complexities of local laws and theamount of translation, and requisite employees needed to staff theoperations.  We plan to fund all of theabove expansion out of operating cash flow. Our history has shown us that theexpansion of another brand requires working capital of approximately $300,000.That money is recovered in a three to six month time period. It requiresapproximately $600,000 in capital to expand into another county, and with thesame payback period. We expect our revenue growth to continue its increasingtrend.  The success of any new brands ormarkets will have a significant impact on our financial performance andresults.  The UK and Canadian based sales for 2002 were approximately 10% of grossrevenue, foreign operations were not significant in prior periods.

 

*DirectCourse Expenses*

 

There are two components of costs included indirect course expenses. The first component is variable and is consistent withthe costs associated with revenue received. These costs include instructorfees, facility costs, and travel expenses. The second component relates to thecosts associated with the initial free course that is provided. Theintroductory course is offered to provide information to the student about ourproducts and services. There is no revenue associated with the initial course.The revenue that is generated relates to future courses that are purchased andattended at a later date. The costs relating to these initial courses then havea significant impact on the relationship between revenue and costs. In periodsin which there is a significant amount of new initial courses, as compared toadvanced courses, the percentage relationship between direct course expensesand revenue increases. In periods in which there are more advanced courses, ascompared to initial courses, the percentage relationship between direct courseexpenses and revenue decreases.  Theonly expenses that are deferred until related revenue is realized is therelated commissions paid.

 

Direct course expenses increased for the yearended December 31, 2002 to $28,400,000, an increase of $8,600,000 or 44% overthe prior comparable period in 2001 of $19,700,000. This increase is consistentwith the increase in the amount of all types of courses that were held duringthe year ended December 31, 2002 of 1,426 courses compared to 1,263 in thecomparable prior period.

 

*Advertising,Selling and General and Administrative Expenses*

 

Advertising and sales expense, of whichadvertising represents approximately 60% of the expenses for the year endedDecember 31, 2002, were $13,900,000, an increase of $2,300,000 or 21%compared to $11,600,000 in the prior period. This increase in advertising andsales expense is consistent with the increase in direct course expensesrelative to the increase in the amount of events held during the year endedDecember 31, 2002.

 

13

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General and administrative expenses increasedto $13,904,000, an increase of $5,300,000 or 62% compared to $8,600,000 for thesame period in 2001. This increase was due primarily to increased personnelhired to handle the increase in our volume of business. Included in general andadministrative expenses were $109,000 related to our airplane and $26,000related to our facility in Costa Rica.

 

*Net Income*

 

Net income for the year ended December 31,2002 was $6,200,000 as compared with net income of $2,500,000 for the yearended December 31, 2001, an increase of 148% or $.78 per share as compared to$.33 per share for the prior period. The increase is directly attributable toincreased sales in 2002 over the prior period, increased recognition ofdeferred revenues, increased production from marketing programs resulting in alarger gross profit and a disproportionate increase in advertising expenses.Currently, more than 12,000 new students attend one or more of our programseach month, and a large percentage of our gross annual revenue can beattributed to repeat business, a factor that indicates students find ourtraining to be effective.

 

**Liquidityand Capital Resources at December 31, 2002**

 

At December 31, 2002, we had cash of$12,100,000 as compared with $6,900,000 at December 31, 2001. This increase of$5,200,000 was attributable primarily to cash provided by operations due to ournet income reported for the respective periods.

 

Our cash provided by operating activities was$9.7 million versus $5.3 million for the period ended December 31, 2001. In theyear ended December 31, 2002, cash flows from advanced training programs werepositively impacted by increased collection efforts.

 

Our cash used in investing activities was$4,900,000 and $829,000 for the years ended December 31, 2002, and 2001,respectively. The increase in cash used in investing for the year endedDecember 31, 2002 was due to our acquisition of Teach Me To Trade ($688,000),the purchase of an airplane ($2,100,000), the purchase of land ($1,200,000),and progress payments on our facility in Costa Rica ($900,000). The Teach Me ToTrade acquisition added programs which provide instruction in stock marketinvestment techniques. Our airplane purchase allows us to transport ourtrainers to scheduled training sessions around the U.S. when commercial airtravel is unavailable due to weather conditions or a lack of flight scheduleflexibility. We also allow our executives to use the airplane when we believeour executives will be able to save time compared to commercial flightschedules. We subsequently financed $1,200,000 of the purchase price of theairplane. This note is payable in monthly principal and interest payments atthe LIBOR rate plus 3.42% (4.87% at December 31, 2002) and is due in December2018. This note is secured by the airplane and is personally guaranteed by ourChairman up to $170,000.

 

14

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At December 31, 2002 we had unused amountsunder two letters of credit aggregating $1,500,000 collateralized by ourcertificates of deposit. These letters of credit expire in January 2004 andOctober 2005 and carry an interest rate of 2.98% and 3.68%, respectively.

 

From time to time, we evaluate potentialacquisitions of business products or technologies that complement our business.To the extent that resources are insufficient to fund future activities, we mayneed to raise additional funds. However, there can be no assurance thatadditional funding, if needed, will be available. If adequate funds are notavailable on acceptable terms, we may be unable to expand our business, developor enhance our products and services, take advantage of future opportunities orrespond to competitive pressures, any of which could have a material adverseeffect on our business, operating results and financial condition.

 

The following reflects our commitments forcapital expenditures, debt and other commitments.

 
|       |   | **Capital  Expenditures** |   | **Debt**  |   | **Operating  Lease  Commitments** |   | **Total** |   |
|------------|--------|---------------------------|--------|-----------|--------|-----------------------------------|--------|-----------|--------|
| 2003       |   | —                    |   | 162,105   |   | 115,292                           |   | 277,397   |   |
| 2004       |   | —                    |   | 498,573   |   | 89,952                            |   | 588,525   |   |
| 2005       |   | —                    |   | 52,341    |   | 88,547                            |   | 140,888   |   |
| 2006       |   | —                    |   | 56,405    |   | 73,359                            |   | 129,764   |   |
| 2007       |   | —                    |   | 60,784    |   | —                            |   | 60,784    |   |
| Thereafter |   | —                    |   | 938,307   |   | —                            |   | 938,307   |   |
|       |   |                      |   |      |   |                              |   |      |   |
| Total      |   | —                    |   | 1,768,515 |   | 367,150                           |   | 2,135,665 |   |

 

We develop and introduce most of our coursesinternally and therefore our expansion into new overseas markets requires fewstrategic relationships or contracts. Normally we visit the market and contactrealtors, attorneys and media people, to determine local procedures andcustoms. We then develop the manuals and course materials internally. We leasetemporary office space in each market until we can find permanent facilitiesand hire and train personnel to staff our offices. Our contractual commitmentsare extremely minimal but our investment in personnel is significant and ourlargest expense. We estimate that the cost of developing a new foreign market,including air travel, personnel and incidental costs, will amount to $300,000to $400,000. This amount includes development of manuals and trainingmaterials, development of marketing materials, analysis of markets and laws forthe target country to be funded over an approximately 10 month period.

 

We believe our cash resources are more thansufficient to fund our operation and growth plans for the next 12 months.

 

15

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**Year EndedDecember 31, 2001 Compared to December 31, 2000**

 

*Revenue*

 

Total revenue for the year ended December 31,2001 was $42,200,000, an increase of $9,300,000 or 28% compared to the sameperiod in 2000 of $32,900,000. Revenue earned from deferred revenue was$23,600,000 for the year ended December 31, 2001 compared to $11,300,000 forthe comparable period in 2000 of these amounts, $12,557,000 and $2,092,000respectively, was recognized due to the expiration of a student’s contractperiod. The entire increase was due to increases in course attendance which isillustrated in the increase in revenue earned from deferred revenue.

 

*DirectCourse Expenses*

 

There are two components of costs included indirect course expenses. The first component is variable and is consistent withthe costs associated with revenues received. These costs include instructorfees, facility costs, and travel expenses. The second component relates to thecosts associated with the initial free course that is provided. Theintroductory course is offered to provide information to the student about ourproducts and services. There is no revenue associated with the initial course.The revenue that is generated relates to future courses that are purchased andattended at a later date. The costs relating to these initial courses then havea significant impact on the relationship between revenue and costs. In periodsin which there is a significant amount of new initial courses, as compared toadvanced courses, the percentage relationship between direct course expensesand revenue increases. In periods in which there are more advanced courses, ascompared to initial courses, the percentage relationship between direct courseexpenses and revenue decreases.

 

Direct course expenses decreased to$19,500,000 for the year ended December 31, 2001 from $22,200,000 for the yearended December 31, 2000, due in part to a $3.4 million reduction in costsrelated to our internet division. Due to rapid advances in Internet technology,the lack of suitable web site designers, and lower than expected revenues, weceased offering Internet courses in 2001. The decrease is also due to thedecrease in the amount of courses that were held during the year ended December31, 2001 of 1,263 compared to 1,540 in the comparable prior period and is alsodue to the decrease in initial courses offered to 268 courses for the yearended December 31, 2001 compared to 290 courses for the comparable priorperiod.

 

*Advertising,Selling and General and Administrative Expenses*

 

Advertising, selling and general andadministrative expenses increased for the year ended December 31, 2001 toapproximately $20,300,000 from $19,600,000 in 2000. The increase in expensesand the corresponding increase in revenue for 2001 over 2000 reflect a generalincrease in business activity, our expansion into new markets and ourdevelopment of new products. Separately, general and administrative expensesincreased from $7,100,000 to $8,300,000 due to increased staffing and relatedexpenses associated with our increased business activity.

 

Sales and marketing expenses consist primarilyof television and newspaper advertising, direct mailings, travel, publicrelations, trade shows, preparation of marketing literature and overheadallocations. General and administrative expenses consist primarily of salaries andother personnel-related expenses for our administrative, executive and financepersonnel as well as outside legal and auditing costs.

 

*Net Income*

 

Net income of $2,500,000 or $.33 per share forthe year ended December 31, 2001 increased by $11,200,000 over the net loss forthe year ended December 31, 2000 of $8,700,000, or $1.16 per share.

 

16

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After continued losses in the Internetdivision, we terminated our outside training operations in 2001 but continuedto maintain Web site operations and sales in that division. We also decidedduring 2001, after a test period, not to proceed with our Building WealthCenters in Georgia and Mississippi, due to unacceptable returns and higher thananticipated fixed costs.

 

**Liquidityand Capital Resources at December 31, 2001**

 

At December 31, 2001, we had cash of$6,900,000 as compared with $3,300,000 at December 31, 2000. This increase of$3,600,000 was attributable primarily to cash provided by operations due to ournet income reported for respective periods.

 

Our cash provided by operating activities was$5.2 million versus $3.5 million for the year ended December 31, 2001 and 2000,respectively. In the year ended December 31, 2001, cash flows from advancedtraining programs were positively impacted by the increased collection effortsby the sales associates accompanying the instructors and trainers at thetraining locations.

 

Our cash used in investing activities was$829,000 and $1,500,000 for the year ended December 31, 2001 and 2000,respectively. Our investing activities for the years ended December 31, 2001and 2000 were primarily attributed to the purchase of office property andequipment, $658,000 compared to $1,440,000 and related party transactions,$89,000 compared to $63,000, as described in the accompanying financialstatements. We also used $875,000 during the year ended December 31, 2001reducing our long term and officer/stockholder debt. The change from a net lossto net income was offset and caused by the change in our deferred revenuebalance.

 

From time to time, we evaluate potentialacquisitions of business products or technologies that complement our business.To the extent that resources are insufficient to fund future activities, we mayneed to raise additional funds. However, there can be no assurance thatadditional funding, if needed, will be available. If adequate funds are notavailable on acceptable terms, we may be unable to expand our business, developor enhance our products and services, take advantage of future opportunities orrespond to competitive pressures, any of which could have a material adverseeffect on our business, operating results and financial condition.

 

We believe our cash resources are more thansufficient to fund our operation and growth plans for the next 12 months.

 

**Year EndedDecember 31, 2000 Compared to December 31, 1999**

 

*Revenue*

 

Revenue for the year ended December 31, 2000increased to $32,900,000 from $26,800,000 for the year ended December 31, 1999,an increase of $6,100,000, or 23%. Total deferred revenue on the balance sheetwas $22,600,000 and $9,300,000 at December 31, 2000 and 1999,respectively. Cost of sales increased to $22,200,000 for the year endedDecember 31, 2000 from $11,500,000 for the year ended December 31, 1999, anincrease of 93%. The increase in cost of sales reflected the increase inrevenue and the costs of our Internet division which generated only negligiblerevenues.

 

17

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*Advertising,Selling and General and Administrative Expenses*

 

Advertising, selling and general andadministrative expenses increased for the year ended December 31, 2000 to$19,600,000 from $17,200,000 in 1999. This increase in expenses and thecorresponding increase in revenue for 2000 over 1999 reflects a generalincrease in business activity and the results of our plan to expand ourbusiness into new markets and develop new products. Separately, general andadministrative expenses increased from $4,500,000 to $7,100,000 due toincreased staffing and related expenses associated with our increased businessactivity.

 

Sales and marketing expenses consistedprimarily of television and newspaper advertising, direct mailings, travel,public relations, trade shows and preparation of marketing literature andoverhead allocations. General and administrative expenses consisted primarilyof salaries and other personnel-related expenses for our administrative,executive and finance personnel as well as outside legal and auditing costs.

 

*Net Loss*

 

The net loss of $8,700,000 or $1.16 per sharefor the year ended December 31, 2000 increased by 343% over the net loss forthe year ended December 31, 1999 of just under $2,000,000, or $.26 per share.

 

**ITEM 7A.               QUANTITATIVE AND QUALITATIVEDISCLOSURE ABOUT MARKET RISK**

 

Market risk generally represents the risk thatlosses may occur in the values of financial instruments as a result ofmovements in interest rates, foreign currency exchange rates and commodityprices. The Company does not have foreign currency exchange rate and commodityprice market risk.

 

Interest Rate Risk – From time to time theCompany temporarily invests its excess cash and restricted cash ininterest-bearing securities issued by high-quality issuers. The Company’smanagement monitors risk exposure to monies invested in securities of itsfinancial institutions. Due to the sort time the investments are outstandingand their general liquidity, these instruments

 

18

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are classified as cash equivalents in theconsolidated balance sheet and do not represent a material interest rate riskto the Company. The Company’s primary market risk exposure for changes ininterest rates relates to the Company’s long-term debt obligations. The Companymanages its exposure to changing interest rates principally through the use ofa combination of fixed and floating rate debt. In addition, certain of theCompany’s debt instruments have interest rate floors and ceilings.

 

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**ITEM 8.                FINANCIALSTATEMENTS AND SUPPLEMENTAL DATA**

 

**WHITNEY INFORMATION NETWORK, INC. AND SUBSIDIARIES**

 

**Table of Contents**

 
| Independent Auditors’  Reports                              |   |
|------------------------------------------------------------------|--------|
|                                                             |   |
| Consolidated  Financial Statements                               |   |
| Consolidated Balance Sheets                                      |   |
| Consolidated  Statements of Income                               |   |
| Consolidated  Statement of Changes in Stockholders’ Deficit |   |
| Consolidated  Statements of Cash Flows                           |   |
|                                                             |   |
| Notes to  Consolidated Financial Statements                      |   |

 

20

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**INDEPENDENTAUDITORS’ REPORT**

 

Boardof Directors and Stockholders

WhitneyInformation Network, Inc. and Subsidiaries

CapeCoral, Florida

 

Wehave audited the accompanying consolidated balance sheets of WhitneyInformation Network, Inc. and Subsidiaries as of December 31, 2002 and2001, and the related consolidated statements of income, changes instockholders’ deficit and cash flows for the years ended December 31,2002, 2001 and 2000. These consolidated financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these consolidated financial statements based on our audits.

 

Weconducted our audits in accordance with auditing standards generally acceptedin the United States of America. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe consolidated financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall consolidated financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

 

Inour opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of Whitney InformationNetwork, Inc. and Subsidiaries as of December 31, 2002 and 2001, and theresults of their operations and their cash flows for the years endedDecember 31, 2002, 2001 and 2000 in conformity with accounting principlesgenerally accepted in the United States of America.

 

EHRHARDT KEEFE STEINER & HOTTMAN PC

 

February 7,2003

Denver,Colorado

 

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**WHITNEY INFORMATION NETWORK, INC. AND SUBSIDIARIES**

 

**CONSOLIDATEDBALANCE SHEETS**

 
|                                                                                                                            |   | **December 31,** |       |
|---------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|------------|
|                                                                                                                            |   | **2002**              |       | **2001** |   |
| **ASSETS**                                                                                                                      |   |                  |       |   |   |
| Current assets                                                                                                                  |   |                  |       |   |   |
| Cash and cash equivalents                                                                                                       |   | $                     | 12,080,553 |   | $ | 6,889,275 |   |
| Accounts receivable, net                                                                                                        |   | 507,919               |       | 522,515 |   |
| Due from affiliates                                                                                                             |   | 4,089                 |       | 241,197 |   |
| Prepaid advertising and other                                                                                                   |   | 696,441               |       | 957,024 |   |
| Income taxes receivable and prepayments                                                                                         |   | —                |       | 497,499 |   |
| Inventory                                                                                                                       |   | 363,555               |       | 136,544 |   |
| Deferred seminar expenses                                                                                                       |   | 2,907,414             |       | 3,638,556 |   |
|                                                                                                                            |   |                  |       |   |   |
| Total current assets                                                                                                            |   | 16,559,971            |       | 12,882,610 |   |
|                                                                                                                            |   |                  |       |   |   |
| Property and equipment, net                                                                                                     |   | 8,406,370             |       | 3,628,447 |   |
| Intangible assets, net                                                                                                          |   | 989,061               |       | — |   |
| Investment in foreign corporation                                                                                               |   | 184,757               |       | 82,500 |   |
| Other assets                                                                                                                    |   | 27,128                |       | 32,918 |   |
|                                                                                                                            |   |                  |       |   |   |
| Total non-current assets                                                                                                        |   | 9,607,316             |       | 3,743,865 |   |
|                                                                                                                            |   |                  |       |   |   |
| Total assets                                                                                                                    |   | $                     | 26,167,287 |   | $ | 16,626,475 |   |
|                                                                                                                            |   |                  |       |   |   |
| **LIABILITIES AND STOCKHOLDERS’ DEFICIT**                                                                                  |   |                  |       |   |   |
| Current liabilities                                                                                                             |   |                  |       |   |   |
| Accounts payable                                                                                                                |   | $                     | 1,762,614  |   | $ | 1,152,337 |   |
| Accrued seminar expenses                                                                                                        |   | 63,622                |       | 435,360 |   |
| Deferred revenue                                                                                                                |   | 24,549,429            |       | 23,937,349 |   |
| Accrued expenses                                                                                                                |   | 1,125,662             |       | 702,548 |   |
| Due to affiliates                                                                                                               |   | —                |       | 81,606 |   |
| Current portion of long-term debt                                                                                               |   | 103,051               |       | 62,500 |   |
| Current portion of note payable—officer/stockholder                                                                        |   | 59,054                |       | 62,500 |   |
|                                                                                                                            |   |                  |       |   |   |
| Total current liabilities                                                                                                       |   | 27,663,432            |       | 26,434,200 |   |
| Long-term debt, less current portion                                                                                            |   | 1,606,410             |       | 512,500 |   |
| Note payable—officer/stockholder, less current  portion                                                                    |   | —                |       | 62,500 |   |
|                                                                                                                            |   |                  |       |   |   |
| Total liabilities                                                                                                               |   | 29,269,842            |       | 27,009,200 |   |
|                                                                                                                            |   |                  |       |   |   |
| 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 8,096,624 (2002) and 7,878,023  (2001) |   | 939,832               |       | 337,102 |   |
| Paid-in capital                                                                                                                 |   | 448,600               |       | 900 |   |
| Accumulated deficit                                                                                                             |   | (4,490,987            | )          | (10,720,727 | ) |
|                                                                                                                            |   |                  |       |   |   |
| Total stockholders’ deficit                                                                                                |   | (3,102,555            | )          | (10,382,725 | ) |
|                                                                                                                            |   |                  |       |   |   |
| Total liabilities and stockholders’ deficit                                                                                |   | $                     | 26,167,287 |   | $ | 16,626,475 |   |

 

See notes to consolidated fiancial statements.

 

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**WHITNEY INFORMATION NETWORK, INC. AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF INCOME**

 
|                                               |   | **For the  Years Ended  December 31,** |       |
|----------------------------------------------------|--------|---------------------------------------------|------------|
|                                               |   | **2002**                                    |       | **2001** |   | **2000** |   |
| Sales                                              |   | $                                           | 62,145,237 |   | $ | 42,157,740 |   | $ | 32,859,857 |   |
|                                               |   |                                        |       |   |   |   |   |
| Expenses                                           |   |                                        |       |   |   |   |   |
| Direct course expenses                             |   | 28,384,333                                  |       | 19,741,418 |   | 22,337,708 |   |
| Advertising and sales expense                      |   | 13,936,860                                  |       | 11,563,640 |   | 12,198,784 |   |
| General and administrative expense                 |   | 13,863,598                                  |       | 8,571,319 |   | 7,283,828 |   |
|                                               |   |                                        |       |   |   |   |   |
| Total expenses                                     |   | 56,184,791                                  |       | 39,876,377 |   | 41,820,320 |   |
|                                               |   |                                        |       |   |   |   |   |
| Income (loss) from operations                      |   | 5,960,446                                   |       | 2,281,363 |   | (8,960,463 | ) |
|                                               |   |                                        |       |   |   |   |   |
| Other income (expense)                             |   |                                        |       |   |   |   |   |
| Interest and other income                          |   | 339,842                                     |       | 356,989 |   | 267,344 |   |
| Interest expense                                   |   | (70,548                                     | )          | (104,105 | ) | (10,008 | ) |
|                                               |   |                                        |       |   |   |   |   |
|                                               |   | 269,294                                     |       | 252,884 |   | 257,336 |   |
|                                               |   |                                        |       |   |   |   |   |
| Net income (loss)                                  |   | $                                           | 6,229,740  |   | $ | 2,534,247 |   | $ | (8,703,127 | ) |
|                                               |   |                                        |       |   |   |   |   |
| Basic weighted average common shares outstanding   |   | 7,952,180                                   |       | 7,587,474 |   | 7,528,022 |   |
|                                               |   |                                        |       |   |   |   |   |
| Basic income (loss) per common share               |   | $                                           | 0.78       |   | $ | 0.33 |   | $ | (1.16 | ) |
|                                               |   |                                        |       |   |   |   |   |
| Diluted weighted average common shares outstanding |   | 8,840,922                                   |       | 7,587,474 |   | 7,528,022 |   |
|                                               |   |                                        |       |   |   |   |   |
| Diluted income (loss) per common share             |   | $                                           | .70        |   | $ | .33 |   | $ | (1.16 | ) |

 

See notes to consolidated fiancial statements.

 

23

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**WHITNEY INFORMATION NETWORK, INC. AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT**

**For the Years Ended December 31, 2002, 2001 and2000**

 
|                                                                                                                |   | **Common  Stock** |   | **Additional  Paid-in** |    | **Accumulated** |   | **Total  Stockholders’** |   |
|---------------------------------------------------------------------------------------------------------------------|--------|-------------------|--------|-------------------------|---------|-----------------|--------|-------------------------------|--------|
|                                                                                                                |   | **Shares**        |   | **Amount**              |    | **Capital**     |   | **Deficit**                   |   | **Deficit** |   |
| 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 | ) |
| Issuance of stock for assets purchased                                                                              |   | 189,655           |   | 550,000                 |    | —          |   | —                        |   | 550,000 |   |
| Issuance of stock for stock options exercised                                                                       |   | 26,375            |   | 48,230                  |    | —          |   | —                        |   | 48,230 |   |
| Issuance of stock for services                                                                                      |   | 2,571             |   | 4,500                   |    | —          |   | —                        |   | 4,500 |   |
| Compensation expense related to the issuance of  stock options                                                      |   | —            |   | —                  |    | 447,700         |   | —                        |   | 447,700 |   |
| Net income                                                                                                          |   | —            |   | —                  |    | —          |   | 6,229,740                     |   | 6,229,740 |   |
|                                                                                                                |   |              |   |                    |    |            |   |                          |   |   |   |
| Balance—December 31, 2002                                                                                 |   | 8,096,624         |   | $                       | 939,832 |            | $      | 448,600                       |   | $ | (4,490,987 | ) | $ | (3,102,555 | ) |

 

See notes to consolidated financial statements.

 

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**WHITNEY INFORMATION NETWORK, INC. AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

 
|                                                                                     |   | **For the  Years Ended December 31,** |       |
|------------------------------------------------------------------------------------------|--------|--------------------------------------------|------------|
|                                                                                     |   | **2002**                                   |       | **2001** |   | **2000** |   |
| Cash flows from operating activities                                                     |   |                                       |       |   |   |   |   |
| Net income (loss)                                                                        |   | $                                          | 6,229,740  |   | $ | 2,534,247 |   | $ | (8,703,127 | ) |
|                                                                                     |   |                                       |       |   |   |   |   |
| Adjustments to reconcile net income (loss) to net  cash provided by operating activities |   |                                       |       |   |   |   |   |
| Allowance for doubtful accounts                                                          |   | —                                     |       | (91,885 | ) | 91,885 |   |
| Equity earnings in foreign corporation                                                   |   | (102,257                                   | )          | — |   | — |   |
| Compensation expense relating to stock options                                           |   | 447,700                                    |       | — |   | — |   |
| Depreciation and amortization                                                            |   | 598,320                                    |       | 292,522 |   | 169,933 |   |
| (Gain) loss on disposal of assets                                                        |   | (3,150                                     | )          | 72,485 |   | — |   |
| Stock issued for services                                                                |   | 4,500                                      |       | 25,000 |   | — |   |
| Changes in assets and liabilities                                                        |   |                                       |       |   |   |   |   |
| Accounts receivable                                                                      |   | 14,596                                     |       | 1,362,824 |   | (489,780 | ) |
| Prepaid advertising and other                                                            |   | 260,583                                    |       | (331,996 | ) | 44,079 |   |
| Income taxes receivable and prepayments                                                  |   | 497,499                                    |       | 1,396,500 |   | (925,867 | ) |
| Inventory                                                                                |   | (227,011                                   | )          | 132,119 |   | (268,663 | ) |
| Deferred seminar expenses                                                                |   | 731,142                                    |       | (994,152 | ) | (1,283,078 | ) |
| Other assets                                                                             |   | 5,790                                      |       | 42,811 |   | 36,658 |   |
| Accounts payable                                                                         |   | 610,277                                    |       | (790,467 | ) | 1,346,341 |   |
| Accrued seminar expenses                                                                 |   | (371,738                                   | )          | 86,019 |   | 101,481 |   |
| Deferred revenue                                                                         |   | 612,080                                    |       | 1,296,907 |   | 13,328,868 |   |
| Accrued expenses                                                                         |   | 423,114                                    |       | 243,566 |   | 96,631 |   |
|                                                                                     |   |                                       |       |   |   |   |   |
|                                                                                     |   | 3,501,445                                  |       | 2,742,253 |   | 12,248,488 |   |
|                                                                                     |   |                                       |       |   |   |   |   |
| Net cash provided by operating activities                                                |   | 9,731,185                                  |       | 5,276,500 |   | 3,545,361 |   |
|                                                                                     |   |                                       |       |   |   |   |   |
| Cash flows from investing activities                                                     |   |                                       |       |   |   |   |   |
| Purchase of property and equipment                                                       |   | (4,611,982                                 | )          | (657,529 | ) | (1,439,920 | ) |
| Purchase of intangible assets                                                            |   | (450,172                                   | )          | — |   | — |   |
| Loans to affiliates, net                                                                 |   | 155,502                                    |       | (89,101 | ) | (63,244 | ) |
| Investment in foreign corporation and land                                               |   | —                                     |       | (82,500 | ) | — |   |
|                                                                                     |   |                                       |       |   |   |   |   |
| Net cash used in investing activities                                                    |   | (4,906,652                                 | )          | (829,130 | ) | (1,503,164 | ) |
|                                                                                     |   |                                       |       |   |   |   |   |
| Cash flows from financing activities                                                     |   |                                       |       |   |   |   |   |
| Proceeds from long-term debt                                                             |   | 1,200,000                                  |       | — |   | — |   |
| Payments of principal on long-term debt                                                  |   | (815,539                                   | )          | (750,000 | ) | — |   |
| Principal payments on note  payable—officer/stockholder                             |   | (65,946                                    | )          | — |   | — |   |
| Proceeds from exercise of stock options                                                  |   | 48,230                                     |       | — |   | — |   |
| Distribution to officer/stockholder                                                      |   | —                                     |       | (125,000 | ) | — |   |
|                                                                                     |   |                                       |       |   |   |   |   |
| Net cash provided by (used in) financing activities                                      |   | 366,745                                    |       | (875,000 | ) | — |   |
|                                                                                     |   |                                       |       |   |   |   |   |
| Net increase in cash and cash equivalents                                                |   | 5,191,278                                  |       | 3,572,370 |   | 2,042,197 |   |
| Cash and cash equivalents—beginning of year                                         |   | 6,889,275                                  |       | 3,316,905 |   | 1,274,708 |   |
|                                                                                     |   |                                       |       |   |   |   |   |
| Cash and cash equivalents—end of year                                               |   | $                                          | 12,080,553 |   | $ | 6,889,275 |   | $ | 3,316,905 |   |

 

See notes to consolidated financial statements.

 

25

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**Supplemental disclosure of cash flow information**

 

Cashpaid for income taxes was $0, $0 and $925,867 for 2002, 2001 and 2000,respectively.

 

Cashpaid for interest was $70,548, $104,105 and $10,008 for 2002, 2001 and 2000,respectively.

 

**Supplemental disclosure of non-cash activity:**

 

During2002, the Company issued 189,655 shares of common stock valued at $550,000 forintangible assets and $750,000 in debt for software in connection with theasset purchase from Teach Me To Trade, LLC.

 

During2001, the Company acquired software rights of $370,000 through the issuance ofcommon stock of $245,000 and debt of $125,000.

 

During2001, the Company acquired software rights owned by an officer/shareholderthrough the issuance of stock at zero value and debt of $125,000. Thesetransactions were recorded as distributions in the accompanying financialstatements.

 

During2000, a building was acquired through a mortgage note payable of $1,200,000.

 

During2000, $168,715 of fixed assets were acquired, at net book value, from a relatedentity through related party advances.

 

See notes to consolidated financial statements.

 

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**WHITNEY INFORMATION NETWORK, INC. AND SUBSIDIARIES**

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

 

**Note 1—Description of Business and Summary of SignificantAccounting Policies**

 

*Organization and History*

 

WhitneyInformation Network, Inc. and Subsidiaries (the Company) is engaged primarilyin the business of providing financial education and training servicesthrough seminars, workshops and publications. The Company’s educational andtraining services are concentrated in the area of financial management and realestate investment. The Company markets its services and products primarilythrough periodic publications, telemarketing, television and radio.

 

WhitneyInformation Network, Inc., formerly known as Win Systems International, Inc.,incorporated in Colorado on February 23, 1996 under the name of GimmelEnterprises, Inc.

 

WhitneyEducation Group, Inc., formerly known as Win Systems, Inc., incorporated inFlorida on November 12, 1992. An exchange of shares was completed betweenthe shareholders of Win Systems, Inc. and Gimmel Enterprises, Inc. onAugust 18, 1998. Subsequently, the name of Gimmel Enterprises, Inc. waschanged to Win Systems International, Inc. on August 25, 1998, and thatname 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.

 

WinSystems, Inc. has been operating in the educational seminars industry since1992 and expanded its operation in the industry subsequent to the aforesaidexchange of shares and name change to Whitney Education Group, Inc.

 

WhitneyEducation Group, Inc. is licensed by the State of Texas as a CertifiedProprietary School, effective January 8, 1999.

 

During1998, Win Systems International, Inc. expanded its educational seminarsbusiness into Canada through the opening of a wholly owned subsidiary, 1311448Ontario, Inc. The Canadian operations continued to expand and at the end of1999 the operations were transferred to Whitney Canada, Inc. through anamalgamation of two wholly owned subsidiaries.

 

WhitneyCanada, Inc. incorporated in Canada on October 5, 1998 and is thesurviving corporation of an amalgamation with 3667057 Canada, Inc. 3667057Canada, Inc. was incorporated in Ontario, Canada on August 21, 1998 underthe name of 1311448 Ontario, Inc. The name was changed to 3667057 Canada, Inc.on October 5, 1999 as a preliminary requirement of federalization of thecorporation, which had been an Ontario corporation, in order to qualify for theamalgamation with Whitney Canada, Inc., which was completed January 6,2000. There are no significant differences on comprehensive income and foreignexchange.

 

WhitneyInternet Services, Inc. incorporated in Wyoming on June 8, 1999, islocated in Cape Coral, Florida and provides web programming and maintenanceservices to the Company. The Company’s other operating subsidiaries use thesite to offer their products and services for sale and the site also includesgeneral information on the Company, its products and services.

 

WealthIntelligence Network, Inc. incorporated in Florida on May 26, 1996 under thename of Real Estate Link, Inc. The name was changed to Wealth IntelligenceNetwork, 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 marketingfinancial training seminars, which represents an expansion from the real estateinvestment training seminar business.

 

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WhitneyMortgage.com, Inc. incorporated in Florida on September 30, 1999 has nosignificant operations and is intended to operate as a full service internetmortgage broker affiliated with a national internet mortgage provider.Brokering mortgages represents an expansion from educational seminars into a differentindustry.

 

RussWhitney’s Wealth Education Centers, Inc. incorporated in Wyoming onJune 8, 1999 as a wholly owned subsidiary of Whitney Information Network,Inc. and the subsidiary is itself the parent corporation of two wholly ownedsubsidiaries formed to operate permanent learning centers in Jackson,Mississippi and Atlanta, Georgia. Russ Whitney’s Wealth Education Center ofJackson, MS, Inc. incorporated in Wyoming on June 8, 1999 and a school wasopened in December, 1999. Russ Whitney’s Wealth Education Center of Atlanta,GA, Inc. incorporated in Wyoming on July 22, 1999 and a school was openedin June 2000. The Wealth Education Centers were closed during 2001.

 

WhitneyConsulting Services, Inc. incorporated in Wyoming on July 28, 1998 underthe name of Financial Consulting Services, Inc. and the name was changed toWhitney Consulting Group, Inc. on April 28, 1999 when that corporation wasacquired by Win Systems International, Inc. which then changed its name toWhitney Consulting Services, Inc. on March 21, 2000. Whitney ConsultingServices, Inc. is located in Salt Lake City, Utah and is an operatingsubsidiary that markets training programs and financial training seminars andan individual one-on-one mentor program.

 

PrecisionSoftware Services, Inc. was acquired during 2001. Precision Software Services,Inc. was incorporated August 1993 and is a Florida corporation that holdsa license to distribute and sell certain real estate and business software thatseveral subsidiaries of the Company have been selling. Precision SoftwareServices, Inc. was formerly owned 51% by the Chairman of the Board and majoritystockholder of the Company.

 

WhitneyU.K. Limited is a British corporation formed and incorporated inOctober 2001 to engage in educational and training seminars throughout theUnited Kingdom. This subsidiary had no significant operations in 2001 andaccounted for less than 4% of revenues for 2002.

 

N123RF,Inc. is a Delaware corporation formed and incorporated in August 2002 tomanage and operate the Company’s airplane.

 

*Principles of Consolidation*

 

Theaccompanying consolidated financial statements include the accounts of WhitneyInformation Network, Inc. and the following wholly owned subsidiarycorporations: Whitney Education Group, Inc.; Whitney Internet Services, Inc.;Russ Whitney’s Wealth Education Centers, Inc. and its wholly owned subsidiarycorporations, Russ Whitney’s Wealth Education Center of Jackson, MS, Inc. andRuss Whitney’s Wealth Education Center of Atlanta, GA, Inc.; Whitney ConsultingServices, Inc.; Whitney Canada, Inc.; Whitney Mortgage.com, Inc.; WealthIntelligence Network, Inc.; Precision Software Services, Inc.; Whitney U.K.Limited; and N123RF, Inc All material intercompany accounts and transactionshave been eliminated in consolidation.

 

*Cash and Cash Equivalents*

 

TheCompany considers all highly liquid instruments purchased with an originalmaturity of three months or less to be cash equivalents. The Companycontinually monitors its positions with, and the credit quality of, thefinancial institutions it invests with.

 

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*Concentrations of Credit Risk*

 

Financialinstruments, which potentially subject the Company to concentration of creditrisk consist principally of cash and short-term cash investments and accountsreceivable. The Company places its temporary cash investments with whatmanagement believes are high-credit, quality financial institutions. As of thebalance sheet date, and periodically throughout the year, the Company hasmaintained balances in various operating accounts in excess of federallyinsured limits. The Company periodically performs credit analysis and monitorsthe financial condition of its customers in order to minimize credit risk.

 

*Accounts Receivable*

 

Accountsreceivable consists of trade receivables from the sale of educational seminarsand services for which a contract has been entered into, payments has not beenreceived, and the related revenue has been deferred. An adjustment is recordedto write off any amounts deemed to be unrealizable and uncollectible.Generally, this adjustment is applied to deferred revenue resulting in no neteffect on the Company’s income statement. As such, the Company believes noallowance for doubtful accounts is necessary as of 2002 and 2001.

 

*Inventory*

 

Inventoryconsists primarily of books, videos and training materials and is stated at thelower of cost or market, determined using the first-in, first-out method(FIFO).

 

*Fair Value of Financial Instruments*

 

Thecarrying amounts of financial instruments including cash and cash equivalents,short-term investments, receivables, deferred seminar expense, accountspayable, accrued expenses, deferred educational revenues, and notes payableapproximated fair value as of December 31, 2002 because of the relativelyshort maturity of these instruments.

 

*Revenue Recognition, Deferred Revenue and DeferredExpenses*

 

TheCompany recognizes revenue for the sale of products and software, upondelivery. Revenue from educational seminars and services is recognized upon theearlier of (1) when the non-refundable deposit is received for the seminars andthe seminar has taken place; or (2) upon the contractual expiration of theCompany’s obligation to provide a seminar only if the seminar was paid for.Deferred revenue is recorded when the seminar proceeds are received or acontract is entered into for a seminar prior to the related seminar takingplace. Expenses for commission payments made to Company speakers for revenuesgenerated are deferred until the related revenue is recognized. TheCompany recognizes commission revenue related to sales made by WhitneyInformation Network and Subsidiaries for other parties. Only the commissionpart of these transactions are recognized. The commissions are recorded asrevenue when the amount is earned.

 

*Advertising Expense and Prepaid Advertising*

 

TheCompany expenses advertising costs as incurred. Advertising costs wereapproximately $8,907,257, $7,829,406, and $7,340,540 for the years ended December 31,2002, 2001 and 2000, respectively. Advertising paid for in advance is recordedas prepaid until such time as the advertisement is published. Advertising costsrecorded as prepaid as of December 31, 2002 and 2001 were $480,053 and$733,227 respectively.

 

29

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*Property and Equipment*

 

Propertyand equipment is stated at cost. Depreciation is provided utilizing thestraight-line method over the estimated useful lives for owned assets. Theestimated useful life of the buildings is 40 years. The furniture and fixtures’estimated useful life is seven years, the airplane, equipment and leaseholdimprovements is five years, and the software is three years.

 

*Intangible/Long-Lived Assets*

 

Intangible/long-livedassets include customer lists, trademarks, and loan costs and are recorded atcost. Customer lists and trademarks are being amortized over their estimateduseful lives of fifteen years. Loan costs are amortized over the term of theloan. The Company reviews its long-lived assets under SFAS No. 144 forimpairment whenever events or changes in circumstances indicate that thecarrying amount of the asset may not be recovered. The Company looks primarilyto the undiscounted future cash flows in its assessment of whether or notlong-lived assets have been impaired. At December 31, 2002, managementperformed impairment testing in accordance with SFAS 144 and determined thatimpairment was not considered necessary.

 

*Investment in Foreign Corporation*

 

TheCompany acquired a 20% ownership interest in a Central American corporation in2001. The Company accounts for its investment using the equity method ofaccounting and records its proportionate share of the corporation’s profit orloss. The Company’s share of the corporation’s profits for the year endedDecember 31, 2002 was $102,257. Operations of the investee corporationwere not significant in 2001.

 

*Use of Estimates*

 

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities, disclosures of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. Actual results could differ from those estimates.

 

*Income Taxes*

 

TheCompany recognizes deferred tax liabilities and assets based on the differencesbetween the tax basis of assets and liabilities and their reported amounts inthe financial statements that will result in taxable or deductible amounts infuture years. The Company’s temporary differences result primarily from therecognition of deferred revenues and expenses for tax purposes.

 

*Basic Income Loss Per Share*

 

TheCompany applies the provisions of Statement of Financial Accounting StandardNo. 128, “Earnings Per Share” (FAS 128). Prior to 2001, all dilutive potentialcommon shares had an antidilutive effect on diluted per share amounts and thereforewere excluded in determining net loss per share.

 

*Recently Issued Accounting Pronouncements*

 

InJune 2001, the FASB issued SFAS No. 143, “Accounting for Asset RetirementObligations.” SFAS No. 143 requires the fair value of a liability for anasset retirement obligation to be recognized in the period in which it isincurred if a reasonable estimate of fair value can be made. The associatedasset retirement costs are

 

30

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capitalizedas part of the carrying amount of the long-lived asset. SFAS No. 143 iseffective for years beginning after June 15, 2002. The Company believesthe adoption of this statement will have no material impact on its consolidatedfinancial statements.

 

InApril 2002, the FASB issued SFAS No. 145, “Rescission of FASB No. 4, 44and 64, Amendment of FASB No. 13, and Technical Corrections.” SFAS rescindsFASB No. 4 “Reporting Gains and Losses from Extinguishments of Debt Made toSatisfy Sinking-Fund Requirements.” This statement also rescinds SFASNo. 44 “Accounting for Intangible Assets of Motor Carriers” and amendsSFAS No. 13, “Accounting for Leases”. This statement is effective for fiscalyears beginning after May 15, 2002. The Company does not expect the adoption ofthis statement to have a material effect on the Company’s financial statements.

 

InJune 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associatedwith Exit or Disposal Activities.” SFAS No. 146 addresses accounting andreporting for costs associated with exit or disposal activities and nullifiesEmerging Issues Task Force Issue No. 94-3, “Liability Recognition for CertainEmployee Termination Benefits and Other Costs to Exit an Activity (IncludingCertain Costs Incurred in a Restructuring).” SFAS No. 146 requires that aliability for a cost associated with an exit or disposal activity be recognizedand measured initially at fair value when the liability is incurred. SFAS No.146 is effective for exit or disposal activities that are initiated afterDecember 31, 2002, with early application encouraged. The Company does notexpect the adoption of this statement to have a material effect on theCompany’s financial statements.

 

InOctober 2002, the FASB issued SFAS No. 147 “Acquisitions of CertainFinancial Institutions” SFAS No. 147 amends FASB Statements No. 72 and 144and FASB Interpretations No. 9. The Company believes the adoption of thisstatement will have no material impact on its consolidated financialstatements.

 

InNovember 2002, the FASB published interpretation No, 45 “Guarantor’sAccounting and Disclosure requirements for Guarantees, Including IndirectGuarantees of Indebtedness of Others”. The Interpretation expands on theaccounting guidance of Statements No. 5, 57, and 107 and incorporates without changethe provisions of FASB Interpretation No. 34, which is being superseded. TheInterpretation elaborates on the existing disclosure requirements for mostguarantees, including loan guarantees such as standby letters of credit. Italso clarifies that at the time a company issues a guarantee, the company mustrecognize an initial liability for the fair value, or market value, of theobligations it assumes under that guarantee and must disclose that informationin its interim and annual financial statements. The initial recognition andinitial measurement provisions apply on a prospective basis to guaranteesissued or modified after December 31, 2002, regardless of the guarantor’sfiscal year-end. The disclosure requirements in the Interpretation are effectivefor financial statements of interim or annual periods ending afterDecember 15, 2002. The Company believes the adoption of this statementwill have no material impact on its consolidated financial statements.

 

InDecember 2002, the FASB issued SFAS No. 148 “Accounting for Stock-BasedCompensation— Transition and Disclosure”. This statement amends SFAS No. 123,“Accounting for Stock-Based Compensation” to provide alternative methods oftransition for an entity that voluntarily changes to the fair value method ofaccounting for stock-based compensation. In addition, SFAS 148 amends thedisclosure provision of SFAS 123 to require more prominent disclosure about theeffects of an entity’s accounting policy decisions with respect to stock-basedemployee compensation on reported net income. The effective date for thisStatement is for fiscal years ended after December 15, 2002. The Companybelieves the adoption of this statement will have no material impact on itsconsolidated financial statements.

 

*Reclassifications*

 

Certainamounts in the 2001 consolidated financial statements have been reclassified toconform to the 2002 presentation.

 

 

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**Note 2—Mergers, Acquisitions and Capital Accounts**

 

OnAugust 18, 1998, Whitney Education Group, Inc. (formerly Win Systems,Inc.) was acquired by Whitney Information Network, Inc. (formerly Win SystemsInternational, Inc. and prior to that Gimmel Enterprises, Inc.) in a reversemerger whereby Whitney Education group, Inc. exchanged 100% of its shares for90% of Gimmel’s shares bringing the total shares of Whitney InformationNetwork, Inc. (issued and outstanding) at August 18, 1998 to 7,500,047.Whitney Education Group, Inc. became a wholly owned subsidiary of Whitney InformationNetwork, Inc. (WIN). The financial statements from January 1, 1997 throughDecember 31, 1999 are based upon the assumption that the companies werecombined for the entire period and all stock splits have been reflected in thestatements 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 stockpurchase warrants. Both the Class A and Class B warrants were exercisable at$4.00 per share.

 

TheCompany 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 andexercisable for a ten-year period after the grant with a three-year vestingschedule. The Company has reserved 2,000,000 shares for the stock option planof which 1,406,175 option shares have been granted, net of forfeitures andcancellations, at exercise prices from $1.70 to $3.10 per share. No optionshave been exercised.

 

OnFebruary 1, 1999, the Company purchased all of the assets of WealthIntelligence Network, Inc. for 20,000 shares of stock at $2.50 per share. Inaddition, 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 servicesvalued at $14,500.

 

InApril 2000, the Company converted their 340,000 class B warrants issued toemployees in August 1998 into stock options. In the conversion, theCompany reduced the exercise price from $4 to $2 (fair market value at date ofconversion). This transaction has since been accounted for using variableaccounting in accordance with FIN 44: Accounting for Certain TransactionsInvolving Stock Compensation an Interpretation of APB Opinion No. 25 (FIN 44).At December 31, 2002, 136,500 of these options have been forfeited. AtDecember 31, 2002, $447,700 was recorded as additional compensationexpense to employees based on a market value of $4.20 per share. No adjustmentwas made for the periods ending December 31, 2001 and 2000 because themarket price of the stock was less than the $2 exercise price.

 

InNovember 2001, the Company issued 333,334 shares of common stock valued at$500,000 and $250,000 in notes payable for all of the outstanding stock ofPrecision Software Services, Inc. which had a minimal net book value at thetime of the acquisition. Precision Software Services, Inc. was 51% owned by theChairman and majority stockholder of the Company who received 170,000 of theshares and $125,000 in notes payable. The excess of the purchase price overmaterial, identifiable net assets relating to the minority interest wasallocated to software rights. The shares issued to the officer were recorded asa distribution as the Company and Precision Software Services, Inc. are undercommon control.

 

InNovember 2001, the Company paid $212,500 for a 20% interest in a CentralAmerican corporation named Rancho Monterrey, S.A. which was formed inApril 2001 to own, operate, improve and sell certain real estate inCentral America. As part of the investment in Rancho Monterrey, S.A., theCompany received a 12 acre parcel of land valued at $130,000, resulting in anet investment of $82,500. An entity affiliated with the majority stockholderof the Company purchased an additional 20% interest during 2001.

 

InApril 2002, the Company converted its 187,500 Class A warrants issued tooutside investors and parties in August 1998 into stock options. In theconversion, the Company reduced the exercise price from $4 to $2.

 

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InAugust 2002, 189,655 shares valued at $550,000 of the Company’s commonstock were issued in exchange for assets of a former joint venture partner,Teach Me To Trade, LLC. The purchase price was $1,988,000, net of a $12,000discount, and was paid for with $688,000 in cash, $550,000 in stock, and$750,000 in debt. During the first and second quarters of 2002, the Company hadadvanced $200,000 to Teach Me To Trade which was credited towards the purchaseprice. The purchase price was allocated $1,000,000 to software, $688,000 totrademarks and $300,000 to customer lists.

 

**Note 3—Related Party Transactions**

 

Thefollowing balances due from (to) related parties are as follows:

 
|                                     |   | **December 31,** |   |
|------------------------------------------|--------|-----------------------|--------|
|                                     |   | **2002**              |   | **2001** |   |
| Due from Whitney Leadership Group        |   | $                     | — |   | $ | 232,126 |   |
| Due from RAW, Inc.                       |   | 4,089                 |   | 9,071 |   |
| Due to Precision Software Services, Inc. |   | —                |   | — |   |
| Due to Trade Marketing, Inc.             |   | —                |   | (16,000 | ) |
| Due to MRS Equity Corp                   |   | —                |   | (65,606 | ) |
|                                     |   |                  |   |   |   |
|                                     |   | $                     | 4,089  |   | $ | 159,591 |   |

 

TheCompany 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 $78,844, $86,944 and $69,644 during2002, 2001 and 2000, respectively. The Company leases approximately 8,700 squarefeet and the lease terminated in October 2002. The Company currently paysrent on a month-to-month basis.

 

MRSEquity Corp. provides certain products and services for Whitney InformationNetwork, 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 $145,190,$53,105 and $170,422 during 2002, 2001 and 2000, respectively. MRS Equity Corp.provided Whitney Information Network, Inc. with $678,325, $720,504 and $273,525for product costs during 2002, 2001 and 2000, respectively. MRS Equity Corp. isa 100 percent subsidiary of Equity Corp. Holdings, Inc. of which the Chairmanof the Board of Whitney Information Network, Inc. owned a controlling interestprior to June 2002. In June 2002, an officer of the Company purchasedthe Chairman of the Board’s controlling interest to become the sole controllinginterest in MRS Equity Corp.

 

PrecisionSoftware Services, Inc. is a company that develops and licenses softwareprimarily for the real estate and small business industries and was acquired bythe Company in 2001 (Note 1). Prior to November 2001, the Chairman of theBoard of Directors of Whitney Information Network, Inc. owned a majorityinterest in Precision Software Services. During 2002, 2001 (prior to theacquisition), and 2000, Precision Software Services provided WhitneyInformation Network, Inc. $0, $371,644 and $378,525 in product cost,respectively. Precision Software Services sold products to Whitney InformationNetwork, Inc. at a price less than the prices offered to third parties. WhitneyInformation Network, Inc. provided payroll services to Precision SoftwareServices in the amount of $0, $68,811 and $38,605 during 2002, 2001 and 2000,respectively.

 

WhitneyInformation Network, Inc. provided payroll services to Whitney LeadershipGroup, Inc. in the amount of $14,204, $0 and $80,956 during 2002, 2001 and2000, respectively. During 2002, 2001 and 2000, Whitney Information Networkmade payments of $210,849, $279,313 and $230,476 for registration fees andcommissions. The Chairman of the Board of Whitney Information Network, Inc. isthe President and Chief Operating Officer of Whitney Leadership Group, Inc.

 

33

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CorporationCorp., formerly known as United States Fiduciary Corp, is a company whichprovides telemarketing services for Whitney Information Network, Inc. TheChairman of the Board of Directors and the Chief Financial Officer were alsomembers of the board of directors of Corporation Corp. During 2002, 2001 and2000, Whitney Information Network, Inc. paid $0, $458,877 and $418,096 incommissions to Corporation Corp.

 

RAW,Inc. is a company owned by the Chairman of the Board of Whitney InformationNetwork, Inc., which buys, sells and invests in real property. During2001,Whitney Information Network Inc. provided $10,869 in payroll services toRAW, Inc.

 

Thoseitems above that are reasonably expected to be collected within one year areshown as current and those that are not expected to be collected during thenext year are shown as non-current.

 

**Note 4—Property and Equipment**

 

Propertyand equipment consist of the following:

 
|                          |   | **December 31,** |      |
|-------------------------------|--------|-----------------------|-----------|
|                          |   | **2002**              |      | **2001** |   |
| Building                      |   | $                     | 3,093,460 |   | $ | 2,266,053 |   |
| Airplane                      |   | 2,114,474             |      | — |   |
| Software                      |   | 1,500,639             |      | 500,109 |   |
| Equipment                     |   | 774,608               |      | 658,585 |   |
| Furniture and fixtures        |   | 369,934               |      | 364,893 |   |
| Land                          |   | 1,395,571             |      | 132,500 |   |
| Leasehold improvements        |   | 211,741               |      | 81,516 |   |
| Construction in progress      |   | —                |      | 103,063 |   |
|                          |   |                  |      |   |   |
|                          |   | 9,460,427             |      | 4,106,719 |   |
| Less accumulated depreciation |   | (1,054,057            | )         | (478,272 | ) |
|                          |   |                  |      |   |   |
|                          |   | $                     | 8,406,370 |   | $ | 3,628,447 |   |

 

Depreciationexpense for the periods ended December 31:

 
| 2002 |   | $ | 587,209 |   |
|------|--------|---|---------|--------|
| 2001 |   | $ | 292,522 |   |
| 2000 |   | $ | 169,933 |   |

 

Intangibleassets consist of the following:

 
|                          |   | **December 31,** |    |
|-------------------------------|--------|-----------------------|---------|
|                          |   | **2002**              |    | **2001** |   |
| Customer list                 |   | $                     | 688,000 |   | $ | — |   |
| Trademarks                    |   | 300,000               |    | — |   |
| Loan costs                    |   | 12,172                |    | — |   |
|                          |   |                  |    |   |   |
|                          |   | 1,000,172             |    | — |   |
| Less accumulated amortization |   | (11,111               | )       | — |   |
|                          |   |                  |    |   |   |
|                          |   | $                     | 989,061 |   | $ | — |   |

 

34

----

 

Amortizationexpense for the periods ended December 31:

 

| 2002 |   | $ | 11,111 |   |
|------|--------|---|--------|--------|
| 2001 |   | $ | — |   |
| 2000 |   | $ | — |   |

 

Futureamortization of intangibles is as follows:

 

| **Year Ending December 31,** |   | **Total** |    |
|-----------------------------------|--------|-----------|---------|
| 2003                              |   | $         | 71,953  |   |
| 2004                              |   | 71,953    |    |
| 2005                              |   | 65,867    |    |
| 2006                              |   | 65,867    |    |
| 2007                              |   | 65,867    |    |
| Thereafter                        |   | 647,554   |    |
|                              |   |      |    |
|                              |   | $         | 989,061 |   |

 

**Note 5—Long-Term Debt and Note Payable—Related Party**

 

Long-termdebt consists of:

 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | **December 31,** |      |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|-----------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | **2002**              |      | **2001** |   |
| 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, 2002) 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   |   | $ | 450,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                  |      |   |   |
| Note payable to a finance company. Monthly  principal and interest payments due beginning in January 2003 through  December 2018. Interest at the LIBOR rate plus 3.42% (4.87% total as of  December 31, 2002). Collateralized by an airplane. The note is  personally guaranteed (to $170,000) by the majority stockholder.                                                                                                                     |   | 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% (5.75% total at December 31, 2002). The note  matures in December 2003.                                                                                                                                |   | 59,461                |      | 125,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                  |      |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | 1,709,461             |      | 575,000 |   |
| Less current portion                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | (103,051              | )         | (62,500 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                  |      |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | $                     | 1,606,410 |   | $ | 512,500 |   |

 

35

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Notepayable–related party consists of:

 
|                                                                                                                                                                                                                                                                                                                                                                                   |   | **December 31,** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                   |   | **2002**              |   | **2001** |   |
| 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% (5.75% total at December 31, 2002). The note matures in  December 2003. |   | $                     | 59,054 |   | $ | 125,000 |   |
| Less current portion                                                                                                                                                                                                                                                                                                                                                                   |   | (59,054               | )      | (62,500 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                   |   |                  |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                   |   | $                     | — |   | $ | 62,500 |   |

 

Maturitiesof long-term obligations are as follows:

 
| **Year Ending December 31,** |   | **Related Party Notes** |   | **Other  Notes** |   | **Total** |   |
|-----------------------------------|--------|-----------------------------------|--------|------------------|--------|-----------|--------|
| 2003                              |   | $                                 | 59,054 |             | $      | 103,051   |   | $ | 162,105 |   |
| 2004                              |   | —                            |   | 498,573          |   | 498,573   |   |
| 2005                              |   | —                            |   | 52,341           |   | 52,341    |   |
| 2006                              |   | —                            |   | 56,405           |   | 56,405    |   |
| 2007                              |   | —                            |   | 60,784           |   | 60,784    |   |
| Thereafter                        |   | —                            |   | 938,307          |   | 938,307   |   |
|                              |   |                              |   |             |   |      |   |
|                              |   | $                                 | 59,054 |             | $      | 1,709,461 |   | $ | 1,768,515 |   |

 

**Note 6—Commitments and Contingencies**

 

*Operating Leases*

 

TheCompany leases the following properties: (1) its headquarters building in CapeCoral, Florida (Note 3) month-to-month; (2) its telemarketing facility inDraper, Utah; (3) its Whitney Canada location in Ontario; and (4) its WhitneyUK location in London. These leases expire from May 2003 to October 2006.

 

Rentexpense for all operating leases was:

 

 
| **Year Ending December 31,** |   |   |    |
|-----------------------------------|--------|--------|---------|
| 2002                              |   | $      | 167,076 |   |
| 2001                              |   | $      | 225,232 |   |
| 2000                              |   | $      | 257,198 |   |

 

Futureminimum lease payments under these leases are approximately as follows:

 
| **Year Ending December 31,** |   |   |    |
|-----------------------------------|--------|--------|---------|
| 2003                              |   | $      | 115,292 |   |
| 2004                              |   | 89,952 |    |
| 2005                              |   | 88,547 |    |
| 2006                              |   | 73,359 |    |
|                              |   |   |    |
|                              |   | $      | 367,150 |   |

 

36

----

 

*Litigation*

 

TheCompany is not involved in any material unasserted claims and action arisingout 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 materialadverse effect on the Company’s financial position.

 

*Other*

 

TheCompany carries liability insurance coverage, which it considers sufficient tomeet regulatory and consumer requirements and to protect the Company’semployees, assets and operations.

 

TheCompany, in the ordinary course of conducting its business, is subject tovarious state and federal requirements. In the opinion of management, theCompany is in compliance with these requirements.

 

*Construction Agreement*

 

In2001, the Company entered into an agreement to construct a 7,000 square-footinternational conference and training center in Costa Rica at a total estimatedcost of $550,000. The Company had expenditures of approximately $714,450 and$105,000 through December 31, 2002 and 2001, respectively. This projectwas completed in the fourth quarter of 2002.

 

*Credit Facilities*

 

TheCompany has obtained two letters of credit, totaling $1,500,000, which expireon January 2004, and has available unused amounts totaling $1,500,000which are supported by certificates of deposit.

 

**Note 7—Stockholders’ Equity and Transactions**

 

*Stock Based Compensation Plans*

 

TheCompany’s stock option plans provide for the granting of stock options to keyemployees. Under the terms and conditions of the plans, any time between thegrant date and two years of service, the employee may purchase up to 25% of theoption shares. After three years of continuous service, the employee maypurchase all remaining option shares. All options expire ten years from thedate of the grant.

 

Thefollowing table presents the activity for options outstanding:

 
|                                    |   | **Options Related  To A Plan** |   | **Weighted Average  Exercise Price** |   |
|-----------------------------------------|--------|-------------------------------------|--------|--------------------------------------|--------|
| 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   |   |
| Granted                                 |   | 651,750                             |   | $                                    | 1.81   |   |
| Forfeited/canceled                      |   | (141,000                            | )      | $                                    | (1.98  | ) |
| Exercised                               |   | (26,375                             | )      | $                                    | (2.13  | ) |
|                                    |   |                                |   |                                 |   |
| Outstanding—December 31, 2002 |   | 1,406,175                           |   | $                                    | 1.93   |   |

 

37

----

 

 

Thefollowing table presents the composition of options outstanding andexercisable:

 
| **Range of   Exercise Prices** |   | **Number of  Options  Outstanding** |   | **Number of  Options  Exercisable** |   | **Price*** |   | **Life*** |   |
|------------------------------------------|--------|-------------------------------------|--------|------------------------------------------|--------|------------|--------|-----------|--------|
| $1.70                                    |   | 10,000                              |   | 2,500                                    |   | $          | 1.70   |      | 8.73   |   |
| $1.75                                    |   | 45,000                              |   | 11,250                                   |   | $          | 1.75   |      | 7.34   |   |
| $1.81                                    |   | 355,225                             |   | 88,806                                   |   | $          | 1.81   |      | 9.19   |   |
| $1.88                                    |   | 288,800                             |   | 288,800                                  |   | $          | 1.88   |      | 6.59   |   |
| $2.00                                    |   | 683,400                             |   | 323,475                                  |   | $          | 2.00   |      | 7.36   |   |
| $3.10                                    |   | 23,750                              |   | 5,938                                    |   | $          | 3.10   |      | 9.68   |   |
|                                     |   |                                |   |                                     |   |       |   |      |   |
| $1.70 to $3.10                 |   | 1,406,175                           |   | 720,769                                  |   |       |   | 7.71      |   |

 

----

*                   Price and Life reflect the weighted averageexercise price and weighted average remaining contractual life, respectively.

 

TheCompany has adopted the disclosure-only provisions of Statement of FinancialAccounting Standards No. 123, “Accounting for Stock-Based Compensation.”Accordingly, no compensation cost has been recognized for the stock optionplans. Had compensation cost for the Company’s option plan been determinedbased on the fair value at the grant date for awards consistent with theprovisions 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 amountsindicated below:

 
|                                                  |   | **For the  Years Ended December 31,** |      |
|-------------------------------------------------------|--------|--------------------------------------------|-----------|
|                                                  |   | **2002**                                   |      | **2001** |   | **2000** |   |
| Net income (loss)—as reported                    |   | $                                          | 6,229,740 |   | $ | 2,534,247 |   | $ | (8,703,127 | ) |
| Net income (loss)—pro forma                      |   | $                                          | 5,272,458 |   | $ | 2,517,922 |   | $ | (9,423,077 | ) |
| Basic income (loss) per common share—as reported |   | $                                          | 0.78      |   | $ | 0.33 |   | $ | (1.16 | ) |
| Basic income (loss) per common share—pro forma   |   | $                                          | 0.65      |   | $ | 0.32 |   | $ | (1.25 | ) |

 

Thefair value of each option grant is estimated on the date of grant using theBlack-Scholes option-pricing model with the following weighted-averageassumptions used:

 
|                                          |   | **For the  Years Ended December 31,** |    |
|-----------------------------------------------|--------|--------------------------------------------|---------|
|                                          |   | **2002**                                   |    | **2001** |   | **2000** |   |
| Approximate risk free rate                    |   | 3.83                                       | %       | 5.07 | % | 6.00 | % |
| Average expected life                         |   | 10 years                                   |    | 10 years |   | 10 years |   |
| Dividend yield                                |   | 0                                          | %       | 0 | % | 0 | % |
| Volatility                                    |   | 59.97                                      | %       | 73.57 | % | 115.00 | % |
|                                          |   |                                       |    |   |   |   |   |
| Estimated fair value of total options granted |   | $                                          | 957,282 |   | $ | 16,325 |   | $ | 719,950 |   |
|                                               |        |                                            |         |  |  |  |  |  |  |  |

 

38

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**Note 8—Income (Loss) Per Share**

 

Thefollowing table sets forth the computation for basic and diluted earnings pershare:

 
|                                                                              |   | **For the  Years Ended December 31,** |      |
|-----------------------------------------------------------------------------------|--------|--------------------------------------------|-----------|
|                                                                              |   | **2002**                                   |      | **2001** |   | **2000** |   |
| Numerator for diluted income (loss) per common  share                             |   | $                                          | 6,229,740 |   | $ | 2,534,247 |   | $ | (8,703,127 | ) |
|                                                                              |   |                                       |      |   |   |   |   |
| Denominator for basic earnings per share—weighted  average shares            |   | 7,952,180                                  |      | 7,587,474 |   | 7,528,022 |   |
| Effect of dilutive securities—options and warrants                           |   | 888,742                                    |      | — |   | — |   |
|                                                                              |   |                                       |      |   |   |   |   |
| Denominator for diluted earnings per share—adjusted  weighted average shares |   | 8,840,922                                  |      | 7,587,474 |   | 7,528,022 |   |
|                                                                              |   |                                       |      |   |   |   |   |
| Diluted income (loss) per common share                                            |   | $                                          | .70       |   | $ |  

.33 |   | $ | (1.16 | ) |

 

Wherethe inclusion of potential common shares is anti-dilutive, such shares areexcluded from the computation.

 

**Note 9—Business Segment Information**

 

TheCompany and its subsidiaries operate primarily in only one business segment.The Company’s revenues are generated through the sale of real estate seminars,programs and products. The Company and each of its subsidiaries either directlyparticipate in the real estate market or provide services to one of thesubsidiaries. The Company does maintain operations in foreign countries outsidethe United States. The following provides both revenues and long-lived assetvalues by location for the period and year ending December 31, 2002.Foreign operations prior to 2002 are not significant.

 

| **Location**   |   | **Revenues** |       | **Long-Lived Assets** |   |
|----------------|--------|--------------|------------|----------------------------|--------|
| United States  |   | $            | 57,091,029 |                       | $      | 8,722,138 |   |
| Canada         |   | 2,648,171    |       | 19,689                     |   |
| United Kingdom |   | 2,406,037    |       | 47,976                     |   |
| Costa Rica     |   | —       |       | 817,513                    |   |
|           |   |         |       |                       |   |
|           |   | $            | 62,145,237 |                       | $      | 9,607,316 |   |

 

Thefollowing provides revenues received by external customers for each group ofsimilar products and services for the years ended Deember 31, 2002, 2001 and2000.

 
|                           |   | **For the Years  Ended December 31,** |       |
|--------------------------------|--------|------------------------------------------------------|------------|
| **Segment**                    |   | **2002**                                             |       | **2001** |   | **2000** |   |
| Real Estate Products/Services  |   | $                                                    | 53,339,275 |   | $ | 38,024,356 |   | $ | 24,851,765 |   |
| Real Estate Mentoring/Coaching |   | 6,486,180                                            |       | 3,315,936 |   | 3,460,842 |   |
| Commission/Other               |   | 1,739,436                                            |       | 805,049 |   | 1,113,686 |   |
| Teach Me To Trade              |   | 574,484                                              |       | — |   | — |   |
| Internet sales                 |   | 5,862                                                |       | 12,399 |   | 3,433,564 |   |
|                           |   |                                                 |       |   |   |   |   |
| Total revenues                 |   | $                                                    | 62,145,237 |   | $ | 42,157,740 |   | $ | 32,859,857 |   |

 

39

----

 

**Note 10—Income Taxes**

 

Asof March 31, 2003 and December 31, 2002, the Company has netoperating loss (NOL) carryforwards for tax purposes of approximately $7,175,000and $3,600,000, respectively, which expire in the years 2003 through 2022.

 

Deferredtax liabilities and assets are determined based on the difference between thefinancial statement assets and liabilities and tax basis assets and liabilitiesusing the tax rates in effect for the year in which the differences occur. Themeasurement of deferred tax assets is reduced, if necessary, by the amount ofany tax benefits that based on available evidence, are not expected to berealized.

 

Theaccompanying balance sheets include the following:

 
|                                          |   | **December 31,** |      |
|-----------------------------------------------|--------|-----------------------|-----------|
|                                          |   | **2002**              |      | **2001** |   |
|                                          |   |                  |      |   |   |
| Deferred tax asset from NOL carryforward      |   | $                     | 1,301,000 |   | $ | 62,500 |   |
| Deferred tax asset from deferred revenue      |   | —                |      | 4,647,000 |   |
| Deferred tax liability from deferred expenses |   | (1,142,000            | )         | (1,606,000 | ) |
|                                          |   |                  |      |   |   |
| Total deferred tax assets                     |   | 159,000               |      | 3,103,500 |   |
| Valuation allowance for deferred tax assets   |   | (159,000              | )         | (3,103,500 | ) |
|                                          |   |                  |      |   |   |
| Net deferred tax asset                        |   | $                     | —    |   | $ | — |   |

 

In2001, the Company operated under 18 month contracts that required the Companyto recognize revenue when received for tax reporting purposes rather than whenthe course was taken. Thus, at December 31, 2001 a significant deferredtax asset existed related to the taxation of this revenue. In 2002, the Companychanged its contract to be a 12 month contract, which among other items,allowed it to recognize revenue for tax purposes under the same method that ithas recognized for financial reporting purposes. Thus, at the end of 2002 theCompany’s deferred tax asset associated with revenue had reversed and is thereason that the tax net operating loss had increased significantly at the endof 2002.

 

**Note 11—Employee Benefit Plan**

 

TheCompany has a 401(K) employee savings plan for eligible employees, whichprovides for a Company matching contribution determined each year at thediscretion of the Company. No Company contributions were charged to operationsfor the years ended December 31, 2002, 2001 and 2000, respectively.

 

40

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**Note 12—Summarized Quarterly Results (Unaudited)**

 

Thefollowing table presents unaudited operating results for each quarter withinthe two most recent years. The Company believes that all necessary adjustmentsconsisting only of normal recurring adjustments, have been included in theamounts stated below to present fairly the following quarterly results whenread in conjunction with the financial statements. Results of operations forany particular quarter are not necessarily indicative of results of operationsfor a full fiscal year.

 
|                                  |   | **First  Quarter** |       | **Second Quarter** |   | **Third  Quarter** |   | **Fourth Quarter** |       |
|---------------------------------------|--------|--------------------|------------|-------------------------|--------|--------------------|--------|-------------------------|------------|
| **December 31, 2001**            |   |               |       |                    |   |               |   |                    |       |
| Revenues                              |   | $                  | 11,233,678 |                    | $      | 11,950,654         |   | $                       | 9,239,054  |   | $ | 9,734,354 |   |
| Operating expenses                    |   | 9,227,361          |       | 11,115,533              |   | 8,988,795          |   | 10,544,688              |       |
| Income (loss) from operations         |   | 2,006,317          |       | 835,121                 |   | 250,259            |   | (810,334                | )          |
| Net income (loss)                     |   | 1,958,617          |       | 920,927                 |   | 356,553            |   | (701,850                | )          |
| Basic income (loss) per share (1)     |   | 0.26               |       | 0.12                    |   | 0.05               |   | (0.10                   | )          |
| Diluted earnings (loss) per share (1) |   | 0.26               |       | 0.12                    |   | 0.05               |   | (0.10                   | )          |
|                                  |   |               |       |                    |   |               |   |                    |       |
| **December 31, 2002**            |   |               |       |                    |   |               |   |                    |       |
| Revenues                              |   | $                  | 15,453,018 |                    | $      | 17,535,080         |   | $                       | 13,875,257 |   | $ | 15,281,882 |   |
| Operating expenses                    |   | 12,173,963         |       | 13,494,194              |   | 13,078,696         |   | 17,437,938              |       |
| Income (loss) from operations         |   | 3,279,055          |       | 4,040,886               |   | 796,561            |   | (2,156,056              | )          |
| Net income (loss)                     |   | 3,371,041          |       | 2,763,941               |   | 672,169            |   | (577,411                | )          |
| Basic earnings (loss) per share (1)   |   | 0.43               |       | 0.35                    |   | 0.08               |   | (0.08                   | )          |
| Diluted earnings (loss) per share (1) |   | 0.43               |       | 0.31                    |   | 0.08               |   | (0.08                   | )          |

 

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(1)                                  Earnings per share are computed independentlyfor each quarter and the full year based upon respective average sharesoutstanding. Therefore, the sum of the quarterly net earnings per share amountsmay not equal the annual amounts reported.

 

**Note 13—Subsequent Event (Unaudited)**

 

InFebruary 2003, the Company entered into an agreement with one of itsofficers to purchase all of the outstanding shares of Equity Corp. Holdings,Inc. which owns MRS Equity Corp. (Note 3). The purchase price was $250,000. Inaddition, the Company also assumed a $4,750,000 note payable due to the Company’sChairman of the Board and majority shareholder. This liability arose from theofficers’ redemption of 90% ownership of Equity Corp. Holdings, Inc. of theChairman of the Board and majority shareholder in June 2002.

 

InFebruary 2003, the Company entered into an agreement with the Company’sChairman of the Board and majority shareholder to purchase all of theoutstanding shares of Whitney Leadership Group, Inc. (Note 3). Thepurchase price for this transaction was $1,200,000.

 

TheCompany expects these transactions to close in April 2003. Both agreementsare subject to a number of contingencies, including due diligence and afairness opinion acceptable to the Company’s legal counsel.

 

41

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**ITEM 9.    CHANGES IN ANDDISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

None

 

**PART III**

 

**ITEM 10.    DIRECTORS AND EXECUTIVEOFFICERS OF THE REGISTRANT.**

 

**Officers and Directors**

 

Informationconcerning each of our executive officers and directors is set forth below:

 
| **Name**           |   | **Age** |   | **Position**                                                               |   |
|--------------------|--------|---------|--------|----------------------------------------------------------------------------|--------|
| Russell A. Whitney |   | 47      |   | Chairman  of the Board of Directors, Chief Executive Officer and President |   |
| Ronald S. Simon    |   | 60      |   | Executive  Vice President, Chief Financial Officer, Secretary and Director |   |
| Nicholas S. Maturo |   | 55      |   | Chief  Operating Officer                                                   |   |
| Charles E. Miller  |   | 53      |   | Vice  President—Finance                                               |   |
| John F. Kane       |   | 49      |   | Vice  President—Marketing                                             |   |

 

Directorshold office for a period of one year from their election at the annual meetingof stockholders or until their successors are duly elected and qualified.Officers are elected by, and serve at the discretion of, the Board ofDirectors.

 

*Russell A. Whitney, Chairman of the Board of Directors andChief Executive Officer.*Mr. Whitney is our founder and has been Chairman and Chief Executive Officer ofour company and its predecessors since 1987. He is also Chief Executive Officerand a director of all of our wholly-owned subsidiaries. Mr. Whitney is also anactive real estate investor for his own account and has written and publishedthree books on wealth building topics. Mr. Whitney devotes substantially all ofhis time to our business.

 

*Ronald S. Simon, Executive Vice President, Chief FinancialOfficer, Secretary and Director.* Mr. Simon has been our Chief Financial Officer and a member of ourBoard of Directors since August 1998. Mr. Simon was a self-employedcertified public accountant from 1987 until he joined us as our Chief FinancialOfficer in June 1998. In June 2002, he was appointed our ExecutiveVice President. Mr. Simon holds a Bachelor of Science degree in accounting fromthe University of Illinois.

 

42

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*Nicholas S. Maturo, Chief Operating Officer.* Mr. Maturo joined us in September 2002and became our Chief Operating Officer in January 2003. He was the ChiefOperating Officer of Food Trader, Inc. from March 2000 toNovember 2002. From 1981 to January 2000, he held a number ofexecutive positions with Kraft Foods and was Chief Information Officer when heleft Kraft.

 

*Charles E. Miller, Vice President—Finance.* Mr. Miller joined us in June 2002. From1996 until May 2002, he was the Chief Financial Officer for First HomeBuilders, a privately-held Florida-based home building company. Mr. Miller is aCertified Public Accountant and an attorney. He graduated in 1971 from ColgateUniversity with a Bachelor of Arts degree and earned a J.D. degree from AlbanyLaw School in 1974.

 

*John F. Kane, Vice President—Marketing.* Mr. Kane has been the President of PrecisionSoftware Services, Inc., one of our wholly-owned subsidiaries since 1993.Precision develops real estate investment and other basic business software andwas purchased by us in November 2001. We appointed Mr. Kane our VicePresident of Marketing in January 2003.

 

**ITEM 11.    EXECUTIVE COMPENSATION**

 

Thefollowing table provides certain summary information concerning compensationpaid to our Chief Executive Officer and others for the calendar years indicatedbelow.

 

**SUMMARY COMPENSATION TABLE**

 
|                                            |   | **Annual  Compensation** |   | **Long-Term  Compensation Awards** |   |
|-------------------------------------------------|--------|--------------------------|--------|------------------------------------|--------|
| **Name and Principal Position**                 |   | **Year**                 |   | **Salary($)**                      |   | **Bonus  ($)** |   | **Other  Annual  Compensation ($)** |   | **Restricted Stock    Award(s)(#)** |   | **Shares Underlying  Options($)** |   | **All  Other  Compensation($)** |   |
| Russell A. Whitney, CEO                         |   | 2002                     |   | 350,000                            |   | 450,000 |   |   |   |   |   |   |   |   |   |
|                                            |   | 2001                     |   | 250,000                            |   | 100,000 |   | — |   | — |   | — |   | — |   |
|                                            |   | 2000                     |   | 250,000                            |   | 20,455 |   | — |   | — |   | — |   | — |   |
| Richard Brevoort, President (1)                 |   | 2002                     |   | 125,000                            |   | 50,000 |   |   |   |   |   |   |   |   |   |
|                                            |   | 2001                     |   | 100,000                            |   | 50,000 |   | — |   | — |   | — |   | — |   |
|                                            |   | 2000                     |   | 75,000                             |   | 14,602 |   | — |   | — |   | 68,000 |   | — |   |
| Ronald S. Simon, Executive  Vice-President, CFO |   | 2002

2001               |   | 100,000

55,000               |   | 50,000

25,000  |   | — |   | — |   | — |   | — |   |
|                                            |   | 2000                     |   | 47,500                             |   | 14,602 |   | — |   | — |   | 68,000 |   | — |   |

 

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(1)                                  Mr. Brevoort passed away inSeptember 2002.

 

Wecurrently pay Mr. Whitney a salary of $350,000 per year, together with bonusesto be granted in the discretion of the Board of Directors, and customaryemployee benefits, including health insurance. Bonuses granted by the Board ofDirectors to Mr. Whitney are expected to be between 50% and 100% of his salary,depending upon our level of profitability. We do not have employment agreementswith Messrs. Simon, Maturo, Miller and Kane, who currently receive annualsalaries of $180,000, $180,000, $120,000 and $120,000, respectively. We expectto enter into employment contracts with Messrs. Whitney, Simon, Maturo, Millerand Kane, and to purchase key man life insurance upon Mr. Whitney’s life, inthe near future.

 

43

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Weintend to institute a cash bonus plan which will be administered by thecompensation committee of our Board of Directors. Under the bonus plan,employees, including all of our executive officers, except our Chief ExecutiveOfficer, may receive cash bonuses of up to 50% of their salaries based upon anumber of factors, including the meeting or exceeding of internally preparedbudgets and forecasts, along with a number of subjective criteria.

 

Thefollowing table sets forth certain information regarding grants of stock optionsto Russell A. Whitney, Richard Brevoort and Ronald S. Simon, the executiveofficers who received stock options during the years 1999 through 2002. Thefair value of the grants have been estimated utilizing the Black-Scholes optionpricing.

 
| **Name**              |   | **Number of  Underlying  Securities  Options/SARs  Granted  1999-2001** |   | **Number of Underlying    Securities Options/  SARs Granted During  Last 12 Months** |   | **Exercise  or  Base  Price ($/Sh)  (weighted average)** |   | **No. of Options  Exercised** |   | **Expiration  Date** |                 | **Grant  Date  Present  Value** |    |
|-----------------------|--------|-------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------|--------|-----------------------------------------|--------|----------------------|----------------------|---------------------------------|---------|
| Russell  A. Whitney   |   | 76,000                                                                  | (1)    | 76,000                                                                                         |   | $                                                        | 1.31   |                                    | 0      |                 | 04/2005–04/2008 |                            | 94,500  | (4) |
| Richard  Brevoort (2) |   | 143,000                                                                 | (3)    | —                                                                                         |   | $                                                        | 1.934  |                                    | 0      |                 | 08/2004–09/2008 |                            | 262,500 | (4) |
| Ronald  S. Simon      |   | 293,000                                                                 |   | —                                                                                         |   | $                                                        | 1.919  |                                    | 0      |                 | 08/2004–09/2008 |                            | 351,500 | (4) |

 

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(1)                                  Comprised of options granted to family membersof Mr. Whitney.

(2)                                  Mr. Brevoort passed away inSeptember 2002.

(3)                                  Includes 25,600 options granted to familymembers of Mr. Brevoort. The remaining options are now held by Mr. Brevoort’sestate.

(4)                                  Our present value computations were based uponthe following assumptions: 115% volatility, ten year life, risk free rate ofreturn of 6% and a 0% dividend yield.

 

Thefollowing table sets forth, on an aggregated basis, each exercise of stockoptions (or tandem SARs) and freestanding SARs during the last completed fiscalyear by each of the named executive officers and the fiscal year-end value ofunexercised options and SARs.

 
| **Name**           |   | **Shares Acquired on Exercise** |   | **Value Realized** |   | **# of Securities Underlying  Unexercised Options/SARs  at December 31, 2002** |   | **Value of Unexercised  In-The-Money  Options/SARs at  December 31, 2002** |      |
|--------------------|--------|------------------------------------------------|--------|-------------------------|--------|---------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------|-----------|
| Russell A. Whitney |   | 0                                              |   | 0                       |   | 76,000                                                                                                  |   | $                                                                                         | 319,200   |   |
| Richard Brevoort   |   | 0                                              |   | 0                       |   | 321,500                                                                                                 |   | $                                                                                         | 1,350,300 |   |
| Ronald S. Simon    |   | 0                                              |   | 0                       |   | 293,000                                                                                                 |   | $                                                                                         | 1,230,600 |   |

 

Wehave not adopted any retirement, pension or profit sharing plans for thebenefit of our officers or directors although we adopted our 1998 Stock OptionPlan for the benefit of our officers, directors, employees and consultants. Wealso offer our employees a 401(k) plan, although we do not make anycontributions to the plan.

 

**Compensation of Directors**

 

Ourcurrent directors do not receive compensation for attending Board meetings.However, expenses incurred by our directors in attending Board meetings arereimbursed, and directors may receive stock options under our 1998 Stock OptionPlan in as yet undetermined amounts.

 

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**1998 Stock Option Plan**

 

In1998 we adopted a stock option plan which provides for the grant of optionsintended to qualify as “incentive stock options” or “nonqualified stockoptions” within the meaning of Section 422 of the United States InternalRevenue Code of 1986 (the “Code”). Incentive stock options are issuable only toemployees.

 

Thepurposes of the Plan are to attract and retain the best available personnel, toprovide additional incentives to our employees and to promote the success ofour business.

 

Wehave reserved 2,187,500 shares of common stock for issuance under the Plan,which is administered by the compensation committee of our board of directors.Under the Plan, the compensation committee determines which individuals willreceive options, the time period during which the options may be partially orfully exercised, the number of shares of common stock that may be purchasedunder each option and the option price. As of March 31, 2003 options topurchase 1,524,425 shares of common stock at exercise prices ranging from $1.70per share to $3.70 per share were outstanding under the Plan, and 663,075shares remained available for future option grants. Of these options, 828,800have been issued to executive officers and directors at exercise prices rangingfrom $1.81 per share to $3.70 per share.

 

Theper share exercise price of the common stock subject to options must not beless than the fair market value of the common stock on the date the option isgranted. In the case of incentive stock options, the aggregate fair marketvalue, determined as of the date the option is granted, of the common stockthat any person may purchase in any calendar year pursuant to the exercise ofincentive stock options must not exceed $100,000. No person who owns, directlyor indirectly, at the time of the granting of an incentive stock option, morethan 10% of the total combined voting power of all classes of our stock iseligible to receive incentive stock options under the Plan unless the optionprice is at least 110% of the fair market value of the common stock subject tothe option on the date of grant. The stock options are subject to anti-dilutionprovisions in the event of stock splits, stock dividends and the like.

 

Noincentive stock options are transferable by an optionee other than by will orthe laws of descent and distribution, and during the lifetime of an optionee,the option is only exercisable by the optionee. The exercise date of an optiongranted under the Plan must not be later than ten years from the date of grant.Any options that expire unexercised or that terminate upon an optionee’s ceasingto be employed by us will become available once again for issuance. Sharesissued upon exercise of an option rank equally with other shares thenoutstanding. No options have been exercised under the Plan.

 

**ITEM 12.    SECURITY OWNERSHIP OFCERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**

 

Thefollowing table sets forth the common stock ownership of each person known byus to be the beneficial owner of five percent or more of our common stock, bycertain of our officers, by each of our directors individually and by allofficers and directors as a group. Each person holds record and beneficialownership and has sole voting and investment power with

 

45

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respectto the shares of common stock shown. The address of all of these individuals isin our care at 1612 Cape Coral Parkway, Suite A, Cape Coral, Florida 33902.

 
| **Name Of Owner**                                |   | **Number of Shares** |   | **Position**                                                               |   | **Percent of Class(1)** |   |
|--------------------------------------------------|--------|--------------------------------|--------|----------------------------------------------------------------------------|--------|-----------------------------------|--------|
| Russell A. Whitney (2)                           |   | 6,706,600                      |   | Chairman  of the Board of Directors and Chief Executive Officer            |   | 81.9                              | %      |
| Ronald S. Simon (3)                              |   | 378,125                        |   | Executive  Vice President, Chief Financial Officer, Secretary and Director |   | 3.9                               | %      |
| All officers and directors as a group(5 persons) |   | 7,234,275                      |   |                                                                       |   | 84.1                              | %      |

 

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(1)                                  Includes stock options exercisable within 60days from the date hereof.

(2)                                  Comprised of 6,615,600 shares held jointly byMr. Whitney and his wife and 90,000 stock options held by members of Mr.Whitney’s family.

(3)                                  Comprised of 35,125 shares and 343,000 stockoptions.

 

**ITEM 13.    CERTAIN RELATIONSHIPSAND RELATED TRANSACTIONS**

 

Welease 2,242 square feet of office space at 4818 Coronado Parkway, Cape Coral,Florida 33904 from Russell A. Whitney, our Chairman and Chief ExecutiveOfficer, on a monthly basis without a written lease for $2,242 per month. Wehave elected to lease the property on a monthly basis without a written leaseas we are uncertain of whether we will continue to use this space, consideringwe recently purchased our own office building in Cape Coral and may move intoadditional space in that building when current leases to nonaffiliates expire.

 

Weprovide payroll services to Whitney Leadership Group, Inc., a company owned andmanagerially and operationally controlled by Mr. Whitney prior to our acquisition in 2003 and, in thepast, we have loaned money to Whitney Leadership. As of December 31, 2002no amounts were owed to or from Whitney Leadership. Whitney Leadership owns therights to our television & real estate infomercials, which we use toattract students to our free informational training sessions. In 2002, we madea short-term advance to Whitney Leadership Group of $232,126 at zero interestand without a promissory note.  Weloaned Whitney Leadership the money to fund a Whitney product show.  This note was repaid in September 2002.

 

MRSEquity Corp. provides software products and services to us which we market thatallows mortgagees to pay their mortgages every two weeks rather than monthly,thereby reducing mortgage payments over the life of the mortgage and increasingprincipal reductions. We provide MRS with payroll services. MRS is awholly-owned subsidiary of Equity Corp. Holdings, Inc., which is owned and manageriallyand operationally controlled byMr. John F. Kane prior to our acquisition in 2003, our Vice President ofMarketing.

 

PrecisionSoftware Services, Inc. develops and licenses software to us. Mr. Whitney owneda controlling interest in Precision until we acquired all of its outstandingshares in November 2001 for 333,334 shares of our common stock valued at$1.50 per share.

 

WhitneyLeadership owns the rights to our television real estate infomercials, a numberof our educational books and tapes and one of our course offerings, for whichwe pay Whitney Leadership $1.00 for each person who registers for our freeinformational training sessions.

 

Until January 2003, Corporation Company of Nevada, Inc. providedto us trainers for some of our asset protection courses along with formationservices for which the Company was billed for. Formation services involvedCorporation Company forming legal entities such as corporations and limitedliability companies for use by our students. The students used these entities to operate their business in a corporate,partnership, or trust form.  Mr. Whitneyand Mr. Simon were directors of that company until the fourth quarter of 2001.

 

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Thedollar amount of products which we purchased from MRS and Precision SoftwareServices is as follows:

 
|                              |   | **2002** |    | **2001** |   | **2000** |   |
|-----------------------------------|--------|----------|---------|----------|--------|----------|--------|
| MRS Equity Corp.                  |   | $        | 678,325 |     | $      | 720,504  |   | $ | 273,525 |   |
| Precision Software Services, Inc. |   | $        | 0       |     | $      | 371,644  |   | $ | 378,525 |   |

 

Feeswe paid to Whitney Leadership and Corporation Company are as follows:

 
|                                |   | **2002** |    | **2001** |   | **2000** |   |
|-------------------------------------|--------|----------|---------|----------|--------|----------|--------|
| Whitney Leadership Group, Inc.      |   | $        | 210,849 |     | $      | 279,313  |   | $ | 230,476 |   |
| Corporation Company of Nevada, Inc. |   | $        | 0       |     | $      | 458,877  |   | $ | 418,096 |   |

 

Payrollservice fees we received from affiliates are as follows:

 
|                              |   | **2002** |    | **2001** |   | **2000** |   |
|-----------------------------------|--------|----------|---------|----------|--------|----------|--------|
| MRS Equity Corp.                  |   | $        | 145,190 |     | $      | 53,105   |   | $ | 170,422 |   |
| Precision Software Services, Inc. |   | $        | 0       |     | $      | 68,811   |   | $ | 38,605 |   |
| Whitney Leadership Group, Inc.    |   | $        | 14,204  |     | $      | 0        |   | $ | 80,956 |   |

 

InSeptember 2001, we purchased for $212,500 a 20% interest in RanchoMonterey, S.A., a Costa Rican company organized in May 2001 to developunimproved real estate in Costa Rica. Prior to our investment, Rancho Montereywas owned by four persons, comprised of three nonaffiliated persons and Mr.Whitney, each of whom owned 25% of Rancho Monterey. We paid the same price forour interest in Rancho Monterey as the other four persons paid. We also own16.67% of Monterey Development, S.A., a Panamanian corporation which managesthe Rancho Monterey development. Mr. Whitney also owns a 16.67% interest inMonterey Development.

 

InNovember 2001 we purchased all of the outstanding common stock ofPrecision Software Services, Inc. from Mr. Whitney and John F. Kane, whosubsequently became one of our executive officers, in exchange for 170,000shares and 163,324 shares, respectively, of our common stock. Prior to thepurchase, Precision developed and licensed educational software for us.Precision continues to develop software for us as a wholly-owned subsidiary.

 

InFebruary 2003, we entered into an agreement with John F. Kane, our VicePresident of Marketing, to purchase all of the outstanding shares of EquityCorp. Holdings, Inc. which owns MRS Equity Corp. for a purchase price of$250,000, comprised of $62,500 and 62,500 shares of our common stock at closingand $62,500 payable one year from the closing date evidenced by a promissorynote bearing interest at 7% per annum. We also agreed to assume and pay apromissory note issued to Mr. Whitney by Equity Corp. on June 1, 2002 inthe amount of $4,750,000 payable $1,000,000 on February 23, 2003, $1,000,000on February 23, 2004 and $550,000 payable on each of February 23,2005 through February 23, 2009. The unpaid balance bears interest at 7%per annum. Equity Corp. incurred this $4,750,000 obligation when it elected toredeem all of Mr. Whitney’s stock ownership in Equity Corp., which amounted to90% of the outstanding stock of Equity Corp., as of June 1, 2002. Weexpect that the transaction with Mr. Kane will close in the second quarter of2003 and is subject to a number of contingencies, including due diligence onour part and a fairness opinion acceptable to our counsel and us.

 

47

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InFebruary 2003, we entered into an agreement to purchase all of theoutstanding common stock of Whitney Leadership Group, Inc. from Mr. Whitney andhis wife, for a purchase price of $1,200,000, payable $300,000 at closing and$300,000 thereafter for each of the following three years. The outstandingbalance will be evidenced by a promissory note bearing interest at 7% per annum.We expect the transaction will close in the second quarter of 2003 and issubject to a number of contingencies, including due diligence on our part and afairness opinion acceptable to our counsel and us.

 

Historically,our Board of Directors has been composed solely of Messrs. Whitney and Simonwho are responsible for setting the compensation of all of our executiveofficers, including Messrs. Whitney and Simon.

 

From time to time, Mr. Whitney benefits from our students’ purchase ofresidential lots and the construction of homes on lots they acquire in the CapeCoral, Florida area.  Lots purchased bystudents may be sold to them by Mr. Whitney or other lot owners.  The purchase price of lots sold by Mr.Whitney is consistent with lot prices sold by others in the Cape Coralarea.  Mr. Whitney receives a commissionof $5,000 from Gulf Stream Development Group, Inc. for houses built by GulfStream for our students.  Mr. Whitneyowns 25% of the stock of Gulf Stream. We have elected not to enter into the business of selling lots tostudents or building homes for them, as we do not believe that returns in doingso would match our returns in the post secondary education business.  Our decision not to enter either of thesebusinesses was unanimously ratified by a vote of our independent directors.

 

Inour view, the terms of the transactions described above are no less favorablethan could have been obtained from independent third parties.

 

**ITEM 14.    CONTROLS AND PROCEDURES**

 

Our Chief Executive Officer and Chief Financial Officer have evaluatedthe effectiveness of our disclosure controls and procedures (as such term isdefined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of1934, as amended (the “Exchange Act”) as of the end of the period covered bythis report.  Based on such evaluation,such officers have concluded that, as of December 31, 2002, our disclosurecontrols and procedures are effective in alerting them on a timely basis tomaterial information relating to our Company (including our consolidatedsubsidiaries) required to be included in our reports filed or submitted underthe Exchange Act.

 

During the period covered by this report, there have not been anychanges in our internal controls that have materially affected or are reasonablylikely to materially affect, our internal controls over financial reporting.

 

**PART IV**

 

**ITEM 15.    EXHIBITS AND REPORTS ONFORM 8-K.**

 

(a)                                  No reports on Form 8K were filed during thelast quarter of the period covered by this Report.

 

(b)                                 Exhibits

 
| **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.                                     |
|                 |   |                                                             |
| 21**                 |   | Whitney  Information Network, Inc. Subsidiaries                  |
|                 |   |                                                             |
| 27.1*                |   | Financial  Data Schedule                                         |
|                 |   |                                                             |
| 31.1                 |   | Certification  of Periodic Report – Chief Executive Officer |
|                 |   |                                                             |
| 31.2                 |   | Certification  of Periodic Report – Chief Financial Officer |
|                 |   |                                                             |
| 32.1                 |   | Certification  of Periodic Report – Chief Executive Officer |
|                 |   |                                                             |
| 32.2                 |   | Certification  of Periodic Report – Chief Financial Officer |
|                 |   |                                                             |
| 99.1*                |   | Class  A Warrant Agreement                                       |
|                 |   |                                                             |
| 99.2*                |   | Class  B Warrant Agreement                                       |
|                 |   |                                                             |
| 99.3*                |   | Non-Qualified  Incentive Stock Option Plan                       |
|                 |   |                                                             |
| 99.4*                |   | Office  Lease                                                    |

 

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*Incorporated by referenceto the Registrant’s Registration Statement on Form 10SB12G (SEC File No.000-27403).

**Incorporated by reference to the Registrant's Registration Statement on Form10K dated April 15, 2003

 

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**SIGNATURES**

 

Inaccordance with Section 13 or 15(d) of the Exchange Act, the Registrantcaused this Report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
|                 | WHITNEY INFORMATION NETWORK, INC. |
|----------------------|--------------------------------------------------|
|                 |                                             |   |
| Dated:  June 2, 2004 | By:                                              | /s/    RUSSELL A. WHITNEY |
|                 |                                             | **Russell A. Whitney****Chief Executive  Officer** |

 

 

Inaccordance with the Exchange Act, this Report has been signed below by thefollowing persons on behalf of the Registrant and in the capacities and on thedates indicated:

 
| **Signature**                                 |   | **Title**                                                                                      |   | **Date**     |
|-----------------------------------------------|--------|------------------------------------------------------------------------------------------------|--------|--------------|
|                                          |   |                                                                                           |   |         |
| /s/    RUSSELL A. WHITNEY |   | Chairman  of the Board of Directors and Chief Executive Officer                                |   | June 2, 2004 |
| **Russell A. Whitney**                        |   |                                                                                           |   |         |
|                                          |   |                                                                                           |   |         |
| /s/    RONALD S. SIMON    |   | Executive  Vice President, Chief Financial Officer, Principal Accounting Officer and  Director |   | June 2, 2004 |
| **Ronald S. Simon**                           |   |

 

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