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** **

 

** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-K/A**

** **

**Amendment No. 1**

 

**AnnualReport Pursuant to Section 13 or 15(d) of the Securities Exchange Actof 1934**

 

**For the fiscal year ended December 31,2006**

 

**WHITNEY INFORMATION NETWORK, INC.**

(Exact name ofregistrant as specified in charter)

 

| **Colorado**(State or other jurisdiction of  incorporation or organization) | ** ** | **0-27403**(Commission File Number) | ** ** | **84-1475486**(I.R.S. Employer  Identification Number) |
|-----------------------------------------------------------------------------|------------|-------------------------------------|------------|--------------------------------------------------------|

 

|                                                                                                      |
|------------------------------------------------------------------------------------------------------|
| **1612  East Cape Coral Parkway, Cape Coral, Florida 33904**(Address of principal executive offices) |
| ** **                                                                                           |
| Registrant’s  telephone number, including area code: (**239) 542-0643**                         |
| ** **                                                                                           |
| 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 ifthe Registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act.

Yes o No x

 

Indicate by check mark ifthe Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes o No x

 

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed bysection 13 or 15 (d) of the Exchange Act during the preceding 12 months(or such shorter period that the Registrant was required to file such reports)and (2) has been subject to such filing requirements for the past 90days.  Yes o No x

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein and will not be contained, to the best of registrant’s knowledge,in definitive proxy or information statements incorporated by reference in Part IIIof this From 10-K or any amendment to this form 10-K. o

 

Indicate by check markwhether the Registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer.  See definition of“accelerated filer and large accelerated filer” in rule 12b-2 of theExchange Act.

 

| Large Accelerated filer o |   | Accelerated  filer o |   | Non-accelerated  filer x |
|---------------------------|--------|----------------------|--------|--------------------------|

 

Indicate by check markwhether the Registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

Yes o No x

 

The aggregate marketvalue of the voting and nonvoting common equity held by nonaffiliates of theregistrant, as of June 30, 2006, the last business day of the registrant’smost recently completed second fiscal quarter, was approximately $45.5 millionbased on the closing sale price of the registrant’s common stock as traded onthe NASD Over the Counter Electronic Bulletin Board on such date of $8.30 pershare.  As of March 30, 2007, therewere 11,738,587 shares of common stock outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE:

None

 

 

 

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**TABLE OFCONTENTS**

 
| **Explanatory Note** | 3                                                                                                                   |
|----------------------|---------------------------------------------------------------------------------------------------------------------|
|                 |                                                                                                                |   |
| **PART I**      | ** **                                                                                                          | ** ** |
| Item 1.              | Business                                                                                                            | 7 |
| Item 1A.             | Risk Factors                                                                                                        | 16 |
| Item 1B.             | Unresolved  Staff Comments                                                                                          | 21 |
| Item  2.             | Properties                                                                                                          | 21 |
| Item 3.              | Legal Proceedings                                                                                                   | 22 |
| Item 4.              | Submission  of Matters to a Vote of Security Holders                                                                | 22 |
|                 |                                                                                                                |   |
| **PART II**     | ** **                                                                                                          | ** ** |
| Item 5.              | Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities | 23 |
| Item 6.              | Selected  Financial Data                                                                                            | 25 |
| Item 7.              | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         | 28 |
| Item 7A.             | Quantitative  and Qualitative Disclosures About Market Risk                                                         | 50 |
| Item 8.              | Financial  Statements and Supplementary Data                                                                        | 51 |
| Item 9.              | Changes in  and Disagreements with Accountants on Accounting and Financial Disclosure                               | 84 |
| Item 9A(T)           | Controls  and Procedures                                                                                            | 84 |
| Item 9B.             | Other Information                                                                                                   | 85 |
|                 |                                                                                                                |   |
| **PART III**    | ** **                                                                                                          | ** ** |
| Item 10.             | Directors,  Executive Officers and Corporate Governance                                                             | 86 |
| Item 11.             | Executive  Compensation                                                                                             | 88 |
| Item 12.             | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                    | 104 |
| Item 13.             | Certain  Relationships and Related Transactions, and Director Independence                                          | 105 |
| Item 14.             | Principal  Accounting Fees and Services                                                                             | 107 |
|                 |                                                                                                                |   |
| **PART IV**     | ** **                                                                                                          | ** ** |
| Item 15.             | Exhibits  and Financial Statement Schedules                                                                         | 109 |
|                 |                                                                                                                |   |
|                 | Signatures                                                                                                          | 111 |

 

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**EXPLANATORY NOTE**

 

Whitney InformationNetwork, Inc., (the “Company,” “we,” “us,” “our” or “Whitney”) is filingthis Amendment No. 1 to its Annual Report on Form 10-K for the yearended December 31, 2006, filed with the Securities and Exchange Commission(the “SEC”) as of April 2, 2007, (the “Original Filing”) to amend andrestate financial statements and other financial information for the years2006, 2005, and 2004, and financial information for the years 2003 and 2002,and for each of the quarters in the years 2005 and 2006.  This restatement corrects errors relating to:(i) disclosures of related party transactions, (ii) the method anddisclosure of certain acquisitions, and (iii) depreciable lives of intangible assets andproperty, plant and equipment.  Therestatement also includes certain other corrections and conforming changes andhad minimal effect on the Company’s cash flows, liquidity, or our financialposition for the respective restated periods.

 

**Revisionsin this Amended Annual Report**

 

ThisAmendment No. 1 to our Annual Report on Form 10-K  for the year ended December 31, 2006 (“Form 10-K/A”)includes restatements, revisions and certain conforming changes to Part 1 —Item 1 — Business, Part II — Item 5 — Market for Registrant’s CommonEquity, Related Stockholder Matters and Issuer Purchases of Equity Securities,Item 6 — Selected Financial Data, Item 7 — Management’s Discussion and Analysisof Financial Condition and Results of Operations, Item 8 — Financial Statementsand Supplementary Data (including the 2006 Financial Statements, Notes to the2006 Financial Statements and the Report of Independent Certified PublicAccountants), Item 9A(T) — Controls and Procedures, Part III — Item10 — Directors, Executive Officers and Corporate Governance, Item 11 —Executive Compensation, Item 12 — Security Ownership of Certain Beneficial Ownersand Management and Related Stockholder Matters, Item 13 — Certain Relationshipsand Related Transactions and Director Independence, Item 14 — PrincipalAccounting Fees and Services and Part IV — Item 15 — Exhibits andFinancial Statement Schedules.  This Form 10-K/Aincludes certifications as of the date of this filing from our Chief ExecutiveOfficer and Chief Financial Officer, as required by Sections 302 and 906 of theSarbanes-Oxley Act of 2002.

 

Except for the amended or restated information describedin the following tables or as otherwise indicated herein, this Form 10-K/Acontinues to speak as of the date of the Original Filing, April 2, 2007(unless explicitly identified as of another date).  Other events or circumstances occurring afterthe filing of the Original Filing or other disclosures necessary to reflectsubsequent events have been or will be addressed in other reports filed withthe SEC subsequent to the date of the Original Filing.  Accordingly, this Form 10-K/A should beread in conjunction with our periodic filings, including any amendments tothose filings, as well as any Current Reports on Form 8-K filed with theSEC, subsequent to the date of the Original Filing of our Annual Report on Form 10-K.

 

Certain individuals referred to in this document,including the Chairman and Chief Executive Officer, Mr. Whitney,Co-President and Chief Operating Officer, Mr. Simon, and Co-President andChief Financial Officer, Mr. Novas, were in their respective positions asof the date of the Original Filing on April 2, 2007.  As of the date of the filing of this Form 10-K/A,these individuals no longer held those positions.  As a result, in the areas of this Form 10-K/Athat are restated, we have sometimes referred to Mr. Whitney, Mr. Simon,Mr. Kane and Mr. Novas as “former” officers.  For those items that were not restated inthis Form 10-K/A, there is no reference to “former” as these individualswere officers at the time of the Original Filing.

 

**Background**

 

On November 14,2006, we were notified that the SEC was conducting a formal investigation todetermine whether the Company complied with securities laws in connection with (i) theclaimed efficacy or trading success of its stock market educational programs,and (ii) its acquisition of certain other companies.  On December 11, 2006, the Companyreceived a subpoena requesting documents in connection with the commencement ofa grand jury investigation by the United States Attorney’s Office for theEastern District of Virginia.  Thisinvestigation is related to the Company’s marketing activities from January 1,2002, to the present.

 

In December 2006,our Board of Directors established a Special Committee of independent directorsto conduct an internal investigation of the activities that are the subject ofthe government investigations, and the Special Committee engaged the law firmof Wilmer Cutler Pickering Hale and Dorr LLP (“WilmerHale”) to assist with thisinvestigation.  The Special Committee hasreported its findings and made recommendations to the Board of Directors, asreported in the Company’s Current Report on Form 8-K filed with the SEC onNovember 9, 2007, and such recommendations have either been implemented orare being implemented as discussed herein.

 

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*Acquisitionaccounting*

 

Withrespect to our acquisition of certain companies, the method of accountingrelated to the transactions was, in some cases, incorrect.  The proper accounting treatment, togetherwith additional disclosures related to the acquisitions are included in Item 8 — FinancialStatements and Supplementary Data, Note 1— *Restatement* inthe Notes to the Consolidated Financial Statements for the year ended December 31,2006 (the “Financial Statements” or the “2006 Financial Statements”).

 

*Otheradjustments*

 

We have corrected errorsin our calculation of depreciation assigned to various intangible assets andproperty plant and equipment, inventory balances for amounts that were impairedand incorrectly recorded accounts payables invoices.  Additionally, certain conforming changes andreclassifications were made between direct course expense and advertising andsales expense categories in our Consolidated Statement of Operations andComprehensive Income (Loss).  Corrections to these errors are includedin Item 8 — Financial Statements and Supplementary Data, Note 1 — *Restatement* in the Notes to the Consolidated FinancialStatements and in the tables below.

 

*Executive Compensation and Related Party Disclosures*

 

At the request of theSpecial Committee, we reviewed disclosure of certain executive compensationmatters related to perquisites including personal use of the corporateaircraft, compensation to family members of the named executive officers,personal use of corporate employees and personal use of corporate creditcards.  The required disclosures per theapplicable SEC rules and the additional disclosures as requested by theSpecial Committee regarding the matters listed above are included in Item 11 — Executive Compensation.

 

In addition, we reviewed our related partytransactions for the years 2002 through 2006. As a result, we have included additional related party disclosures concerningtransactions in Costa Rica and Gulfstream Development Group, LLC, in Item 7 —Management’s Discussion and Analysis of Financial Condition and Results ofOperations, Item 8 —Financial Statements and Supplementary Data and Note 6 — *Certain relationships and related transactions*inthe Notes to Consolidated Financial Statements.

 

**Effectsof the Restatement**

 

Thefollowing charts reflect the impact of applying the proper accounting treatmentfor the above listed transactions in our consolidated financial statements (inthousands):

 
| ** **                                          | ** ** | **Year ended December 31, 2006** | ** ** | **Year ended December 31, 2005** | ** ** | **Year ended December 31, 2004** | ** ** |
|-----------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                          | ** ** | **Previously  reported**                             | ** ** | **Effect  of  restatement**                          | ** ** | **Restated**                                         | ** ** | **Previously  reported** | ** ** | **Effect  of  restatement** | ** ** | **Restated** | ** ** | **Previously  reported** | ** ** | **Effect  of  restatement** | ** ** | **Restated** |   |
| Revenue                                             |       | $                                                    | 224,654    |                                                 | —     |                                                 | $          | 224,654 |   | $ | 163,107 |   | — |   | $ | 163,107 |   | $ | 136,259 |   | — |   | $ | 136,259 |   |
| Direct course  expenses                             |       | 111,962                                              |       | (491                                                 | )          | 111,471                                              |       | 94,765 |   | 917 |   | 95,682 |   | 91,763 |   | — |   | 91,763 |   |
| Advertising &  sales expense               |       | 64,168                                               |       | 201                                                  |       | 64,369                                               |       | 49,839 |   | — |   | 49,839 |   | 49,664 |   | — |   | 49,664 |   |
| General &  admin. expenses                 |       | 34,836                                               |       | (123                                                 | )          | 34,713                                               |       | 27,664 |   | (1,692 | ) | 25,972 |   | 27,676 |   | (153 | ) | 27,523 |   |
| Impairment of  assets                               |       | 3,668                                                |       | (78                                                  | )          | 3,590                                                |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Special items                                       |       | 2,330                                                |       | —                                               |       | 2,330                                                |       | — |   | 200 |   | 200 |   | — |   | — |   | — |   |
| Total operating  expenses                           |       | 216,964                                              |       | (491                                                 | )          | 216,473                                              |       | 172,268 |   | (575 | ) | 171,693 |   | 169,103 |   | (153 | ) | 168,950 |   |
|                                                |       |                                                 |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss)  from operations                    |       | 7,690                                                |       | 491                                                  |       | 8,181                                                |       | (9,161 | ) | 575 |   | (8,586 | ) | (32,844 | ) | 153 |   | (32,691 | ) |
|                                                |       |                                                 |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Other income  (expense)                             |       | (162                                                 | )          | 83                                                   |       | (79                                                  | )          | 1,800 |   | (189 | ) | 1,611 |   | 893 |   | (63 | ) | 830 |   |
| Interest  (expense) income, net                     |       | 1,876                                                |       | —                                               |       | 1,876                                                |       | (28 | ) | — |   | (28 | ) | (499 | ) | 63 |   | (436 | ) |
| (Loss) equity  from related parties                 |       | (45                                                  | )          | —                                               |       | (45                                                  | )          | (176 | ) | — |   | (176 | ) | 159 |   | — |   | 159 |   |
| Gain on sale of  assets                             |       | 74                                                   |       | —                                               |       | 74                                                   |       | 6,579 |   | — |   | 6,579 |   | 305 |   | (56 | ) | 249 |   |
|                                                |       |                                                 |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss)  before taxes and minority interest |       | 9,433                                                |       | 574                                                  |       | 10,007                                               |       | (986 | ) | 386 |   | (600 | ) | (31,986 | ) | 97 |   | (31,889 | ) |
|                                                |       |                                                 |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Minority  interests                                 |       | —                                               |       | —                                               |       | —                                               |       | (1,962 | ) | — |   | (1,962 | ) | 23 |   | — |   | 23 |   |
| Income tax  (provision) benefit                     |       | (7,678                                               | )          | (28                                                  | )          | (7,706                                               | )          | 6,798 |   | (41 | ) | 6,757 |   | — |   | — |   | — |   |
| Net earnings  (loss)                                |       | 1,755                                                |       | 546                                                  |       | 2,301                                                |       | 3,850 |   | 345 |   | 4,195 |   | (31,963 | ) | 97 |   | (31,866 | ) |
|                                                |       |                                                 |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Effect of foreign  exchange                         |       | (510                                                 | )          | —                                               |       | (510                                                 | )          | (100 | ) | — |   | (100 | ) | 55 |   | — |   | 55 |   |
|                                                |       |                                                 |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive  earnings (loss)                      |       | $                                                    | 1,245      |                                                 | $          | 546                                                  |       | $ | 1,791 |   | $ | 3,750 |   | $ | 345 |   | $ | 4,095 |   | $ | (31,908 | ) | $ | 97 |   | $ | (31,811 | ) |
|                                                     |            |                                                      |            |                                                      |            |                                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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| ** **                                          | ** ** | **Year  ended December 31, 2003** |       | **Year  ended December 31, 2002** |       |
|-----------------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| ** **                                          | ** ** | **Previously  reported**               | ** ** | **Effect  of  restatement**            | ** ** | **Restated** | ** ** | **Previously  reported** | ** ** | **Effect  of  restatement** | ** ** | **Restated** |   |
| Revenue                                             |       | $                                      | 89,805     |                                   | —     |   | $ | 89,805 |   | $ | 51,178 |   | — |   | $ | 51,178 |   |
| Direct course  expenses                             |       | 51,868                                 |       | —                                 |       | 51,868 |   | 25,863 |   | — |   | 25,863 |   |
| Advertising &  sales expense               |       | 30,092                                 |       | —                                 |       | 30,092 |   | 13,937 |   | — |   | 13,937 |   |
| General &  admin. expenses                 |       | 15,321                                 |       | 181                                    |       | 15,502 |   | 13,864 |   | 175 |   | 14,039 |   |
| Impairment of  assets                               |       | —                                 |       | —                                 |       | — |   | — |   | — |   | — |   |
| Special items                                       |       | —                                 |       | —                                 |       | — |   | — |   | — |   | — |   |
| Total operating  expenses                           |       | 97,281                                 |       | 181                                    |       | 97,462 |   | 53,664 |   | 175 |   | 53,839 |   |
|                                                |       |                                   |       |                                   |       |   |   |   |   |   |   |   |   |
| Earnings (loss)  from operations                    |       | (7,476                                 | )          | (181                                   | )          | (7,657 | ) | (2,486 | ) | (175 | ) | (2,661 | ) |
|                                                |       |                                   |       |                                   |       |   |   |   |   |   |   |   |   |
| Other income  (expense)                             |       | 154                                    |       | 137                                    |       | 291 |   | 340 |   | 102 |   | 442 |   |
| Interest  (expense) income, net                     |       | (3                                     | )          | —                                 |       | (3 | ) | (71 | ) | — |   | (71 | ) |
| Equity earnings  from related parties               |       | —                                 |       | —                                 |       | — |   | — |   | (102 | ) | (102 | ) |
| Gain on sale of  assets                             |       | —                                 |       | —                                 |       | — |   | — |   | — |   | — |   |
| Earnings (loss)  before taxes and minority interest |       | (7,325                                 | )          | (44                                    | )          | (7,369 | ) | (2,217 | ) | (175 | ) | (2,392 | ) |
|                                                |       |                                   |       |                                   |       |   |   |   |   |   |   |   |   |
| Minority  interests                                 |       | —                                 |       | —                                 |       | — |   | — |   | — |   | — |   |
| Income tax  expense                                 |       | —                                 |       | —                                 |       | — |   | — |   |   |   |   |   |
| Net earnings  (loss)                                |       | (7,325                                 | )          | (44                                    | )          | (7,369 | ) | (2,217 | ) | (175 | ) | (2,392 | ) |
|                                                |       |                                   |       |                                   |       |   |   |   |   |   |   |   |   |
| Effect of  foreign exchange                         |       | (591                                   | )          | —                                 |       | (591 | ) | (1 | ) | — |   | (1 | ) |
|                                                |       |                                   |       |                                   |       |   |   |   |   |   |   |   |   |
| Comprehensive  earnings (loss)                      |       | $                                      | (7,916     | )                                      | $          | (44 | ) | $ | (7,960 | ) | $ | (2,218 | ) | $ | (175 | ) | $ | (2,393 | ) |
|                                                     |            |                                        |            |                                        |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

** **
| ** **                 | ** ** | **2006**                 | ** ** | **2005**     | ** ** | **2004**                 | ** ** | **2003**     | ** ** | **2002**                 | ** ** |
|----------------------------|------------|--------------------------|------------|--------------|------------|--------------------------|------------|--------------|------------|--------------------------|------------|
| ** **                 | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** | **Previously  reported** | ** ** | **Restated** |   |
|                       |       |                     |       |         |       |                     |       |         |       |                     |       |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss)  per share |       |                     |       |         |       |                     |       |         |       |                     |       |   |   |   |   |   |   |   |   |   |   |
| Basic                      |       | $                        | 0.16       |         | $          | 0.21                     |       | $            | 0.43       |                     | $          | 0.47 |   | $ | (3.72 | ) | $ | (3.71 | ) | $ | (0.89 | ) | $ | (0.90 | ) | $ | (0.28 | ) | $ | (0.30 | ) |
| Diluted                    |       | $                        | 0.15       |         | $          | 0.20                     |       | $            | 0.41       |                     | $          | 0.45 |   | $ | (3.72 | ) | $ | (3.71 | ) | $ | (0.89 | ) | $ | (0.90 | ) | $ | (0.28 | ) | $ | (0.30 | ) |

** **
| ** **                                                           | ** ** | **2006**                 | ** ** | **2005**     | ** ** | **2004**                 | ** ** | **2003**     | ** ** | **2002**                 | ** ** |
|----------------------------------------------------------------------|------------|--------------------------|------------|--------------|------------|--------------------------|------------|--------------|------------|--------------------------|------------|
| **Consolidated Statement of Changes in   Stockholders’ Equity** | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** |
| ** **                                                           |       |                     |       |         |       |                     |       |         |       |                     |       |   |   |   |   |   |   |   |   |   |   |
| Balance at  January 1                                           |       | $                        | (40,486    | )            | $          | (44,825                  | )          | $            | (51,560    | )                        | $          | (56,244 | ) | $ | (19,930 | ) | $ | (24,711 | ) | $ | (12,865 | ) | $ | (13,040 | ) | $ | (11,698 | ) | $ | (11,698 | ) |
|                                                                 |       |                     |       |         |       |                     |       |         |       |                     |       |   |   |   |   |   |   |   |   |   |   |
| Increase  (decrease) attributable to stock issuance                  |       | 5,026                    |       | 4,731        |       | 7,324                    |       | 7,324        |       | 278                      |       | 278 |   | 2,051 |   | 2,239 |   | 1,051 |   | 1,051 |   |
| Cash dividend                                                        |       | (11,728                  | )          | (11,728      | )          | —                   |       | —       |       | —                   |       | — |   | — |   | — |   | — |   | — |   |
| Distribution s to  minority interest and officer                     |       | —                   |       | 294          |       | —                   |       | —       |       | —                   |       | — |   | (1,200 | ) | (5,950 | ) | — |   | — |   |
| Increase  (decrease) attributable to net earnings (loss)             |       | 1,755                    |       | 2,301        |       | 3,850                    |       | 4,195        |       | (31,963                  | )          | (31,866 | ) | (7,325 | ) | (7,369 | ) | (2,217 | ) | (2,392 | ) |
|                                                                 |       |                     |       |         |       |                     |       |         |       |                     |       |   |   |   |   |   |   |   |   |   |   |
| Increase due to  stock compensation expense                          |       | 881                      |       | 881          |       | —                   |       | —       |       | —                   |       | — |   | — |   | — |   | — |   | — |   |
|                                                                 |       |                     |       |         |       |                     |       |         |       |                     |       |   |   |   |   |   |   |   |   |   |   |
| Currency  translation adjustments, net                               |       | (510                     | )          | (510         | )          | (100                     | )          | (100         | )          | 55                       |       | 55 |   | (591 | ) | (591 | ) | (1 | ) | (1 | ) |
| Balance at  December 31                                         |       | $                        | (45,062    | )            | $          | (48,856                  | )          | $            | (40,486    | )                        | $          | (44,825 | ) | $ | (51,560 | ) | $ | (56,244 | ) | $ | (19,930 | ) | $ | (24,711 | ) | $ | (12,865 | ) | $ | (13,040 | ) |

 

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| ** **                                        | ** ** | **2006**                 | ** ** | **2005**     | ** ** | **2004**                 | ** ** | **2003**     | ** ** | **2002**                 | ** ** |
|---------------------------------------------------|------------|--------------------------|------------|--------------|------------|--------------------------|------------|--------------|------------|--------------------------|------------|
| **At December 31**                      | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** |
|                                              |       |                     |       |         |       |                     |       |         |       |                     |       |   |   |   |   |   |   |   |   |   |   |
| Consolidated Balance  Sheets                      |       |                     |       |         |       |                     |       |         |       |                     |       |   |   |   |   |   |   |   |   |   |   |
| Cash                                              |       | $                        | 34,181     |         | $          | 33,221                   |       | $            | 33,244     |                     | $          | 32,883 |   | $ | 4,667 |   | $ | 4,667 |   | $ | 13,229 |   | $ | 13,229 |   | $ | 10,221 |   | $ | 10,221 |   |
| Restricted cash                                   |       | 6,510                    |       | 7,525        |       | 5,406                    |       | 6,174        |       | 2,181                    |       | 2,580 |   | 1,792 |   | 2,293 |   | 1,859 |   | 1,859 |   |
| Accounts  receivable, net                         |       | 3,373                    |       | 3,373        |       | 3,789                    |       | 3,789        |       | 448                      |       | 504 |   | 1,315 |   | 1,260 |   | 508 |   | 508 |   |
| Property and  equipment, perty and equipment, net |       | 11,757                   |       | 11,745       |       | 10,082                   |       | 10,051       |       | 24,548                   |       | 24,503 |   | 16,172 |   | 16,309 |   | 7,950 |   | 8,262 |   |
| Intangible assets,  net                           |       | 4,129                    |       | 496          |       | 5,754                    |       | 1,463        |       | 6,576                    |       | 1,922 |   | 7,401 |   | 2,460 |   | 1,433 |   | 947 |   |
| Total assets                                      |       | 95,120                   |       | 91,687       |       | 102,203                  |       | 98,233       |       | 60,028                   |       | 55,673 |   | 55,552 |   | 51,202 |   | 28,272 |   | 28,098 |   |
| Accounts payable                                  |       | 4,744                    |       | 6,936        |       | 3,691                    |       | 4,043        |       | 7,413                    |       | 8,559 |   | 3,218 |   | 3,649 |   | 1,763 |   | 1,763 |   |
| Accrued Expenses                                  |       | 11,957                   |       | 5,891        |       | 7,377                    |       | 5,604        |       | 3,999                    |       | 2,420 |   | 1,781 |   | 1,411 |   | 1,126 |   | 900 |   |
| Accrued Payroll                                   |       | —                   |       | 3,965        |       | —                   |       | 1,789        |       | —                   |       | 761 |   | — |   | 370 |   | — |   | 226 |   |
| Common stock                                      |       | 4,132                    |       | 2,591        |       | 10,593                   |       | 9,501        |       | 3,269                    |       | 2,177 |   | 2,991 |   | 1,899 |   | 940 |   | 691 |   |
| Paid in capital                                   |       | 1,089                    |       | 1,089        |       | 449                      |       | 1            |       | 449                      |       | 1 |   | 449 |   | 1 |   | 448 |   | 447 |   |
| Foreign currency  translation adjustment          |       | (1,160                   | )          | (1,160       | )          | (650                     | )          | (650         | )          | (550                     | )          | (550 | ) | (605 | ) | (605 | ) | (14 | ) | (14 | ) |
| Accumulated  deficit                              |       | (49,123                  | )          | (51,376      | )          | (50,878                  | )          | (53,677      | )          | (54,728                  | )          | (57,872 | ) | (22,765 | ) | (26,006 | ) | (14,240 | ) | (14,164 | ) |
|                                              |       |                     |       |         |       |                     |       |         |       |                     |       |   |   |   |   |   |   |   |   |   |   |
| Total  stockholders’ deficit                 |       | (45,062                  | )          | (48,856      | )          | (40,486                  | )          | (44,825      | )          | (51,560                  | )          | (56,244 | ) | (19,930 | ) | (24,711 | ) | (12,866 | ) | (13,040 | ) |
|                                              |       |                     |       |         |       |                     |       |         |       |                     |       |   |   |   |   |   |   |   |   |   |   |
| Total liabilities  and stockholder’s deficit |       | $                        | 95,120     |         | $          | 91,687                   |       | $            | 102,203    |                     | $          | 98,233 |   | $ | 60,028 |   | $ | 55,673 |   | $ | 55,552 |   | $ | 51,202 |   | $ | 28,272 |   | $ | 28,098 |   |

 

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**PART 1**

 

**SPECIAL NOTE REGARDING FORWARDLOOKING STATEMENTS**

 

This document containscertain forward-looking statements within the meaning of Section 27A ofthe Securities Act of 1933 and Section 21E of the Securities Exchange Actof 1934.  Forward-looking statements dealwith our current plans, intentions, beliefs and expectations and statements offuture economic performance.  In somecases, you can identify forward-looking statements by terminology such as “may,”“will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,”“estimates,” or “predicts” or the negative of such terms.  These forward-looking statements include,without limitation, statements about our market opportunity, our strategies,competition, expected activities and expenditures as we pursue our businessplan, and the adequacy of our available cash resources.  Although we believe that the expectationsreflected in the forward-looking statements are reasonable, we cannot guaranteefuture results, levels of activity, performance or achievements.  Forward-looking statements involve known andunknown risks and uncertainties which may cause our actual results in futureperiods to differ materially from what is currently anticipated.  We make cautionary statements in certainsections of this document, including under the heading “Risk Factors.”  You should read these cautionary statementsas being applicable to all related forward-looking statements wherever theyappear in this document, in the materials referred to in this document, in thematerials incorporated by reference into this document, or in our pressreleases.  No forward-looking statementis a guarantee of future performance, and you should not place undue relianceon any forward-looking statement.  Weundertake no obligation to update publicly any forward-looking statements forany reason, even if new information becomes available or other events occur inthe future.

 

Industry data and otherstatistical information used in this document are based on independentpublications, government publications, reports by market research firms orother published independent sources. Some data is based on pure good faith estimates, derived from our reviewof internal surveys and the independent sources.  Although we believe these sources to bereliable, we have not independently verified the information.

 

**ITEM 1.  BUSINESS.(Restated)**

 

**Currentoperations**

 

Since 1992, we haveprovided post-secondary educational and training courses for studentsthroughout the United States.  In recentyears, we have expanded our operations to include course offerings to studentsin Canada and the United Kingdom.  Ourcourses provide instruction in:

 

·                  real estate investing

 

·                  business strategies

 

·                  stock market investment techniques

 

·                  cash management

 

·                  asset protection

 

·                  other financially-oriented subjects

 

We also develop and selleducational resource materials, which we prepare, to support our course offeringsand for sale to the general public.

 

Beginning in 1992, wefocused primarily on basic and advanced real estate training programs which weoffered throughout the United States.  In2002, we expanded our offerings to include financial markets education, whichhas come to represent a substantial part of our business.

 

Since 2001, we havegradually expanded our course offerings and geographical markets.  We currently offer approximately 200educational courses and training programs per month, covering more than 22financially-oriented subjects which we provide either for free or on a feebasis.

 

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For the year ended December 31,2006, approximately 92.2% of our revenue was generated from domestic operationsand 7.8% of revenue was generated from operations in Canada and the UnitedKingdom.  Additional financialinformation regarding our international sales is contained in Note 15 — *Business Segment Information* to the Consolidated FinancialStatements included in Item 8 herein.

 

Our tuition weightedaverage is approximately $364 for a basic training session and approximately$14,159 for an advanced course package. We conduct our coursework at:

 

·                  leased training and meeting facilities andconference centers;

 

·                  regional training centers located in hotels or othertemporarily rented facilities selected by us; and

 

·                  our own facilities in the United States, UnitedKingdom or Costa Rica.

 

Our students areprimarily recruited by attending free introductory workshops related to aspecific educational subject which are hosted by one of our trainers or othersand held at a local hotel or other rented auditorium facility.  The subject, date and location of thetraining session are generally advertised in local newspapers, on the Web siteof our respective brands, in television advertisements and through directmailings and telemarketing.  We holdthese sessions in metropolitan areas throughout the United States, Canada, andthe United Kingdom.  Following the freeinformational training workshop, the student may purchase reference materialson the subject discussed or may elect to receive further fee-based training in themany courses we offer, either in the student’s hometown or in regional trainingcenters.  We engage approximately 272trainers, instructors, coaches, and mentors in connection with our variouseducational course offerings.

 

Following the firstfee-based training session, students interested in learning more on the coursetopics may also subscribe to our periodic publications, purchase books orsoftware programs, or attend advanced training courses.  In addition to our over 25 resourcepublications, we offer advanced courses throughout the United States, Canada,the United Kingdom, and Costa Rica.  Wealso provide post training programs conducted by over 100 mentors.

 

Our outreach (ortelemarketing) business is responsible for approximately 26.8% of cashreceipts.  We currently telemarket our productsand services to two types of potential students, consisting of those who:

 

·                  attended one of our workshop events, who purchasedanother of our courses, and who completed training within the last six months

 

·                  contacted us via the Internet and requested to becontacted

 

In 2007, we intend to telemarket our products to two additional types ofpotential students, consisting of those who:

 

·                  registered to attend one of our free previewworkshops, but did not attend

 

·                  attended one of our free introductory workshops andchose not to purchase anything

 

**Our strategy**

 

Our purpose is to be theleading content developer and distributor of non-degreed post-secondaryeducation and related services in the world. We will maintain a motivated and dedicated employee base by providingopportunities for our employees to expand their capabilities through trainingand by developing succession planning processes.  Customer centricity will be a defining valuein everything we do.  In order toaccomplish our purpose, we have implemented a strategy that includes:

 

·                  *Talent acquisition anddevelopment.*  Without the right people skills, we will notbe able to easily sustain additional growth objectives.  To allow for future growth, the talentacquisition and development strategy has been identified as a crucialstep.  Key points in this area include:

 

·                  identifying talent needs;

 

·                  enactingeffective hiring approaches;

 

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·                  creatinga training strategy for all strata of employees;

 

·                  developingand implementing enhanced motivation and rewards guidelines; and

 

·                  implementingsuccession planning approaches.

 

·                  *Improved technology and innovationcapabilities. *Achieving the necessarysteps for us to grow may require significant improvements to our technology andinnovation structure and external delivery platforms.  We intend todevelop enhanced technology platforms capable of streaming video, interactivee-learning, distributed e-learning, and Web advertising.  We also intend to improve the technologyplatforms currently used in our financial markets and real estate courses.  Further, we intend to enhance our internalfinancial systems and fully utilize our customer relationship management (CRM)capabilities.

 

·                  *Expanded channel reach. *Through strategic partnerships, alliances, and newbusiness models, we may be able to generate new revenues without incurringsignificant additional marketing or administrative costs.  We intend to identify potential partnershipsand alliances that can result in increased revenues.  We will research underserved market segmentsand changes in the post-secondary market that will provide insights to reachnew market segments.  We will evaluatecomplementary business possibilities, including potentially enteringbusiness-to-business markets.

 

·                  *Enhanced core offerings ande-enablements. *Our overall brand strategy will be redefined andredirected to maximize marketing effectiveness and to improve customerunderstanding.  We intend to develop asystem of ongoing student involvement to enhance the student life cycle,resulting in an enhancement to the student experience.  Further, we intend to develop new interactiveand online distributed course content for all brands.

 

·                  *Increased lifetime customer value.*  We intend tocontinually enhance the student experience and increase the lifetime value of acustomer in order to retain customers, attract new customers, and generateadditional revenues.  We intend toaccomplish this in part by creating student communities through onlinechannels, thus allowing us to better control customer “touch points.”  This may allow us to provide valuableancillary services and create additional revenue flows through implementationof CRM and data mining results.

 

·                  *International expansion. *We believe that there are many valuableinternational markets where we could introduce our products in a cost-effectiveand profitable manner.  It is ourintention to explore potential market expansion in Canada, the United Kingdom,Europe, and Asia.  We believe that withthe right resources and technological support, we can potentially increase ourstudent base across the globe.

 

·                  *New business acquisition andopportunities.*  We believe that viable, new markets existwhere we could utilize our existing resources for additional growth within thesame (or similar) industries.  We intendto identify potential new markets to enter within our current scope of corecompetencies and industries.  Further, wewill identify attractive markets and acquisition targets outside of our currentcore competencies within adjacent, complementary markets.

 

**Educational training**

 

Followinga free introductory workshop, we offer our students a variety of educationalcourses, as well as educational materials. These courses provide the opportunity to train either in the student’shometown or at local or regional locations. Our trainers take students step-by-step through a curriculum thatstresses a broad range of real estate and financial educational training, riskmanagement and asset protection.  Oureducational training is taught to students in the United States, Canada and theUnited Kingdom through traditional course study and hands-on training, andincludes the following subjects:

 

*Basic Training*

 

Followingthe free educational training session, our students may elect to learn moreabout the subject by attending a basic course.

 

Our *Russ Whitney’sBuilding WealthTM*basic training is a program offering a curriculum that focuses on the generalbusiness of real estate and teaches the fundamentals of negotiating real estatepurchases with sellers, rehabilitating distressed 

 

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properties, leasingrental units to tenants, and using a database to generate multiple sources ofcash flow.  Students are taught themechanics of completing a real estate transaction in their community, frommaking an offer to closing the transaction, with emphasis upon creativefinancing strategies.

 

Our *Teach Me**TM Foreclosure & Real Estate Investing*basic training is a local training program offering a curriculum in real estatefocusing on pre-foreclosures.  The course teaches how to locate andpurchase homes in foreclosure.  Studentswill also learn strategies for improving return on their investment inforeclosed properties including wholesaling, rehabilitation and creativefinancing.

 

Our *Rich Dad*®* Education*basic**trainingwas created by Rich Dad Education, LLC, our 51% owned subsidiary, inconjunction with Rich Global, LLC.  The course focuses on the real estateteachings and philosophies of Robert Kiyosaki, author of *Rich Dad, Poor Dad*.  The courseconcentrates on real estate principles while allowing students to apply whatthey have learned from playing the board game, *CASHFLOW*®.  The *Rich Dad*® and *CASHFLOW*® word marks and/or logos are owned by CASHFLOWTechnologies, Inc., and any use of such marks by Rich Dad Education, LLCis under license.

 

Our *Teach Me To Trade*® basic training program offers curriculum thatfocuses on stock market trading strategies and uses software and specificteaching techniques designed by us. Students are taught to understand the stock markets, investmentstrategies, risks and how to improve returns in both bull and bear markets.

 

*Advanced real estate courses*

 

Uponcompletion of a local basic training program, students may seek more advancedtraining, which are generally three days in length and are held in locationsaround the student’s respective country. Some of these programs offer localtours so that students can observe market segmentation techniques and viewproperties in the area.

 

*MillionaireU*TM *Real EstateTraining.*  Our *Millionaire U**TM* real estate training course is offered at ourtraining center in Cape Coral, Florida, and in other states.  This course expands upon the students’knowledge of real estate gained from our basic course.  During Millionaire UTM, students learn how to locate and analyzevarious property types and how to effectively analyze property income andexpense.  Students telephone actualsellers and then tour properties throughout the Cape Coral and Fort Myers,Florida, areas.  Guest speakers includinginvestors, property managers, developers, grant officers, loan officers,realtors and mortgage brokers explain how students can locate financing for avariety of transactions, from multi-unit apartment complexes to unimproved land.

 

Our *Rich U*TM advanced course teaches *Rich Dad*®* Education*students how to locateproperties using conventional and unconventional strategies, evaluate propertydeals, create marketing techniques and strategies for the real estateentrepreneur, and utilize various financing options.  Students will also learn about the varioustypes of agreements and documents utilized in typical real estate transactions,creation of a real estate action plan, and the selection process of advisors toassist in achieving the students’ objectives.

 

*WholesaleBuying.*  Our WholesaleBuying course instructs students on the fundamentals of identifying, locating,negotiating, financing and disposing of wholesale properties.  Students are also taught how to develop aninvestor database and how to manage out-of-state properties.  While enrolled in this program, studentsdevelop a five-year investment plan with the help of our instructors.  This program is focused upon taking studentsfrom the level of novice investor to a proficiency in managing a real estateinvestment portfolio.

 

*Foreclosure.*  Our Advanced Foreclosure course teaches theintricacies of the real estate foreclosure process, how and why foreclosuresoccur and the role of secured lenders in foreclosure actions.  Our instructors teach students how to readforeclosure notices and how to refinance their acquisitions to generate cash atthe closing.  Students also learn how toinspect, estimate the value of and rehabilitate houses.

 

*LeaseOption.*  Our LeaseOption advanced course is designed to teach students how to control anequitable interest in property without actually owning the property and how tocreate lease options on properties. Students learn how to structure lease options and purchase options.  Other sessions include negotiating withprospective sellers and prospecting for tenants, buyers, and lessees.

 

*PropertyManagement & Cash Flow.*  Our Property Management & Cash Flowadvanced course teaches students how to manage their rental properties,including how to analyze monthly cash flows. Students also learn how to earn income by managing the properties ofothers and how to find and retain tenants. The course curriculum includes numerous approaches to 

 

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resolving tenant-landlordproblems such as delinquent rents, raising rents, and evicting tenants.  Students learn about the profit potential foracquiring student housing and rooming houses as well as learning how to findand rehabilitate distressed properties. The program also teaches basic marketing techniques to increase profits.

 

*Manufactured/MobileHomes and RV Parks.* Our Manufactured/Mobile Homes & Recreational Vehicle Parksadvanced course teaches students how to buy, sell, and rent mobile homes andparks, an often overlooked segment of the real estate market.  While mobile homes cost far less than frameconstructed homes, they can yield a significant rate of return oninvestment.  Other subjects includedeveloping and operating a mobile home park, expanding rental “pads” and lotsto hold more units, obtaining 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 advanced course highlights thefundamentals of analyzing, buying, managing, and disposing of commercialproperties.  Students also learn how toestablish relationships with lenders and government financing agencies.  This course, like many of our courses,teaches students how to rehabilitate properties and how to locate andpre-qualify tenants.  Our trainers alsoteach students about various leasing arrangements and describe forms used incommercial property management.

 

*Keys toCreative Real Estate Financing.*  Our Keys to Creative Real Estate Financingadvanced course teaches students how to create and refinance mortgages and howto structure financings in light of prior credit problems.  Discussions also include determining homeequity, engaging in real estate negotiations, and the use of hard-moneylenders.

 

*Tax Liensand Deeds. *Our TaxLiens and Deeds advanced course focuses on the purchase of tax liens and deedsfrom local tax agencies.  Tax liencertificates have been widely known by real estate agents, bankers, andattorneys for many years. In this class, our students will learn how to build afinancial portfolio through the purchase of tax liens and deeds.  During this training, students may attend anactual tax deed sale.

 

*Rehabbingfor Profits.*  OurRehabbing for Profits advanced course has been designed to not only teachstudents, but to show them how to quickly turn an “ugly house” investment intoeither a wholesaleable or rentable house with the least amount of effort andexpense.  The class will teach students,step-by-step, how to inspect, evaluate, and estimate rehabilitation jobs sothey can decide how much of the work to do themselves and how much to contractout.  Negotiating the best deals onmaterials is also discussed.

 

*LandInvestment and Development: Domestic. *Duringthis advanced course, land investment and development students are presentedwith a powerful step-by-step system for locating and developing vacantland.  These strategies will takestudents from finding the right land through platting, permitting, and zoning,to selling their own developments.

 

*LandInvestment and Development: International.*  Our Land Investment and Development:International advanced course in international land development and investmentis offered in Costa Rica.  This programoffers a curriculum that includes wealth building and investment opportunitiesoverseas.  The training also addressesthe benefits of establishing a business internationally, investing in foreignmarkets, and raising venture and working capital.

 

*AssetProtection and Tax Relief.* Our Asset Protection and Tax Relief advanced course, taught by a thirdparty group of attorneys, describes various legal entities used to holdproperty such as partnerships, corporations, and land and international trustsand the use of these entities to protect assets.  Students also learn how to minimize incometax and estate tax liabilities and to develop their own personal investmentplans.

 

*DiscountNotes and Mortgages.* Our Discount Notes and Mortgages advanced training course teachesstudents how to broker and buy commercial paper at a discount.  Students learn how to locate funding sourcesfor discounted notes and mortgages. Trainers also teach students how to discount other sources of debt suchas business leases, business notes, inheritances, lotteries, life insurance policies,and structured settlements.

 

*Advancedfinancial markets courses*

 

Our advanced financialmarkets education courses are designed to help students learn about equity andoptions investing.

 

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*MasterTrader*TM*.* Our *Master Trader*TM advanced course is a three-day programoffering intensified training designed to provide traders and investors withthe knowledge needed to prosper in various market environments.  This program offers the students a selectionof long and short-term strategies. Course work includes technical analysis and fundamental analysis.

 

*AdvancedCovered Calls.*  OurAdvanced Covered Calls course describes step-by-step how to create cash flow intrading options.  The course covers thebasic terminology of a call, put, covered call, LEAPS, and spread trading.  The course offers long and short-termstrategies for trading options.

 

*TradingP.I.T.*TM Our *Trading P.I.T.*TM advanced course describes the tradingapproaches of top money managers.  Thecourse teaches students how to create an income stream using more conservativetrading techniques and other strategies designed to limit risk while increasingthe probability of profits.  Strategiescovered include a number of trading approaches, such as bidirectional trading,hedged directional trading, nondirectional trading, floor-trading strategies,and capital preservation.  We teachstudents the skills to quickly scan the market, generate forecasts, and selectstrategies.

 

*TheTrading Room.**TM*  *The Trading Room**TM* advanced class provides a framework ofdiscipline and strategy.  Students havethe opportunity to develop a system that fits their personal trading style andobjectives.  This course instructsstudents to identify trades, triggers, manage price action, and targets.

 

*AdvancedTechnical Analysis.*  Aspart of the Advanced Technical Analysis class, our students learn strategiesthat sharpen their trading skills.  The course breaks down the mystery oftrading into a manageable study of price action, pivot points, priceextensions, and average range.  Studentslearn high probability trading techniques for finding trade set-ups, triggersand targets.

 

*AdvancedP.I.T.*TM Our *Advanced P.I.T.*TM 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 isprovided by our options trainers. Subjects include advanced spread trading strategies and portfoliorepair.

 

*H.I.T.S.*  Our single stock futures advanced courseaddresses changes in rules regarding single stock futures.  We discuss tools associated with spreadtrading and leveraged trading.  Studentsare taught the framework of single stock futures, set-ups and strategies, andwhere single stock futures may fit into their diversified portfolios.

 

*Mentoring Programs*

 

Weoffer advanced training programs conducted by over 100 mentors, who work withstudents individually in “hands-on” training sessions.

 

*Realestate mentors.*  Ourreal estate mentoring program applies the curriculum of our real estate classesto the student’s city of choice.  Underthis program, one of our mentors travels to the student’s city for threedays.  Students review the real estateacquisition techniques involved and learn the real estate characteristics ofthe local market.  Students can put topractice the skills they have gained while working directly with an experiencedmentor.

 

*Financialmarkets mentors.*  Formentored financial markets education, our students travel to our mentor’slocation and spend two days coached by an experienced mentor.

 

Eachof these mentorship programs appeals to different students depending uponbusiness acumen and risk tolerances.

 

*AdditionalOfferings*

 

We market directly tocustomers a wide range of educational and reference products that supplementour training programs, such as our *BuildingWealth*TM Real Estate Home Study Course; *Real Estate Success System* software; *BusinessSuccess System* software; Discount Notes and Mortgages Home StudyCourse; self-help courses and manuals that provide students with informationabout their credit along with first-time homebuyers’ manuals.

 

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**Marketing**

 

Wecreate an awareness of and demand for our educational programs, products, andservices through a mix of television advertising, print advertising, directmail, email, attendance at trade shows, and Internet marketing.  We employ approximately 200 individualstrained to handle the needs of new students, to promote new products andservices to existing and former students, and to respond to customer inquiriesvia phone, email, or the Internet.

 

Our marketing programsinclude:

 

·                  Television advertising, which is our primary meansfor promoting our educational courses. We generally concentrate our television advertising in the cities whereour courses are scheduled to be held. Television advertising is often used in coordination with direct mailmarketing and newspaper advertising in order to maximize sales efforts andcreate greater name recognition within the target population.

 

·                  Limited newsprint advertising, which we alsopurchase in markets where our training courses are scheduled to be held.

 

·                  Direct mail and email marketing, which we use inpromoting 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 is primarily focused on Web sitesof our respective brands.  The sitescontain information about our products, programs and services, many of whichmay be purchased online.

 

·                  Cross promotional advertising campaigns, which weemploy from time to time.

 

In the past, we enteredinto strategic alliances with promoters that market products and services otherthan ours to potential students in large and small venues.  These alliances allowed us an agreed uponamount of time at the programs to attract students for our introductorycourses.  Our alliances were withunrelated third parties and created students for us with no requirement for usto expend funds on initial advertising or marketing.  Our strategic alliance partners receive fromus a commission on any advanced course tuition we collect resulting from theaccess provided us to their students. The amount of compensation these alliances receive varies depending onthe quality of the student, the negotiated amounts with the strategic alliancepartner, the costs associated with enrollment and the cost of delivery.

 

Cash received andcommissions paid from course and product sales through strategic alliances areshown in the following table (in thousands, except the number of strategicalliances):

 
| ** **                               | ** ** | **Years ended December 31,** | ** ** |
|------------------------------------------|------------|---------------------------------------------|------------|
| ** **                               | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| Strategic  alliances                     |       | 7                                           |       | 6 |   | 6 |   |
| Cash received  from courses and products |       | $                                           | 14,083     |   | $ | 16,249 |   | $ | 17,799 |   |
| Commissions paid                         |       | $                                           | 4,234      |   | $ | 2,916 |   | $ | 3,803 |   |

 

As of March 2007, wedo not have any material strategic alliance arrangements.

 

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**Competition**

 

Thepost-secondary education training business is highly fragmented and intenselycompetitive.  In a broad sense, wecompete with national and international post-secondary education companies,such as Apollo Group, Inc., ITT Education Services, Inc., DeVry, Inc.,Corinthian Colleges, Inc., Strayer Education, Inc., and UnitedTechnical Institute, Inc., which offer technical and industrial trainingand career training.  We do not, however,compete with these or other companies that offer undergraduate or advanceddegrees or continuing education programs. More specifically, we compete with a number of smaller companies, suchas INVESTools, Inc., Franklin Covey Company, WizetradeTM, Robbins ResearchInternational, and Dynetech Corporation, which offer training on specificbusiness subjects including real estate and stock market investing.  Generally, competitive factors within theproprietary educational market include the range and depth of course offerings,the quality of teachers and trainers, the quality of reference materialsprovided in connection with course studies and the cost of the educationalprocess.

 

We believe that the rangeand depth of our course offerings and our brand name offer competitiveadvantages over many of our direct competitors. We train our instructors and we prepare most of our own course materialswhich we believe offer us competitive advantages over companies that do nottrain their own instructors or develop their own educational materials.  As a result of constantly attending thetraining sessions of our competitors, we believe that the quality of ourteachers, trainers and reference materials are comparable or superior to thoseof our competitors.  Charges for oureducational courses are also consistent with those of our competitors.

 

**Intellectualproperty**

 

We regard our educational materials and products,trademarks, service marks, trade dress, trade names and patents as proprietary andwe rely primarily on federal statutory and common law protections to protectour interests in these materials.  Whilesome of our proprietary materials may contain commonly used terms and do notafford us significant trademark protection, we also use employee andthird-party non-compete and confidentiality agreements and other contractualmethods of protecting proprietary rights to safeguard our intellectualproperty.

 

**Employees**

 

On March 31,2007, we had 472 employees, plus 272 independent contractors who act astrainers, instructors, coaches and mentors. Our employees are not represented by a labor union, and we believe ourrelations with our employees are satisfactory. Our independent contractors are paid commissions based upon the tuitiondollar value of courses selected by students at our free informationalworkshops and basic training sessions, or are paid fixed fees for teaching andmentoring advanced courses.  Allindependent contractors execute agreements with us which set forth commissionstructures and provide for confidentiality and covenants not to compete.

 

**Government regulation**

 

On November 14,2006, we were notified by the SEC that it was conducting a formal,nonpublic investigation to determine whether we have complied with securitieslaws in connection with (i) the claimed efficacy or trading successof our stock market education programs, and, (ii) our acquisition ofcertain other companies.  To date, we have provided the Commission withthe requested information and intend to continue to do so in the future.

 

On December 11,2006, we received a subpoena requesting documents in connection with thecommencement of a grand jury investigation by the United States Attorney forthe Eastern District of Virginia.  Theinvestigation is related to our marketing activities from January 1, 2002,to the present.  In December 2006,our Board of Directors has established a Special Committee of independentdirectors to investigate these activities, and the Special Committee engagedthe law firm of WilmerHale to assist with this investigation.

 

A Florida investigationwas commenced in 2005 and stems from consumer complaints made to the Statefrom the years 2002 to 2005. According to information provided to us by the State of Florida, therewere approximately 50 complaints from across the country made to the State ofFlorida’s Attorney General’s telephone hotline during that time period.  This averages about 13 complaints per year orapproximately one complaint for every 21,000 students we have educated over thefour year period.  Our records indicatethat many of these complaints were already handled directly with the consumeror resolved through another agency.  Ourlegal team has worked diligently to resolve the few remaining complaints and webelieve that our continued cooperation with Florida regulators will result inclosure of the investigation without further legal proceedings.

 

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In addition, the FloridaAttorney General’s office inquired on July 6, 2005, about approximately 55complaints related to certain student transactions by and between our studentsand Gulfstream Development Group, LLC (“Gulfstream”), a company in which ourChairman and Chief Executive Officer has an interest.  The complaints have resulted in thecommencement of a lawsuit by Glenn Acciard, et al. naming Gulfstream and, amongothers, Russell A. Whitney, individually, John Kane, individually, and WhitneyEducation Group, Inc., a wholly owned subsidiary, as defendants.

 

The Indiana AttorneyGeneral filed a lawsuit against us in March 2005 alleging that ouroperations fall within certain business opportunity regulations and that wefailed to register accordingly.  Webelieve the lawsuit has no merit and are aggressively defending the action.

 

In August 2005 and February 2006,we received subpoenas from the Wisconsin Department of Agriculture, Trade andConsumer Protection and the Kansas Attorney General, respectively, requestinginformation about our advertising and student testimonials.  We believe these are routine inquiries andexpect no further action.

 

**Subsidiaries**

 

We conduct a significant portion of our businessthrough the following 11 subsidiaries.

 

·                  Whitney Education Group, Inc. provideseducational programs in the United States.

 

·                  Wealth Intelligence Academy, Inc. providesadvanced educational programs in the United States.

 

·                  Whitney U.K. Limited provides educational programsthroughout the United Kingdom.

 

·                  Whitney Canada, Inc. provides educationalprograms in Canada.

 

·                  Whitney International Limited provides education andtraining, primarily in the United Kingdom.

 

·                  Whitney Consulting Services, Inc. performstelemarketing services in real estate, investments and financial trainingseminars and individual one-on-one coaching programs.

 

·                  Whitney Leadership Group, Inc. formerly heldall of the copyright and intellectual property rights associated with oureducational materials and licensed these rights for payments.

 

·                  Whitney Development Limited.

 

·                  Mortgage Reduction System Equity Corp. manages theprocessing of the payments of homeowners that purchase a program we offer thatallows for them to pay their mortgages every two weeks instead of monthly.

 

·                   EduTrades, Inc. provides financial marketseducation courses.

 

·                   Rich Dad Education, LLC a 51% owned subsidiary,provides education under *Rich Dad**®** Education* in the United States.

 

 

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**ITEM 1A.  RISK FACTORS**

 

**The SEC’sinvestigation to determine whether we violated any securities laws inconnection with (i) the efficacy or trading success of our financial marketseducation programs, and, (ii) our acquisition of certain other companies,may result in penalties that could have an adverse affect on us, perhapsmaterially so.**

 

On November 14,2006, we received a notice from the United States Securities and ExchangeCommission that the Commission was conducting a formal, nonpublic investigationto determine whether we complied with securities laws in connection with (i) theefficacy or trading success of our stock market education programs, and, (ii) ouracquisition of certain other companies.

 

The SEC has requesteddocuments and information from us in the course of their investigation and wehave provided our full cooperation. However, we cannot predict the ultimate impact, if any, that the SEC’sinvestigation may have on our business or operations.  It is possible that the SEC’s investigationmay result in penalties.  The nature ofthe penalties that the SEC may seek against us cannot be predicted at this timebut it could have an adverse affect on us, perhaps materially so.

 

**Theinvestigation by the United States Department of Justice for the EasternDistrict of Virginia in connection with certain of our marketing activitiescould result in fines or penalties that could have an adverse affect on us.**

 

On December 11,2006, we received a subpoena from the United States Attorney for the EasternDistrict of Virginia requesting documents and information in connection with aninvestigation relating to our product marketing activities from January 1,2002 to the present.  We were notifiedthat a grand jury investigation related to this matter has commenced.

 

We intend to cooperatefully with this investigation. Our Board of Directors established a SpecialCommittee of independent directors to conduct an internal investigation ofthese activities.  The Committee hasengaged the law firm of Wilmer Cutler Pickering Hale and Dorr to assist it withthis investigation.  While we cannot predict the ultimate impact, if any,that the Department of Justice’s investigation may have on our business oroperations, a material adverse affect is possible.

 

**Class actionlawsuits filed against us could result in fines or penalties that could have amaterial affect on our financial results.**

 

On January 30,2007, we were served a complaint by Rodney Durham on behalf of himself and allothers similarly situated v. Whitney Information Network, Inc., Russell A.Whitney and Nicholas S. Maturo filed on December 28, 2006 in the UnitedStates District Court in the Middle District of Florida accusing us ofsecurities violations.  The complaint seeks damages for violations offederal securities laws on behalf of all investors who acquired our stock from November 18,2003 through and including December 15, 2006 (the “Class Period”). We will vigorously defend ourselves in this action, but our operating resultsand management’s attention may be adversely impacted by the outcome of thislawsuit.

 

On March 8, 2007, wewere served a complaint by Robert Ghosio, Jr. on behalf of NominalDefendant Whitney Information Network, Inc. v. Russell A. Whitney,Nicholas S. Maturo, Frederick A. Cardin, Chester P. Schwartz, Ronald S. Simonand Whitney Information Network, Inc., filed in the United States DistrictCourt in the Middle District of Florida.  This action is a derivativecomplaint alleging that the named defendants violated certain fiduciary andsecurities laws.  We believe that the complaint is without merit and intendto vigorously defend ourselves.  However,our operating results and management’s attention may be adversely impacted bythe outcome of this lawsuit.

 

**We haveexpended significant time and resources to restate our previously submittedConsolidated Financial Statements for years 2001 through 2005.  As a result, our business was adverselyaffected by the time and expense devoted by our staff and management.  In addition, our investors may call intoquestion future Consolidated Financial Statements issued by us.**

 

The time and resourcesexpended to restate the Consolidated Financial Statements for years 2001through 2005 increased our cost and required the attention of our financialmanagement personnel.  In addition, ourfuture stock price and volume may be adversely affected by the lack of investorconfidence in the accuracy of our future Consolidated Financial Statements.

 

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**Wecurrently have material weaknesses in our internal controls related to ouraccounting processes and financial records which may result in inaccuratefinancial reporting, restatements and /or the inability to prevent fraud.**

 

We maintain disclosurecontrols and procedures designed to provide reasonable assurance thatinformation required to be disclosed in our reports under the United StatesSecurities and Exchange Act of 1934, as amended, is recorded, processed,summarized and reported within the time periods specified in the SEC’s rules andforms, and that such information is accumulated and communicated to ourmanagement, including our Chairman and Chief Executive Officer and ourCo-President and Chief Financial Officer, as appropriate, to allow timelydecisions regarding required disclosure. Our management, with the participationand oversight of our Chairman and Chief Executive Officer and our Co-Presidentand Chief Financial Officer, evaluated the design and effectiveness of ourdisclosure controls and procedures as of the end of the period covered by thisreport.

 

On the basis of theirfindings, our Chairman and Chief Executive Officer and our Co-President andChief Financial Officer have concluded that our disclosure controls andprocedures were not effective, as of the end of the period covered by thisreport.  In conducting this evaluation, we identified material weaknessesin our internal controls that could cause misstatements in our ConsolidatedFinancial Statements.  These materialweaknesses included:

 

·             Lackof knowledgeable personnel in accounting and financial reporting areas, a lackof formalized processes and procedures over key areas in the accounting andreporting functions, and inadequate supervision and review over the financialreporting function.  These deficienciesare particularly significant in the following areas:

·             Foreign currencytranslation exchange calculations

·             Income tax provisioncalculation

 

We initiated correctiveactions to address material internal control deficiencies and have remediatedsome of the weaknesses reported last year.  We will continue to evaluatethe effectiveness of our disclosure controls and internal controls andprocedures on an ongoing basis, taking corrective action as appropriate.  In 2006, we hired an experienced ChiefFinancial Officer (now Co-President and Chief Financial Officer).  In addition, we hired or appointed a newChief Information Officer, a Vice President, Operations Finance, a VicePresident, Strategy and Business Development, a Vice President, Finance, aDirector, Financial Systems, a Director, Sarbanes-Oxley Compliance andImplementation, a Manager, Information Technology Sarbanes-Oxley Compliance andImplementation, two Senior Financial Analysts, and two Senior BusinessDevelopment Analysts.  We are activelyrecruiting for several new positions that have been approved by the Board ofDirectors in the areas of financial reporting, financial planning and analysisand financial systems. We will continue to upgrade our personnel and ourfinancial reporting systems to improve our internal controls.

 

**Failureto develop a system to evaluate the effectiveness of our internal controls mayimpact our ability to accurately report our financial results or preventfinancial fraud. As a result, current and potential stockholders could loseconfidence in our financial reporting, which could reduce our ability to obtainsubsequent financing, if necessary, as well as reduce the trading price of ourcommon stock.**

 

We will need to documentand test our internal control procedures, our management will need to assessand report on our internal control over financial reporting and our independentaccountants will need to issue an opinion on that assessment and theeffectiveness of those controls, subject to the requirements of Section 404of the* Sarbanes-Oxley Act of 2002* . We will be subject to Section 404requirements at the end of our fiscal year ending December 31, 2007.  This will require us to develop, fund andstaff a department to document and test the design and effectiveness of ourinternal controls.

 

**Failureto maintain an effective system of internal controls may impact our ability toaccurately report our financial results or prevent financial fraud.  As a result, current and potentialstockholders could lose confidence in our financial reporting, which wouldreduce our ability to obtain subsequent financing, if necessary, as well asreduce the trading price of our common stock.**

 

We cannot be certain thatour efforts to improve our internal controls will be successful or that we willbe able to maintain adequate controls over our financial processes andreporting in the future. We may be hampered in this regard by our current levelof staffing or our current accounting system. Any failure to develop or maintain effective controls, or difficultiesencountered in the effective improvement of our internal controls, could harmour operating results, cause us to fail to meet our reporting obligations,result in misstatements in our Consolidated Financial Statements or causeinvestors to lose confidence in our reported financial information, which wouldlikely have a negative effect on the trading price of our common stock.

 

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**Issuesdiscovered while evaluating the internal controls could result in having toexpend significant time and resources to improve our internal controls which ifnot successful could adversely affect our reputation and /or the investor’sperception of us and lead to other issues.**

 

Efforts to improve ourinternal controls could require us to expend significant personnel time,management resources and capital assets or make other substantial changes.  If our internal controls are deemed to beinadequate, or if other unforeseen events occur, our external auditors couldresign, leading to a delay in the preparation of our Consolidated FinancialStatements and an increase in our audit fees. If we were required to obtain new external auditors, those auditorscould require a lengthy period to become familiar with our operations.  The process of retaining new externalauditors could also limit our access to the capital markets for an extendedperiod of time. Multiple issues listed above could lead to reputation andperception issues that could adversely affect the trading price of our commonstock.

 

**Accountingerrors could adversely affect our ability to meet our reporting obligations,could result in future restatements and/or cause material weaknesses in ourinternal control over financial reporting.**

 

The accounting errors aredirectly related to a lack of sufficient and qualified personnel over theaccounting and reporting function, a lack of formalized processes andprocedures over key areas in the accounting and reporting functions andinadequate supervision and review over the financial reporting function. These errors, if not corrected, could cause us to fail to meet our reportingobligations, result in misstatements in our Consolidated Financial Statementsor cause investors to lose confidence in our reported financial information,which would likely have a negative effect on the trading price of our commonstock.  The accounting errors, if not corrected, could also result infuture material weaknesses in our internal control over financial reporting.

 

**Inadequatereview of our systems and processes could result in accounting errors,inaccurately reported financial results, financial fraud, and an inability toadequately safeguard our assets.  As a result, current and potentialstockholders could lose confidence in our financial reporting, which would reduceour ability to obtain subsequent financing, if necessary, as well as reduce thetrading price of our common stock.**

 

Our internal controls,related to accounting processes and financial reporting, have not beeneffective. We have not developed strong controls that are adequate to ensurethat our results are without errors.  Ifwe do not correct this problem, additional material weaknesses could bediscovered and disclosed which would result in an inability to rely on ourinternal controls.

 

**Volatilityin the real estate or securities markets may reduce interest in our educationalcourses, thereby reducing our revenue.**

 

The level of publicinterest in investing in real estate or in securities significantly influencesthe demand for our educational and training programs.  The real estate and securities markets haveexperienced varying levels of volatility in recent years. Negative developmentsin either market could cause a reduced demand for our programs, products and services,thereby reducing our revenue.

 

**Failureto comply with federal and/or state laws regulating the marketing and sale ofour educational courses could harm our reputation and reduce the demand for ourcourse offerings.**

 

Many states regulate themarketing and sale of our educational courses, including the content ofadvertisements to attract students. Failure to comply with these regulations could result in legal actioninstituted by the states, including cease and desist and injunction actions.  In the event we are subject to such legal action,our reputation would be harmed and the demand for our course offerings could besignificantly reduced.  In the past, wehave been involved in four state regulatory investigations which we haveresolved and we are currently involved in four other such regulatoryinvestigations.  See “GovernmentRegulation” for a detailed discussion of these regulatory investigations.

 

**Inabilityto successfully introduce new programs, products and services would negativelyimpact our revenue growth.**

 

Our growth strategy isdependent on our ability to sell existing education and training programs,products and services to new students, to open new markets and to develop andintroduce new educational programs, products and services.  If we are unable to expand our markets andproducts, our growth rate and revenue will be reduced.  Market conditions and the level of customerinterest may be different for our current products than for new products, andthere can be no assurance that we will be able to compete favorably with, andobtain market acceptance for, any such new programs, products or services.

 

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**Thecurrent market price of our common stock significantly exceeds our book valueper share and increases the risk that our market price per share may decline inthe future.**

 

The market price of ourcommon stock was $3.50 per share at the close of business on March 30,2007 and exceeded our December 31, 2006 book value, which was astockholders’ deficit of $45.1 million or $(3.84) book value per sharedeficit.  The lower book value per sharecompared to our market price per share increases the risk that our market priceper share may decline in the future.

 

**OurChairman and Chief Executive Officer, Russell A. Whitney and Ingrid Whitney,also an employee, beneficially own approximately 44% of our outstanding commonstock, which means they have the ability to significantly influence any matterrequiring stockholder approval or prevent a change of control in our Company.**

 

Russell A. Whitney, ourChairman and Chief Executive Officer, and Ingrid Whitney, also an employee,beneficially own approximately 44% of our outstanding common stock.  As such,the Whitneys can significantly influence any matter requiring the vote of ourstockholders, including the election of directors.  The Whitneys could, with a relatively smallnumber of other stockholders, vote to approve a transaction that may not be inthe best interests of other stockholders or reject a transaction that may be inthe best interests of other stockholders. Moreover, the Whitneys’ stock ownership may prevent a third party fromacquiring a controlling position in our common stock because in many instances,a third party desiring to purchase a controlling position in a public companyis willing to pay a premium to the market price.  The Whitneys’ stock ownership would likelyprevent such an event from occurring.

 

**Outsidebusiness ventures of Mr. Whitney could result in conflicts of interestthat could negatively impact our ability to attract investors.**

 

Mr. Whitney hasoutside passive investment interests in real estate and owns a 25% interest inGulfstream Development Corp., a residential construction company.  In the past, Mr. Whitney ownedresidential real estate lots in Cape Coral, Florida, some of which werepurchased by our students.  From time totime, some of our students used Gulfstream to build residences upon lots whichthey have purchased from Mr. Whitney or others.  These kinds of arrangements could create, orappear to create, conflicts of interest if our students purchased lots from Mr. Whitneyor contracted with Gulfstream to construct residences on such lots. Anyconflict of interest or appearance of a conflict of interest in connection withour arrangements with our students could negatively impact investor interest inus and therefore our stock price and liquidity. We do not have any formal procedure for resolving any such conflicts ofinterest.

 

On March 22, 2007, acomplaint was received by our subsidiary, Whitney Education Group, Inc.The case is Glenn Acciard, et. al. vs. Russell A. Whitney, individually, JohnKane, individually and Whitney Education Group, Inc. et. al., Case No. 07-CA-002190in the Circuit Court of the Fifth Judicial Court in and for Lee County, Floridaalleging that a subsidiary of ours and 18 other defendants not associated withthe Company, including two of our executive officers, breached certain of theirfiduciary duties to the named plaintiffs, all of whom were our allegedstudents. The allegations in the complaint include claims of constructive andcommon law fraud and other violations.  See “Related Party Transactions” for a more detailed discussion ofpotential conflicts of interest.

 

**Ourrelationship with third party providers who introduce real estate investmentopportunities to our students may subject us to liability.**

 

In the past andcurrently, we permit third party providers to provide real estate investmentopportunities to our students.  Sucharrangements have in the past and may in the future subject us to significantliabilities if such investments do not meet student expectations or result ineconomic losses to the students.

 

For instance, in January 11,2007, Whitney Canada, Inc., a wholly owned subsidiary, and WhitneyInformation Network, Inc. received notice of an Amended Motion forAuthorization to Institute a Class Action in the Province of Québec,Canada.  A class action was requested forall persons who have made various real estate investments, at the allegedinducement, or through, Marc Jémus, François Roy, Robert Primeau and/or theircompanies, and/or B2B Trust, and/or Whitney Canada, Inc., and/or WhitneyInformation Network, Inc. and/or Jean Lafrenière.

 

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**The lossof any of our key personnel, especially Mr. Whitney and high performing instructors,could disrupt our operations and reduce our profitability.**

 

Our future success alsodepends to a significant extent on the continued services of our executivemanagement, including Mr. Whitney. We do not maintain key-man life insurance on the life of Mr. Whitney.  The loss of the services of Mr. Whitneyor other senior management could disrupt our operations and reduce ourprofitability.

 

Our future success alsodepends on our ability to retain and attract high performing instructors.  The loss and/or inability to recruit suitablereplacements may impact our performance and reduce our profitability.

 

**The lossof Board of Director members has created a non-independent Board and couldcreate a perception of a lack of stability.**

 

On March 22, 2007, StephenL. Cootey, a member of the Board of Directors since 2006, resigned.  Mr. Cootey was Chairman of theCompensation Committee.

 

On March 23, 2007,Anthony B. Petrelli, a member of the Board of Directors since 2006,resigned.  Mr. Petrelli was a memberof the Audit Committee, the Governance and Nominating Committee and the SpecialCommittee.

 

Future departures orperceived instability on our Board may adversely affect investor confidence inthe governance of the Company.

 

**OurBoard of Directors, without stockholder approval, may issue preferred stockwhich could reduce the voting power or rights of our other stockholders andmake it more difficult for a third party to acquire a majority of ouroutstanding voters stock.**

 

Our Board of Directors,without stockholder approval, may issue up to 10.0 million shares ofpreferred stock.  The Board of Directorscan fix the rights, preferences and privileges of the shares of each series andany qualifications, limitations or restrictions, which could reduce the votingpower or other rights of the holders of common stock.  Issuance of preferred stock could also havethe effect of making it more difficult for a third-party to acquire, or ofdiscouraging a third-party from attempting to acquire, a majority of our outstandingvoting stock.

 

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**ITEM 1B. UNRESOLVED STAFF COMMENTS**

 

Not Applicable.

 

**ITEM2.  PROPERTIES**

 

The following chartsummarizes our office locations (in thousands, except square footage).

 
| **Purpose**                                       | ** ** | **Location**         | ** ** | **Own/Lease** | ** ** | **Approximate  square footage** | ** ** | **Lease expiration** | ** ** | **Annual rent** | ** ** |
|---------------------------------------------------|------------|----------------------|------------|---------------|------------|--------------------------------------|------------|---------------------------|------------|----------------------|------------|
| Corporate  headquarters                           |       | Cape Coral, FL       |       | Own           |       | 40,734                               |       | —                    |       | —               |       |
| Conference  center                                |       | Monterey, Costa Rica |       | Own           |       | 7,200                                |       | —                    |       | —               |       |
| European  headquarters                            |       | London, England      |       | Own           |       | 5,600                                |       | —                    |       | —               |       |
| Former EduTrades  and telemarketing headquarters  |       | Draper, UT           |       | Lease         |       | 13,553                               |       | October 2007         |       | $                    | 168        |   |
| Current  EduTrades and telemarketing headquarters |       | Murray, UT           |       | Lease         |       | 32,646                               |       | December 2012        |       | 392                  |       |
| Canadian  headquarters                            |       | Ontario, Canada      |       | Lease         |       | 1,200                                |       | April 2010           |       | 20                   |       |
| Training center                                   |       | Salt Lake City, UT   |       | Lease         |       | 6,783                                |       | September 2010       |       | 112                  |       |
| Training center                                   |       | Cape Coral, FL       |       | Lease(1)      |       | 2,200                                |       | Month-to-Month            |       | 23                   |       |
| Support facility                                  |       | Cape Coral, FL       |       | Lease(1)      |       | 9,000                                |       | June 2009            |       | 167                  |       |
| Training center                                   |       | Cape Coral, FL       |       | Lease(1)      |       | 4,802                                |       | June 2007            |       | 87                   |       |
|                                              |       |                 |       |          |       | 123,718                              |       |                      |       | $                    | 969        |   |

 

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(1)          Relatedparty lease.

 

We own the land andbuilding of our executive offices in Cape Coral, Florida.  Our executive office building isapproximately 40,734 square feet in size and is situated on approximately4.5 acres.  We own an approximately7,200 square foot conference and training center in Monterey, Costa Rica, whichwe designed and built in 2002.

 

We currently own ourEuropean headquarters in London, England. However, we negotiated to sell this building for approximately £1.9million.  We intend to lease office spaceof approximately 2,727 square feet.  Weexpect the sale of the building and the execution of the lease to be completedin the second quarter of 2007.

 

We lease 13,553 squarefeet of office space in Draper, Utah. The lease expires in October 2007 and is payable at the rate of$13,975 per month.  To support ourexpanding business operations, we entered into a 72-month office lease inMurray, Utah and moved in March 2007. The lease is for 32,646 square feet. We intend to assign or sublease our existing space in Draper, Utah.  We will receive a credit on our lease inMurray, Utah, prior to any assignment or sublease of the Draper, Utah lease.

 

Our Canadian subsidiaryleases approximately 1,200 square feet of office space in Ontario, Canada.  The lease expires in April 2010 and ispayable at rates increasing from $1,081 to $1,654 per month over the term ofthe lease.

 

We lease approximately6,783 square feet of office space in Salt Lake City, Utah.  The lease expires in 2010 and is payable atthe rate of $9,327 per month.  Thefacilities are being used as a training center.

 

*Relatedparty leases*

 

Welease approximately 2,200 square feet of training facilities at 1611 East CapeCoral Parkway (“1611 Cape Coral Parkway”), approximately 9,000 square feet ofspace at 1625 East Cape Coral Parkway (“1625 Cape Coral Parkway”) which is usedfor offices and shipping and 4,802 square feet at 1630 Southeast 47th Terrace, which we use as a training facility,all in Cape Coral, Florida, from Cape Promenade Trust, which is for the benefitof our former Chairman and Chief Executive Officer, Mr. Whitney  and Ingrid Whitney.

 

The leases are for threeyears and began on March 1, 2003, March 1, 2003, and June 1,2004, respectively.  The monthly rentalsare $1,943, $13,913 and $7,238 respectively. We are on a month-to-month basis with respect to the 1611 Cape 

 

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Coral Parkway and 1630Southeast 47th Terrace leases that expired in March 2006.  We extended the lease with respect to 1625East Cape Coral Parkway through June 30, 2009.

 

**ITEM 3. LEGAL PROCEEDINGS**

 

From time to time, Whitney is involved in legalproceedings that we consider to be in the normal course of business.  We do not know if any of these proceedingswill have a material adverse effect on our business.

 

As previously disclosed,on January 11, 2007, Whitney Canada, Inc., a wholly owned subsidiary,and Whitney Information Network, Inc. received notice of an Amended Motionfor Authorization to Institute a Class Action in the Province of Québec,Canada.  A class action was requested forall persons who have made various real estate investments, at the allegedinducement, or through, Marc Jémus, François Roy, Robert Primeau and/or theircompanies, and/or B2B Trust, and/or Whitney Canada, Inc., and/or WhitneyInformation Network, Inc. and/or Jean Lafrenière.

 

As previously disclosed, on January 30,2007, we were served a complaint by Rodney Durham on behalf of himself and allothers similarly situated v. Whitney Information Network, Inc., Russell A.Whitney and Nicholas S. Maturo.  Thecomplaint was filed on December 28, 2006, in the United States DistrictCourt in the Middle District of Florida accusing us of securitiesviolations.  The plaintiffs seek damagesfor violations of federal securities laws on behalf of all investors whoacquired Whitney stock from November 18, 2003, through and including December 15,2006 (the “Class Period”).  We willvigorously defend ourselves in this action, but our operating results may beadversely impacted by the outcome of this lawsuit.

 

As previously disclosed, on March 8,2007, we were served a complaint styled Robert Ghosio, Jr. on behalf ofnominal defendant Whitney Information Network, Inc. v. Russell A. Whitney,Nicholas S. Maturo, Frederick A. Cardin, Chester P. Schwartz, Ronald S. Simonand Whitney Information Network, Inc., filed in the United States DistrictCourt in the Middle District of Florida. This action is a derivative complaint alleging that the named defendantsviolated certain fiduciary and securities laws. We believe that the complaint is without merit and intend to vigorouslydefend ourselves.

 

As previously disclosed, on March 22,2007, a complaint was received by our wholly-owned subsidiary, WhitneyEducation Group, Inc.  The case isGlenn Acciard, et. al. vs. Russell A. Whitney, individually, John Kane,individually and Whitney Education Group, Inc. et. al., Case No. 07-CA-002190in the Circuit Court of the Fifth Judicial Court in and for Lee County, Floridaalleging that the Company and 18 other defendants not associated with theCompany, including two of our executive officers, breached certain of theirfiduciary duties to the named plaintiffs, all of whom were our allegedstudents.  The allegations in thecomplaint include claims of constructive and common law fraud and otherviolations.

 

**ITEM4.  SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

 

None.

 

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**PART II**

 

**ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY ANDRELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES(Restated)**

 

Ourcommon stock is quoted on the NASD Over-the-Counter Bulletin Board under thetrading symbol “RUSS” since August 1998. The high and low sales prices of our common stock for the last twoyears, by calendar quarter, are set forth below.  These quotations reflect interdealer prices,without retail mark-up, markdown or commissions and may not represent actualtransactions.

 
| ** **                             | ** ** | **High** | ** ** | **Low** | ** ** |
|----------------------------------------|------------|----------|------------|---------|------------|
| **Year  ended December 31, 2006** |       |     |       |    |       |
| Fourth Quarter                         |       | $        | 10.00      |    | $          | 3.10 |   |
| Third Quarter                          |       | 10.20    |       | 7.65    |       |
| Second Quarter                         |       | 11.26    |       | 7.60    |       |
| First Quarter                          |       | 11.25    |       | 7.10    |       |
|                                   |       |     |       |    |       |
| **Year  ended December 31, 2005** |       |     |       |    |       |
| Fourth Quarter                         |       | $        | 10.05      |    | $          | 4.50 |   |
| Third Quarter                          |       | 5.10     |       | 2.80    |       |
| Second Quarter                         |       | 4.74     |       | 1.20    |       |
| First Quarter                          |       | 2.38     |       | 0.85    |       |

 

As of March 31,2007, the closing price of our common stock as reported on the NASD Over-theCounter Bulletin Board was $3.50. According to the records of our transfer agent, there were 151shareholders of record of the Company’s common stock at March 31,2007.  Because many of our shares ofcommon stock are held by brokers and other institutions on behalf ofshareholders, we are unable to estimate the total number of shareholdersrepresented by these record holders.

 

**DIVIDEND POLICY**

 

During our two mostrecent fiscal years, we authorized one cash dividend of $1.00 per share to theholders of record on September 15, 2006, and paid on October 2, 2006,on our common stock.  This was deemed areturn of capital for income tax purposes. We do not have any plans to pay dividends in the future.

 

***Fiveyear performance graph: 2002-2006***

 

Thefollowing graph shows a comparison of cumulative total returns for aninvestment in the common stock of Whitney Information Network, Inc., theRussell 2000 Microcap® Index and a self-determined peer group ofpublic companies within the education industry. The peer group of companies includes the following six educationcompanies: Bright Horizons Family Solutions, Inc., Corinthian Colleges, Inc.,eCollege.com, Franklin Covey Company, INVESTools, Inc., and StrayerEducation, Inc.

 

The annual changes forthe five year period shown in the graph on this page are based on theassumption that $100 had been invested in Whitney Information Network, Inc.stock, the Russell Microcap® Index, and theself-determined peer group previously described, on December 31,2001.  In addition, it is assumed theself-determined peer group and Whitney Information Network, Inc. reinvestits dividends.  The total cumulativedollar returns shown on the graph represent the value that such investmentswould have had on December 31, 2006.

 

This graph is not deemedto be “soliciting material” or to be “filed” with the SEC, and the graph shallnot be deemed to be incorporated by reference into any prior or subsequentfiling under the Securities Act of 1933 or the Securities Exchange Act of 1934.

 

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**Comparison of five yearcumulative total returnWhitney Information Network, Inc., Russell Microcap****® Index and a self-determined peer group**

** **

 

***Recent Sales of Unregistered Securities***

 

During the last threeyears, we have not sold any securities which were not registered under theSecurities Act, except:

 

1.   InDecember 2005, we sold 1,750,000 shares and 875,000 warrants and RussellA. Whitney, our former Chairman and Chief Executive Officer, sold 1,250,000shares and 625,000 warrants to 17 accredited investors.  The securities were issued in units consistingof one share and one-half warrant for $4.50 per unit.  We also issued a unit purchase warrant toNoble International Investments, Inc. to purchase up to 300,000 units at$4.50 per unit as part of its compensation for acting as our placement agent inthe offering, each unit consisting of one share of common stock and one warrantto purchase one half share of common stock. We sold these units to the investors in reliance on Section 4(2) ofthe Securities Act of 1933, as amended (the “Securities Act”) and/or Rule 506promulgated thereunder.  No advertisingor general solicitation was employed in offering the securities.  The securities were restricted pursuant tolegend printed on each certificate.  Thepurchasers were all accredited investors, capable of analyzing the merits andrisks of the investment, who acknowledged in writing that they were acquiringthe securities for investment and not with a view toward distribution or resaleand understood the speculative nature of the investment.

 

We registered thesecurities underlying the units for resale in a registration statement on Form S-1,which was declared effective by the SEC on November 13, 2006.  In May 2007, we advised the sellingshareholders not to sell under the registration statement because there werepending corporate developments which would require an amendment to theregistration statement.  The Company alsoadvised the selling shareholders that the time period for maintaining theeffectiveness of the registration statement had expired, so the Company did notplan on filing a supplement or amendment to the registration statement andwould withdraw from registration all shares that have not been sold.

 

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2.   In September 2006, wereceived $3,145,851 of cash proceeds from holders who exercised the followingoutstanding warrants and stock options:

 
| **Form of security** | ** ** | **Description**        | ** ** | **Number of  holders** | ** ** | **Number of  common shares** | ** ** | **Exercise price  per share** | ** ** | **Proceeds** | ** ** |
|--------------------------------|------------|------------------------|------------|-----------------------------|------------|----------------------------------------|------------|-----------------------------------------|------------|--------------|------------|
| Warrants                       |       | PIPE warrants          |       | 11                          |       | 484,743                                |       | $ 4.50 to $6.00                    |       | $            | 2,665,602  |   |
| Options                        |       | 1998 Stock Option Plan |       | 5                           |       | 217,900                                |       | $ 1.81 to $5.60                    |       | 480,249      |       |
| Total                          |       |                   |       | 16                          |       | 702,643                                |       |                                    |       | $            | 3,145,851  |   |

 

Proceeds from the sale ofwarrants by Russell A. Whitney, our former Chairman and Chief Executive Officerand subsequently exercised by three holders totaled 375,000 shares of commonstock with proceeds amounting to $2,250,000. These proceeds were received by Mr. Whitney in October 2006.

 

We paid no incrementalplacement fees in connection with the warrants or options.  We expect to use the cash proceeds from thewarrant and option exercises for working capital.

 

With respect to common stock issued from the exerciseof the options and warrants we relied on Section 4(2) of theSecurities Act.  The option holders andwarrant holders are knowledgeable, sophisticated and had access to informationabout us and represented their intention to acquire the securities forinvestment only and not with a view to distribute or sell the securities.  We placed legends on the certificates statingthat the securities were not registered under the Securities Act and set forththe restrictions on their transferability and sale.

 

**ITEM 6.  SELECTED FINANCIAL DATA (Restated)**

 

*Theselected financial data presented below are derived from our restatedConsolidated Financial Statements at and for each of the five years in theperiod ended December 31, 2006, and includes adjustments discussed in Note1 of our Consolidated Financial Statements contained in Item 8 of this Form 10-K/A.*

 

All financial information, except per share data, isexpressed in thousands.

 
| ** **                                        | ** ** | **Years ended December 31,** | ** ** |
|---------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                        | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                        | ** ** | **(restated)**                              | ** ** | **(restated)** | ** ** | **(restated)** | ** ** | **(restated)** | ** ** | **(restated)** | ** ** |
| **Statement  of Operations data:**                |       |                                        |       |   |   |   |   |   |   |   |   |
| Revenue                                           |       | $                                           | 224,654    |   | $ | 163,107 |   | $ | 136,259 |   | $ | 89,805 |   | $ | 51,178 |   |
| Earnings (loss)  from operations                  |       | 8,181                                       |       | (8,586 | ) | (32,691 | ) | (7,657 | ) | (2,661 | ) |
| Net earnings  (loss)                              |       | $                                           | 2,301      |   | $ | 4,195 |   | $ | (31,866 | ) | $ | (7,369 | ) | $ | (2,392 | ) |
| Diluted earnings  (loss) per share                |       | $                                           | 0.20       |   | $ | 0.45 |   | $ | (3.71 | ) | $ | (0.90 | ) | $ | (0.30 | ) |
| **Statement  of Cash Flows data:**                |       |                                        |       |   |   |   |   |   |   |   |   |
| Cash provided by  operations                      |       | $                                           | 20,388     |   | $ | 20,489 |   | $ | 153 |   | $ | 11,275 |   | $ | 9,723 |   |
| Cash (used in)  provided by investing activities  |       | (4,385                                      | )          | 8,407 |   | (9,872 | ) | (5,842 | ) | (5,647 | ) |
| Cash (used in)  provided by financing activities  |       | (15,155                                     | )          | (580 | ) | 1,102 |   | (1,834 | ) | (743 | ) |
| Increase  (decrease) in cash and cash equivalents |       | $                                           | 338        |   | $ | 28,216 |   | $ | (8,562 | ) | $ | 3,008 |   | $ | 3,332 |   |
| Cash dividends  per share                         |       | $                                           | 1.00       |   | — |   | — |   | — |   | — |   |

 

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| ** **                                        | ** ** | **Years ended December 31,** | ** ** |
|---------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                        | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                        | ** ** | **(as previously  reported)**          | ** ** | **(as previously  reported)** | ** ** | **(as previously  reported)** | ** ** | **(as previously  reported)** | ** ** | **(as previously  reported)** | ** ** |
| **Statement  of Operations data:**                |       |                                        |       |   |   |   |   |   |   |   |   |
| Revenue                                           |       | $                                           | 224,654    |   | $ | 163,107 |   | $ | 136,259 |   | $ | 89,805 |   | $ | 51,178 |   |
| Earnings (loss)  from operations                  |       | 7,690                                       |       | (9,161 | ) | (32,845 | ) | (7,476 | ) | (2,486 | ) |
| Net earnings  (loss)                              |       | $                                           | 1,755      |   | $ | 3,850 |   | $ | (31,963 | ) | $ | (7,325 | ) | $ | (2,216 | ) |
| Diluted earnings  (loss) per share                |       | $                                           | 0.15       |   | $ | 0.41 |   | $ | (3.72 | ) | $ | (0.89 | ) | $ | (0.28 | ) |
| **Statement  of Cash Flows data:**                |       |                                        |       |   |   |   |   |   |   |   |   |
| Cash provided by  operations                      |       | $                                           | 20,019     |   | $ | 17,022 |   | $ | 600 |   | $ | 10,732 |   | $ | 7,873 |   |
| Cash (used in)  provided by investing activities  |       | (4,426                                      | )          | 8,640 |   | (10,604 | ) | (7,732 | ) | (4,907 | ) |
| Cash (used in)  provided by financing activities  |       | (14,102                                     | )          | 3,015 |   | 1,387 |   | 599 |   | 367 |   |
| Increase  (decrease) in cash and cash equivalents |       | $                                           | 937        |   | $ | 28,577 |   | $ | (8,562 | ) | $ | 3,008 |   | $ | 3,333 |   |
| Cash dividends  per share                         |       | $                                           | 1.00       |   | — |   | — |   | — |   | — |   |

 

*Otheroperating data:*

 

Asused in the following operating data and our reconciliation, we define EBITDAas net earnings (loss) before income taxes plus interest expense, depreciationand amortization expense, as well as impairment of assets, special items(including the costs associated with the SEC and the Department of Justiceinvestigations, the expense associated with the liquidated damages provision inthe registration rights agreement and write-off of stock registration costs asa result of the withdrawal of the EduTrades, Inc. Registration Statement),the stock portion of a gift to the widow of our former President and ChiefOperating Officer, interest and non-operating income, stock option and warrantcompensation expense, minority interest and equity earnings in related partiesand gain from the sale of assets.  Werefer to “Adjusted EBITDA” to mean EBITDA adjusted for the net change indeferred revenue less the net change in deferred course expenses.  Adjusted EBITDA is not a financialperformance measurement under generally accepted accounting principles.

 

We use Adjusted EBITDA asa key measure in evaluating our operations and decision-making.  We feel it is a useful measure in determiningour performance since it takes into account the change in deferred revenue anddeferred course expenses in combination with our operating expenses.  We reference Adjusted EBITDA frequently sinceit provides supplemental information that facilitates internal comparisons tohistorical operating performance of prior periods and external comparisons tocompetitors’ historical operating performance in our industry.  We plan and forecast our business usingAdjusted EBITDA, with comparisons of actual to planned and forecasted AdjustedEBITDA and we incentivize management on Adjusted EBITDA.  In addition, we provide Adjusted EBITDA becausewe believe investors and security analysts find Adjusted EBITDA to be a usefulmeasure for evaluating our performance.

 

The vast majority of ourcosts to acquire the student have been expended before a student attends anybasic or advanced training.  These costsincluded media, travel, facilities, and instructor fees for the introductoryworkshops and are expensed when incurred. However, the tuition paid at registration is deferred until the courseis attended by the student, the student has received the course content in anelectronic format, or the contract expires, at which time the revenue is deemedearned.  Thus, reporting under generallyaccepted accounting principles in the United States of America (U.S. GAAP)creates significant timing differences with respect to revenue and expenses,both in our Consolidated Statement of Cash Flows and Consolidated Statement ofOperations.  As a result of thesefactors, our operating cash flows can vary significantly from our results ofoperations for the same period.  For thisreason, we believe Adjusted EBITDA is an important non U.S. GAAP financialmeasure.

 

Adjusted EBITDA hasmaterial limitations and should not be considered as an alternative to netearnings (loss), cash flows provided by operations, investing or financingactivities or other financial statement data presented in the ConsolidatedFinancial Statements as indicators of financial performance or liquidity.  Items excluded from Adjusted EBITDA aresignificant components in understanding our financial performance.  Because Adjusted EBITDA is not a measurementdetermined in accordance with U.S. GAAP and is subject to varying calculations,Adjusted EBITDA as presented may not be comparable to other similar titledmeasures of performance used by other companies.

 

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The table below is a reconciliation of the Company’snet earnings (loss) to EBITDA and Adjusted EBITDA for the periods setforth.  All financial information is expressedin thousands.

 
| ** **                                                                      | ** ** | **Years ended December 31,** | ** ** |
|---------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                      | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                      | ** ** | **(restated)**                              | ** ** | **(restated)** | ** ** | **(restated)** | ** ** | **(restated)** | ** ** | **(restated)** | ** ** |
|                                                                            |       |                                        |       |   |   |   |   |   |   |   |   |
| Net earnings  (loss)                                                            |       | $                                           | 2,301      |   | $ | 4,195 |   | $ | (31,866 | ) | $ | (7,369 | ) | $ | (2,392 | ) |
| Impairment of assets                                                            |       | 3,590                                       |       | — |   | — |   | — |   | — |   |
| Special items                                                                   |       | 2,330                                       |       | 200 |   | — |   | — |   | — |   |
| Other expense  (income)                                                         |       | 79                                          |       | (1,611 | ) | (830 | ) | (291 | ) | (442 | ) |
| Interest  (income) expense, net                                                 |       | (1,876                                      | )          | 28 |   | 436 |   | 3 |   | 71 |   |
| Income tax  provision (benefit)                                                 |       | 7,706                                       |       | (6,757 | ) | — |   | — |   | — |   |
| Stock gift                                                                      |       | 937                                         |       | — |   | — |   | — |   | — |   |
| Stock-based  compensation expense                                               |       | 881                                         |       | — |   | — |   | — |   | 448 |   |
| Depreciation and  amortization                                                  |       | 1,253                                       |       | 1,481 |   | 932 |   | 1,126 |   | 772 |   |
| Minority  interest and equity earnings                                          |       | 45                                          |       | 2,138 |   | (182 | ) | — |   | (102 | ) |
| Gain on sale of  assets                                                         |       | (74                                         | )          | (6,579 | ) | (249 | ) | — |   | — |   |
|                                                                            |       |                                        |       |   |   |   |   |   |   |   |   |
| EBITDA                                                                          |       | 17,172                                      |       | (6,905 | ) | (31,759 | ) | (6,531 | ) | (1,645 | ) |
|                                                                            |       |                                        |       |   |   |   |   |   |   |   |   |
| Net change in  deferred revenue                                                 |       | (1,594                                      | )          | 33,289 |   | 27,828 |   | 19,468 |   | 11,581 |   |
| Net change in  deferred course costs                                            |       | (230                                        | )          | (2,602 | ) | (3,546 | ) | (3,339 | ) | (1,791 | ) |
| Adjusted EBITDA                                                                 |       | $                                           | 15,348     |   | $ | 23,782 |   | $ | (7,477 | ) | $ | 9,598 |   | $ | 8,145 |   |
|                                                                            |       |                                        |       |   |   |   |   |   |   |   |   |
| Adjusted EBITDA  as a percentage of cash received from course and product sales |       | 6.9                                         | %          | 12.1 | % | (4.6 | )% | 8.8 | % | 13.0 | % |

 
| **            **    | ** ** | **Years ended December 31,** | ** ** |
|---------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                      | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                      | ** ** | **(as previously  reported)**          | ** ** | **(as previously  reported)** | ** ** | **(as previously  reported)** | ** ** | **(as previously  reported)** | ** ** | **(as previously  reported)** | ** ** |
|                                                                            |       |                                        |       |   |   |   |   |   |   |   |   |
| Net earnings  (loss)                                                            |       | $                                           | 1,755      |   | $ | 3,850 |   | $ | (31,963 | ) | $ | (7,325 | ) | $ | (2,216 | ) |
| Impairment of  assets                                                           |       | 3,668                                       |       | — |   | — |   | — |   | — |   |
| Special items                                                                   |       | 2,330                                       |       | — |   | — |   | — |   | — |   |
| Other expense  (income)                                                         |       | 162                                         |       | (1,801 | ) | (892 | ) | (154 | ) | (81 | ) |
| Interest  (income) expense, net                                                 |       | (1,876                                      | )          | 28 |   | 499 |   | 3 |   | (86 | ) |
| Income tax  expense (benefit)                                                   |       | 7,678                                       |       | (6,798 | ) | — |   | — |   | — |   |
| Stock gift                                                                      |       | 937                                         |       | — |   | — |   | — |   | — |   |
| Stock-based  compensation expense                                               |       | 881                                         |       | — |   | — |   | — |   | — |   |
| Depreciation and  amortization                                                  |       | 1,774                                       |       | 1,856 |   | 1,610 |   | 950 |   | 598 |   |
| Minority  interest and equity earnings                                          |       | 45                                          |       | 2,138 |   | (182 | ) | — |   | (102 | ) |
| Gain on sale of  assets                                                         |       | (74                                         | )          | (6,579 | ) | (305 | ) | — |   | — |   |
|                                                                            |       |                                        |       |   |   |   |   |   |   |   |   |
| EBITDA                                                                          |       | 17,280                                      |       | (7,306 | ) | (31,233 | ) | (6,526 | ) | (1,887 | ) |
|                                                                            |       |                                        |       |   |   |   |   |   |   |   |   |
| Net change in  deferred revenue                                                 |       | (1,593                                      | )          | 33,288 |   | 27,828 |   | 19,468 |   | 11,581 |   |
| Net change in  deferred course costs                                            |       | (67                                         | )          | (2,602 | ) | (3,546 | ) | (3,339 | ) | (1,791 | ) |
| Adjusted EBITDA                                                                 |       | $                                           | 15,620     |   | $ | 23,380 |   | $ | (6,951 | ) | $ | 9,603 |   | $ | 7,903 |   |
|                                                                            |       |                                        |       |   |   |   |   |   |   |   |   |
| Adjusted EBITDA  as a percentage of cash received from course and product sales |       | 7.0                                         | %          | 11.9 | % | (4.2 | )% | 8.8 | % | 12.6 | % |

 

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All financial information, except per share amounts,is expressed in thousands.  Amounts inthe table were not affected by the restatement.

 
| ** **                                   | ** ** | **Years ended December 31,** | ** ** |
|----------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                   | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                   | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash received  from course and product sales |       | $                                           | 223,060    |   | $ | 196,396 |   | $ | 164,087 |   | $ | 109,273 |   | $ | 62,759 |   |
| Net change in  deferred revenue              |       | 1,594                                       |       | (33,289 | ) | (27,828 | ) | (19,468 | ) | (11,581 | ) |
| Revenue for  financial reporting purposes    |       | $                                           | 224,654    |   | $ | 163,107 |   | $ | 136,259 |   | $ | 89,805 |   | $ | 51,178 |   |

 

**Consolidated Balance Sheets data:**

 
| ** **                    | ** ** | **December 31,** | ** ** |
|-------------------------------|------------|-----------------------|------------|
| ** **                    | ** ** | **2006**              | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                    | ** ** | **(restated)**        | ** ** | **(restated)** | ** ** | **(restated)** | ** ** | **(restated)** | ** ** | **(restated)** | ** ** |
| Total assets                  |       | $                     | 91,687     |   | $ | 98,233 |   | $ | 55,673 |   | $ | 51,202 |   | $ | 28,098 |   |
| Long term debt                |       | 6,154                 |       | 3,374 |   | 12,313 |   | 6,239 |   | 1,709 |   |
| Stockholders’  deficit   |       | (48,856               | )          | (44,825 | ) | (56,244 | ) | (24,711 | ) | (13,040 | ) |
| Book value per  share deficit |       | $                     | (4.16      | ) | $ | (4.29 | ) | $ | (6.53 | ) | $ | (2.89 | ) | $ | (1.61 | ) |
| Shares  outstanding           |       | 11,739                |       | 10,456 |   | 8,618 |   | 8,548 |   | 8,097 |   |

 
| ** **                    | ** ** | **December 31,**              | ** ** |
|-------------------------------|------------|------------------------------------|------------|
| ** **                    | ** ** | **2006**                           | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                    | ** ** | **(as previously  reported)** | ** ** | **(as previously  reported)** | ** ** | **(as previously  reported)** | ** ** | **(as previously  reported)** | ** ** | **(as previously  reported)** | ** ** |
| Total assets                  |       | $                                  | 95,120     |   | $ | 102,203 |   | $ | 60,028 |   | $ | 55,552 |   | $ | 28,272 |   |
| Long term debt                |       | 6,154                              |       | 3,374 |   | 12,312 |   | 10,953 |   | 1,650 |   |
| Stockholders’  deficit   |       | (45,062                            | )          | (40,486 | ) | (51,560 | ) | (19,930 | ) | (12,865 | ) |
| Book value per  share deficit |       | $                                  | (3.84      | ) | $ | (3.87 | ) | $ | (5.98 | ) | $ | (2.33 | ) | $ | (1.59 | ) |
| Shares  outstanding           |       | 11,739                             |       | 10,456 |   | 8,618 |   | 8,548 |   | 8,097 |   |

 

**ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS (Restated)**

 

*The information below reflects theimpact of the restatement on our financial results which is more fullydescribed in Item 8 — Financial Statements and Supplementary Data and Note 1 —Restatement of our Consolidated Financial Statements in this Form 10-K/A.*

 

The following discussion ofour consolidated financial condition and results of operations for the periodsindicated should be read in conjunction with our Consolidated FinancialStatements, related notes and the other financial data included elsewhere inthis document.  The discussion containsforward-looking statements involving risks, uncertainties and assumptions thatcould cause our results to differ materially from expectations.  Factors that might cause such differencesinclude those described under “Risk Factors,” “Special Note RegardingForward-Looking Statements” and elsewhere in this document.

 

**Restatement of Previously Issued FinancialStatements**

 

Asdiscussed in the Explanatory Note to this Form 10-K/A and in Item 8 — Financial Statements andSupplementary Data, Note 1**— *Restatement***in our Consolidated Financial Statements, we are amendingand restating our Consolidated Financial Statements and other financialinformation for the years 2006, 2005, and 2004, and financial information forthe years 2003 and 2002, and for each of the quarters in the years 2005 and2006.  This restatement corrects errorsrelating to: (i) disclosures of related party transactions, (ii) themethod and disclosure of certain acquisitions, and (iii) depreciable livesof intangible assets and property, plant and equipment.  The restatement also includes certain othercorrections and conforming changes and restatement had minimal effect on theCompany’s cash flows, liquidity or our financial position for the respectiverestated periods.

 

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**Executive Overview**

 

In theUnited States, the United Kingdom, Canada, and Costa Rica, we offerpost-secondary nonaccredited introductory workshops, primary and advancedcourses and training in two primary fields of study:

 

·                  Real estate education

 

·                  Financial marketseducation

 

Through our branded andprivate label curricula, our content is expansive and our significantinvestment in these brands provides for the opportunity to build long-termvalue.  Our brand portfolio includes:

 

·                  For real estateinvestment workshops and introductory courses:

 

·                  *Russ Whitney*’s *BuildingWealthTM*

 

·                  *Teach Me Foreclosure**TM** & Real EstateInvesting*

* *

·                  *Rich Dad*®* Education*

 

·                  Private label brands:

 

·                  *M2 Advantage*®

 

·                  *Real EstateSuccess System*

 

·                  For financial marketsinvestment workshops and introductory courses:

 

·                  *Teach Me to Trade*®

 

·                  Private label brand:

 

·                  *Stock SuccessSystem**TM*

 

·                  Our umbrella brand foradvanced courses:

 

·*                **Wealth IntelligenceAcademy*®

 

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Theadvanced courses of study under the *WealthIntelligence Academy*® brand include:

 
|   | · | *Millionaire  UTM* real estate  advanced training       |
|--------|--------|-------------------------------------------------------------|
|   | · | *Rich UTM*                                              |
|   | · | Wholesale buying                                            |
|   | · | Foreclosure  training                                       |
|   | · | Lease option                                                |
|   | · | Property  management and cash flow                          |
|   | · | Keys to creative  real estate financing                     |
|   | · | Asset protection &  tax relief                     |
|   | · | Mentor field  training                                      |
|   | · | Discount notes  and mortgages                               |
|   | · | Manufactured  mobile homes and recreational vehicle parks   |
|   | · | Rehabbing for  profit                                       |
|   | · | Tax liens and  deeds                                        |
|   | · | Commercial real  estate investing                           |
|   | · | Domestic and  international land investment and development |
|   | · | *Master  TraderTM*                                      | —  practical trading techniques |
|   | · | *The  Trading P.I.T.TM*                                 | —  hedging techniques |
|   | · | *The  Advanced P.I.T.TM*                                | —  spread strategies |
|   | · | *H.I.T.S.TM*                                            | —  single stock futures and ETFs |
|   | · | *The  Trading RoomTM*                                   | —  practical trading structures and routines |
|   | · | *Advanced Covered Calls*                          | —   strategies to use options to improve cash flow and hedge risk |
|   | · | *Advanced  Technical Analysis*                              | —  strategies to manage trades in  different market conditions |

 

We offer our studentsseveral ways to access our educational content:

 

·                  Live instruction inclassroom settings

 

·                  Onsite mentoring

 

·                  Telephonic coaching

 

·                  Electronic access

 

·                  Conferences

 

Weenter into strategic alliances with promoters that market our products andservices to potential students.

 

We are aware of othermacroeconomic trends including changes in the real estate markets, financialmarkets, overall employment, early retirement, and consumer confidence that mayimpact overall demand.  We believe we canadapt our curriculum development and marketing message accordingly to changingtrends.  Moreover, we are also cognizantthat we compete in an area where the barriers to entry are low with respect tocontent development; however, access to students and the fulfillment of coursesrequires substantial cash outflow before cash inflow is realized in the form oftuition.

 

Our internationalpresence in the United Kingdom and Canada represents approximately 7.8% ofrevenue in 2006 which is slightly higher than the approximate 7.2% of revenuein 2005.  During 2006, we completed areview of our entire international strategy. The review took place so we could assess whether market conditionssupported a further investment of resources in the international marketplaceand, conversely, if we should consider exiting the international market.

 

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Thereview consisted of:

 

·                  Assessing the currentstate, outlook, and trends for the post-secondary education market with anemphasis in real estate and financial markets education for the individualinvestor

 

·                  Dimensionalizing themarket potential and our business model

 

·                  Supporting our brandpositioning, our competitive strengths, and overall business case to warrantinvestment outside North America, through:

 

·                  Clarifying the positioning of the respective brands inour portfolio

 

·                  Identifying core competencies

 

·                  Articulating competitive strengths and weaknesses

 

·                  Benchmarking operating metrics to industry norms andselected competitors

 

·                  Evaluating our financial capabilities andopportunities

 

·                  Reviewing other points of differentiation

 

·                  Articulating ourinternational five year strategic, development, and economic plans

 

·                  Prioritizing ourinitiatives over the near term and developing a tactical plan

 

As a result of ourreview, we concluded that the United Kingdom and Canadian markets would supportexpansion of two of our brands, Teach Me to Trade® and Rich Dad® Education.  These brands will be brought to Canada andthe United Kingdom in the next eighteen months, with potential expansion to theEuropean continent in the next 18 to 24 months.

 

Over the past five years,revenue has grown at a compounded annual growth rate of 40.3%.  Our operating expenses (including impairmentof assets and special items) grew at a 39.9% compounded annual growth rateduring the same period.  Our Adjusted EBITDAfor the same five year period grew at a 40.4% compounded annual growthrate.  Through continued leveraging ofour fixed costs, improving our overall marketing efficiency and coursedelivery, and prudently increasing our prices, we endeavor to grow revenue at afaster rate than the growth of operating expenses.

 

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Ouroperating results expressed as a percentage of revenue is presented in thetable below:

 
| ** **                                   | ** ** | **Restated**                                | ** ** |
|----------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                   | ** ** | **Years ended December 31,** | ** ** |
| ** **                                   | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                   | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue                                      |       | 100.0                                       | %          | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
| Operating  expenses:                         |       |                                        |       |   |   |   |   |   |   |   |   |
| Direct course  expenses                      |       | 49.6                                        |       | 58.6 |   | 67.3 |   | 57.8 |   | 50.6 |   |
| Advertising and  sales expense               |       | 28.7                                        |       | 30.6 |   | 36.5 |   | 33.5 |   | 27.2 |   |
| General and  administrative expense          |       | 15.4                                        |       | 15.9 |   | 20.2 |   | 17.3 |   | 27.4 |   |
| Impairment of  assets                        |       | 1.6                                         |       | — |   | — |   | — |   | — |   |
| Special items                                |       | 1.0                                         |       | 0.1 |   | — |   | — |   | — |   |
|                                         |       | 96.3                                        |       | 105.2 |   | 124.0 |   | 108.6 |   | 105.2 |   |
| Earnings (loss)  from operations             |       | 3.7                                         |       | (5.2 | ) | (24.0 | ) | (8.6 | ) | (5.2 | ) |
| Other income:                                |       |                                        |       |   |   |   |   |   |   |   |   |
| Other (loss)  income                         |       | —                                      |       | 1.0 |   | 0.6 |   | 0.4 |   | 0.8 |   |
| Interest income  (expense), net              |       | 0.8                                         |       | — |   | (0.3 | ) | — |   | (0.1 | ) |
| Equity (loss)  earnings from related parties |       | —                                      |       | (0.1 | ) | 0.1 |   | — |   | (0.2 | ) |
| Gain on sale of  assets                      |       | —                                      |       | 4.0 |   | 0.2 |   | — |   | — |   |
|                                         |       | 0.8                                         |       | 4.9 |   | 0.6 |   | 0.4 |   | 0.5 |   |
| Earnings (loss)  before income taxes         |       | 4.5                                         |       | (0.3 | ) | (23.4 | ) | (8.2 | ) | (4.7 | ) |
| Minority  interest                           |       | —                                      |       | (1.2 | ) | — |   | — |   | — |   |
| Income tax  (provision) benefit              |       | (3.5                                        | )          | 4.1 |   | — |   | — |   | — |   |
|                                         |       |                                        |       |   |   |   |   |   |   |   |   |
| Net earnings  (loss)                         |       | 1.0                                         | %          | 2.6 | % | (23.4 | )% | (8.2 | )% | (4.7 | )% |

 

Our cost structure isparticularly sensitive to increasing television advertising and productioncosts and travel related expenses. However, a very meaningful part of our cost structure is variable innature, such as instructor, field representatives and outreach related costswhich are primarily a function of sales realized.

 

We obtain the majority ofour students through free introductory workshops.  These introductory workshops are establishedin various metropolitan areas in the United States, the United Kingdom andCanada.  Prior to the actual workshop, weexpend a significant amount of money in the form of advertising through variousmedia channels.  The following tablerepresents the expense categories that comprise advertising and sales expensefor the three years in the period ended December 31, 2006, and theexpense categories as a percentage of total advertising and sales expense (inthousands):

 
| ** **                     | ** ** | **Years ended December 31,** | ** ** |
|--------------------------------|------------|---------------------------------------------|------------|
| **Expense category**      | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                     | ** ** | **(restated)**                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Television  expense            |       | $                                           | 37,754     |   | 58.7 | % | $ | 33,179 |   | 66.6 | % | $ | 31,660 |   | 63.8 | % |
| Direct mail  expense           |       | 6,580                                       |       | 10.2 |   | 5,041 |   | 10.1 |   | 6,938 |   | 14.0 |   |
| Newspaper  expense             |       | 2,492                                       |       | 3.9 |   | 3,345 |   | 6.7 |   | 3,030 |   | 6.1 |   |
| Internet expense               |       | 3,198                                       |       | 5.0 |   | 10 |   | — |   | 466 |   | 0.9 |   |
| Radio expense                  |       | 157                                         |       | 0.2 |   | — |   | — |   | 860 |   | 1.7 |   |
| Media spending                 |       | 50,181                                      |       | 78.0 |   | 41,575 |   | 83.4 |   | 42,954 |   | 86.5 |   |
| Outreach sales  commissions    |       | 14,188                                      |       | 22.0 |   | 8,264 |   | 16.6 |   | 6,710 |   | 13.5 |   |
| Advertising and  sales expense |       | $                                           | 64,369     |   | 100.0 | % | $ | 49,839 |   | 100.0 | % | $ | 49,664 |   | 100.0 | % |

 

Our advertising and salesexpense represented approximately 28.7% of our revenue in 2006.  Overall advertising and sales expense overthe past five years increased at a 41.0% compound annual growth rate ascompared to a 40.3% compound annual growth rate for revenue over the same fiveyear period.

 

Approximately27.9% of those students attending the introductory workshops purchase one ormore of our courses.  For advancedcourses, the student pays the tuition at the time of registering for the courseor program.  As reflected in the 

 

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following chart,cash sales from course and product sales differ from the revenue reported forfinancial statement purposes (in thousands):

 
| ** **                                   | ** ** | **Years ended December 31,** | ** ** |
|----------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                   | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                   | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash received  from course and product sales |       | $                                           | 223,060    |   | $ | 196,396 |   | $ | 164,087 |   | $ | 109,273 |   | $ | 62,759 |   |
| Less: Net change  in deferred revenue        |       | 1,594                                       |       | (33,289 | ) | (27,828 | ) | (19,468 | ) | (11,581 | ) |
| Revenue for  financial reporting purposes    |       | $                                           | 224,654    |   | $ | 163,107 |   | $ | 136,259 |   | $ | 89,805 |   | $ | 51,178 |   |

 

Due to the timingdifferences between cash collection and the time at which our students actuallytake the course, we have historically recorded a substantial amount of deferredrevenue.  Deferred revenue at the end ofeach year may result in reported revenues in subsequent years.  In 2006, revenue was significantly improvedby the recognition of $55.4 million related to course breakage.  As reflected in the table below, our deferredrevenue as a percentage of total revenue has ranged from 51.4% to 71.7% since2002 (in thousands).

 
| ** **                                   | ** ** | **Years ended December 31,** | ** ** |
|----------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                   | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                   | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Deferred revenue                             |       | $                                           | 115,408    |   | $ | 117,002 |   | $ | 83,713 |   | $ | 55,885 |   | $ | 36,417 |   |
| Revenue for  financial reporting purposes    |       | $                                           | 224,654    |   | $ | 163,107 |   | $ | 136,259 |   | $ | 89,805 |   | $ | 51,178 |   |
| Deferred revenue  as a percentage of revenue |       | 51.4                                        | %          | 71.7 | % | 61.4 | % | 62.2 | % | 71.2 | % |

 

The vast majority of ourcosts to acquire the student are expended up to the point of registration, suchas media, travel, facilities, and instructor fees for the introductoryworkshops; these costs are expensed when incurred.  However, the tuition paid at registration isdeferred until the course is attended or received in electronic format by thestudent, at which time the revenue is deemed earned.  If the student does not attend the course, werecognize the revenue based upon the likelihood of the attendance by thestudent is remote (course breakage), which is based upon the historicalpercentage of students who never attended a course subsequent to expiration andthe highest number of days in which 95% of those students who attended a coursesubsequent to expiry.  Thus, reportingunder generally accepted accounting principles in the United States of America(U.S. GAAP) creates significant timing differences with respect to revenue andexpenses, both in the form of cash flows and in the form of our ConsolidatedStatement of Operations.  As a result ofthese factors, our operating cash flows can vary significantly from our resultsof operations for the same period.  Forthis reason, we believe Adjusted EBITDA is an important non-GAAP operatingmetric.

 

We can continue to havedifferences between cash flows and reported revenues in our ConsolidatedStatement of Operations as the students have yet to take the courses they havepaid for.  The overall expensesassociated with delivering the advanced courses are significantly lower thanthe expenses surrounding the introductory courses.  We hire speakers, instructors, trainers andmentors on an independent contractor basis. These individuals are compensated primarily on a commission basis orsometimes on a fixed fee basis.

 

***Financial marketseducation segment***

 

EduTrades,our financial markets education division, began operations in July 2002,with the acquisition of *Teach Me to Trade*®, with sales commencing in the fourth quarter of 2002.

 

One-half of all U.S.households own stocks, either directly or through a mutual fund or retirement plan,according to a 2005 survey by the Securities Industry Association, FederalReserve Board and U.S. Census Bureau. This represents 56.9 million households in 2005, when compared to40.0 million ten years ago, and 15.9 million in 1983.  Investment in the stock market and in mutualfunds continues to be significant.  In2005, equity fund inflows amounted to $147.6 billion, followed by $157.9billion in 2006.

 

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Approximately 67% of allequity investors are between the ages of 35 and 64, with a median and mean ageof 51 years of age, the peak earning and investing years, according to theSecurities Industry Association/Investment Company Institute survey.  According to the U.S. Census Bureau and thesame survey, of the 91.1 million individuals, or approximately one-thirdof all Americans, who own equities:

 

·                  The medianhousehold income is $65,000;

 

·                  The medianfinancial household assets are $125,000;

 

·                  70% are married;

 

·                  56% are collegegraduates; and

 

·                  70% areemployed.

 

Since the time of thesurvey, investment in the stock market and mutual funds continues to besubstantial, and there has been significant growth in investments in alternatefinancial instruments such as options, single stock futures and indexes.  Trading in option contracts reached recordlevels again in 2006.  According to theChicago Board Options Exchange (“CBOE”), there were 674.7 million optioncontracts traded in 2006 compared to 468.2 million in 2005, a 44.1%increase.  This trend has continuedthrough the first two months of 2007, where trades in option contracts haveincreased 24% to 122.6 million contracts. The volume of exchange traded funds on the CBOE increased by 64.5% in2006 as compared to 2005.

 

Our financial markets education segment has become agrowing part of our business, as reflected in the following table:

 
| ** **                                                    | ** ** | **Years ended December 31,** | ** ** |
|---------------------------------------------------------------|------------|---------------------------------------------|------------|
| **As a percentage of total revenue** | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                    | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Real estate  education (domestic and international)           |       | 49.9                                        | %          | 71.4 | % | 76.0 | % |
| Financial  markets education                                  |       | 50.1                                        |       | 28.6 |   | 24.0 |   |
|                                                          |       | 100.0                                       | %          | 100.0 | % | 100.0 | % |

 

***Non-core investments(restated)***

 

As of December 31,2006, we had investments in several Costa Rica and Panamanian entities.  In addition, two of our former executives,including the Company’s former Chairman and Chief Executive Officer, Russell A.Whitney, and the former Co-President and Chief Operating Officer, Ronald Simon,had individual interests in some of these entities.

 

Theownership interests in the entities as of December 31, 2006, are presentedin the following table:

 
| ** **                     | ** ** | ** **              | ** ** | **As of December 31, 2006** | ** ** |
|--------------------------------|------------|-------------------------|------------|-------------------------------------------------|------------|
| **Entity**                     | ** ** | **Description**         | ** ** | **Accounting   Method Used**          | ** ** | **Company   Ownership** | ** ** | **Company   Investment****/Loan ** | ** ** |
| ** **                     | ** ** | ** **              | ** ** | ** **                                      | ** ** | ** ** | ** ** | **($000’s)** | ** ** |
| Rancho Monterey,  S.A.(a)      |       | Raw land sales          |       | Equity                                          |       | 30.0 | % | $ | 371.2 |   |
| Monterey del Este, S.A.(a)     |       | Raw land sales          |       | Equity                                          |       | 8.0 | % | 312.7 |   |
| MDM/MTO (b)                    |       | Hotel / land concession |       | Equity                                          |       | 48.0 | % | 1,617.3 |   |
| Monterey  Management, S.A  (c) |       | Management services     |       | N/A                                             |       | 0.0 | % | 321.1 |   |
| Beautiful Hill,  S.A. (a)(d)   |       | Conference center       |       | Consolidation                                   |       | 100.0 | % | 757.3 |   |
| Total                          |       |                    |       |                                            |       |   |   | $ | 3,379.6 |   |

 

----

N/A –    Notapplicable

 

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(a)           Theentities were sold in January 2008.

 

(b)           Thefull entity names are Monterey del Mar, S.A. (“MDM”) and Mar y Tierra delOeste, S.A. (“MTO”).  We own a 20%interest in this entity; however, we hold a 48.0% voting interest in MDM/MTO.

 

(c)           Theowner of record of Monterey Management S.A. is Ms. Jimenez, an independentcontractor for the Company.  In 2006, weadvanced $300,000 in working capital funds to this entity.  This amount was subsequently paid in fullduring May 2008.  We do not have anyownership in this entity.

 

(d)           Thehistorical cost and related depreciation for the conference center are reflectedin “property and equipment” on our Consolidated Balance Sheets.

 

Ourinvestments in Rancho Monterey, S.A., Monterey del Este, S.A. and MDM/MTO are accounted for in our ConsolidatedFinancial Statements under the equity method of accounting.  Our investment in Beautiful Hill isconsolidated in our Consolidated Financial Statements.  For the years ended December 31, 2006,2005, and 2004, under the equity method of accounting, we recorded our share ofthe loss related to our direct interests in these entities of approximately $100,000,$200,000 and zero, respectively.

 

Inaddition, we own a 50% interest in Monterey del Llano, S.A., which owns aone-third interest in Monterey Group, S.A., whose only asset is two andone-half acres of beachfront land adjacent to Monterey del Mar, S.A., our hotelproperty.  Monterey del Llano, S.A. andMonterey Group, S.A. are not operating entities and have no operatingresults.  Therefore, we do not record anequity interest related to these entities.

 

*SCB Building*

 

In 2003, we acquired a 50% equity interest in SCBBuilding, LLC (“SCB”), whose main asset was an office building in Orlando,Florida.  The other 50% member had a$2.0 million minority interest in SCB, which was contributed in the formof a $4.0 million building subject to a $2.0 million mortgage.  Subsequent improvements of approximately$9.6 million were made to the building and were financed primarily bylong-term debt.  As the guarantor of thedebt of SCB, the financial statements and results from operations areconsolidated in the accompanying consolidated financial statements with aprovision for minority interest of the other 50% owner.  In March 2006, we acquired the remaining50% of SCB Building LLC through the issuance of $3.6 million of long-termdebt.  The remaining asset of the SCBBuilding, LLC is a note receivable, resulting from the sale of the building,which is included in our consolidated balance sheets.

 

*Southwest Florida Investment*

 

In2004, we entered into a joint venture under which we hold a 50% interest inTranquility Bay of Southwest Florida, LLC which owns 74 acres of landzoned for residential development in Southwest Florida.  We do not intend to keep our interest as along-term holding and will divest this investment at the appropriate time.  The investment entity has no ongoing activityother than minimal costs of carrying the land. We recorded our share of these costs, which were insignificant, in 2006,2005 and 2004, under the equity method of accounting.

 

**Critical Accounting Policies**

 

The discussion and analysis of our financialcondition and results of operations are based upon our consolidated financialstatements, which have been prepared in conformity with accounting principlesgenerally accepted in the United States. The preparation of these financial statements requires management tomake estimates and assumptions that affect the amounts reported in theconsolidated financial statements and the accompanying notes.  Actual results could differ from theseestimates under different assumptions or conditions.  We believe the following critical accountingpolicies affect our more significant estimates and assumptions used in thepreparation of our consolidated financial statements and accompanying.

 

*Revenue recognition policy*

 

We recognize revenue inaccordance with Staff Accounting Bulletin, No. 104, “*Revenue Recognition*,” (“SAB No. 104”)and Emerging Issues Tasks Force No. 00-21, “*Accounting for Revenue Arrangements with Multiple Deliverables,*”(“EITF No. 00-21”).  We recognizerevenue when : (i) persuasive evidence of an arrangement exists, (ii) deliveryof product has occurred or services have been rendered, (iii) the price tothe buyer is fixed or determinable, and (iv) collectibility is reasonablyassured.  For product sales, theseconditions are generally met upon shipment of the product to the customer orcompletion of the 

 

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sale transaction.  For training and service sales, theseconditions are generally met upon presentation of the training seminar ordelivery of the service.

 

Some of our training andconsulting contracts contain multiple deliverable elements that includetraining along with other products and services.  In accordance with EITF No. 00-21, salesarrangements with multiple deliverables are divided into separate units ofaccounting if the deliverables in the sales contract meet the followingcriteria: (i) the delivered training or product has value to the client ona standalone basis: (ii) there is objective and reliable evidence of thefair value of undelivered items; and (iii) delivery of any undelivereditem is probable.  The fair value of eachelement is generally determined by prices charged when sold separately.  In certain arrangements, we offer theseproducts bundled together at a discount. The discount is allocated pro-rata to each element based on the relativefair value of each element when fair value support exists for each element inthe arrangements.  The overall contractconsideration is allocated among the separate units of accounting based upontheir fair values, with the amount allocated to the delivered item being limitedto the amount that is not contingent upon the delivery of additional items ormeeting other specified performance conditions. If the fair value of all undelivered elements exists, but fair valuedoes not exist for one or more delivered elements, the residual method isused.  Under the residual method, theamount of consideration allocated to the delivered items equals the totalconsideration less the aggregate fair value of the undelivered items.  Fair value of the undelivered items is basedupon the normal pricing practice for the Company’s existing training programs,consulting services, and other products, which are generally the prices of theitems when sold separately.

 

Eachtransaction is separated into its specific elements and revenue for eachelement is recognized according to the following policies:

 
| **Product**                      | ** ** | **Recognition Policy**                                                    |
|----------------------------------|------------|--------------------------------------------------------------------------------|
| Seminars  (camps)                |       | Deferred  and recognized as the seminar or camp is provided                    |
| Home  Study (DVDs)               |       | Recognized  upon delivery to customer                                          |
| Online  courses                  |       | Deferred  and recognized as service is delivered                               |
| Coaching  and mentoring sessions |       | Deferred  and recognized as service is provided                                |
| Data subscriptions and  renewals |       | Deferred and recognized  on a straight-line basis over the subscription period |

 

In the normal course ofbusiness we recognize revenue based on the students attendance of the course,event, mentoring training, coaching session or delivery of the software, dataor course materials.

 

When the likelihood of attendance by the student isremote, course breakage is calculated on the historical percentage of (i) studentswho never attended a course, (ii) those students who never attended acourse subsequent to expiration; and (iii) the highest number of days inwhich 95% of students who attended our courses did so subsequent to expiration.

 

We determine our coursebreakage rate based upon estimates developed from historical student attendancepatterns.  Typically we use a three yearperiod to estimate the student’s attendance patterns.  Based on the historical information, we areable to determine the likelihood of an expired course remainingunattended.  We have determined that thecompany does not have a legal obligation to remit the value of expired coursesto the relevant taxing jurisdictions.

 

To the extent new linesof business do not have adequate historical data, subsequent to courseexpiration, we recognize revenue based upon course attendance.  Only at such time that we have developedverifiable and objective data from our historical data subsequent to courseexpiration will we apply course breakage based on the methodology describedabove.

 

Deferred revenue occursfrom seminars, on-line courses, coaching sessions and website subscriptions andrenewals when payment is received before the service has been performed.  Deferred revenue is recognized into revenueover the period that the services are performed.

 

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*Teleconferencing and subscriptionservices*

 

Asrequired by Financial Accounting Standard Board’s Emerging Issues Task ForceIssue No. 00-21, *Revenue Arrangementswith Multiple Deliverables*and the SEC’s Staff Accounting Bulletin No. 104,our teleconferencing product and service offering is an arrangement with multipledeliverables.  The delivered items shouldbe considered a separate unit of accounting if all of the following criteriaare met:

 

·                  The delivered item(s) has value to the customeron a standalone basis.  That item(s) hasvalue on a standalone basis if it is sold separately by any vendor or thecustomer could resell the delivered item(s) on a standalone basis.  In the context of a customer’s ability toresell the delivered item(s), the Task Force observed that this criterion doesnot require the existence of an observable market for the deliverable(s).

 

·                  There is objective and reliable evidence of the fairvalue of the undelivered item(s).

 

·                  If the arrangement includes a general right ofreturn relative to the delivered item, delivery or performance of theundelivered item(s) is considered probable and substantially in thecontrol of the vendor.

 

We determined thecriteria detailed above have been met:

 

·                  The product and the service have value to thestudent on a standalone basis.

 

·                  The product can be and is sold separately.

 

·                  As discussed below, we feel there is objective andreliable evidence to determine the value of the product.

 

·                  Lastly, there are no general rights of return forthe teleconferencing offering.

 

We recognized as revenuethe product portion of the deliverable at point of purchase, and amortize theservice component over the life of the package.

 

*Deferred expenses*

 

Certain direct course expenses are deferred until suchtime as the course is conducted and the related revenue is earned.

 

*Long-lived assets and intangibles*

 

Periodically, we reviewour long-lived assets for impairment.  Werecord an impairment loss when the indications of impairment are present andundiscounted cash flows estimated to be generated by those assets are less thanassets’ carrying value.  We evaluate theremaining life and recoverability of long-lived assets, including patents andtrademarks, whenever events or changes in circumstances indicate that thecarrying amount of these assets may not be recoverable.  At such time, we estimate the future cashflows expected from the use of the assets and their eventual dispositions andif lower than the carrying amounts, adjust the carrying amount of the assets totheir estimated fair value.  Because ofour changing business conditions including current and projected level ofincome, business trends, prospects and market conditions, our estimates of cashflows to be generated from our operations could change materially, resulting inthe need to record additional impairment charges.  As a result of our analysis for the yearsended December 31, 2006, 2005, and 2004, we recorded an impairment of $3.6million for 2006 and zero for each of the years ended 2005 and 2004.

 

*Stock-based compensation*

 

Effective January 1,2006, we adopted Statement of Financial Accounting Standards No. 123 (R), “*Share-based Payment,*” (“SFAS No. 123(R)”) using themodified prospective approach.  Underthis transition method, stock-based compensation expense for 2006 includescompensation expense for all stock-based compensation awards granted prior to,but not yet vested as of January 1, 2006, based on the grant-date fairvalue estimated in accordance with the grant-date fair value estimated inaccordance with the provisions of SFAS No. 123(R).  Stock-based compensation expense for allstock-based compensation awards granted after January 1, 2006, is based onthe grant-date fair value estimate in accordance with the provisions of SFAS No. 123(R).  We recognize these compensation costs on astraight-line basis over the requisite service period of the award, which isgenerally the option vesting term of 25% upon grant and 25% per year over thenext three years or immediately.

 

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Valuations are based onhighly subjective assumptions about the future, including stock pricevolatility and exercise patterns.  Thefair value of share-based payment awards is estimated using the Black-Scholesoption pricing model.  Expected volatilitiesare based on the historical volatility of our stock.  We use historical data to estimate optionexercise and employee terminations.  Theexpected term of options granted represents the period of time that optionsgranted are expected to be outstanding. The risk-free rate for the periods within the expected life of theoptions is based on the U.S. Treasury risk free rate.

 

Prior to the adoption ofSFAS No. 123 (R), we accounted for stock-based compensation in accordancewith Accounting Principles Board Opinion No. 25, Accounting for StockIssued to Employees (“APB No. 25”).

 

*Incometaxes*

 

Weaccount for income taxes using the asset and liability method in accordancewith SFAS No. 109, “*Accounting for IncomeTaxes*,” (“SFAS No. 109”). Accounting for income taxes requires us to estimate our income taxes ineach jurisdiction in which we operate. Due to differences in the recognition of items included in income foraccounting and tax purposes, temporary differences arise which are recorded asdeferred tax assets or liabilities. Deferred tax assets and liabilities are measured using enacted laws andtax rates expected to apply to taxable income in the years in which thosetemporary differences are expected to be recovered or settled.  Should any amounts be determined not to berecoverable, or assumptions change, we would be required to take a charge toestablish a valuation allowance against such deferred tax assets.  At December 31, 2006, a valuationallowance reduced net tax assets to zero.

 

*Accountingfor litigation and settlements*

 

We areinvolved in various legal proceedings.  Dueto their nature, such legal proceedings involve inherent uncertaintiesincluding, but not limited to, court rulings, negotiations between affectedparties and the possibility of governmental intervention.  Management assesses the probability of lossfor such contingencies and accrues a liability and/or discloses the relevantcircumstances as appropriate.  Whilecertain of these matters involve substantial amounts, management believes,based on available information, that the ultimate resolution of such legalproceedings will not have a material adverse effect on our financial conditionor results of operations.

 

The critical accountingpolicies discussed above are not intended to be a comprehensive list of all ofour accounting policies.  In many cases,the accounting treatment of a particular transaction is specifically dictatedby accounting principles generally accepted in the United States, with no needfor management’s judgment in their application. There are also areas in which management’s judgment in selecting anyavailable alternative would not produce a materially different result.

 

**YearEnded December 31, 2006, compared to Year Ended December 31, 2005**

 

**Revenue**

 

Ourrevenue for the year ended December 31, 2006, amounted to$224.7 million, an increase of $61.6 million or 37.7% over$163.1 million for the year ended December 31, 2005 (in thousands):

 
| ** **                                         | ** ** | **Years ended December 31,** | ** ** | ** ** | ** ** |
|----------------------------------------------------|------------|---------------------------------------------|------------|------------|------------|
| ** **                                         | ** ** | **2006**                                    | ** ** | **2005**   | ** ** | **Change** | ** ** |
| ** **                                         | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| *Cash  received from course and product sales:*    | * *   | * *                                    | * *   | * *   | * *   | * * | * * |
| * *                                           | * *   | * *                                    | * *   | * *   | * *   | * * | * * |
| Basic training  sessions                           |       | $                                           | 22,677     |       | $          | 25,017 |   | (9.4 | )% |
| Advanced courses                                   |       | 176,740                                     |       | 152,423    |       | 16.0 |   |
| Product sales                                      |       | 14,089                                      |       | 12,317     |       | 14.4 |   |
| Other                                              |       | 9,554                                       |       | 6,639      |       | 43.9 |   |
| Total cash  received from course and product sales |       | 223,060                                     |       | 196,396    |       | 13.6 |   |
| Net change in  deferred revenue                    |       | 1,594                                       |       | (33,289    | )          | (104.8 | ) |
| Revenue for  financial reporting purposes          |       | $                                           | 224,654    |       | $          | 163,107 |   | 37.7 | % |

 

Our advanced coursesrepresent 79.2% of cash received from course and product sales in 2006, animprovement of 1.6% over 2005.  Thegrowth in advanced course sales via outreach programs more than offset thedecline realized in basic 

 

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training sessions.  Cash received via outreach (telemarketing)programs from course and product sales in 2006 increased 47.8% to $59.7 millionwhen compared to $40.4 million in 2005. Cash received via outreach programs from course and product sales areincluded in advanced course sales.  Wedecided to reduce the tuition prices for the basic training sessions in 2005 toprovide the opportunity for more students to benefit from our offerings andallow them to be exposed to our advanced courses.  Our advanced course tuition pricing increasedmid-first quarter of 2005 by 10.2% weighted average on an annualized basis.

 

Thefollowing illustrates the number of educational events, the number of studentsand the average number of students per paid course for the comparative periods:

 
| ** **                          | ** ** | **Years ended December 31,** | ** ** | ** ** | ** ** |
|-------------------------------------|------------|---------------------------------------------|------------|------------|------------|
| ** **                          | ** ** | **2006**                                    | ** ** | **2005**   | ** ** | **Change** | ** ** |
| *Number  of courses*                | * *   | * *                                    | * *   | * *   | * *   | * * | * * |
| Free  introductory workshops        |       | 5,205                                       |       | 4,744      |       | 9.7 | % |
| Basic training  sessions            |       | 1,070                                       |       | 939        |       | 14.0 |   |
| Advanced live  courses              |       | 611                                         |       | 651        |       | (6.1 | ) |
| Advanced  electronic courses        |       | 166                                         |       | 162        |       | 2.5 |   |
|                                |       | 7,052                                       |       | 6,496      |       | 8.6 | % |
| *Number  of attending students*     | * *   | * *                                    | * *   | * *   | * *   | * * | * * |
| Basic training  sessions            |       | 59,244                                      |       | 53,742     |       | 10.2 | % |
| Advanced live  courses              |       | 16,216                                      |       | 13,837     |       | 17.2 |   |
| Advanced  electronic courses        |       | 8,224                                       |       | 5,133      |       | 60.2 |   |
|                                |       |                                        |       |       |       |   |   |
|                                |       | 83,684                                      |       | 72,712     |       | 15.1 | % |
| *Average  students per paid course* | * *   | * *                                    | * *   | * *   | * *   | * * | * * |
| Basic training  sessions            |       | 55.4                                        |       | 57.2       |       | (3.3 | )% |
| Advanced live  courses              |       | 26.5                                        |       | 21.3       |       | 24.4 |   |
| Average students  per paid course   |       | 44.9                                        |       | 42.5       |       | 5.6 | % |

 

Our financial marketseducation segment’s cash received from courses and product grew to $112.6million, a $36.9 million increase, or 48.7%, over the $75.7 million receivedduring 2005.  The domestic real estateeducation segment decreased $9.4 million, or 8.6%, to $100.2 million whencompared to 2005.  Our internationalsegment’s cash received from product and course sales decreased by $0.8million, or 7.2%, to $10.3 million when compared to 2005.

 

We experienced a 10.0%decrease in the number of overall registrations to our free introductoryworkshops in 2006 compared to the same period in 2005.

 

On a brand level,domestic brands had a mixed performance in the year ended December 31,2006, over the same period in 2005. Leading the way was *Teach Me To Trade*® with a 65.7% increase in cash received from courseand product sales over the same period in 2005, while our most mature brands, *Russ Whitney*®*’sBuilding Wealth*TM and *CashFlow Generator*® declined 17.0% and 21.5%, respectively, overthe same timeframe reflecting in part, the macroeconomic implication of adeclining real estate industry.  Cashreceived from our international brands for course and product sales declined7.2% over the comparable period in 2005. Our United Kingdom business was the leading contributor to the decline.

 

Prospective studentsregistering for our free introductory workshops via our branded websitesimproved 3.3% for the year ended December 31, 2006, when compared to thecomparable 2005 period.  We introducedon-line advertising in 2006.  Thiscategory sourced 1.9% of the prospective students in its first year.  However, we saw a decline in response in ournewspaper effort in the year ended December 31, 2006, as compared to thesame period in 2005.  The following chartreflects the media source by which prospective students accessed our freeintroductory workshops:

 

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| ** **          | ** ** | **Years ended December 31,** | ** ** |
|---------------------|------------|---------------------------------------------|------------|
| ** **          | ** ** | **2006**                                    | ** ** | **2005** | ** ** |
|                |       |                                        |       |   |   |
| Television          |       | 64.9                                        | %          | 69.7 | % |
| Direct mail         |       | 11.8                                        |       | 11.4 |   |
| Newspaper           |       | 2.6                                         |       | 3.8 |   |
| Website             |       | 18.4                                        |       | 15.1 |   |
| Online  advertising |       | 1.9                                         |       | — |   |
| Other               |       | 0.4                                         |       | — |   |
|                |       | 100.0                                       | %          | 100.0 | % |

 

Revenue recognized fromcourse breakage was $55.4 million in the year ended December 31, 2006,compared to $16.6 million in the year ended December 31, 2005, an increaseof $38.8 million.  The large increase isthe result of the initial application of course breakage, in the fourth quarterof 2006, related to the period from the fourth quarter of 2003 to the fourthquarter of 2005 in our financial markets education segment and United Kingdombusiness, which totaled $21.8 million. Revenue from course breakage was 24.7% and 10.2% of total revenue forthe years ended December 31, 2006 and 2005, respectively.

 

We have expanded ouroptions for course delivery towards our goal of reducing the number of expiredcontracts.

 

We have increased thenumber of courses offered on DVD and the opportunities to take courses via theInternet and have expanded our location options for students within the UnitedStates.  We have also implementedoutreach notifications by email and the U.S. mail as courses near expiration.

 

**Operating expenses**

 

*Direct course expenses*

 

Directcourse expenses relate to our basic training sessions and advanced courses, andconsist of instructor fees, facility costs, salaries associated with our fieldrepresentatives and related travel expenses.

 

In the year ended December 31,2006, direct course expenses increased $15.8 million to$111.5 million, or 16.5% and an increase from $95.7 million in thesame period of 2005.  As a percentage ofrevenue, direct course expenses improved 9.0 percentage points (pp) from 58.6%in the year ended December 31, 2005, to 49.6% in the same period in2006.  The decline as a percentage ofrevenue was aided by the significant increase in revenue related to coursebreakage when compared to 2005.  Thecomponents of direct course expenses as a percentage of revenue changed asfollows:

 
| ** **                                            | ** ** | **Margin change  2006 vs. 2005** | ** ** |
|-------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                            | ** ** | **Increase (Decrease)**                    | ** ** |
| Decrease in  event expense as a percentage of revenue |       | (5.9                                            | )pp        |
| Decrease in  commissions as a percentage of revenue   |       | (2.3                                            | )          |
| Decrease in  product cost as a percentage of revenue  |       | (0.8                                            | )          |
|                                                  |       | (9.0                                            | )pp        |

 

*Advertising and sales expense*

 

Advertisingand sales expense as a category consists of two components:

 

·                  Purchasedmedia to generate registrations to our free introductory workshops, and

 

·                  Costsassociated with supporting student recruitment.

 

Advertising and salesexpense for 2006 amounted to $64.4 million, an increase of 29.3%, or $14.6million, compared to $49.8 million in 2005.  Advertising and sales expense in the 2006period was 28.7% of revenue, as compared to 30.6% of revenue for the comparableperiod in 2005.  The decline as apercentage of revenue was supported by the 

 

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significant increase inrevenue related to course breakage when compared to 2005.  The following chart illustrates this changeof 1.9 percentage points (pp):

 
| ** **                                                                   | ** ** | **Margin change   2006 vs. 2005** | ** ** |
|------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **Increase (Decrease)**                          | ** ** |
| Decrease in  creative expense for new commercials as a percentage of revenue |       | (3.0                                                  | )pp        |
| Increase in  sales mix from outreach (telemarketing) programs                |       | 1.1                                                   |       |
|                                                                         |       | (1.9                                                  | )pp        |

 

Ourmedia spending increased by 20.7% in the year ended December 31, 2006,over the same period in 2005.  We alsoshifted some of our media spending from television and newspaper to Internetadvertising during the past year, as reflected in the following media spendingas a percentage of total media spending:

 
| ** **         | ** ** | **Years ended December 31,** | ** ** |
|--------------------|------------|---------------------------------------------|------------|
| ** **         | ** ** | **2006**                                    | ** ** | **2005** | ** ** |
|               |       |                                        |       |   |   |
| Television         |       | 75.2                                        | %          | 79.8 | % |
| Direct mail        |       | 13.1                                        |       | 12.1 |   |
| Newspaper          |       | 5.0                                         |       | 8.0 |   |
| Website and  other |       | 6.7                                         |       | 0.1 |   |
|               |       | 100.0                                       | %          | 100.0 | % |

 

Our increase in sales commissionswas a result of an access mix shift to outbound sales, which saw a 47.6%increase in cash received from course and product sales over the same period in2005.  In 2006 and 2005, direct salescommission’s increased 71.7% and 23.2%, respectively, over the prior year.  Our outreach programs cash received fromcourse and product sales increased by 47.6% and 70.4% in 2006 and 2005,respectively, over the prior year.

 

*General and administrative expenses*

 

Generaland administrative expenses primarily consist of compensation, benefits,insurance, facility expense and travel for the corporate staff.

 

General andadministrative expenses were $34.7 million in the year ended December 31,2006, an increase of $8.7 million, or 33.5%, as compared to $26.0 million inthe year ended December 31, 2005. As a percentage of revenue, general and administrative expensesdecreased from 15.9% of revenues in 2005 to 15.5% of revenue in 2006 as resultof leveraging higher cost against significantly higher revenue base, assistedby the revenue associated with course breakage recognition.

 

Generaland administrative expenses for 2006 included:

 

·                  $1.6 million in expenses associatedwith the implementation of our customer relationship management informationsystem;

 

·                  $1.4 million for a gift to the widowof our former President and Chief Operating Officer who passed away in 2002,the gift is valued at $0.9 million, consisting of 98,156 shares of our commonstock plus the related income taxes;

 

·                  $1.4 million in incremental salaries,benefits and other infrastructure spending;

 

·                  $0.9 million in incrementalprofessional fees; and

 

·                  $0.9 million in non-cash stock optionand warrant compensation expense, approximately $0.8 million of this expense isin connection with the implementation of SFAS No. 123R as of January 1,2006 (prior year’s general and administrative expenses did not include anystock option expense).

 

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*Impairment of assets*

 

We recorded an asset impairment of $3.6 million in2006 for goodwill, property and equipment, inventory and intangible assetsdetailed as follows for the year ended December 31, 2006 (in thousands):

 
| Impairment  expense related to goodwill               |   | $   | 2,000  |   |
|-------------------------------------------------------|--------|-----|--------|--------|
| Impairment  expense related to intangible assets      |   | 687 |   |
| Impairment  expense related to property and equipment |   | 756 |   |
| Impairment  expense related to inventory              |   | 147 |   |
|                                                  |   | $   | 3,590  |   |

 

We recognized a fullimpairment of the $2.0 million in goodwill associated with *Star Trader*® as a result of discontinuing the brand, $0.1million in *Star Trader*® related intangible assets and an additional$0.1 million in related inventory.  Weare also repositioning the *Cash Flow Generator*® brand, recognizing impairment on the relatedintangible asset of $0.5 million and an additional $0.1 million in relatedinventory.  Additionally, we reduced thenet book value of our United Kingdom office and corporate aircraft by $0.4million and $0.4 million, respectively, to reflect their net realizable values.  We intend to sell these assets in the secondquarter of 2007.  No impairment of assetswas recognized in 2005.

 

*Special items*

 

Special items incurred inthe year ended December 31, 2006, increased $2.1 million to $2.3 million,or a 1,050.0% increase from $0.2 million in the same period of 2005.  As a percentage of revenue, special itemsincreased 0.9% from 0.1% in the year ended December 31, 2005, to 1.0% inthe same period of 2006.

 

Special items included the following:

 

·                  $0.8 million expense associated withthe liquidated damages provision in the registration rights agreement;

 

·                  $0.9 million expense associated withthe withdrawal of the EduTrades, Inc. Registration Statement on Form S-1;and

 

·                  $0.6 million in professional feesassociated with the proceedings by the SEC and the Department of Justice.

 

*Earnings (loss) from operations*

 

We hadearnings from operations of $8.2 million in the year ended December 31,2006, compared to a loss from operations of $8.6 million in the comparable2005 period.  Our increase in revenue of37.7% more than offset the 26.1% increase in operating expenses.  The primary contributor to the improvementwas the recognition of $55.4 million in course breakage revenue, which has aninsignificant direct corresponding expense in the current 2006 period.

 

*Other (expense) income*

 

Otherexpense in 2006 was $(0.1) million as compared to other income of $1.6 millionfor the year ended December 31, 2005. In the 2005 period, we had a $6.6 million gain on sale of assetscompared to a $0.1 million gain in the 2006 period.

 

Interest income, net, forthe year ended December 31, 2006, increased by $1.9 million to$1.9 million as a result of the increase in cash and cash equivalentsbalances resulting from increased course registration receipts, proceeds fromthe stock offering and related warrant exercise in the fourth quarter of 2005,and third quarter of 2006, respectively, the exercise of stock options and moreeffective cash management and deployment of excess cash.

 

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*Income tax (provision) benefit*

 

We recognize deferred tax assets and liabilities, atenacted income tax rates, based on the temporary differences between the financialreporting basis and the tax basis of our assets and liabilities.  We include any effects of changes in incometax rates or tax laws in the provision for income taxes in the period ofenactment.  When it is more likely thannot that a portion or all of a deferred tax asset will not be realized in thefuture, we provide a corresponding valuation allowance against the deferred taxasset.

 

In 2005, we determinedthat it was more likely than not that we would realize our deferred tax assetand accordingly, we reversed our valuation allowance of $20.4 million by $6.3million in the fourth quarter.

 

Since that time, thefollowing important developments have changed our judgment regarding thelikelihood that the deferred tax asset will be realized:

 

·                  Weare incurring significant expenses associated with proceedings from the SEC,DOJ, and Florida State Attorney General investigations.  There is no clear visibility to theconclusion of these investigations or their respective outcomes.

 

**·****                **The investigationsresulted in class action and derivative shareholder lawsuits, with theresulting additional expense and uncertainty.

 

·                  Theimpairment of two of our brands, *Star Trader®*and *Cash Flow Generator®* (in its currentform) has affected our revenue and cash flows, again providing less visibilityinto the future.

 

As of December 31,2006, we are estimating that our taxable income will not exceed the amountnecessary to utilize our deferred tax assets. Therefore, we are increasing our valuation allowance from $14.1 millionto $17.6 million.

 

We estimate that we willbe liable for approximately $0.4 million in state and non-U.S. taxes forthe year ended December 31, 2006.

 

*Netearnings*

 

Net earnings in the year ended December 31, 2006,amounted to $2.3 million, compared to net earnings of $4.2 million for theyear ended December 31, 2005.  Thedecrease in earnings was $1.9 million, or 45.2%.  The $3.6 million impairment of assets, $2.3million in special items and the $6.3 million reversal of the deferred tax assetestablished in 2005, partially offset by the incremental increase in revenuedue to course breakage, contributed to the decline in net earnings for 2006 ascompared to 2005.  Net earnings in 2005included the reversal of a valuation reserve of taxes of $6.3 million and again on the sale of  the SCB officebuilding of $3.5 million net of minority interest expense.

 

**Year Ended December 31, 2005,compared to Year Ended December 31, 2004**

 

**Revenue**

 

Our revenue for the yearended December 31, 2005 amounted to $163.1 million, an increase of$26.8 million or 19.7% over $136.3 million, in 2004.  The increase was driven by expanded advancecourse offerings and attendees per event, offset by a decrease in the revenuegenerated from introductory workshops, as reflected in the following chart (inthousands):

 

| ** **                                         | ** ** | **Years ended December 31,** | ** ** | ** ** | ** ** |
|----------------------------------------------------|------------|---------------------------------------------|------------|------------|------------|
| ** **                                         | ** ** | **2005**                                    | ** ** | **2004**   | ** ** | **Change** | ** ** |
| ** **                                         | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| *Cash  received from course and product sales:*    | * *   | * *                                    | * *   | * *   | * *   | * * | * * |
| Basic training  sessions                           |       | $                                           | 25,017     |       | $          | 34,202 |   | (26.9 | )% |
| Advanced courses                                   |       | 152,423                                     |       | 115,578    |       | 31.9 |   |
| Products sales                                     |       | 12,317                                      |       | 8,828      |       | 39.5 |   |
| Other                                              |       | 6,639                                       |       | 5,479      |       | 21.2 |   |
| Total cash  received from course and product sales |       | 196,396                                     |       | 164,087    |       | 19.7 |   |
| Less: Net change  in deferred revenue              |       | (33,289                                     | )          | (27,828    | )          | (19.6 | ) |
| Revenue for  financial reporting purposes          |       | $                                           | 163,107    |       | $          | 136,259 |   | 19.7 | % |

 

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Cash received fromadvanced course sales, which represents 77.6% of the total in 2005, is anincrease of 7.2% over the same period in 2004. Outreach programs, which are included advanced course sales, increased70.4% in 2005 to $40.4 million.

 

The following illustrates the number of educationalevents, the number of students and the average number of students per paidcourse for the comparative periods:

 

| ** **                          | ** ** | **Years ended  December 31,** | ** ** | ** ** | ** ** |
|-------------------------------------|------------|-----------------------------------------|------------|------------|------------|
| ** **                          | ** ** | **2005**                                | ** ** | **2004**   | ** ** | **Change** | ** ** |
| *Number  of courses*                | * *   | * *                                | * *   | * *   | * *   | * * | * * |
| Free  introductory workshops        |       | 4,744                                   |       | 4,826      |       | (1.7 | )% |
| Basic training  sessions            |       | 939                                     |       | 915        |       | 2.6 |   |
| Advanced live  courses              |       | 651                                     |       | 633        |       | 2.8 |   |
| Advanced  electronic courses        |       | 162                                     |       | 25         |       | 548.0 |   |
|                                |       | 6,496                                   |       | 6,399      |       | 1.5 | % |
| *Number  of students*               | * *   | * *                                | * *   | * *   | * *   | * * | * * |
| Basic training  sessions            |       | 53,742                                  |       | 30,280     |       | 77.5 | % |
| Advanced live  courses              |       | 13,837                                  |       | 12,351     |       | 12.0 |   |
| Advanced  electronic courses        |       | 5,133                                   |       | 597        |       | 759.8 |   |
|                                |       | 72,712                                  |       | 43,228     |       | 68.2 | % |
| *Average  students per paid course* | * *   | * *                                | * *   | * *   | * *   | * * | * * |
| Basic training                      |       | 57.2                                    |       | 33.1       |       | 72.9 | % |
| Advanced live  courses              |       | 21.3                                    |       | 19.5       |       | 9.2 |   |
| Average                             |       | 42.5                                    |       | 27.5       |       | 54.5 | % |

 

We decided to reduce thetuition prices at our basic training sessions to provide the opportunity formore students to benefit from our offerings and be exposed to our advancedcourses.  Our blended average tuitionlevel per student for a basic training session declined 63.9%, while the numberof students taking the basic training sessions increased 77.5%.

 

Our weighted averagetuition for advanced courses fell slightly by 3.8% reflecting a shift in coursemix, while the number of students enrolled increased by 8.4%.

 

Our financial marketseducation segment’s cash received from courses and product sales increased67.3% over 2004, to $75.7 million, while the domestic real estate divisionincreased 11.3% to $109.6 million.  Ourinternational segments cash received from course and product sales decreased45.5% in 2005 to $11.1 million.

 

On a brand level, alldomestic brands had strong performance over 2004.  Leading the way was *Star Trader**®* with a 214.0% increase in cash received fromcourse and product sales over 2004, followed by *Teach Me To Trade*® with a 38.8% increase, while our most maturebrands, *Russ Whitney*®*’s**Building Wealth*TM grew at 15.5% and *Cash Flow Generator*® at 10.8%, rounding out our major brands.

 

Revenue recognized fromcourse breakage was $16.6 million in 2005, compared to $18.1 millionin 2004, a decrease of $1.5 million. Revenue from course breakage was 10.2% and 13.3% of total revenue for2005 and 2004, respectively.

 

**Operatingexpenses**

 

Certain expenses were misclassified in 2004.  Similar expense items are now classifiedwithin the same Statement of Operations statement line item for all periodspresented.  Reclassifications wererequired in prior period line item expense categories to provide comparabilityto the current period’s presentation. The need for reclassifications is a result of the lack of a sufficientamount of qualified personnel in the accounting and reporting function.  As qualified people were brought into theorganization, consideration was given to the presentation of the particularline items.  It was determined thereclassification would better demonstrate the activities of our business.

 

“Efficiencies” as used inManagement’s Discussion and Analysis refer to a reduction in costs as apercentage of revenue resulting from cost control measures implemented in late2004 that were realized in 2005, leveraging of revenue increases withoutcorresponding increases in costs, an increase in the average number of studentsper course, our ability to 

 

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deliver more courseselectronically, and general economies of scale resulting from substantial salesgrowth.  Regarding future efficiencygains, they are not expected to be as significant due to the impact of the costcontrol measures in 2005 which are largely non-recurring in nature.

 

*Directcourse expenses*

 

Direct course expenses relate to our free introductorybasic and advanced courses and consist of instructor fees, commissions,facility costs, salaries associated with our field travel team coordinators andrelated travel expenses.

 

In 2005, direct courseexpenses increased $3.9 million to $95.7 million, or 4.3% from $91.8 million in2004.  As a percentage of revenue, directcourse expenses decreased from 67.3% of revenue in 2004 to 58.6% in 2005.  The components of this 8.7 percentage point(pp) reduction include:

 

| ** **                                | ** ** | **Margin change  2005 vs. 2004** | ** ** |
|-------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                | ** ** | **Increase (Decrease)**                    | ** ** |
| Efficiency gains  in course delivery      |       | 5.0                                             | pp         |
| Reduced  effective sales commissions rate |       | 2.3                                             |       |
| Event  administration                     |       | 2.9                                             |       |
| Other direct  course expenses             |       | (1.5                                            | )          |
| Improved direct  course expense margins   |       | 8.7                                             | pp         |

 

The effective salescommission rate is indicative of the increase in the average number of studentsattending our three day sessions and free introductory workshops.  The improvement in course delivery and eventmanagement is the result of cost control measures implemented in the fourthquarter of 2004 that were realized throughout 2005 along with our ability toleverage revenue increases without corresponding increases in costs.

 

*Advertising and sales expense*

 

Advertisingexpense consists of purchased media and sales expense consists of salescommissions to our outreach (telemarketing) sales force supporting our studentrecruitment.

 

Advertising and salesexpense for 2005 amounted to $49.8 million, an increase of 0.2% or$0.1 million compared to $49.7 million in 2004.  Advertising and sales expense in 2005 was30.6% of revenue, as compared to 36.5% of revenue for 2004.  The following chart illustrates the 5.9ppmargin improvement:

 

| ** **                                       | ** ** | **Margin change  2005 vs. 2004** | ** ** |
|--------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                       | ** ** | **Increase (Decrease)**                    | ** ** |
| Improved response from television |       | 2.8                                             | pp         |
| Improved  response from direct mail              |       | 2.0                                             |       |
| Other media  efficiencies                        |       | 1.3                                             |       |
| Increase in  sales commissions rates             |       | (0.2                                            | )          |
|                                             |       | 5.9                                             | pp         |

 

Approximately 80% of alladvertising is through television commercials and infomercials, with thebalance consisting of direct mail and newspaper advertisement.

 

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Ourmedia spending in television increased 6.1% in 2005 when compared to the sameperiod in 2004.  The following tableillustrates our media spending mix:

 

| ** **  | ** ** | **Years ended December 31,** | ** ** |
|-------------|------------|---------------------------------------------|------------|
| ** **  | ** ** | **2005**                                    | ** ** | **2004** | ** ** |
| Television  |       | 79.8                                        | %          | 73.7 | % |
| Direct mail |       | 12.1                                        |       | 16.2 |   |
| Newspaper   |       | 8.0                                         |       | 7.1 |   |
| Other       |       | 0.1                                         |       | 3.0 |   |
|        |       | 100.0                                       | %          | 100.0 | % |

 

The number of prospectivestudents registering for our events increased 15.6% over 2004 and yet ouradvertising expenditures in 2005 on a dollar basis was essentially flat comparedto 2004.  Many improvements with respectto media purchases and scheduling were realized in 2005.  We also benefited from our cost pertelevision placement, which decreased by 4.0% in 2005 compared to 2004.

 

While continuedimprovement is anticipated for the future, efficiency gains are not expected tobe realized at the same levels realized in 2005, due in part to thenonrecurring nature of both cost control benefits and changes to our mediapurchasing and scheduling practices that were realized in 2005.

 

*General and administrative expenses*

 

Generaland administrative expenses primarily consist of compensation, benefits,insurance, facility expenses, and travel for the corporate staff.

 

General andadministrative expenses were $26.0 million and $27.5 million in 2005 and2004, respectively.  As a percentage ofrevenue, general and administrative expenses decreased from 20.2% of revenuesin 2004, to 15.9% in 2005, due primarily to cost control measures initiated inthe fourth quarter of 2004 and realized throughout 2005, and our ability toleverage the increase in revenue without a corresponding increase in overhead.

 

Primarycontributors to the 4.3pp reduction in general and administrative costsinclude:

 

| ** **                                              | ** ** | **Margin change  2005 vs. 2004  Increase (Decrease)** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|
| Reduced  headcount                                      |       | 1.9                                                                       | pp         |
| Lowered  professional fees                              |       | 0.4                                                                       |       |
| Reduced other  general and administrative expenses, net |       | 2.0                                                                       |       |
|                                                    |       | 4.3                                                                       | pp         |

 

We expect to continuebenefiting from overhead leverage, however not at the same levels realized in2005 due in part to the nonrecurring nature of the cost control benefitsrealized in 2005.  Moreover, we continueto invest in our infrastructure to support the continued growth.  Staff increases of approximately75 employees worldwide, additional research and development of neweducation courses and support necessary to further expand our geographicalpenetration within the United States will all require increased resources in2006.

 

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*Earnings(loss) from operations*

 

We incurred a loss from operations of$8.6 million in 2005, compared to a loss from operations of$32.7 million in 2004.  Our increasein revenues combined with the marketing efficiencies, reduced sales costs andreduced general and administrative expenses described above were the primarycontributing factors to this year over year improvement.  Loss from operations in 2005 was 5.2% of revenuesas compared to a loss from operations of 24.0% of revenues in 2004.

 

*Otherincome (expense)*

 

Other income (expense) was $8.0 million in 2005,a $7.2 million increase over the $0.8 million for 2004, primarily dueto an increase in gain on sale of assets of $6.6 million.  The increase in gain on sale of assets wasprimarily due to a pretax gain of $5.6 million ($3.5 million afterminority interest expense) realized on the sale of an office building inOrlando, Florida.

 

Other non-operatingincome increased by $0.8 million to $1.6 million.  Other income for 2005 includes$1.2 million in insurance proceeds from a business interruption claimarising from the impact of Hurricane Charley in 2004.

 

Interest expense (net ofinterest income) decreased from $0.4 million in 2004 to zero in 2005 as interestincome resulting from the increase in cash and cash equivalents balance offsetinterest expense from the reduction in long-term debt.

 

Equity loss forinvestments in related parties in Costa Rica amounted to $0.2 million,compared to $0.2 million in equity earnings in 2004.

 

*Incometax benefit*

 

We recognize deferred tax assets and liabilities, atenacted income tax rates, based on the temporary differences between thefinancial reporting basis and the tax basis of our asset and liabilities.  We include any effects of changes in incometax rates or tax laws in the provision for income taxes in the period ofenactment.  When it is more likely thannot that a portion or all of a deferred tax asset will not be realized in thefuture, we provide a corresponding valuation allowance against the deferred taxasset.  In 2005, we determined that itwas more likely than not that we would realize our deferred tax assets and wereversed our valuation allowance by $6.3 million which resulted in a nettax benefit of $7.3 million being recorded in our consolidated statementof operations.

 

Significant managementjudgment is required in determining our provision for income taxes, ourdeferred tax assets and liabilities and any valuation allowance recordedagainst our net deferred tax assets.  Webelieve, based on the assumptions contained in our economic plan and thecurrent trends of the business, that it is more likely than not that thedeferred tax asset will be realized in the future.

 

*Netearnings (loss)*

 

Net earnings in 2005 was $4.2 million, a$36.1 million increase as compared to our $(31.9) million net loss in2004.  Improved revenue growth, operatingand overhead cost controls, sale of assets, gain on sale of non-coreinvestments, along with the recognition of a deferred tax asset contributed tothe improved 2005 results.

 

**Liquidityand Capital Resources**

 

Our capital requirements consist primarily of workingcapital and capital expenditures. Historically, we have funded our working capital and capital expendituresusing cash and cash equivalents on hand. As of December 31, 2006, cash, cash equivalents and restricted cashincreased by $1.7 million to $40.7 million from December 31,2005.  Cash generated from operations,the sale of common stock through a private placement and exercise of stockoptions and warrants, offset by cash dividends and capital expenditures, werethe primary reasons for the year over year improvement with respect to cashgeneration.

 

Cash provided byoperations in 2006 increased approximately 12.4% to $19.0 million or $2.1million more than the $16.9 million provided in the year ended December 31,2005.  While 2006 net earnings were $1.9million below 2005 net earnings of $4.2 million, current earnings included $3.6million in non-cash charges.  Cashprovided by operations in 2005 was $16.9 million as compared to $0.1 million usedin operations in 2004.  The change wasprimarily due to net earnings of $4.2 million in 2005 as compared to funding anet loss of $31.9 million in 2004 and increased restrictions on cash in 2005when compared to 2004.

 

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Cash used in investingactivities was $4.4 million in 2006, as compared to $8.4 million providedby investing activities from the same period in 2005.  For the year ended December 31, 2006, wehad capital expenditures, primarily in connection with the purchase of acorporate aircraft and related improvements amounting to $6.6 million.  We also invested $0.7 million in hardware andsoftware associated with our customer relationship management system.  Total capital expenditures totaled $7.9million and investments in related parties of totaled approximately $0.3 million.  These capital investments were partiallyoffset by $3.8 million collected in principal payments on a note receivableassociated with an office building we sold in 2005.  Cash provided by investing activities in 2005was $8.4 million as compared to cash used in investing activities of $9.9million in 2004.  The change wasprimarily the result of $9.2 million in capital expenditures in 2004 ascompared to $0.7 million in 2005 and the proceeds from the sale of assets in2005 of $9.8 million.

 

We will deploy excesscapital to invest in property and equipment in future periods for growth,computer and software upgrades and geographic expansion.  We will continue to pursue opportunistic,strategic acquisitions.  We are currentlyseeking financing for the purchase of the aircraft and anticipate selling ouroriginal corporate aircraft within the next three months.

 

Cash used in financing activities amounted to $15.2million for the year ended December 31, 2006, compared to $0.6 millionused in financing activities for the year ended December 31, 2005.  The primary reason for the change was $11.7million distributed as a special dividend to our share-holders of our commonstock.  During August 2006, ourBoard of Directors declared a special dividend of $1.00 per share forshareholders of record on September 15, 2006.  The dividend was paid on October 2,2006.  This dividend has been treated asa return of capital for both accounting and tax purposes.  Additionally, $5.1 million was paid to Mr. Whitneyin January 2006 for the partial sale of his common stock in December 2005,the Company received funds on his behalf. These amounts were partially offset by $4.2 million received from theexercise of stock options and warrants. Cash used in financing activities in 2005 was approximately $0.6 millionas compared cash provided by financing of $1.1 million in 2004.  The change in financing activities from 2005to 2004 was the result of the sale of common stock in 2005 partially offset bythe principal payments on long-term debt of $9.0 million as compared to 2004 inwhich we received net proceeds from the issuance of long-term debt totaling$6.4 million.

 

Restricted cash balances,consisting primarily of funds on deposit with credit card merchants, amountedto $7.5 million, $6.2 million and $2.6 million at December 31, 2006, December 31,2005, and December 31, 2004, respectively. At December 31, 2006 and 2005, we used letters of credit to securemerchant accounts and certain state bonding requirements in the amount of$1.6 million and $1.1 million, respectively, which are supported bycertificates of deposit which earn interest rates ranging from 4.7% to5.4%.  The majority of our cashequivalents are invested in short-term, liquid, investment grade commercialpaper with yields ranging from 5.2% to 5.3%.

 

Historically, we havebeen able to fund all of our operations primarily through existing workingcapital.

 

As a result of asignificant deferred revenue balance, our working capital deficit will remainfor the foreseeable future.  We intend tocontinue to use working capital for operating purposes.  We may establish a credit facility to supportour growth strategy.  From time to time,we evaluate potential acquisitions of business products or technologies thatcomplement our business.  To the extentthat resources are insufficient to fund future activities, we may need toraise additional funds. However, there can be no assurance that additionalfunding, if needed, will be available. If adequate funds are not available on acceptable terms, we may beunable to expand our business, develop or enhance our products and services,take advantage of future opportunities or respond to competitive pressures, anyof which could have a material adverse effect on our business, operatingresults and financial condition.

 

We believe our cashresources are sufficient to fund our operations, special items and growth plansin 2007.

 

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**ContractualObligations and Commercial Commitments**

 

Wehave various financial obligation and commitments in the ordinary course ofconducting business.  We have contractualobligations requiring future cash payments under existing contractualarrangements.  The following table listsour contractual obligations at December 31, 2006:

 

| **Contractual Obligation** | ** ** | **Total** | ** ** | **Less than 1  Year** | ** ** | **1-3 Years** | ** ** | **3-5 Years** | ** ** | **More than  5 Years** | ** ** |
|---------------------------------|------------|-----------|------------|---------------------------------|------------|--------------------|------------|--------------------|------------|----------------------------------|------------|
| Long-term Debt  Obligations     |       | $         | 6.1        |                            | $          | 3.1                |       | $                  | 0.1        |                             | $          | 0.1 |   | $ | 2.8 |   |
| Operating Leases                |       | 4.5       |       | 1.3                             |       | 1.6                |       | 1.1                |       | 0.5                              |       |
| Employment  Agreements          |       | 2.4       |       | 1.7                             |       | 0.7                |       | —             |       | —                           |       |
| Other Notes  Payable            |       | 0.1       |       | 0.1                             |       | —             |       | —             |       | —                           |       |
| Total  Obligations              |       | $         | 13.1       |                            | $          | 6.2                |       | $                  | 2.4        |                             | $          | 1.2 |   | $ | 3.3 |   |

 

Additionally, in December 2005,we entered into a commitment for a new customer relationship management (CRM)system.  The total commitment ofapproximately $3.0 million includes installation, training and supportservices. Implementation began in the first quarter of 2006.  During 2006, we have spent $1.6 million inexpense and $0.7 million in capital against this commitment.  Our annual commitments for the licensing andmaintenance of other software are approximately $0.4 million.  Moreover, we will continue to expend moniesas we complete the implementation and continue enhancements to our CRMapplication.

 

**Off-BalanceSheet Arrangements**

 

We have not entered intoany transaction, agreement or other contractual arrangement with an entityunconsolidated under which it has: (i) a retained or contingent interestin assets transferred to the unconsolidated entity or similar arrangement thatserves as credit; (ii) liquidity or market risk support to such entity forsuch assets; (iii) an obligation, including a contingent obligation, undera contract that would be accounted for as a derivative instrument; or (iv) anobligation, including a contingent obligation, arising out of a variableinterest in an unconsolidated entity that is held by, and material to, theCompany where such entity provides financing, liquidity, market risk or creditrisk support to, or engages in leasing, hedging, or research and developmentservices with the Company.

 

**Impact of inflation**

 

Inflationaryfactors such as increases in the cost of labor directly affect our operations.  Most of our leases provide for cost-of-livingadjustments and require us to pay taxes, insurance and maintenance expenses,all of which are subject to inflation. Additionally, our future lease costs for new facilities may includepotentially escalating costs of real estate and construction.  There is no assurance that we will be able topass on increased costs to our customers.

 

Depreciation expense isbased on historical cost of fixed assets, and is therefore potentially lessthan it would be if it were based on current replacement cost.  While property and equipment acquired inprior years will ultimately have to be replaced at higher prices, it isexpected that replacement will be a gradual process over many years.

 

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**Recently Issued AccountingStandards**

 

For a discussion of recently issued accountingpronouncements, see Note 2 - *Description of Businessand Summary of Significant Accounting Policies*, “*Recently Issued Accounting Pronouncements*,” in the Notes tothe Consolidated Financial Statements.

 

**ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

 

Market risk generally represents the risk that lossesmay occur in the values of financial instruments as a result of movements ininterest rates, foreign currency exchange rates and commodity prices.  We do not have commodity price market risk.  We are exposed to market risk from changes inforeign currency exchange rates and interest rates which could impact ourresults of operations and financial condition. We manage our exposure to these market risks through our regularoperating and financing activities.

 

*Foreigncurrency exchange rate risk—*We may face foreign currencyexchange risk because of our planned growth of our United Kingdom and Canadiansubsidiaries and our plans to expand into other European markets.  The fluctuations in the foreign exchange ratebetween the U.S. and foreign currencies will result in fluctuations in ourannual and quarterly results.  Managementdoes not expect that it will employ the use of foreign currency derivativefinancial instruments that would allow the reduction in our exposure toexchange rate movements.

 

*Interestrate risk—*From time to time we temporarily invest our excesscash and restricted cash in interest-bearing securities issued by high-qualityissuers.  Our Management monitors riskexposure to monies invested in securities of these financial institutions.  Due to the short time the investments areoutstanding and their general liquidity, these instruments are classified ascash equivalents in the Consolidated Balance Sheets and do not represent amaterial interest rate risk to us.

 

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**ITEM8.  FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA (Restated)**

 

**Index to Consolidated FinancialStatements**

 
| **Whitney  Information Network, Inc.**                                                                                             |   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                                                    |   |   |
| Consolidated Balance Sheets as of December 31, 2006  and 2005                                                                      |   | 52     |
| Consolidated Statements of Operations and  Comprehensive (Loss) Income for the Years Ended December 31, 2006,  2005, and 2004 |   | 53     |
| Consolidated Statements of Cash Flows for  the Years Ended December 31, 2006, 2005, and 2004                                  |   | 54     |
| Consolidated Statement of Changes in Stockholders’  Equity (Deficit) for the Years Ended December 31, 2006, 2005, and 2004    |   | 56     |
| Notes to  Consolidated Financial Statements                                                                                             |   | 57     |
| Report of Independent Registered Public Accounting  Firm                                                                                |   | 83     |

 

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**WHITNEYINFORMATION NETWORK, INC. AND SUBSIDIARIES**

**Consolidated Balance Sheets**

**(inthousands, except share data)**

 
| ** **                                                                                                                                                               | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                               | ** ** | **(restated)**              | ** ** | **(restated)**              | ** ** |
| **Assets**                                                                                                                                                               |       |                        |       |                        |       |
| Current assets:                                                                                                                                                          |       |                        |       |                        |       |
| Cash and cash  equivalents                                                                                                                                               |       | $                           | 33,221     |                        | $          | 32,883 |   |
| Restricted cash                                                                                                                                                          |       | 7,525                       |       | 6,174                       |       |
| Accounts  receivable, net                                                                                                                                                |       | 3,373                       |       | 3,789                       |       |
| Notes  receivable, current portion                                                                                                                                       |       | 84                          |       | 1,785                       |       |
| Deferred course  expenses, current portion                                                                                                                               |       | 14,559                      |       | 14,401                      |       |
| Prepaid  advertising and other prepaid expenses                                                                                                                          |       | 2,519                       |       | 2,841                       |       |
| Inventory                                                                                                                                                                |       | 1,061                       |       | 1,087                       |       |
| Deferred stock  registration costs                                                                                                                                       |       | —                      |       | 315                         |       |
| Assets held for  sale                                                                                                                                                    |       | 4,719                       |       | —                      |       |
| **Total  current assets**                                                                                                                                                |       | 67,061                      |       | 63,275                      |       |
| Notes  receivable, net of current portion                                                                                                                                |       | 7,087                       |       | 9,158                       |       |
| Property and  equipment, net                                                                                                                                             |       | 11,745                      |       | 10,051                      |       |
| Investment and  development costs in real estate                                                                                                                         |       | 5,061                       |       | 4,819                       |       |
| Intangible  assets, net                                                                                                                                                  |       | 496                         |       | 1,463                       |       |
| Goodwill                                                                                                                                                                 |       | —                      |       | 2,000                       |       |
| Deferred tax  asset                                                                                                                                                      |       | —                      |       | 7,287                       |       |
| Deferred course  expenses, net of current portion                                                                                                                        |       | 171                         |       | 99                          |       |
| Other assets                                                                                                                                                             |       | 66                          |       | 81                          |       |
| **Total  assets**                                                                                                                                                        |       | $                           | 91,687     |                        | $          | 98,233 |   |
| **Liabilities and Stockholders’ Deficit**                                                                                                                           |       |                        |       |                        |       |
| Current  liabilities:                                                                                                                                                    |       |                        |       |                        |       |
| Accounts payable                                                                                                                                                         |       | $                           | 6,936      |                        | $          | 4,043 |   |
| Income taxes  payable                                                                                                                                                    |       | 545                         |       | 356                         |       |
| Accrued course  expenses                                                                                                                                                 |       | 1,250                       |       | 1,841                       |       |
| Other accrued  expenses                                                                                                                                                  |       | 5,891                       |       | 5,604                       |       |
| Accrued  salaries, wages and benefits                                                                                                                                    |       | 3,965                       |       | 1,789                       |       |
| Due to  stockholders from sale of common stock                                                                                                                           |       | —                      |       | 5,110                       |       |
| Long-term debt,  current portion                                                                                                                                         |       | 3,139                       |       | 462                         |       |
| Deferred revenue                                                                                                                                                         |       | 114,922                     |       | 116,778                     |       |
| **Total  current liabilities**                                                                                                                                           |       | 136,648                     |       | 135,983                     |       |
| Long-term debt,  net of current portion                                                                                                                                  |       | 3,015                       |       | 2,912                       |       |
| Deferred rental  incentives                                                                                                                                              |       | 394                         |       | —                      |       |
| Deferred  revenue, net of current portion                                                                                                                                |       | 486                         |       | 224                         |       |
| **Total  liabilities**                                                                                                                                                   |       | 140,543                     |       | 139,119                     |       |
| Minority  interest                                                                                                                                                       |       | —                      |       | 3,939                       |       |
| 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, 11,738,587 and 10,455,910 shares  issued and outstanding, as of December 31, 2006 and 2005, respectively |       | 2,591                       |       | 9,501                       |       |
| Additional  paid-in capital                                                                                                                                              |       | 1,089                       |       | 1                           |       |
| Foreign currency  translation adjustment                                                                                                                                 |       | (1,160                      | )          | (650                        | )          |
| Accumulated  deficit                                                                                                                                                     |       | (51,376                     | )          | (53,677                     | )          |
| **Total  stockholders’ deficit**                                                                                                                                    |       | (48,856                     | )          | (44,825                     | )          |
| **Total  liabilities and stockholders’ deficit**                                                                                                                    |       | $                           | 91,687     |                        | $          | 98,233 |   |

 

See Notes toConsolidated Financial Statements.

 

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

**Consolidated Statement of Operations and Comprehensive Income(Loss)**

**(inthousands, except per share data)**

 
| ** **                                                   | ** ** | **Years ended December 31,** | ** ** |
|--------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                   | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                   | ** ** | **(restated)**                              | ** ** | **(restated)** | ** ** | **(restated)** | ** ** |
| ** **                                                   | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue                                                      |       | $                                           | 224,654    |   | $ | 163,107 |   | $ | 136,259 |   |
| Costs and  expenses:                                         |       |                                        |       |   |   |   |   |
| Direct course  expense                                       |       | 111,471                                     |       | 95,682 |   | 91,763 |   |
| Advertising and  sales expense                               |       | 64,369                                      |       | 49,839 |   | 49,664 |   |
| General and  administrative expense                          |       | 34,713                                      |       | 25,972 |   | 27,523 |   |
| Impairment of  assets                                        |       | 3,590                                       |       | — |   | — |   |
| Special items                                                |       | 2,330                                       |       | 200 |   | — |   |
| Total costs and  expenses                                    |       | 216,473                                     |       | 171,693 |   | 168,950 |   |
| Income (loss)  from operations                               |       | 8,181                                       |       | (8,586 | ) | (32,691 | ) |
|                                                         |       |                                        |       |   |   |   |   |
| Other income  (expense):                                     |       |                                        |       |   |   |   |   |
| Other (expense)  income                                      |       | (79                                         | )          | 1,611 |   | 830 |   |
| Interest income  (expense)                                   |       | 1,876                                       |       | (28 | ) | (436 | ) |
| Equity (loss)  income from related parties                   |       | (45                                         | )          | (176 | ) | 159 |   |
| Gain on sale of  assets                                      |       | 74                                          |       | 6,579 |   | 249 |   |
| Total other  income                                          |       | 1,826                                       |       | 7,986 |   | 802 |   |
|                                                         |       |                                        |       |   |   |   |   |
| Net income  (loss) before income taxes and minority interest |       | 10,007                                      |       | (600 | ) | (31,889 | ) |
| Income tax  (provision) benefit                              |       | (7,706                                      | )          | 6,757 |   | — |   |
| Minority  interest                                           |       | —                                      |       | (1,962 | ) | 23 |   |
| Net income  (loss)                                           |       | 2,301                                       |       | 4,195 |   | (31,866 | ) |
| Net income  (loss) per common share:                         |       |                                        |       |   |   |   |   |
| Basic                                                        |       | $                                           | 0.21       |   | $ | 0.47 |   | $ | (3.71 | ) |
| Diluted                                                      |       | $                                           | 0.20       |   | $ | 0.45 |   | $ | (3.71 | ) |
| Weighted average  common shares outstanding:                 |       |                                        |       |   |   |   |   |
| Basic                                                        |       | 11,162                                      |       | 8,859 |   | 8,589 |   |
| Diluted                                                      |       | 11,620                                      |       | 9,360 |   | 8,589 |   |
| Comprehensive  Income (Loss)                                 |       |                                        |       |   |   |   |   |
| Net income  (loss)                                           |       | $                                           | 2,301      |   | $ | 4,195 |   | $ | (31,866 | ) |
| Foreign currency  translation adjustments                    |       | (510                                        | )          | (100 | ) | 55 |   |
| Comprehensive  income (loss)                                 |       | $                                           | 1,791      |   | $ | 4,095 |   | $ | (31,811 | ) |

 

See Notes to Consolidated Financial Statements.

 

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**WHITNEYINFORMATION NETWORK, INC. AND SUBSIDIARIES**

**Consolidated Statements of Cash Flows**

**(inthousands)**

 
| ** **                                                                                | ** ** | **Years ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                | ** ** | **(restated)**                              | ** ** | **(restated)** | ** ** | **(restated)** | ** ** |
| Cash flows from  operating activities:                                                    |       |                                        |       |   |   |   |   |
| Net income  (loss)                                                                        |       | $                                           | 2,301      |   | $ | 4,195 |   | $ | (31,866 | ) |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities: |       |                                        |       |   |   |   |   |
| Depreciation and  amortization                                                            |       | 1,253                                       |       | 1,481 |   | 932 |   |
| Impairment of  assets                                                                     |       | 3,590                                       |       | — |   | — |   |
| Deferred income  taxes                                                                    |       | 7,706                                       |       | (7,287 | ) | — |   |
| Stock-based  compensation costs                                                           |       | 881                                         |       | — |   | — |   |
| Stock gift                                                                                |       | 937                                         |       | — |   | — |   |
| Gain on sale of  assets                                                                   |       | (74                                         | )          | (6,579 | ) | (249 | ) |
| Proceeds from  insurance for business interruption                                        |       | —                                      |       | (1,200 | ) | — |   |
| Minority  interest and equity earnings                                                    |       | 45                                          |       | 2,138 |   | (182 | ) |
| Changes in  operating assets and liabilities:                                             |       |                                        |       |   |   |   |   |
| Restricted cash                                                                           |       | (1,351                                      | )          | (3,594 | ) | (287 | ) |
| Accounts  receivable                                                                      |       | 416                                         |       | (3,285 | ) | 756 |   |
| Prepaid  advertising and other prepaid expenses                                           |       | 322                                         |       | (864 | ) | 353 |   |
| Inventory                                                                                 |       | (121                                        | )          | 303 |   | (677 | ) |
| Deferred course  expenses                                                                 |       | (230                                        | )          | (2,602 | ) | (3,546 | ) |
| Other assets                                                                              |       | 15                                          |       | (9 | ) | (34 | ) |
| Accounts payable                                                                          |       | 2,885                                       |       | (4,526 | ) | 4,910 |   |
| Accrued course  expenses                                                                  |       | (591                                        | )          | (333 | ) | 528 |   |
| Deferred revenue                                                                          |       | (1,594                                      | )          | 33,289 |   | 27,828 |   |
| Other accrued  expenses                                                                   |       | 282                                         |       | 4,384 |   | 1,009 |   |
| Accrued  salaries, benefits and wages                                                     |       | 2,176                                       |       | 1,028 |   | 391 |   |
| Income taxes  payable                                                                     |       | 189                                         |       | 356 |   | — |   |
| Net cash  provided by (used in) operations                                                |       | 19,037                                      |       | 16,895 |   | (134 | )  |
| Investing  activities:                                                                    |       |                                        |       |   |   |   |   |
| Purchase of  property and equipment                                                       |       | (7,852                                      | )          | (701 | ) | (9,165 | ) |
| Purchase of  goodwill and intangible assets                                               |       | —                                      |       | (334 | ) | (250 | ) |
| Proceeds from  notes receivable                                                           |       | 3,772                                       |       | — |   | — |   |
| Proceeds from  sale of assets                                                             |       | 28                                          |       | 9,777 |   | 827 |   |
| Investments in  and advances to related parties, net                                      |       | (288                                        | )          | (335 | ) | (1,284 | ) |
| Distribution to  minority interests                                                       |       | (45                                         | )          | — |   | — |   |
| Net cash (used  in) provided by investing activities                                      |       | (4,385                                      | )          | 8,407 |   | (9,872 | ) |
| Financing  activities:                                                                    |       |                                        |       |   |   |   |   |
| Proceeds from  sale of common stock                                                       |       | —                                      |       | 7,155 |   | — |   |
| Proceeds (paid  to) from stockholders from sale of common stock                           |       | (5,110                                      | )          | 5,110 |   | — |   |
| Proceeds from  issuance of long-term debt                                                 |       | 2,422                                       |       | 102 |   | 6,365 |   |
| Principal  payments on long-term debt                                                     |       | (3,497                                      | )          | (9,041 | ) | (291 | ) |
| Principal  payments on note payable to officer                                            |       | —                                      |       | — |   | (4,713 | ) |
| Proceeds from  the exercise of stock options and warrants                                 |       | 4,186                                       |       | 3 |   | 28 |   |
| Dividends paid  to shareholders                                                           |       | (11,728                                     | )          | — |   | — |   |
| Stock offering  and registration costs                                                    |       | (77                                         | )          | (315 | ) | — |   |
| Net cash (used  in) provided by financing activities                                      |       | (13,804                                     | )          | 3,014 |   | 1,389 |   |
| Effect of  foreign currency translation                                                   |       | (510                                        | )          | (100 | ) | 55 |   |
| Increase  (decrease) in cash and cash equivalents                                         |       | 338                                         |       | 28,216 |   | (8,562 | ) |
| Cash and cash  equivalents at beginning of year                                           |       | 32,883                                      |       | 4,667 |   | 13,229 |   |
| Cash and cash  equivalents at end of year                                                 |       | $                                           | 33,221     |   | $ | 32,883 |   | $ | 4,667 |   |

 

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**WHITNEYINFORMATION NETWORK, INC. AND SUBSIDIARIES**

**Consolidated Statements of Cash Flows**

**(inthousands)**

 
| ** **                                                                                       | ** ** | **Years ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                       | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                       | ** ** | **(restated)**                              | ** ** | **(restated)** | ** ** | **(restated)** | ** ** |
| **Supplemental  Disclosure of Cash Flow Information:**                                           |       |                                        |       |   |   |   |   |
| Cash paid during  the period for:                                                                |       |                                        |       |   |   |   |   |
| Interest                                                                                         |       | $                                           | 455        |   | $ | 635 |   | $ | 511 |   |
| Income taxes                                                                                     |       | $                                           | 453        |   | $ | 176 |   | $ | 159 |   |
|                                                                                             |       |                                        |       |   |   |   |   |
| **Supplemental  Cash Flow Information of non-cash activities:**                                  |       |                                        |       |   |   |   |   |
| Long-term debt  added for our acquisition of the 50% interest in SCB, Building, LLC.             |       | $                                           | 3,600      |   | $ | — |   | $ | — |   |
| Common stock  issued relating to purchase of*Star Trader®*  and*SpeakTek, Inc,*respectively |       | $                                           | —     |   | $ | 166 |   | $ | 250 |   |

 

See Notes toConsolidated Financial Statements.

 

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

**Consolidated Statement of Changes in Stockholders’ Deficit**

**(inthousands)**

 
| ** **                                                        | ** ** | **(Restated)**        | ** ** |
|-------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                        | ** ** | **Common Stock** | ** ** | **Additional  paid-in** | ** ** | **Foreign  currency  translation** | ** ** | **Accumulated** | ** ** | **Total  stockholders’** | ** ** |
| ** **                                                        | ** ** | **Shares**            | ** ** | **Amount** | ** ** | **capital** | ** ** | **adjustment** | ** ** | **deficit** | ** ** | **deficit** | ** ** |
| Balance at  December 31, 2003                                |       | 8,548                 |       | $ | 1,899 |   | $ | 1 |   | $ | (605 | ) | $ | (26,006 | ) | $ | (24,711 | ) |
| Issuance of  stock for the stock purchased of SpeakTek, Inc. |       | 56                    |       | 250 |   | — |   | — |   | — |   | 250 |   |
| Issuance of  stock for stock options exercised                    |       | 15                    |       | 28 |   | — |   | — |   | — |   | 28 |   |
| Foreign currency  translation adjustment                          |       | —                |       | — |   | — |   | 55 |   | — |   | 55 |   |
| Net loss                                                          |       | —                |       | — |   | — |   | — |   | (31,866 | ) | (31,866 | ) |
| Balance at  December 31, 2004                                |       | 8,619                 |       | 2,177 |   | 1 |   | (550 | ) | (57,872 | ) | (56,244 | ) |
| Issuance of  stock for the stock purchased of *Star Trader®* |       | 85                    |       | 166 |   | — |   | — |   | — |   | 166 |   |
| Issuance of  stock for stock options exercised                    |       | 2                     |       | 3 |   | — |   | — |   | — |   | 3 |   |
| Private  placement of securities, net of offering costs of $720   |       | 1,750                 |       | 7,155 |   | — |   | — |   | — |   | 7,155 |   |
| Foreign currency  translation adjustment                          |       | —                |       | — |   | — |   | (100 | ) | — |   | (100 | ) |
| Net earnings                                                      |       | —                |       | — |   | — |   | — |   | 4,195 |   | 4,195 |   |
| Balance at  December 31, 2005                                |       | 10,456                |       | 9,501 |   | 1 |   | (650 | ) | (53,677 | ) | (44,825 | ) |
| Issuance of cash  dividend                                        |       | —                |       | (11,641 | ) | (87 | ) | — |   | — |   | (11,728 | ) |
| Issuance of  stock for stock options and warrants exercised       |       | 1,185                 |       | 4,186 |   | — |   | — |   | — |   | 4,186 |   |
| Stock gift                                                        |       | 98                    |       | 937 |   | — |   | — |   | — |   | 937 |   |
| Stock issuance  costs                                             |       | —                |       | (392 | ) | — |   | — |   | — |   | (392 | ) |
| Stock option and  warrant compensation expense                    |       | —                |       | — |   | 881 |   | — |   | — |   | 881 |   |
| Distribution to  minority partner (SCB)                           |       | —                |       | — |   | 294 |   | — |   | — |   | 294 |   |
| Foreign currency  translation adjustment                          |       | —                |       | — |   | — |   | (510 | ) | — |   | (510 | ) |
| Net earnings                                                      |       | —                |       | — |   | — |   | — |   | 2,301 |   | 2,301 |   |
| Balance at  December 31, 2006                                |       | 11,739                |       | $ | 2,591 |   | $ | 1,089 |   | $ | (1,160 | ) | $ | (51,376 | ) | $ | (48,856 | ) |

 

See Notes to Consolidated Financial Statements.

 

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**WHITNEY INFORMATIONNETWORK, INC. AND SUBSIDIARIES**

 

**Notes to Consolidated FinancialStatements (Restated)**

 

***Note 1 – Restatement***

 

WhitneyInformation Network, Inc. (the “Company,” “we,” “us” or “our”) is beinginvestigated by the United States Securities and Exchange Commission (the “SEC”)and Department of Justice’s United States Attorney’s Office for the EasternDistrict of Virginia (the “DOJ”).

 

TheCompany’s Board of Directors established a Special Committee of independentdirectors to conduct an internal investigation of the activities that are thesubject of the government investigations. The Special Committee engaged the law firm of Wilmer Cutler Pickering Haleand Dorr LLP (“WilmerHale”) to assist with this investigation.  The matters under investigation include (i) theclaimed efficacy of the Company’s stock market education programs, and (ii) theCompany’s acquisition of certain other companies.

 

TheSpecial Committee has reported its findings and made recommendations to theBoard of Directors, as previously disclosed on the Company’s Current Report on Form 8-K,filed with the SEC on November 9, 2007.

 

Withrespect to the Company’s acquisitions of certain other companies, among otherfindings, based upon the WilmerHale investigation, the Special Committeereported to the Board of Directors in September 2007 and delivered itsfinal recommendations in November 2007, and reported such recommendationsto the SEC in November 2007.  TheSpecial Committee found that the Company’s prior disclosures were incorrect inthe following respects:

 

TheCompany previously disclosed that (1) in July 2003 the Companyacquired Whitney Leadership Group, Inc. (“Whitney Leadership”) from Mr. RussellA. Whitney, our former Chairman and Chief Executive Officer and Ingrid Whitneyfor $1.2 million; (2) at the time, Whitney Leadership held all of thecopyright and intellectual property rights associated with its educationalmaterials and licensed those rights to the Company for payments; and (3) theCompany entered into the acquisition agreement in order to eliminate thosepayments and to gain control of intellectual property rights that form the coreof the Company’s business.  The SpecialCommittee found that the Company did not disclose a provision in a documentdenominated as an exhibit to the agreement that afforded Mr. Whitney theright to terminate the Company’s rights to the use of his name and likenessunder certain circumstances, including if Mr. Whitney were no longeremployed with the Company or no longer owned a controlling voting interest inthe Company.  The Special Committee foundthat the version of the exhibit containing this provision was created in May 2004.  Mr. Whitney indicated that he believedthat the subsequently created exhibit memorialized a prior oral agreement.  In any event, Mr. Whitney neverexercised his right to terminate the Company’s rights and at the request of theSpecial Committee, Mr. Whitney voided that provision, effective January 7,2008.

 

The Company previouslydisclosed that as a result of a series of transactions occurred among Mr. Whitneyand Mrs. Whitney and John F. Kane (1) in July 2003 the Companypurchased Equity Corp. Holdings, Inc. (“Equity Corp.”) from Mr. Kane;(2) as part of the transaction, the Company agreed to assume and pay a$4.75 million promissory note issued to Mr. Whitney and his wife by EquityCorp. in June 2002; and (3) Equity Corp. incurred this obligationwhen it elected to redeem all of Mr. and Mrs. Whitney’s ownership inEquity Corp., 90% of the outstanding stock, as of June 1, 2002.  The Special Committee concluded that theredemption did not occur, and no note was issued by Equity Corp. to Mr. andMrs. Whitney, in June 2002. The Special Committee found that the redemption of Mr. and Mrs. Whitney’sEquity Corp. shares and Equity Corp.’s incurring of this $4.75 millionobligation in fact closed on May 31, 2003. The Special Committee concluded that Equity Corp.’s redemption of Mr. andMrs. Whitney’s Equity Corp. shares was not separate from the Company’sacquisition of Mr. Kane’s Equity Corp. shares which resulted in a changein the accounting method for the acquisition of Equity Corp. from theacquisition method of accounting for a business combination to the combinationof entities under common control, similar to a pooling of interests.  As previously reported by the Company in itsCurrent Report on Form 8-K dated November 3, 2007, and filed with theSEC on November 8, 2007, the Board of Directors has determined that, withrespect to the acquisition of Equity Corp., the Company incorrectly applied theacquisition method of accounting for a business combination and instead shouldhave accounted for the transaction as a combination of entities under commoncontrol, similar to a pooling of interests. The Company previously disclosed Mr. Kane received $62,500 in cash,$62,500 in a note and 62,500 shares valued at $125,000 for the purchase of hisinterest in Equity Corp.  However, the62,500 shares were revalued at $312,500 using the average of the quoted marketprices a few days before and after the acquisition.

 

Aspreviously reported by the Company in a Current Report on Form 8-K dated November 9,2007, the Company did not obtain a fairness opinion regarding the acquisitionprice of Equity Corp. and Whitney Leadership but did obtain a business 

 

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valuation report. A committee consisting of independent members of the Board of Directorsis reviewing the valuation used for the acquisition of Equity Corp. and WhitneyLeadership.  They have not yet concludedtheir review of the valuation of the Equity Corp. and Whitney Leadershiptransactions regarding compliance with applicable governance and related partytransaction requirements.

 

The Company previouslydisclosed that (1) the Company purchased all of the outstanding commonstock of Precision Software Services, Inc. (“Precision”) from Mr. Whitneyand Mr. Kane, who subsequently became an executive officer of the Company,in exchange for an aggregate of approximately 333,000 shares of common stockvalued at $500,000 and $250,000 in notes; and (2) Mr. Whitneyreceived $125,000 in notes payable.  TheSpecial Committee concluded that the Company did not disclose that (1) the$250,000 in notes payable (of which Mr. Whitney and Mr. Kane eachreceived $125,000) were not for the purchase of Precision, but rather thepurchase of software that Mr. Whitney and Mr. Kane had licensed toPrecision; and (2) the Company also paid $250,000 in cash (of which Mr. Whitneyand Mr. Kane each received $125,000) for that software.  In researching the accounting treatment ofthis transaction, the Company discovered an error in the depreciation of therelated intangible asset, as well as an inadvertent impairment in 2006.  The asset was incorrectly named in thegeneral ledger and as a result included in the impairment expense associatedwith a discontinued brand.

 

We reviewed our relatedparty transactions in Costa Rica, Gulfstream Development Group, LLC, and otherswhich resulted in no changes to our Condensed Consolidated FinancialsStatements other than expanded disclosure. The additional disclosures related to related party transactions inCosta Rica and Gulfstream Development Group, LLC, are included in Note 6 - *Certain relationships and related transactions*.

 

                In addition to the findings of the Special Committeeand certain other conforming changes we determined that the following errorsrequired correction:

 

·                  Certain intangibleassets and property plant and equipment were assigned incorrect depreciablelives.

 

·                  Inventory relatedto Star Trader® had not been recorded as impaired at December 31, 2006.

 

·                  Various accountspayable invoices were recorded in the incorrect period.

 

Thefollowing charts reflect the impact of applying the proper accounting treatmentfor the above listed transactions in our Consolidated Financial Statements (inthousands):

 
| ** **                                          | ** ** | **Year ended December 31, 2006** | ** ** | **Year ended December 31, 2005** | ** ** | **Year ended December 31, 2004** | ** ** |
|-----------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                          | ** ** | **Previously  reported**                             | ** ** | **Effect of  restatement**                      | ** ** | **Restated**                                         | ** ** | **Previously  reported** | ** ** | **Effect of  restatement** | ** ** | **Restated** | ** ** | **Previously  reported** | ** ** | **Effect of  restatement** | ** ** | **Restated** | ** ** |
| Revenue                                             |       | $                                                    | 224,654    |                                                 | —     |                                                 | $          | 224,654 |   | $ | 163,107 |   | — |   | $ | 163,107 |   | $ | 136,259 |   | — |   | $ | 136,259 |   |
| Direct course  expenses                             |       | 111,962                                              |       | (491                                                 | )          | 111,471                                              |       | 94,765 |   | 917 |   | 95,682 |   | 91,763 |   | — |   | 91,763 |   |
| Advertising &  sales expense               |       | 64,168                                               |       | 201                                                  |       | 64,369                                               |       | 49,839 |   | — |   | 49,839 |   | 49,664 |   | — |   | 49,664 |   |
| General &  admin. expenses                 |       | 34,836                                               |       | (123                                                 | )          | 34,713                                               |       | 27,664 |   | (1,692 | ) | 25,972 |   | 27,676 |   | (153 | ) | 27,523 |   |
| Impairment of  assets                               |       | 3,668                                                |       | (78                                                  | )          | 3,590                                                |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Special items                                       |       | 2,330                                                |       | —                                               |       | 2,330                                                |       | — |   | 200 |   | 200 |   | — |   | — |   | — |   |
| Total operating  expenses                           |       | 216,964                                              |       | (491                                                 | )          | 216,473                                              |       | 172,268 |   | (575 | ) | 171,693 |   | 169,103 |   | (153 | ) | 168,950 |   |
| Earnings (loss)  from operations                    |       | 7,690                                                |       | 491                                                  |       | 8,181                                                |       | (9,161 | ) | 575 |   | (8,586 | ) | (32,844 | ) | 153 |   | (32,691 | ) |
|                                                |       |                                                 |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Other income  (expense)                             |       | (162                                                 | )          | 83                                                   |       | (79                                                  | )          | 1,800 |   | (189 | ) | 1,611 |   | 893 |   | (63 | ) | 830 |   |
| Interest  (expense) income, net                     |       | 1,876                                                |       | —                                               |       | 1,876                                                |       | (28 | ) | — |   | (28 | ) | (499 | ) | 63 |   | (436 | ) |
| (Loss) equity  from related parties                 |       | (45                                                  | )          | —                                               |       | (45                                                  | )          | (176 | ) | — |   | (176 | ) | 159 |   | — |   | 159 |   |
| Gain on sale of  assets                             |       | 74                                                   |       | —                                               |       | 74                                                   |       | 6,579 |   | — |   | 6,579 |   | 305 |   | (56 | ) | 249 |   |
|                                                |       |                                                 |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss)  before taxes and minority interest |       | 9,433                                                |       | 574                                                  |       | 10,007                                               |       | (986 | ) | 386 |   | (600 | ) | (31,986 | ) | 97 |   | (31,889 | ) |
|                                                |       |                                                 |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Minority  interests                                 |       | —                                               |       | —                                               |       | —                                               |       | (1,962 | ) | — |   | (1,962 | ) | 23 |   | — |   | 23 |   |
| Income tax  (provision) benefit                     |       | (7,678                                               | )          | (28                                                  | )          | (7,706                                               | )          | 6,798 |   | (41 | ) | 6,757 |   | — |   | — |   | — |   |
| Net income (loss)                                   |       | 1,755                                                |       | 546                                                  |       | 2,301                                                |       | 3,850 |   | 345 |   | 4,195 |   | (31,963 | ) | 97 |   | (31,866 | ) |
|                                                |       |                                                 |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Effect of foreign  exchange                         |       | (510                                                 | )          | —                                               |       | (510                                                 | )          | (100 | ) | — |   | (100 | ) | 55 |   | — |   | 55 |   |
|                                                |       |                                                 |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive  earnings (loss)                      |       | $                                                    | 1,245      |                                                 | $          | 546                                                  |       | $ | 1,791 |   | $ | 3,750 |   | $ | 345 |   | $ | 4,095 |   | $ | (31,908 | ) | $ | 97 |   | $ | (31,811 | ) |
|                                                     |            |                                                      |            |                                                      |            |                                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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| ** **                                          | ** ** | **Year ended December 31, 2003** | ** ** | **Year ended December 31, 2002** | ** ** |
|-----------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                          | ** ** | **Previously  reported**                             | ** ** | **Effect of restatement**                  | ** ** | **Restated** | ** ** | **Previously  reported** | ** ** | **Effect of restatement** | ** ** | **Restated** | ** ** |
| Revenue                                             |       | $                                                    | 89,805     |                                                 | —     |   | $ | 89,805 |   | $ | 51,178 |   | — |   | $ | 51,178 |   |
| Direct course  expenses                             |       | 51,868                                               |       | —                                               |       | 51,868 |   | 25,863 |   | — |   | 25,863 |   |
| Advertising &  sales expense               |       | 30,092                                               |       | —                                               |       | 30,092 |   | 13,937 |   | — |   | 13,937 |   |
|                                                |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |
| General &  admin. expenses                 |       | 15,321                                               |       | 181                                                  |       | 15,502 |   | 13,864 |   | 175 |   | 14,039 |   |
| Impairment of  assets                               |       | —                                               |       | —                                               |       | — |   | — |   | — |   | — |   |
| Special items                                       |       | —                                               |       | —                                               |       | — |   | — |   | — |   | — |   |
| Total operating  expenses                           |       | 97,281                                               |       | 181                                                  |       | 97,462 |   | 53,664 |   | 175 |   | 53,839 |   |
| Earnings (loss)  from operations                    |       | (7,476                                               | )          | (181                                                 | )          | (7,657 | ) | (2,486 | ) | (175 | ) | (2,661 | ) |
|                                                |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |
| Other income  (expense)                             |       | 154                                                  |       | 137                                                  |       | 291 |   | 340 |   | 102 |   | 442 |   |
| Interest  (expense) income, net                     |       | (3                                                   | )          | —                                               |       | (3 | ) | (71 | ) | — |   | (71 | ) |
| (Loss) equity  from related parties                 |       | —                                               |       | —                                               |       | — |   | — |   | (102 | ) | (102 | ) |
| Gain on sale of  assets                             |       | —                                               |       | —                                               |       | — |   | — |   | — |   | — |   |
|                                                |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |
| Earnings (loss)  before taxes and minority interest |       | (7,325                                               | )          | (44                                                  | )          | (7,369 | ) | (2,217 | ) | (175 | ) | (2,392 | ) |
|                                                |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |
| Minority  interests                                 |       | —                                               |       | —                                               |       | — |   | — |   | — |   | — |   |
| Income tax  expense                                 |       | —                                               |       | —                                               |       | — |   | — |   | — |   | — |   |
| Net earnings  (loss)                                |       | (7,325                                               | )          | (44                                                  | )          | (7,369 | ) | (2,217 | ) | (175 | ) | (2,392 | ) |
|                                                |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |
| Effect of foreign  exchange                         |       | (591                                                 | )          | —                                               |       | (591 | ) | (1 | ) | — |   | (1 | ) |
|                                                |       |                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |
| Comprehensive  earnings (loss)                      |       | $                                                    | (7,916     | )                                                    | $          | (44 | ) | $ | (7,960 | ) | $ | (2,218 | ) | $ | (175 | ) | $ | (2,393 | ) |
|                                                     |            |                                                      |            |                                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                 | ** ** | **2006**                 | ** ** | **2005**     | ** ** | **2004**                 | ** ** | **2003**     | ** ** | **2002**                 | ** ** |
|----------------------------|------------|--------------------------|------------|--------------|------------|--------------------------|------------|--------------|------------|--------------------------|------------|
| ** **                 | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** |
|                       |       |                     |       |         |       |                     |       |         |       |                     |       |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss)  per share |       |                     |       |         |       |                     |       |         |       |                     |       |   |   |   |   |   |   |   |   |   |   |
| Basic 6                    |       | $                        | 0.16       |         | $          | 0.21                     |       | $            | 0.43       |                     | $          | 0.47 |   | $ | (3.72 | ) | $ | (3.71 | ) | $ | (0.89 | ) | $ | (0.90 | ) | $ | (0.28 | ) | $ | (0.30 | ) |
| Diluted                    |       | $                        | 0.15       |         | $          | 0.20                     |       | $            | 0.41       |                     | $          | 0.45 |   | $ | (3.72 | ) | $ | (3.71 | ) | $ | (0.89 | ) | $ | (0.90 | ) | $ | (0.28 | ) | $ | (0.30 | ) |

 
| ** **                                                          | ** ** | **2006**                 | ** ** | **2005**     | ** ** | **2004**                 | ** ** | **2003**     | ** ** | **2002**                 | ** ** |
|---------------------------------------------------------------------|------------|--------------------------|------------|--------------|------------|--------------------------|------------|--------------|------------|--------------------------|------------|
| **Consolidated Statement of Changes in  Stockholders’ Equity** | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** |
|                                                                |       |                     |       |         |       |                     |       |         |       |                     |       |   |   |   |   |   |   |   |   |   |   |
| Balance at  January 1                                          |       | $                        | (40,486    | )            | $          | (44,825                  | )          | $            | (51,560    | )                        | $          | (56,244 | ) | $ | (19,930 | ) | $ | (24,711 | ) | $ | (12,865 | ) | $ | (13,040 | ) | $ | (11,698 | ) | $ | (11,698 | ) |
| Increase  (decrease) attributable to stock issuance                 |       | 5,026                    |       | 4,731        |       | 7,324                    |       | 7,324        |       | 278                      |       | 278 |   | 2,051 |   | 2,239 |   | 1,051 |   | 1,051 |   |
| Cash dividend                                                       |       | (11,728                  | )          | (11,728      | )          | —                   |       | —       |       | —                   |       | — |   | — |   | — |   | — |   | — |   |
| Distributions to  an officer and related parties                    |       | —                   |       | 294          |       | —                   |       | —       |       | —                   |       | — |   | (1,200 | ) | (5,950 | ) | — |   | — |   |
| Increase  (decrease) attributable to net earnings (loss)            |       | 1,755                    |       | 2,301        |       | 3,850                    |       | 4,195        |       | (31,963                  | )          | (31,866 | ) | (7,325 | ) | (7,369 | ) | (2,217 | ) | (2,392 | ) |
|                                                                |       |                     |       |         |       |                     |       |         |       |                     |       |   |   |   |   |   |   |   |   |   |   |
| Increase due to  stock compensation expense                         |       | 881                      |       | 881          |       | —                   |       | —       |       | —                   |       | — |   | — |   | — |   | — |   | — |   |
|                                                                |       |                     |       |         |       |                     |       |         |       |                     |       |   |   |   |   |   |   |   |   |   |   |
| Currency  translation adjustments, net                              |       | (510                     | )          | (510         | )          | (100                     | )          | (100         | )          | 55                       |       | 55 |   | (591 | ) | (591 | ) | (1 | ) | (1 | ) |
| Balance at  December 31                                        |       | $                        | (45,062    | )            | $          | (48,856                  | )          | $            | (40,486    | )                        | $          | (44,825 | ) | $ | (51,560 | ) | $ | (56,244 | ) | $ | (19,930 | ) | $ | (24,711 | ) | $ | (12,865 | ) | $ | (13,040 | ) |

 

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| ** **                                        | ** ** | **2006**                 | ** ** | **2005**     | ** ** | **2004**                 | ** ** | **2003**     | ** ** | **2002**                 | ** ** |
|---------------------------------------------------|------------|--------------------------|------------|--------------|------------|--------------------------|------------|--------------|------------|--------------------------|------------|
| **Selected Balance Sheet  Accounts**              | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** | **Previously  reported** | ** ** | **Restated** | ** ** |
| ** **                                        | ** ** | ** **               | ** ** | ** **   | ** ** | ** **               | ** ** | ** **   | ** ** | ** **               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| At December 31                                    |       |                     |       |         |       |                     |       |         |       |                     |       |   |   |   |   |   |   |   |   |   |   |
| Cash                                              |       | $                        | 34,181     |         | $          | 33,221                   |       | $            | 33,244     |                     | $          | 32,883 |   | $ | 4,667 |   | $ | 4,667 |   | $ | 13,229 |   | $ | 13,229 |   | $ | 10,221 |   | $ | 10,221 |   |
| Restricted cash                                   |       | 6,510                    |       | 7,525        |       | 5,406                    |       | 6,174        |       | 2,181                    |       | 2,580 |   | 1,792 |   | 2,293 |   | 1,859 |   | 1,859 |   |
| Accounts  receivable, net                         |       | 3,373                    |       | 3,373        |       | 3,789                    |       | 3,789        |       | 448                      |       | 504 |   | 1,315 |   | 1,260 |   | 508 |   | 508 |   |
| Property and  equipment, net                      |       | 11,757                   |       | 11,745       |       | 10,082                   |       | 10,051       |       | 24,548                   |       | 24,503 |   | 16,172 |   | 16,309 |   | 7,950 |   | 8,262 |   |
| Intangible  assets, net                           |       | 4,129                    |       | 496          |       | 5,754                    |       | 1,463        |       | 6,576                    |       | 1,922 |   | 7,401 |   | 2,460 |   | 1,433 |   | 947 |   |
| Total assets                                      |       | 95,120                   |       | 91,687       |       | 102,203                  |       | 98,233       |       | 60,028                   |       | 55,673 |   | 55,552 |   | 51,202 |   | 28,272 |   | 28,098 |   |
| Accounts payable                                  |       | 4,744                    |       | 6,936        |       | 3,691                    |       | 4,043        |       | 7,413                    |       | 8,559 |   | 3,218 |   | 3,649 |   | 1,763 |   | 1,763 |   |
| Accrued Expenses                                  |       | 11,957                   |       | 5,891        |       | 7,377                    |       | 5,604        |       | 3,999                    |       | 2,420 |   | 1,781 |   | 1,411 |   | 1,126 |   | 900 |   |
| Accrued Payroll                                   |       | —                   |       | 3,965        |       | —                   |       | 1,789        |       | —                   |       | 761 |   | — |   | 370 |   | — |   | 226 |   |
|                                              |       |                     |       |         |       |                     |       |         |       |                     |       |   |   |   |   |   |   |   |   |   |   |
| Common stock                                      |       | 4,132                    |       | 2,591        |       | 10,593                   |       | 9,501        |       | 3,269                    |       | 2,177 |   | 2,991 |   | 1,899 |   | 940 |   | 691 |   |
| Paid in capital                                   |       | 1,089                    |       | 1,089        |       | 449                      |       | 1            |       | 449                      |       | 1 |   | 449 |   | 1 |   | 448 |   | 447 |   |
| Foreign currency  translation adjustment          |       | (1,160                   | )          | (1,160       | )          | (650                     | )          | (650         | )          | (550                     | )          | (550 | ) | (605 | ) | (605 | ) | (14 | ) | (14 | ) |
| Accumulated  deficit                              |       | (49,123                  | )          | (51,376      | )          | (50,878                  | )          | (53,677      | )          | (54,728                  | )          | (57,872 | ) | (22,765 | ) | (26,006 | ) | (14,240 | ) | (14,164 | ) |
| Total  stockholders’ deficit                 |       | (45,062                  | )          | (48,856      | )          | (40,486                  | )          | (44,825      | )          | (51,560                  | )          | (56,244 | ) | (19,930 | ) | (24,711 | ) | (12,866 | ) | (13,040 | ) |
| Total liabilities  and stockholder’s deficit |       | $                        | 95,120     |         | $          | 91,687                   |       | $            | 102,203    |                     | $          | 98,233 |   | $ | 60,028 |   | $ | 55,673 |   | $ | 55,552 |   | $ | 51,202 |   | $ | 28,272 |   | $ | 28,098 |   |

 

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***Note 2 - Description of Business andSummary of Significant Accounting Policies***

 

*Organization and history*

 

WhitneyInformation Network, Inc. and Subsidiaries (collectively referred to asthe “Company” “we,” “us” or “our”) provides post-secondary education andtraining courses for students throughout the United States, the United Kingdomand Canada, interested in learning about real estate and financial markets.

 

Weincorporated in Colorado in 1996 under the name Gimmel Enterprises, Inc.  In 1998, we acquired all of the outstandingcommon stock of Whitney Education Group, Inc., a Florida company organizedin 1992, and changed our name to WIN Systems International, Inc.  In 1999, we changed our name to WhitneyInformation Network, Inc.

 

*Principles of consolidation*

 

OurConsolidated Financial Statements include the accounts and balances of WhitneyInformation Network, Inc. and its wholly-owned and majority-owned subsidiaries.  All significant intercompany balances andtransactions have been eliminated.

 

*Significant accounting policies*

 

Thevast majority of our costs to acquire the student have been expended up to thepoint of registration, such as media, travel, facilities, and instructor feesfor the introductory workshops.  Thesecosts are expensed when incurred. However, the tuition paid at registration is deferred until the courseis attended by the student, in any of the available learning formats, or thelikelihood of attendance by the student is remote (course breakage) at whichtime the revenue is deemed earned.

 

Thus,reporting under generally accepted accounting principles in the United Statesof America creates significant timing differences with respect to revenue andexpenses, both in our cash flow and in our operating results.  Cash flow is impacted because we pay for asignificant portion of our expenses associated with our courses before thecourses are attended and the revenue can be recognized.  Our operating results are impacted as wellbecause we recognize the bulk of our course expenses when incurred, and deferall revenue until students take the course or receive the product offered.

 

Speakerfee commission payments earned for generating revenue are deferred until suchtime as the revenue is earned. Advertising costs, training room rentals anddirect sales expenses are expensed as incurred. Advertising paid in advance is recorded as prepaid until such time asthe advertisement is published.

 

*Revenue recognition policy*

 

We areengaged primarily in the business of providing real estate and financialmarkets education to individual students through courses of study as well aseducational materials.  We offer ourstudents multiple course packages. Students pay for the courses in advance and we record the proceeds fromthe sale of courses as deferred revenue as received.  Revenue is earned when the students attendthe courses.

 

Thestudent is permitted to attend courses (in all available learning formats) throughoutthe life of the student contract.  Weallow students to attend courses subsequent to expiration upon request.  The tuition is generally nonrefundable.  A student may receive a refund within threedays of the purchase by exercising a right of rescission.  In such cases, the corresponding amount ofdeferred revenue is relieved with no impact on the Consolidated Statement ofOperations.

 

Werecognize revenue based on:

 

·                  when the course is attended by the student; or

 

·                  likelihood of the attendance by the student isremote (course breakage), which is based on the historical:

 

·                  percentage of students who never attended a courseand those students who never attended a course subsequent to expiration; and

 

·                  highest number of days in which 95% of thosestudents who attended our courses subsequent to expiry.

 

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Wedetermine our course breakage rate based upon estimates developed fromhistorical student attendance patterns. Based on our historical information, wecan determine the likelihood of an expired course remaining unattended.  Moreover, we determined that we do not have alegal obligation to remit the value of expired courses to relevant taxingjurisdictions.

 

To apply course breakage, we calculate verifiable andobjective supporting data as of each balance sheet date.

 

To theextent new businesses do not have three full years of data (subsequent tocourse expiration); we recognize revenue based on course attendance.  Only at such time that we have developedverifiable and objective data over a three year period subsequent to courseexpiration will we apply course breakage based on the methodology describedabove.

 

Withrespect to our financial markets education segment and the United Kingdombusiness, we had sufficient data to apply course breakage calculations in thefourth quarter of 2006.  Accordingly, werecorded course breakage as contemplated above for the quarter ended December 31,2006, for the courses sold as of the beginning of the first quarter of 2003through the end of the fourth quarter of 2005 which were expired and remainedunattended.  The course breakagerecognized in the fourth quarter of 2006 amounted to $14.5 million and $7.3million, for the financial education segment and the United Kingdom business,respectively.

 

Duringthe years ended December 31, 2006, 2005, and 2004 we recognized$55.4 million, $16.6 million and $18.1 million, respectively, inrevenue related to course breakage.

 

*Previousrestatement – Form 10-K/A for the year ended December 31, 2005*

 

Asreflected in our previously filed Form 10-K/A for the year ended December 31,2005, filed on November 13, 2006, our Consolidated Financial Statementsand other financial information were previously restated for the years ended December 31,2005, 2004, 2003, and 2002 and for each of the quarters in the periods ended2005 and 2004.  Certain of our materialcontrol weaknesses resulted in inaccurate financial reporting and restatementsto our previously filed Consolidated Financial Statements from 2001 through2005.  The previously restatedConsolidated Financial Statements reflect:

 

·                  a modification associated with a change in revenuerecognition policy and restatement of revenue from expired courses; and

 

·                  a revision to the revenue recognitionpolicy with respect to our teleconferencing product and service offering andsubscription services.

 

*Teleconferencing and subscription services*

 

Asrequired by Financial Accounting Standard Board’s Emerging Issues Task ForceIssue No. 00-21, *Revenue Arrangementswith Multiple Deliverables*(“EITFNo. 00-21”)**and the SEC’sStaff Accounting Bulletin No. 104 (“SAB No. 104”), ourteleconferencing product and service offering is an arrangement with multipledeliverables.  The delivered items shouldbe considered a separate unit of accounting if all of the following criteriaare met:

 

·                  The delivered item(s) has value to the customeron a standalone basis.  That item(s) hasvalue on a standalone basis if it is sold separately by any vendor or thecustomer could resell the delivered item(s) on a standalone basis.  In the context of a customer’s ability toresell the delivered item(s), the Task Force observed that this criterion doesnot require the existence of an observable market for that deliverable(s).

 

·                  There is objective and reliable evidence of the fairvalue of the undelivered item(s).

 

·                  If the arrangement includes a general right ofreturn relative to the delivered item, delivery or performance of theundelivered item(s) is considered probable and substantially in thecontrol of the vendor.

 

Wedetermined the criteria detailed above have been met:

 

·                  The product and the service have value to thestudent on a standalone basis.

 

·                  The product can be and is sold separately.

 

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·                  We feel there is objective and reliable evidence todetermine the fair value of the undelivered item(s).

 

·                  Lastly, there are no general rights of return forthe teleconferencing offering.

 

Werecognize, as revenue, the product portion of the deliverable, at point ofpurchase, and amortize the service component over the life of the package.

 

*Strategic alliances*

 

Weaccount for our strategic alliance arrangements in accordance with the FASB’sEmerging Issues Task Force Issue No. 99-19, *Reporting Revenue Gross as a Principal versus Net as an Agent*.  In the cases where we are deemed theprincipal, the following conditions are present:

 

·                  We are obligated to fulfill the education deliveryto the end customer

 

·                  We have discretion in the course development and itsdelivery

 

·                  We collect cash or credit sales at point of sale

 

Thecash received at strategic alliance partner events is recorded at the fullcontract amount (gross), and payments to our strategic alliance partners arerecorded as direct course expense.  Theaccounting treatment for the revenues and payments to our strategic alliancepartners is the same as our own brands. With respect to those payments that relate to future course deliveries,they are deferred, and recorded as revenue and expenses when the course isattended by the student or the likelihood of attendance is deemed remote.  Those that relate to product sales are recognizedupon the delivery of the product, which is typically at the point of sale.

 

*Deferred course expenses*

 

Wedefer commissions and fees paid to our speakers until such time the revenue isearned.  Our speakers, who are allindependent contractors, earn commissions on the cash receipts received at oureducational events and are paid approximately 45 days after theeducational event.  The deferred courseexpenses are tracked individually by student and are recognized in theConsolidated Statement of Operations as the student attends the course at thesame time the associated revenues are recognized.

 

Wecapitalize these commissions and fees paid to our speakers consistent withStatement of Financial Accounting Standard No. 91, *Accounting for Nonrefundable Fees and CostsAssociated with Originating or Acquiring Loans and Initial Direct Costs ofLeases - an amendment of FASB Statements No. 13, 60, and 65 and arescission of FASB Statement No. 17*, Technical Bulletin No. 90-1,*Accounting for Separately Priced ExtendedWarranty and Product Maintenance Contracts* and the SEC’s StaffAccounting Bulletin No. 104.

 

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*Cash and cash equivalents*

 

Weconsider all highly liquid instruments purchased with an original maturity ofthree months or less to be cash equivalents. We continually monitor our investment positions and the credit qualityof the financial institutions with which we invest.

 

Weplace temporary cash investments with what management believes are high-credit,quality financial institutions.  As ofthe balance sheet date, and periodically throughout the year, we havemaintained balances in various operating accounts in excess of federallyinsured limits.

 

*Restrictedcash*

 

Restrictedcash reflects amounts retained by credit card merchants as a reserve forreturns on credit card transactions and deposit balances required under lettersof credit.  We consider restricted cashas a current asset in the consolidated balance sheet as credit card merchantscan typically hold such reserve funds only up to one year.  The total amount of restricted cash as of December 31,2006 and 2005 was $7.5 million and $6.2 million, respectively.

 

*Concentrationsof credit risk*

 

Financialinstruments, which potentially subject us to concentration of credit risk,consist principally of cash and short-term cash investments and accountsreceivable.  We place temporary cashinvestments with what management believes are high-credit, quality financialinstitutions.  As of the balance sheetdate, and periodically throughout the year, we have maintained balances invarious operating accounts in excess of federally insured limits.  We periodically perform credit analysis andmonitor the financial condition of its customers in order to minimize creditrisk.

 

*Accounts receivable*

 

Accountsreceivable consists of trade receivables from the sale of educational productsand services for which a contract has been executed, payments have not beenreceived, and the related revenue has been deferred.  An adjustment is recorded to write off anyamounts deemed to be unrealizable and uncollectible.

 

*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 (“FIFO”)method.

 

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*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 the balance sheet date because of the relativelyshort maturity of these instruments.  Thefair value of long-term notes payable approximates fair value based on currentmarket rates available for similar debt instruments.

 

*Advertising, sales expense and prepaid advertising*

 

Weexpense advertising and sales costs as incurred.  Advertising paid for in advance is recordedas prepaid until such time as the advertisement is published.

 

*Property and equipment*

 

Propertyand equipment is stated at cost less accumulated depreciation.  Depreciation is calculated on thestraight-line method over the estimated useful lives of the assets as presentedin the following table:

 
| Buildings                         |   | 40  years    |   |
|-----------------------------------|--------|--------------|--------|
| Furniture  fixtures and equipment |   | 7  years     |   |
| Other assets                      |   | 5 years |   |
| Purchased  software               |   | 3  years     |   |

 

*Intangible assets and goodwill*

 

Intangibleassets include customer lists and trademarks and are recorded at cost.  Customer lists and trademarks are beingamortized over their estimated useful lives of three and 15 years,respectively.  At December 31, 2006,we performed impairment testing in accordance with SFAS No. 144, *Accounting for the Impairment or Disposal of LongLived Assets*, (“SFAS No. 144”) for all intangible assets.  We recorded an impairment expense in theamount of $3.6 million for the year ended December 31, 2006.  See Note**3*— Impairment of assets and special items*.

 

Goodwillrepresents the excess of purchase and related costs over the fair value of netassets acquired.  We apply the provisionsof SFAS No. 142, *Goodwill and OtherIntangible Assets*, (“SFAS No. 142”).  In accordance with SFAS No. 142 goodwillis not amortized, but is required to be assessed for impairment at leastannually, or more frequently upon the occurrence of a triggering event.  We perform our goodwill impairment assessmenttests on or about December 31 of each year.  We concluded our remaining goodwill of $2.0million at December 31, 2005, was impaired and accordingly, this goodwillwas written-off.  See Note**3*— Impairment of assetsand special items*.

 

*Long-lived assets*

 

In accordance with SFAS No. 144, we reviewlong-lived assets such as property and equipment, and definite —livedintangible assets subject to amortization for impairment whenever events orchanges in circumstances indicate that the carrying amount of an asset may notbe recoverable.  Recoverability of assetsheld and used is measured by the comparison of its carrying amount with thefuture net cash flows the asset is expected to generate.  We look primarily to the undiscounted futurecash flows in the assessment of whether or not long-lived assets have beenimpaired.  If the carrying amount of anasset exceeds its estimated future cash flows, an impairment charge isrecognized for the amount by which the carrying amount of the asset exceeds theestimated fair value of the assets.

 

*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.  Actualresults could differ from those estimates.

 

*Income taxes*

 

Werecognize deferred tax liabilities and assets based on the differences betweenthe tax basis of assets and liabilities and their reported amounts in thefinancial statements that will result in taxable or deductible amounts infuture years. 

 

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Temporary differences result primarily from the recognition of deferredexpenses for tax purposes.  A valuationallowance is established, when necessary, to reduce deferred tax assets to theamount expected to be realized.  See Note**12*-**Income taxes.*

 

*Translation of foreign currency*

 

Weaccount for foreign currency translation in accordance with SFAS No. 52, *Foreign Currency Translation*.  As such, the financial position and resultsof operations of our foreign subsidiaries are measured using local currency asthe functional currency.  Revenues andexpenses of the subsidiaries have been translated into U.S. dollars at averageexchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange asof December 31, 2006 and 2005, respectively.

 

*Income (loss) per share*

 

Weapply the provisions of SFAS No. 128*,Earnings Per Share*.  Alldilutive potential common shares in 2006 and 2005 were included in the dilutedearnings per share calculation.  Alldilutive potential common shares in 2004 had an anti-dilutive effect on dilutedper share amounts and therefore were excluded in determining net loss pershare.  At December 31, 2006, we had1,253,500 stock options and 890,719 warrants outstanding.  Atotal of 457,639 potentially dilutive securities could be dilutive to futureearnings.  See Note 10*- Stock options*and**Note4 *- Offering.*

 

*Stock options and stock-based compensation*

 

Our1998 Stock Option Plan provides for the granting of stock options to keyemployees and members of the Board of Directors.  Vesting under the 1998 Plan is as follows:25% of the options vest on the grant date, an additional 25% vests on thecompletion of the first year of service, another 25% vests on the completion ofthe second year of service, and 100% of the shares vest at the end of the thirdyear of service.  All options expire tenyears from the date of grant.

 

Effective January 1,2006, we adopted the  Statement ofFinancial Accounting Standards No. 123 (revised 2004), *Share-Based Payment* (“SFAS No. 123R”),which requires us to measure the cost of employee services received in exchangefor all equity awards granted including stock options based on the fair marketvalue of the award as of the grant date. SFAS No. 123R supersedes Statement of Financial AccountingStandards No. 123, *Accounting forStock-Based Compensation* (“SFAS No. 123”) and AccountingPrinciples Board Opinion No. 25, *Accountingfor Stock Issued to Employees* (“APB No. 25”).  We adopted SFAS No. 123R using themodified prospective application method of adoption which requires us to recordcompensation cost related to unvested stock awards as of December 31,2005, by recognizing the unamortized grant date fair value of these awards overthe remaining service periods of those awards with no change in historical reportedearnings.  Awards granted after December 31,2005, are valued at fair value in accordance with the provisions of SFAS No. 123Rand recognized on the same basis as the vesting period.  We estimated forfeiture rates for 2006 basedon historical experience.

 

Priorto 2006, we accounted for stock-based compensation in accordance with APB No. 25using the intrinsic value method, which did not require that compensation costbe recognized for our stock options provided the option exercise price wasestablished at least at 100% of the common stock fair market value on the dateof grant.  Under APB No. 25, we wererequired to record expense over the vesting period for the value of optionsgranted.  Prior to 2006, we provided proforma disclosure amounts in accordance with Statement of Financial AccountingStandards No. 148, *Accounting forStock-Based Compensation - Transition and Disclosure*(“SFAS No. 148”), as if the fairvalue method defined by SFAS No. 123 had been applied to its stock-basedcompensation.  Our net earnings and netearnings per share for the twelve months ended December 31, 2005, wouldhave been reduced if compensation cost related to stock options had beenrecorded in the Consolidated Financial Statements based on fair value at thegrant dates.

 

As aresult of adopting SFAS No. 123R, the impact to the Consolidated FinancialStatements on net earnings for the twelve months ended December 31, 2006,is $0.8 million lower than if we had continued to account for stock-basedcompensation under APB No. 25.  Proforma net earnings (loss), as if the fair value based method had been appliedto all awards prior to the adoption of SFAS No. 123R, are as follows (inthousands, except for per share amounts):

 
| ** **                                        | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------------|------------|----------|------------|----------|------------|
| Risk free  interest rate                          |       | 4.39     | %          | 4.24     | %          |
| Weighted average  volatility                      |       | 77.9     | %          | 57.0     | %          |
| Dividend yield                                    |       | 0.0      |       | 0.0      |       |
| Expected term  (in years)                         |       | 7        |       | 10       |       |
| Weighted average  fair market value at grant date |       | $        | 3.56       |     | $          | 2.72 |   |
|                                                   |            |          |            |          |            |  |  |

 

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| ** **                                                                                  | ** ** | **Year ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                  | ** ** | **2005**                                   | ** ** | **2004** | ** ** |
| ** **                                                                                  | ** ** | **(restated)**                             | ** ** | **(restated)** | ** ** |
| Net earnings  (loss) — as reported                                                     |       | $                                          | 4,195      |   | $ | (31,866 | ) |
| Add: Stock based  compensation programs recorded as expense, net of related tax effect |       | —                                     |       | — |   |
| Deduct: Total  stock based employee compensation expense, net of related tax effect         |       | (1,535                                     | )          | (1,374 | ) |
| Pro forma net  earnings (loss)                                                              |       | $                                          | 2,660      |   | $ | (33,240 | ) |
| Earnings per  share:                                                                        |       |                                       |       |   |   |
|                                                                                        |       |                                       |       |   |   |
| Diluted — as  reported                                                                 |       | $                                          | 0.45       |   | N.A. |   |
| Diluted — pro  forma                                                                   |       | $                                          | 0.28       |   | N.A. |   |
|                                                                                        |       |                                       |       |   |   |
| Basic — as  reported                                                                   |       | $                                          | 0.47       |   | $ | (3.71 | ) |
| Basic — pro  forma                                                                     |       | $                                          | 0.30       |   | $ | (3.87 | ) |

 

Theimpact of adoption of SFAS No. 123R is that future share based paymentawards will be recorded as compensation expense over their requisite serviceperiod, and such expense is expected to be material to future earnings.  Had we adopted SFAS No. 123R in priorperiods, the impact of that standard would have approximated the impact of SFASNo. 123R as described in the disclosure of pro forma net earnings (loss)per share above.  See Note10*– Stock options*.

 

*Reclassifications*

 

Certainreclassifications have been made in the 2005 and 2004 Consolidated FinancialStatements to conform to the 2006 presentation.

 

*Recently issued accounting standards*

 

In July 2006, the Financial AccountingStandards Board (“FASB”) issued Financial Interpretation No. 48, *Accounting for Uncertainty in Income Taxes*(“FIN No. 48”).  FIN No. 48clarifies the accounting for uncertainty in income taxes recognized inaccordance with SFAS No. 109, *Accountingfor Income Taxes*.  This Interpretation requires that werecognize in our Consolidated Financial Statements, the impact of a taxposition, if that position is more likely than not of being sustained on audit,based on the technical merits of the position.  FIN No. 48 providesguidance on recognizing, measuring, presenting and disclosing uncertain taxpositions that a company has taken or expects to take on a tax return.  Our effective date for adopting FIN No. 48is January 1, 2007, with the cumulative effect of the change in accountingprinciple recorded as an adjustment to the opening accumulated deficit. We are currently evaluating the impact of FIN No. 48 on our ConsolidatedFinancial Statements.

 

In September 2006,the SEC released Staff Accounting Bulletin No. 108, *Consideringthe Effects of Prior Year Misstatements when Quantifying Misstatements inCurrent Year Financial Statements* (“SAB No. 108”), whichprovides the SEC staff’s views regarding the process of quantifying financialstatement misstatements, including assessing both the carryover and reversingeffects of prior year misstatements on the current year’s financialstatements.  SAB No. 108 iseffective for fiscal years ending after November 15, 2006.  The adoption of SAB No. 108 had noimpact on our Consolidated Financial Statements.

 

Alsoin September 2006, the FASB issued SFAS No. 157, *Fair ValueMeasurements* (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework formeasuring fair value and requires enhanced disclosures about fair valuemeasurements.  SFAS No. 157 iseffective for fiscal years beginning after November 15, 2007.  We are currently assessing the impact of theadoption of SFAS No. 157 on our Consolidated Financial Statements.

 

TheFASB’s Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 06-03,*How Taxes Collected from Customers andRemitted to Governmental Authorities Should Be Presented in the IncomeStatement (That Is, Gross versus Net Presentation)* (“EITF No. 06-03”)in June 2006.  EITF No. 06-03provides that the presentation of taxes assessed by a governmental authoritythat is directly imposed on a revenue-producing transaction between a sellerand a 

 

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customer on either a gross basis (included in revenues and costs) or ona net basis (excluded from revenues) is an accounting policy decision thatshould be disclosed.  The Task Forceobserved that because the tentative conclusion in this Issue requires only thepresentation of additional disclosures, we would not be required to reevaluateour existing policies related to taxes assessed by a governmental authoritythat are directly imposed on a revenue-producing transaction between a sellerand a customer.  The provisions of EITF No. 06-03become effective as of January 1, 2007. We are currently examining the impact of adopting EITF No. 06-03 onour Consolidated Financial Statements.

 

On December 21,2006, the FASB issued EITF 00-19-2, *Accounting for**Registration Payment Agreements*, to determine the accountingfor registration rights agreements.  TheFASB decided to separately recognize and measure, for the issuer and holder,registration payment arrangements using a model consistent with the accrual ofloss contingencies under FASB Statement No. 5, *Accountingfor Contingencies*, regardless of legal form.  This is consistent with our accountingtreatment with respect to the liquidated damages provision of the registrationrights agreement.  See Note 3 – *Impairment of assets and special items* – *Liquidated damages provision in registration rights agreement*.

 

In February 2007,SFAS No. 159, *The Fair Value Opinion ofFinancial Assets and Financial Liabilities (“SFAS No. 159”),*wasissued.  SFAS No. 159 providedcompanies with an option to report financial assets and liabilities at fairvalue and established presentation and disclosure requirements designed tofacilitate comparisons between companies that choose different measurementattributes for similar types of assets and liabilities.  SFAS No. 159 will be effective for usbeginning January 1, 2008, and we are currently evaluating the potentialeffect.

 

***Note 3 - Impairment of assets andspecial items***

 

*Impairmentsof goodwill, other intangible assets, property and equipment*

 

Weperformed impairment testing of our property and equipment in accordance withSFAS No. 144, *Accounting for the Impairmentor Disposal of Long-lived Assets,* and of our goodwill and intangibleassets in accordance with SFAS No. 142,*Goodwill and Intangible Assets*.

 

Weconcluded in 2006 that the *Star Trader*® brand in our financial marketseducation segment and the *Cash Flow Generator*® brandin our real estate education segment were impaired.  During 2006, both brands generated negativecash flow and suffered deteriorating positions with limited prospects ofturning around.  We have ceased orsuspended marketing of these brands and concluded both were permanentlyimpaired.  As further evidence of ourdetermination that the fair value of the intangible assets is zero, we analyzedforecasted future undiscounted cash flows and determined the assets werewithout value.  This resulted in a $2.7million goodwill and intangible asset impairment charge - $2.2 million for the *Star Trader*® brand and $0.5 million for the *Cash Flow Generator*® brand — along with an impairment charge ofapproximately $0.1 million for related inventory.

 

Duringthe fourth quarter of 2006, the Board approved our sale of our land and officebuilding in the United Kingdom.  Theseassets are included in our International segment.  We located a buyer for the property andagreed to terms in December 2006. Accordingly, we recorded an impairment loss of $0.4 million inconnection with our United Kingdom office building to reduce the property toits estimated net realizable value as of December 31, 2006.  The land and building in the United Kingdomwere sold in 2007.

 

Duringthe fourth quarter of 2006, the Board approved the sale of our aircraft.  This asset is included in our Corporatesegment.  Using several bids fromprospective buyers, we recorded an impairment loss of $0.4 million to reducethe book value of the aircraft to its estimated net realizable value as of December 31,2006.  This aircraft was sold in thesecond quarter of 2007.

 

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The following table shows the impairment expense byasset type for 2006 (in thousands) (restated):

 

| Impairment  expense related to goodwill                     |   | $   | 2,000  |   |
|-------------------------------------------------------------|--------|-----|--------|--------|
| Impairment  expense related to intangible assets (restated) |   | 687 |   |
| Impairment  expense related to property and equipment       |   | 756 |   |
| Impairment  expense related to inventory (restated)         |   | 147 |   |
| Total                                                       |   | $   | 3,590  |   |

 

Therewere no impairments recorded for 2005 and 2004.

 

*Special items*

 

Special items incurredduring the year ended December 31, 2006, totaled approximately $2.3million.

 

Special items included thefollowing:

 

·                  $0.8 millionexpense associated with the liquidated damages provision in the registrationrights agreement

 

·                  $0.9 millionwrite-off in connection with the withdrawal of the EduTrades, Inc.registration statement

 

·                  $0.6 million inprofessional fees associated with the proceedings by the SEC and the DOJ andthe related internal investigation.

 

*Liquidated damages provision in registration rightsagreement*

 

On December 13, 2005,3,000,000 shares of common stock and 1,950,000 shares of common stock underlyingcommon stock purchase warrants were sold in a private placement.  We sold 1,750,000 shares of common stock andissued common stock purchase warrants for 875,000 common shares.  Our placement agent received 300,000 unitwarrants exercisable for the equivalent of 450,000 shares of common stock.  Concurrently, our former Chairman and ChiefExecutive Officer sold 1,250,000 shares of common stock and issued common stockpurchase warrants for 625,000 common shares.

 

In connection with the Offering, we entered into aregistration rights agreement which provided that we use our “best efforts” tofile a Registration Statement for the resale of these shares to bedeclared effective by April 11, 2006, and required us to maintain theeffectiveness of the Registration Statement for a one year period subsequent tothe effective date.  The registrationrights agreement required the payment of liquidated damages to the investors ofapproximately $4,500 per day (which represents about 1% per month of theproceeds) until the Registration Statement is declared effective oreffectiveness is maintained.  TheRegistration Statement was declared effective on November 13, 2006, andhas remained effective since then. Liquidated damages through November 13, 2006, were $1.0 million.  We had previously accrued $0.2 million for theyear ended December 31, 2005, resulting in a $0.8 million expense for theyear ended December 31, 2006.  SeeNote 4 – *Offering* for further discussion.

 

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***Note 4 - Offering***

 

In December 2005,3,000,000 shares of common stock and common stock purchase warrantsrepresenting 1,950,000 shares of common stock were sold.  We sold 1,750,000 shares of common stock andissued warrants for 875,000 shares. Our Chairman and Chief Executive Officer sold 1,250,000 shares andwarrants for 625,000 shares.  Inboth cases, each warrant allows one share to be purchased for $4.50.  We received $7.9 million inproceeds and netted approximately $6.8 million after cash expenses, butbefore 450,000 warrants issued to the placement agent and $1.0 million inliquidated damages we paid pursuant to the registration rights agreement.

 

Thecommon stock and warrants were issued as a $13.5 million private placementin which 3,000,000 units of our securities were issued to a group of 17nonaffiliated accredited investors.  Inaddition, a unit warrant was issued to our placement agent exercisable topurchase 300,000 shares of common stock at $4.50 per share and 150,000shares of common stock at $6.00 per share. Including the units to our placement agent, we registered a total of3,000,000 shares of common stock, plus 1,950,000 units underlyingcommon stock purchase warrants.  Wecollected $5.6 million of proceeds on behalf of our Chairman and ChiefExecutive Officer, who was a selling shareholder in the offering.  At December 31, 2005, we recorded aliability to our Chairman and Chief Executive Officer of $5.1 million, netof $0.5 million in offering costs, on the accompanying ConsolidatedBalance Sheets, which was paid in the first quarter of 2006.

 

The following table summarizes the activity for thewarrants outstanding (in thousands except exercise price data);

 
| ** **                                | ** ** | **Number of  warrants** | ** ** | **Weighted  average  exercise price** | ** ** |
|-------------------------------------------|------------|------------------------------|------------|--------------------------------------------|------------|
| Outstanding as  of December 31, 2003 |       | —                       |       | —                                     |       |
| Granted                                   |       | 200                          |       | $                                          | 6.63       |   |
| Forfeited                                 |       | —                       |       | —                                     |       |
| Exercised                                 |       | —                       |       | —                                     |       |
| Outstanding as  of December 31, 2004 |       | 200                          |       | $                                          | 6.63       |   |
| Granted                                   |       | 1,137                        |       | 6.00                                       |       |
| Forfeited                                 |       | —                       |       | —                                     |       |
| Exercised                                 |       | —                       |       | —                                     |       |
| Outstanding as  of December 31, 2005 |       | 1,337                        |       | $                                          | 6.12       |   |
| Granted                                   |       | 41                           |       | 4.60                                       |       |
| Forfeited                                 |       | —                       |       | —                                     |       |
| Exercised                                 |       | (488                         | )          | 6.00                                       |       |
| Outstanding as  of December 31, 2006 |       | 890                          |       | $                                          | 6.07       |   |

 

In2006, we issued 41,667 warrants at an exercise price of $4.60.  In 2005, we sold 1,750,000 shares ofcommon stock and issued warrants for 875,000 shares.  Our Chairman and Chief Executive Officer sold1,250,000 shares of common stock and warrants for 625,000 shares.  In addition, in 2005, we issued a unitwarrant to our placement agent exercisable to purchase 300,000 units at $4.50per share (a unit is comprised of one share of stock plus a warrant forone-half share).

 

Exerciseof warrants during the year ended December 31, 2006, resulted in net cashreceipts of $2.7 million.

 

***Note 5 - Mergers and acquisitions***

 

In March 2006,we issued long term debt of $3.6 million to acquire the remaining 50% ofits consolidated subsidiary SCB Building, LLC. The difference of $0.3 million between the long term debt and thenet book value of minority interest of $3.9 million has been recorded asadditional paid-in capital.

 

In February 2005,we issued 85,470 shares of common stock valued at $0.2 million plus cashof $0.3 million for assets recorded as goodwill for the final payment ofthe *Star Trader**® *brand purchase agreement.  In 2006, $2.0 million in goodwill inconnection with the *Star Trader*® brand acquisition was deemed impaired.

 

In September 2004,we entered into a six-month agreement with Discount Buyers Association ofAmerica (“DBAA”) to assume operational control over its business andpost-secondary education products. Simultaneously, we were granted an option to purchase all of the assetsof DBAA.  We paid $0.5 million toDBAA for control of the business operations. We have allowed the option to expire and charged $0.5 million toexpense for the year ended December 31, 2004.

 

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In June 2004, weissued warrants to purchase 200,000 shares of our no par value common stock inexchange for professional services provided to us.  The warrants expire in June 2008, andare exercisable at the following prices: 100,000 shares at $5.25 per share; and100,000 shares at $8.00 per share.

 

***Note 6 -******Certainrelationships and related transactions***

 

We lease approximately2,200 square feet of training facilities at 1611 East Cape Coral Parkway,approximately 9,000 square feet of space at 1625 East Cape Coral Parkway whichis used for offices and shipping, and 4,802 square feet at 1630 Southeast 47thTerrace which we use as a training facility, all in Cape Coral, Florida fromCape Promenade Trust which is for the benefit of our former Chairman and ChiefExecutive Officer, Mr. Whitney and Ingrid Whitney.  The leases are for three years and began on March 1,2003, March 1, 2003, and June 1, 2004, respectively.  The monthly rentals are $1,943, $13,913, and$7,238, respectively.  We are on amonth-to-month basis with respect to the 1611 East Cape Coral Parkway and 1630Southeast 47th Terrace, leases that expired in March 2006.  We extended the lease with respect to 1625East Cape Coral Parkway through June 30, 2009.

 

*Gulfstream Development Group, LLC*

 

For the years ended December 31,2003 through 2006, the Company had an agreement with Gulfstream DevelopmentGroup, LLC (“Gulfstream”) in which we were compensated for appointingGulfstream as the exclusive offeror of homes for students of our advanced realestate courses.  Students were offeredthe opportunity to purchase residential lots in Southwest Florida fromGulfstream, other lot owners, or Mr. Whitney.  Gulfstream constructs homes on lots owned byour students.  Under a Referral ServicesAgreement with Gulfstream, Gulfstream paid the Company a flat fee of $100,000for all referrals that occurred before January 1, 2003, and agreed to paythe Company $1,000 for each student that the Company referred to Gulfstream whopurchased and closed on a home built by Gulfstream after January 1,2003.  The referral fees paid to theCompany by Gulfstream were $0.2 million for the year ended December 31, 2003 andwere $0.3 million for each of the years ended December 31, 2004, 2005, and2006.

 

During the years ended December 31,2004, 2005 and 2006, Mr. Whitney and Ingrid Whitney jointly held anindirect 25% beneficial ownership interest in Gulfstream and received 15% ofdistributions of net cash flow from Gulfstream. Mr. and Mrs. Whitney hold their investment in Gulfstreamthrough Rec One Inc., an entity owned jointly by them.

 

During the years ended December 31,2004, 2005 and 2006, Gulfstream had an informal arrangement with Mr. Whitneypursuant to which Gulfstream paid Mr. Whitney a salary.  During the years 2003 through 2006,Gulfstream paid Rec One transaction-based compensation for Mr. Whitney’sservices, including marketing and construction contract administration inconnection with home sales to the Company’s students and other persons, as wellas for credit support provided to Gulfstream by Mr. Whitney.  The transaction-based compensation consistedof payments of $2,500 or $4,000 to Rec One by Gulfstream upon purchases of Gulfstreamhomes by our students.

 

During the years ended December 31,2003, 2004, and 2005 the Company made payments to Gulfstream of approximately$0.1 million, $0.7 million and $0.2 million, respectively, for constructionservices on our corporate headquarters building.  The construction services provided in 2003were for leasehold improvements and in 2004 services were provided to repairthe extensive damage to our corporate headquarters as a result of Hurricane Charley.

 

The following table setsforth the salary and transaction-based compensation that Mr. Whitneyreceived from Gulfstream during the years ended December 31, 2003, 2004,2005, and 2006 and is based upon information provided to Mr. Whitney byGulfstream:

 
| ** **                                                    | ** ** | **2003** | ** ** | **2004** | ** ** | **2005**  | ** ** | **2006**  | ** ** | **Total** | ** ** |
|---------------------------------------------------------------|------------|----------|------------|----------|------------|-----------|------------|-----------|------------|-----------|------------|
| Salary paid to Mr.  Whitney by Gulfstream                     |       | $        | —     |     | $          | 120,000   |       | $         | 120,000    |      | $          | 120,000 |   | $ | 360,000 |   |
| Transaction-based  compensation paid to Rec One by Gulfstream |       |     | 563,220    |     |       | 41,154    |       |      | 522,315    |      |       | 1,251,105 |   |   | 2,377,794 |   |
| Management Fees  paid to Rec One by Gulfstream (1)            |       |     | —     |     |       | 300,000   |       |      | 350,000    |      |       | — |   |   | 650,000 |   |
| Distributions  from Gulfstream to Rec One (2)(3)              |       | —   |       | —   |       | 1,752,976 |       | 1,543,662 |       | 3,296,638 |       |
| Total                                               |       | $        | 563,220    |     | $          | 461,154   |       | $         | 2,745,291  |      | $          | 2,914,767 |   | $ | 6,684,432 |   |
|                                                               |            |          |            |          |            |           |            |           |            |           |            |  |  |  |  |  |  |  |  |  |  |

 

----

| (1)    | Total management fees  shown above reflect amounts paid to Rec One and shared by Mr. Whitney  and Ms. Whitney on a 50/50 basis.                                                                                                                   |
|-----------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)    | Total distributions  include portions paid to Rec One and shared by Mr. Whitney and  Ms. Whitney on a 50/50 basis.                                                                                                                                |
| (3)    | Rec One was required to  fund 25% of capital calls from Gulfstream. The amounts shown above do not  reflect these capital calls which, including the portions for both  Mr. Whitney and Ms. Whitney, were $202,793 in 2005 and $486,530 in  2006. |

 

The independent membersof the Board of Directors are reviewing the Gulfstream transactions regardingcompliance with the applicable governance and related party transactionrequirements.

 

*SCBBuilding*

 

In November 2005, wesold the SCB office building for a pretax gain of $5.6 million, beforeminority interest, or a pretax gain of $3.5 million after minorityinterest.  The debt on the building waspaid in full and SCB received a note receivable, secured by the building,totaling $11.0 million as part of the $20.3 million sellingprice.  The following compensation was authorizedby the Board of Directors and paid in 2006 resulting from additional worksurrounding the sale of the SCB Building: Russell Whitney, $100,000, (of which $50,000was paid to Ingrid Whitney) Ronald Simon, $50,000, and Kent Densley, $50,000.

 

*CostaRica*

 

                As ofDecember 31, 2006, we had investments in four entities which ownedproperties located in Costa Rica.  In addition, two or our formerexecutives including the Company’s former Chairman and Chief Executive Officer,Russell Whitney, and the former Co-President and Chief Operating Officer,Ronald Simon, have individual ownership interests in some of these entities. The entities we have ownership interests in are Rancho Monterrey, S.A.,Monterrey del Este, S.A., Monterrey del Llano, S.A., and Monterey Group,S.A.  Mr. Whitney indirectly owns approximately 11.4% of RanchoMonterrey, S.A., 8.0% of Monterrey del Este, S.A., 50% of Monterey del Llano,S.A., and 22% of Monterey Group, S.A.  Mr. Simon indirectly ownsapproximately 1.4% of Rancho Monterrey, S.A.  These entities are managedby Monterey Management, S.A, a company which is 100% owned by Ms. MariaJimenez, who is paid as an independent contractor by 

 

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WIN.  MontereyManagement, S.A. receives management fees from these and otherentities.  The amounts for management fees for the years ended December 31,2004, 2005, and 2006 were $500,000, $800,000 and $800,000, respectively.

 

In addition to managementfees, commissions on the sale of land in Rancho Monterey, S.A., and Montereydel Este, S.A., were paid to Monterey Management, S.A. and others includingunrelated real estate agents and brokers in the years ended December 31,2006, 2005, and 2004.  However, Mr. Simonwas paid $56,250 by Monterey Management in 2007 for consulting fees relating tothe sale of Monterrey Green Acres S.A., an entity which the Company had noinvestment

 

Mr. Whitney, threeof our employees and two former employees have an investment in shares ofMonterrey Green Acres, S.A., which originally owned approximately 1,500 acresin Monterrey, Costa Rica.  We have no interest in this investment, and didnot share in any proceeds from the intended sale of the entity’s shares andrelated property.  A letter of intent to purchase Monterrey Green Acres,S.A. has been signed by an interested buyer who is an independent contractorfor us.

 

The independent membersof the Board of Directors are reviewing the Costa Rican transactions regardingcompliance with the applicable governance and related party transactionrequirements.

 

***Note 7 - Property and equipment***

 

Property and equipmentconsist of the following (in thousands):

 
| ** **                      | ** ** | **December 31,** | ** ** |
|---------------------------------|------------|-----------------------|------------|
| ** **                      | ** ** | **2006**              | ** ** | **2005** | ** ** |
| ** **                      | ** ** | **(restated)**        | ** ** | **(restated)** | ** ** |
| Land                            |       | $                     | 2,460      |   | $ | 2,510 |   |
| Buildings                       |       | 3,891                 |       | 3,996 |   |
| Aircraft                        |       | 7,867                 |       | 2,114 |   |
| Software                        |       | 2,101                 |       | 1,609 |   |
| Equipment                       |       | 1,424                 |       | 1,253 |   |
| Furniture and  fixtures         |       | 792                   |       | 772 |   |
| Leasehold  improvements         |       | 1,908                 |       | 1,333 |   |
|                            |       | 20,443                |       | 13,587 |   |
| Less:  accumulated depreciation |       | (3,979                | )          | (3,536 | ) |
|                            |       | 16,464                |       | 10,051 |   |
| Less: Assets  held for sale     |       | (4,719                | )          | — |   |
|                            |       | $                     | 11,745     |   | $ | 10,051 |   |

 
| ** **            | ** ** | **Years ended December 31,** | ** ** |
|-----------------------|------------|---------------------------------------------|------------|
| ** **            | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **            | ** ** | **(restated)**                              | ** ** | **(restated)** | ** ** | **(restated)** | ** ** |
| Depreciation  expense |       | $                                           | 971        |   | $ | 1,022 |   | $ | 393 |   |
|                       |            |                                             |            |  |  |  |  |  |  |  |

 

Assets held for sale at December 31,2006 consisted of the following (in thousands):

 
| Land and  building of European headquarters |   | $     | 3,340  |   |
|---------------------------------------------|--------|-------|--------|--------|
| Corporate  aircraft                         |   | 1,379 |   |
|                                        |   | $     | 4,719  |   |

 

See Note 3 — *Impairment of assets and special items* regarding theimpairment charge of $0.8 million in 2006 related to property and equipment.

 

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***Note 8 - Intangible assets***

 

Intangible assets consistof the following (in thousands):

 
| ** **                      | ** ** | **December 31,** | ** ** |
|---------------------------------|------------|-----------------------|------------|
| ** **                      | ** ** | **2006**              | ** ** | **2005** | ** ** |
| ** **                      | ** ** | **(restated)**        | ** ** | **(restated)** | ** ** |
| Customer lists                  |       | $                     | 1,154      |   | $ | 1,504 |   |
| Trademarks                      |       | 300                   |       | 1,050 |   |
| Other  intangibles              |       | —                |       | 300 |   |
|                            |       | 1,454                 |       | 2,854 |   |
| Less:  accumulated amortization |       | (958                  | )          | (1,391 | ) |
|                            |       | $                     | 496        |   | $ | 1,463 |   |

 
| ** **            | ** ** | **Years ended December 31,** | ** ** |
|-----------------------|------------|---------------------------------------------|------------|
| ** **            | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **            | ** ** | **(restated)**                              | ** ** | **(restated)** | ** ** | **(restated)** | ** ** |
| Amortization  expense |       | $                                           | 282        |   | $ | 459 |   | $ | 539 |   |
|                       |            |                                             |            |  |  |  |  |  |  |  |

 

Goodwill of $2.0 millionwas deemed impaired at December 31, 2006 (see Note 3 - *Impairment of assets and special items)*.

 

Future amortizationexpense of intangibles is as follows (in thousands):

 
| **Years ending December 31** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
| 2007                                        |       | $          | 64         |   |
| 2008                                        |       | 64         |       |
| 2009                                        |       | 64         |       |
| 2010                                        |       | 64         |       |
| 2011                                        |       | 64         |       |
| Thereafter                                  |       | 176        |       |
|                                        |       | $          | 496        |   |

 

***Note 9 - Long-term debt***

 

Long-term debt consistsof (in thousands):

 
| ** **                                                                                                                                                                                                                                                                             | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                                                             | ** ** | **2006**              | ** ** | **2005** | ** ** |
| ** **                                                                                                                                                                                                                                                                             | ** ** | ** **            | ** ** | ** ** | ** ** |
| Notes payable to  individuals for the purchase of equity interest in SCB Building LLC.  Principal and interest payment beginning in April 2006 at an interest  rate of 6.25%. The note matures in April 2016.                                                                |       | $                     | 2,976      |   | — |   |
| Mortgage payable  to a bank. Principal plus interest at 5.7% due monthly until August 2014  and is collateralized by real estate located in the United Kingdom.                                                                                                                   |       | 1,976                 |       | 1,962 |   |
| Note payable to  a finance company. Monthly principal and interest through December 2018.  Interest at the LIBOR rate plus 3.4% and is collateralized by our aircraft.  The note is personally guaranteed (up to $0.2 million) by our Chairman  and Chief Executive Officer. |       | 983                   |       | 1,035 |   |
| Note payable to  an individual for purchase of equity interest in Rancho Monterrey, S.A  Principal and interest payments beginning in July 2003 at an interest  rate of 5%. The note matures in June 2008 and is collateralized by our  Common Stock.                        |       | 213                   |       | 345 |   |
| Other  installment notes payable                                                                                                                                                                                                                                                       |       | 6                     |       | 32 |   |
|                                                                                                                                                                                                                                                                                   |       | 6,154                 |       | 3,374 |   |
| Less: current  portion                                                                                                                                                                                                                                                                 |       | (3,139                | )          | (462 | ) |
|                                                                                                                                                                                                                                                                                   |       | $                     | 3,015      |   | $ | 2,912 |   |
|                                                                                                                                                                                                                                                                                        |            |                       |            |  |  |  |  |

 

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The following reflectsour commitments for debt and other commitments as of December 31, 2006 (inthousands):

 
| ** ** | ** ** | **Notes payable** | ** ** | **Real estate  mortgages** | ** ** | **Other  installment  notes** | ** ** | **Total Debt** | ** ** | **Operating lease  commitments** | ** ** | **Total  Commitments** | ** ** |
|------------|------------|------------------------|------------|---------------------------------|------------|-------------------------------|------------|---------------------|------------|---------------------------------------|------------|------------------------|------------|
| 2007       |       | $                      | 174        |                            | $          | 2,959                         |       | $                   | 6          |                                  | $          | 3,139                  |       | $ | 1,271 |   | $ | 4,410 |   |
| 2008       |       | 108                    |       | —                          |       | —                        |       | 108                 |       | 820                                   |       | 928                    |       |
| 2009       |       | 39                     |       | —                          |       | —                        |       | 39                  |       | 752                                   |       | 791                    |       |
| 2010       |       | 41                     |       | —                          |       | —                        |       | 41                  |       | 571                                   |       | 612                    |       |
| 2011       |       | 44                     |       | —                          |       | —                        |       | 44                  |       | 545                                   |       | 589                    |       |
| Thereafter |       | 2,783                  |       | —                          |       | —                        |       | 2,783               |       | 506                                   |       | 3,289                  |       |
|       |       |                   |       |                            |       |                          |       |                |       |                                  |       |                   |       |
|       |       | $                      | 3,189      |                            | $          | 2,959                         |       | $                   | 6          |                                  | $          | 6,154                  |       | $ | 4,465 |   | $ | 10,619 |   |

 

***Note 10 - Stock options***

 

*Stock-basedcompensation plans*

 

Our 1998 Stock OptionPlan provides for the granting of stock options to key employees and members ofthe Board of Directors.  Vesting underthe 1998 Plan is as follows: 25% of the options vest on the grant date, anadditional 25% vests on the completion of the first year of service, another25% vests on the completion of the second year of service, and 100% of theshares vest at the end of the third year of service.  All options expire ten years from the date ofgrant.

 

Effective January 1,2006, we adopted the Financial Accounting Standard Board’s Statement ofFinancial Accounting Standards No. 123 (revised 2004), *Share-Based Payment* (“SFAS No. 123R”),which requires us to measure the cost of employee services received in exchangefor all equity awards granted including stock options based on the fair marketvalue of the award as of the grant date. SFAS No. 123R supersedes Statement of Financial AccountingStandards No. 123, *Accounting forStock-Based Compensation* (“SFAS No. 123”) and AccountingPrinciples Board Opinion No. 25, *Accountingfor Stock Issued to Employees* (“APB No. 25”).  We adopted SFAS No. 123R using themodified prospective application method of adoption which requires us to recordcompensation cost related to unvested stock awards as of December 31,2005, by recognizing the unamortized grant date fair value of these awards overthe remaining service periods of those awards with no change in historicalreported earnings.  Awards granted after December 31,2005, are valued at fair value in accordance with the provisions of SFAS No. 123Rand recognized on the same basis as the vesting period.  We estimated forfeiture rates for 2006 basedon historical experience.

 

Prior to 2006,we accounted for stock-based compensation in accordance with APB No. 25using the intrinsic value method, which did not require that compensation costbe recognized for our stock options provided the option exercise price wasestablished at 100% of the common stock fair market value on the date ofgrant.  Under APB No. 25, we wererequired to record expense over the vesting period for the value of optionsgranted.  Prior to 2006, the Companyprovided pro forma disclosure amounts in accordance with Statement of FinancialAccounting Standards No. 148, *Accountingfor Stock-Based Compensation - Transition and Disclosure*(“SFAS No. 148”), as if the fairvalue method defined by SFAS No. 123 had been applied to its stock-basedcompensation.  Our net earnings and netearnings per share for the twelve months ended December 31, 2005 wouldhave been reduced if compensation cost related to stock options had beenrecorded in the Consolidated Financial Statements based on fair value at thegrant dates.  See Note 2, *Summary of Significant Accounting Policies*, *Stock options and stock-based compensation*.

 

The estimatedfair value of the option grants was calculated using a Black Scholes Mertonoption pricing model (“Black Scholes model”). The following summarizes the assumptions used in the Black Scholesmodel:

 
| Risk free interest rate            |   | 4.36% - 4.64% |   |
|---------------------------------------------------|--------|---------------|--------|
| Expected  volatility                              |   | 71.5          | %      |
| Dividend yield                                    |   | 0.0           | %      |
| Expected term                                     |   | 5.75 years    |   |
| Weighted average  fair market value at grant date |   | $5.48         |   |

 

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The Black Scholes model incorporates assumptions tovalue stock-based awards.  The risk freerate of interest for periods within the contractual life of the option is basedon a zero-coupon U.S. government instrument over the contractual term of theequity instrument.  Expected volatilityis based on the historical volatility of our stock.

 

Our estimation of expected term is based on theguidelines in SAB No.107 which allows companies, whose stock options meetspecific criteria to be considered “plain-vanilla” options, thereby allowingthe simplified method of estimating expected term to be applied.  Our stock option awards meet the criteria touse the simplified method of calculating expected term.  For our company, this calculation wasperformed using the average of the mid-points for each vesting tranche.  This methodology is not materially differentfrom our historical data on exercise timing.

 

The followingtable summarizes the components of our stock-based compensation programsrecorded as expense (in thousands).  Ourcompensation expense is included in the general and administrative financialstatement caption on our Consolidated Statement of Operations and ComprehensiveEarnings (Loss):

 
| ** **                                           | ** ** | **Years ended December 31,** | ** ** |
|------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                           | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| Stock-based  compensation expense:                   |       |                                        |       |   |   |   |   |
| Pretax  compensation expense                         |       | $                                           | 881        |   | $ | — |   | $ | — |   |
| Income tax  benefit                                  |       | —                                      |       | — |   | — |   |
| Stock option  expense, net of the related tax effect |       | $                                           | 881        |   | $ | — |   | $ | — |   |

 

The following tablepresents the activity for options outstanding (in thousands, except per sharedata):

 
| **Total Stock Options**         | ** ** | **Number  of options** | ** ** | **Weighted  average  exercise  price** | ** ** | **Weighted  average  remaining  contractual  life (years)** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|-------------------------------------------|------------|-----------------------------|------------|----------------------------------------|------------|------------------------------------------------------------------|------------|---------------------------------|------------|
| Outstanding as  of December 31, 2005 |       | 1,985                       |       | $                                      | 3.56       |                                                             |       |                            |       |   |
| Granted                                   |       | 35                          |       | 8.33                                   |       |                                                             |       |                            |       |
| Forfeited                                 |       | (71                         | )          | 3.28                                   |       |                                                             |       |                            |       |
| Exercised                                 |       | (696                        | )          | 2.16                                   |       |                                                             |       |                            |       |
| Outstanding as  of December 31, 2006 |       | 1,253                       |       | $                                      | 4.49       |                                                             | 7.1        |                            | $          | 1,317 |   |
| Exercisable as  of December 31, 2006 |       | 855                         |       | $                                      | 4.03       |                                                             | 6.5        |                            | $          | 1,206 |   |

 

The weighted averagegrant-date fair value of options granted during fiscal 2006, fiscal 2005 andfiscal 2004 was $5.48, $3.56, and $2.72, respectively.  During 2006, stock options for 25,000 shareswere granted to a named executive officer, and two stock options awards for10,000 shares each were granted to members of the Board of Directors.  The aggregate intrinsic value of optionsexercised during the year ended December 31, 2006, was $4.4 million.  Exercise of options during the years of 2006and 2005 resulted in cash receipts of $1.5 million and zero, respectively.  The intrinsic value of a stock option is theamount by which the current market value of the underlying stock exceeds theexercise price of the stock option.

 

A summary of the statusof our nonvested shares as December 31, 2006, and the changes during theyear ended 2006 is presented below:

 
| **Nonvested Stock Options**     | ** ** | **Number  of options** | ** ** | **Weighted  average  grant date  fair value** | ** ** |
|-------------------------------------------|------------|-----------------------------|------------|---------------------------------------------------------|------------|
| Outstanding as  of December 31, 2005 |       | 653                         |       | $                                                       | 5.08       |   |
| Granted                                   |       | 26                          |       | 8.33                                                    |       |
| Vested                                    |       | (275                        | )          | 5.11                                                    |       |
| Canceled                                  |       | (6                          | )          | 3.28                                                    |       |
| Outstanding as  of December 31, 2006 |       | 398                         |       | $                                                       | 5.47       |   |

 

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As of December 31,2006, there was approximately $1.6 million of total unrecognized compensationcost related to nonvested stock-based compensation arrangements under our stockoption plan.  That cost is expected to berecognized over a weighted average vesting period of approximately 1.5 years.

 

***Note 11 - Employee benefit plan***

 

We have a 401(k) employeesavings plan for eligible employees, which provide for a matching contributionfrom us, determined each year at our discretion.  Our contributions, charged to earnings forthe years ended December 31, 2006, 2005, and 2004, were $0.2 million,$0.2 million, and $0.1 million, respectively.

 

***Note 12 - Income taxes***

 

We recognize deferred taxassets and liabilities, at enacted income tax rates, based on the temporarydifferences between the financial reporting basis and the tax basis of ourassets and liabilities.  We include anyeffects of changes in income tax rates or tax laws in the provision for incometaxes in the period of enactment.  Whenit is more likely than not that a portion or all of a deferred tax asset willnot be realized in the future, we provide a corresponding valuation allowanceagainst the deferred tax asset.

 

In 2005, we determinedthat it was more likely than not that we would realize our deferred tax assetand we reversed our valuation allowance by $6.3 million at year end. Since thattime, the following important developments have changed our judgment regardingthe likelihood that the deferred tax asset will be realized:

 

·                  We are incurringsignificant expenses associated with various SEC and DOJ and state AttorneysGeneral investigations and class action lawsuits.  There is no clear visibility to theconclusion of these investigations or their outcome, and the potentialresulting additional expense and uncertainty.

 

·                  The impairment oftwo brands, *Star Trader**®* and *Cash Flow Generator*® has impacted our revenue and cash flows.

 

As of December 31,2006, we are estimating that our taxable income will not exceed the amountnecessary to use our deferred tax assets. Therefore, we are increasing our valuation allowance from $14.1 millionto $17.6 million.  We have approximately$32.7 million of U.S. Federal net operating loss carryforward which will expirein 2026.  We also have an AlternativeMinimum Tax Credit of $0.2 million that will carryforward.

 

We estimate that we willbe liable for approximately $0.4 million in state and non-U.S. taxes forthe year ended December 31, 2006.

 

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Our income tax provision(benefit) is as follows (in thousands):

 
| ** **                            | ** ** | **Years ended December 31,** | ** ** |
|---------------------------------------|------------|---------------------------------------------|------------|
| ** **                            | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                            | ** ** | **(restated)**                              | ** ** | **(restated)** | ** ** | **(restated)** | ** ** |
| Earnings (loss)  before taxes:        |       |                                        |       |   |   |   |   |
| U.S.                                  |       | $                                           | 5,379      |   | $ | (1,541 | ) | $ | (23,471 | ) |
| Non-U.S.                              |       | 4,628                                       |       | (1,021 | ) | (8,395 | ) |
| Total earnings  before income taxes   |       | $                                           | 10,007     |   | $ | (2,562 | ) | $ | (31,866 | ) |
| Provision for  taxes:                 |       |                                        |       |   |   |   |   |
| Current:                              |       |                                        |       |   |   |   |   |
| Federal                               |       | $                                           | 71         |   | $ | 175 |   | — |   |
| State                                 |       | 180                                         |       | 101 |   | — |   |
| Non-U.S.                              |       | 168                                         |       | 254 |   | — |   |
| Total Current                         |       | 419                                         |       | 530 |   | — |   |
| Deferred:                             |       |                                        |       |   |   |   |   |
| Federal                               |       | 3,524                                       |       | (635 | ) | (8,180 | ) |
| State                                 |       | (1,091                                      | )          | (74 | ) | (1,426 | ) |
| Non-U.S.                              |       | 1,377                                       |       | (304 | ) | (2,560 | ) |
| Total Deferred                        |       | 3,810                                       |       | (1,013 | ) | (12,166 | ) |
| Change in  valuation allowance        |       | 3,477                                       |       | (6,274 | ) | 12,166 |   |
| Total income tax  provision (benefit) |       | $                                           | 7,706      |   | $ | (6,757 | ) | $ | — |   |
| Effective income  tax rate            |       | 77.0                                        | %          | (263.7 | )% | 0.0 | % |

 

The difference betweenthe tax provision at the statutory federal income tax rate and the taxprovision attributable to income before income taxes was as follows:

 
| ** **                                | ** ** | **Years ended December 31,** | ** ** |
|-------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                | ** ** | **(in percentages)**                   | ** ** |
| ** **                                | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Statutory  federal income tax rate        |       | 35.0                                        | %          | (35.0 | )% | (35.0 | )% |
| Valuation  allowance                      |       | 33.4                                        |       | (241.0 | ) | 38.2 |   |
| Change in state  apportionment            |       | (14.6                                       | )          | — |   | — |   |
| Incentive stock  options                  |       | 2.5                                         |       | 2.7 |   | — |   |
| Goodwill  impairment                      |       | 6.7                                         |       | — |   | — |   |
| Personal use of  aircraft                 |       | 0.5                                         |       | 1.1 |   |   |   |
| Liquidated  damages                       |       | 2.6                                         |       | — |   | — |   |
| State income net  of federal benefit      |       | 5.2                                         |       | (0.3 | ) | (4.5 | ) |
| Non-U.S. income  taxed at different rates |       | (0.6                                        | )          | 11.5 |   | 1.1 |   |
| Other                                     |       | 6.3                                         |       | 2.7 |   | 0.2 |   |
| Effective income  tax rate                |       | 77.0                                        | %          | (263.7 | )% | — | % |

 

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Deferred income taxesreflect the net tax effects of temporary differences between the carryingamount of assets and liabilities for financial reporting purposes and theamounts for income tax purposes. Significant components of our deferred tax assets and liabilities wereas follows:

 
| ** **                                  | ** ** | **December 31,** | ** ** |
|---------------------------------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **2006**              | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                  | ** ** | ** **            | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Deferred  tax assets:**                   |       |                  |       |   |   |   |   |
| Net operating  losses, federal              |       | $                     | 11,442     |   | $ | 12,265 |   | $ | 15,639 |   |
| Net operating  losses, state                |       | 3,099                 |       | 1,544 |   | 2,138 |   |
| Net operating  losses, non-U.S.             |       | 2,026                 |       | 3,403 |   | 3,099 |   |
| Allowance for  bad debt                     |       | 132                   |       | 356 |   | — |   |
| Intangible  amortization                    |       | 404                   |       | 50 |   | — |   |
| Deferred revenue  asset                     |       | 6,284                 |       | 9,818 |   | 4,219 |   |
| Tax credits —  Alternative Minimum Tax |       | 230                   |       | 175 |   | — |   |
| Other                                       |       | 196                   |       | 47 |   | — |   |
| Valuation  allowance                        |       | (17,581               | )          | (14,104 | ) | (20,378 | ) |
| **Total  deferred tax assets**              |       | $                     | 6,232      |   | $ | 13,554 |   | $ | 4,717 |   |
| **Deferred  tax liabilities:**              |       |                  |       |   |   |   |   |
| Deferred course  expenses                   |       | $                     | (5,774     | ) | $ | (5,405 | ) | $ | (4,152 | ) |
| Gain on sale                                |       | (188                  | )          | (376 | ) | — |   |
| Intangible  amortization                    |       | —                |       | — |   | (85 | ) |
| Depreciation                                |       | (270                  | )          | (486 | ) | (480 | ) |
| **Total  deferred tax liabilities**         |       | $                     | (6,232     | ) | $ | (6,267 | ) | $ | (4,717 | ) |
| Reported as:                                |       |                  |       |   |   |   |   |
| Current deferred  tax assets                |       | $                     | —     |   | $ | — |   | $ | — |   |
| Noncurrent  deferred tax assets             |       | 6,232                 |       | 13,554 |   | 4,717 |   |
| Current deferred  tax liabilities           |       | (6,232                | )          | (6,267 | ) | (4,717 | ) |
| **Net  deferred taxes**                     |       | $                     | —     |   | $ | 7,287 |   | $ | — |   |

 

***Note 13 - Income (loss) per share***

 

Basicearnings per share are calculated using the weighted average number of commonshares outstanding.  Diluted earnings pershare reflect the potential dilution that could occur from common sharesissuable through stock options and warrants, including 0.5 million, zero,and zero options that were dilutive for the years ended December 31, 2006,2005, and 2004, respectively.  There area total of 1,253,500 stock options, 890,719 warrants to purchase common stockoutstanding as of December 31, 2006, and a combined 450,000 unit placementwarrants issued to our placement agent in connection with our December 2005offering.  The following table sets forththe computation for basic and diluted earnings per share (in thousands, exceptfor per share data):

 

All financialinformation, except per share amounts, is expressed in thousands:

 
| ** **                                                                     | ** ** | **Years ended December 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                     | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                     | ** ** | **(restated)**                              | ** ** | **(restated)** | ** ** | **(restated)** | ** ** |
| Numerator for  diluted earnings (loss) per common share                        |       | $                                           | 2,301      |   | $ | 4,195 |   | $ | (31,866 | ) |
| Denominator for  basic earnings per share - weighted average shares            |       | 11,162                                      |       | 8,859 |   | 8,589 |   |
| Effect of  dilutive securities - options and warrants                          |       | 458                                         |       | 501 |   | — |   |
| Denominator for  diluted earnings per share - adjusted weighted average shares |       | 11,620                                      |       | 9,360 |   | 8,589 |   |
| Diluted earnings  (loss) per common share                                      |       | $                                           | 0.20       |   | $ | 0.45 |   | $ | (3.71 | ) |

 

Where theinclusion of potential common shares is anti-dilutive, such shares are excludedfrom the computation.

 

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***Note 14 - Revenue***

 

The following tableillustrates the impact of deferring revenue by reconciling gross cash receiptsto recorded revenue for the years ended December 31, 2006, 2005, and 2004(in thousands):

 
| ** **                                         | ** ** | **Years ended December 31,** | ** ** | **Change over** | ** ** |
|----------------------------------------------------|------------|---------------------------------------------|------------|----------------------|------------|
| ** **                                         | ** ** | **2006**                                    | ** ** | **2005**             | ** ** | **2004** | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                         | ** ** | ** **                                  | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| *Cash  received from course and product sales:*    |       |                                        |       |                 |       |   |   |   |   |   |   |
| Basic training  sessions                           |       | $                                           | 22,677     |                 | $          | 25,017 |   | $ | 34,202 |   | (9.4 | )% | (33.7 | )% |
| Advanced courses                                   |       | 117,071                                     |       | 112,008              |       | 91,855 |   | 4.5 |   | 27.5 |   |
| Outreach  programs                                 |       | 59,669                                      |       | 40,415               |       | 23,723 |   | 47.6 |   | 151.5 |   |
| Products sales                                     |       | 14,089                                      |       | 12,317               |       | 8,828 |   | 14.4 |   | 59.6 |   |
| Other                                              |       | 9,554                                       |       | 6,639                |       | 5,479 |   | 43.9 |   | 74.4 |   |
| Total cash  received from course and product sales |       | 223,060                                     |       | 196,396              |       | 164,087 |   | 13.6 |   | 35.9 |   |
| Less: Net change  in deferred revenue              |       | 1,594                                       |       | (33,289              | )          | (27,828 | ) | (104.8 | ) | (105.7 | ) |
| Revenue for  financial reporting purposes          |       | $                                           | 224,654    |                 | $          | 163,107 |   | $ | 136,259 |   | 37.7 | % | 64.9 | % |

 

***Note 15 - Business segment information***

 

We operate primarily inthree business segments: real estate education, financial markets education,and international.  Our revenues aregenerated through the sale of real estate and financial market education courses,programs and products.  Operating resultsfor the segments reported below are evaluated regularly by ExecutiveManagement.

 

The following tables are(in thousands):

 
| ** **                   | ** ** | **Years ended December 31,** | ** ** |
|------------------------------|------------|---------------------------------------------|------------|
| **Segment revenues**    | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                   | ** ** | **(restated)**                              | ** ** | **(restated)** | ** ** | **(restated)** | ** ** |
| Real estate  education       |       | $                                           | 94,543     |   | $ | 104,768 |   | $ | 88,819 |   |
| Financial  markets education |       | 112,493                                     |       | 46,574 |   | 32,644 |   |
| International                |       | 17,618                                      |       | 11,765 |   | 14,796 |   |
| Total revenues               |       | $                                           | 224,654    |   | $ | 163,107 |   | $ | 136,259 |   |

 
| ** **                         | ** ** | **Years ended December 31,** | ** ** |
|------------------------------------|------------|---------------------------------------------|------------|
| **Segment gross profit** | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                         | ** ** | **(restated)**                              | ** ** | **(restated)** | ** ** | **(restated)** | ** ** |
| Real estate  education             |       | $                                           | 11,358     |   | $ | 24,834 |   | $ | 6,737 |   |
| Financial  markets education       |       | 28,937                                      |       | (8,602 | ) | (7,910 | ) |
| International                      |       | 8,519                                       |       | 1,354 |   | (3,995 | ) |
| Total gross  profit                |       | $                                           | 48,814     |   | $ | 17,586 |   | $ | (5,168 | ) |

 
| ** **                                               | ** ** | **Years ended December 31,** | ** ** |
|----------------------------------------------------------|------------|---------------------------------------------|------------|
| **Depreciation and amortization expense** | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                               | ** ** | **(restated)**                              | ** ** | **(restated)** | ** ** | **(restated)** | ** ** |
| Real estate  education                                   |       | $                                           | 637        |   | $ | 725 |   | $ | 80 |   |
| Financial  markets education                             |       | 367                                         |       | 475 |   | 566 |   |
| International                                            |       | 90                                          |       | 106 |   | 52 |   |
| Corporate                                                |       | 159                                         |       | 175 |   | 234 |   |
| Total  depreciation and amortization expense             |       | $                                           | 1,253      |   | $ | 1,481 |   | $ | 932 |   |

 

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| ** **                                | ** ** | **December 31,** | ** ** |
|-------------------------------------------|------------|-----------------------|------------|
| **Segment identifiable assets** | ** ** | **2006**              | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                | ** ** | **(restated)**        | ** ** | **(restated)** | ** ** | **(restated)** | ** ** |
| Real estate  education                    |       | $                     | 15,627     |   | $ | 15,046 |   | $ | 12,343 |   |
| Financial  markets education              |       | 9,135                 |       | 10,957 |   | 6,144 |   |
| International                             |       | 4,647                 |       | 5,519 |   | 6,122 |   |
| Corporate                                 |       | 62,278                |       | 66,711 |   | 31,064 |   |
| Total  identifiable assets                |       | $                     | 91,687     |   | $ | 98,233 |   | $ | 55,673 |   |

 

***Note 16 - Summarized quarterly results***

 

The following tablepresents unaudited operating results for each quarter within the two mostrecent years.  We believe that allnecessary adjustments consisting only of normal recurring adjustments have beenincluded in the amounts stated below to present fairly the following quarterlyresults when read in conjunction with the Consolidated Financial Statements.  Results of operations for any particularquarter are not necessarily indicative of results of operations for a full year(in thousands, except for per share data).

 
| ** **                                | ** ** | **First  quarter** | ** ** | **Second  quarter** | ** ** | **Third  quarter** | ** ** | **Fourth  quarter** | ** ** | **Full Year** | ** ** |
|-------------------------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|
| ** **                                | ** ** | **(restated)**     | ** ** | **(restated)**      | ** ** | **(restated)**     | ** ** | **(restated)**      | ** ** | **(restated)**     | ** ** |
| **2006  (b)**                             |       |               |       |                |       |               |       |                |       |               |       |
| Revenue                                   |       | $                  | 44,889     |                | $          | 48,013             |       | $                   | 52,554     |               | $          | 79,198 |   | $ | 224,654 |   |
| Gross profit                              |       | 4,232              |       | 3,850               |       | 7,137              |       | 33,595              |       | 48,814             |       |
| (Loss) income  from operations            |       | (4,297             | )          | (4,701              | )          | (1,710             | )          | 18,889              |       | 8,181              |       |
| Net(loss) income                          |       | $                  | (4,163     | )                   | $          | (4,412             | )          | $                   | (1,023     | )                  | $          | 11,899 |   | $ | 2,301 |   |
| Per share  amounts:                       |       |               |       |                |       |               |       |                |       |               |       |
| Diluted (loss)  earnings per share**(a)** |       | $                  | (0.39      | )                   | $          | (0.40              | )          | $                   | (0.09      | )                  | $          | 0.98 |   | $ | 0.20 |   |
| Basic (loss)  earnings per share**(a)**   |       | $                  | (0.39      | )                   | $          | (0.40              | )          | $                   | (0.09      | )                  | $          | 1.01 |   | $ | 0.21 |   |

 
| ** **                                | ** ** | **(restated)** | ** ** | **(restated)** | ** ** | **(restated)** | ** ** | **(restated)** | ** ** | **(restated)** | ** ** |
|-------------------------------------------|------------|----------------|------------|----------------|------------|----------------|------------|----------------|------------|----------------|------------|
| **2005  (c) (d) (e)**           |       |           |       |           |       |           |       |           |       |           |       |
| Revenue                                   |       | $              | 38,434     |           | $          | 40,826         |       | $              | 42,810     |           | $          | 41,037 |   | $ | 163,107 |   |
| Gross profit                              |       | 6,483          |       | 3,410          |       | 3,820          |       | 3,873          |       | 17,586         |       |
| Income (loss)  from operations            |       | 530            |       | (2,528         | )          | (2,422         | )          | (4,166         | )          | (8,586         | )          |
| Net income  (loss)                        |       | $              | 868        |           | $          | (2,652         | )          | $              | 5,211      |           | $          | 768 |   | $ | 4,195 |   |
| Per share  amounts:                       |       |           |       |           |       |           |       |           |       |           |       |
| Diluted earnings  (loss) per share**(a)** |       | $              | 0.10       |           | $          | (0.30          | )          | $              | 0.56       |           | $          | 0.08 |   | $ | 0.45 |   |
| Basic earnings  (loss) per share**(a)**   |       | $              | 0.10       |           | $          | (0.30          | )          | $              | 0.60       |           | $          | 0.09 |   | $ | 0.47 |   |

 
| ** **                                | ** ** | **First  quarter**                 | ** ** | **Second  quarter**                | ** ** | **Third  quarter**                 | ** ** | **Fourth  quarter**                | ** ** | **Full Year**                 | ** ** |
|-------------------------------------------|------------|------------------------------------|------------|------------------------------------|------------|------------------------------------|------------|------------------------------------|------------|------------------------------------|------------|
| ** **                                | ** ** | **(as previously  reported)** | ** ** | **(as previously  reported)** | ** ** | **(as previously  reported)** | ** ** | **(as previously  reported)** | ** ** | **(as previously  reported)** | ** ** |
| **2006  (b)**                             |       |                               |       |                               |       |                               |       |                               |       |                               |       |
| Revenue                                   |       | $                                  | 44,889     |                               | $          | 47,525                             |       | $                                  | 52,340     |                               | $          | 79,900 |   | $ | 224,654 |   |
| Gross profit                              |       | 4,232                              |       | 3,842                              |       | 7,134                              |       | 33,315                             |       | 48,523                             |       |
| (Loss) income  from operations            |       | (4,371                             | )          | (4,835                             | )          | (1,842                             | )          | 18,738                             |       | 7,690                              |       |
| Net (loss)  income                        |       | $                                  | (3,848     | )                                  | $          | (4,546                             | )          | $                                  | (1,260     | )                                  | $          | 11,409 |   | $ | 1,755 |   |
| Per share  amounts:                       |       |                               |       |                               |       |                               |       |                               |       |                               |       |
| Diluted (loss)  earnings per share**(a)** |       | $                                  | (0.36      | )                                  | $          | (0.42                              | )          | $                                  | (0.11      | )                                  | $          | 0.94 |   | $ | 0.15 |   |
| Basic (loss)  earnings per share**(a)**   |       | $                                  | (0.36      | )                                  | $          | (0.42                              | )          | $                                  | (0.11      | )                                  | $          | 0.97 |   | $ | 0.16 |   |

 
| ** **                                | ** ** | **(as previously  reported)** | ** ** | **(as previously  reported)** | ** ** | **(as previously  reported)** | ** ** | **(as previously  reported)** | ** ** | **(as previously  reported)** | ** ** |
|-------------------------------------------|------------|------------------------------------|------------|------------------------------------|------------|------------------------------------|------------|------------------------------------|------------|------------------------------------|------------|
| **2005  (c) (d) (e)**           |       |                               |       |                               |       |                               |       |                               |       |                               |       |
| Revenue                                   |       | $                                  | 38,434     |                               | $          | 40,898                             |       | $                                  | 44,050     |                               | $          | 39,725 |   | $ | 163,107 |   |
| Gross profit                              |       | 6,704                              |       | 3,215                              |       | 3,623                              |       | 4,961                              |       | 18,503                             |       |
| Income (loss)  from operations            |       | 414                                |       | (2,482                             | )          | (2,403                             | )          | (4,690                             | )          | (9,161                             | )          |
| Net income  (loss)                        |       | $                                  | 811        |                               | $          | (2,120                             | )          | $                                  | 5,252      |                               | $          | (93 | ) | $ | 3,850 |   |
| Per share  amounts:                       |       |                               |       |                               |       |                               |       |                               |       |                               |       |
| Diluted earnings  (loss) per share**(a)** |       | $                                  | 0.08       |                               | $          | (0.24                              | )          | $                                  | 0.56       |                               | $          | (0.01 | ) | $ | 0.41 |   |
| Basic earnings  (loss) per share**(a)**   |       | $                                  | 0.09       |                               | $          | (0.24                              | )          | $                                  | 0.60       |                               | $          | (0.01 | ) | $ | 0.43 |   |

 

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(a)                                  Income(loss) per share is computed independently for each quarter and the full yearbased upon respective average shares outstanding.  Therefore, the sum of the quarterly netearnings per share amounts may not equal the annual amounts reported.

 

(b)                                 Thefourth quarter of 2006 reflected $36.0 million in revenue associated with theinitial applications of course breakage in our financial markets educationsegment and United Kingdom business, $3.6 million in impairment charges, and$2.3 million in special charges and $7.3 million in the reversal of the netdeferred tax asset.

 

(c)                                  Inthe first and second quarters of 2005 we received approximately$0.3 million and $0.9 million respectively, from an insurance claimthat resulted in the interruption of our business caused by Hurricane Charleyin 2004.

 

(d)                                 Inthe third quarter of 2005, we recorded a deferred tax asset, net of deferredtax liability, of $6.7 million.

 

(e)                                  Inthe fourth quarter of 2005, we recorded $3.0 million in bonus expense andrealized a $5.6 million gain before minority interest on the sale of theSCB office building.

 

***Note 17 - Commitments and contingencies***

 

*Softwarecommitment*

 

In December 2005, weentered into a commitment for new Customer Relationship Management (“CRM”)software which includes licensing, training, and maintenance for approximately$3.0 million.  Implementation began inthe first quarter of 2007.  Through theend of 2006, we recorded $1.6 million in expense and $0.7 million in capitalagainst this commitment.  Also during2006, an additional $1.0 million was committed to complete the softwareinstallation.  Our annual commitments forthe licensing and maintenance of other software are approximately $0.4 million.

 

*Operatingleases*

 

We lease office space foradministrative and training requirements. These leases expire from May 2007 to January 2013 (inthousands).

 
| ** **                           | ** ** | **Years ended December 31,** | ** ** |
|--------------------------------------|------------|---------------------------------------------|------------|
| ** **                           | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                           | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Rental expense  for operating leases |       | $                                           | 855        |   | $ | 823 |   | $ | 847 |   |
|                                      |            |                                             |            |  |  |  |  |  |  |  |

 

Future minimum rentalpayments under the non-cancelable leases included above are as follows (inthousands):

 
| **Years ending December 31,** | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|------------|------------|
| 2007                                         |       | $          | 1,271      |   |
| 2008                                         |       | 820        |       |
| 2009                                         |       | 752        |       |
| 2010                                         |       | 571        |       |
| 2011                                         |       | 545        |       |
| Thereafter                                   |       | 506        |       |
|                                         |       | $          | 4,465      |   |

 

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*OtherContingencies*

 

On November 14,2006, we were notified by the SEC that the Commission is conducting a formal,nonpublic investigation to determine whether we complied with securities lawsin connection with (i) the claimed efficacy or trading success of ourstock market education programs, and, (ii) our acquisition of certainother companies.  The SEC has requesteddocuments and information from us in the course of their investigation.

 

On December 11, 2006, we received asubpoena from the United States Attorney for the Eastern District of Virginiarequesting documents and information in connection with an investigationrelating to our marketing activities from January 1, 2002, to thepresent.  We were notified that a grandjury investigation related to this matter has commenced.  We intend to cooperate fully with thisinvestigation.

 

We havecooperated with each of these investigations by providing requested documentsand other information or items and intend to continue to do so.  In December 2006, our Board of Directorsestablished a Special Committee of independent directors to conduct an internalinvestigation of the activities that are the subject of the governmentinvestigations, and the Special Committee engaged the law firm of Wilmer CutlerPickering Hale and Dorr (“WilmerHale”) to assist with the investigations.  The matters under investigation included (i) theclaimed efficacy of the Company’s stock market education programs, and (ii) theCompany’s acquisition of certain other companies.  Members of our management, including Mr. Whitney,were interviewed by WilmerHale, consistent with the Company’s cooperation withthe investigations by the SEC and DOJ. The Special Committee reported its findings and made recommendations tothe Board of Directors, as previously disclosed on the Company’s Current Report on Form 8-K,filed with the SEC on November 9, 2007.

 

We are involved from timeto time in routine legal matters incidental to our business.  Based upon available information, we believethat the resolution of such matters will not have a material adverse effect onour financial position or results of operations.  See Note 18 – *SubsequentEvents*.

 

***Note 18 – Subsequent Events***

 

On January 11, 2007,Whitney Canada, Inc., a wholly owned subsidiary, and Whitney InformationNetwork, Inc. received notice of an Amended Motion for Authorization toInstitute a Class Action in the Province of Québec, Canada.  A class action was requested for all personswho have made various real estate investments, at the alleged inducement, orthrough, Marc Jémus, François Roy, Robert Primeau and/or their companies,and/or B2B Trust, and/or Whitney Canada, Inc., and/or Whitney InformationNetwork, Inc. and/or Jean Lafrenière.

 

On January 30, 2007, we were served acomplaint by Rodney Durham on behalf of himself and all others similarlysituated v. Whitney Information Network, Inc., Russell A. Whitney andNicholas S. Maturo, filed on December 28, 2006 in the United StatesDistrict Court in the Middle District of Florida alleging violations of certainfederal securities laws.  The complaintseeks damages for violations of federal securities laws on behalf of allinvestors who acquired our stock from November 18, 2003 through andincluding December 15, 2006.

 

On March 8, 2007, wewere served a complaint styled Robert Ghosio, Jr. on behalf of nominaldefendant Whitney Information Network, Inc. v. Russell A. Whitney,Nicholas S. Maturo, Frederick A. Cardin, Chester P. Schwartz, Ronald S. Simonand Whitney Information Network, Inc., filed in the United States DistrictCourt in the Middle District of Florida. This action is a derivative complaint alleging that the named defendantsviolated certain fiduciary and securities laws.

 

On March 22, 2007, a complaint wasreceived by our wholly owned subsidiary, Whitney Education Group, Inc.  The case is Glenn Acciard, et. al. vs.Russell Whitney, individually, John Kane, individually and Whitney EducationGroup, Inc. et. al., Case No. 07-CA-002190 in the Circuit Court ofthe Fifth Judicial Court in and for Lee County, Florida alleging that theCompany, two of our executive officers and 16 other defendants not associatedwith the Company, breached certain of their fiduciary duties to the namedplaintiffs, all of whom were our alleged students.  The allegations in the complaint includeclaims of constructive and common law fraud and other violations.

 

On March 22, 2007, Mr. Stephen Cooteyresigned as a member of the Board of Directors of Whitney Information Network, Inc.

 

On March 23, 2007 Mr. Robert Petrelliresigned as a member of the Board of Directors of Whitney Information Network, Inc.

 

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**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM**

 

Board of Directorsand Stockholders

Whitney InformationNetwork, Inc. and Subsidiaries

Cape Coral, Florida

 

We have audited theaccompanying Consolidated Balance Sheets of Whitney Information Network, Inc.and Subsidiaries as of December 31, 2006 and 2005, and the relatedConsolidated Statements of Operations and Comprehensive Earnings (Loss),Stockholders’ Deficit and Cash Flows for each of the three years in the periodended December 31, 2006. These Consolidated Financial Statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these ConsolidatedFinancial Statements based on our audits.

 

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States).  Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the Consolidated Financial Statements are free of materialmisstatement.  The Company is notrequired to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting.  Ouraudit included consideration of internal control over financial reporting as abasis for designing audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the Consolidated FinancialStatements.  An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall Consolidated Financial Statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

In our opinion, theConsolidated Financial Statements referred to above present fairly, in allmaterial respects, the financial position of Whitney Information Network, Inc.and Subsidiaries as of December 31, 2006 and 2005, and the results oftheir operations and their cash flows for each of the three years in the periodended December 31, 2006, in conformity with accounting principlesgenerally accepted in the United States of America.

 

As described in Notes 2and 10 to the Consolidated Financial Statements, the Company has changed its methodof accounting for stock-based compensation by adopting SFAS No.123R *Share-Based Payment*effective January 1, 2006*.*

 

Further, as described inNote 1 – *Restatement*, the Company has restatedits Consolidated Financial Statements.

 
|        | /s/ EHRHARDT KEEFE  STEINER & HOTTMAN PC |   |
|--------|---------------------------------------------------|--------|
|   | Ehrhardt Keefe Steiner &  Hottman PC     |   |

 

March 30, 2007, except for the Notes to theConsolidated Financial Statements 1, 6 and 12 as to which the date is January 15,2009.

Denver, Colorado

 

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**ITEM9.  CHANGES IN AND DISAGREEMENTS WITHACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

None.

 

**ITEM 9A(T).  CONTROLS AND PROCEDURES (Restated)**

 

**Restatementof Previously Issued Financial Statements**

 

See theExplanatory Note to this Form 10-K and Item 8 – Financial Statements andSupplementary Data Note 1 – *Restatement to theConsolidated Financial Statements.*

 

Our current ChiefExecutive Officer and current Chief Financial Officer have concluded thatmaterial weakness existed in prior years, specifically as they relate to theacquisitions from 2001 and 2003 and related party disclosures.  These material weaknesses primarily resultedfrom a lack of sufficient resources in our accounting and finance organizationand have continued to manifest themselves in the areas discussed below.  Our management has discussed these materialweaknesses with our Audit Committee.  Inan effort to remediate the identified material weaknesses and otherdeficiencies, we continue to implement a number of changes to our internalcontrol over financial reporting as discussed below.

 

**Evaluationof Disclosure Controls and Procedures**

 

We maintain disclosure controlsand procedures designed to provide reasonable assurance that informationrequired to be disclosed in our reports under the United States Securities andExchange Act of 1934, as amended, is recorded, processed, summarized, andreported within the time periods specified in the SEC’s rules and forms,and that such information is accumulated and communicated to our management, toallow timely decisions regarding required disclosure.  At the time of our filing of the AnnualReport on Form 10-K for the year ended December 31, 2006 (filed on April 2,2007), Mr. Whitney, our former Chairman and Chief Executive Officer and Mr. Novas,our former Co-President and Chief Financial Officer at that time concluded thatour disclosure controls and procedures were not effective, as of the end of theperiod covered by this report.  Inconducting their evaluation, the following material weaknesses in our internalcontrols that could cause misstatements in our Consolidated FinancialStatements were identified:

 

·                  Lackof knowledgeable personnel in accounting and financial reporting areas, a lackof formalized processes and procedures over key areas in the accounting andreporting functions, and inadequate supervision and review over the financialreporting function.  These deficienciesare particularly significant in the following areas:

 

·                  Income taxprovision calculation

 

Subsequentto the evaluation performed by Mr. Whitney, our former Chairman and ChiefExecutive Officer and Mr. Novas, our former Co-President and ChiefFinancial Officer, the current Chief Executive Officer and the Chief FinancialOfficer have evaluated the design and effectiveness of our disclosure controlsand procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) ofthe Exchange Act) as of December 31, 2006, and agree with the materialweaknesses identified above.  In additionto the items noted above, the current Chief Executive Officer and the currentChief Financial Officer have identified the following additional materialweaknesses:

 

(a)          Monthlyaccounting closing process:  We hadinadequate controls related to our monthly accounting closing process,including limited evidence of review of reconciliations, account analysis andjournal entries.  In addition, because ofinadequate financial and human resources, including an inadequate number ofknowledgeable accounting personnel, management was overly involved in thedetailed compilation and preparation of our financial reports andanalyses.  As a result, management wasunable to provide the necessary level of review in the monthly financialstatement preparation.  This materialweakness adversely affected the accuracy and timeliness of our financialreporting.

 

(b)         Inadequatedisclosure of and accounting for related party transactions and relationships.

 

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b)                     Several material weaknesses wereidentified and reported in our Annual Report on Form 10-K for the yearsended December 31, 2006 and 2005. We initiated corrective actions at that time to address internal controldeficiencies and have remediated many of the weaknesses reported in 2006 and2005.  We will continue to evaluate theeffectiveness of our disclosure controls and internal control over financialreporting on an ongoing basis, taking corrective action as appropriate.  In addition, since March 2007 throughthe current date, we have hired or appointed a number of new senior managementindividuals in the following roles:

 

·                  ChiefExecutive Officer;

 

·                  ChiefFinancial Officer;

 

·                  VicePresident, Financial Planning and Analysis;

 

·                  CorporateController; and

 

·                  Directorof Financial Reporting

 

We are activelyrecruiting for several new positions that have been approved by the Board ofDirectors in the areas of financial reporting, financial planning and analysisand financial systems.  We will continueto upgrade our personnel and our financial reporting systems to improve ourinternal controls.

 

Although theabove-mentioned steps are beginning to correct the noted deficiencies, wecannot be certain that our efforts to improve our internal controls will besuccessful or that we will be able to maintain adequate controls over ourfinancial processes and reporting in the future.  We may be hampered in this regard by ourcurrent level of staffing or our current accounting system.  Any failure to develop or maintain effectivecontrols, or difficulties encountered in the effective improvement of ourinternal controls, could harm our operating results, cause us to fail to meetour reporting obligations, result in misstatements in our ConsolidatedFinancial Statements or cause investors to lose confidence in our reportedfinancial information, which would likely have a negative effect on the tradingprice of our common stock.

 

In addition, the effortsto improve our internal controls could require us to expend significant timeand management resources or make other substantial changes.  If our internal controls are deemed to beinadequate, or if other unforeseen events occur, our external auditors couldresign, leading to a delay in the preparation of our financial statements andan increase in our audit fees.  If wewere required to obtain new external auditors, those auditors could require alengthy period to become familiar with our operations.  The process of retaining new externalauditors could also limit our access to the capital markets for an extendedperiod of time.

 

**ITEM 9B.  OTHERINFORMATION**

** **

None.

 

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**PART III**

 

**ITEM10.  DIRECTORS, EXECUTIVE OFFICERS ANDCORPORATE GOVERNANCE (Restated)**

 

*The information contained in Item 10 in the Original Filingomitted the names of two persons who served as directors of the Company during2006.  We have amended this section toinclude the names of these persons, updated the Audit Committee description andthe Section 16(a) beneficial ownership compliance table and deletedinformation about the Compensation Committee, which is included in Item 11 inthis Form 10-K/A.*

 

Thefollowing table and text set forth the names and biographies of all directorsand executive officers of our Company as of December 31, 2006.  Directors hold office for a period of oneyear from their election at the annual meeting of stockholders or until theirsuccessor is duly elected and qualified. Officers are elected by, and serve at the discretion of, the Board of Directors.  The executive officers and directors as of December 31,2006, were as follows:

 
| **Name**                   | ** ** | **Age** | ** ** | **Position**                                                      |
|----------------------------|------------|---------|------------|-------------------------------------------------------------------|
| Russell A. Whitney         |       | 51      |       | Chairman of the  Board of Directors and Chief Executive Officer   |
| Al Novas                   |       | 43      |       | Co-President and  Chief Financial Officer                         |
| Ronald S. Simon            |       | 63      |       | Co-President and  Chief Operating Officer, Secretary and Director |
| John F. Kane               |       | 53      |       | Executive Vice  President, Operations                             |
| Frederick A. Cardin (1)(2) |       | 60      |       | Director                                                          |
| Chester P. Schwartz (1)(2) |       | 61      |       | Director                                                          |
| Stephen L. Cootey (2)      |       | 38      |       | Director                                                          |
| Anthony B. Petrelli(1)     |       | 54      |       | Director                                                          |

 

----

(1)  Member of theAudit Committee

 

(2)  Member of theCompensation Committee

 

* Russell A. Whitney, Chairman of the Board ofDirectors and Chief Executive Officer.*  Mr. Whitneyis our founder and has been our Chief Executive Officer and its predecessorssince 1987.  Mr. Whitney is also anactive real estate investor for his own account and has written and publishedseveral books on wealth building topics.

 

*AlfredR. Novas, Co-President and Chief Financial Officer.*  Mr. Novaswas elected by the Board of Directors to his current position in 2007.  He joined us in 2006 as Chief FinancialOfficer from Novas and Associates where he led a strategic and financialplanning consulting practice since 2002. From 2001 to 2002, Mr. Novas was President and Chief ExecutiveOfficer of Childtime Learning Centers, Inc.  Prior to this, Mr. Novas held seniorfinancial and executive positions with Burger King Corporation, The PillsburyCompany, and Pizza Hut, Inc., a former division of PepsiCo, Inc.  Mr. Novas started his career with ToucheRoss & Co. (now Deloitte & Touche LLP), has a Bachelor ofBusiness Administration degree from the University of Notre Dame and a Mastersof Accounting from St. Thomas University.

 

*RonaldS. Simon, Co-President and Chief Operating Officer, Secretary and Director.* Mr. Simon was elected to his current position by the Board of Directors in2007.  He is a Certified PublicAccountant and had been our Acting Chief Financial Officer from 2004 through2006 and a member of our Board of Directors since 1998.  Mr. Simon was a self-employed certifiedpublic accountant from 1987 until he joined us as our Chief Financial Officerin 1998.  In 2002, he was appointed ourExecutive Vice President.  Mr. Simonholds a Bachelor of Science degree in accounting from the University ofIllinois.

 

*John F.Kane, Executive Vice President, Operations.*  Mr. Kanewas appointed to his current position in 2006. He was previously the Executive Vice President, Real Estate Educationand has been with the Company since 1993. Mr. Kane studied journalism at Bradley University.

 

*FrederickA. Cardin, Director.*  Dr. Cardin has been adirector since 2003.  Since 1996, he hasbeen managing director of Harvard Growth Strategies, a consulting firm whichadvises clients on business strategies, financing and marketing.  From 1974 to 1981, he was a member, andsubsequently a partner and a director, of the Cambridge Research Institute, astrategic planning consulting firm in Cambridge, Massachusetts.  From 1970 to 1971, he held a facultyappointment in international finance at the Harvard Business School.  Dr. Cardin earned his Masters ofBusiness 

 

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Administration withdistinction and his Doctorate in Finance from the Harvard Graduate School ofBusiness Administration. He earned a Bachelor’s degree in economics summa cumlaude from Tufts University.

 

*ChesterP. Schwartz, Director.*  Mr. Schwartz has been adirector since 2003.  Since 1970, he hasbeen engaged in the private practice of law in Denver, Colorado, specializingin real estate and commercial law.  Heearned a Bachelor of Science degree in business administration and accountingand a Juris Doctor degree from the University of Colorado.

 

*StephenL. Cootey, Director*.  Mr. Cooteyjoined us as a director in January 2006. Since 2004, he has been a Principal at Prides Capital LLC, an affiliateof Prides Capital Fund LLP and an investment firm specializing in investing insmall and micro-cap public and private companies.  Prides Capital Fund LLP is a 14.1%stockholder of us, and Mr. Cootey was appointed as one of our directors atthe request of Prides Capital Fund LLP. From 2001 to 2004, Mr. Cootey was a Vice President with CreditSuisse First Boston.  Prior to that time,Mr. Cootey had over six years of management consulting and operationalexperience at the Goldman Sachs Group, Inc. and Andersen Consulting.  He is a director of eDiets.com, Inc., aNASDAQ traded public company.  Mr. Cooteyholds a B.A. Degree in physics and government from Bowdoin College inBrunswick, Maine and a Masters of Business Administration from the ColumbiaBusiness School in New York, New York.  Mr. Cooteyresigned as a member of the board of directors on March 22, 2007, asdisclosed by a Current Report on Form 8-K filed March 23, 2007.

 

*AnthonyB. Petrelli*, *Director*.  Mr. Petrelli joined us as a director in March 2006.  Since 1987, he has been the Senior VicePresident and a director of Neidiger, Tucker, Bruner, Inc., a Denver,Colorado based securities brokerage firm. His responsibilities at Neidiger include managing its Corporate Financeand Investment Banking Department.  He isa member of the firm’s Management Committee and administers the distributionand syndication of its public underwritings and private placements.  Since 2003, he has been Chairman, Presidentand director of the National Investment Banking Association (NIBA).  Since 1991, he has served on a number ofcommittees of the National Association of Securities Dealers, Inc. (NASD),most recently as a member of the NASD’s Statutory Disqualifications Committee,Vice Chairman of the NASD’s National Adjudicatory Council and member of theNASD’s Corporate Finance Committee and its Small Firm Advisory Board.  He earned a Bachelor of Science degree andMasters of Business Administration degree from the University of Colorado.  Mr. Petrelli resigned as a member of theboard of directors on March 23, 2007, as disclosed by a Current Report on Form 8-Kdated March 23, 2007.

 

*FamilyRelationships*

 

There are no family relationships between any of ourdirectors or executive officers.

 

*Codeof Ethics and Conduct*

 

Our Board of Directorshas adopted a Code of Conduct and a Code of Ethics that embody our commitmentto conduct business with the highest ethical standards.  The Code of Conduct provides principles andstandards by which our employees will conduct themselves.  To the extent possible, the Code of Conducthas been made available to all independent contractors and key vendors involvedwith our Company.

 

In addition to the Codeof Conduct, our directors, executive officers, and senior financial employeesof our Company are also subject to the Code of Ethics and are expected toadhere to the principles and procedures set forth.  We filed a copy of our Code of Ethics as anexhibit to our Annual Report on Form 10-K for the year ended December 31,2006.  Both the Code of Conduct and ourCode of Ethics is posted on the Corporate Governance section of our Web site atwww.wincorporate.com.

 

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*AuditCommittee*

 

Our Board of Directors hasestablished a standing Audit Committee that consists of three independentdirectors.  The members of the AuditCommittee during 2006 were Messrs. Schwartz, Cardin, and Petrelli.  Mr. Schwartz served as the AuditCommittee Chairman in 2006.  The AuditCommittee has adopted a written charter, which is available at our websitelocated at www.wincorporate.com under the Corporate Governance tab.  The Board of Directors has determined thateach of these directors is “independent” as determined in the listing requirementsfor the National Capital Market (“NASDAQ rules”) and the SEC rules.  The Board of Directors has also determinedthat each of these directors is financially literate and that Mr. Schwartzfurther qualifies as an “audit committee financial expert” as such term isdefined in the applicable rules of the SEC.

 

*Section 16(a) beneficial ownershipreporting compliance*

 

Section 16(a) of the Securities Exchange Actof 1934 requires the Company’s executive officers, directors, and persons whoown more than 10% of a registered class of the Company’s equity securities tofile reports of beneficial ownership and certain changes in beneficialownership with the SEC and to furnish the Company with copies of thosereports.  To our knowledge, based solelyon a review of the copies of such reports furnished to us or writtenrepresentations that no other reports were required, the Company believes thatduring the year ended December 31, 2006, its officers, directors andgreater than 10% shareholders timely filed all reports required by Section 16(a) exceptas follows:

** **
| ** **                    | ** ** | **Number  of Late Filings** | ** ** | **Number  of Transactions that  were not Reported** |
|-------------------------------|------------|-----------------------------|------------|-----------------------------------------------------|
| Russell A.  Whitney           |       | 2                           |       | 2                                                   |
| Ronald A. Simon               |       | 3                           |       | 3                                                   |
| John F. Kane                  |       | 1                           |       | 1                                                   |
| Nicholas S.  Maturo           |       | 1                           |       | 1                                                   |
| Frederick A.  Cardin          |       | 1                           |       | 1                                                   |
| Chester P.  Schwartz          |       | 1                           |       | 1                                                   |
| Prides Capital  Partners, LLC |       | 1                           |       | 2                                                   |

 

**ITEM 11. EXECUTIVE COMPENSATION (Restated)**

** **

***We have included the informationrequired by item 11 relating to executive compensation in this Form 10-K/A.   Our Original Filing did not contain this information.***

*** ***

**CompensationDiscussion and Analysis**

 

*Overviewof Executive Compensation Program*

 

***The following discussion and analysis describes the Company’scompensation objectives and policies as applied to the*** NamedExecutive Officers appearing in the Summary Compensation Table.  This section is intended to provide aframework within which to understand the actual compensation awarded to, earnedor held by each Named Executive Officer during 2006.

*** ***

**CompensationPhilosophy and Objectives**

 

Our executive compensation programs are designed toattract and retain highly qualified employees through competitive compensationand benefit programs, to reward our employees for personal contributions thatgrow the business and to maximize shareholder returns through pay programs.

 

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Our philosophy, which the Compensation Committeereviews annually, is to:

 

·                  rewardperformance versus entitlement,

·                  payour managers and executives like owners,

·                  designpay programs at all levels that are aligned with employee, student andshareholder metrics, and

·                  emphasizelong-term incentive compensation.

 

We consider all elements of compensation annually inthe first quarter of the fiscal year related to the prior fiscal year, in orderto take into consideration the relationship between all the elements at thetime that determinations are made.

 

A significant percentage of total compensation is allocatedto incentives, which consist of annual incentive compensation and stockappreciation, as a result of the philosophy mentioned above.  There is no pre-established policy or targetfor the allocation between either cash and non-cash or short term and long-termincentive compensation.  Rather, ourCompensation Committee considers information provided by Mercer Human ResourcesConsulting, among other factors, to determine the appropriate level and mix ofincentive compensation.

 

The members of our Senior Executive Management Team infiscal 2006 were Russell Whitney, our former Chief Executive Officer, AlfredNovas, our former Co-President and Chief Financial Officer, Ronald S. Simon,our former Co-President and Chief Operating Officer and, John F. Kane, ExecutiveVice President, Operations.  In addition,Nicholas S. Maturo served as our President and former Chief Operating Officerfrom September 30, 2005, until December 15, 2006.  We sometimes refer to these individuals asthe “Senior Executive Management Team” or the “Named Executive Officers.”

 

**Role ofCompensation Committee and Executive Officers in Compensation Decisions**

 

The role of our Compensation Committee is to overseeour compensation programs and retirement plans and policies and review and approveall compensation decisions relating to the Company’s Senior ExecutiveManagement Team, including those for our Chief Executive Officer and the otherNamed Executive Officers.  OurCompensation Committee reviews, and in conjunction with the entire Board ofDirectors and our Chief Executive Officer, makes all compensation decisions forthe Senior Executive Management Team. The Board of Directors reviews the annual compensation package of ourChief Executive Officer.

 

Our Compensation Committee intends to meet with ourChief Executive Officer at least annually to review the performance of theother Senior Executive Management members, receive the recommendations of theChief Executive Officer on the Senior Executive Management Team compensationand approve their annual compensation packages. This meeting is intended to include a review by the Chief ExecutiveOfficer of the performance of each Senior Executive Management Team member whoreports directly to our Chief Executive Officer.

 

**Setting Executive Compensation**

 

In furtherance of the philosophy and objectivesdescribed above, in setting compensation for our executives, other than ourChief Executive Officer, our Compensation Committee considers data which wasobtained from the consulting firm of Mercer Human Resources Consulting, inaddition to other factors, to assess competitive pay levels and establishcompensation targets for base salary, annual incentives and long termincentives for the Senior Executive Management Team below our Chief Executive Officer.  The data from this consulting firm’s surveysreflect compensation practices of education industry companies with annualrevenues and free cash flow, which is similar in size to the Company, forexecutives with responsibilities cutting across the entire enterprise (“surveydata”).  The Compensation Committeebelieves that targeting compensation in this manner appropriately reflects thelabor market for Company executives.

 

With respect to reviewing and setting 2006compensation for the Senior Executive Management Team, the CompensationCommittee reviewed data recommended by Mercer Human Resources Consulting fromsimilar education industry companies. Mercer Human Resources Consulting provided a comprehensive review forthe Compensation Committee using data from its own survey database for a selectgroup of companies.  The select group ofcompanies were comparably sized and in related or similar industry segments.

 

***Base salary***

 

We provide Named Executive Officers and otheremployees with base salary to compensate them for services rendered during thefiscal year.  Our Compensation Committeereviews each Named Executive Officer’s salary and 

 

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performanceannually.  Market data from the surveygroup is used to determine base salary ranges for Named Executive Officersbased on the position and responsibility. A Named Executive Officer’s actual salary relative to this competitivesalary range varies based on the level of his or her responsibility,experience, individual performance and internal equity considerations.  Specific salary increases take into accountthese factors and the current market for management talent.  All of our Named Executive Officers haveemployment agreements with the Company, and the annual base salary wasestablished by that agreement.  However,salary increases are reviewed by the Compensation Committee each year.

 

***Annual incentivecompensation***

 

The Company’s Compensation Committee granted incentivebonuses to its Named Executive Officers in fiscal 2006.  These bonuses were discretionary bonuses andwere based on a variety of factors.  TheCompensation Committee considered the extra workload and stressful environmentfor the Named Executive Officers resulting from the investigations in 2006,coupled with individual performance and retention considerations.  It also met and considered the discretionarybonus recommendation of Mercer Human Resources Consulting (“Mercer”), althoughthe Compensation Committee agreed to higher annual incentive compensationbonuses to the Named Executive Officers than the amounts recommended by Mercerdue to the considerations listed above.

 

The chart below provides the calculation of each NamedExecutive Officer’s 2006 annual incentive bonus:

 
| ** **           | ** ** | **Base salary at  December 31,  2006** | ** ** | **2006 annual  incentive award** | ** ** |
|----------------------|------------|-------------------------------------------------------|------------|--------------------------------------------|------------|
| Russell A.  Whitney  |       | $                                                     | 600,000    |                                       | $          | 562,500 |   |
| Alfred R. Novas  (a) |       | 275,000                                               |       | 281,250                                    |       |
| Ronald S. Simon      |       | 300,000                                               |       | 281,250                                    |       |
| John F. Kane         |       | 250,000                                               |       | 150,000                                    |       |
|                      |            |                                                       |            |                                            |            |  |  |

 

----

(a)                                  Mr. Novascommenced employment with the Company on January 20, 2006, and terminatedon November 29, 2007.

 

***Long term incentivecompensation – Stock Option Grants***

 

The principal purpose of our long-term incentivecompensation is to motivate our executives to help us achieve our long-rangeperformance goals that will enhance our value and, as a result, enhance theprice of our stock and our shareholders’ returns on their investments.  According to Mercer Human ResourcesConsulting, the Company’s long-term incentives are well below the 50th percentile for the survey group.

 

We award stock option grants at the same time otherelements of annual compensation are determined so that we can consider allpieces of compensation when determining the grant awards.  In addition, we may make grants on other dateand times when the Compensation Committee or the Board holds meetings.  We set the exercise price at the closingprice of our common stock on the date of grant. Management recommends the awards to be made pursuant to 1998 StockOption Plan to the Compensation Committee. While the Compensation Committee gives significant weight to managementrecommendations concerning grants to the Senior Executive Management Teammembers (other than the Chief Executive Officer), the Compensation Committeemakes the determination whether and to whom to issue grants and determines theamount of the grant.  These stock optionstypically have ten year contractual terms and vest 25% upon grant and vestratably over the next three years.

 

The Compensation Committee did not grant any stockoptions to any Named Executive Officers in fiscal 2006, except for a grant of25,000 stock options to Alfred Novas in February 2006 which were grantedupon the commencement of his employment with the Company.  The exercise price of these options was $7.60per share.  Mr. Novas received anadditional stock option grant of 180,000 options in March 2007, with anexercise price of $4.18 per share.

 

In 2006, the Board of Directors delegated to Messrs. Whitney,Novas and Simon the ability to make grants to employees who are not SeniorExecutive Management Team members.  Inthe case of these grants, the Committee sets all the terms of each award,except the actual number of stock options, which are determined by Messrs. Whitney,Novas, and Simon pursuant to guidelines approved by the Compensation Committeein January of each year.

 

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In March 2007, the Board of Directors set aside apool of 420,000 stock options for the purposes of retention and new hirerecruitment.  The Board of Directors hasdelegated to Messrs. Whitney, Novas, and Simon the ability to allocatethis pool.

 

From time to time, the Compensation Committee grantsstock options to selected employees in addition to the regular annual grant inrecognition of superlative performance and an extraordinary impact on businessresults.

 

***Deferredcompensation plans***

 

The Company does not have a deferred compensationplan.

 

***Retirement benefits***

 

The Company provides contributions to a 401(k) Plan.

 

***Medical, dental,life insurance and disability coverage***

 

We provide other benefits such as medical, dental andlife insurance and disability coverage to each Named Executive Officer inbenefits plans which are also provided to all eligible U.S. based salariedemployees.  Eligible employees, includingthe Named Executive Officers, can purchase additional life, dependent life andaccidental death and dismemberment coverage as part of their employee benefitspackage.  The value of these benefits isnot included in the Summary Compensation Table since they are made available ona companywide basis to all U.S. based salaried employees.

 

**Perquisites**

 

The value of the perquisites are included in theSummary Compensation Table in the column headed “All Other Compensation.”

 

***Use of corporate aircraft***

 

As of March 16, 2007, Mr. Whitney reimbursedthe Company for personal use of the corporate aircraft at the incrementalvariable cost associated with each trip which is calculated as a portion of theaircraft fuel, hanger cost, flight crew, travel fees, landing fees and cateringcosts.  Other Named Executive Officersmay use the corporate aircraft for personal use with the prior approval of theCompany.  Fixed costs which do not changebased on usage, such as pilot salaries and the costs of maintenance not relatedto trips are excluded.  In addition,depending on seat availability, family members of Named Executive Officers maytravel on the corporate aircraft to accompany executives who are traveling onbusiness.  There is no incremental costto the Company for these trips.  No otherNamed Executive Officer used the corporate aircraft for personal travel in2006.

 

The Company has owned an aircraft since late2002.  In the years 2003 through 2006,the corporate aircraft was a Cessna Citation II.  Mr. Whitney used the corporate aircraftfor personal use approximately 26% of the total hours flown in thoseyears.  Compensation cost to Mr. Whitneyfor purposes of imputed income as determined under the regulations of theInternal Revenue Service was calculated using the Standard Industry Fare Level(“SIFL”) rate guidelines and was included in Mr. Whitney’s W-2 as taxableincome.  However, the amounts were notdisclosed in earlier filings.  For theyears 2003 through 2006, the approximate value of Mr. Whitney’s personaluse of the aircraft, as based on the SIFL rate calculation described above was$14,000, $8,500, $17,200, and $18,200, respectively.  The amounts included in his W-2 reportedcompensation for the same years was $22,500, $22,500, $5,200, and $6,100, respectively.  Amounts per year reported as compensationdiffer from the calculation because the SIFL calculation was incorrectlyprepared in the years 2003 through 2006. The total difference of $1,600 that was not included in Mr. Whitney’scompensation will be included in his 2008 W-2 as taxable income.

 

***Other perquisites***

 

Our former Chief Executive Officer, Mr. Whitney,receives $7,500 annually for expenses associated with the usage of a Companyowned automobile.  The Company also paysdirectly for Mr. Whitney’s use of a Blackberry® device. Mr. Whitney uses the services of Company employees in our Real EstateDevelopment department for personal investments.  He has reimbursed the Company in full for theuse of these employees time.

 

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For the Senior Executive Management Team members belowthe Chief Executive Officer, we do not provide for any materialperquisites.  Mr. Simon is reimbursed foruse of a Blackberry® device. Certain temporary housing expenses were covered by the Company inconnection with Mr. Novas’ relocation to Southwest Florida.

 

*Use of corporate credit cards forpersonal expenses*

 

Our former ChiefExecutive Officer, Mr. Whitney, has occasionally used the corporate creditcards for personal expenses.  Ourpractice has been to collect reimbursement for those charges.

 

*Dividend and warrants proceeds*

 

Mr. and Mrs. Whitneyreceived $5.1 million and $2.3 million in 2006 in dividends and warrant proceeds,respectively, that relate to equity not associated with compensation and thusare not included in the disclosed compensation tables.

 

**Compensationof our Chief Executive Officer**

 

Our Board of Directors conducted an evaluation of theperformance of our former Chief Executive Officer, Russell A. Whitney, whichincluded a review of his leadership in the development and implementation ofstrategies; his leadership pertaining to business execution and the achievementof results and his development of diversity and management talent.

 

Mr. Whitney’s base compensation for 2006 was$600,000.  The Compensation Committeeapproved this level of pay based on the demonstrated strength and effectivenessof Mr. Whitney’s performance in 2005. In coming to this determination, the Compensation Committee noted that Mr. Whitney’sbase salary is above the 75th percentile for the survey group.

 

The Compensation Committee met and considered therecommendation of Mercer with respect to Mr. Whitney’s compensation.  The Compensation Committee agreed with Mercer’sanalysis and bonus recommendations, but increased the annual incentive bonus toMr. Whitney due to the stressful conditions at the Company.  Mr. Whitney earned an annual incentivecash payment for 2006 performance of $562,500. The Compensation Committee did not approve any stock option grants to Mr. Whitneyfor the 2006 fiscal year.

 

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**Familymembers receiving compensation from the Company**

 

Ingrid Whitney, Thea Whitney, and Russell W. Whitney, Jr.,are the wife, daughter, and son, respectively, of Russell A. Whitney, ourformer Chairman and Chief Executive Officer. Ingrid and Thea Whitney have been employees of the Company since itsinception whose total compensation in 2006, calculated in a manner consistentwith the Total column of the Summary Compensation Table, was approximately$98,336 and $99,253, respectively, in 2006. Russell W. Whitney, Jr., who worked as an independent contractorand as an instructor for free introductory workshops of our Company receivedtotal compensation of $305,743 in 2006. We believe the pay of these individuals to be generally consistent withthat of our other employees at similar levels and independent contractors whosepay is primarily sales commission — based.

 

Timothy Kane, a non-executive employee of our Company,is the brother of John Kane, who was our former Executive Vice President, Operationsand former President and Chief Operating Officer.  His compensation in2006, consisting of base salary and sales commissions, calculated in a mannerconsistent with the Total column of the Summary Compensation Table, was$360,593.  We believe that thecompensation paid to this employee is consistent with that of other employeesthat are paid on a commission basis. Compensation for the above listed family members dating back to 2001 isdetailed in the following chart:

 
| ** **                    | ** ** | **Income  Type** | ** ** | **2001** | ** ** | **2002** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** |
|-------------------------------|------------|------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| Ingrid Whitney                |       | W-2              |       | $        | 75,000     |     | $          | 118,323  |       | $        | 89,753     |     | $          | 115,000  |       | $ | 112,001 |   | $ | 98,336 |   |
|                          |       |             |       |     |       |     |       |     |       |     |       |     |       |     |       |
| Thea Whitney                  |       | W-2              |       | $        | 57,516     |     | $          | 60,125   |       | $        | 89,753     |     | $          | 115,000  |       | $ | 116,501 |   | $ | 99,253 |   |
|                          |       |             |       |     |       |     |       |     |       |     |       |     |       |     |       |
| Russell W.  Whitney, Jr. |       | W-2              |       | $        | 30,580     |     | $          | 45,524   |       | $        | 51,769     |     | $          | 46,174   |       | $ | 16,900 |   | — |   |
|                          |       |             |       |     |       |     |       |     |       |     |       |     |       |     |       |
| Russell W.  Whitney, Jr. |       | 1099             |       | —   |       | —   |       | —   |       | —   |       | $        | 211,419    |     | $          | 305,743 |   |
|                          |       |             |       |     |       |     |       |     |       |     |       |     |       |     |       |
| Timothy Kane                  |       | W-2              |       | —   |       | —   |       | —   |       | $        | 25,896     |     | $          | 153,875  |       | $ | 360,593 |   |

 

Pursuant to its Charter, the Compensation Committee isresponsible for reviewing the retention of each of these individuals and eachindividual’s level of compensation.

 

**Deductibilityof executive compensation**

 

Under the Omnibus Budget Reconciliation Act of 1993, provisionswere added to the Internal Revenue Code under Section 162(m) thatlimits the tax deduction for compensation in excess of $1.0 million paid tocertain executive officers (“Covered Employees”).  However, performance-based compensation canbe excluded from the limit so long as it meets certain requirements.  To qualify as “performance-based” under Section 162(m),compensation payments must be determined pursuant to a plan, by a committee ofat least two “outside” directors (as defined in the regulations promulgatedunder the Code) and must be based on achieving objective performancegoals.  In addition, the material termsof the plan must be disclosed to and approved by stockholders and a committeeof at least two “outside” directors must certify must certify that theperformance goals were achieved before payments can be awarded.  The Company believes that the stock optiongrants satisfy the requirements for exemption under the Internal Revenue Code Section 162(m),thus the issuance of stock by the Company in connection with the exercise ofstock options by the Covered Employees qualifies as performance-basedcompensation.

 

For 2006, the compensation not excluded from thelimitations imposed by Section 162(m) (“Section 162(m) Compensation”)paid to Mr. Whitney, who is a Covered Employee, exceeded $1.0 million.  To the extent Mr. Whitney’s 2006 Section 162(m)Compensation exceeded $1.0 million; such excess was not deductible by theCompany.  The other Covered Employeeswere in each case paid Section 162(m) Compensation of less than $1.0million in 2006.

 

To maintain flexibility in compensating the CoveredEmployees in a manner designed to promote varying corporate goals, theCommittee reserves the right to recommend and award compensation that is notdeductible under Section 162(m).

 

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**Total compensation**

 

We intend to continue our strategy of compensating ourexecutives through programs that emphasize performance-based compensation.  The Compensation Committee reviewed eachcomponent of compensation and believes that the compensation was reasonable inits totality.  Before finalizingcompensation actions in 2006 for our Chief Executive Officer, the CompensationCommittee took into consideration all elements of compensation accruing to Mr. Whitneyin 2006.  These elements included salary,annual incentive award and perquisites. Total compensation for each of the Named Executive Officers was reviewedby the Compensation Committee for 2006. Before finalizing compensation for 2006, the Compensation Committeeconsidered each Named Executive Officer’s salary, annual incentive award andstock option gains realized from exercising stock options.  The Compensation Committee will continue toreview total compensation at least on an annual basis.

 

**Compensation Committee**

 

Our CompensationCommittee consisted of Messrs. Cardin, Schwartz, and Cootey in 2006, allof whom are independent directors.  Dr. Cardinis currently our Compensation Committee Chairman.  The Compensation Committee consists entirelyof independent Directors of the Board who also are outside directors forpurposes of Section 162(m) of the Internal Revenue Code andnon-employee directors for purposes of Section 16 of the SecuritiesExchange Act of 1934.  Each member mustbe free of any relationship that, in the judgment of the Board from time totime, would interfere with the exercise of his or her independent judgment.  Our Compensation Committee has adopted awritten charter, which is available at our website at www.wincorporate.com.

 

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**EXECUTIVECOMPENSATION**

 

The following table sets forth information regardingcompensation earned by, awarded to or paid to our Named Executives during 2006.

 

**SUMMARYCOMPENSATION**

Year ended December 31,2006

 
| **Name and Principal Position**                                 | ** ** | **Year** | ** ** | **Salary** | ** ** | **Bonus (a)** | ** ** | **Option  awards (b)** | ** ** | **All other  compensation (c)** | ** ** | **Total** | ** ** |
|--------------------------------------------------------------------------------|------------|----------|------------|------------|------------|--------------------|------------|-----------------------------|------------|-------------------------------------------|------------|-----------|------------|
| **Russell  A. Whitney**                                                        |       | 2006     |       | $          | 600,000    |               | $          | 562,500                     |       | $                                         | 135,000    |      | $          | 290,050 |   | $ | 1,587,550 |   |
| *Chairman of the Board and   Chief Executive Officer*                          |       |     |       |       |       |               |       |                        |       |                                      |       |      |       |
|                                                                           |       |     |       |       |       |               |       |                        |       |                                      |       |      |       |
| **Alfred  R. Novas**                                                           |       | 2006     |       | $          | 241,346    |               | $          | 281,250                     |       | $                                         | 61,453     |      | $          | 41,971 |   | $ | 626,020 |   |
| *Co-President  and*                                                            |       |     |       |       |       |               |       |                        |       |                                      |       |      |       |
| *Chief  Financial Officer*                                                     |       |     |       |       |       |               |       |                        |       |                                      |       |      |       |
|                                                                           |       |     |       |       |       |               |       |                        |       |                                      |       |      |       |
| **Ronald  S. Simon**                                                           |       | 2006     |       | $          | 300,000    |               | $          | 281,250                     |       | $                                         | 188,042    |      | $          | 3,077 |   | $ | 772,369 |   |
| *Co-President and Chief Operating Officer and  Secretary*                      |       |     |       |       |       |               |       |                        |       |                                      |       |      |       |
|                                                                           |       |     |       |       |       |               |       |                        |       |                                      |       |      |       |
| **John F.  Kane**                                                              |       | 2006     |       | $          | 250,000    |               | $          | 150,000                     |       | $                                         | 126,625    |      | $          | 2,192 |   | $ | 528,817 |   |
| *Executive Vice President, Operations*                                         |       |     |       |       |       |               |       |                        |       |                                      |       |      |       |
|                                                                           |       |     |       |       |       |               |       |                        |       |                                      |       |      |       |
| **Nicholas  S. Maturo**                                                        |       | 2006     |       | $          | 300,000    |               | —     |                        | $          | 189,963                                   |       | $         | 97,357     |   | $ | 587,320 |   |
| *Former President and Chief Operating Officer (until  December 15, 2006)* |       |     |       |       |       |               |       |                        |       |                                      |       |      |       |

 

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| (a)    |   | Bonus amounts reflected Board of Directors’ approved  cash payments for 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (b)    |   | This column shows the amount we expensed for the  options during 2006 under the Financial Accounting Standard Board’s Statement  of Financial Accounting Standards No. 123 (revised 2004), *Share-Based Payment* (“SFAS  No. 123R”), for outstanding stock option awards and includes  compensation cost recognized in the Consolidated Financial Statements with  respect to awards granted in 2006 and previous fiscal years. The fair value  of the awards has been determined based on the assumptions set forth in Note 10 – *Stock options* in the Notes to the  Consolidated Financial Statements and do not correspond to the actual value  that will be recognized by the Named Executive Officers. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (c)    |   | Details of “Other Compensation” included in the  following table.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

 

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**ALLOTHER COMPENSATION**Year ended December 31, 2006

 
| **Name**                     | ** ** | **Year** | ** ** | **Personal  use of  Company  transportation** | ** ** | **Personal  use of   Company  employee  services** | ** ** | **Executive  relocation** | ** ** | **Company  contributions  to  401(k) Plan** | ** ** | **Severance  payments** | ** ** | **Other  benefits** | ** ** | **Total** | ** ** |
|------------------------------|------------|----------|------------|----------------------------------------------------|------------|--------------------------------------------------------------|------------|---------------------------|------------|--------------------------------------------------|------------|-------------------------|------------|---------------------|------------|-----------|------------|
|                         |       |     |       |                                               |       |                                                         |       |                      |       |                                             |       |                    |       |                |       |      |       |
| Russell A.  Whitney (a) |       | 2006     |       | $                                                  | 152,970    |                                                         | $          | 37,080                    |       | —                                           |       | —                  |       | $                   | —     |      | $          | 100,000 |   | $ | 290,050 |   |
| Alfred R.  Novas (b)    |       | 2006     |       | —                                             |       | —                                                       |       | $                         | 41,971     |                                             | —     |                    | $          | —              |       | —    |       | $ | 41,971 |   |
| Ronald S. Simon              |       | 2006     |       | —                                             |       | —                                                       |       | —                    |       | $                                                | 3,077      |                    | $          | —              |       | —    |       | $ | 3,077 |   |
| John F. Kane                 |       | 2006     |       | —                                             |       | —                                                       |       | —                    |       | $                                                | 2,192      |                    | $          | —              |       | —    |       | $ | 2,192 |   |
| Nicholas S.  Maturo (c) |       | 2006     |       | —                                             |       | —                                                       |       | —                    |       | $                                                | 4,115      |                    | $          | 93,242              |       | —    |       | $ | 97,357 |   |
|                              |            |          |            |                                                    |            |                                                              |            |                           |            |                                                  |            |                         |            |                     |            |           |            |  |  |  |  |  |  |  |

 

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(a)             Mr. Whitney’spersonal use of Company transportation included $7,500 for Company car expensesand $145,470 for personal use of the Company aircraft.  The value of personal use of the Companyaircraft is the incremental variable cost associated with each trip which iscalculated as a portion of the aircraft fuel, hangar cost, flight crew, travelfees, landing fees and catering costs. The personal use of Company employee services of $37,080 includes aportion of the expense associated with employees in our Real Estate Developmentgroup that spent time on projects related to Mr. Whitney’s personalbusiness.

 

(b)            Represented temporaryhousing in connection with a relocation.

 

(c)             Mr. Maturo’stermination of employment was December 15, 2006.  Under the terms of his employment agreement,he received his regular salary for three months subsequent to termination andcontinuation of medical benefits for twelve months subsequent totermination.  We accrued the expense asof December 31, 2006.

 

(d)            Mr. Whitney was paid$100,000 in connection with additional work be performed related to the sale ofthe Company’s interest in our investment in the SCB building.

 

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**GRANTSOF PLAN BASED AWARDS**

Year ended December 31,2006

 

The following Grants of Plan Based Awards tableprovides additional information about the option awards granted to our NamedExecutive Officers during the year ended December 31, 2006.  We do not have any nonequity incentive awardplans and have therefore omitted the corresponding columns.

 

| **Name**            | ** ** | **Grant  date** | ** ** | **All other  option awards:  Number of  securities  underlying  options** | ** ** | **Exercise or   base price   of option  awards** | ** ** | **Grant date   fair value   of   option  awards** | ** ** |
|---------------------|------------|-----------------|------------|------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|----------------------------------------------------------------------------|------------|
|                |       |            |       |                                                                                     |       |                                                                      |       |                                                                       |       |
| Russell A.  Whitney |       | —          |       | —                                                                                   |       | —                                                                    |       | —                                                                     |       |
| Alfred R. Novas     |       | 2/10/2006       |       | 25,000                                                                                   |       | $                                                                         | 7.60       |                                                                       | $          | 128,300 |   |
| Ronald S. Simon     |       | —          |       | —                                                                                   |       | —                                                                    |       | —                                                                     |       |
| John F. Kane        |       | —          |       | —                                                                                   |       | —                                                                    |       | —                                                                     |       |
| Nicholas S.  Maturo |       | —          |       | —                                                                                   |       | —                                                                    |       | —                                                                     |       |
|                     |            |                 |            |                                                                                          |            |                                                                           |            |                                                                            |            |  |  |

 

We estimated the grant date present values using theBlack-Scholes option-pricing model.  Weused the following assumptions in calculating the Black-Scholes fair value forthe option listed above:

 

| ** **                                        | ** ** | **2006** | ** ** |
|---------------------------------------------------|------------|----------|------------|
| Expected term of  options in years                |       | 5.75     |       |
| Weighted average  volatility                      |       | 74.5     | %          |
| Risk-free rate  of return                         |       | 4.6      | %          |
| Dividend yield                                    |       | 0.0      | %          |
| Weighted average  fair market value at grant date |       | $        | 5.13       |   |
|                                                   |            |          |            |  |

 

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The following table provides information on thecurrent holdings of stock options by the Named Executives Officers.  This table includes unexercised and unvestedoption awards.  Typically our stockoption vest 25% on the grant date, an additional 25% vests on the completion ofthe first year of service, another 25% vests on the completion of the secondyear of service and the remaining 25% of the shares vest at the end of thethird year of service.  All optionsexpire ten years from the date of grant.

 

**OUTSTANDINGEQUITY AWARDS AT FISCAL YEAR END**

Year ended December 31,2006

 
| ** **              | ** ** | **Option awards** | ** ** |
|-------------------------|------------|------------------------|------------|
| ** **              | ** ** | **Option  grant**      | ** ** | **Number of securities underlying  unexercised options** | ** ** | **Option  exercise** | ** ** | **Option  expiration** | ** ** |
| **Name**                | ** ** | **date**               | ** ** | **Exercisable** | ** ** | **Unexercisable** | ** ** | **price** | ** ** | **date** | ** ** |
|                    |       |                   |       |   |   |   |   |   |   |   |   |
| Russell A.  Whitney     |       | 12/13/2005             | (3)        | 62,500 |   | 62,500 |   | $ | 6.75 |   | 12/13/2015 |   |
|                    |       |                   |       |   |   |   |   |   |   |   |   |
| Alfred R. Novas (1)     |       | 02/10/2006             |       | 6,250 |   | 18,750 |   | $ | 7.60 |   | 02/10/2016 |   |
|                    |       |                   |       |   |   |   |   |   |   |   |   |
| Ronald S. Simon         |       | 12/13/2005             | (4)        | 50,000 |   | 50,000 |   | $ | 6.75 |   | 12/13/2015 |   |
|                    |       | 01/28/2004             | (5)        | 75,000 |   | 25,000 |   | $ | 4.50 |   | 01/28/2014 |   |
|                    |       | 02/27/2003             | (6)        | 50,000 |   | — |   | $ | 3.70 |   | 02/27/2013 |   |
|                    |       | 05/01/2000             | (7)        | 68,000 |   | — |   | $ | 2.00 |   | 05/01/2010 |   |
|                    |       | 08/31/1999             | (8)        | 25,000 |   | — |   | $ | 1.88 |   | 08/31/2009 |   |
|                    |       |                   |       |   |   |   |   |   |   |   |   |
| John F. Kane            |       | 12/13/2005             | (9)        | 50,000 |   | 50,000 |   | $ | 6.75 |   | 12/13/2015 |   |
|                    |       | 01/28/2004             | (10)       | 18,750 |   | 6,250 |   | $ | 4.50 |   | 01/28/2014 |   |
|                    |       |                   |       |   |   |   |   |   |   |   |   |
| Nicholas S.  Maturo (2) |       | 12/13/2005             |       | 50,000 |   | 50,000 |   | $ | 6.75 |   | 12/13/2015 |   |
|                    |       | 01/28/2004             |       | 75,000 |   | 25,000 |   | $ | 4.50 |   | 01/28/2014 |   |
|                    |       | 08/29/2003             |       | 10,000 |   | — |   | $ | 3.90 |   | 08/29/2013 |   |
|                    |       | 04/14/2003             |       | 10,000 |   | — |   | $ | 4.10 |   | 04/14/2013 |   |
|                    |       | 02/27/2003             |       | 25,000 |   | — |   | $ | 3.70 |   | 02/27/2013 |   |

 

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(1)             Mr. Novas’employment ended on November 29, 2007, and any stock options held with theCompany were forfeited on February 27, 2008.

 

(2)             Mr. Maturo’semployment ended on December 15, 2006, and any stock options held with theCompany were forfeited on March 15, 2007.

 

(3)             These options fullyvest on 12/13/2008.

 

(4)             These options fullyvest on 12/13/2008.

 

(5)             These options fullyvested on 01/28/2007.

 

(6)             These options fullyvested on 02/27/2006.

 

(7)             These options fullyvested on 05/01/2003.

 

(8)             These options fullyvested on 08/31/2002.

 

(9)             These options fullyvest on 12/13/2008.

 

(10)       These options fully vestedon 01/28/2007.

 

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**OPTIONEXERCISES**

Year ended December 31,2006

 

The following option exercises table providesadditional information about the value realized by the Named Executive Officerson option exercises during the year ended December 31, 2006.

 
| ** **              | ** ** | **Option awards**                                         | ** ** |
|-------------------------|------------|----------------------------------------------------------------|------------|
| **Name**                | ** ** | **Number of shares  acquired on exercise** | ** ** | **Value realized  on exercise(b)** | ** ** |
|                    |       |                                                           |       |   |   |
| Russell A.  Whitney (a) |       | 101,250                                                        |       | $ | 644,063 |   |
| Alfred R. Novas         |       | —                                                         |       | — |   |
| Ronald S. Simon         |       | 200,000                                                        |       | $ | 1,591,750 |   |
| John F. Kane            |       | 40,000                                                         |       | $ | 318,350 |   |
| Nicholas S.  Maturo     |       | —                                                         |       | — |   |

 

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| (a)    |   | Includes 26,250 stock options originally issued to  Ingrid Whitney, the wife of Russell A. Whitney. The stock issued upon the  exercise of the 26,250 stock options was issued in the name of International  Securities 3, LLC, which is beneficially owned by Ingrid and Russell Whitney. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                       |
| (b)    |   | Value is based on the difference between the  exercise price of the option and the fair market value of the Company’s  common stock on the date of exercise.                                                                                                                          |

 

***EmploymentAgreements***

 

**Russell A. Whitney**

 

We entered into an employment agreement with RussellA. Whitney, the Company’s former Chief Executive Officer on June 30, 2003,to be effective as of January 1, 2003. Under his agreement during fiscal 2006, Mr. Whitney was entitled toreceive an annual salary of $600,000. The employment agreement is effective for five (5) years through December 31,2007, subject to automatic renewal thereafter unless terminated by eitherparty.  Mr. Whitney is also entitledto receive such bonuses and increases as may be awarded by the Board ofDirectors.  Mr. Whitney is alsosubject to the Company’s standard non-disclosure and non-competition restrictionswhich prevent Mr. Whitney from directly or indirectly competing with usfor a period of two years after the termination of his employment for anyreason.  If Mr. Whitney’s employmentwith the Company is terminated, he is entitled to certain payments set forth inthe table titled “Potential Payments on Termination or Change of Control.”

 

**Ronald S. Simon**

 

We entered into an employment agreement with Ronald S.Simon, the Company’s former Co-President, Chief Operating Officer and Secretaryon June 30, 2003, to be effective as of January 1, 2003.  Under his agreement during fiscal 2006, Mr. Simonwas entitled to receive an annual salary of $300,000.  The employment agreement is effective forfive (5) years through December 31, 2007, subject to automaticrenewal thereafter unless terminated by either party.  Mr. Simon is also entitled to receivesuch bonuses and increases as may be awarded by the Board of Directors.  In connection with his employment agreement, Mr. Simonalso signed the Company’s standard non-disclosure and non-competition agreementwhich prevents Mr. Simon from directly or indirectly competing with us fora period of two years after the termination of his employment for anyreason.  If Mr. Simon’s employmentwith the Company is terminated, he is entitled to certain payments set forth inthe table titled “Potential Payments on Termination or Change of Control.”

 

**John F. Kane**

 

We entered into an employment agreement with John F.Kane, the Company’s former Executive Vice President of Operations and formerPresident and Chief Operating Officer on June 30, 2003, to be effective asof January 1, 2003.  Under hisagreement during fiscal 2006, Mr. Kane was entitled to receive an annualsalary of $250,000.  The employmentagreement is effective for five (5) years through December 31, 2007,subject to automatic renewal thereafter unless

 

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terminated by eitherparty.  Mr. Kane is also entitled toreceive such bonuses and increases as may be awarded by the Board ofDirectors.  In connection with hisemployment agreement, Mr. Kane also signed the Company’s standardnon-disclosure and non-competition agreement which prevents Mr. Kane fromdirectly or indirectly competing with us for a period of two years after thetermination of his employment for any reason. If Mr. Kane’s employment with the Company is terminated, he isentitled to certain payments set forth in the table titled “Potential Paymentson Termination or Change of Control.”

 

**Alfred R. Novas**

 

We entered into an employment agreement with Alfred R.Novas, the Company’s former Co-President and Chief Financial Officer, on January 20,2006, to be effective as of January 20, 2006.  Under his agreement during fiscal 2006, Mr. Novaswas entitled to receive an annual salary of $250,000, which was increased to$275,000 after six months with the Company. The employment agreement was effective for three (3) years through January 19,2009.  Mr. Novas is also entitled toreceive such bonuses and increases as may be awarded by the Board ofDirectors.  In connection with his employmentagreement, Mr. Novas also signed the Company’s standard non-disclosure andnon-competition agreement which prevents Mr. Novas from directly orindirectly competing with us for a period of 2 years after the termination ofhis employment for any reason.  If Mr. Novas’employment with the Company is terminated, he is entitled to certain paymentsset forth in the table titled “Potential Payments on Termination or Change ofControl.”

 

**Nicholas S.  Maturo**

 

We entered into anemployment agreement with Nicholas S. Maturo on September 30, 2005, theCompany’s former President and Chief Operating Officer to be effective as of September 30,2006.  Under his agreement during fiscal2006, Mr. Maturo was entitled to receive an annual salary of$300,000.  The employment agreement waseffective for three (3) years through September 30, 2008, wherein itautomatically expires.  Mr. Maturois also entitled to receive such bonuses and increases as may be awarded by theBoard of Directors.  In connection withhis employment agreement, Mr. Maturo also signed the Company’s standardnon-disclosure and non-competition agreement which prevents Mr. Maturofrom directly or indirectly competing with us for a period of two years afterthe termination of his employment for any reason.  If Mr. Maturo’s employment with theCompany is terminated, he is entitled to certain payments set forth in thetable titled “Potential Payments on Termination or Change of Control.”

 

**Mr. Maturo’semployment with the Company was terminated on December 14, 2006, and hereceived severance benefits of $93,242.**

** **

**Potentialpayments upon termination of change in control**

** **

We entered into written employment agreements with Russell A. Whitney,Ronald S. Simon, John F. Kane, Alfred Novas and Nicholas S. Maturo.  The employment agreements provide forpayments of certain benefits, as described in the tables below, upon thetermination of the employee.  Theemployee’s rights upon termination of his or her employment depend upon thecircumstance of the termination.  Centralto an understanding of the rights of each employee under the employmentagreements is an understanding of the definitions of termination for cause,termination other than for cause and voluntary termination.  For purposes of the employment agreements:

 

“Termination for Cause” meanstermination by the Company of Employee’s employment (i) by reason ofEmployee’s willful dishonesty towards, fraud upon, or deliberate injury orattempted injury to, the Company, (ii) by reason of Employee’s materialbreach of this Agreement or (iii) by reason of Employee’s gross negligenceor intentional misconduct with respect to the performance of Employee’s dutiesunder this Agreement; provided, however, that no such termination will bedeemed to be a Termination for Cause unless the Company has provided Employeewith written notice of what it reasonably believes are the grounds for anyTermination for Cause and Employee fails to take appropriate remedial actionsduring the 30 day period following receipt of such written notice.

 

“Termination Other than ForCause” means termination by the Company of Employee’s employment by the Companyfor reasons other than those which constitute Termination for Cause.

 

“Voluntary Termination” meanstermination by the Employee of the Employee’s employment with the Company,excluding termination by reason of Employee’s death or disability.

 

“Disability” means terminationof the Employee by the Company because of illness or physical or mentalincapacity (“Disability”) of the employee, and such Disability continues for aperiod of more than three consecutive months. 

 

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Any determination by the Boardwith respect to Employee’s Disability must be based on a determination ofcompetent medical authority or authorities, a copy of which determination mustbe delivered to the Employee at the time it is delivered to the Board.  If the Employee disputes this finding, theEmployee will have the right to select its own competent medical authority andany disputes will be resolved by binding arbitration.

 

The executiveshave also signed the Company’s standard confidentiality and non-competitionagreement that applies for certain time periods following the employee’stermination of employment for any reason.  The non-competition time periods after termination of employment are asfollows:  Russell A. Whitney – 2 years,Ronald S. Simon – 2 years, John F. Kane – 6 months and Alfred Novas – 2years.  The employment agreements specifypayment to the employees upon each of the following situations:

 

·                                          deathor disability of the employee;

·                                          terminationby us for cause;

·                                          terminationby us without cause; and

·                                          terminationfollowing a change of control for Mr. Whitney and Mr. Simon.

 

The tablebelow illustrates the potential payouts to each Named Executive Officeremployed by the Company as of December 31, 2006, under each of the variousseparation situations.  The table assumesthat the terminations took place on December 30, 2006.

 
| ** **              | ** ** | **Termination  with Cause** | ** ** | **Death** | ** ** | **Disability** | ** ** | **Term  without  Cause** | ** ** | **Termination  after Change  in Control** | ** ** |
|-------------------------|------------|----------------------------------|------------|-----------|------------|----------------|------------|--------------------------|------------|-----------------------------------------------------|------------|
|                    |       |                             |       |      |       |           |       |                     |       |                                                |       |
| **Russell  A. Whitney** |       |                             |       |      |       |           |       |                     |       |                                                |       |
| Severance               |       | —                           |       | —    |       | $              | 1,800,000  |                     | $          | 1,800,000                                           |       | $ | 1,800,000 |   |
|                    |       |                             |       |      |       |           |       |                     |       |                                                |       |
| **Ronald  S. Simon**    |       |                             |       |      |       |           |       |                     |       |                                                |       |
| Severance               |       | —                           |       | —    |       | $              | 150,000    |                     | $          | 150,000                                             |       | $ | 150,000 |   |
|                    |       |                             |       |      |       |           |       |                     |       |                                                |       |
| **John F.  Kane**       |       |                             |       |      |       |           |       |                     |       |                                                |       |
| Severance               |       | —                           |       | —    |       | $              | 125,000    |                     | $          | 125,000                                             |       | — |   |
|                    |       |                             |       |      |       |           |       |                     |       |                                                |       |
| **Al  Novas**           |       |                             |       |      |       |           |       |                     |       |                                                |       |
| Severance               |       | —                           |       | —    |       | $              | 68,750     |                     | $          | 68,750                                              |       | — |   |

 

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**DIRECTORCOMPENSATION**

 

We use a combination of cash and stock-based incentivecompensation to attract and retain qualified candidates to serve on theBoard.  In setting director compensation,we consider the significant amount of time that directors expend in fulfillingtheir duties to the Company as well as the skill-level required of members ofthe Board.

 

Our employee directors donot receive additional compensation for serving on the Board.  During fiscal 2006, our employee directorsserving on the Board were Russell A. Whitney and Ronald Simon.

 

In fiscal 2006, each non-employee director received a$10,000 annual retainer.  Audit Committeemembers also received an additional $2,500 per annum.  Expenses incurred by our non-employeedirectors in attending Board meetings are reimbursed.  In fiscal 2006, the Board granted 5,000options to Messrs. Cootey and Petrelli upon being named to the Board in January andMarch 2006, respectively.  Asdescribed more fully below, this table summarizes compensation paid to eachnon-employee director during 2006.

 

| **Name**                      | ** ** | **Fees  earned or  paid in   cash** | ** ** | **Option  awards   (a)** | ** ** | **Total** | ** ** |
|-------------------------------|------------|----------------------------------------------------|------------|-------------------------------|------------|-----------|------------|
|                          |       |                                               |       |                          |       |      |       |
| Frederick A.  Cardin (b)(e)   |       | $                                                  | 12,500     |                          | $          | 12,479    |       | $ | 24,979 |   |
| Chester R.  Schwartz (b)(e)   |       | 12,500                                             |       | 7,031                         |       | 19,531    |       |
| Stephen L.  Cootey (b)(c)(e)  |       | 12,500                                             |       | 17,425                        |       | 29,925    |       |
| Anthony B. Petrelli (b)(d)(e) |       | 12,500                                             |       | 14,575                        |       | 27,075    |       |
|                               |            |                                                    |            |                               |            |           |            |  |  |  |

 

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(a)          Prior to January 1,2007, upon joining our Board, independent directors received 5,000 stockoptions granted under our 1998 Stock Option Plan.  This column shows the amount we have expensedduring 2006 under SFAS No. 123R for outstanding stock option awards andincludes compensation cost recognized in the Consolidated Financial Statementswith respect to awards granted to Dr. Cardin and Schwartz in 2006 andprevious fiscal years.  The fair value ofthe awards has been determined based on the assumptions set forth in our 2006 Form 10-K(Note 10 - *Stock options and warrants*) and do notcorrespond to the actual value that will be recognized by the director.

 

(b)         The Board granted 10,000stock options to each Messrs. Cardin and Schwartz in 2007 for service in2006.  These options were granted andissued on March 15, 2007.  The Boardgranted 5,000 options to Messrs. Cootey and Petrelli upon being named tothe Board in January and March 2006, respectively.

 

(c)          Mr. Cootey resignedfrom the Board of Directors on March 22, 2007.

 

(d)         Mr. Petrelliresigned from the Board of Directors on March 23, 2007.

 

(e)          The aggregate number ofoption awards and respective grant date fair value per share outstanding at December 31,2006, for each non-employee director is reflected in the following chart:

 

| **Director**        | ** ** | **Grant date**         | ** ** | **Options** | ** ** | **Grant date fair   value** | ** ** |
|---------------------|------------|------------------------|------------|-------------|------------|-----------------------------|------------|
| Frederick A. Cardin |       | August 08, 2003   |       | 5,000       |       | $                           | 3.90       |   |
|                |       | May 06, 2005      |       | 15,000      |       | $                           | 2.55       |   |
|                |       | December 13, 2005 |       | 5,000       |       | $                           | 6.75       |   |
|                |       |                   |       | 25,000      |       |                        |       |
|                |       |                   |       |        |       |                        |       |
| Chester P. Schwartz |       | May 06, 2005      |       | 7,500       |       | $                           | 2.55       |   |
|                |       | December 13, 2005 |       | 3,750       |       | $                           | 6.75       |   |
|                |       |                   |       | 11,250      |       |                        |       |
|                |       |                   |       |        |       |                        |       |
| Stephen L. Cootey   |       | January 04, 2006  |       | 5,000       |       | $                           | 10.80      |   |
|                |       |                   |       |        |       |                        |       |
| Anthony B. Petrelli |       | March 02, 2006    |       | 5,000       |       | $                           | 9.50       |   |

 

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**COMPENSATIONCOMMITTEE INTERLOCKS**

**ANDINSIDER PARTICIPATION**

 

During 2006, the Compensation Committee consisted of Messrs. Cootey,Cardin and Schwartz.  None is a currentor former officer of the Company or any of its subsidiaries.  No committee interlocks with other companies,within the meaning of the SEC’s proxy rules, existing in 2006.

 

**COMPENSATION COMMITTEE REPORT**

 

The Compensation Committee of the Board of Directorsreports that it has reviewed and discussed with Management the CompensationDiscussion and Analysis and, on the basis of that review and discussion,recommended to the Board that the Compensation Discussion and Analysis beincluded in the Annual Report on Form 10-K for the year ended December 31,2006 required by Item 402(b) of Regulation S-K of the Securities andExchange Act of 1934 as amended.

 

**THECOMPENSATION COMMITTEE**

 

Stephen L. Cootey, Chair

Frederick A. Cardin

Chester P. Schwartz

 

**Equity compensation plan information**

 

The following table summarizes, as of December 31,2006, the equity compensation plans under which we may issue shares of stock toour directors, officers and employees under the 1998 Stock Option Plan (sharesin thousands).

 
| **Plan Category**                                      | ** ** | **Number of common  shares  to be issued upon  exercise of  outstanding  options** | ** ** | **Weighted average  exercise price of  outstanding options** | ** ** | **Number of common shares  remaining available  for future issuance  under equity  compensation plans** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity  compensation plans approved by security holders     |       | 1,253                                                                                                            |       | $                                                                                | 4.49       |                                                                                                                                            | 189        |   |
|                                                        |       |                                                                                                             |       |                                                                             |       |                                                                                                                                            |       |
| Equity  compensation plans not approved by security holders |       | —                                                                                                           |       | $                                                                                | —     |                                                                                                                                            | —     |   |

 

***1998 Stock Option Plan***

 

Our 1998 Stock Option Plan (“1998 Plan”) provides forthe issuance of up to 2,187,500 shares of stock as incentive stock options andnonqualified stock options.  Only ouremployees and directors are eligible to receive awards under the 1998 Plan.  The purpose of the 1998 Plan is to motivateparticipants to achieve long range goals, attract and retain eligibleemployees, provide incentives competitive with other similar companies andalign the interest of employees and directors with those of our shareholders.  The 1998 Plan is administered by theCompensation Committee of the Board of Directors. The exercise price of a stockoption grant under the 1998 Plan may not be less than the average market priceof our stock on the date of the grant and no options may have a term of morethan ten years.  Options granted underthe 1998 Plan typically vest as follows: Vesting under the 1998 Plan is as follows: 25% of the options vest onthe grant date, an additional 25% vests on the completion of the first year ofservice, another 25% vests on the completion of the second year of service, and100% of the shares vest at the end of the third year of service, although theCompensation Committee may approve a different vesting period.** **All options expireten years from the date of grant.

 

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**ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED STOCKHOLDER MATTERS (Restated)**

 

*The information contained in Item 12has been revised to clarify that all information in this beneficial ownershiptable is as of March 31, 2007, and is based on information provided to theCompany by its directors, Named Executive Officers (employed as of March 31,2007, with the Company), directors and 5% or greater shareholders and thereports filed by these persons with the SEC.*

 

The following table sets forth the common stockownership as of March 31, 2007, by (i) of each person known by us tobe the beneficial owner of five percent or more of our common stock, (ii) byeach of our directors and Named Executive Officers (who was employed by theCompany as of March 31, 2007) and directors and by (iii) alldirectors and Named Executive Officers (who were employed by the Company as of March 31,2007) as a group.  Each person holdsrecord and beneficial ownership and has sole voting and investment power withrespect to the shares of common stock shown. The number of shares of our common stock outstanding at March 31,2007, was 11,738,587.  The address of allof the Named Executive Officers and directors is in our care at 1612 East CapeCoral Parkway, Cape Coral, Florida 33904. This table is based upon information supplied by the directors, officersand principle shareholders and reports filed by these persons with the SEC.

 
| **Name of Owner**                                     | ** ** | **Number of shares (1)** | ** ** | **Percent of class (11)** | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------------------|------------|------------------------------------------|------------|
| Named executive  officers and directors                         |       |                                    |       |                                     |       |
| Russell A. Whitney(2)                                           |       | 5,200,069                               |       | 44.3                                     | %          |
| Alfred R. Novas(3)                                              |       | 57,500                                  |       | *                                        |       |
| Ronald S. Simon(2)(4)                                           |       | 428,175                                 |       | 3.6                                      |       |
| John F. Kane(5)                                                 |       | 300,833                                 |       | 2.6                                      |       |
| Frederick A. Cardin(7)                                          |       | 21,250                                  |       | *                                        |       |
| Chester P. Schwartz(8)                                          |       | 28,038                                  |       | *                                        |       |
| Executive officers and directors as a group (seven  persons)(9) |       | 6,040,865                               |       | 51.5                                     |       |
| Beneficial owners of more than 5% of the common  stock          |       |                                    |       |                                     |       |
| Prides Capital Fund I, LP(10)                                   |       | 1,650,000                               |       | 14.1                                     |       |
| Kevin A. Richardson II                                          |       |                                    |       |                                     |       |
| Prides Capital Fund I, LP                                       |       |                                    |       |                                     |       |
| c/o Prides  Capital LLC                                         |       |                                    |       |                                     |       |
| 200 High Street, Suite 700                                 |       |                                    |       |                                     |       |
| Boston, MA 02110                                                |       |                                    |       |                                     |       |
| Springhouse Capital, LP(11)                                     |       | 1,033,600                               |       | 8.8                                      |       |
| Brian Gaines                                                    |       |                                    |       |                                     |       |
| Springhouse Capital, LP                                         |       |                                    |       |                                     |       |
| 535 Madison Avenue, 30th Floor                                  |       |                                    |       |                                     |       |
| New York, NY 10022                                              |       |                                    |       |                                     |       |
| Heartland Advisors, Inc.(12)                               |       | 649,456                                 |       | 5.5                                      |       |
| William J. Nasgovitz                                            |       |                                    |       |                                     |       |
| Heartland Value Fund                                            |       |                                    |       |                                     |       |
| c/o Heartland Advisors, Inc.                               |       |                                    |       |                                     |       |
| 789 North Water Street                                          |       |                                    |       |                                     |       |
| Milwaukee, WI 53202                                             |       |                                    |       |                                     |       |

 

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| *      |   | Less than 1%                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (1)    |   | In accordance with SEC  rules, this column includes shares that may be acquired pursuant to stock  options and common stock purchase warrants that are or will become  exercisable within 60 days of March 31, 2007.                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (2)    |   | Includes the following  amounts: (i) 66,250 shares of common stock underlying vested stock  options held by Mr. Whitney and his wife, Ingrid Whitney;  (ii) 4,991,850 shares of common stock held by International Securities  3, LLC, a limited liability company owned by Mr. Whitney and his wife,  Ingrid Whitney; (iii) 141,700 shares of common stock held by Day One,  LLC; and (iv) 269 shares of common stock held by Ingrid Whitney. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (3)    |   | Comprised of 57,500  shares underlying stock options.                                                                                                                                                                                                                                                                                                                                                                                                                        |

 

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(4)   Includes 293,000 sharesunderlying stock options.

 

(5)   Includes 75,000 shares underlyingstock options.

 

(6)   Intentionally left blank.

 

(7)   Comprised of 21,250 sharesunderlying stock options.

 

(8)   Includes 13,750 sharesunderlying stock options.

 

(9)   Includes 597,700 sharesunderlying stock options.

 

(10)Information obtained from aSchedule 13D filed by Prides Capital Partners LLC with the SEC on September 15,2006.  Murray A. Indick, Kevin A.Richardson, II, Henry J. Lawlor, Jr., Charles E. McCarthy andChristian Puscasiu may be deemed to share voting and dispositive power over theseshares.

 

(11)Information obtained from aSchedule 13G filed by Heartland Advisors (“Heartland”) with the SEC on February 12,2006.  William J. Nasgovitz, thePresident and principal shareholder of Heartland has voting and dispositivepower over these shares.

 

(12)Information obtained from aSchedule 13G filed by Springhouse Capital, LP (“Springhouse”) with the SEC on February 14,2006.  Brian Gaines, the managing memberof the general partner of Springhouse, is deemed to exercise voting anddispositive power over these shares.

 

**ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORINDEPENDENCE (Restated)**

 

*The information in Item 13 has beenupdated to include additional disclosure regarding related party transactionsduring fiscal 2006.*

 

***Related PartyTransactions***

 

Thefollowing is a summary of transactions during fiscal 2006 between the Companyand its executive officers, directors, nominees, principal shareholders andother related parties involving amounts in excess of $120,000 or which theCompany has chosen to voluntarily disclose.

 

We lease approximately2,200 square feet of training facilities at 1611 East Cape Coral Parkway,approximately 9,000 square feet of space at 1625 East Cape Coral Parkway whichis used for offices and shipping, and 4,802 square feet at 1630 Southeast 47thTerrace which we use as a training facility, all in Cape Coral, Florida fromCape Promenade Trust which is for the benefit of our former Chairman and ChiefExecutive Officer, Mr. Whitney and Ingrid Whitney.  The leases are for three years and began on March 1,2003, March 1, 2003, and June 1, 2004, respectively.  The monthly rentals are $1,943, $13,125, and$7,238, respectively.  We are on amonth-to-month basis with respect to the 1611 East Cape Coral Parkway and 1630Southeast 47th Terrace, leases that expired in March 2006.  We extended the lease with respect to 1625East Cape Coral Parkway through June 30, 2009 (collectively, all theleases described herein shall be referred to as the “RW Leases”).

 

*Gulfstream Development Group, LLC*

 

For the years ended December 31,2003 through 2006, the Company had an agreement with Gulfstream DevelopmentGroup, LLC (“Gulfstream”) in which we were compensated for appointingGulfstream as the exclusive offeror of homes for students of our advanced realestate courses.  Students were offeredthe opportunity to purchase residential lots in Southwest Florida fromGulfstream, other lot owners, or Mr. Whitney.  Gulfstream constructs homes on lots owned byour students.  Under a Referral ServicesAgreement with Gulfstream, Gulfstream paid the Company a flat fee of $100,000for all referrals that occurred before January 1, 2003, and agreed to paythe Company $1,000 for each student that the Company referred to Gulfstream whopurchased and closed on a home built by Gulfstream after January 1,2003.  The referral fees paid to theCompany by Gulfstream were $0.2 million for the year ended December 31, 2003and were $0.3 million for each of the years ended December 31, 2004, 2005,and 2006.

 

During the years ended December 31,2004, 2005 and 2006, Mr. Whitney and Ingrid Whitney jointly held anindirect 25% beneficial ownership interest in Gulfstream and received 15% ofdistributions of net cash flow from Gulfstream. Mr. and Mrs. Whitney hold their investment in Gulfstreamthrough Rec One Inc., an entity owned jointly by them.

 

During the years ended December 31,2004, 2005 and 2006, Gulfstream had an informal arrangement with Mr. Whitneypursuant to which Gulfstream paid Mr. Whitney a salary.  During the years 2003 through 2006,Gulfstream paid Rec One transaction-based compensation for Mr. Whitney’sservices, including marketing and construction contract administration inconnection with home sales to the Company’s students and other persons, as wellas for credit support provided to Gulfstream by Mr. Whitney.  The transaction-based compensation consistedof payments of $2,500 or $4,000 to Rec One by Gulfstream upon purchases ofGulfstream homes by our students.

 

During the years ended December 31,2003, 2004, and 2005 the Company made payments to Gulfstream of approximately$0.1 million, $0.7 million and $0.2 million, respectively, for constructionservices on our corporate headquarters building.  The construction services provided in 2003were for leasehold improvements and in 2004 services were provided to repairthe extensive damage to our corporate headquarters as a result of HurricaneCharley.

 

The following table setsforth the salary and transaction-based compensation that Mr. Whitneyreceived from Gulfstream during the years ended December 31, 2003, 2004,2005, and 2006 and is based upon information provided to Mr. Whitney byGulfstream:

 
| ** **                                                    | ** ** | **2003** | ** ** | **2004** | ** ** | **2005**  | ** ** | **2006**  | ** ** | **Total** | ** ** |
|---------------------------------------------------------------|------------|----------|------------|----------|------------|-----------|------------|-----------|------------|-----------|------------|
| Salary paid to Mr.  Whitney by Gulfstream                     |       | $        | —     |     | $          | 120,000   |       | $         | 120,000    |      | $          | 120,000 |   | $ | 360,000 |   |
| Transaction-based  compensation paid to Rec One by Gulfstream |       |     | 563,220    |     |       | 41,154    |       |      | 522,315    |      |       | 1,251,105 |   |   | 2,377,794 |   |
| Management Fees  paid to Rec One by Gulfstream (1)            |       |     | —     |     |       | 300,000   |       |      | 350,000    |      |       | — |   |   | 650,000 |   |
| Distributions  from Gulfstream to Rec One (2)(3)              |       | —   |       | —   |       | 1,752,976 |       | 1,543,662 |       | 3,296,638 |       |
| Total                                          |       | $        | 563,220    |     | $          | 461,154   |       | $         | 2,745,291  |      | $          | 2,914,767 |   | $ | 6,684,432 |   |
|                                                               |            |          |            |          |            |           |            |           |            |           |            |  |  |  |  |  |  |  |  |  |  |

 

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| (1)    | Total management fees  shown above reflect amounts paid to Rec One and shared by Mr. Whitney  and Ms. Whitney on a 50/50 basis.                                                                                                                   |
|-----------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)    | Total distributions  include portions paid to Rec One and shared by Mr. Whitney and  Ms. Whitney on a 50/50 basis.                                                                                                                                |
| (3)    | Rec One was required to  fund 25% of capital calls from Gulfstream. The amounts shown above do not  reflect these capital calls which, including the portions for both  Mr. Whitney and Ms. Whitney, were $202,793 in 2005 and $486,530 in  2006. |

 

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The independent membersof the Board of Directors are reviewing the Gulfstream transactions regardingcompliance with the applicable governance and related party transactionrequirements.

 

*SCB Transaction*

 

In November 2005, wesold the SCB office building for a pretax gain of $5.6 million, beforeminority interest, or a pretax $3.5 million after minority interest.  The debt on the building was paid in full andSCB received a note receivable, secured by the building, totaling$11.0 million as part of the $20.3 million selling price.  The following additional compensation was authorizedby the Board of Directors and paid in 2006 resulting from additional worksurrounding the sale of the SCB Building: Mr. Whitney, $100,000, (or which$50,000 was paid to Ingrid Whitney) Ronald Simon, $50,000, and Kent Densley,$50,000.

 

*CostaRica*

 

As of December 31,2006, we had investments in four entities which owned properties located inCosta Rica.  In addition, two or our former executives including theCompany’s former Chairman and Chief Executive Officer, Russell Whitney, and theformer Co-President and Chief Operating Officer, Ronald Simon, have individualownership interests in some of these entities.  The entities we haveownership interests in are Rancho Monterrey, S.A., Monterrey del Este, S.A.,Monterrey del Llano, S.A., and Monterey Group, S.A.  Mr. Whitneyindirectly owns approximately 11.4% of Rancho Monterrey, S.A., 8.0% ofMonterrey del Este, S.A., 50% of Monterey del Llano, S.A., and 22% of MontereyGroup, S.A.  Mr. Simon indirectly owns approximately 1.4% of RanchoMonterrey, S.A.  These entities are managed by Monterey Management,S.A, a company which is 100% owned by Ms. Maria Jimenez, who is paidas an independent contractor by WIN.  Monterey Management, S.A.receives management fees from these and other entities.  Theamounts for management fees for the years ended December 31, 2004,2005, and 2006 were $500,000, $800,000 and $800,000, respectively.

 

In addition to managementfees, commissions on the sale of land in Rancho Monterey, S.A., and Montereydel Este, S.A., were paid to Monterey Management, S.A. and others includingunrelated real estate agents and brokers in the years ended December 31,2006, 2005, and 2004.  However, Mr. Simonwas paid $56,250 by Monterey Management in 2007 for consulting fees relating tothe sale of Monterrey Green Acres S.A., an entity which the Company had noinvestment.

 

Mr. Whitney, threeof our employees and two former employees have an investment in shares ofMonterrey Green Acres, S.A., which originally owned approximately 1,500 acresin Monterrey, Costa Rica.  We have no interest in this investment, and didnot share in any proceeds from the intended sale of the entity’s shares andrelated property.  A letter of intent to purchase Monterrey Green Acres,S.A. has been signed by an interested buyer who is an independent contractorfor us.

 

Theindependent members of the Board of Directors are reviewing the Costa Ricantransactions regarding compliance with the applicable governance and relatedparty transaction requirements.

 

**RelatedParty Transactions Policy**

 

The Board of Directorsadopted a Related Party Transaction Policy for the review of related persontransactions on March 23, 2007, which is available on our Web site at *http://www.wincorporate.com/corpgov.htm*.  Under these policies and procedures, theAudit Committee reviews related person transactions in which we are or will bea participant to determine if they are in the best interests of ourshareholders and the Company.  Financialtransactions, arrangements, relationships or any series of similartransactions, arrangements or relationships in which a related person had orwill have a material interest and that exceed $120,000 are subject to theCommittee’s review.  Any member of theAudit Committee who is a related person 

 

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with respect to a transaction under review may not participate in thedeliberation or vote requesting approval or ratification of thetransaction.  Transactions that aresubject to the policy include any transaction, arrangement or relationship(including indebtedness or guarantees of indebtedness) in which the Company isa participant with a related person.  Therelated person may have a direct or indirect material interest in thetransaction.

 

Related persons are directors, director nominees,executive officers, holders of 5% or more of our voting stock, and theirimmediate family members.  “Immediatefamily member” is defined as any child, stepchild, parent, stepparent, spouse,sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law,or sister-in-law, and any person (other than a tenant or employee) sharing thehousehold of any executive officer, director, nominee for director, or holderof more than 5% of any class of the Company’s voting securities.  The related party transactions policyrequires all Named Executive Officers, other executives, directors, andaffiliated holders of more than 5% of any class of Company stock, to completeand sign a related person transaction disclosure questionnaire on a quarterlybasis.  This questionnaire must discloseany related person transactions that have occurred the previous quarter or thatare planned to occur during the upcoming year. An “indirect” interest of a related person in a transaction includes arelated person serving as an officer or employee of, or being a significantinvestor or equity holder in, an entity that is a party to a transaction withthe Company.

 

Exemptions from this policy include: (i) paymentof compensation by the Company to its officers or directors for service to theCompany in their stated capacity; (ii) transactions available to allemployees or all shareholders of the Company on the same terms; and (iii) transactions,which when aggregated for any related person, involve equal to or less than$120,000 in a fiscal year.

 

Transaction details required for disclosure include: (i) nameof the related person and the basis on which the person is a related person; (ii) therelated person’s interest in the transaction with the Company, including therelated person’s position(s) or relationship(s) with, or ownershipin, a firm, corporation, or other entity that is a party to, or has an interestin, the transaction; (iii) the approximate dollar value of the amountinvolved in the transaction; (iv) in the case of indebtedness, disclosureof the amount involved in the transaction shall include the largest aggregateamount of principal outstanding during the period for which disclosure isprovided, the current amount outstanding, and the amount of interest paid orpayable; and (v) any other information that is material to investors.

 

The Audit Committee will analyze the followingfactors, in addition to any other factors the Committee deems appropriate, indetermining whether to approve a related person transaction: (i) fairnessof the terms for the Company; (ii) materiality of the transaction; (iii) roleof the related person in the transaction; (iv) structure of thetransaction; and (v) interests of all related parties in the transaction.

 

The Audit Committee will only approve a related persontransaction if the Audit Committee determines that****the terms of the related person transaction are beneficialand fair to the Company.  Approval of arelated party transaction may be conditioned upon the Company and the relatedperson taking any additional or any other actions that the Audit Committeedeems appropriate, as set forth in more detail in the Company’s Related PartyTransactions Policy.

 

It is the Company’s policy that the Committee shallapprove any related party transaction before the commencement of thetransaction.  However, if the transactionis not identified before commencement, it must still be presented to theCommittee for their review and ratification. The Audit Committee reviewed and approved the RW Leases.  A committee of the independent directors ofthe Board of Directors is reviewing the Gulfstream Transactions and Costa RicanTransactions and the valuation used for the acquisition of Equity Corp. andWhitney Leadership regarding compliance with the applicable governance andrelated-party transaction requirements.

 

**ITEM14.  PRINCIPAL ACCOUNTING FEES ANDSERVICES (Restated)**

 

*Theinformation in Item 14 has been revised to clarify that the Audit Committeeapproved 100% of all non-audit services provided by EKS&H in 2006.*

 

Ehrhardt Keefe Steiner &Hottman, P.C., Denver, Colorado (“EKS&H”), conducted the audit of ourConsolidated Financial Statements for the years ended December 31, 2006and 2005.  It is our understanding thatthis firm is obligated to maintain audit independence as prescribed by theaccounting profession and certain requirements of the SEC.  As a result, our Audit Committee specificallyapproves, in advance, non-audit services provided by EKS&H, and it considersthe effect, if any, of such services on audit independence.  All services provided by EKS&H in 2006were pre-approved in accordance with these procedures and the Audit Committeeconcluded that the services provided by EKS&H for activities unrelated tothe audit in 2006 are compatible with EKS&H maintaining its independence.

 

The following tablepresents fees for professional audit services rendered by EKS&H, ourindependent auditor, for the audit of our Consolidated Financial Statements forthe years ended December 31, 2006 and 2005, and fees billed for otherservices rendered by EKS&H (in thousands).

 

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| ** **              | ** ** | **Years ended December 31,** | ** ** |
|-------------------------|------------|---------------------------------------------|------------|
| ** **              | ** ** | **2006**                                    | ** ** | **2005** | ** ** |
| Audit fees              |       | $                                           | 400        |   | $ | 340 |   |
|                    |       |                                        |       |   |   |
| Audit-related  fees (1) |       | 25                                          |       | 29 |   |
|                    |       |                                        |       |   |   |
| Tax fees (3)            |       | 115                                         |       | 75 |   |
|                    |       |                                        |       |   |   |
| All other fees  (2)     |       | 570                                         |       | 234 |   |
|                    |       |                                        |       |   |   |
| Total fees              |       | $                                           | 1,110      |   | $ | 678 |   |

 

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(1)   Primarilyincludes the fees for the audit of our 401(k) plan.

 

(2)   Primarilyrelates to the Form S-1 registration statements for the Company andEduTrades, Inc. filed, and withdrawn, respectively, with the SEC.

 

(3)   Primarilyrelates to tax compliance, tax advice and tax planning.

 

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**ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (Restated)**

 
| **Exhibit No.** | ** ** | **Title**                                                                                                                               |
|----------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------|
| 3.01                 |       | Articles of Incorporation of the Registrant, as  amended(1)                                                                             |
|                 |       |                                                                                                                                    |
| 3.02                 |       | Bylaws of the Registrant(2)                                                                                                             |
|                 |       |                                                                                                                                    |
| 10.01                |       | Securities Purchase Agreement - Private Placement(6)                                                                                    |
|                 |       |                                                                                                                                    |
| 10.02                |       | Stockholders Agreement - Private Placement(6)                                                                                           |
|                 |       |                                                                                                                                    |
| 10.03                |       | Registration Rights Agreement - Private Placement(6)                                                                                    |
|                 |       |                                                                                                                                    |
| 10.04                |       | Warrant Agreement - Private Placement(6)                                                                                                |
|                 |       |                                                                                                                                    |
| 10.05                |       | 1998 Stock Option Plan(3)                                                                                                               |
|                 |       |                                                                                                                                    |
| 10.06                |       | Employment Agreement with Mr. Whitney(4)                                                                                           |
|                 |       |                                                                                                                                    |
| 10.07                |       | Employment Agreement with Mr. Simon(4)                                                                                             |
|                 |       |                                                                                                                                    |
| 10.10                |       | Employment Agreement with Mr. Kane(4)                                                                                              |
|                 |       |                                                                                                                                    |
| 10.12                |       | Employment Agreement with Mr. Novas(5)                                                                                             |
|                 |       |                                                                                                                                    |
| 10.13                |       | Employment Agreement with Nicholas S. Maturo(4)                                                                                         |
|                 |       |                                                                                                                                    |
| 10.14                |       | Referral Service Agreement dated June 30, 2003  between Whitney Education Group, Inc. and Gulfstream Development Group,  LLC* |
|                 |       |                                                                                                                                    |
| 14.01                |       | Code of Ethics*                                                                                                                         |
|                 |       |                                                                                                                                    |
| 21.01                |       | List of Subsidiaries(7)                                                                                                                 |
|                 |       |                                                                                                                                    |
| 31.01                |       | Section 302 Certification by the Chief  Executive Officer*                                                                         |
|                 |       |                                                                                                                                    |
| 31.02                |       | Section 302 Certification by the Chief  Financial Officer*                                                                         |
|                 |       |                                                                                                                                    |
| 32.01                |       | Section 906 Certification of the Chief  Executive Officer*                                                                         |
|                 |       |                                                                                                                                    |
| 32.02                |       | Section 906 Certification of the Chief  Financial Officer*                                                                         |
|                 |       |                                                                                                                                    |

 

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*Filed herewith.

 

(1)           Incorporated byreference to Exhibit 3.1 in the Registrant’s Registration Statement on Form 10SB/12G filed with the SEC on March 6, 2001.

 

(2)           Incorporated by referenceto Exhibit 3.2 in the Registrant’s Registration Statement on Form 10SB/12G filed with the SEC on March 6, 2001.

 

(3)           Incorporated byreference to Exhibit 99.3 in the Registrant’s Registration Statement on Form 10SB/12G filed with the SEC on March 6, 2001, designated Exhibit 99.3therein.

 

(4)           Incorporated byreference to Exhibits 10.07 through 10.11 in Amendment No. 1 to theRegistrant’s Registration Statement on Form S-1, File No. 333-103156filed with the SEC on July 9, 2003.

 

(5)           Incorporated byreference to Exhibit 10.12 in the Form 8-Kfiled with the SEC on January 25,2006.

 

(6)           Incorporated byreference to Exhibits 10.01, 10.02, 10.03 and 10.04 of the Registrant’sRegistration Statement on Form S-1 filed with the SEC on January 11,2006.

 

(7)           Incorporated byreference to Exhibit 21.01 in the Registrant’s Annual Report on Form 10-Kfor the fiscal year ended December 31, 2006, filed with the SEC on April 2,2007.

 

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**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the Registrant has duly caused this Annual Report on Form 10-K/A forthe fiscal year ended December 31, 2006 to be signed on its behalf by theundersigned, thereunto duly authorized.

 
|                         | Whitney Information Network, Inc. |
|-------------------------|----------------------------------------|
|                    |                                   |
|                    | By:                                    | /s/ CHARLES M.  PECK |
|                    |                                   | Charles M. Peck |
| Dated: January 15, 2009 |                                   | *Chief  Executive Officer* |

 

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on our behalf of the Registrant andin the capacities and on the date indicated.

 
| Signature                | ** ** | **Title**               | ** ** | **Date**         |
|--------------------------|------------|-------------------------|------------|------------------|
| ** **               | ** ** | ** **              | ** ** | ** **       |
|                     |       |                    |       |             |
| /s/ CHARLES M.  PECK     |       | Chief Executive Officer |       | January 15, 2009 |
| Charles M. Peck          |       |                    |       |             |
|                     |       |                    |       |             |
| /s/ ANNE M.  DONOHO      |       | Chief Financial Officer |       | January 15, 2009 |
| Anne M. Donoho           |       |                    |       |             |
|                     |       |                    |       |             |
| /s/ STEVEN C.  BARRE     |       | Director                |       | January 15, 2009 |
| Steven C. Barre          |       |                    |       |             |
|                     |       |                    |       |             |
| /s/ FREDERICK A.  CARDIN |       | Director                |       | January 15, 2009 |
| Frederick A.  Cardin     |       |                    |       |             |
|                     |       |                    |       |             |
| /s/MURRAY A.  INDICK     |       | Director                |       | January 15, 2009 |
| Murray A. Indick         |       |                    |       |             |
|                     |       |                    |       |             |
| /s/ WALLACE L.  TIMMENY  |       | Director                |       | January 15, 2009 |
| Wallace L.  Timmeny      |       |                    |       |             |
|                     |       |                    |       |             |
| /s/ RUSSELL A.  WHITNEY  |       | Director                |       | January 15, 2009 |
| Russell A.  Whitney      |       |                    |       |             |

 

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