**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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**FORM 10-K/A**

 

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

 

**For the Fiscal Year Ended December 31, 2001**

 

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**Whitney Information Network, Inc.**

(Exactname of registrant as specified in its charter)

 

| **Colorado**                                       |   | **0-27403**             |   | **84-1475486**                    |
|----------------------------------------------------|--------|-------------------------|--------|-----------------------------------|
| (State  or otherjurisdiction of incorporation)     |   | (CommissionFile Number) |   | (IRS  EmployerIdentification No.) |
|                                               |   |                    |   |                              |
| **4818 Coronado Parkway,****Cape Coral,  Florida** |   | **33904**               |
| (Address  of principal executive offices)          |   | (Zip  Code)             |
|                                                    |        |                         |        |                                   |  |  |

 

Registrant’stelephone number, including area code **(941)542-8999**

 

(Formername or former address, if changed since last report)

 

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Securitiesregistered under Section 12 (b) of the Exchange Act:

 

**NONE**

 

Securitiesregistered under Section 12 (g) of the Exchange Act:

 

**COMMON STOCK**

**NO par value per share**

**(Title of Class)**

 

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Check whether the Issuer (1) has filed allreports required to be filed by Section 13 or 15 (d) of the Exchange Act duringthe past 12 months (or for such shorter period that the Issuer was required tofile such reports) and (2) has been subject to such filing requirements for thepast 90 days.  Yes  ý  No  o

 

Check if there is no disclosure of delinquentfilers in response to Item 405 of Regulation S-K contained in this form, and nodisclosure will be contained, to the best of the Issuer’s knowledge, indefinitive proxy or information statements incorporated by reference in PartIII of this Form 10-K or any amendment to this Form 10-K.  ý

 

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

 

The Issuer’s revenues for the fiscal yearended December 31, 2001, were $42,157,740. The aggregate market value of thevoting and non-voting common stock held by non-affiliates of the Issuer,computed by reference to the closing sale price of such common stock as quotedon the OTCBB as of March 28, 2002 was about $ 1,372,000. (Aggregate marketvalue has been estimated solely for the purpose of this report. For the purposeof this report it has been assumed that all officers and directors areaffiliates of the Registrant. The statements made herein shall not be construedas an admission for the purposes of determining the affiliate status of anyperson.)

 

The Issuer had 7,878,023 common shares ofcommon stock outstanding as of December 31, 2001.

 

Documents incorporated by reference: See ITEM13—EXHIBITS AND REPORTS ON FORM 8-K

 

 

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**PART I**

 

**ITEM 1.****                            ****BUSINESS**

 

History

 

Whitney Information Network, Inc. (the“Company”) was incorporated in Colorado on February 23, 1996 as GimmelEnterprises, Inc. On August 18, 1998, the Company acquired all of the issuedand outstanding shares of common stock of Whitney Education Group, Inc.(“WEG”), a Florida corporation, organized on November 12, 1992 and WEG became awholly owned subsidiary of the Company. On August 10, 1998, the Company changedits name to WIN Systems International, Inc. and on February 11, 1999, theCompany changed its name to Whitney Information Network, Inc.

 

General

 

Since 1994, the Company has been a leadingprovider of educational and training courses for students throughout the UnitedStates and more recently in Canada, the United Kingdom and Central America.These courses provide instruction on real estate investing, businessstrategies, stock market investment techniques, entering international businessmarkets, cash management and asset protection.

 

Initially, the Company focused on basic andadvanced real estate training programs. Although U.S. based real estatetraining represents the largest educational segment of the Company’s business,involving the training of over 12,000 students each month, the Company hasgradually expanded its course offerings and its markets.

 

Currently, the Company offers an average of150 educational courses and training programs per month covering 22 subjects tostudents in the United States, Canada, the United Kingdom and Central America.Training is offered in the U.S. and internationally in meeting facilities andconference centers, at the Company’s 11 regional training centers, and at theCompany’s 11,000 square foot national training facility in Cape Coral, Florida.The Company is also completing the construction of a 7,000 square foot trainingfacility and conference center in Central America.

 

The Company supports it educational trainingby providing its students with a series of outlines, magazines, books, cassettetapes, CDs, Web-based interactive discussions and learning tools and software programs.Currently, the Company offers over 25 educational publications and softwarepackages, which are distributed to students registered in the Company’seducational programs and sold directly to the public.

 

Students are recruited by attending a free informationaltraining session related to a specific educational subject. The subject, dateand location of these training programs are advertised in local newspapers, inradio and television advertisements and through direct mailings andtelemarketing. The Company employs over 45 trainers who educate over 15,000students per year.

 

Following the initial training session,students interested in learning more on the lecture subject may subscribe tothe Company’s periodic publications, purchase books or software programs orattend advanced training courses. In addition to its over 45 resourcepublications, the Company offers from

 

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three to five day advanced training programs.These advanced training programs are held at the Company’s 11 regional trainingcenters located in hotels or other temporarily rented facilities, at trainingcenters in Canada, the United Kingdom and Central America and at the Company’snational training center located in Cape Coral, Florida. The Company alsoprovides post training programs conducted by over 30 Company mentors who do nothave any educational or other qualifications, other than training by theCompany who travel to the student’s hometown for “hands on” business training. Substantiallyall of the Company’s revenue is generated from domestic sales. Approximately80% of the Company’s revenue is derived from its various real estate trainingcourses, which include leveraged residential and commercial real estateacquisition, real estate financing techniques, the use of purchase/leaseoptions, property management and real estate foreclosure techniques. Thebalance of the Company’s revenue is divided between courses offering otherbusiness strategies, such as stock market strategies, options trading, assetprotection, acquisition of commercial properties, creative financingtechniques, international finance and other topical business subjects.

 

The Company conducts its operations through 14U.S. based and foreign corporate subsidiaries. In recent years the Company hasexpanded its course offerings and its marketing areas, which has resulted insignificant revenue and earnings growth. The Company’s strategy is to continueits leadership in for-profit educational services by adding new educationalcourses, continuing to increase its number of course offerings and by furtherexpanding its educational products internationally. Additional emphases willalso be placed upon the direct sale of educational products and referencematerials through media and direct mail advertisements as well as through theCompany’s Web sites. The Company is accredited as a proprietary school in Texasand may seek similar academic and educational accreditation in other states andforeign countries. The Company does not compete with companies that offerundergraduate or advanced degrees or continuing education programs.

 

The for-profit education industry is extremelyvaried in scope and intensely competitive. In a broad sense, the Companycompetes with post-secondary education companies that offer technical andindustrial training and career training, as well as courses leading toundergraduate and advanced degrees. More specifically, the Company competeswith a number of other companies that offer training on specific businesssubjects including real estate and stock market investing. Generally,competitive factors within the proprietary educational market include the rangeand depth of course offerings, the quality of teachers and trainers, thequality of reference materials provided in connection with course studies andthe cost of the educational process. The Company believes that the range anddepth of its course offerings and the “Whitney” brand name offer it competitiveadvantages over most of its competitors. The Company also believes that itcompetes favorably with respect to the remaining competitive factors.

 

The Company employs over 160 full timeemployees.

 

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**ITEM 2.****                            ****PROPERTIES**

 

The Company leases office space from RussWhitney, Chief Executive Officer and Chairman of the Board of Directors,pursuant to the terms of a three-year lease, which commenced on September 1,1999 and terminates on October 31, 2002 with a monthly rental payment of$5,805. Russ Whitney is the President of the Company and a member of its Boardof Directors. The terms of the lease are no less favorable as can be obtainedfrom independent third parties.

 

Whitney Consulting Services, Inc. leases 6,840square feet of office space from Draper Business Park L.C. at Suite 230,Building #7, 12244 South Business Park Drive, Draper, Utah pursuant to awritten lease agreement. The term of the lease is from November 1, 2001 toOctober 31, 2006. The aggregate monthly rental is $6,128 per month.

 

Whitney Canada, Inc. leases an office buildingat Unit 20, 3780-14th Avenue, Ontario, Canada, pursuant to awritten lease agreement. The term of the lease is from May 1, 2000 to April 30,2003. The monthly rental is $1,081 for the first year and $1,654 for the secondin Canadian dollars.

 

Cape Coral Parkway Land Trust owns an officebuilding at 1612 E. Cape Coral, Cape Coral, FL. The Company has been leasingspace to two tenants pursuant to written lease agreements. One of the leasesexpires in 2005 and the other lease was cancelled as of March 1, 2002. TheCompany will occupy the vacated premises in 2002.

 

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**ITEM 3.****                            ****LEGAL PROCEEDINGS**

 

 

The Company is not a party defendant in anymaterial pending or threatened litigation and to its knowledge, no action, suitor proceedings has been threatened against its officers and its directors.

 

**ITEM 4.****                            ****SUBMISSION OF MATTERS TO VOTEOF SECURITY HOLDERS**

 

 

No matter was submitted during the fourthquarter of the fiscal year covered by this report to a vote of securityholders, through the solicitation of proxies or otherwise.

 

**PART II**

 

**ITEM 5.****                            ****MARKET FOR COMMON EQUITY ANDRELATED STOCKHOLDER MATTERS**

 

 

The Company’s shares are traded on theBulletin Board operated by the National Association of Securities Dealers, Inc.(the ‘Bulletin Board’) under the trading symbol ‘RUSS.’ The Company’s sharesbegan trading in August 1998. These quotations reflected inter-dealer prices,without retail mark-up, markdown or commissions and may not represent actualtransactions. Summary trading by quarter for the 2001, 2000 and 1999 fiscalyears are as follows:

 
|                |   | **High Ask** |   | **Low Bid** |   |
|---------------------|--------|-------------------|--------|------------------|--------|
| Fiscal quarter 2001 |   |              |   |             |   |
| Fourth Quarter      |   | $                 | 1.85   |             | $      | 1.50 |   |
| Third Quarter       |   | $                 | 2.95   |             | $      | 1.65 |   |
| Second Quarter      |   | $                 | 1.90   |             | $      | 1.05 |   |
| First Quarter       |   | $                 | 2.00   |             | $      | 95 |   |
| Fiscal quarter 2000 |   |              |   |             |   |
| Fourth Quarter      |   | $                 | 1.25   |             | $      | 1.00 |   |
| Third Quarter       |   | $                 | 1.25   |             | $      | 1.05 |   |
| Second Quarter      |   | $                 | 4.00   |             | $      | 3.25 |   |
| First Quarter       |   | $                 | 3.87   |             | $      | 3.50 |   |
| Fiscal quarter 1999 |   |              |   |             |   |
| Fourth Quarter      |   | $                 | 2.50   |             | $      | 1.88 |   |
| Third Quarter       |   | $                 | 2.00   |             | $      | 1.44 |   |
| Second Quarter      |   | $                 | 2.00   |             | $      | 1.87 |   |
| First Quarter       |   | $                 | 2.00   |             | $      | 1.75 |   |

 

The source for the foregoing high and low bidinformation was Michael Kirby a registered representative of Spencer Edwards,Inc. a market maker in the Company’s common stock and from Big Charts.com onthe Internet.

 

As of December 31, 2001, the Company had 172holders of record of its Common Stock.

 

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The Company has not paid any dividends sinceits inception and does not anticipate paying any dividends on its Common Stockin the foreseeable future.

 

**RECENT SALESOF UNREGISTERED SECURITIES**

 

The Company has 7,878,023 shares of CommonStock issued and outstanding as of December 31, 2001. Of the shares of theCompany’s Common Stock outstanding, 750,023 shares are freely tradable and7,128,000 shares can only be resold in compliance with Reg. 144 adopted underthe Securities Act of 1933 (the ‘Act’).

 

In general, under Rule 144 as currently ineffect, a person (or persons whose Shares are aggregated) who has beneficiallyowned Shares privately acquired directly or indirectly from the Company or froman affiliate, for at least one year, or who is an affiliate, is entitled tosell within any three month period a number of such Shares that does not exceedthe greater of 1% of the then outstanding shares of the Company’s Common Stockor the average weekly trading volume in the Company’s Common Stock during thefour calendar weeks, immediately preceding such sale. Sales under Rule 144 arealso subject to certain manner of sale provisions, notice requirements and theavailability of current public information about the Company. A person (orpersons whose Shares are aggregated) who is not deemed to have been anaffiliate at any time during the 90 day preceding a sale, and who hasbeneficially owned Restricted Shares for at least two years, is entitled tosell all such Shares under Rule 144 without regard to the volume limitations,current public information requirements, manner of sale provisions or noticerequirements.

 

In 1996, the Company issued 976,200 shares ofcommon stock to its officers, directors and others pursuant to Reg. 504 of theSecurities Act of 1933.

 

On or about August 18, 1998, the Companyreverse split its shares of common stock on a 1-for-1.3016 basis.

 

On or about August 18, 1998, the Companyissued 93,750 Class A Warrants to Earnest Mathis, Jr. in consideration of$100.00 and 93,750 Class A Warrants to Gary Agron in consideration of $100.00.Mathis and Agron are former directors of the Company. The Class A Warrants wereissued pursuant to Section 4(2) of the Securities Act of 1933 (the ‘Act’) andare deemed ‘restricted’ securities as that term is defined in Reg. 144 of theAct. As of the date hereof, Messrs. Mathis and Agron have not exercised any ofthe foregoing Class A Warrants. For a description of the Class A Warrants, see‘Description of Securities.’

 

On August 18, 1998, the Company acquired allof the issued and outstanding shares of common stock of Win Systems, Inc., acorporation controlled by Russell Whitney, the Company’s Chief ExecutiveOfficer and Chairman of the Board of Directors in consideration of 6,750,000shares of the Company’s common stock and 340,000 Class B Warrant entitling theholders thereof to acquire an additional 340,000 shares of the Company’s commonstock at an exercise price of $4.00 per share up to August 18, 2002. The sharesof common stock and warrants were issued pursuant to Section 4(2) of the SecuritiesAct of 1933. For a description of the Class B Warrants, see ‘Description ofSecurities.’

 

On February 1, 1999, the Company issued 20,000shares of its common stock in exchange for all the outstanding stock of WealthIntelligence Network, Inc. The shares were valued at $2.50 each for a totalpurchase price of $50,000. Wealth Intelligence Network, Inc. publishes amonthly financial newsletter and provides and promotes financial education andtraining. In addition, the Company issued 8,000 shares to a financial publicrelations firm for financial public relations services in the amount of

 

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$14,500 (2,000 shares at $2.00 on May 31,1999; and 2,000 shares at $1.875 on June 30, 1999; and 2,000 at $1.75 on July31, 1999; and 2,000 shares on August 31, 1999 at $1.625 per share). Theissuances of the foregoing shares were exempt from registration under theSecurities Act of 1933 pursuant to Section 4(2) of the Act.

 

On April 24, 2000, the Company converted their340,000 class B warrants to stock options. The exercise price of the warrantswas changed from $4 to $2 in this transaction. This transaction has since beenaccounted for using variable accounting in accordance with FIN44.

 

On or about November 1, 2001 the Companyacquired 100% of the outstanding shares of Precision Software Services, Inc.(which Russ Whitney, CEO and director owned 51% of the issued and outstandingshares). The Company issued 333,334 shares of its common stock, valued at $1.50in exchange for the stock of Precision Software Services, Inc. (PSS) Mr.Whitney received 170,000 shares and an employee/shareholder of PSS received theremaining shares in the exchange.

 

Also, 16,667 shares (valued at $1.50) wereissued to an instructor/trainer of the Company for services on or aboutNovember 1, 2001.

 

**ITEM 6.****                            ****SELECTED FINANCIAL DATA (FOR2001, 2000, 1999, 1998)**

 

The following table sets forth ourconsolidated selected financial data as of and for the four year period endedDecember 31, 2002 since inception.  Thedata for the four years has been derived from our consolidated financialstatements, which have been audited by Ehrhardt, Keefe, Steiner and Hottman, PCfor 2000, 2001 and 2002 and Larry Legel CPA, for 1998 and 1999, independentcertified public auditors, and which appear elsewhere in this prospectus. Thefollowing selected consolidated financial data should be read in conjunctionwith the consolidated financial statements and the notes thereto.

 
|                                |   | **Year Ended  December 31,** |        |
|-------------------------------------|--------|------------------------------|-------------|
|                                |   | **2001**                     |        | **2000** |   | **1999** |   | **1998** |   |
| Operating revenue                   |   | $                            | 42,157,740  |   | $ | 32,859,857 |   | $ | 26,775,589 |   | $ | 13,760,208 |   |
| Net income (loss)                   |   | $                            | 2,534,247   |   | $ | (8,703,127 | ) | $ | (1,962,266 | ) | $ | (2,238,307 | ) |
| Net income (loss) per share         |   | $                            | .33         |   | $ | (1.16 | ) | $ | (.26 | ) | $ | (.30 | ) |
| Total assets                        |   | $                            | 16,544,869  |   | $ | 13,654,597 |   | $ | 6,284,403 |   | $ | 2,327,228 |   |
| Long-term obligations               |   | $                            | 575,000     |   | $ | 1,200,000 |   | $ | — |   | $ | 64,979 |   |
| Stockholders’ (deficit) equity |   | $                            | (10,382,725 | ) | $ | (12,936,972 | ) | $ | 4,233,845 |   | $ | 2,336,079 |   |
| Cash flow from operations           |   | $                            | 5,276,500   |   | $ | 3,545,361 |   | $ | 1,250,950 |   | $ | 619,468 |   |

 

**ITEM 7.          MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

The following discussion should be read inconjunction with the consolidated financial statements and notes thereto.

 

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**FORWARD-LOOKINGSTATEMENTS**

 

This Form 10-K contains forward-lookingstatements within the meaning of the ‘safe harbor’ provisions under section 21Eof the Securities and Exchange Act of 1934 and the Private SecuritiesLitigation Act of 1995. The Company uses forward-looking statements in itsdescription of its plans and objectives for future operations and assumptionsunderlying these plans and objectives. Forward-looking terminology includes thewords ‘may’, ‘expects’, ‘believes’, ‘anticipates’, ‘intends’, ‘forecasts’,‘projects’, or similar terms, variations of such terms or the negative of suchterms. These forward-looking statements are based on management’s currentexpectations and are subject to factors and uncertainties which could causeactual results to differ materially from those described in suchforward-looking statements. The Company expressly disclaims any obligation orundertaking to release publicly any updates or revisions to any forward-lookingstatements contained in this Form 10-K to reflect any change in itsexpectations or any changes in events, conditions or circumstances on which anyforward-looking statement is based. Factors which could cause such results todiffer materially from those described in the forward-looking statementsinclude those set forth under ‘Risk Factors,’ and elsewhere, in or incorporatedby reference into this Form 10-K.

 

**OVERVIEW**

 

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

 

**CriticalAccounting Policies**

 

We are engaged primarily in the business of providing financialeducation through training courses, which we also refer to as “programs” aswell as educational materials. We record the revenue from training programs asdeferred revenue when the proceeds are received in full and until the trainingprogram takes place. The revenue is recognized (earned) when the studentattends the training program or at the expiration of our obligation to providetraining, whichever comes first. Students pay for the courses in advance, thefees are generally non-refundable, and the students are allowed one year tocomplete their program.  A student of a advanced training course mayrequest and receive a refund before the start of the second day oftraining.  A student may also receive a refund within three days of theirpurchase by exercising a right of recision.  In such cases, thecorresponding amount of deferred revenue is relieved with no impact on theconsolidated statement of operations.

 

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

 

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

 

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

 

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**YEAR ENDEDDECEMBER 31, 2001 COMPARED TO DECEMBER 31, 2000**

 

Revenue

 

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

 

DirectCourse Expenses

 

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

 

Direct course expenses decreased to$19,500,000 for the year ended December 31, 2001 from $22,200,000 for the yearended December 31, 2000, due in part to a $3.4 million reduction in costsrelated to our internet division. Due to rapid advances in Internet technology,the lack of suitable web site designers, and lower than expected revenues, weceased offering Internet courses in 2001. The decrease is also due to thedecrease in the amount of courses that were held during the year ended December31, 2001 of 1263 compared to 1540 in the comparable prior period and is alsodue to the decrease in initial courses offered to 268 courses for the yearended December 31, 2001 compared to 290 courses for the comparable priorperiod.

 

Advertising,Selling and General and Administrative Expenses

 

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

 

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

 

NetIncome

 

Net income of $2,500,000 or $0.33 per sharefor the year ended December 31, 2001 increased by $11,200,000 over the net lossfor the year ended December 31, 2000 of $8,700,000, or $1.16 per share.

 

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

 

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

 

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

 

Our cash provided by operating activities was$5.2 million versus $3.5 million for the year ended December 31, 2001 and 2000,respectively. In the year ended December 31, 2001, cash flows from advancedtraining programs were positively impacted by the increased collection effortsby the sales associates accompanying the instructors and trainers at thetraining locations.  The change from anet loss to net income was offset and caused by the change in our deferredrevenue balance.

 

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

 

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

 

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

 

**YEAR ENDEDDECEMBER 31, 2000 COMPARED TO DECEMBER 31, 1999**

 

Revenue

 

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

 

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Advertising,Selling and General and Administrative Expenses

 

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

 

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

 

NetLoss

 

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

 

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

 

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

 

Interest Rate Risk — From time to time theCompany temporarily invests its excess cash and restricted cash ininterest-bearing securities issued by high-quality issuers. The Company’smanagement monitors risk exposure to monies invested in securities of itsfinancial institutions. Due to the short time the investments are outstandingand their general liquidity, these instruments are classified as cashequivalents in the consolidated balance sheet and do not represent a materialinterest rate risk to the Company. The Company’s primary market risk exposurefor changes in interest rates relates to the Company’s long-term debtobligations. The Company manages its exposure to changing interest ratesprincipally through the use of a combination of fixed and floating rate debt.In addition, certain of the Company’s debt instruments have interest ratefloors and ceilings.

 

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OfficeBuilding

 

Whitney Information Network, Inc. entered intoa purchase agreement on August 11, 2000 to purchase real property in CapeCoral, Florida known as the SunBank Building at 1612 E. Cape Coral Parkway at apurchase price of $2,200,000. The closing of this commercial office buildingtook place on November 9, 2000. A deposit of $500,000 was made on August 11,2000 and an additional down payment of $500,000 was paid at closing.

 

The Seller took back a $1,200,000 purchasemoney balloon payment mortgage due November 9, 2004, interest payable monthlyat an initial rate of 9% per annum due on the first of each month. The interestrate of 9% is adjustable on a semi-annual basis by the amount of change, ifany, in the prime rate charged by the Chase Manhattan Bank, New York, using therate in effect each June 1st and each December 1st as the basis for the change.During the first three years of this mortgage, the interest rate shall notexceed 10% or fall below 8%. During the fourth year the interest shall not beless than 8.5%. Principal payments may be paid in whole or in part at any timewithout penalty.

 

ConferenceCenter

 

The Company entered into an agreement to buildan international conference center in Costa Rica at an approximate cost of$550,000 (including land and building). The 7,000 square foot conference centeris expected be completed approximately the 3rd quarter of 2002. Expenditures to December 31, 2001 were $105,562, withadditional construction draws in February and March of 2002 of approximately$145,000.

 

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

 

**ITEM 8.****                            ****FINANCIAL STATEMENTS**

 

**Table of Contents**

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

 

13

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**INDEPENDENTAUDITORS’ REPORT**

 

Boardof Directors and Stockholders

WhitneyInformation Network, Inc. and Subsidiaries

CapeCoral, Florida

 

We have audited the accompanying consolidatedbalance sheets of Whitney Information Network, Inc. and Subsidiaries as ofDecember 31, 2001 and 2000, and the related consolidated statements ofoperations, changes in stockholders’ deficit and cash flows for the years thenended . These consolidated financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on theseconsolidated financial statements based on our audits.

 

We conducted our audits in accordance withauditing standards generally accepted in the United States of America. Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the consolidated financialstatements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallconsolidated financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.

 

In our opinion, the consolidated financialstatements referred to above present fairly, in all material respects, thefinancial position of Whitney Information Network, Inc. and Subsidiaries as ofDecember 31, 2001 and 2000, and the results of their operations and their cashflows for the years then ended in conformity with accounting principlesgenerally accepted in the United States of America.

 

EHRHARDT KEEFE STEINER & HOTTMAN PC

 

March20, 2002

Denver,Colorado

 

----

 

LARRYLEGEL, CPA

 

PracticeConcentrating in

Taxationand Securities

 

5100N. Federal Highway, Suite 409

Ft.Lauderdale, FL 33308

 

(954)493-8900 Office

(954)493-8300 Fax

e-mail:LarryLegel@aol.com

 

INDEPENDENTAUDITOR’S REPORT

 

Tothe Board of Directors of the

WhitneyInformation Network, Inc.

CapeCoral, FL 33907

 

I have audited the accompanying consolidatedbalance sheet of Whitney Information Network, Inc. (formerly WIN Systems,International, Inc.) as of December 31,1999, and the related statements ofconsolidated operations, changes in consolidated stockholders’ equity, andconsolidated cash flows for the year then ended. These financial statements arethe responsibility of the Company’s management. My responsibility is to expressan opinion on these consolidated financial statements based on my audits.

 

I have conducted my audits in accordance withgenerally accepted auditing standards. Those standards require that I plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on atest basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. I believe that my audits provide a reasonablebasis for my opinion.

 

In my opinion, the consolidated financialstatements referred to above present fairly, the financial position of WhitneyInformation Network, Inc. as of December 31,1999, and the results of itsconsolidated operations and its consolidated cash flows for the year thenended, in conformity with generally accepted accounting principles consistentlyapplied.

 
|   | /s/    LARRY LEGEL |
|--------|----------------------------------------|
|   | Larry  Legel                           |
|   | Certified  Public Accountant           |

 

 

January19, 2001

Ft.Lauderdale, Florida

 

 

F-2

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

 

**ConsolidatedBalance Sheets**

 
|                                                                                                                           |   | **December  31,** |       |
|--------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|------------|
|                                                                                                                           |   | **2001**          |       | **2000** |   |
| **Assets**                                                                                                                     |   |              |       |   |   |
| Current assets                                                                                                                 |   |              |       |   |   |
| Cash and cash equivalents                                                                                                      |   | $                 | 6,889,275  |   | $ | 3,316,905 |   |
| Accounts receivable, net of allowance of $0 (2001) $91,885 (2000)                                                              |   | 525,878           |       | 1,793,454 |   |
| Due from affiliates, net                                                                                                       |   | 159,591           |       | 70,490 |   |
| Prepaid advertising and other                                                                                                  |   | 953,661           |       | 625,028 |   |
| Income taxes receivable and prepayments                                                                                        |   | 497,499           |       | 1,893,999 |   |
| Inventory                                                                                                                      |   | 136,544           |       | 268,663 |   |
| Deferred seminar expenses                                                                                                      |   | 3,638,556         |       | 2,644,404 |   |
|                                                                                                                           |   |              |       |   |   |
| Total current assets                                                                                                           |   | 12,801,004        |       | 10,612,943 |   |
|                                                                                                                           |   |              |       |   |   |
| Property and equipment, net                                                                                                    |   | 3,628,447         |       | 2,965,925 |   |
| Investment in foreign corporation                                                                                              |   | 82,500            |       | — |   |
| Other assets                                                                                                                   |   | 32,918            |       | 75,729 |   |
|                                                                                                                           |   |              |       |   |   |
| Total non-current assets                                                                                                       |   | 3,743,865         |       | 3,041,654 |   |
|                                                                                                                           |   |              |       |   |   |
| Total assets                                                                                                                   |   | $                 | 16,544,869 |   | $ | 13,654,597 |   |
|                                                                                                                           |   |              |       |   |   |
| **Liabilities  and Stockholders’ Deficit**                                                                                |   |              |       |   |   |
| Current liabilities                                                                                                            |   |              |       |   |   |
| Accounts payable                                                                                                               |   | $                 | 1,152,337  |   | $ | 1,942,804 |   |
| Accrued seminar expenses                                                                                                       |   | 435,360           |       | 349,341 |   |
| Deferred revenue                                                                                                               |   | 23,937,349        |       | 22,640,442 |   |
| Accrued expenses                                                                                                               |   | 702,548           |       | 458,982 |   |
| Current portion of long-term debt                                                                                              |   | 62,500            |       | — |   |
| Current portion of note payable—officer/stockholder                                                                       |   | 62,500            |       | — |   |
|                                                                                                                           |   |              |       |   |   |
| Total current liabilities                                                                                                      |   | 26,352,594        |       | 25,391,569 |   |
| Long-term debt, less current portion                                                                                           |   | 512,500           |       | 1,200,000 |   |
| Note payable—officer/stockholder, less current portion                                                                    |   | 62,500            |       | — |   |
|                                                                                                                           |   |              |       |   |   |
| Total liabilities                                                                                                              |   | 26,927,594        |       | 26,591,569 |   |
|                                                                                                                           |   |              |       |   |   |
| Commitments and contingencies                                                                                                  |   |              |       |   |   |
| Stockholders’ deficit                                                                                                     |   |              |       |   |   |
| Preferred stock, no par value, 10,000,000 shares authorized, no shares  issued and outstanding                                 |   | —            |       | — |   |
| Common stock, no par value, 25,000,000 shares authorized, issued and  outstanding shares 7,878,023 (2001) and 7,528,022 (2000) |   | 337,102           |       | 67,102 |   |
| Paid-in capital                                                                                                                |   | 900               |       | 900 |   |
| Accumulated deficit                                                                                                            |   | (10,720,727       | )          | (13,004,974 | ) |
|                                                                                                                           |   |              |       |   |   |
| Total stockholders’ deficit                                                                                               |   | (10,382,725       | )          | (12,936,972 | ) |
|                                                                                                                           |   |              |       |   |   |
| Total liabilities and stockholders’ deficit                                                                               |   | $                 | 16,544,869 |   | $ | 13,654,597 |   |

 

Seenotes to consolidated financial statements.

 

F-3

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

 

**ConsolidatedStatements of Income**

 
|                                                         |   | **For the  Years Ended  December 31,** |       |
|--------------------------------------------------------------|--------|----------------------------------------|------------|
|                                                         |   | **2001**                               |       | **2000** |   | **1999** |   |
| Sales                                                        |   | $                                      | 42,157,740 |   | $ | 32,859,857 |   | $ | 26,775,589 |   |
|                                                         |   |                                   |       |   |   |   |   |
| Expenses                                                     |   |                                   |       |   |   |   |   |
| Seminar expenses                                             |   | 19,741,418                             |       | 22,232,387 |   | 11,529,312 |   |
| Advertising and sales expense                                |   | 11,563,640                             |       | 12,529,615 |   | 12,708,275 |   |
| General and administrative expense                           |   | 8,571,319                              |       | 7,058,318 |   | 4,500,268 |   |
|                                                         |   |                                   |       |   |   |   |   |
| Total expenses                                               |   | 39,876,377                             |       | 41,820,320 |   | 28,737,855 |   |
|                                                         |   |                                   |       |   |   |   |   |
| Income (loss) from operations                                |   | 2,281,363                              |       | (8,960,463 | ) | (1,962,266 | ) |
|                                                         |   |                                   |       |   |   |   |   |
| Other income (expense)                                       |   |                                   |       |   |   |   |   |
| Interest and other income                                    |   | 356,989                                |       | 267,344 |   | — |   |
| Interest expense                                             |   | (104,105                               | )          | (10,008 | ) | — |   |
|                                                         |   |                                   |       |   |   |   |   |
|                                                         |   | 252,884                                |       | 257,336 |   | — |   |
|                                                         |   |                                   |       |   |   |   |   |
| Net income (loss)                                            |   | $                                      | 2,534,247  |   | $ | (8,703,127 | ) | $ | (1,962,266 | ) |
|                                                         |   |                                   |       |   |   |   |   |
| Basic and diluted weighted average common shares outstanding |   | 7,587,474                              |       | 7,528,022 |   | 7,502,346 |   |
|                                                         |   |                                   |       |   |   |   |   |
| Basic and diluted income (loss) per common share             |   | $                                      | .33        |   | $ | (1.16 | ) | $ | (0.26 | ) |

 

Seenotes to consolidated financial statements.

 

F-4

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

 

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

**For the Years Ended December 31, 2001, 2000 and 1999**

 
|                                                                                                                |   |              |   |        |    | **Additional**  |   |                   |   | **Total**   |        |
|---------------------------------------------------------------------------------------------------------------------|--------|-------------------|--------|-------------|---------|-----------------|--------|------------------------|--------|-------------|-------------|
|                                                                                                                |   | **Common  Stock** |   | **Paid-in** |    | **Accumulated** |   | **Stockholders’** |   |
|                                                                                                                |   | **Shares**        |   | **Amount**  |    | **Capital**     |   | **Deficit**            |   | **Deficit** |        |
| Balance—December 31, 1998                                                                                      |   | 7,500,047         |   | $           | 2,602   |            | $      | 900                    |   | $           | (2,339,581  | ) | $ | (2,336,079 | ) |
| Issuance of stock                                                                                                   |   | 27,975            |   | 64,500      |    | —          |   | —                 |   | 64,500      |        |
| Net loss                                                                                                            |   | —            |   | —      |    | —          |   | (1,962,266             | )      | (1,962,266  | )           |
|                                                                                                                |   |              |   |        |    |            |   |                   |   |        |        |
| Balance—December 31, 1999                                                                                      |   | 7,528,022         |   | 67,102      |    | 900             |   | (4,301,847             | )      | (4,233,845  | )           |
| Net loss                                                                                                            |   | —            |   | —      |    | —          |   | (8,703,127             | )      | (8,703,127  | )           |
|                                                                                                                |   |              |   |        |    |            |   |                   |   |        |        |
| Balance—December 31, 2000                                                                                      |   | 7,528,022         |   | 67,102      |    | 900             |   | (13,004,974            | )      | (12,936,972 | )           |
| Issuance of stock for software                                                                                      |   | 163,334           |   | 245,000     |    | —          |   | —                 |   | 245,000     |        |
| Issuance of stock, cash and note payable to majority stockholder for  interest in Precision Software Services, Inc. |   | 170,000           |   | —      |    | —          |   | (250,000               | )      | (250,000    | )           |
| Issuance of stock for services                                                                                      |   | 16,667            |   | 25,000      |    | —          |   | —                 |   | 25,000      |        |
| Net income                                                                                                          |   | —            |   | —      |    | —          |   | 2,534,247              |   | 2,534,247   |        |
|                                                                                                                |   |              |   |        |    |            |   |                   |   |        |        |
| Balance—December 31, 2001                                                                                      |   | 7,878,023         |   | $           | 337,102 |            | $      | 900                    |   | $           | (10,720,727 | ) | $ | (10,382,725 | ) |

 

Seenotes to consolidated financial statements.

 

F-5

----

 

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

 

**Consolidated Statements of Cash Flows**

 
|                                                                                     |   | **For the  Years Ended December 31,** |      |
|------------------------------------------------------------------------------------------|--------|---------------------------------------|-----------|
|                                                                                     |   | **2001**                              |      | **2000** |   | **1999** |   |
| Cash flows from operating activities                                                     |   |                                  |      |   |   |   |   |
| Net income (loss)                                                                        |   | $                                     | 2,534,247 |   | $ | (8,703,127 | ) | $ | (1,962,266 | ) |
|                                                                                     |   |                                  |      |   |   |   |   |
| Adjustments to reconcile net income (loss) to net cash provided by  operating activities |   |                                  |      |   |   |   |   |
| Allowance for doubtful accounts                                                          |   | (91,885                               | )         | 91,885 |   | — |   |
| Depreciation and amortization                                                            |   | 292,522                               |      | 169,933 |   | 18,267 |   |
| Loss on disposal of assets                                                               |   | 72,485                                |      | — |   | — |   |
| Stock issued for services                                                                |   | 25,000                                |      | — |   | — |   |
| Changes in assets and liabilities                                                        |   |                                  |      |   |   |   |   |
| Accounts receivable                                                                      |   | 1,359,461                             |      | (489,780 | ) | (415,296 | ) |
| Prepaid advertising and other                                                            |   | (328,633                              | )         | 44,079 |   | (527,659 | ) |
| Income taxes receivable and prepayments                                                  |   | 1,396,500                             |      | (925,867 | ) | (968,132 | ) |
| Inventory                                                                                |   | 132,119                               |      | (268,663 | ) | — |   |
| Deferred seminar expenses                                                                |   | (994,152                              | )         | (1,283,078 | ) | (684,427 | ) |
| Other assets                                                                             |   | 42,811                                |      | 36,658 |   | (141,905 | ) |
| Accounts payable                                                                         |   | (790,467                              | )         | 1,346,341 |   | 31,755 |   |
| Accrued seminar expenses                                                                 |   | 86,019                                |      | 101,481 |   | 247,860 |   |
| Deferred revenue                                                                         |   | 1,296,907                             |      | 13,328,868 |   | 5,353,330 |   |
| Accrued expenses                                                                         |   | 243,566                               |      | 96,631 |   | 299,423 |   |
|                                                                                     |   |                                  |      |   |   |   |   |
|                                                                                     |   | 2,742,253                             |      | 12,248,488 |   | 3,213,216 |   |
|                                                                                     |   |                                  |      |   |   |   |   |
| Net cash provided by operating activities                                                |   | 5,276,500                             |      | 3,545,361 |   | 1,250,950 |   |
|                                                                                     |   |                                  |      |   |   |   |   |
| Cash flows from investing activities                                                     |   |                                  |      |   |   |   |   |
| Purchase of property and equipment                                                       |   | (657,529                              | )         | (1,439,920 | ) | (278,540 | ) |
| Loans to affiliates, net                                                                 |   | (89,101                               | )         | (63,244 | ) | (120,345 | ) |
| Investment in foreign corporation and land                                               |   | (82,500                               | )         | — |   | — |   |
|                                                                                     |   |                                  |      |   |   |   |   |
| Net cash used in investing activities                                                    |   | (829,130                              | )         | (1,503,164 | ) | (398,885 | ) |
|                                                                                     |   |                                  |      |   |   |   |   |
| Cash flows from financing activities                                                     |   |                                  |      |   |   |   |   |
| Proceeds from sale of common stock                                                       |   | —                                |      | — |   | 64,500 |   |
| Payments of principal on long-term debt                                                  |   | (750,000                              | )         | — |   | — |   |
| Distribution to officer/stockholder                                                      |   | (125,000                              | )         | — |   | — |   |
| Net repayments of loans from affiliates                                                  |   | —                                |      | — |   | (12,428 | ) |
|                                                                                     |   |                                  |      |   |   |   |   |
| Net cash (used in) provided by financing activities                                      |   | (875,000                              | )         | — |   | 52,072 |   |
|                                                                                     |   |                                  |      |   |   |   |   |
| Net increase in cash and cash equivalents                                                |   | 3,572,370                             |      | 2,042,197 |   | 904,137 |   |
| Cash and cash equivalents—beginning of year                                         |   | 3,316,905                             |      | 1,274,708 |   | 370,571 |   |
|                                                                                     |   |                                  |      |   |   |   |   |
| Cash and cash equivalents—end of year                                               |   | $                                     | 6,889,275 |   | $ | 3,316,905 |   | $ | 1,274,708 |   |

 

Seenotes to consolidated financial statements.

 

F-6

----

 

Supplemental disclosure of cash flowinformation

 

Cash paid for income taxes was $0, $925,867and $968,132 for 2001, 2000 and 1999, respectively.

 

Cash paid for interest was $104,105, $10,008and $0 for 2001, 2000 and 1999, respectively.

 

Supplemental disclosure of non-cash activity:

 

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

 

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

 

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

 

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

 

Seenotes to consolidated financial statements.

 

F-7

----

 

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

 

**Notes to Consolidated Financial Statements**

 

**Note1—Description of Business and Summary of Significant Accounting Policies**

 

*Organization and History*

 

Whitney Information Network, Inc. andSubsidiaries (the Company) is engaged primarily in the businessof providing financial education and training services through seminars,workshops and publications. The Company’s educational and training services areconcentrated in the area of financial management and real estate investment.The Company markets its services and products primarily through periodicpublications, telemarketing, television and radio.

 

Whitney Information Network, Inc., formerlyknown as Win Systems International, Inc., incorporated in Colorado on February23, 1996 under the name of Gimmel Enterprises, Inc.

 

Whitney Education Group, Inc., formerly knownas Win Systems, Inc., incorporated in Florida on November 12, 1992. An exchangeof shares was completed between the shareholders of Win Systems, Inc. andGimmel Enterprises, Inc. on August 18, 1998. Subsequently, the name of GimmelEnterprises, Inc. was changed to Win Systems International, Inc. on August 25,1998, and that name was changed to Whitney Information Network, Inc. onFebruary 11, 1999. The name of Win Systems, Inc. was changed to WhitneyEducation Group, Inc. on September 10, 1999.

 

Win Systems, Inc. has been operating in theeducational seminars industry since 1992 and expanded its operation in theindustry subsequent to the aforesaid exchange of shares and name change toWhitney Education Group, Inc.

 

Whitney Education Group, Inc. is licensed bythe State of Texas as a Certified Proprietary School, effective January 8,1999.

 

During 1998, Win Systems International, Inc.expanded its educational seminars business into Canada through the opening of awholly owned subsidiary, 1311448 Ontario, Inc. The Canadian operationscontinued to expand and at the end of 1999 the operations were transferred toWhitney Canada, Inc. through an amalgamation of two wholly owned subsidiaries.

 

Whitney Canada, Inc. incorporated in Canada onOctober 5, 1998 and is the surviving corporation of an amalgamation with3667057 Canada, Inc. 3667057 Canada, Inc. was incorporated in Ontario, Canadaon August 21, 1998 under the name of 1311448 Ontario, Inc. The name waschanged to 3667057 Canada, Inc. on October 5, 1999 as a preliminary requirementof federalization of the corporation, which had been an Ontario corporation, inorder to qualify for the amalgamation with Whitney Canada, Inc., which wascompleted January 6, 2000. There are no significant differences oncomprehensive income and foreign exchange.

 

Whitney Internet Services, Inc. incorporatedin Wyoming on June 8, 1999, is located in Cape Coral, Florida and provides webprogramming and maintenance services to the Company. The Company’s otheroperating subsidiaries use the site to offer their products and services forsale and the site also includes general information on the Company, itsproducts and services.

 

Wealth Intelligence Network, Inc. incorporatedin Florida on May 26, 1996 under the name of Real Estate Link, Inc. The namewas changed to Wealth Intelligence Network, Inc. on September 20, 1998.Win Systems International, Inc. acquired the shares of Wealth IntelligenceNetwork, Inc. on November 18, 1998. Wealth Intelligence Network, Inc. isan operating subsidiary marketing financial training seminars, which representsan expansion from the real estate investment training seminar business.

 

F-8

----

 

Whitney Mortgage.com, Inc. incorporated inFlorida on September 30, 1999 has no significant operations and is intended tooperate as a full service internet mortgage broker affiliated with a nationalinternet mortgage provider. Brokering mortgages represents an expansion fromeducational seminars into a different industry.

 

Russ Whitney’s Wealth Education Centers, Inc.incorporated in Wyoming on June 8, 1999 as a wholly owned subsidiary of WhitneyInformation Network, Inc. and the subsidiary is itself the parent corporationof two wholly owned subsidiaries formed to operate permanent learning centersin Jackson, Mississippi and Atlanta, Georgia. Russ Whitney’s Wealth EducationCenter of Jackson, MS, Inc. incorporated in Wyoming on June 8, 1999 and aschool was opened in December, 1999. Russ Whitney’s Wealth Education Center ofAtlanta, GA, Inc. incorporated in Wyoming on July 22, 1999 and a school wasopened in June 2000. The Wealth Education Centers were closed during 2001.

 

Whitney Consulting Services, Inc. incorporatedin Wyoming on July 28, 1998 under the name of Financial Consulting Services,Inc. and the name was changed to Whitney Consulting Group, Inc. on April 28,1999 when that corporation was acquired by Win Systems International, Inc.which then changed its name to Whitney Consulting Services, Inc. on March 21,2000. Whitney Consulting Services, Inc. is located in Salt Lake City, Utah andis an operating subsidiary that markets training programs and financial trainingseminars and an individual one-on-one mentor program.

 

Precision Software Services, Inc. was acquiredduring 2001. Precision Software Services, Inc. was incorporated August 1993 andis a Florida corporation that holds a license to distribute and sell certainreal estate and business software that several subsidiaries of the Company havebeen selling. Precision Software Services, Inc. was formerly owned 51% by theChairman of the Board and majority stockholder of the Company.

 

Whitney U.K. Limited is a British corporationformed and incorporated in October 2001 to engage in educational and trainingseminars throughout the United Kingdom. This subsidiary had no significantoperations in 2001.

 

*Principles of Consolidation*

 

The accompanying consolidated financialstatements include the accounts of Whitney Information Network, Inc. and thefollowing wholly owned subsidiary corporations: Whitney Education Group, Inc.;Whitney Internet Services, Inc.; Russ Whitney’s Wealth Education Centers, Inc.and its wholly owned subsidiary corporations, Russ Whitney’s Wealth EducationCenter of Jackson, MS, Inc. and Russ Whitney’s Wealth Education Center ofAtlanta, GA, Inc.; Whitney Consulting Services, Inc.; Whitney Canada, Inc.;Whitney Mortgage.com, Inc.; Wealth Intelligence Network, Inc.; PrecisionSoftware Services, Inc.; and Whitney U.K. Limited; All material intercompanyaccounts and transactions have been eliminated in consolidation.

 

*Cash and Cash Equivalents*

 

The Company considers all highly liquidinstruments purchased with an original maturity of three months or less to becash equivalents. The Company continually monitors its positions with, and thecredit quality of, the financial institutions it invests with.

 

F-9

----

 

 

*Concentrations of Credit Risk*

 

Financial instruments, which potentiallysubject the Company to concentration of credit risk consist principally of cashand short-term cash investments and accounts receivable. The Company places itstemporary cash investments with what management believes are high-credit,quality financial institutions. As of the balance sheet date, and periodicallythroughout the year, the Company has maintained balances in various operatingaccounts in excess of federally insured limits. The Company periodicallyperforms credit analysis and monitors the financial condition of its customersin order to minimize credit risk.

 

*Accounts Receivable*

 

Accounts receivable consists of tradereceivables from the sale of educational seminars and services for which acontract has been entered into, payments has not been received, and the relatedrevenue has been deferred. An adjustment is recorded to write off any amountsdeemed to be unrealizable and uncollectible. Generally, this adjustment is appliedto deferred revenue resulting in no net effect on the Company’s incomestatement. As such, the Company believes no allowance for doubtful accounts isnecessary as of 2002 and 2001.

 

*Inventory*

 

Inventory consists primarily of books, videosand training materials and is stated at the lower of cost or market, determinedusing the first-in, first-out method (FIFO).

 

*Fair Value of Financial Instruments*

 

The carrying amounts of financial instrumentsincluding cash and cash equivalents, short-term investments, receivables,deferred seminar expense, accounts payable, accrued expenses, deferrededucational revenues, and notes payable approximated fair value as of December31, 2002 because of the relatively short maturity of these instruments.

 

*Revenue Recognition, Deferred Revenue and Deferred Expenses*

 

The Company recognizes revenue for the sale ofproducts and software, upon delivery. Revenue from educational seminars andservices is recognized upon the earlier of (1) when the non-refundable depositis received for the seminars and the seminar has taken place; or (2) upon thecontractual expiration of the Company’s obligation to provide a seminar only ifthe seminar was paid for. Deferred revenue is recorded when the seminarproceeds are received or a contract is entered into for a seminar prior to therelated seminar taking place. Expenses for commission payments made to Companyspeakers for revenues generated are deferred until the related revenue isrecognized.  The Companyrecognizes commission revenue related to sales made by Whitney InformationNetwork and Subsidiaries for other parties.  Only the commission part ofthese transactions are recognized.  The commissions are recorded asrevenue when the amount is earned.

 

*Advertising Expense and Prepaid Advertising*

 

The Company expenses advertising costs asincurred. Advertising costs were approximately $7,829,406, $7,340,540 and$4,696,000 for the years ended December 31, 2001, 2000 and 1999, respectively.Advertising paid for in advance is recorded as prepaid until such time as theadvertisement is published. Advertising costs recorded as prepaid as ofDecember 31, 2002 and 2001 were $733,227 and $467,737 respectively.

 

F-10

----

 

*Property and Equipment*

 

Property and equipment is stated at cost.Depreciation is provided utilizing the straight-line method over the estimateduseful lives for owned assets. The estimated useful life of the buildings is 40years. The furniture and fixtures’ estimated useful life is seven years, theairplane, equipment and leasehold improvements is five years, and the softwareis three years.

 

*Investment in Foreign Corporation*

 

The Company acquired a 20% ownership interestin a Central American corporation in 2001. The Company accounts for its investmentusing the equity method of accounting and records its proportionate share ofthe corporation’s profit or loss. The Company’s share of the corporation’sprofits for the year ended December 31, 2002 was $102,257. Operations of theinvestee corporation were not significant in 2001.

 

*Use of Estimates*

 

The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities, disclosures of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period. Actual resultscould differ from those estimates.

 

*Income Taxes*

 

The Company recognizes deferred taxliabilities and assets based on the differences between the tax basis of assetsand liabilities and their reported amounts in the financial statements thatwill result in taxable or deductible amounts in future years. The Company’stemporary differences result primarily from the recognition of deferredrevenues and expenses for tax purposes.

 

*Basic Income Loss Per Share*

 

The Company applies the provisions ofStatement of Financial Accounting Standard No. 128, “Earnings Per Share” (FAS128). Prior to 2001, all dilutive potential common shares had an antidilutiveeffect on diluted per share amounts and therefore were excluded in determiningnet loss per share.

 

*Basic Loss Per Share*

 

The Company applies the provisions ofStatement of Financial Accounting Standard No. 128, “Earnings Per Share” (FAS128). All dilutive potential common shares have an antidilutive effect ondiluted per share amounts and therefore have been excluded in determining netloss per share. The Company’s basic and diluted loss per share are equivalentand accordingly only basic loss per share has been presented.

 

*Recently Issued Accounting Pronouncements*

 

In July 2001, the FASB issued SFAS Nos. 141and 142 “Business Combinations” and “Goodwill and other Intangible Assets”.Statement 141 requires all business combinations initiated after June 30, 2001to be accounted for using the purchase method. Under the guidance of Statement142, goodwill is no longer subject to amortization over its estimated usefullife. Rather, goodwill will be subject to at least an annual assessment forimpairment by applying a fair value base test. Statement 142 is effective forfinancial statement dates beginning after January 1, 2001.

 

F-11

----

 

In August 2001, the FASB issued SFAS No. 143,“Accounting for Asset Retirement Obligations.” SFAS No. 143 requires the fairvalue of a liability for an asset retirement obligation to be recognized in theperiod in which it is incurred if a reasonable estimate of fair value can bemade. The associated asset retirement costs are capitalized as part of thecarrying amount of the long-lived asset. SFAS No. 143 is effective for theCompany for fiscal years beginning after June 15, 2002. The Company believesthe adoption of this statement will have no material impact on its consolidatedfinancial statements.

 

In October 2001, the FASB issued SFAS No. 144,“Accounting for the Impairment of Disposal of Long-Lived Assets.” SFAS No. 144requires that those long-lived assets be measured at the lower of carryingamount or fair value, less cost to sell, whether reported in continuingoperations or discontinued operations. Therefore, discontinued operations willno longer be measured at net realizable value or included amounts for operatinglosses that have not yet occurred. SFAS No. 144 is effective for financialstatements issued for fiscal years beginning after December 15, 2001 and,generally, is to be applied prospectively.

 

Reclassifications

 

Certain amounts in the 2000 consolidatedfinancial statements have been reclassified to conform to the 2001presentation.

 

**Note2—Mergers, Acquisitions and Capital Accounts**

 

On August 18, 1998, Whitney Education Group,Inc. (formerly Win Systems, Inc.) was acquired by Whitney Information Network,Inc. (formerly Win Systems International, Inc. and prior to that GimmelEnterprises, Inc.) in a reverse merger whereby Whitney Education group, Inc.exchanged 100% of its shares for 90% of Gimmel’s shares bringing the totalshares of Whitney Information Network, Inc. (issued and outstanding) at August18, 1998 to 7,500,047. Whitney Education Group, Inc. became a wholly ownedsubsidiary of Whitney Information Network, Inc. (WIN). The financial statementsfrom January 1, 1997 through December 31, 1999 are based upon the assumptionthat the companies were combined for the entire period and all stock splitshave been reflected in the statements as of the beginning of the period. Also,on August 18, 1998, WIN issued 187,500 Class A stock purchase warrants and340,000 Class B stock purchase warrants. Both the Class A and Class B warrantswere exercisable at $4.00 per share.

 

The Company also instituted a stock optionplan for key personnel. Under the plan, options are to be granted at the fairmarket value at the date of the grant and exercisable for a ten-year periodafter the grant with a three-year vesting schedule. The Company has reserved2,000,000 shares for the stock option plan of which 1,406,175 option shares havebeen granted, net of forfeitures and cancellations, at exercise prices from$1.70 to $3.10 per share. No options have been exercised.

 

On February 1, 1999, the Company purchased allof the assets of Wealth Intelligence Network, Inc. for 20,000 shares of stockat $2.50 per share. In addition, the Company issued (during the period from Mayto August 1999) 7,975 shares to a financial public relations firm in lieu ofcash for services valued at $14,500.

 

F-12

----

 

In April 2000, the Company converted their340,000 class B warrants issued to employees in August 1998 into stock options.In the conversion, the Company reduced the exercise price from $4 to $2 (fairmarket value at date of conversion). This transaction has since been accountedfor using variable accounting in accordance with FIN 44: Accounting for CertainTransactions Involving Stock Compensation an Interpretation of APB Opinion No.25 (FIN 44). At December 31, 2002, 136,500 of these options have been forfeited.At December 31, 2002, $447,700 was recorded as additional compensation expenseto employees based on a market value of $4.20 per share. No adjustment was madefor the periods ending December 31, 2001 and 2000 because the market price ofthe stock was less than the $2 exercise price.

 

In November 2001, the Company issued 333,334shares of common stock valued at $500,000 and $250,000 in notes payable for allof the outstanding stock of Precision Software Services, Inc. which had aminimal net book value at the time of the acquisition. Precision SoftwareServices, Inc. was 51% owned by the Chairman and majority stockholder of theCompany who received 170,000 of the shares and $125,000 in notes payable. Theexcess of the purchase price over material, identifiable net assets relating tothe minority interest was allocated to software rights. The shares issued tothe officer were recorded as a distribution as the Company and PrecisionSoftware Services, Inc. are under common control.

 

In November 2001, the Company paid $212,500for a 20% interest in a Central American corporation named Rancho Monterrey,S.A. which was formed in April 2001 to own, operate, improve and sell certainreal estate in Central America. As part of the investment in Rancho Monterrey,S.A., the Company received a 12 acre parcel of land valued at $130,000,resulting in a net investment of $82,500. An entity affiliated with themajority stockholder of the Company purchased an additional 20% interest during2001.

 

**Note3—Related Party Transactions**

 

The following balances due from (to) relatedparties are as follows:

 
|                                     |   | **December  31,** |    |
|------------------------------------------|--------|-------------------|---------|
|                                     |   | **2001**          |    | **2000** |   |
| Due from Whitney Leadership Group        |   | $                 | 232,126 |   | $ | 160,587 |   |
| Due from RAW, Inc.                       |   | 9,071             |    | 11,743 |   |
| Due to Precision Software Services, Inc. |   | —            |    | (32,425 | ) |
| Due to Trade Marketing, Inc.             |   | (16,000           | )       | — |   |
| Due to MRS Equity Corp                   |   | (65,606           | )       | (69,415 | ) |
|                                     |   |              |    |   |   |
|                                     |   | $                 | 159,591 |   | $ | 70,490 |   |

 

The Company has rented its corporateheadquarters located in Cape Coral, Florida, since 1992 from the Chairman ofthe Board and pays rent on annual leases. Rentals under the related party leasewere $86,944, $69,644 and $35,622 during 2001, 2000 and 1999, respectively. TheCompany leases approximately 8,700 square feet and the lease expires in October2002.

 

MRS Equity Corp. provides certain products andservices for Whitney Information Network, Inc. and Whitney Information Network,Inc. provides MRS Equity Corp. with payroll services including leasedemployees. Whitney Information Network, Inc. provided payroll services to MRSEquity Corp. in the amounts of $53,105, $170,422 and $111,724 during 2001, 2000and 1999, respectively. MRS Equity Corp. provided Whitney Information Network,Inc. with $720,504, $273,525 and $254,826 for product costs during 2001, 2000and 1999, respectively. MRS Equity Corp. is a 100 percent subsidiary of EquityCorp. Holdings, Inc. of which the Chairman of the Board of Whitney InformationNetwork, Inc.

 

F-13

----

owns a controlling interest.

 

Precision Software Services, Inc. is a companythat develops and licenses software primarily for the real estate and smallbusiness industries and was acquired by the Company in 2001 (Note 1). Prior toNovember 2001, the Chairman of the Board of Directors of Whitney InformationNetwork, Inc. owned a majority interest in Precision Software Services. During2001 (prior to the acquisition), 2000 and 1999, Precision Software Servicesprovided Whitney Information Network, Inc. $371,644, $378,525 and $318,089 inproduct cost, respectively. Precision Software Services sold products toWhitney Information Network, Inc. at a price less than the prices offered tothird parties. Whitney Information Network, Inc. provided payroll services toPrecision Software Services in the amount of $0, $68,811 and $38,605 during2001, 2000 and 1999, respectively.

 

Whitney Information Network, Inc. providedpayroll services to Whitney Leadership Group, Inc. in the amount of $0, $80,956and $82,787 during 2001, 2000 and 1999, respectively. During 2001, 2000 and1999, Whitney Information Network made payments of $279,313, $230,476 and$368,702 for registration fees and commissions. The Chairman of the Board ofWhitney Information Network, Inc. is the President and Chief Operating Officerof Whitney Leadership Group, Inc.

 

Corporation Company of Nevada, Inc., formerly known as United StatesFiduciary Corp., provided to us trainers for some of our asset protectioncourses along with formation services for which the Company was billed for.Formation services involved Corporation Company forming legal entities such ascorporations and limited liability companies for use by our students.  Thestudents used these entities to operate their business in a corporation,partnership, or trust form.  Mr. Whitney and Mr. Simon were directorsof that company until the fourth quarter of 2001. During 2001, 2000 and 1999,Whitney Information Network, Inc. paid $458,877, $418,096 and $0 in commissionsto Corporation Corp.

 

RAW, Inc. is a company owned by the Chairmanof the Board of Whitney Information Network, Inc., which buys, sells andinvests in real property. During 2000,Whitney Information Network Inc. provided$10,869 in payroll services to RAW, Inc.

 

Trade Marketing, Inc. is a company owned by arelative of the Chairman of the Board of Whitney Information Network, Inc.

 

Those items above that are reasonably expectedto be collected within one year are shown as current and those that are notexpected to be collected during the next year are shown as non-current.

 

**Note4—Property and Equipment**

 

Property and equipment consist of thefollowing:

 
|                          |   | **December  31,** |      |
|-------------------------------|--------|-------------------|-----------|
|                          |   | **2001**          |      | **2000** |   |
| Building                      |   | $                 | 2,266,053 |   | $ | 2,207,482 |   |
| Equipment                     |   | 1,158,694         |      | 517,718 |   |
| Furniture and fixtures        |   | 364,893           |      | 316,770 |   |
| Land                          |   | 132,500           |      | — |   |
| Construction in progress      |   | 103,063           |      | — |   |
| Leasehold improvements        |   | 81,516            |      | 122,658 |   |
|                          |   |              |      |   |   |
|                          |   | 4,106,719         |      | 3,164,628 |   |
| Less accumulated depreciation |   | (478,272          | )         | (198,703 | ) |
|                          |   |              |      |   |   |
|                          |   | $                 | 3,628,447 |   | $ | 2,965,925 |   |

 

F-14

----

 

 

Depreciation expense for the periods endedDecember 31,:

 
| 2001 |   | $ | 289,682 |   |   |   |
|------|--------|---|---------|--------|--------|--------|
| 2000 |   | $ | 166,434 |   |   |   |
| 1999 |   | $ | 18,267  |   |   |   |

 

**Note5—Long-Term Debt and Note Payable—Related Party**

 

Long-term debt consists of:

 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | **December  31,** |    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | **2001**          |    | **2000** |   |
| Note payable to seller of building, interest at a variable interest  rate, adjusted semi-annually based on the prime rate (8.0% total as of  December 31, 2001) and shall not exceed 10% or fall below 8% during the first  three years of the mortgage. Monthly interest-only payments of $9,000 are  payable through December 2004 at which time the note matures and all  principal and accrued interest is due. Collateralized by real property. |   | $                 | 450,000 |   | $ | 1,200,000 |   |
| Note payable to the previous minority shareholder of Precision Software  Services, Inc. relating to the Company’s acquisition. Principal and interest  payments due beginning in January 2002. Interest at the prime rate plus 1.5%  (7.0% total at December 31, 2001). The note matures in December 2003.                                                                                                                                      |   | 125,000           |    | — |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |              |    |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | 575,000           |    | 1,200,000 |   |
| Less current portion                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | (62,500           | )       | — |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |              |    |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | $                 | 512,500 |   | $ | 1,200,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |              |    |   |   |
| Note payable- related party consists of:                                                                                                                                                                                                                                                                                                                                                                                                             |   |              |    |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |              |    |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | **December  31,** |    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | **2001**          |    | **2000** |   |
| Note payable to the previous majority shareholder of Precision Software  Services, Inc., an officer and majority shareholder of the Company, relating  to the Company’s acquisition. Principal and interest payments due beginning  in January 2002. Interest at the prime rate plus 1.5% (7.0% total at December  31, 2001). The note matures in December 2003.                                                                                |   | $                 | 125,000 |   | $ | — |   |
| Less current portion                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | (62,500           | )       | — |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |              |    |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | $                 | 62,500  |   | $ | — |   |

 

F-15

----

 

Maturities of long-term obligations are asfollows:

 
| **Year  Ending December 31,** |   | **Related Party  Notes** |    | **Other Notes** |   | **Total** |   |
|-------------------------------|--------|-------------------------------|---------|----------------------|--------|-----------|--------|
| 2002                          |   | $                             | 62,500  |                 | $      | 62,500    |   | $ | 125,000 |   |
| 2003                          |   | 62,500                        |    | 62,500               |   | 125,000   |   |
| 2004                          |   | —                        |    | 450,000              |   | 450,000   |   |
|                          |   |                          |    |                 |   |      |   |
|                          |   | $                             | 125,000 |                 | $      | 575,000   |   | $ | 700,000 |   |

 

**Note6—Commitments and Contingencies**

 

OperatingLeases

 

The Company leases the following properties:(1) its headquarters building in Cape Coral, Florida (Note 3); (2) itstelemarketing facility in Draper, Utah; and (3) its Whitney Canada location inOntario. These leases expire from May 2002 to October 2006.

 

Rent expense for all operating leases was:

 
| **Year  Ending December 31,** |   |   |    |
|-------------------------------|--------|--------|---------|
| 2001                          |   | $      | 225,232 |   |
| 2000                          |   | $      | 257,198 |   |
| 1999                          |   | $      | 139,105 |   |

 

Future minimum lease payments under theseleases are approximately as follows:

 
| **Year  Ending December 31,** |   | **Related Party  Leases** |   | **Other Leases** |   | **Total** |   |
|-------------------------------|--------|--------------------------------|--------|-----------------------|--------|-----------|--------|
| 2002                          |   | $                              | 58,053 |                  | $      | 79,321    |   | $ | 137,374 |   |
| 2003                          |   | —                         |   | 78,771                |   | 78,771    |   |
| 2004                          |   | —                         |   | 81,929                |   | 81,929    |   |
| 2005                          |   | —                         |   | 85,199                |   | 85,199    |   |
| 2006                          |   | —                         |   | 73,350                |   | 73,350    |   |
|                          |   |                           |   |                  |   |      |   |
|                          |   | $                              | 58,053 |                  | $      | 398,570   |   | $ | 456,623 |   |

 

Litigation

 

The Company is not involved in any materialunasserted claims and action arising out of the normal course of its businessthat in the opinion of the Company, based upon knowledge of facts and advice ofcounsel, will result in a material adverse effect on the Company’s financialposition.

 

Other

 

The Company carries liability insurancecoverage, which it considers sufficient to meet regulatory and consumerrequirements and to protect the Company’s employees, assets and operations.

 

F-16

----

 

The Company, in the ordinary course ofconducting its business, is subject to various state and federal requirements.In the opinion of management, the Company is in compliance with theserequirements.

 

ConstructionAgreement

 

In 2001, the Company entered into an agreementto construct a 7,000 square-foot international conference and training centerin Panama at a total estimated cost of $550,000. The Company had expendituresof approximately $105,000 through December 31, 2001 and has since madeadditional construction draws of approximately $145,000. Completion of theproject is expected to occur in the third quarter of 2002.

 

**Note7—Stockholders’ Equity and Transactions**

 

StockBased Compensation Plans

 

The Company’s stock option plans provide forthe granting of stock options to key employees. Under the terms and conditionsof the plans, any time between the grant date and two years of service, theemployee may purchase up to 25% of the option shares. After three years ofcontinuous service, the employee may purchase all remaining option shares. Alloptions expire ten years from the date of the grant.

 

The following table presents the activity foroptions outstanding:

 
|                               |   | **Options Not  Related To  A Plan** |   | **Weighted  Average  Exercise  Price** |   |
|------------------------------------|--------|------------------------------------------|--------|----------------------------------------|--------|
| Outstanding—December 31, 1998 |   | 369,000                                  |   | $                                      | 2.00   |   |
| Granted                            |   | 471,650                                  |   | $                                      | 1.88   |   |
| Forfeited/canceled                 |   | (52,850                                  | )      | $                                      | (1.96  | ) |
|                               |   |                                     |   |                                   |   |
| Outstanding—December 31, 1999 |   | 787,800                                  |   | $                                      | 1.92   |   |
| Granted                            |   | 385,000                                  |   | $                                      | 1.97   |   |
| Forfeited/canceled                 |   | (79,150                                  | )      | $                                      | (1.92  | ) |
|                               |   |                                     |   |                                   |   |
| Outstanding—December 31, 2000 |   | 1,093,650                                |   | $                                      | 1.94   |   |
| Granted                            |   | 10,000                                   |   | $                                      | 1.70   |   |
| Forfeited/canceled                 |   | (181,850                                 | )      | $                                      | (1.94  | ) |
|                               |   |                                     |   |                                   |   |
| Outstanding—December 31, 2001 |   | 921,800                                  |   | $                                      | 1.94   |   |

 

The following table presents the compositionof options outstanding:

 
| **Range of Exercise Prices** |   | **Number of Options  Outstanding** |   | **Price*** |   | **Life*** |   | **Number of  Options  Exercisable** |    |
|---------------------------------------------|--------|----------------------------------------------|--------|------------|--------|-----------|--------|-------------------------------------|---------|
| $1.70                                       |   | 10,000                                       |   | $          | 1.70   |      | 9.74   |                                | —  |   |
| $1.75                                       |   | 45,000                                       |   | $          | 1.75   |      | 8.35   |                                | —  |   |
| $1.88                                       |   | 309,800                                      |   | $          | 1.88   |      | 7.68   |                                | 309,800 |   |
| $2.00                                       |   | 557,000                                      |   | $          | 2.00   |      | 7.61   |                                | 139,250 |   |
|                                        |   |                                         |   |       |   |      |   |                                |    |
| $1.70 to $2.00                    |   | 921,800                                      |   | $          | 1.94   |      | 7.69   |                                | 449,050 |   |

 

 

F-17

----

 

----

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

 

The Company has adopted the disclosure-onlyprovisions of Statement of Financial Accounting Standards No. 123, “Accountingfor Stock-Based Compensation.” Accordingly, no compensation cost has beenrecognized for the stock option plans. Had compensation cost for the Company’soption plan been determined based on the fair value at the grant date forawards consistent with the provisions of SFAS No. 123, the Company’s net income(loss) and basic income (loss) per common share would have been changed to thepro forma amounts indicated below:

 
|                                                  |   | **For the  Years Ended  December 31,** |      |
|-------------------------------------------------------|--------|----------------------------------------|-----------|
|                                                  |   | **2001**                               |      | **2000** |   | **1999** |   |
| Net income (loss)—as reported                    |   | $                                      | 2,534,247 |   | $ | (8,703,127 | ) | $ | (1,962,266 | ) |
| Net income (loss)—pro forma                      |   | $                                      | 2,517,922 |   | $ | (9,423,077 | ) | $ | (2,764,071 | ) |
| Basic income (loss) per common share—as reported |   | $                                      | 0.33      |   | $ | (1.16 | ) | $ | (0.26 | ) |
| Basic income (loss) per common share—pro forma   |   | $                                      | 0.33      |   | $ | (1.25 | ) | $ | (0.36 | ) |

 

The fair value of each option grant isestimated on the date of grant using the Black-Scholes option-pricing modelwith the following weighted-average assumptions used:

 
|                                          |   | **For the  Years Ended December 31,** |   |
|-----------------------------------------------|--------|---------------------------------------|--------|
|                                          |   | **2001**                              |   | **2000** |   | **1999** |   |
| Approximate risk free rate                    |   | 5.07                                  | %      | 6.00 | % | 6.00 | % |
| Average expected life                         |   | 10 years                         |   | 10  years |   | 10  years |   |
| Dividend yield                                |   | 0                                     | %      | 0 | % | 0 | % |
| Volatility                                    |   | 73.57                                 | %      | 115.00 | % | 115.00 | % |
| Estimated fair value of total options granted |   | $                                     | 16,325 |   | $ | 719,950 |   | $ | 801,805 |   |
|                                               |        |                                       |        |  |  |  |  |  |  |  |

 

 

Where the inclusion of potential common sharesis anti-dilutive, such shares are excluded from the computation.

 

**Note8—Business Segment Information**

 

The Company and its subsidiaries operateprimarily in only one business segment. The Company’s revenues are generatedthrough the sale of real estate seminars, programs and products. The Companyand each of its subsidiaries either directly participate in the real estatemarket or provide services to one of the subsidiaries. The Company doesmaintain operations in foreign countries outside the United States. Thefollowing provides both revenues and long-lived asset values by location forthe period and year ending December 31, 2001. 

 
| **Location**  |   | **Revenues** |       | **Long-Lived Assets** |   |
|---------------|--------|--------------|------------|----------------------------|--------|
| United States |   | $            | 39,756,535 |                       | $      | 3,591,970 |   |
| Canada        |   | 2,401,205    |       | 36,477                     |   |
|          |   |         |       |                       |   |
|          |   | $            | 42,157,740 |                       | $      | 3,628,447 |   |

 

The following provides revenues received byexternal customers for each group of similar products and services for theyears ended December 31, 2001 and 2000.

 
|                           |   | **For the Years  Ended December 31,** |       |
|--------------------------------|--------|-------------------------------------------------|------------|
| **Segment**                    |   | **2001**                                        |       | **2000** |   |
| Real Estate Products/Services  |   | $                                               | 38,024,356 |   | $ | 24,851,765 |   |
| Real Estate Mentoring/Coaching |   | 3,315,936                                       |       | 3,460,842 |   |
| Commission/Other               |   | 805,049                                         |       | 1,113,686 |   |
| Teach Me To Trade              |   | —                                          |       | — |   |
| Internet sales                 |   | 12,399                                          |       | 3,433,564 |   |
|                           |   |                                            |       |   |   |
| Total revenues                 |   | $                                               | 42,157,740 |   | $ | 32,859,857 |   |

 

F-18

----

 

**Note9—Income Taxes**

 

At December 31, 2001, the Company had netoperating losses(NOL) of approximately $168,000 related to US federal, foreignand state jurisdictions. Utilization of the net operating losses, which expireat various times starting in the years 2002 through 2021, may be subject tocertain limitations under Section 382 of the Internal Revenue Code of 1986, asamended, and other limitations under state and foreign tax laws.

 

Deferred income taxes reflect the net taxeffects of temporary differences between the carrying amounts of assets andliabilities for financial reporting purposes and the amounts used for incometax purposes. Significant components of the Company’s deferred tax asset areapproximately as follows:

 
|                                                         |   | **December  31,** |   |
|--------------------------------------------------------------|--------|-------------------|--------|
|                                                         |   | **2001**          |   | **2000** |   |
| Deferred tax asset from NOL carryforward                     |   | $                 | 62,500 |   | $ | 5,252,000 |   |
| Deferred tax asset from deferred revenue                     |   | 4,647,000         |   |   |   |
| Deferred tax asset (liability) from deferred expense/revenue |   | (1,606,000        | )      | (1,005,000 | ) |
|                                                         |   |              |   |   |   |
| Total deferred tax assets                                    |   | 3,103,500         |   | 4,247,000 |   |
| Valuation allowance for deferred tax assets                  |   | (3,103,500        | )      | (4,247,000 | ) |
|                                                         |   |              |   |   |   |
| Net deferred tax asset                                       |   | $                 | — |   | $ | — |   |

 

**Note 10 - Summarized Quarterly Results (Unaudited)**

 

The following tablepresents unaudited operating results for each quarter within the two mostrecent years.  The Company believes that all necessary adjustmentsconsisting only of normal recurring adjustments, have been included in theamounts stated below to present fairly the following quarterly results whenread in conjunction with the financial statements.  Results of operationsfor any particular quarter are not necessarily indicative of results ofoperations for a full fiscal year.

 
|                                   |   | **First  Quarter** |       | **Second  Quarter** |   | **Third  Quarter** |   | **Fourth  Quarter** |       |
|----------------------------------------|--------|--------------------|------------|---------------------|--------|--------------------|--------|---------------------|------------|
| **December 31,  2000**            |   |               |       |                |   |               |   |                |       |
| Revenues                               |   | $                  | 8,640,017  |                | $      | 8,778,005          |   | $                   | 11,571,960 |   | $ | 3,869,875 |   |
| Operating  expenses                    |   | 9,344,834          |       | 11,562,646          |   | 13,580,970         |   | 7,331,870           |       |
| Net income  (loss)                     |   | (704,817           | )          | (2,784,641          | )      | (2,009,010         | )      | (3,204,659          | )          |
| Basic income  (loss) per share (1)     |   | (.09               | )          | (.37                | )      | (.27               | )      | (.43                | )          |
| Diluted earnings  (loss) per share (1) |   | (.09               | )          | (.37                | )      | (.27               | )      | (.43                | )          |
|                                   |   |               |       |                |   |               |   |                |       |
| **December 31,  2001**            |   |               |       |                |   |               |   |                |       |
| Revenues                               |   | $                  | 11,233,678 |                | $      | 11,950,654         |   | $                   | 9,239,054  |   | $ | 9,734,354 |   |
| Operating  expenses                    |   | 9,227,361          |       | 11,115,533          |   | 8,988,795          |   | 10,544,688          |       |
| Net (loss)  income                     |   | 1,958,617          |       | 920,927             |   | 356,553            |   | (701,850            | )          |
| Basic (loss)  earnings per share (1)   |   | .26                |       | .11                 |   | .05                |   | (.10                | )          |
| Diluted (loss)  earnings per share (1) |   | .23                |       | .11                 |   | .04                |   | (.10                | )          |

 

----

New Footnote to come

 

F-19

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**ITEM 9.          CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

On July 28, 2000, the Company replaced itsauditor, Larry Legal CPA with BDO Siedman effective August 17, 2000. During theperiod from August 17, 2000 to November 14, 2000, the Company worked with BDOSiedman until the Board terminated their services. The series of events thattranspired from August 17, 2000 may appear to suggest a disagreement overaccounting; however, the Company does not believe a disagreement exists.

 

The matter is explained simply in that at thetime that the Company terminated the services of BDO Seidman, LLP there was nodispute with BDO Seidman inasmuch as the Company had already agreed to restatethe financial statements.

 

Please be advised of the chronology of relatedevents:

 
| 11/14/00 |   | The Company terminated BDO  Seidman, LLP as auditors on November 14, 2000 subsequent to the Whitney Board  of Directors meeting on that morning approving both the termination of BDO  Seidman and tentatively approving the restating of the financial statements  subject to evaluation of the results of the forthcoming discussion to be held  with the SEC on November 17, 2000 and recommendation by management  thereafter. BDO’s last communication to the Company was that BDO had agreed  to prepare the financial statements either way as long as the SEC approved  the way that was chosen. The Company agreed with BDO that the financial  statements could be prepared either way subject to SEC approval. Therefore,  there was no disagreement with BDO at the time they were terminated. The  Company did not disagree with BDO over an accounting method, but did disagree  with BDO over their fees. The fees dispute is not the subject of this filing. |
|----------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

F-20

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| 11/17/00 |   | The Company representatives  attended a meeting in Washington, DC with SEC staff re: deferred expenses at  which time the SEC stated that the Company should restate the financial  statements                              |
|----------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                                                                                                                                        |
| 11/20/00 |   | The Company approved and  filed Edgar Form 8-K reporting on the termination of BDO Seidman, LLP without  having received any letter from BDO Seidman, LLP. Their letter was received  later in the day on November 20, 2000 |
|     |   |                                                                                                                                                                                                                        |
| 11/21/00 |   | Actual date of acceptance  of transmission of 11/20 filing as accepted by SEC/Edgar                                                                                                                                         |
|     |   |                                                                                                                                                                                                                        |
| 11/20/00 |   | The Company received  cessation of services letter from BDO Seidman, LLP which was dated November  14, 2000, but not received until the afternoon of November 20, 2000                                                      |
|     |   |                                                                                                                                                                                                                        |
| 11/22/00 |   | The Company filed Edgar  Form 8-K/A#1 reporting the BDO Seidman, LLP letter received November 20,  2000.                                                                                                                    |
|     |   |                                                                                                                                                                                                                        |
| 11/29/00 |   | The Company filed the third  Edgar form on the issue, Form 8-K/A#2 with corrections and additions required  by the SEC pertaining to the BDO Seidman auditor termination.                                                   |
|     |   |                                                                                                                                                                                                                        |
| 12/4/00  |   | The Company’s Board of  Directors approved management’s decision to restate financial statements for  change of accounting method.                                                                                |
|     |   |                                                                                                                                                                                                                        |
| 12/4/00  |   | Company received letter  from SEC re: correcting the Forms 8K and 8-K/A to an Item 4 matter instead of  an Item 1 matter.                                                                                                   |
|     |   |                                                                                                                                                                                                                        |
| 12/4/00  |   | Company received second  letter from BDO Seidman, LLP re: termination of services, which letter  included for the first time a notice by BDO Seidman of a disagreement over  accounting issues.                             |
|     |   |                                                                                                                                                                                                                        |
| 12/5/00  |   | Company issued a Press  Release which had been prepared days earlier announcing the decision to  restate financial statements.                                                                                              |
|     |   |                                                                                                                                                                                                                        |
| 12/7/00  |   | Company approved for filing  Edgar Form 8-K/A#3 reporting second BDO Seidman letter.                                                                                                                                        |
|     |   |                                                                                                                                                                                                                        |
| 12/7/00  |   | The Company approved for  filing Edgar Form 8-K reporting the Press Release                                                                                                                                                 |
|     |   |                                                                                                                                                                                                                        |
| 12/8/00  |   | The Company filed Edgar  Form 8-K/A#3 reporting second BDO Seidman letter.                                                                                                                                                  |
|     |   |                                                                                                                                                                                                                        |
| 12/8/00  |   | The Company filed Edgar  Form 8-K reporting Press Release.                                                                                                                                                                  |
|     |   |                                                                                                                                                                                                                        |
| 12/13/00 |   | The Company received a fax  from SEC requesting an additional Form 8-K/A filing to explain the  disagreement                                                                                                                |
|     |   |                                                                                                                                                                                                                        |
| 12/20/00 |   | The Company filed Edgar  Form 8-K/A#4 explaining that the timing differences caused the appearance of  a disagreement with BDO Seidman but actually at the time BDO Seidman was  terminated, there were no disagreements.   |
|     |   |                                                                                                                                                                                                                        |
| 12/20/00 |   | The Company sent a copy of  Amendment #4 to BDO Seidman.                                                                                                                                                                    |

 

F-21

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It should be further noted that BDO Seidmanwas hired by the Company in August, 2000. In September, 2000, BDO sent an SOP93-7 research paper which was marked preliminary draft agreeing with theposition of the Company.

 

At that time, the Miami partner of BDO Seidmanand the audit manager agreed with the position of the Company that thefinancial statements had been correctly prepared.

 

It was not until October, 2000 that theChicago office and national SEC partner of BDO Seidman overruled their Miamiaudit partners and reversed the position of BDO Seidman on the issue. There wasdisagreement with the BDO partners over the issue. At that point, there wasalso a disagreement between the revised and official BDO position and theCompany’s position.

 

However, later, and prior to dismissing BDOSeidman, the Company did agree to accept the SEC position which was also BDO’srevised position. The Company has taken the position that all interimdisagreements with BDO Seidman had been resolved prior to the dismissal andtherefore were not required to be explained in Form 8-K, which requires thedisclosure of any disagreements at the time of the dismissal.

 

On February 8, 2000, the Board of Directors ofWhitney Information Network, Inc. passed a resolution to engage the auditservices of Ehrhardt Keefe Steiner & Hottman, PC. There have been nodisagreements with Ehrhardt Keefe Steiner & Hottman, PC.

 

F-22

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**PART III**

 

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

 

The officers and directors of the Company areas follows:

 
| **Name**                      |   | **Age** |   | **Position**                                                                          |
|-------------------------------|--------|---------|--------|---------------------------------------------------------------------------------------|
| Russell A. Whitney  |   | 44      |   | Chief Executive Officer and  Chairman of the Board of Directors                       |
| Richard W. Brevoort |   | 63      |   | President and a member of  the Board of Directors                                     |
| Ronald S. Simon               |   | 58      |   | Secretary/Treasurer, Chief  Financial Officer, and a member of the Board of Directors |

 

Each director serves for a term of three yearsand one-third of the directors are elected at the annual meeting ofshareholders. The Company’s officers are appointed by the Board of Directorsand hold office at the discretion of the Board.

 

Russell A. Whitney — Chief Executive Officerand Chairman of the Board of Directors

 

Mr. Whitney was a founder and has been theChief Executive Officer and Chairman of the Board of Directors of the Companyand its predecessor, since 1987. Since 1992, Mr. Whitney has been ChiefExecutive Officer of Whitney Education Group, Inc. (formerly Win Systems, Inc.)that is engaged in the business of education and training. Since October 1998,Mr. Whitney has been the President and a member of the Board of Directors of1311448 Ontario, Inc. 1311448 Ontario is in the business of education andtraining. Since October 1998, Mr. Whitney has been the President and a memberof the Board of Directors of Whitney Canada, Inc. Whitney Canada is in thebusiness of education and training. Since February 1999, Mr. Whitney has beenthe President and a member of the Board of Directors of Wealth IntelligenceNetwork, Inc. Wealth Intelligence Network is in the business of education andtraining. Since June 1999, Mr. Whitney has been the President and a member ofthe Board of Directors of Whitney Internet Services, Inc. Whitney InternetServices is in the business of providing Internet services, education andtraining. Since June 1999, Mr. Whitney has been the President and a member ofthe Board of Directors of Whitney Consulting Services, Inc. Whitney Consultingis in the business of providing telemarketing services. Since June 1999, Mr.Whitney has been the President and a member of the Board of Directors of RussWhitney’s Wealth Education Centers, Inc. Russ Whitney’s Wealth EducationCenters are in the business of education and training. Since June 1999, Mr.Whitney has been the President and a member of the Board of Directors of RussWhitney’s Wealth Education Centers of Jackson, Mississippi, Inc. Since March1991, Mr. Whitney has been Chief Executive Officer of Whitney Leadership Group,Inc., a Florida corporation located in Cape Coral, Florida engaged in thebusiness of publishing and marketing. Since February 1995, Mr. Whitney has beenPresident of RAW, Inc., a Florida corporation engaged in the business ofbuying, selling and investing in real estate which is located in Cape Coral,Florida. From August 1993 to November 2001, Mr. Whitney was the Vice Presidentof Precision Software Services, Inc., a Florida corporation located in CapeCoral, Florida, which is engaged in the business of developing and licensingsoftware primarily for the real estate and small business industries. PrecisionSoftware Services, Inc. was acquired by Whitney Information Network in November2001. Since this time, Mr. Whitney has been the President and a member of theBoard of Precision Software Services, Inc. Since March 1992, Mr. Whitney hasbeen President of MRS Equity Corp., a Florida corporation located in CapeCoral, Florida, which is

 

F-23

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engaged in the business of selling mortgagerelated products and services. Since November 1996, Mr. Whitney has beenaffiliated with Teamwork Communications, Inc., a company that provides salesand marketing services located in Cape Coral, Florida.

 

Richard W. Brevoort — President and a memberof the Board of Directors.

 

Since August 1998, Mr. Brevoort has been amember of the Board of Directors of the Company and spends substantiallyfull-time on Company matters. Mr. Brevoort became the President of WhitneyEducation Group, Inc. (formerly, Win Systems, Inc.) in February 1997, andPresident of the Company in August 1998. From January 1984 to February 1991,Mr. Brevoort was the President of the Hudson Agency, a marketing company basedin New York City. From September 1970 to October 1975, Mr. Brevoort was aDeputy Finance Administrator and Commissioner of Tax Collection. From June 1969to August 1970, Mr. Brevoort was an Assistant Administrator of EconomicDevelopment. From August 1968 to March 1969, Mr. Brevoort was a DeputyCommissioner of Commerce. From March 1966 to November 1966, Mr. Brevoort was aDirector of Weights and Measures for the City of New York. From November 1975to December 1983, Mr. Brevoort was the Chief of Staff for the Democratic Partyin the New York State Senate. From 1982 to 1987, Mr. Brevoort was a member ofthe Board of Directors of the New York City Convention Center. From 1996 to1997, Mr. Brevoort was an Instructional Supervisor of the Trace Program atBronx Community College. From 1968 to 1969, Mr. Brevoort was a member of anAdvisory Committee for the New York City Superintendent of Schools. Mr.Brevoort has been included in the 1996 Who’s Who in America and 1996 Who’s Whoin the World.

 

Ronald S. Simon — Secretary/Treasurer, ChiefFinancial Officer, and a member of the Board of Directors.

 

Since August 1998, Mr. Simon has been theSecretary/Treasurer, Chief Financial Officer, and a member of the Board ofDirectors of the Company and spends such time that is necessary on Companymatters. Since August 1998, Mr. Simon has been the Secretary/Treasurer and amember of the Board of Directors of Whitney Education Group, Inc. (formerly,Win Systems, Inc.). Whitney Education Group is in the business of education andtraining. Since August 1998, Mr. Simon has been the Secretary/Treasurer and amember of the Board of Directors of Wealth Intelligence Network, Inc. WealthIntelligence Network is in the business of education and training. Since June1999, Mr. Simon has been the Secretary/Treasurer and a member of the Board ofDirectors of Whitney Consulting Group, Inc. Whitney Consulting Group is in thebusiness of telemarketing. From October 1995 to January 1999, Mr. Simon was thePresident of On Line Services USA, Inc., an Internet service provider and website design company. Since 1971, Mr. Simon has been Certified Public Accountantin the states of Florida and Illinois. Since 1993, Mr. Simon has had his realestate license in the state of Florida. Since 1996,. Mr. Simon graduated fromthe University of Illinois with Bachelor of Science degree in accounting.

 

**SECTION16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE**

 

Section 16(a) of the Securities Exchange Actof 1934 requires the Company’s officers, directors, and persons who own morethan 10% of the registered class of the Company’s equity securities to filereports of ownership with the Securities and Exchange Commission. Officers,directors and greater than 10% stockholders are required by the regulations ofthe Securities and Exchange Commission to furnish the Company with copies ofall Section 16(a)forms they file.

 

F-24

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Based solely on a review of the Forms 3 and 4furnished to the Company, the Company believes that all filing requirementsapplicable to its officers, directors and greater than 10% beneficial ownerswere complied with.

 

Form 5 is not required to be filed if there arenot previously unreported transactions or holdings to report. Nevertheless, theCompany is required to disclose the name of directors, executive officers and10% shareholders who did not file a Form 5, unless the Company has obtained awritten statement that no filing is due. The Company has been advised by thoserequired to file Form 5 that no filings were due.

 

**ITEM 11.****                     ****EXECUTIVE COMPENSATION**

 

SummaryCompensation.

 

The following table sets forth thecompensation paid by the Company during the last three years, for each officerand director of the Company. This information includes the dollar value of basesalaries, bonus awards and number of stock options granted, and certain othercompensation, if any.

 
| **Name and  Principal Position** |   | **Year** |   | **Annual  Salary ($)** |    | **Bonus ($)** |   | **Other  Compensation ($)** |   | **Underlying  Stock  Options/ Award (s) (#)** |   | **LTIP  Payouts ($)** |   | **All  Compensation ($)** |   |
|----------------------------------|--------|----------|--------|------------------------|---------|--------------------|--------|----------------------------------|--------|---------------------------------------------------------|--------|----------------------------|--------|--------------------------------|--------|
| Russell Whitney, CEO             |   | 2001     |   | $                      | 250,000 |               | — |                             | — |                                                    | — |                       | — |                           | $      | 250,000 |   |
|                             |   | 2000     |   | $                      | 250,000 |               | — |                             | — |                                                    | — |                       | — |                           | $      | 250,000 |   |
|                             |   | 1999     |   | $                      | 67,344  |               | — |                             | — |                                                    | — |                       | — |                           | $      | 67,344 |   |
| Richard Brevoort, President      |   | 2001     |   | $                      | 100,000 |               | — |                             | — |                                                    | — |                       | — |                           | $      | 100,000 |   |
|                             |   | 2000     |   | $                      | 75,000  |               | — |                             | — |                                                    | — |                       | — |                           | $      | 75,000 |   |
|                             |   | 1999     |   | $                      | 44,093  |               | — |                             | — |                                                    | — |                       | — |                           | $      | 44,093 |   |
| Ronald Simon, CFO                |   | 2001     |   | $                      | 55,000  |               | — |                             | — |                                                    | — |                       | — |                           | $      | 55,000 |   |
|                             |   | 2000     |   | $                      | 47,500  |               | — |                             | — |                                                    | — |                       | — |                           | $      | 47,500 |   |
|                             |   | 1999     |   | $                      | 42,770  |               | — |                             | — |                                                    | — |                       | — |                           | $      | 42,770 |   |

 

There are no retirement, pension, or profitsharing plans for the benefit of the Company’s officers and directors. TheCompany has adopted a Non-Qualified Incentive Stock Option Plan and the Companysupplies health insurance to its officers, directors and employees.

 

The following grants of stock options, whetheror not in tandem with stock appreciation rights (‘SARs’) and freestanding SARshave been made to officers and/or directors:

 
| **Name**         |   | **Number of   Underlying  Securities  Options/SARs  Granted** |   | **Number of   Underlying  Securities  Options/SARs  Granted During  Last 12 Months** |   | **Exercise or  Base  Price ($/Sh)** |   | **No. of Options  Exercised** |   | **Expiration Date** |       |
|------------------|--------|---------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|-----------------------------------------|--------|--------------------------|------------|
| Richard Brevoort |   | 243,000                                                       |   | 68,000                                                                                              |   | $                                             | 2.00   |                                    | — |                     | 09/01/2008 |   |
| Ronald Simon     |   | 218,000                                                       |   | 68,000                                                                                              |   | $                                             | 2.00   |                                    | — |                     | 09/01/2008 |   |

 

F-25

----

 

----

|   | (1) | 75,000 options were granted  to Mr. Brevoort and 125,000 options were granted to Mr. Simon, all at an  exercise price of $1.875, on August 31, 1999. Mr. Brevoort and Mr. Simon were  previously granted 25,000 options each at an exercise price of $2.00 on  September 1, 1998. On May 1, 2000, Mr. Brevoort and Mr. Simon each held 68,000  warrants which were converted to option shares at an exercise price of $2.00  per share. The expiration date of such option shares is September 1, 2008. At  the date of this report no options have been exercised. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

Long-TermIncentive Plan Awards.

 

The Company does not have any long-termincentive plans that provide compensation intended to serve as incentive forperformance.

 

Compensationof Directors.

 

Directors do not receive any compensation forserving as members of the Board of Directors. The Board has not implemented aplan to award options to any Directors. There are no contractual arrangementswith any member of the Board of Directors

 

**ITEM 12.****                     ****SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT**

 

The following table sets forth the CommonStock ownership of each person known by the Company to be the beneficial ownerof five percent or more of the Company’s Common Stock, each directorindividually and all officers and directors of the Company as a group. Eachperson has sole voting and investment power with respect to the shares ofCommon Stock shown, unless otherwise noted, and all ownership is of record andbeneficial.

 
| **Name and  Address of Owner**                                       |   | **Number of  Shares** |   | **Position**                                                              |   | **Percent of    Class** |   |
|----------------------------------------------------------------------|--------|-----------------------|--------|---------------------------------------------------------------------------|--------|------------------------------|--------|
| Russell A. Whitney4818 Coronado ParkwayCape Coral, Florida33904      |   | 6,650,000             |   | Chief Executive Officer  and Chairman of the Board of Directors |   | 84.41                        | %      |
| Richard W. Brevoort4500 S.E. Fifth Place#206Cape Coral, Florida33904 |   | 146,500               |   | PresidentDirector                                                         |   | 1.86                         | %      |
| Ronald S. Simon1402 Beechwood TrailFort Myers, Florida33919          |   | 34,000                |   | Secretary/TreasurerChief Financial Officer Director                       |   | 0.43                         | %      |
| All officers and directors  as a group (3 persons)                   |   | 6,830,000             |   |                                                                      |   | 86.70                        | %      |

 

F-26

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**ITEM 13.****                     ****CERTAIN RELATIONSHIPS ANDRELATED TRANSACTIONS**

 

The Company has leased office space from RussWhitney, its Chief Executive Officer and a member of the Board of Directorspursuant to the terms of a three-year lease, which commenced on September 1,1999 and terminates on October 31, 2002 with a monthly rental payment of$5,805.34. Russ Whitney is the Chief Executive Officer of the Company andChairman of its Board of Directors. The terms of the lease are no lessfavorable as can be obtained from independent third parties.

 

At December 31, 2001, the Company was owed$232,126 by Whitney Leadership Group, Inc., a company owned and controlled byMr. Whitney, which owns the rights to our television real estate infomercialswhich we use to attract students to our free informational training sessions.

 

MRS Equity Corp. provides software productsand services to the company which it markets that allow mortgagees to pay theirmortgages every two weeks rather than monthly thereby reducing mortgage costsover the life of the mortgage and the Company provides MRS Equity Corp. withpayroll services. MRS Equity is a wholly owned subsidiary corporation of EquityCorp. Holdings, which is owned and controlled by Mr. Whitney.

 

Precision Software Services, Inc., developsand licenses software to the Company. Mr. Whitney owned a controlling interestin Precision Software Services, Inc. until it was acquired by the Company onNovember 1, 2001 in an exchange of stock with Mr. Whitney and anemployee/shareholder of Precision Software Services, Inc. for 333,334 shares ofthe Company’s common stock valued at $1.50 per share. Mr. Whitney received170,000 shares of the Company’s stock.

 

The Company provides payroll services toWhitney Leadership Group, Inc. and in the past, Whitney Leadership Group, Inc. haslent money to the Company. Mr. Whitney is President and Chief Operating Officerof Whitney Leadership Group.

 

Corporation Company of Nevada, Inc., formerlyknown as United States Fiduciary Corp., provides to us trainers for some of ourasset protection courses along with formation services for which the Companywas billed for.  Formation servicesinvolved Corporation Company forming legal entities such as corporations andlimited liability companies for use by our students.  The students used these entities to operate their business in acorporation, partnership, or trust form. Mr. Whitney and Mr. Simon were directors of that company until thefourth quarter of 2001.

 

The amount of purchased products (softwarebooks, tapes, and supplies) from affiliates is as follows:

 
|                              |   | **2001** |    | **2000** |   | **1999** |   |
|-----------------------------------|--------|----------|---------|----------|--------|----------|--------|
| MRS Equity Corp.                  |   | $        | 720,504 |     | $      | 273,525  |   | $ | 254,826 |   |
| Precision Software Services, Inc. |   | $        | 371,644 |     | $      | 378,525  |   | $ | 318,089 |   |

 

F-27

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The amount of payments made for commissionsand fees from affiliates is as follows:

 
|                                                      |   | **2001** |    | **2000** |   | **1999** |   |
|-----------------------------------------------------------|--------|----------|---------|----------|--------|----------|--------|
| Whitney Leadership Group, Inc.                            |   | $        | 279,313 |     | $      | 230,476  |   | $ | 368,702 |   |
| Corporation Corp (formerly United States Fiduciary Corp.) |   | $        | 458,877 |     | $      | 418,096  |   | $ | — |   |

 

The payroll service amounts are as follows:

 
|                              |   | **2001** |   | **2000** |   | **1999** |   |
|-----------------------------------|--------|----------|--------|----------|--------|----------|--------|
| MRS Equity Corp.                  |   | $        | 53,105 |     | $      | 170,422  |   | $ | 111,724 |   |
| Precision Software Services, Inc. |   | $        | — |     | $      | 68,811   |   | $ | 38,605 |   |
| Whitney Leadership Group, Inc.    |   | $        | — |     | $      | 80,956   |   | $ | 82,787 |   |
| Raw, Inc.                         |   | $        | — |     | $      | 10,869   |   | $ | — |   |

 

The terms of all of the transactions betweenrelated parties were no less favorable than could be obtained from independentthird parties.

 

F-28

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**ITEM 13.****                     ****EXHIBITS AND REPORTS ON FORM8-K.**

 

No reports on Form 8-K were filed during thelast quarter of the period covered by this report.

 
| **Exhibit No.** |   | **Description**                                             |
|----------------------|--------|-------------------------------------------------------------|
| 3.1*                 |   | Articles of Incorporation.                                  |
|                 |   |                                                        |
| 3.2*                 |   | Bylaws.                                                     |
|                 |   |                                                        |
| 3.3*                 |   | Amended Articles of  Incorporation                          |
|                 |   |                                                        |
| 3.4*                 |   | Amended Articles of  Incorporation                          |
|                 |   |                                                        |
| 4.1*                 |   | Specimen Stock Certificate.                                 |
|                 |   |                                                        |
| 27.1*                |   | Financial Data Schedule                                     |
|                 |   |                                                        |
| 31.1                 |   | Certification of Periodic  Report - Chief Executive Officer |
|                 |   |                                                        |
| 31.2                 |   | Certification of Periodic  Report - Chief Financial Officer |
|                 |   |                                                        |
| 32.1                 |   | Certification of Periodic  Report - Chief Executive Officer |
|                 |   |                                                        |
| 32.2                 |   | Certification of Periodic  Report - Chief Financial Officer |
|                 |   |                                                        |
| 99.1*                |   | Class A Warrant Agreement                                   |
|                 |   |                                                        |
| 99.2*                |   | Class B Warrant Agreement                                   |
|                 |   |                                                        |
| 99.3*                |   | Non-Qualified Incentive  Stock Option Plan                  |
|                 |   |                                                        |
| 99.4*                |   | Office Lease                                                |

 

----

*              Incorporated by reference to exhibit filedwith Form 10SB12G (Sec File No. 000-27403).

 

F-29

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**SIGNATURES**

 

In accordance with Section 13 or 15(d) of theExchange Act, the Registrant caused this amended report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

 
|                | WHITNEY INFORMATION NETWORK, INC. |
|---------------------|-----------------------------------|
|                |                              |   |
| DATED: June 2, 2004 | By:                               | /s/    RUSSELL A. WHITNEY |
|                |                              | Russell  A. WhitneyPresident |

 

In accordance with the Exchange Act, thisamended report has been signed below by the following persons on behalf of theRegistrant and in the capacities and on the dates indicated:

 
| **Signature**                                 |   | **Title**                                                                               |   | **Date**     |
|-----------------------------------------------|--------|-----------------------------------------------------------------------------------------|--------|--------------|
|                                          |   |                                                                                    |   |         |
| /s/    RUSSELL A. WHITNEY |   | Chief Executive  Officer/Chairman/President/Director                                    |   | June 2, 2004 |
| Russell  A. Whitney                           |   |                                                                                    |   |         |
|                                          |   |                                                                                    |   |         |
| /s/    RICHARD S. SIMON   |   | Secretary/Treasurer/Chief  Financial Officer/ Principal Accounting Officer and Director |   | June 2, 2004 |
| Ronald  S. Simon                              |   |                                                                                    |   |         |

 

 

F-30

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