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** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

** **

**FORM 10-K**

 

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

** **

**For the fiscal year ended December 31,2007**

** **

**WHITNEY INFORMATION NETWORK, INC.**

(Exact name ofregistrant as specified in charter)

 

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

 
| **1612 East Cape Coral Parkway, Cape Coral, Florida 33904**(Address of principal executive offices) |
|-----------------------------------------------------------------------------------------------------|
| ** **                                                                                          |
| Registrant’s  telephone number, including area code: (**239) 542-0643**                        |
| ** **                                                                                          |
| Securities  registered under Section 12 (b) of the Exchange Act:**NONE**                  |
| ** **                                                                                          |
| Securities  registered under Section 12 (g) of the Exchange Act:                          |
| **COMMON  STOCK**                                                                                   |
|                                                                                                |
| **No par  value per share**                                                                         |
| (Title of Class)                                                                                    |

 

Indicate by check mark ifthe Registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act.

Yes o No x

 

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

 

Indicate by check mark whetherthe Registrant (1) has filed all reports required to be filed by section13 or 15 (d) of the Exchange Act during the preceding 12 months (or suchshorter period that the Registrant was required to file such reports) and (2) hasbeen subject to such filing requirements for the past 90 days.  Yes oNo x

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this From 10-K or any amendment to this form10-K. o

 

Indicate by check markwhether the Registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company.  See definition of “accelerated filer andlarge accelerated filer” in rule 12b-2 of the Exchange Act.

 
| Large Accelerated filer o |   | Accelerated filer o         |
|---------------------------|--------|-----------------------------|
| Non-accelerated filer o   |   | Smaller reporting company x |

 

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

Yes o No x

 

The aggregate marketvalue of the voting and nonvoting common equity held by non-affiliates of theregistrant, as of June 30, 2007, the last business day of the registrant’smost recently completed second fiscal quarter, was approximately $42.8 millionbased on the closing sale price of the registrant’s common stock as traded onthe NASD Over the Counter Electronic Bulletin Board on such date of $3.65 pershare.  As of December 1, 2008,there were 11,738,587 shares of common stock outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE:

**None**

 

 

 

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**TABLE OF CONTENTS**

 
| **PART I**   | ** **                                                                                                          | ** ** |
|-------------------|---------------------------------------------------------------------------------------------------------------------|------------|
| Item 1.           | Business                                                                                                            | 3          |
| Item 1A.          | Risk Factors                                                                                                        | 9          |
| Item 1B.          | Unresolved  Staff Comments                                                                                          | 13         |
| Item 2.           | Properties                                                                                                          | 13         |
| Item 3.           | Legal Proceedings                                                                                                   | 14         |
| Item 4.           | Submission  of Matters to a Vote of Security Holders                                                                | 14         |
|              |                                                                                                                |       |
| **PART II**  | ** **                                                                                                          | ** ** |
| Item 5.           | Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities | 15         |
| Item 6.           | Selected  Financial Data                                                                                            | 16         |
| Item 7.           | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         | 16         |
| Item 7A.          | Quantitative  and Qualitative Disclosures About Market Risk                                                         | 33         |
| Item 8.           | Financial Statements  and Supplementary Data                                                                        | 34         |
| Item 9.           | Changes in  and Disagreements with Accountants on Accounting and Financial Disclosure                               | 65         |
| Item 9A(T)        | Controls and  Procedures                                                                                            | 65         |
| Item 9B.          | Other Information                                                                                                   | 66         |
|              |                                                                                                                |       |
| **PART III** | ** **                                                                                                          | ** ** |
| Item 10.          | Directors,  Executive Officers and Corporate Governance                                                             | 67         |
| Item 11.          | Executive  Compensation                                                                                             | 69         |
| Item 12.          | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                    | 82         |
| Item 13.          | Certain  Relationships and Related Transactions, and Director Independence                                          | 83         |
| Item 14.          | Principal  Accounting Fees and Services                                                                             | 87         |
|              |                                                                                                                |       |
| **PART IV**  | ** **                                                                                                          | ** ** |
| Item 15.          | Exhibits  and Financial Statement Schedules                                                                         | 88         |
|              |                                                                                                                |       |
|              | Signatures                                                                                                          | 90         |
|                   |                                                                                                                     |            |  |

 

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**PART 1**

 

Inthis annual report on Form 10-K**,**“Whitney”and the terms “Company,” “we,” “us,” and “our” refer to Whitney InformationNetwork, Inc.

 

**CautionaryStatement Regarding Forward-Looking Statements**

 

This Annual Report on Form 10-Kcontains certain forward-looking statements within the meaning of the PrivateSecurities Litigation Reform Act of 1995. Such forward-looking statements may be identified by words such as “may,”“will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,”“estimates,” “predicts,” “projects,” “continue” or similar statements.  These forward-looking statements include,without limitation, statements about our market opportunity, our strategies, competition,expected activities and expenditures as we pursue our business plan, and theadequacy of our available cash resources. Although we believe that the expectations reflected in theforward-looking statements are reasonable, we cannot guarantee future results,levels of activity, performance or achievements.  Forward-looking statements involve known andunknown risks and uncertainties which may cause our actual results in futureperiods to differ materially from what is currently anticipated.  We make cautionary statements in certainsections of this document, including the risks, uncertainties and assumptionsdescribed in Item 1A Risk Factors and elsewhere in this report.  You should read these cautionary statementsas being applicable to all related forward-looking statements wherever theyappear in this document, in the materials referred to in this document, in thematerials incorporated by reference into this document, or in our pressreleases.  No forward-looking statementis a guarantee of future performance, and you should not place undue relianceon any forward-looking statement. Actual results could differ materially fromthose anticipated or implied by the forward-looking statements.  All forward-looking statements in this reportare made as of the date hereof, based on information available to us as of thedate hereof, we assume no obligation to update publicly any forward-lookingstatements for any reason, even if new information becomes available or otherevents occur in the future.

 

Industry data and otherstatistical information used in this document are based on independentpublications, government publications, reports by market research firms orother published independent sources. Some data is based on good faith estimates, derived from our review ofinternal surveys and independent sources. Although we believe these sources to be reliable, we have notindependently verified the information.

 

**ITEM 1.  BUSINESS**

 

**Overview**

 

For more than 15 years,Whitney Information Network, Inc. has provided educational and trainingcourses to students interested in learning about investing in real estate, andmore recently in financial markets.  Wehave also provided courses in related ancillary fields including assetprotection, basic business strategies and cash management, land development,and others.

 

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

 

In 1992, we began ourcourse offerings in real estate investing and related classes to students inthe United States.  In 2000-2002, weestablished our brands in Canada and the United Kingdom.  We began our financial markets educationdivision, in July 2002, with the acquisition of Teach Me to Trade®, andthe commencement of sales in the fourth quarter of 2002.

 

We market some coursesand training programs under our Proprietary Brands, which include WealthIntelligence Academy®, Millionaire U® Training and Teach Me To Trade®.

 

In July 2006, weentered into a joint venture with Rich Global, LLC to create Rich DadEducation, LLC (“RDE”), to provide basic training courses focused on the realestate teachings and philosophies of Mr. Robert Kiyosaki which arecontained in his book, *Rich Dad Poor Dad*.  The *Rich Dad Poor Dad*series of books is published in 46 languages and available in 97 countries, andhas sold over 26 million copies world-wide.

 

In 2007, we beganoffering our Rich Dad® Education basic training to students in theUnited States, Canada and the United Kingdom. For the fiscal year ending December 31, 2007, RDE represented approximately19.8% of our total revenues of 

 

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$207.6 million, and 46.2%of our total cash sales of $211.5 million. See “Item 7. Management’s Discussion and Analysis of Financial Conditionand Results of Operations – Non-GAAP Financial Measures.”

 

**OurStrategy**

 

Our objective isto be a leading provider of non-degreed educational services, products andtraining that provide students with skills and tools to achieve their personaland financial goals.  In addition to ourcurrent course offerings, we will continue to look at other alternativeeducation segments as potential sources of growth.  Those additions could include aself-improvement segment, a youth segment, or a women’s segment.  We also expect to expand our Rich Dad® Educationcourse offerings to include financial market investing in 2008.

 

To position our companyin preparation for growth into new segments we will concentrate on:

 

·                  Expanded channelreach.  Through strategic partnerships,alliances and new business models, we may be able to generate new revenueswithout incurring significant additional marketing or administrative costs.  We intend to identify potential partnershipsand alliances that can result in increased revenues. We will researchunderserved market segments and changes in the non-degreed education marketthat will provide insights to reach new market segments.  We will evaluate complementary businesspossibilities, including potentially entering business-to-business markets.

 

·                  Improvedtechnology and innovation capabilities. Achieving the necessary steps for us to grow may require significantimprovements to our technology and innovation structure and external deliveryplatforms.  We intend to further develop enhanced technologyplatforms capable of streaming video, interactive e-learning, distributede-learning and Web advertising.  We alsointend to improve the technology platforms currently used in our financialmarkets and real estate courses. Further, we intend to enhance our internal financial systems and fullyutilize our Customer Relationship Management (CRM) capabilities.

 

·                  Enhanced coreofferings and e-enablements.  Our overall brand strategy willbe redefined and redirected to maximize marketing effectiveness and to improvecustomer understanding.  We intend todevelop a system of ongoing student involvement to enhance the student lifecycle, resulting in an enhancement to the student experience.  Further, we intend to develop new interactiveand online distributed course content for all brands.

 

·                  Increasedlifetime customer value.  We intend to continually enhance the studentexperience and increase the lifetime value of a customer in order to retaincustomers, attract new customers and generate additional revenues.  We intend to accomplish this in part bycreating student communities through online channels, thus allowing us tobetter control customer “touchpoints.” This may allow us to provide valuable ancillary services and createadditional revenue flows through implementation of CRM and data mining results.

 

·                  Internationalexpansion.  We believe that there aremany valuable international markets where we could introduce our products in acost-effective and profitable manner.  Wecurrently provide courses in Canada and the United Kingdom and it is ourintention to explore potential market expansion in these areas as well as inEurope and Asia-Pacific.  We believe thatwith the right resources and technological support, we can potentially increaseour student base across the globe.

 

·                  Consistent Quality Assurance.  We believe that to be a viable provider ofnon-degreed education we need to ensure that our course offerings meet ourstrict quality assurance guidelines.  Tothat end, we will continue to monitor and enforce standards for marketing,sales presentations and educational delivery throughout our organization.

 

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**IntellectualProperty**

 

We regard oureducational materials and products, trademarks, service marks, trade dress,trade names and patents as proprietary and we rely primarily on federalstatutory and common law protections to protect our interests in thesematerials.  We market some courses andtraining programs under our Proprietary Brands, which include WealthIntelligence Academy®, Millionaire U® Training and Teach Me To Trade®.  While some of our proprietary materials maycontain commonly used terms and do not afford us significant trademarkprotection, we also use employee and third party non-compete andconfidentiality agreements and other contractual methods of protectingproprietary rights to safeguard our intellectual property.

** **

**LicensingAgreements with Rich Dad Global, LLC**

 

On July 6,2006, we entered into a limited liability company agreement with Rich DadGlobal, LLC (“RDG”); to promote the financial philosophy espoused by Mr. Kiyosakiin his book, *Rich Dad Poor Dad*.  We established a limited liability companynamed Rich Dad Education, LLC (“RDE”), 51% of which is owned by us and theremaining 49% by RDG.  Pursuant to alicense agreement dated July 6, 2006 (“Rich Dad License”), RDG granted RDEa license to use the Rich Dad trademarks, tradenames and other businessinformation in seminars that it conducts in the United States and Canada andhas been amended to include the United Kingdom. The Rich Dad License does not have a term and is subject to terminationif RDE among other things, breaches a material term or condition or fails tohold a required minimum of seminars during various times specified in thelicense agreement.

** **

**Marketing**

 

We acquire ourstudents through direct marketing in the form of television long forminfomercials, short form commercials, radio advertising, direct mail, newspaperadvertising, email marketing, and internet based banner ads.  Potential students are invited to attend afree introductory two-hour workshop in their local area during which we offer afollow-up three day basic training class. Students enroll and attend the basic training course and receive thereference materials that are designed to accompany the training, which isusually held over the weekend within two or three weeks of the initial freeintroductory workshop.  In 2007,approximately 24.7% of the attendees at the free introductory workshop enrolledin the basic training course.

 

At the basic trainingcourse, students are taught the basics of course topics and are encouraged toenroll in advanced, detailed classes covering specific topics within theeducation segment.  Our basic andadvanced trainings are described below in “Education Training.”

*** ***

***Education Training***

 

In 2007, we offered freeintroductory workshops and basic training courses under the following marketingprograms and brands:

* *

*Basictraining courses*

* *

*RussWhitney*®*’s**Building Wealth* is a program offering a curriculum thatfocuses on the general business of real estate and teaches the fundamentals ofnegotiating real estate purchases with sellers, rehabilitating distressedproperties, and leasing rental units to tenants to generate multiple sources ofcash flow.  Students are taught themechanics of completing a real estate transaction in their community, frommaking an offer to closing the transaction, with emphasis upon creativefinancing strategies.

* *

*Teach Me**TM** Foreclosure & Real Estate Investing* is a local training program offering acurriculum in real estate focusing on pre-foreclosures.  The courseteaches students how to locate and purchase homes in foreclosure.  Students also learn strategies for improvingthe return on their investments in foreclosed properties including wholesaling,rehabilitation and creative financing.

* *

*Rich Dad*®* Education* was created by Rich Dad Education, LLC,our 51% owned subsidiary, in conjunction with Rich Global, LLC.  Thecourse focuses on the real estate teachings and philosophies of RobertKiyosaki, author of *Rich Dad Poor Dad*.

 

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The course concentrateson real estate principles while allowing students to apply what they havelearned from playing the board game, *CASHFLOW*®.

* *

*TeachMe To Trade*® program offers curriculum that focuses onstock market trading strategies and uses software and specific teachingtechniques designed by us. Students are taught to understand the stock market,investment strategies, risks and how to improve returns in both bull and bearmarkets.

* *

*Advancedtraining courses*

 

Students attendingour basic training courses may choose to continue with advanced trainingcourses.  The advanced training coursesof study under the*Wealth Intelligence Academy*® (“WIA”)brand include the following:

** **

**RealEstate Advanced Courses**

* *

*MillionaireU*®*RETraining*

* *

*AssetProtection & Tax Relief*

* *

*Rich UTMTraining*

* *

*Wholesale Buying*

* *

*Discount Notes & Mortgages*

* *

*Profits in Probate*

* *

*Manufactured Mobile Homes & RV Parks*

* *

*Foreclosure Training*

* *

*Rehabbing for Profit*

* *

*Short Sales and Mortgages*

* *

*Tax Liens & Deeds*

* *

*Lease Option*

* *

*Commercial Real Estate Investing*

* *

*Property Management & Cash Flow*

* *

*Land Investment & Development-Domestic*

* *

*Land Development-International*

* *

*Creative Real Estate Financing*

* *

*Real Estate Sales and Negotiating Techniques*

 

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**FinancialMarkets Education Advanced Courses**

* *

*MasterTraderTM Training*

* *

*AdvancedCovered Calls*

* *

*TheTrading RoomTM*

* *

*TheTrading P.I.T.TM*

* *

*AdvancedTechnical Analysis*

* *

*TheAdvanced P.I.T.TM*

* *

*H.I.T.S.TM*

* *

*AssetProtection & Tax Relief*

 

WIA maintainscontact with the student from the time the student purchases his or her firstadvanced training course until the program is complete.

 

A complete description ofthese advanced training courses is available on the WIA website athttp://www.wiacademy.com.  In addition,students can purchase a license to use software for real estate or financialmarket investing.  With either softwareprogram, a subscription based data service is available for purchase whichallows students to interactively determine real time investment options andmake better informed decisions about those potential investments.

 

All of our WIA classesare available for students to attend live and in person, at various regionallocations in the United States, Canada, the United Kingdom and Costa Rica (LandDevelopment-International course only). Also, many of our classes are offered in a virtual live classroomenvironment over the internet.  Otherforms of WIA educational delivery include on-demand streaming internet basedclasses and packaged CDs and DVDs.

 

Through our outreachbased telemarketing programs both buyers and non-buyers of our WIA classes arecontacted and enrolled in other classes, or are offered classes in other forms,including telephone-based subscription coaching programs, teleconferencesessions, selected third party offerings and advanced student supportoptions.  During the fiscal year ending December 31,2007, our outreach program accounted for 12.7% of our cash sales from courseand product sales.

 

Each month, we offer over200 classes and training programs throughout our geographic markets.  For year ending December 31, 2007, 93.3%of our revenues were generated domestically and 6.7% from Canadian and UnitedKingdom operations.  Basic trainingaccounted for 13.6% of worldwide revenues, with the remaining 86.4% of revenuescoming from advanced training courses and our other educational services andprograms in 2007.

*** ***

***Competition***

 

We believe we compete, in a broad sense, with a number of companies,such as Investools Inc., Trump University, Robbins Research International andDynetech Corporation, which offer training on specific business subjectsincluding real estate and stock market investing.  We do not believe, however, that we competedirectly with companies that offer undergraduate or advanced degrees orcontinuing education programs.

 

Generally, competitive factors within the proprietary educationalmarket include the range and depth of course offerings, the quality of teachersand trainers, the quality of reference materials provided in connection withcourse studies and the cost of the educational process.  We believe that the range and depth of ourcourse offerings and the quality of our teachers, trainers and referencematerials are comparable or superior to those of our competitors. Typically,our advanced instructors have been active investors in their chosen field, havebeen trained by us, and to a large degree are previous students of ourprograms.

 

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We contract with independent contractors as trainers, instructors,mentors and coaches.  They are chosenbased on their knowledge and experience with the coursework covered, and arefurther qualified by meeting standards of knowledge developed internally whichare confirmed on a consistent and ongoing basis.

 

In addition, we have developed a broad line of educational resourcematerials for real estate and financial products which support our courseofferings.  Charges for our educationalcourses are also consistent with those of our competitors.

** **

**Employees**

 

On December 31,2007, we had approximately 457 employees of whom 429, or 93.9% were located inthe Unites States and 28, or 6.1%, were located in Europe and Canada, plusapproximately 252 independent contractors who are trainers, instructors,coaches and mentors.  Our employees arenot represented by a labor union, and we believe our relations with ouremployees are satisfactory.  Ourindependent contractors are paid commissions based upon the tuition dollarvalue of courses purchased by students at our free informational workshops andbasic training sessions, or are paid fixed fees for teaching and mentoringadvanced courses.  All independent contractorsexecute agreements with us which set forth commission structures and providefor confidentiality, code of conduct and covenants not to compete.

** **

**Available Information**

 

We regularly file reports with the Securities andExchange Commission (“SEC”).  Thesereports include, but are not limited to, Annual Reports on Form 10-K,Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxystatements and other forms as required. The public may read and copy any materials that the Company files withthe SEC at the SEC’s Public Reference Room located at 100 F Street NE,Washington, DC 20459.  The public mayobtain information from the public reference room by calling the SEC at1-800-SEC-0330.  The SEC maintains an internetwebsite that contains the annual, quarterly, and current reports, proxy andinformation statements and other information that public companies (includingus) file electronically with the SEC. Our electronic filings are available to the public at the SEC’s websitewww.sec.gov.

 

The Company makes our Annual Report on Form 10-K,Quarterly Reports on Form 10-Q, current reports on Form 8-K and otherreports filed or furnished with the SEC available to the public through ourwebsite at www.wincorporate.com. Information on our website is not part of this filing on this Annual Reporton Form 10-K and will not be incorporated by reference.

 

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**ITEM 1A. ****RISK FACTORS**

 

Beforedeciding to purchase, hold or sell our common stock, you should carefullyconsider the risks described below in addition to the other cautionarystatements and risks described elsewhere, and the other information contained,in this Report and in our other filings with the SEC, including our subsequentreports on Forms 10-Q and 8-K.  The risksand uncertainties described below are not the only ones we face.  Additional risks and uncertainties not presentlyknown to us or that we currently deem immaterial may also affect our business.  If any of these known or unknown risks oruncertainties actually occurs with material adverse effects on the Company, ourbusiness, financial condition, results of operations and/or liquidity could beseriously harmed.  In that event, themarket price for our common stock will likely decline and you may lose all orpart of your investment.

** **

**We have a high concentration ofsales from our Rich Dad Education brand and termination of this relationshipwould have an adverse impact on our financial results**

 

Our Rich Dad real estatecourse offerings accounted for approximately 46.2% of our total cash sales and19.8% of revenue for fiscal year 2007 and have increased in 2008.  See “Item 7. Management’s Discussion and Analysisof Financial Condition and Results of Operations – Non-GAAP FinancialMeasures.   If  sales from the Rich Dad brand were todecrease for any reason or if our relationship with RG was terminated due toour default under our licensing agreement with RG or for any other reason, itwould have an adverse effect on our business, results of operations andfinancial condition.  Our relationshipwith Rich Dad does not have a fixed term and there can be no assurances on howlong this business relationship will continue.

 

**Our uses of cash are restrictedby the Rich Dad joint venture and licensing agreements**

 

Our joint venture andlicensing agreements with Rich Global, LLC, requires us to segregate our cashbalances between (i) funds received from RDE students and; (ii) fundsreceived from the sale of our Proprietary Brands. The Company is restrictedfrom using cash generated from the RDE brand to pay for expenses incurred byour non-RDE Brands, except in the payment of license and management fees owedto us in accordance with our agreement with Rich Global, LLC, as reimbursementfor the fulfillment of advanced courses purchased by RDE students and partnerdistributions paid when cash balances exceed the cost to fulfill outstandingstudent contracts.   These restrictionson uses of cash associated with the Rich Dad products impact our liquidity andcreate additional administrative obligations for the Company.

 

**Any decrease in the popularity ofthe Rich Dad brand would have an adverse impact on our financial condition**

** **

If the Rich Dad brandwere to experience a decrease in popularity, it would have a significant impacton our business, results of operations and financial condition. In the currenteconomic environment,  many individualsare not interested in purchasing real estate investments courses or products.  The decreased interest in real estateinvesting could impact the Rich Dad brand. Additionally, if Mr. and Mrs. Kiyosaki, the founders of theRich Dad brand, do not spend as much time in the public eye, it could impactthe popularity of the Rich Dad brand and consequently impact our sales of RichDad products.

 

**If we are unable to successfullyconclude the litigation, governmental investigations and inquiries pendingagainst us, our business, financial condition, results of operations and growthprospects could be adversely affected.**

 

We,certain of our subsidiaries, and some of our current and former directors andexecutive officers have been named as defendants in lawsuits allegingviolations of the federal securities laws. In addition, certain government agencies are conducting inquiriesregarding us, including the Department of Justice (“DOJ”) and the SEC.  We are also subject to various otherlawsuits, investigations and claims, covering a range of matters, including,but not limited to, claims involving shareholders.  Please see Item 3 of this Annual Report on Form 10-Kand Note 16 - *Commitments and Contingencies* inthe Notes to our Consolidated Financial Statements of this Annual Report on Form 10-Kfor a detailed discussion of these matters.

 

Wecannot predict the ultimate outcome of these matters, and we expect to incursignificant defense costs and other expenses in connection with them.  Such costs and expenses could have a materialadverse effect on our business, financial condition, results of operations andthe market price of our common stock.  Wemay be required to pay substantial damages or settlement costs in excess of ourinsurance coverage related to these matters, which could have a further materialadverse effect on our financial condition or results of operations.

 

Whilewe continue in our efforts to cooperate with the government investigations, wecannot predict the duration or outcome of the investigations, and theinvestigations may expand, and other regulatory agencies may becomeinvolved.  The outcome and costsassociated with these investigations could have a material adverse effect onour business, financial condition, or results of operations, and theinvestigations could result in adverse publicity and divert the efforts andattention of our management team from our ordinary business operations.  The government investigations and any relatedlegal and administrative proceedings could also include the institution ofadministrative, civil injunctive or criminal proceedings against us and/or ourcurrent or former officers or employees, the imposition of fines and penalties,suspensions and/or other remedies and sanctions.

** **

**We facesignificant competition in our markets.**

 

Our success will depend upon our ability to attract customers byproviding high-quality courses and educational materials.  The market for training courses for specificbusiness issues, such as real estate or stock market investing, is intenselycompetitive.  If we are unable tosuccessfully compete, our business, operating results and financial conditionwould be materially harmed.  Some of ourcurrent and potential competitors have longer operating histories, largercustomer bases, greater brand recognition and significantly greater financial,marketing and other resources than we do. Certain competitors may be able to secure alliances with customers andaffiliates on more favorable terms, devote greater resources to marketing andpromotional campaigns and devote substantially more resources to coursedevelopment than we can.  In addition, itis possible that certain 

 

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competitors, or potential competitors, could reduce their pricing tolevels that would make it difficult for us to compete. Increased competitionmay result in reduced operating margins, as well as loss of market share andbrand recognition.

 

Inaddition, in order to compete effectively in our markets, we may need to changeour business in significant ways.  Forexample, we may change our pricing, product, or service offerings, make keydecisions about technology directions or marketing strategies, or acquireadditional businesses or technologies. Any of these actions could hurt our business, results of operations, andfinancial condition.

** **

**Laws and regulations can affectthe operations of our business and may limit our ability to operate in certainjurisdictions.**

 

Federal,state and international laws and regulations impact our operations and maylimit our ability to obtain authorization to operate in some states orcountries.  Many federal, state andinternational governmental agencies assert authority to regulate providers ofinvestment education programs.  Failureto comply with these regulations could result in legal action instituted by thestates, including cease and desist and injunction actions.  In the event we are subject to such legalaction, our reputation could be harmed and the demand for our course offeringscould be significantly reduced.  See Item3, *Legal Proceedings*, for a detaileddiscussion of these regulatory proceedings.

** **

**Failure to comply with federaland state laws regulating the marketing and sale of proprietary educationalcourses could significantly reduce the demand for our course offerings.**

 

Ourproducts and services are marketed via a number of channels, includingtelevision, print, postal mail, radio, online banners, paid and organic search,and other email marketing campaigns, which are regulated by numerous federaland state laws and regulations, including, but not limited to, anti-fraud laws,consumer protection laws, privacy laws, telemarketing laws, home solicitationlaws and spam laws.  We believe that ourmarketing activities will increasingly be subject to such regulation, whichmay: (1) limit our ability to solicit new students or offer additionalproducts or services to existing students, and (2) result innoncompliance, which may subject us to fines or various forms of civil orcriminal prosecution.  Regulatory andlegal requirements are subject to change and may become more restrictive,making our compliance more difficult or expensive or otherwise restricting ourability to conduct our business.

** **

**Ourability to offer courses may be affected by natural disaster, strikes and otherunpredictable events.**

 

Naturaldisasters, external labor disruptions and other adverse events may affect ourability to conduct our business, resulting in loss of revenue.  Severe blizzards or floods may reduce theability of our course participants to travel to our courses.  These natural disasters may also disrupt theprinting and transportation of the materials used in our direct mailcampaigns.  Furthermore, postal strikescould occur in the countries where we operate which could delay and reducedelivery of our direct mail marketing materials.  Transportation strikes could also occur inthe countries where we operate, adversely affecting course offerings.

** **

**If we do not****successfully introducenew programs, products and services****,****our****growth rate and****revenue****may be reduced**.

 

Ourgrowth strategy for our business is dependent on our ability to sell existingtraining programs, products and services to new students, to open new marketsand to develop and introduce new educational programs, products andservices.  If we are unable to expand ourmarkets and products, our growth rate and revenue may be reduced.  Market conditions and the level of customerinterest may be different for our current products than for new products andmarketing costs and methods may differ in new markets, and there can be noassurance that we will be able to compete favorably with, and obtain marketacceptance for, any such new programs, products or services.  Our growth strategy also is dependent uponthe development of new products and services and the enhancement of existingproducts and services.  The financial servicesand real estate industries have continually evolving industry standards andpractices.  Our failure to keep abreastof such changes could result in our technology and systems and our productofferings becoming obsolete.  Thedevelopment of new products involves significant risks.  We may not be able to adapt our new productsor services to new standards in the marketplace.  In addition, changes in technologies couldforce us to incur substantial expenditures to appropriately modify ourinfrastructure and our products and services.

 

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**Ourresults of operations are materially affected by economic conditions includingsignificant price increases, inflation or adverse events related to various industries.Additionally, other changes experienced by our students including thewillingness to trade or invest in securities or real estate could influencediscretionary spending contributing to uncertainty in our results ofoperations.**

 

Uncertain economic conditionsmay affect our student’s discretionary income and ability to purchase ourtraining courses and products. Such economic conditions and consumer spendingare influenced by a wide range of factors that are beyond our control and thatwe have no comparative advantage in forecasting. These conditions include:

 

•                  Demand for training and our relatedproducts;

 

•                  Conditions in the securities andinvestment market;

 

•                  Conditions in the real estate market;

 

•                  Availability of mortgage financingand other forms of credit;

 

•                  General economic and businessconditions;

 

•                  General political developments; and

 

•                  Natural or man-made disasters.

 

A prolonged economicdownturn, particularly in the United States, could increase these effects onour business.

 

**Expansioninto additional markets outside the United States, if successful, will subjectus to additional risks inherent in international operations.**

 

We currently operate inthe United Kingdom and Canada. As part of our growth strategy, we intend toestablish training courses in additional markets outside the United States. Ifwe are successful in implementing our strategy, we will face risks that areinherent in international operations, including:

 

•                  Complexity of operations acrossborders;

 

•                  Currency exchange rate fluctuations;

 

•                  Multiple and possibly overlapping andconflicting tax laws;

 

•                  Applicability of educational conceptsto foreign markets; and

 

•                  Compliance with foreign regulatoryrequirements.

 

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

 

The market price of ourcommon stock was $1.85 per share at the close of business on March 31,2008, and exceeded our December 31, 2007, book value, which was astockholders’ deficit of $55.2 million or $4.71 book value per share deficit. Thelower book value per share compared to our market price per share increases therisk that our market price per share may decline in the future.

 

**Ourformer Chairman and Chief Executive Officer, Mr. Whitney, beneficiallyowns 5,227,300 shares of our Common Stock which constitutes approximately44.5% of our outstanding Common Stock, which means he has the ability tosignificantly influence any matter requiring stockholder approval or prevent achange of control in our Company.**

 

Mr. Whitney, ourformer Chairman and Chief Executive Officer, beneficially owns 5,227,300 which represents approximately 44.5%of our outstanding common stock as of March 31, 2008 as reported on Form SC13D filed with the SEC on April 28, 2008. As such, Mr. Whitney cansignificantly influence any matter requiring the vote of our stockholders,including the election

 

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of directors. Mr. Whitneycould, with a relatively small number of other stockholders, vote to approve atransaction that may not be in the best interests of other stockholders orreject a transaction that may be in the best interests of other stockholders. Moreover,Mr. Whitney’s stock ownership may deter a third party from making ageneral tender offer for our Common Stock. Mr. Whitney’s stock ownershipmay prevent such an event from occurring. The Addendum to the Agreement toSettle Property Rights and Other Martial Affairs of Russell Whitney and IngridWhitney, dated December 7, 2007 (the “Settlement Agreement”) containscertain covenants relating to the 4,991,850 shares of Common Stock held byInternational Securities 3 LLC (the “IS3 Shares”). Specifically, during theperiod beginning December 7, 2007 and ending on June 2, 2009 (the “Lock-upPeriod”), Mr. Whitney has exclusive power to vote all of the IS3 shares. Duringthe Lock-up Period, Mr. Whitney has agreed he will be in a fiduciaryrelationship with Ingrid Whitney and will not vote the shares in a manner thatwill materially harm Ingrid Whitney. During the Lock-up Period, Ingrid Whitneyhas agreed not to sell, transfer or assign any of the shares of Common Stockthat make up her 50% portion of the IS3 Shares (2,277,175 shares of CommonStock). During the Lock-up Period, Mr. Whitney holds an exclusive right topurchase the shares of Common Stock that comprise Ingrid Whitney’s 50% portionof IS3 shares. The purchase price per share will be equal to the current marketprice at the time Mr. Whitney exercises his right to purchase such shares.

 

**Our Board ofDirectors, without stockholder approval, may issue preferred stock which couldreduce the voting power or rights of our other stockholders and make it moredifficult for a third party to acquire a majority of our outstanding voter’sstock.**

 

Our Board of Directors,without stockholder approval, may issue up to 10.0 million shares ofpreferred stock. The Board of Directors can fix the rights, preferences andprivileges of the shares of each series and any qualifications, limitations orrestrictions, which could reduce the voting power or other rights of theholders of common stock. Issuance of preferred stock could also have the effectof making it more difficult for a third party to acquire, or of discouraging athird party from attempting to acquire a majority of our outstanding votingstock.

 

**Ourtransition to new senior executives, or the loss of any of our keyexecutive  personnel, or high performinginstructors, could disrupt our operations and reduce our profitability.**

 

Our future successdepends to a significant extent on the successful transition of our seniorexecutive management in the continuing development of our operations. The lossof the services of certain of these individuals would have a material adverseeffect on out business. Although, we have employment agreements andnon-competition agreements with certain of our key employees, as a practicalmatter, those agreements will not assure the retention of our employees. Wecurrently do not maintain key man insurance on any member of our seniorexecutive management team.

 

Our future success alsodepends on our ability to retain and attract high performing instructors. Theloss and/or inability to recruit suitable replacements may affect ourperformance and reduce our profitability.

 

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

 

Although Mr. Whitney no longer serves asour Chief Executive Officer, he remains on our Board of Directors. Mr. Whitneyhas outside passive investment interests in real estate and owns a 25% interestin Gulfstream Development Group, LLC, a residential construction company. Inthe past, Mr. Whitney owned residential real estate lots in Cape Coral,Florida, some of which were purchased by our students. From time to time, someof our students used Gulfstream to build residences upon lots which they havepurchased from Mr. Whitney or others. These kinds of arrangements couldcreate, or appear to create, conflicts of interest if our students purchasedlots from Mr. Whitney or contracted with Gulfstream to constructresidences on such lots. Any conflict of interest or appearance of a conflictof interest in connection with our arrangements with our students couldnegatively impact investor interest in us and therefore our stock price andliquidity. See “Related Party Transactions” for a more detailed discussion oftransactions between the Company and its executive officers, directors and 5%or greater shareholders and Item 3, Legal Proceedings.

 

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**We havematerial weaknesses in our internal control over financial reporting whichcould adversely affect our ability to report our financial condition andresults of operations accurately and on a timely basis.**

 

In connection with our restatement and our assessmentof internal control over financial reporting under Section 404 of theSarbanes-Oxley Act of 2002, we identified material weaknesses in our internalcontrol. For a discussion of our internal control over financial reporting anda description of the identified material weaknesses, see “Item 9(A)T. Controlsand Procedures.”

 

Material weaknesses in our internal control overfinancial reporting could adversely impact our ability to provide timely andaccurate financial information. We are developing remediation plans tostrengthen our internal controls in response to the previously identifiedmaterial weaknesses. If we are unsuccessful in developing, implementing orfollowing our remediation plans, or fail to update our internal controls as ourbusiness evolves, we may not be able to timely or accurately report ourfinancial condition, results of operations or cash flows or maintain effectivedisclosure controls and procedures. If we are unable to report financialinformation timely and accurately or to maintain effective disclosure controlsand procedures, we could be subject to, among other things, regulatory orenforcement actions by the SEC, securities litigation and a general loss ofinvestor confidence, any one of which could adversely affect our businessprospects and the valuation of our common stock.

 

Furthermore, there are inherent limitations to theeffectiveness of any system of controls and procedures, including thepossibility of human error and the circumvention or overriding of the controlsand procedures. We could face additional litigation exposure and a greaterlikelihood of an SEC enforcement regulatory action if further restatements wereto occur or other accounting-related problems emerge. In addition, any futurerestatements or other accounting-related problems may adversely affect ourfinancial condition, results of operations and cash flows.

 

**ITEM 1B. UNRESOLVEDSTAFF COMMENTS**

 

None.

 

**ITEM 2. PROPERTIES**

 

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

 
| **Purpose**                               | ** ** | **Location**         | ** ** | **Own/Lease** | ** ** | **Approximate  square footage** | ** ** | **Lease expiration** | ** ** | **Annual rent** | ** ** |
|-------------------------------------------|------------|----------------------|------------|---------------|------------|--------------------------------------|------------|---------------------------|------------|----------------------|------------|
| Corporate  headquarters                   |       | Cape Coral, FL       |       | Own           |       | 40,734                               |       | —                    |       | —               |       |
| EduTrades and  telemarketing headquarters |       | Murray, UT           |       | Lease         |       | 32,646                               |       | January 2013         |       | 392                  |       |
| European  headquarters                    |       | London, England      |       | Lease         |       | 2,727                                |       | April 2012           |       | 119                  |       |
| Canadian  headquarters                    |       | Ontario, Canada      |       | Lease         |       | 1,200                                |       | April 2010           |       | 22                   |       |
| Training center                           |       | Salt Lake City, UT   |       | Lease         |       | 6,783                                |       | September 2010       |       | 123                  |       |
| Training center                           |       | Cape Coral, FL       |       | Lease(1)      |       | 2,200                                |       | Month-to-Month            |       | 23                   |       |
| Support facility                          |       | Cape Coral, FL       |       | Lease(1)      |       | 9,000                                |       | Month-to-Month            |       | 167                  |       |
| Training center                           |       | Cape Coral, FL       |       | Lease(1)      |       | 4,802                                |       | Month-to-Month            |       | 87                   |       |
| Training center                           |       | London, England      |       | Lease         |       | 1,990                                |       | December 2009        |       | 299                  |       |
| Conference  center                        |       | Monterey, Costa Rica |       | Own           |       | 7,200                                |       | —                    |       | —               |       |
|                                      |       |                 |       |          |       | 109,282                              |       |                      |       | $                    | 1,232      |   |
|                                           |            |                      |            |               |            |                                      |            |                           |            |                      |            |  |

 

----

(1)           Related party lease.

 

We own the land and buildingof our executive offices in Cape Coral, Florida. Our executive office buildingis approximately 40,734 square feet and is situated on approximately4.5 acres. We lease approximately 32,646 square feet of office space inMurray, Utah for our EduTrades and telemarketing headquarters. The leaseexpires in January 2013 and rent is payable at rates increasing from$32,646 to $36,743 per month over the remainder of the lease.

 

We lease approximately2,727 square feet of office space in London, England for our Europeanheadquarters. The lease expires in April of 2012 and our monthly rentalrate is $9,917.

 

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Our Canadian subsidiaryleases approximately 1,200 square feet of office space in Ontario, Canada. Thelease expires in April 2010 and rent is payable at rates increasing from$1,789 to $1,936 per month over the remaining term of the lease.

 

We lease approximately 6,783square feet of office space in Salt Lake City, Utah. The lease expires in 2010and rent is payable at rates increasing from $10,197 to $10,813 per month overthe remaining term of the lease. The facilities are being used as a trainingcenter.

 

We lease approximately1,990 square feet of office space in London, England which is being used as atraining center. The lease expires in December 2009 and the rent is$299,200 for the year.

 

We own an approximately7,200 square foot conference and training center in Monterey, Costa Rica, whichwe designed and built in 2002. This property was sold in January 2008.

 

*Relatedparty leases*

 

We lease approximately2,200 square feet of training facilities at 1611 East Cape Coral Parkway,approximately 9,000 square feet of space at 1625 East Cape Coral Parkway whichis used for offices and shipping and 4,802 square feet at 1630 Southeast 47th Terrace, which we use as a training facility,all in Cape Coral, Florida, from Cape Promenade Trust, which is for the benefitof our former Chairman and Chief Executive Officer, Russell Whitney, and hisformer spouse, Ingrid Whitney.

 

The leases are for threeyears and began on March 1, 2003, March 1, 2003 and June 1, 2004respectively. The monthly rentals are $1,943, $13,913 and $7,238 respectively. Weterminated the 1611 Cape Coral Parkway and 1630 Southeast 47th Terrace leases on September 17, 2008. Wealso notified Cape Promenade Trust on November 21, 2008, that we will beterminating  the 1625 East Cape CoralParkway lease as of December 31, 2008.

 

We believe that ourfacilities will be adequate to meet our requirements through 2008 and thatsuitable additional or substitute space will be available if needed.

 

**ITEM 3. LEGALPROCEEDINGS**

 

See Note 16 – *Commitments and Contingencies* in the Notes to theConsolidated Financial Statements Part II, Item 8 for informationabout legal proceedings in which we are involved.

 

**ITEM 4. SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

None.

 

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**PART II**

 

**ITEM 5. MARKETFOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES**

 

Our common stock wasquoted on the NASD Over-the-Counter Bulletin Board under the trading symbol “RUSS”from August 1998 through June 25, 2007 and has been quoted on thePink Sheet under the symbol RUSS.PK since June 25, 2007 through thepresent date. The following table shows the high and low sales prices of ourcommon stock for each quarter in 2007 and 2006. These quotations reflectinter-dealer prices, without retail mark-up, markdown or commissions, and maynot represent actual transactions.

 
| ** **                                           | ** ** | **High**   | ** ** | **Low**    | ** ** |
|------------------------------------------------------|------------|------------|------------|------------|------------|
| **Year ended December 31, 2007** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Fourth Quarter                                       |       | $          | 3.40       |       | $          | 1.01 |   |
| Third Quarter                                        |       | $          | 4.30       |       | $          | 3.25 |   |
| Second Quarter                                       |       | $          | 4.50       |       | $          | 3.00 |   |
| First Quarter                                        |       | $          | 5.55       |       | $          | 3.40 |   |
|                                                 |       |       |       |       |       |
| **Year  ended December 31, 2006**               |       |       |       |       |       |
| Fourth Quarter                                       |       | $          | 10.00      |       | $          | 3.10 |   |
| Third Quarter                                        |       | $          | 10.20      |       | $          | 7.65 |   |
| Second Quarter                                       |       | $          | 11.26      |       | $          | 7.60 |   |
| First Quarter                                        |       | $          | 11.25      |       | $          | 7.10 |   |

 

As of March 31,2008, the closing price of our common stock as reported on the NASD Over-theCounter Bulletin Board was $1.85. According to the records of our transferagent, there were 132 shareholders of record of the Company’s common stock at March 31,2008. Because many of our shares of common stock are held by brokers and otherinstitutions on behalf of shareholders, we are unable to estimate the totalnumber of shareholders represented by these record holders.

 

**DividendPolicy**

 

During our two mostrecent fiscal years, we authorized one cash dividend of $1.00 per share to ourcommon stock shareholders of record on September 15, 2006, and which waspaid on October 2, 2006. This was deemed a return of capital for incometax purposes. We do not anticipate paying any cash dividends on our commonstock in the future.

 

**Equity Compensation Plan Information**

 

The following tablesummarizes, as of December 31, 2007, the equity compensation plans underwhich we may issue shares of stock to our directors, officers and employeesunder the 1998 Stock Option Plan (in thousands).

 

| **Plan Category**                                  | ** ** | **Number of common  shares to be issued upon  exercise of outstanding  options** | ** ** | **Weighted average  exercise price of  outstanding  options** | ** ** | **Number of common  shares remaining  available for future  issuance under equity  compensation plans** | ** ** |
|---------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity  compensation plans approved by security holders |       | 1,218,400                                                                                                                |       | $                                                                            | 4.70       |                                                                                                                                            | 223,725    |   |
|                                                         |            |                                                                                                                          |            |                                                                              |            |                                                                                                                                                 |            |  |

 

*1998Stock Option Plan*

 

Our 1998 Stock OptionPlan (“1998 Plan”) provides for the issuance of up to 2,187,500 shares of ourcommon stock as incentive stock options and nonqualified stock options. As of December 31,2007, we had 1,218,400 options issued and outstanding under the 1998 Plan. Onlyour employees and directors are eligible to receive awards under the 1998 Plan.The purpose of the 1998

 

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Plan is to motivateparticipants to achieve long range goals, attract and retain eligibleemployees, provide incentives competitive with other similar companies andalign the interest of employees and directors with those of our shareholders. The1998 Plan is administered by the Compensation Committee of the Board ofDirectors. The exercise price of a stock option grant under the 1998 Plan maynot be less than the average market price of our stock on the date of the grantand no options may have a term of more than ten years. Options granted underthe 1998 Plan typically vest as follows: 25% of the options vest on the grant date, an additional 25% vests onthe completion of the first year of service, another 25% vests on thecompletion of the second year of service, and 100% of the shares vest at theend of the third year of service, although the Compensation Committee mayapprove a different vesting period. All options expire ten years from the dateof grant. The 1998 Plan expired on August 30, 2008, but any options thatwere issued under the 1998 Plan prior to the expiration date are stilloutstanding and exercisable when vested.

 

**ITEM 6. SELECTEDFINANCIAL DATA**

 

Not required.

 

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

 

The following discussionand analysis of our financial condition and results of operations for theperiods indicated should be read in conjunction with our Consolidated FinancialStatements, related notes and the other financial data included elsewhere inAnnual Report on this Form 10-K. In addition to historical information,this discussion contains forward-looking statements involving risks,uncertainties and assumptions including such statements as plans, objectives,expectations and intentions that could cause our results to differ materiallyfrom expectations. See our cautionary language preceding Item 1, Business andItem 1A, Risk Factors, for factors that could cause future results to differmaterially.

 

**ExecutiveOverview**

 

In the United States, theUnited Kingdom and Canada, we offer post-secondary, non-accredited introductoryworkshops, primary and advanced courses, and training in two primary fields ofstudy:

 

·                  Real estate education

 

·                  Financial markets education

 

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

 

·                  For real estate investment workshops andintroductory courses:

 

·                       *Russ Whitney*®’s *BuildingWealth*TM

 

·                       *TeachMe Foreclosure*TM* and RealEstate Investing*

 

·                       *Rich Dad*®* Education (“RDE”)*

 

·                       Privatelabel brands:

 

·                  *M2 Advantage*®

 

·                  *Real Estate Success System*

 

·                  For financial markets investment workshops andintroductory courses:

 

·*                       TeachMe to Trade*®

 

·                       Privatelabel brand:

 

·                  *Stock Success System*TM

 

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·                  Our umbrella brand for advanced courses:

 

·                       *WealthIntelligence Academy*®

 

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

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

 

We offer our studentsseveral ways to access our educational content:

 

·                  Live instruction in classroom settings

 

·                  Onsite mentoring

 

·                  Telephonic coaching

 

·                  Electronic access

 

·                  Online Live

 

·                  On Demand Recorded

 

·                  Conferences

 

·                  Teleconference

 

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**Resultsof Operations**

 

Our operating results areexpressed as a percentage of revenue in the table below:

 
| ** **                          | ** ** | **2007**   | ** ** | **2006**       | ** ** |
|-------------------------------------|------------|------------|------------|----------------|------------|
| ** **                          | ** ** | ** ** | ** ** | **(restated)** | ** ** |
| Revenue                             |       | 100.0      | %          | 100.0          | %          |
| Operating costs  and expenses:      |       |       |       |           |       |
| Direct course  expenses             |       | 49.9       |       | 49.6           |       |
| Advertising and  sales expense      |       | 29.5       |       | 28.7           |       |
| General and  administrative expense |       | 18.5       |       | 15.4           |       |
| Impairment of  assets               |       | —     |       | 1.6            |       |
| Special items  (a)                  |       | 6.0        |       | 1.0            |       |
| Total operating  costs and expenses |       | 103.9      |       | 96.3           |       |
| (Loss) income  from operations      |       | (3.9       | )          | 3.7            |       |
| Other income  (expense):            |       |       |       |           |       |
| Other income,  net                  |       | 0.1        |       | —         |       |
| Interest income                     |       | 1.1        |       | 1.0            |       |
| Interest expense                    |       | (0.2       | )          | (0.2           | )          |
| Equity (loss)  from related parties |       | (0.2       | )          | —         |       |
| Total other  income                 |       | 0.8        |       | 0.8            |       |
|                                |       |       |       |           |       |
| (Loss) income  before income taxes  |       | (3.1       | )          | 4.5            |       |
| Income tax  provision               |       | (0.1       | )          | (3.5           | )          |
|                                |       |       |       |           |       |
| Net (loss)  income                  |       | (3.2       | )%         | 1.0            | %          |

 

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(a) Special items expenseincludes direct costs associated with the SEC and DOJ investigations,liquidating damages for the registration of our stock and executive severance.

 

**Non-GAAPFinancial Measures**

 

*AdjustedEBITDA*

 

As used in our operatingdata, EBITDA is defined as net income (loss) excluding the impact of specialitems (including the costs associated with the SEC and the DOJ investigations,class action and derivative lawsuits); interest income; interest expense; otherincome (expense), net; income tax provision; stock option compensation expense;depreciation and amortization expense; and equity income (loss) in relatedparties. We define “Adjusted EBITDA” as EBITDA adjusted for the net change indeferred revenue less the net change in deferred course expenses. AdjustedEBITDA is not a financial performance measurement according to accountingprinciples generally accepted in the United States (“GAAP”).

 

We use Adjusted EBITDA asa key measure in evaluating our operations and decision-making. We feel it is auseful measure in determining our performance since it takes into account thechange in deferred revenue and deferred course expenses in combination with ouroperating expenses. We reference Adjusted EBITDA frequently, since it providessupplemental information that facilitates internal comparisons to historicaloperating performance of prior periods and external comparisons to competitors’historical operating performance in our industry. We plan and forecast ourbusiness using Adjusted EBITDA, with comparisons of actual to planned andforecasted Adjusted EBITDA and we provide incentives to management based onAdjusted EBITDA goals. In addition, we provide Adjusted EBITDA because webelieve investors and security analysts find it to be a useful measure forevaluating our performance.

 

The vast majority of ourcosts to acquire students have been expended before a student attends any basicor advanced training. Those costs include media, travel, facilities andinstructor fees for the introductory workshops and are expensed when incurred. However,revenue recognition of tuition paid by students to enroll in any basic oradvanced training courses at registration is deferred until (i) the course isattended by the student, (ii) the student has received the course content in anelectronic format, (iii) the contract expires, or (iv) revenue is recognizedthrough course breakage. It is only after one of those four occurrences that

 

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revenue is consideredearned. Thus, reporting in accordance with GAAP creates significant timingdifferences with respect to revenue and expenses, both in our consolidatedstatements of cash flows and consolidated statements of operations. As a resultof these factors, our operating cash flows can vary significantly from ourresults of operations for the same period. For this reason, we believe AdjustedEBITDA is an important non-GAAP financial measure.

 

Adjusted EBITDA hasmaterial limitations and should not be considered as an alternative to net(loss) income, cash flows provided by operations, investing or financingactivities or other financial statement data presented in the consolidatedfinancial statements as indicators of financial performance or liquidity. Itemsexcluded from Adjusted EBITDA are significant components in understanding ourfinancial performance. Because Adjusted EBITDA is not a measurement determinedin accordance with GAAP and is subject to varying calculations, Adjusted EBITDAas presented may not be comparable to other similarly titled measures ofperformance used by other companies.

 

The table below is areconciliation of the Company’s net (loss) income to EBITDA and Adjusted EBITDAfor the periods set forth below (in thousands):

 
| ** **                                                                      | ** ** | **For the year ended  December 31,** | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                      | ** ** | **2007**                                                 | ** ** | **2006** | ** ** |
| ** **                                                                      | ** ** | ** **                                               | ** ** | **(restated)** | ** ** |
|                                                                            |       |                                                     |       |   |   |
| Net (loss)  income                                                              |       | $                                                        | (6,638     | ) | $ | 2,301 |   |
| Impairment of  assets                                                           |       | —                                                   |       | 3,590 |   |
| Special items                                                                   |       | 12,410                                                   |       | 2,330 |   |
| Other (income)  expense, net                                                    |       | (191                                                     | )          | 79 |   |
| Interest income                                                                 |       | (2,193                                                   | )          | (2,361 | ) |
| Interest expense                                                                |       | 283                                                      |       | 485 |   |
| Income tax  provision                                                           |       | 225                                                      |       | 7,706 |   |
| Stock gift                                                                      |       | —                                                   |       | 937 |   |
| Stock-based  compensation expense                                               |       | 753                                                      |       | 881 |   |
| Depreciation and  amortization                                                  |       | 1,620                                                    |       | 1,253 |   |
| Minority  interest and equity earnings from related parties                     |       | 489                                                      |       | 45 |   |
| Gain on sale of  assets                                                         |       | (35                                                      | )          | (74 | ) |
|                                                                            |       |                                                     |       |   |   |
| EBITDA                                                                          |       | 6,723                                                    |       | 17,172 |   |
|                                                                            |       |                                                     |       |   |   |
| Net change in  deferred revenue                                                 |       | 3,892                                                    |       | (1,594 | ) |
| Net change in  deferred course costs                                            |       | (4,525                                                   | )          | (230 | ) |
| Adjusted EBITDA                                                                 |       | $                                                        | 6,090      |   | $ | 15,348 |   |
|                                                                            |       |                                                     |       |   |   |
| Adjusted EBITDA  as a percentage of cash received from course and product sales |       | 2.9                                                      | %          | 6.9 | % |

 

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*CashSales*

 

The following tableprovides a reconciliation of the Company’s reported revenue to cash sales bysegment. Cash sales are a metric used by management in assessing the Company’ssegments performance. We define cash sales as revenue plus the change indeferred revenue. Cash sales are not a financial performance measurement inaccordance to GAAP, therefore we are presenting a table to reconcile the cashsales to revenue reported in accordance with GAAP (table presented inthousands):

 
| ** **                                                           | ** ** | **For the year ended December  31,** | ** ** |
|----------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                           | ** ** | **2007**                                                 | ** ** | **2006** | ** ** |
| Cash received  from course and product sales:                        | ** ** | ** **                                               | ** ** | ** ** | ** ** |
| Proprietary  Brands                                                  |       |                                                     |       |   |   |
| Real estate  education                                               |       | $                                                        | 72,402     |   | $ | 108,509 |   |
| Financial  markets education                                         |       | 41,391                                                   |       | 112,586 |   |
| Rich Dad  Education                                                  |       | 97,733                                                   |       | 1,965 |   |
| Total  consolidated cash received from course and product sales      |       | 211,526                                                  |       | 223,060 |   |
|                                                                 |       |                                                     |       |   |   |
| Change in  deferred revenue (increase)/decrease to deferred revenue: |       |                                                     |       |   |   |
| Proprietary  Brands                                                  |       |                                                     |       |   |   |
| Real estate  education                                               |       | (23,383                                                  | )          | (3,192 | ) |
| Financial  markets education                                         |       | (29,279                                                  | )          | 93 |   |
| Rich Dad  Education                                                  |       | 56,554                                                   |       | 1,505 |   |
| Total  consolidated change in deferred revenue                       |       | 3,892                                                    |       | (1,594 | ) |
|                                                                 |       |                                                     |       |   |   |
| Revenue:                                                             |       |                                                     |       |   |   |
| Proprietary  Brands                                                  |       |                                                     |       |   |   |
| Real estate  education                                               |       | 95,786                                                   |       | 111,701 |   |
| Financial  markets education                                         |       | 70,669                                                   |       | 112,493 |   |
| Rich Dad  Education                                                  |       | 41,179                                                   |       | 460 |   |
| Total  consolidated revenue for financial reporting purposes         |       | $                                                        | 207,634    |   | 224,654 |   |
|                                                                      |            |                                                          |            |  |  |  |  |

 

**BusinessSegments**

 

** **We operate in two businesssegments:  Proprietary Brands and RDE. Theproportion of revenue and gross profit (deficit) of each segment is as follows:

 
| ** **                                                    | ** ** | **Year ended December 31,** | ** ** |
|---------------------------------------------------------------|------------|--------------------------------------------|------------|
| **As a percentage of total revenue** | ** ** | **2007**                                   | ** ** | **2006** | ** ** |
| ** **                                                    | ** ** | ** **                                 | ** ** | ** ** | ** ** |
| Proprietary  Brands:                                          |       |                                       |       |   |   |
| Real estate  education                                        |       | 46.1                                       | %          | 49.7 | % |
| Financial  markets education                                  |       | 34.1                                       |       | 50.1 |   |
|                                                          |       | 80.2                                       |       | 99.8 |   |
| Rich Dad  Education:                                          |       | 19.8                                       |       | 0.2 |   |
|                                                          |       | 100.0%                                     |       | 100.0 | % |

 

***ProprietaryBrands***

 

*Realestate education*

 

We began providing basicand advanced real estate investment training in 1992 with our historicalflagship brand *Russ Whitney*®’s*Building Wealth*TM. Wehave added to our brand portfolio by offering our students additional realestate education offerings. We launched *TeachMe Foreclosure*TM*&Real Estate Investing*in2006.

 

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Cashsales for the years ended December 31, 2007 and 2006 were $72.4 million and$108.5 million, respectively, and revenues for these years were $95.8 millionand $111.7 million respectively. The decrease of $36.1 million in cash salesand $15.9 million in revenue in 2007 as compared with 2006 was primarilyattributable to the decline in sales of our*Russ Whitney*®’s*Building Wealth* TM and the suspension of the*Cash Flow Generator ®* productoffset by the launch of our*Teach Me**TMForeclosure & Real Estate Investing*. In addition, there wasdecreased interest among prospective students in our real estate courseofferings resulting from the downturn in the housing market.  Thesefactors resulted in a higher cost to acquire students, a lower percentage ofstudents who purchased at least one paid course, and a lower average amount ofsales of advanced courses per student.  We suspended the sales of our*Cash Flow Generator ®* product until wecan determine and test the merits of a repositioned student offering.

 

Gross profit (calculated as revenue less direct courseexpenses less advertising and sales costs as presented in our statement of operations)in the Proprietary Brands real estate education segment was $30.0 million forthe year ended December 31, 2007, compared to a gross profit of $20.3 millionfor the year ended December 31, 2006, an increase of $9.7 million, or 47.8%primarily due to intersegment revenue of $11.3 million related to licensingfees paid by RDE to us in accordance with our agreement with Rich Global, LLC,for the year ended December 31, 2007. For the same period in 2006, thelicensing fees related to RDE were $0.2 million as this brand began sales inNovember 2006. Excluding the effect of intersegment revenue for both years, thegross profit for the Proprietary Brands real estate education segment decreasedby $1.4 million, or 7.0% in 2007 primarily due to the increase in cost ofstudent acquisition and declines of our *RussWhitney*®’s*BuildingWealth* TM and *Cash Flow Generator ®*product.

 

*Financial markets education*

 

EduTrades, the Proprietary Brands financial marketseducation segment, began operations in July 2002, with the acquisition of *Teach Me to Trade*®, and begansales in the fourth quarter of 2002. We provide education to avocationalinvestors in financial instruments, such as stocks and stock options. Ourtraining teaches trading fundamentals as well as advanced technical analysis topotential investors.

 

Cash sales for the years ended December 31, 2007 and2006 were $41.4 million and $112.6 million, respectively, and revenues forthese years were $70.7 million and $112.5 million, respectively. The decreaseof $71.2 million in cash sales and $41.7 million in revenue in 2007 as comparedwith 2006 primarily due to the success of our*Star Trader®* and *OptionsSuccess SystemsTM* brands in 2006, while minimal sales were attributedto these brands in 2007. *Options SuccessTM*was suspended during the fourth quarter of 2006 and*Star Trader®* was suspended during the firstquarter of 2007.

 

Gross profit in the Proprietary Brands financialmarkets education segment was $23.7 million for the year ended December 31,2007, compared with $28.9 million for the year ended December 31, 2006, adecrease of $5.2 million, or 18.0%. The Proprietary Brands financial marketseducation segment was affected by the revenue recognized from course breakageof $19.1 million in 2007, compared to $27.0 million in 2006, a decrease of $7.9million or 29.3%.

 

***RichDad Education***

 

InNovember 2006, we launched *Rich Dad*®*Education*, in alliance with Rich Global, LLC, which isbased on the investing principles and philosophy of Robert Kiyosaki, detailedin his best-selling book, *Rich Dad Poor Dad*.Our RDE brand provides investor education in the United States, United Kingdomand Canada.

 

During the year endedDecember 31, 2007, the RDE segment’s revenue represented approximately 46.2% oftotal cash sales and 19.8% of total revenue, as compared to 0.9% of total cashsales and 0.2% of total revenues in 2006, reflecting the ramp-up of this brandin 2007. Cash sales for the years ended December 31, 2007 and 2006 were $97.7million and $2.0 million respectively, and revenues for these years were $41.2million and $0.5 million, respectively. This increase in cash sales andrevenues in 2007 reflects the late 2006 start-up of this new joint venture.

 

The variance between cashsales and revenue recognized for this brand is a result of the application ofour revenue recognition policies as discussed in Note 2*-Significant Accounting Policies and Related Information.*

 

The gross deficit in theRDE segment was $10.9 million for year ended December 31, 2007, compared to agross deficit of $0.5 million for the year ended December 31, 2006 reflectingthe impact of our revenue recognition policy. In addition, as this is a newbrand for our Company and the majority of our student contracts were notexpired by the end of 2007, we do not have the historical data sufficient toallow recognition of breakage revenue for this brand. As presented in the tableabove, $56.6 million in sales revenue for our RDE segment was deferred in 2007as compared to $1.5 million in 2006. In 

 

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accordance with ourrevenue recognition policy as described in *Critical AccountingPolicies* below, the Company is required to defer the recognition ofrevenue until certain criteria are met. Although the cash sales of RDE areincreasing, a substantial portion of the sales are not included in our revenueon the statement of operations.

 

**YearEnded December 31, 2007, compared to Year Ended December 31, 2006**

 

**Revenue**

 

Revenue for the yearended December 31, 2007 was $207.6 million, a decrease of $17.1 million or7.6%, as compared to revenue of $224.7 million for the year ended December 31,2006 (in thousands):

 
| ** **                                         | ** ** | **Years ended December 31,** | ** ** | **%**    | ** ** |
|----------------------------------------------------|------------|---------------------------------------------|------------|----------|------------|
| ** **                                         | ** ** | **2007**                                    | ** ** | **2006** | ** ** | **Change** | ** ** |
| *Cash  received from course and product sales:*    | * *   | * *                                    | * *   | * * | * *   | * * | * * |
| * *                                           | * *   | * *                                    | * *   | * * | * *   | * * | * * |
| Basic training  sessions                           |       | $                                           | 28,260     |     | $          | 22,677 |   | 24.6 | % |
| Advanced courses                                   |       | 158,291                                     |       | 176,740  |       | (10.4 | ) |
| Product sales                                      |       | 17,394                                      |       | 14,089   |       | 23.5 |   |
| Other                                              |       | 7,581                                       |       | 9,554    |       | (20.7 | ) |
| Total cash  received from course and product sales |       | 211,526                                     |       | 223,060  |       | (5.2 | ) |
| Net change in  deferred revenue                    |       | (3,892                                      | )          | 1,594    |       | (344.2 | ) |
| Revenue for  financial reporting purposes          |       | $                                           | 207,634    |     | $          | 224,654 |   | (7.6 | )% |

 

Total revenue decreasedby 7.6% in 2007 as compared with 2006 primarily because course breakage decreasedby $12.4 million, or 22.4%, from $55.4 million in 2006 to $43.0 million in 2007.The primary driver of the change in breakage revenues year-over-year is theintroduction of our RDE**Brands. Coursesassociated with the new brand must establish a historical trend of attendancein order for us to estimate breakage which means that the revenues fromunattended courses for these brands will remain deferred for approximatelythree years.

 

The following tableillustrates the number of educational events, the number of students and theaverage number of students per paid course for the comparative periods:

 
| ** **                          | ** ** | **Years ended December 31,** | ** ** | ** ** | ** ** |
|-------------------------------------|------------|---------------------------------------------|------------|------------|------------|
| ** **                          | ** ** | **2007**                                    | ** ** | **2006**   | ** ** | **Change** | ** ** |
| *Number  of courses*                | * *   | * *                                    | * *   | * *   | * *   | * * | * * |
| Free  introductory workshops        |       | 5,076                                       |       | 5,205      |       | (2.5 | )% |
| Basic training  sessions            |       | 979                                         |       | 1,070      |       | (8.5 | ) |
| Advanced live  courses              |       | 675                                         |       | 611        |       | 10.5 |   |
| Advanced  electronic courses        |       | 125                                         |       | 166        |       | (24.7 | ) |
|                                |       | 6,855                                       |       | 7,052      |       | (2.8 | )% |
| *Number  of attending students*     | * *   | * *                                    | * *   | * *   | * *   | * * | * * |
| Basic training  sessions            |       | 53,040                                      |       | 59,244     |       | (10.5 | )% |
| Advanced live  courses              |       | 11,452                                      |       | 16,216     |       | (29.4 | ) |
| Advanced  electronic courses        |       | 2,597                                       |       | 8,224      |       | (68.4 | ) |
|                                |       | 67,089                                      |       | 83,684     |       | (19.8 | )% |
| *Average  students per paid course* | * *   | * *                                    | * *   | * *   | * *   | * * | * * |
| Basic training  sessions            |       | 54.2                                        |       | 55.4       |       | (2.2 | )% |
| Advanced live  courses              |       | 17.0                                        |       | 26.5       |       | (35.9 | ) |
| Average                             |       | 39.0                                        |       | 44.9       |       | (13.1 | )% |

 

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Approximately 24.0% ofthose students attending the introductory workshops purchase one or more of ourcourses. We experienced a 5.9% increase in the number of overall registrationsto our free introductory workshops in 2007 compared to the same period in 2006.For basic training sessions and advances courses, the student pays the tuitionat the time of registering for the course or program. See Business Segmentsabove for further discussion of cash sales and reported revenue.

 

The following tableprovides the percentage of each media source by which prospective studentsaccessed our free introductory workshops:

 
| ** **          | ** ** | **Years ended December 31,** | ** ** |
|---------------------|------------|---------------------------------------------|------------|
| ** **          | ** ** | **2007**                                    | ** ** | **2006** | ** ** |
| ** **          | ** ** | ** **                                  | ** ** | **(restated)** | ** ** |
| Television          |       | 39.7                                        | %          | 64.9 | % |
| Direct mail         |       | 13.9                                        |       | 11.8 |   |
| Newspaper           |       | 6.0                                         |       | 2.6 |   |
| Website             |       | 18.6                                        |       | 18.4 |   |
| Online  advertising |       | 13.0                                        |       | 1.9 |   |
| Radio and Other     |       | 8.8                                         |       | 0.4 |   |
|                |       | 100.0                                       | %          | 100.0 | % |

 

Prospective studentsregistering for our free introductory workshops via our branded websitesincreased by 0.2% in 2007 as compared to 2006. We introduced on-lineadvertising in 2006 and in that year 1.9% of our prospective students wereobtained from this source as compared to 13.0 % in 2007, an increase of 632.4%year-over-year. Further, we experienced an increase of 144.6% from ournewspaper advertising 2007 as compared to 2006.

 

**Change indeferred revenue**

 

Deferred revenue for 2007was $119.3 million, which represents an increase of $3.9 million or 3.4%, ascompared to $115.4 million for 2006. The revenue we recognized from coursebreakage decreased by $12.4 million, or 22.4%, from $55.4 million for 2006 to$43.0 million in 2007. The primary driver of the change in breakage revenuesand the increases in the deferred revenue balances on a year-over-yearcomparison is the introduction of our RDE Brands.

 

Courses associated withthe new brand must establish a historical trend of attendance in order for usto estimate breakage which means that the revenues from unattended courses forthese brands will remain deferred for approximately three years. For thisreason, as reflected in the table below, our deferred revenue as a percentageof total revenue increased 6.1 percentage points to 57.5% in 2007, as comparedto 51.4% in 2006.

 
| ** **                                   | ** ** | **Years ended December 31,** | ** ** |
|----------------------------------------------|------------|---------------------------------------------|------------|
| **(in thousands)**                      | ** ** | **2007**                                    | ** ** | **2006** | ** ** |
| ** **                                   | ** ** | ** **                                  | ** ** | ** ** | ** ** |
| Deferred revenue                             |       | $                                           | 119,300    |   | $ | 115,408 |   |
| Revenue for  financial reporting purposes    |       | $                                           | 207,634    |   | $ | 224,654 |   |
| Deferred revenue  as a percentage of revenue |       | 57.5                                        | %          | 51.4 | % |

 

We have expanded theoptions for course delivery in order to reduce the number of expired contractsand the resulting breakage determination. We have increased the number ofcourses offered on DVD and via the internet and expanded the number of locationoptions for students in the United States. Additionally, we have implemented anoutreach notification program, contacting our students by email and the U.S.mail as courses near expiration.

 

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**Operating Expenses**

 

*Directcourse expenses*

 

Direct course expensesrelate to our basic training sessions and advanced courses, and consist ofinstructor fees, facility costs, salaries associated with our fieldrepresentatives and related travel expenses.

 

Direct course expenseswere $103.5 million in 2007, a decrease of $8.0 million or 7.2%, ascompared to $111.5 million in 2006. As a percentage of revenue, directcourse expenses increased 0.3 percentage points (pp) from 49.6% in 2006 to49.9% in 2007. This increase as a percentage of revenue was due to theintroduction of the RDE Brand.

 

The components of directcourse expenses as a percentage of revenue are as follows:

 
| ** **                                         | ** ** | **Margin change**       | ** ** |
|----------------------------------------------------|------------|------------------------------|------------|
| ** **                                         | ** ** | **2007 vs. 2006**  | ** ** |
| **As a percentage of revenue** | ** ** | **Increase (decrease)** | ** ** |
| Increase in  event expense                         |       | 11.5                         |       |
| Decrease in  sales commissions                     |       | (8.6                         | )          |
| Decrease in  product cost                          |       | (2.5                         | )          |
| Decrease in  alliance expense                      |       | (0.1                         | )          |
|                                               |       | 0.3                          |       |

 

*Advertisingand sales expense*

 

Advertising and salesexpense as an expense category consists of two components:

 

•                  Purchased media to generateregistrations to our free introductory workshops, and

 

•                  Costs associated with supportingstudent recruitment.

 

Our cost structure isparticularly sensitive to increases in advertising costs and its subsequentefficiency, production costs and travel related expenses. However, asignificant portion of our cost structure includes variable costs, such asinstructor, field representative and outreach related costs which are primarilya function of sales.

 

We obtain the majority ofour students through free introductory workshops. These introductory workshopsare established in various metropolitan areas in the United States, the UnitedKingdom and Canada. Prior to the actual workshop, we expend a significantamount of money in the form of advertising through various media channels.

 

The following tablerepresents the expense categories that comprise advertising and sales expensein 2007 and 2006 and the expense categories as a percentage of totaladvertising and sales expense (in thousands):

 
| ** **                     | ** ** | **Years ended December 31,** | ** ** |
|--------------------------------|------------|---------------------------------------------|------------|
| **Expense category**      | ** ** | **2007**                                    | ** ** | **2006** | ** ** |
| ** **                     | ** ** | ** **                                  | ** ** | ** ** | ** ** | **(restated)** | ** ** |
| Television  expense            |       | $                                           | 28,845     |   | 47.0 | % | $ | 37,754 |   | 58.7 | % |
| Direct mail  expense           |       | 5,946                                       |       | 9.7 |   | 6,580 |   | 10.2 |   |
| Newspaper  expense             |       | 3,558                                       |       | 5.8 |   | 2,492 |   | 3.9 |   |
| Internet expense               |       | 6,970                                       |       | 11.4 |   | 3,198 |   | 5.0 |   |
| Radio expense                  |       | 2,138                                       |       | 3.5 |   | 157 |   | 0.2 |   |
| Media spending                 |       | 47,457                                      |       | 77.4 |   | 50,181 |   | 78.0 |   |
| Outreach sales  commissions    |       | 8,260                                       |       | 13.5 |   | 14,188 |   | 22.0 |   |
| RDE licensing  fees (1)        |       | 5,597                                       |       | 9.1 |   | — |   | — |   |
| Advertising and  sales expense |       | $                                           | 61,314     |   | 100.0 | % | $ | 64,369 |   | 100.0 | % |

 

----

(1) RDE licensing feeswere not significant prior to 2007.

 

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Our media spendingdecreased by 5.4% in 2007 compared to the same period in 2006. We re-directedsome of our media spending from television to internet advertising during 2007.

 

Media spending as apercentage of total media spending is presented in the following table:

 

| ** **         | ** ** | **Years ended December 31,** | ** ** |
|--------------------|------------|---------------------------------------------|------------|
| ** **         | ** ** | **2007**                                    | ** ** | **2006** | ** ** |
| ** **         | ** ** | ** **                                  | ** ** | **(restated)** | ** ** |
| Television         |       | 60.8                                        | %          | 75.2 | % |
| Direct mail        |       | 12.5                                        |       | 13.1 |   |
| Newspaper          |       | 7.5                                         |       | 5.0 |   |
| Website and  other |       | 19.2                                        |       | 6.7 |   |
|               |       | 100.0                                       | %          | 100.0 | % |

 

Sales commissionsdecreased as a result of a decrease in telemarketing outbound sales. In 2007,direct sales commissions decreased by $4.0 million or 33.9%, from $11.8 millionin the prior year to $7.8 million in 2007. Our outreach programs cash receivedfrom course and product sales decreased by 54.9% in 2007 over the prior year.

 

Advertising and salesexpense for 2007 amounted to $61.3 million, a decrease of 4.8% or $3.1million,compared to $64.4 million in 2006. Advertising and sales expenses for theyear ended 2007 were 29.5% of revenue, as compared to 28.7% of revenue for thecomparable period in 2006. The increase as a percentage of revenue is a resultof the decrease in revenue and additional cost associated with the introductionof the RDE in the United States; licensing fees associated with our RDE brandwere approximately $5.6 million as compared to zero in 2006.

 

*Grossprofit*

 

Gross profit was $42.8million for the year ended December 31, 2007 as compared to $48.8 million forthe year ended December 31, 2006, a decrease of $6.0 million, or 12.3%. Thisreduction is primarily attributable to the decrease in revenue of $17.1 millionand the increase in special items of $10.1 million partially offset by thedecrease in direct course expense and advertising and sales expense in 2007 ascompared to 2006.

 

*Generaland administrative expenses*

 

General andadministrative expenses primarily consist of compensation, benefits, insurance,professional fees, facilities expense, and travel for the corporate staff.

 

General andadministrative expenses were $38.4 million in 2007, an increase of$3.7 million, or 10.7%, as compared to $34.7 million in 2006. As apercentage of revenue, general and administrative expenses increased from 15.4%of revenue in 2006 to 18.5% of revenue in 2007. The increase of $3.7 million ingeneral and administrative expenses was primarily due to the following (inthousands):

 

| Salaries,  relocation and benefits related to the addition of new employees in  accounting and technology |   | $      | 2,959  |   |
|-----------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| Professional  fees related to the restatement of our 2006 Form 10-K                                       |   | 1,297  |   |
| Stock option and  stock gift expense                                                                      |   | (1,423 | )      |
| Rental expense  related to new office space rented in United Kingdom and Utah                             |   | 700    |   |
| Other                                                                                                     |   | 191    |   |
|                                                                                                      |   | $      | 3,724  |   |

 

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*Impairment of assets*

* *

No impairment of assets was recorded in 2007.

 

We recorded an impairment ofassets totaling $3.6 million in 2006 for property and equipment, inventory andintangible assets.  The following tableincludes the items impaired in 2006 (in thousands):

 
| Impairment  expense related to*Star Trader*®  goodwill                                   |   | $   | 2,000  |   |
|-----------------------------------------------------------------------------------------------|--------|-----|--------|--------|
| Impairment  expense related to*Cash Flow Generator*®  intangible assets                  |   | 687 |   |
| Impairment  expense related to property and equipment (UK office and corporate aircraft)      |   | 756 |   |
| Impairment  expense related to*Star Trader*®  and *Cash Flow Generator*®  inventory |   | 147 |   |
|                                                                                          |   | $   | 3,590  |   |

 

We recognized animpairment of the $2.0 million in goodwill associated with *Star Trader*®as a result of discontinuing the brand, $0.1 million in *Star Trader*®related intangible assets and an additional $0.1 million in relatedinventory.  We also repositioned the *Cash Flow Generator*® brand, recognizing animpairment on the related intangible asset of $0.6 million and an additional$0.1 million in related inventory. Additionally, we reduced the net book value of our United Kingdom officeand previous corporate aircraft by $0.4 million each to their net realizablevalues.

 

*Special items*

 

Special items incurred in 2007 increased$10.1 million or 439.1% to $12.4 million, from $2.3 million in 2006.  As a percentage of revenue, special itemsincreased 5.0% percentage points from 1.0% in 2006 to 6.0% in 2007.

 

The following table includes the itemsincluded in special items (in thousands):

 
| ** **                                                                                                  | ** ** | **Years ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                                  | ** ** | **2007**                                    | ** ** | **2006** | ** ** |
| Professional  fees associated with the SEC and DOJ investigations and the resulting  internal investigation |       | $                                           | 10,460     |   | $ | 651 |   |
| Liquidated  damages provision of the registration rights agreement                                          |       | —                                      |       | 780 |   |
| Withdrawal of  Edutrades, Inc. registration statement and Form S-1                                |       | —                                      |       | 899 |   |
| Executive  severance                                                                                        |       | 1,950                                       |       | — |   |
|                                                                                                        |       | $                                           | 12,410     |   | $ | 2,330 |   |

* *

*(Loss) income from operations*

 

We had a loss fromoperations of $8.1 million in 2007, compared to income from operations of$8.2 million in 2006.  The decreasein income from operations was $16.3 million which was primarily due to thedecrease in revenues of $17.0 million and, to a lesser extent, the increase inspecial items of $10.1 million.

 

*Other income (expense)*

 

Other income(expense) in 2007 was $0.2 million, as compared to $(0.1) million in 2006.  The increase in income was due to gainsearned on short-term investments of cash balances related to the RDE brand sales*.*

 

*Interestincome*

* *

Interest income in 2007decreased by $0.2 million to $2.2 million, as compared to $2.4 million in2006.  The decrease in interest income isdue to a reduction in invested balances in our cash accounts due to theincrease in our required restricted cash balances.

 

*Interestexpense*

* *

Interest expensein 2007 decreased by $0.2 million or 40.0%, to $0.3 million, as compared to$0.5 million in 2006 as a result of the retirement of debt associated with thesale of our building in the United Kingdom and our previous aircraft.

 

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*Equity (loss) from related parties*

* *

Equity loss from related parties was $489,000 for the year ended December 31,2007, compared to a loss of $45,000 for the year ended December 31,2006.  The equity loss relates to ourinvestments in Costa Rican and Panamanian entities.

 

*Income tax provision (benefit)*

 

We recognizedeferred tax assets and liabilities, at enacted income tax rates, based on thetemporary differences between the financial reporting basis and the tax basisof our assets and liabilities.  Weinclude any effects of changes in income tax rates or tax laws in the provisionfor income taxes in the period of enactment. When it is more likely than not that a portion or all of a deferred taxasset will not be realized in the future, we provide a corresponding valuationallowance against the deferred tax asset.

 

As of December 31,2007, we are estimating that our taxable income will not exceed the amountnecessary to use our deferred tax assets. Therefore, we increased our valuation allowance from $17.6 million to$19.1 million.

 

We estimate that we willbe liable for approximately $0.2 million in state and non-U.S. taxes in 2007.

 

*Net (loss) income*

* *

Net loss in 2007totaled $6.6 million, as compared to net income of $2.3 million in 2006.  The decrease in income was $8.9 million, or387.0%.  The increase of $10.1 million inexpenses due to the special items and the $17.0 million decline in revenue dueto the reduction in course breakage and a decrease in sales of our ProprietaryBrands contributed to the decline in net income in 2007 as compared to 2006.

 

**KnownTrends**

 

We have beenexperiencing an accelerating decline in the Company’s Proprietary Brands during2008, as discussed in our review of segment performance.  During 2007 and 2008, we discontinued severalof our under-performing brands and evaluated our other course offerings inresponse to current economic trends.

 

In comparison, the RDE segment has experienced a rapid acceleration insales in 2007, with some leveling off in 2008. As of December 31, 2007, 46.2% of our cash sales were generated bythis brand.

 

**Liquidityand Capital Resources**

 

*Cashflows from operating activities*

* *

At December 31,2007, our principal sources of liquidity consisted of $41.5 million of cash,cash equivalents and restricted cash balances, an increase of $0.9 million fromthe cash balances at December 31, 2006, of $40.7 million.

 

Our joint ventureagreement with Rich Global, LLC requires us to segregate our cash balancesbetween (i) funds received from RDE students; and (ii) funds receivedfrom the sale of our Proprietary Brands. The Company is restricted from using cash generated from the RDE Brandto pay for expenses incurred by our non-RDE Brands, except in the payment oflicense and management fees owed to us in accordance with our agreement withRich Global, LLC as reimbursement for the fulfillment of advanced coursespurchased by RDE students and partner distributions paid when cash balancesexceed the cost to fulfill outstanding student contracts.

 

Included in our $41.5million of cash, cash equivalents, and restricted cash balances as of December 31,2007, is $26.8 million attributable to RDE and $14.8 million related to ourProprietary Brands.  As of December 31,2006, the cash, cash equivalents, and restricted cash balances of $40.7 millionincluded $1.4 million attributable to RDE and $39.3 million related to ourProprietary Brands.  The increase in theRDE cash balances in 2007 compared to 2006 reflects the late 2006 start-up ofthis new joint venture.

 

The focus on theRDE Brand in 2007 from its launch in November 2006 resulted in an increasein cash, cash equivalents, and restricted cash balances related to this brandof $25.4 million from $1.4 million as of December 31, 2006, to $26.8million as of December 31, 2007.

 

Cash balancesattributable to our Proprietary Brands decreased by $24.5 million or 62.3%,from $39.3 million in 2006 to $14.8 million in 2007.  The change was primarily due to the $10.1million of legal and accounting expenses associated with 

 

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the SEC and DOJinvestigations.  In addition, thedecrease in the sales of our Proprietary Brands that we experienced as resultof focusing our efforts on RDE Brand growth, the slowdown in our real estatebusiness due to economic declines in the housing market, the significantturnover among our instructors and field representatives in our financialmarkets segment, and the suspension of the *OptionsSuccessTM* and*Star Trader®*products resulted in the use of cash balances.

 

*Cashflows from investing activities*

* *

Our primary sources anduses of cash for investing activities are related to sales and purchases ofproperty and equipment.  Net cashprovided from investing activities was $2.3 million in 2007, as compared to$4.4 million of net cash used in investing activities for the same period in2006, an increase of $6.7 million.  In2007, we received $5.0 million in proceeds from the sale of our previouscorporate aircraft and our headquarters property located in the United Kingdom,which was partially offset by advances and losses on our equity investments inCosta Rican properties of $1.0 million in 2007 and $0.3 million in 2006 and thepurchases of equipment and leasehold improvements related to our new facilitiesin Utah and the United Kingdom of $1.8 million.

 

*Cash flows from financingactivities*

* *

Cash used in financingactivities totaled $3.2 million in 2007 compared to $13.8 million used infinancing activities in 2006.  In 2007,our financing activities included the repayment of $3.3 million of loans on ourUnited Kingdom headquarters building and previous corporate aircraft.

 

Cash used in financingactivities in 2006 primarily related to the $11.7 million distributed as aspecial dividend to our holders of common stock.  In August 2006, our Board of Directorsdeclared a special dividend of $1.00 per share for shareholders of record on September 15,2006.  In addition, $5.1 million was paidto Mr. Whitney in January 2006 in connection with the partial sale ofhis common stock in December 2005 in which we received funds on hisbehalf.  This amount was partially offsetby $4.2 million received from the exercise of stock options and warrants.

 

*Sourcesof liquidity*

* *

Restricted cashbalances, consisting primarily of funds on deposit with credit card merchants,totaled $8.4 million and $7.5 million at December 31, 2007, and December 31,2006, respectively, including the letters of credit required to secure merchantaccounts and certain state bonding requirements for approximately$0.1 million and $1.6 million, as of December 31, 2007 and 2006,respectively.  The letters of credit aresupported by certificates of deposit which earn interest rates ranging from4.3% to 5.2%.  The majority of our cashequivalents are invested in short-term, liquid, investment grade commercialpaper with yields ranging from 5.2% to 5.3%.

 

Historically, we havebeen able to fund our operations primarily through existing working capital.

 

At December 31,2007, net working capital decreased by $0.1 million to $45.2 million comparedto $45.3 million at December 31, 2006, after excluding the change in thecurrent portion of deferred revenue which is substantially a non-cashliability.  Including our currentdeferred revenue balance, we have a working capital deficit of $74.1 million in2007 compared to $69.6 million in 2006, an increase of $4.5 million due to theincrease of our RDE sales.  As a resultof our significant deferred revenue balance primarily attributable to RDE, ourworking capital deficit will remain for the foreseeable future.

 

From time to time, weevaluate potential acquisitions of business products or technologies thatcomplement our business.  To the extentthat financial resources are insufficient to fund future activities, wemay need to raise additional funds. However, there can be no assurance that additional funding, if needed,will be available.  If adequate funds arenot available on acceptable terms, we may be unable to expand ourbusiness, develop or enhance our products and services, take advantage offuture opportunities or respond to competitive pressures, any of which couldhave a material adverse effect on our business, operating results and financialcondition.

 

We believe our cashresources are sufficient to fund our operations, special items and growth plansin 2008.

 

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**Non-coreinvestments**

 

As of December 31,2007, we had investments in several Costa Rican and Panamanian entities.  Additionally, two of our former executives,including the Company’s former Chairman and Chief Executive Officer, RussellWhitney, and the former Co-President and Chief Operating Officer, Ronald Simon,had individual interests in some of these entities.

 

The ownershipinterests in the entities are presented in the following table:

 
| ** **                      | ** ** | ** **            | ** ** | **As of December 31, 2007** | ** ** |
|---------------------------------|------------|-----------------------|------------|-------------------------------------------------|------------|
| **(in thousands)  Entity** | ** ** | **Description**       | ** ** | **Accounting  Method Used**                | ** ** | **Company  Ownership** | ** ** | **Company  Investment/Loans  ($000’s)** | ** ** |
| Rancho Monterey,  S.A.(a)       |       | Raw land sales        |       | Equity                                          |       | 30.0 | % | $ | 624.1 |   |
| Monterey del  Este, S.A.(a)     |       | Raw land sales        |       | Equity                                          |       | 8.0 | % | 280.5 |   |
| MDM/MTO(b)                      |       | Hotel/land concession |       | Equity                                          |       | 62.9 | % | 1,232.8 |   |
| Monterey  Management, S.A.(c)   |       | Management services   |       | N/A                                             |       | 0.0 | % | 321.1 |   |
| Beautiful Hill,  S.A.(a)(d)     |       | Conference center     |       | Consolidation                                   |       | 100.0 | % | 736.0 |   |
| Total                           |       |                  |       |                                            |       |   |   | $ | 3,194.5 |   |

 

----

N/A– Not Applicable

 

(a)          These entities were sold in January 2008.

 

(b)         The full entity names are Monterey del Mar,S.A. (“MDM”) and Mar y Tierra del Oeste, S.A. (“MTO”).

 

(c)          Monterey Management, S.A., is owned 100% byMaria Jimenez, an independent contractor for the Company.  We advanced $300,000 in working capital fundsto this entity and as of December 31, 2007, this amount was fullyreserved.  In May 2008, we were repaid the $300,000 working capital loan in full.

 

(d)         The historical cost and related depreciationfor the conference center are reflected in “property and equipment” in ourconsolidated balance sheets.

 

Our investments in Rancho Monterey, S.A., Monterey del Este, S.A., and MDM/MTOare accounted for in our consolidated financial statements under the equitymethod of accounting.  Our investment inBeautiful Hill is consolidated in our consolidated financial statements.  For the years ended December 31,2007 and 2006, under the equity method of accounting, we recorded our share ofthe gains (losses) related to our direct interests in these entities ofapproximately $0.2 million and $0.1 million, respectively.

 

Additionally,we own a 50% interest in Monterey del Llano, S.A. which owns a one-thirdinterest in Monterey Group, S.A whose only asset is two and one-half acres ofbeachfront land adjacent to Monterey del Mar, S.A. / Mar y Tierra del Oeste,S.A., our hotel property.  Monterey delLlano, S.A. and Monterey Group, S.A. are not operating entities and have nooperating results.  Therefore, we do notrecord an equity interest related to these entities.

 

In January 2008,Rancho Monterey, S.A., Monterey del Este, S.A., and Beautiful Hill, S.A. weresold to an unrelated party for $12.2 million, of which the Company received$2.5 million for its ownership interests in these entities.  In addition, working capital advances tothese entities and to Monterey Management, S.A., in the amount of $0.6 millionwere repaid.  As a result, we recorded anet gain on our investment in the first quarter of 2008 of $1.3 million.

 

Our currentholdings in Costa Rica, reflecting the sale of Rancho Monterey, S.A., Montereydel Este, S.A., and Beautiful Hill, S.A., consist of the hotel property,MDM/MTO and our interests in Monterey del Llano, S.A., and Monterey Group,S.A., for the partial ownership of a land concession.  There are no operations related to Montereydel Llano, S.A., and Monterey Group, S.A., and therefore no equityparticipation is recorded.

 

*SCB building*

* *

In 2003, we acquired a 50% equity interest in SCB Building, LLC (“SCB”),whose main asset is an office building in Orlando, Florida.  The other 50% member had a $2.0 millionminority interest in SCB, which was contributed in the form of a$4.0 million building subject to a $2.0 million mortgage.  Subsequent improvements of approximately$9.6 million were made 

 

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to the building and were financed primarily by long-term debt.  In March 2006, we acquired the remaining50% of SCB Building, LLC through the issuance of $3.6 million of long-termdebt.  The only asset of SCB was a notereceivable resulting from the sale of the building.

 

*SouthwestFlorida investment*

* *

In 2004, weentered into a joint venture in which we acquired a 50% interest in TranquilityBay of Southwest Florida, LLC which owns 74 acres of land zoned forresidential development in Southwest Florida. The investment entity had no ongoing activity other than minimal costsof carrying the land.  We recorded ourshare of these costs under the equity method of accounting.

 

In May 2007, weentered into a purchase and sale agreement to sell our 50% ownership to ourpartner in the joint venture, Gulf Gateway Enterprises, LLC, a Florida limitedliability company, for the price of $4.2 million.  As a part of this agreement, we loaned thebuyer an additional $0.3 million to finance the planning and permitting ofthe property as a residential subdivision. We secured the total receivable of $4.5 million with the buyer’sownership interest in Tranquility Bay of Southwest Florida, LLC as collateraland by receiving a mortgage interest in the land.

 

Our net book value forthis investment is approximately $2.8 million.  We do not have any debt associated with thisasset and we will not receive proceeds unless the buyer is able to secure therequisite financing.  Accordingly, wewill not record any gain on this asset sale until cash proceeds are realized.

 

On January 23, 2008,we filed a foreclosure lawsuit against Tranquility Bay, Gulf Gateway Enterprises,LLC, Anthony Scott Dunlap, and Dunlap Enterprises, LLC, parties to the mortgageand/or security agreement.

 

**Critical Accounting Policies**

 

Thediscussion and analysis of our financial condition and results of operationsare based upon our consolidated financial statements, which have been preparedin conformity with accounting principles generally accepted in the UnitedStates.  The preparation of thesefinancial statements requires management to make estimates and assumptions thataffect the amounts reported in the consolidated financial statements and theaccompanying notes.  Actual results coulddiffer from these estimates under different assumptions or conditions.  We believe the following critical accountingpolicies affect our more significant estimates and assumptions used in thepreparation of our consolidated financial statements and accompanying.

 

*Revenue Recognition Policy*

* *

We recognize revenue in accordance withStaff Accounting Bulletin, No. 104, *RevenueRecognition* (“SAB No. 104”), and Emerging Issues Tasks Force No. 00-21,*Revenue Arrangements with MultipleDeliverables*(“EITF No. 00-21”).  We recognize revenue when : (i) persuasiveevidence of an arrangement exists, (ii) delivery of product has occurredor services have been rendered, (iii) the price to the buyer is fixed ordeterminable, and (iv) collectibility is reasonably assured.  For product sales, these conditions aregenerally met upon shipment of the product to the customer or completion of thesale transaction.  For training andservice sales, these conditions are generally met upon presentation of thetraining seminar or delivery of the service.

 

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

 

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Each transactionis separated into its specific elements and revenue for each element isrecognized according to the following policies:

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

 

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

 

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

 

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

 

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

 

Deferred revenue occursfrom seminars, on-line courses, coaching sessions and website subscriptions andrenewals in which payment is received before the service has beenperformed.  Deferred revenue isrecognized into revenue over the period that the services are performed.

 

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*Long-livedassets and Intangibles*

* *

Periodically, wereview our long-lived assets for impairment. We record an impairment loss when indications of impairment are presentand undiscounted cash flows estimated to be generated by those assets are lessthan assets’ carrying value.  We evaluatethe remaining life and recoverability of long-lived assets, including patentsand trademarks, whenever events or changes in circumstances indicate that thecarrying amount of these assets may not be recoverable.  At such time, we estimate the future cashflows expected from the use of the assets and their eventual dispositions andif lower than the carrying amounts, adjust the carrying amount of the assets totheir estimated fair value.  Because ofour changing business conditions including current and projected level ofincome, business trends, prospects and market conditions, our estimates of cashflows to be generated from our operations could change materially, resulting inthe need to record additional impairment charges.  As a result of our analysis for the yearsended December 31, 2007 and 2006, no impairment was recognized for 2007,however in 2006 we recorded an impairment for goodwill, property and equipment,inventory and intangible assets associated with our *Star Trader*®and *Cash Flow Generator*® products.

 

*Stock-BasedCompensation*

* *

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

 

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

 

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

 

*IncomeTaxes*

* *

We account forincome taxes using the asset and liability method in accordance with SFAS No. 109,*Accounting for Income Taxes* (“SFAS No. 109”).  Accounting for income taxes requires us toestimate our income taxes in each jurisdiction in which we operate.  Due to differences in the recognition ofitems included in income for accounting and tax purposes, temporary differencesarise which are recorded as deferred tax assets or liabilities.  Deferred tax assets and liabilities aremeasured using enacted laws and tax rates expected to apply to taxable incomein the years in which those temporary differences are expected to be recoveredor settled.  Should any amounts bedetermined not to be recoverable, or assumptions change, we would be requiredto take a charge to establish a valuation allowance against such deferred taxassets.  At December 31, 2007 and2006, a valuation allowance reduced net tax assets to zero.

 

*Accountingfor Litigation and Settlements*

* *

We are involved invarious legal proceedings.  Due to theirnature, such legal proceedings involve inherent uncertainties including, butnot limited to, court rulings, negotiations between affected parties, and thepossibility of governmental intervention. Management assesses the probability of loss for such contingencies andaccrues a liability and/or discloses the relevant circumstances as appropriate.  While certain of these matters involvesubstantial amounts, management believes, based on available information, thatthe ultimate resolution of such legal proceedings will not have a materialadverse effect on our financial condition or results of operations.

 

The critical accountingpolicies discussed above are not intended to be a comprehensive list of all ofour accounting policies.  In many cases,the accounting treatment of a particular transaction is specifically dictatedby accounting principles generally 

 

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accepted in the UnitedStates, with no need for management’s judgment in their application.  There are also areas in which management’sjudgment in selecting any available alternative would not produce a materiallydifferent result.

 

**Recently Issued AccountingStandards**

** **

For a discussionof recently issued accounting pronouncements, see Note 2 - *SignificantAccounting Policies and Related Information, “Recently issued accountingstandards*,” in the Notes to the Consolidated Financial Statements.

 

**Off-BalanceSheet Arrangements**

** **

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

 

**Impact of Inflation**

 

Inflation did not materially affect ourbusiness during the last several years.

 

**ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Not required.

 

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**ITEM8.  FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA**

 

**Index to Consolidated FinancialStatements**

 
| **Whitney Information  Network, Inc.**                                                                                      |   |
|----------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                             |   |
| Consolidated Balance Sheets as of December 31,  2007 and 2006                                                               | 35     |
| Consolidated Statements of Operations and  Comprehensive (Loss) Income for the Years Ended December 31, 2007  and 2006 | 36     |
| Consolidated Statements of Cash Flows for  the Years Ended December 31, 2007 and 2006                                  | 37     |
| Consolidated Statement of Changes in Stockholders’  (Deficit) for the Years Ended December 31, 2007 and 2006           | 39     |
| Notes to Consolidated Financial Statements                                                                                       | 40     |
| Report of Independent Registered Public Accounting  Firm                                                                         | 64     |

 

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**WHITNEY INFORMATIONNETWORK, INC. AND SUBSIDIARIES**

**Consolidated Balance Sheets**

**(in thousands, except share data)**

 
| ** **                                                                                                                                                | ** ** | **December 31  2007** | ** ** | **December 31,  2006** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                | ** ** | ** **                 | ** ** | **(restated)**              | ** ** |
| **Assets**                                                                                                                                                |       |                       |       |                        |       |
| Current assets:                                                                                                                                           |       |                       |       |                        |       |
| Cash and cash  equivalents                                                                                                                                |       | $                          | 33,012     |                        | $          | 33,221 |   |
| Restricted cash                                                                                                                                           |       | 8,449                      |       | 7,525                       |       |
| Accounts  receivable, net                                                                                                                                 |       | 439                        |       | 3,373                       |       |
| Notes  receivable, current portion                                                                                                                        |       | 88                         |       | 84                          |       |
| Deferred course  expenses, current portion                                                                                                                |       | 19,251                     |       | 14,559                      |       |
| Prepaid  advertising and other prepaid expenses                                                                                                           |       | 3,896                      |       | 2,519                       |       |
| Inventory                                                                                                                                                 |       | 1,437                      |       | 1,061                       |       |
| Assets held for  sale                                                                                                                                     |       | 2,874                      |       | 4,719                       |       |
| Total current  assets                                                                                                                                     |       | 69,446                     |       | 67,061                      |       |
| Notes receivable,  net of current portion                                                                                                                 |       | 10,073                     |       | 7,087                       |       |
| Property and  equipment, net                                                                                                                              |       | 11,165                     |       | 11,745                      |       |
| Investment and  development costs in real estate                                                                                                          |       | 321                        |       | 5,061                       |       |
| Intangible  assets, net                                                                                                                                   |       | 432                        |       | 496                         |       |
| Deferred course  expenses, net of current portion                                                                                                         |       | 4                          |       | 171                         |       |
| Other assets                                                                                                                                              |       | 243                        |       | 66                          |       |
| Total assets                                                                                                                                              |       | $                          | 91,684     |                        | $          | 91,687 |   |
| **Liabilities and Stockholders’ Deficit**                                                                                                            |       |                       |       |                        |       |
| Current  liabilities:                                                                                                                                     |       |                       |       |                        |       |
| Accounts payable                                                                                                                                          |       | $                          | 8,305      |                        | $          | 6,936 |   |
| Income taxes  payable                                                                                                                                     |       | 777                        |       | 545                         |       |
| Accrued course  expenses                                                                                                                                  |       | 2,886                      |       | 1,250                       |       |
| Other accrued  expenses                                                                                                                                   |       | 7,190                      |       | 5,820                       |       |
| Accrued  salaries, wages and benefits                                                                                                                     |       | 2,874                      |       | 3,965                       |       |
| Accrued  executive severance                                                                                                                              |       | 1,950                      |       | —                      |       |
| Long-term debt,  current portion                                                                                                                          |       | 125                        |       | 3,139                       |       |
| Deferred rental  incentives, current portion                                                                                                              |       | 114                        |       | 71                          |       |
| Deferred  revenue, current portion                                                                                                                        |       | 119,284                    |       | 114,922                     |       |
| Total current  liabilities                                                                                                                                |       | 143,505                    |       | 136,648                     |       |
| Long-term debt,  net of current portion                                                                                                                   |       | 2,952                      |       | 3,015                       |       |
| Deferred rental  incentives, net of current portion                                                                                                       |       | 451                        |       | 394                         |       |
| Deferred  revenue, net of current portion                                                                                                                 |       | 16                         |       | 486                         |       |
| Total  liabilities                                                                                                                                        |       | 146,924                    |       | 140,543                     |       |
| Commitments and  contingencies                                                                                                                            |       |                       |       |                        |       |
| Stockholders’  deficit:                                                                                                                              |       |                       |       |                        |       |
| Preferred stock,  no par value, 10,000,000 shares authorized, no shares issued and outstanding                                                            |       | —                     |       | —                      |       |
| Common stock, no  par value, 25,000,000 shares authorized, 11,738,587 shares issued and  outstanding, as of December 31, 2007 and 2006, respectively |       | 2,591                      |       | 2,591                       |       |
| Paid–in capital                                                                                                                                      |       | 1,842                      |       | 1,089                       |       |
| Foreign currency  translation adjustment                                                                                                                  |       | (1,659                     | )          | (1,160                      | )          |
| Accumulated  deficit                                                                                                                                      |       | (58,014                    | )          | (51,376                     | )          |
| Total  stockholders’ deficit                                                                                                                         |       | (55,240                    | )          | (48,856                     | )          |
| Total  liabilities and stockholders’ deficit                                                                                                         |       | $                          | 91,684     |                        | $          | 91,687 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements

 

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**WHITNEYINFORMATION NETWORK, INC. AND SUBSIDIARIES**

**Consolidated Statement of Operationsand Comprehensive Income (Loss)**

**(in thousands, except per share data)**

 
| ** **                                   | ** ** | **Years ended December 31,** | ** ** |
|----------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                   | ** ** | **2007**                                    | ** ** | **2006** | ** ** |
| ** **                                   | ** ** | ** **                                  | ** ** | **(restated)** | ** ** |
| ** **                                   | ** ** | ** **                                  | ** ** | ** ** | ** ** |
| Revenue                                      |       | $                                           | 207,634    |   | $ | 224,654 |   |
| Operating costs  and expenses:               |       |                                        |       |   |   |
| Direct course  expenses                      |       | 103,533                                     |       | 111,471 |   |
| Advertising and  sales expense               |       | 61,314                                      |       | 64,369 |   |
| General and administrative  expenses         |       | 38,437                                      |       | 34,713 |   |
| Impairment of  assets                        |       | —                                      |       | 3,590 |   |
| Special items                                |       | 12,410                                      |       | 2,330 |   |
| Total operating  costs and expenses          |       | 215,694                                     |       | 216,473 |   |
| (Loss) income  from operations               |       | (8,060                                      | )          | 8,181 |   |
|                                         |       |                                        |       |   |   |
| Other income  (expense):                     |       |                                        |       |   |   |
| Other income  (expense)                      |       | 191                                         |       | (79 | ) |
| Interest income                              |       | 2,193                                       |       | 2,361 |   |
| Interest expense                             |       | (283                                        | )          | (485 | ) |
| Equity loss from  related parties            |       | (489                                        | )          | (45 | ) |
| Gain on sale of  assets                      |       | 35                                          |       | 74 |   |
| Total other  income                          |       | 1,647                                       |       | 1,826 |   |
|                                         |       |                                        |       |   |   |
| (Loss) income  before income taxes           |       | (6,413                                      | )          | 10,007 |   |
| Income tax  provision                        |       | (225                                        | )          | (7,706 | ) |
| Net (loss)  income                           |       | $                                           | (6,638     | ) | $ | 2,301 |   |
| Net (loss)  income per share:                |       |                                        |       |   |   |
| Basic                                        |       | $                                           | (0.57      | ) | $ | 0.21 |   |
| Diluted                                      |       | $                                           | (0.57      | ) | $ | 0.20 |   |
| Weighted average  common shares outstanding: |       |                                        |       |   |   |
| Basic                                        |       | 11,739                                      |       | 11,162 |   |
| Diluted                                      |       | 11,739                                      |       | 11,620 |   |
| Comprehensive  (loss) income                 |       |                                        |       |   |   |
| Net income  (loss)                           |       | $                                           | (6,638     | ) | $ | 2,301 |   |
| Foreign currency  translation adjustments    |       | (499                                        | )          | (510 | ) |
| Comprehensive  (loss) income                 |       | $                                           | (7,137     | ) | $ | 1,791 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements

 

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**WHITNEY INFORMATIONNETWORK, INC. AND SUBSIDIARIES**

**Consolidated Statements of Cash Flows**

**(in thousands)**

 
| ** **                                                                                | ** ** | **Years ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                | ** ** | **2007**                                    | ** ** | **2006** | ** ** |
| ** **                                                                                | ** ** | ** **                                  | ** ** | **(restated)** | ** ** |
| Cash flows from  operating activities:                                                    |       |                                        |       |   |   |
| Net income  (loss)                                                                        |       | $                                           | (6,638     | ) | $ | 2,301 |   |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities: |       |                                        |       |   |   |
| Depreciation and  amortization                                                            |       | 1,620                                       |       | 1,253 |   |
| Impairment of  assets                                                                     |       | —                                      |       | 3,590 |   |
| Deferred income  taxes                                                                    |       | —                                      |       | 7,706 |   |
| Deferred rental  incentives                                                               |       | 100                                         |       | 394 |   |
| Stock-based  compensation costs                                                           |       | 753                                         |       | 881 |   |
| Stock gift                                                                                |       | —                                      |       | 937 |   |
| Gain on sale of  assets                                                                   |       | (35                                         | )          | (74 | ) |
| Minority  interest and equity earnings                                                    |       | 489                                         |       | 45 |   |
| Changes in  operating assets and liabilities:                                             |       |                                        |       |   |   |
| Restricted cash                                                                           |       | (924                                        | )          | (1,351 | ) |
| Accounts  receivable, net                                                                 |       | 2,934                                       |       | 416 |   |
| Prepaid advertising  and other prepaid expenses                                           |       | (1,377                                      | )          | 322 |   |
| Inventory                                                                                 |       | (376                                        | )          | (121 | ) |
| Deferred course  expenses                                                                 |       | (4,525                                      | )          | (230 | ) |
| Other assets                                                                              |       | (177                                        | )          | 15 |   |
| Accounts payable                                                                          |       | 1,369                                       |       | 2,885 |   |
| Accrued course  expenses                                                                  |       | 1,636                                       |       | (591 | ) |
| Deferred revenue                                                                          |       | 3,892                                       |       | (1,594 | ) |
| Other accrued  expenses                                                                   |       | 1,370                                       |       | (112 | ) |
| Accrued  salaries, benefits and wages                                                     |       | (1,091                                      | )          | 2,176 |   |
| Accrued  executive severance                                                              |       | 1,950                                       |       | — |   |
| Income taxes  payable                                                                     |       | 232                                         |       | 189 |   |
| Net cash  provided by operations                                                          |       | 1,202                                       |       | 19,037 |   |
| Cash flows from investing  activities:                                                    |       |                                        |       |   |   |
| Purchase of  property and equipment                                                       |       | (1,825                                      | )          | (7,852 | ) |
| Proceeds from  notes receivable                                                           |       | 84                                          |       | 3,772 |   |
| Proceeds from  the sale of assets                                                         |       | 5,038                                       |       | 28 |   |
| Investments in  and advances to related parties, net                                      |       | (961                                        | )          | (288 | ) |
| Distribution to  minority interests                                                       |       | —                                      |       | (45 | ) |
| Net cash  provided by (used in) investing activities                                      |       | 2,336                                       |       | (4,385 | ) |
| Cash flows from financing  activities:                                                    |       |                                        |       |   |   |
|                                                                                      |       |                                        |       |   |   |
| Payment paid to  stockholder from sale of common stock                                    |       | —                                      |       | (5,110 | ) |
| Proceeds from  issuance of long-term debt                                                 |       | 70                                          |       | 2,422 |   |
| Principal  payments on long-term debt                                                     |       | (3,318                                      | )          | (3,497 | ) |
| Proceeds from  the exercise of stock options and warrants                                 |       | —                                      |       | 4,186 |   |
| Dividends paid  to shareholders                                                           |       | —                                      |       | (11,728 | ) |
| Stock offering  and registration costs                                                    |       | —                                      |       | (77 | ) |
| Net cash used in  financing activities                                                    |       | (3,248                                      | )          | (13,804 | ) |
| Effect of  foreign currency translation                                                   |       | (499                                        | )          | (510 | ) |
| (Decrease)  increase in cash and cash equivalents                                         |       | (209                                        | )          | 338 |   |
| Cash and cash  equivalents at beginning of year                                           |       | 33,221                                      |       | 32,883 |   |
| Cash and cash  equivalents at end of year                                                 |       | $                                           | 33,012     |   | $ | 33,221 |   |

 

*Continued*

 

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* ***WHITNEY INFORMATION NETWORK, INC. ANDSUBSIDIARIES**

**Consolidated Statements of Cash Flows**

**(in thousands)**

 
| ** **                                                                                             | ** ** | **Years ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                             | ** ** | **2007**                                    | ** ** | **2006** | ** ** |
| **Supplemental  cash flow information:**                                                               |       |                                        |       |   |   |
| Cash paid for                                                                                          |       |                                        |       |   |   |
| Interest                                                                                               |       | $                                           | 286        |   | $ | 455 |   |
| Income taxes                                                                                           |       | $                                           | 196        |   | $ | 453 |   |
| **Supplemental  disclosure of non-cash activity:**                                                     |       |                                        |       |   |   |
| Promissory note  received from sale of our 50% interest in Tranquility Bay, net of reserves of  $1,438 |       | $                                           | 3,030      |   | — |   |
| Long-term debt  added in March 2006 with the acquisition of SCB                                   |       | $                                           | —     |   | $ | 3,600 |   |
| Impaired  goodwill related to Star Trader ®                                                       |       | $                                           | —     |   | $ | 2,000 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements

 

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**WHITNEY INFORMATIONNETWORK, INC. AND SUBSIDIARIES**

**Consolidated Statement of Changes inStockholders’ Deficit**

**(in thousands)**

 
| ** **                                                  | ** ** | **Common Stock** | ** ** | **Additional  paid-in** | ** ** | **Foreign  currency  translation** | ** ** | **Accumulated** | ** ** | **Total  stockholders’** | ** ** |
|-------------------------------------------------------------|------------|-----------------------|------------|-------------------------|------------|------------------------------------|------------|-----------------|------------|-------------------------------|------------|
| ** **                                                  | ** ** | **Shares**            | ** ** | **Amount**              | ** ** | **capital**                        | ** ** | **adjustment**  | ** ** | **deficit**                   | ** ** | **deficit** | ** ** |
| Balance at  December 31, 2005 **(restated)**           |       | 10,456                |       | $                       | 9,501      |                               | $          | 1               |       | $                             | (650       | ) | $ | (53,677 | ) | $ | (44,825 | ) |
| Issuance of cash  dividend                                  |       | —                |       | (11,641                 | )          | (87                                | )          | —          |       | —                        |       | (11,728 | ) |
| Issuance of  stock for stock options and warrants exercised |       | 1,185                 |       | 4,186                   |       | —                             |       | —          |       | —                        |       | 4,186 |   |
| Stock gift                                                  |       | 98                    |       | 937                     |       | —                             |       | —          |       | —                        |       | 937 |   |
| Stock issuance  costs                                       |       | —                |       | (392                    | )          | —                             |       | —          |       | —                        |       | (392 | ) |
| Stock option and  warrant compensation expense              |       | —                |       | —                  |       | 881                                |       | —          |       | —                        |       | 881 |   |
| Distribution to  minority partner (SCB)                     |       | —                |       | —                  |       | 294                                |       | —          |       | —                        |       | 294 |   |
| Foreign currency  translation adjustment                    |       | —                |       | —                  |       | —                             |       | (510            | )          | —                        |       | (510 | ) |
| Net income                                                  |       | —                |       | —                  |       | —                             |       | —          |       | 2,301                         |       | 2,301 |   |
| Balance at  December 31, 2006 **(restated)**           |       | 11,739                |       | 2,591                   |       | 1,089                              |       | (1,160          | )          | (51,376                       | )          | (48,856 | ) |
| Stock option  compensation expense                          |       | —                |       | —                  |       | 753                                |       | —          |       | —                        |       | 753 |   |
| Foreign currency  translation adjustment                    |       | —                |       | —                  |       | —                             |       | (499            | )          | —                        |       | (499 | ) |
| Net loss                                                    |       | —                |       | —                  |       | —                             |       | —          |       | (6,638                        | )          | (6,638 | ) |
| Balance at  December 31, 2007                          |       | 11,739                |       | $                       | 2,591      |                               | $          | 1,842           |       | $                             | (1,659     | ) | $ | (58,014 | ) | $ | (55,240 | ) |

 

The accompanyingnotes are an integral part of these consolidated financial statements

 

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**WHITNEY INFORMATIONNETWORK, INC. AND SUBSIDIARIES**

 

**Notes to Consolidated FinancialStatements**

 

***Note 1 – Organization and Operations***

 

Whitney InformationNetwork, Inc. and its consolidated subsidiaries (collectively referred toas the “Company” “we,” “us,” or “our”) offers a wide variety ofexperiential-based, investor education classes in two primary fields - realestate investor education and financial products, as well as classes inancillary fields like asset protection, basic business strategies and cashmanagement, among other courses taught in the United States, the United Kingdomand Canada.

 

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

 

***Note 2 - Significant Accounting Policies and RelatedInformation***

 

*Principles of consolidation*

 

The ConsolidatedFinancial Statements include the accounts and balances of Whitney InformationNetwork, Inc. and its wholly-owned and majority-owned subsidiaries.  All significant intercompany balances andtransactions have been eliminated.

 

*Use ofestimates*

 

The preparation offinancial statements in accordance with generally accepted accountingprinciples in the United States (“GAAP”) requires management to make certainestimates and assumptions that affect the reported amount of assets andliabilities and the disclosure of contingent liabilities at the date of thefinancial statements and the reported amounts of revenues and expenses duringthe reporting period.  Actual resultscould differ from these estimates.

 

*Previousrestatement – Form 10-K/A for the year ended December 31, 2006*

 

As reflected inour Form 10-K/A previously filed on January 15, 2009, ourConsolidated Financial Statements and other financial information were restatedfor the years ended December 31, 2006, 2005, 2004, 2003, and 2002 and foreach of the quarters in the periods ended 2006 and 2005.  That restatement had minimal effect on ourresults of operations, cash flows and financial position for the respectiverestated periods.  Certain of ourmaterial internal control weaknesses resulted in inaccurate financial reportingand restatements to our previously filed Consolidated Financial Statements from2001 through 2006.  The restatedConsolidated Financial Statements reflect the following:

 

In December 2006, the Company’s Board ofDirectors established a Special Committee of independent directors to conductan internal investigation of the activities that are the subject of thegovernment investigations and the Special Committee engaged the law firm ofWilmer Cutler Pickering Hale and Dorr LLP (“WilmerHale”) to assist with theseinvestigations.  The matters underinvestigation included (i) the claimed efficacy of the Company’s stockmarket education programs, and (ii) the Company’s acquisition of certainother companies.  Members of ourmanagement, including Mr. Whitney, were interviewed by WilmerHale,consistent with the Company’s continued cooperation with the investigations bythe SEC and Department of Justice (“DOJ”). The Special Committee reported its findings and made recommendations tothe Board of Directors, as previously disclosed in the Form 10-K/A for theyear ended December 31, 2006 and on the Company’s Current Report on Form 8-K,filed with the SEC on November 9, 2007 and such recommendations haveeither been implemented or are being implemented.

 

With respect to the Company’s acquisitions ofcertain other companies, among other findings, based upon the WilmerHaleinvestigation, the Special Committee reported to the Board of Directors in September 2007and delivered its final recommendations in November 2007, and reportedsuch recommendations to the SEC in November 2007.  The Special Committee found that certain ofthe Company’s prior disclosures were incorrect..  Such disclosures were corrected in the Form 10-K/Afiled for the fiscal year ended December 31, 2006.  The certain prior disclosures that wereincorrect are as follows:

 

The Company previously disclosed that (1) in July 2003the Company acquired Whitney Leadership Group, Inc. (“Whitney Leadership”)from Mr. Whitney, our former Chairman and Chief Executive Officer andIngrid Whitney for $1.2 million; (2) at 

 

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

 

The Company previously disclosed that as a resultof a series of transactions among Russell Whitney, Ingrid Whitney and John Kane(1) in July 2003 the Company purchased Equity Corp. Holdings, Inc.(“Equity Corp.”) from John F. Kane; (2) as part of the transaction, theCompany agreed to assume and pay a $4.75 million promissory note issued to Mr. Whitneyand his wife by Equity Corp. in June 2002; and (3) Equity Corp.incurred this obligation when it elected to redeem all of Russell and IngridWhitney’s ownership in Equity Corp., 90% of the outstanding stock, as of June 1,2002.  The Special Committee concludedthat the redemption did not occur, and no note was issued by Equity Corp. toRussell and Ingrid Whitney, in June 2002. The Special Committee found that the redemption of Russell and IngridWhitney’s Equity Corp. shares and Equity Corp.’s incurring of this $4.75million obligation in fact closed on May 31, 2003.  The Special Committee concluded that EquityCorp.’s redemption of Russell and Ingrid Whitney’s Equity Corp. shares was notseparate from the Company’s acquisition of Mr. Kane’s Equity Corp. shares,which resulted in a change in the accounting method for the acquisition ofEquity Corp. from the acquisition method of accounting for a businesscombination to the combination of entities under common control, similar to apooling of interests.  As previouslyreported by the Company in its Current Report on Form 8-K dated November 3,2007 and filed with the SEC on November 8, 2007, the Board of Directorshas determined that, with respect to the acquisition of Equity Corp., theCompany incorrectly applied the acquisition method of accounting for a businesscombination and instead should have accounted for the transaction as acombination of entities under common control, similar to a pooling ofinterests.  The Company previouslydisclosed that Mr. Kane received $62,500 in cash, $62,500 in a note and62,500 shares valued at $125,000 for the purchase of his interest in EquityCorp.  However, the 62,500 shares wererevalued at $312,500 using the average of the quoted market prices a few daysbefore and after the acquisition.

 

As previously reported by the Company in a CurrentReport on Form 8-K dated November 9, 2007, the Company did not obtaina fairness opinion regarding the acquisition price of Equity Corp. and WhitneyLeadership, but did obtain a business valuation report.  A committee of independent members of theBoard of Directors is reviewing the Equity Corp. and Whitney Leadership transactionsregarding compliance with applicable governance and related-party requirements.

 

The Company previously disclosed that (1) theCompany purchased all of the outstanding common stock of Precision SoftwareServices, Inc. (“Precision”) from Mr. Whitney and Mr. Kane, whosubsequently became an executive officer of the Company, in exchange for anaggregate of approximately 333,000 shares of common stock valued at $500,000and $250,000 in notes; and (2) Mr. Whitney received $125,000 in notespayable.  The Special Committee concludedthat the Company did not disclose that (1) the $250,000 in notes payable(of which Mr. Whitney and Mr. Kane each received $125,000) were notfor the purchase of Precision, but rather the purchase of software that Mr. Whitneyand Mr. Kane had licensed to Precision; and (2) the Company also paid$250,000 in cash (of which Mr. Whitney and Mr. Kane each received$125,000) for that software.  Inresearching the accounting treatment of this transaction, the Companydiscovered an error in the depreciation of the related intangible asset, aswell as an inadvertent impairment in 2006. The asset was incorrectly named in the general ledger and, as a result,included in the impairment expense associated with a discontinued brand.

 

In addition to the disclosures related to specifictransactions, we reviewed our related party transactions.  The additional disclosures concerning relatedparty transactions in Costa Rica are included in Note 5 - *Certain Relationships and Related Transactions*.

 

In addition to the findings of the SpecialCommittee and certain other conforming changes, we determined that thefollowing errors required correction:

 

·                  Certain intangibleassets and property and equipment were assigned incorrect depreciable lives

 

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

 

·                  Various accountspayable invoices were recorded in the incorrect period

 

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On January 15, 2009, the Company filedAmendment No. 1 to its Annual Report on Form 10-K for the fiscal yearended December 31, 2006, to amend and restate the financial statements andother financial information for the years 2006, 2005 and 2004, and financialinformation for the years 2003 and 2002, and for each of the quarters in theyears 2005 and 2006.  The restatement hadminimal effect on the Company’s cash flows, liquidity or on our financialposition for the respective restated periods.

 

*Financialinstruments*

 

Financial instrumentsconsist primarily of cash and cash equivalents, short-term investments,receivables, deferred seminar expense, accounts payable, accrued expenses,deferred educational revenues, and notes payable.  SFAS No. 107, *Disclosureabout Fair Value of Financial Instruments* (“SFAS No.107”), requiresthe disclosure of the fair value of financial instruments, including assets andliabilities recognized on the balance sheets. Management estimates the aggregate fair value of the other financialinstruments recognized on the balance sheet date (including receivables,payables and accrued liabilities) approximates their fair value; as suchfinancial instruments are short-term in nature, bear interest at current marketrates or are subject to frequent repricing.

 

*Cashand cash equivalents*

 

We consider all highlyliquid instruments purchased with an original maturity of three months or lessto be cash equivalents.  We continuallymonitor and evaluate our investment positions and the creditworthiness of thefinancial institutions with which we invest and maintain deposit accounts.  Our joint venture agreement with Rich Global,LLC requires us to segregate our cash balances between (i) funds receivedfrom RDE students and; (ii) funds received from the sale of ourProprietary Brands.  The Company isrestricted from using cash generated from the RDE Brand to pay for expensesincurred by our non-RDE Brands, except in the payment of license and managementfees owed to the Company in accordance with our agreement with Rich Global,LLC, as reimbursement for the fulfillment of advanced courses purchased by RDEstudents and partner distributions paid when cash balances exceed the cost tofulfill outstanding student contracts.

 

The amounts included inthe Consolidated Financial Statements are stated at cost which approximatesfair value at the balance sheet date. The Company maintains deposits in banks which may exceed the federaldeposit insurance available.  Managementbelieves the potential risk of loss on these accounts to be minimal.

 

*Restricted cash*

 

The Company uses merchantaccount vendors to process credit card transactions.  Under the terms of these agreements, themerchant account vendor has the right to withhold credit card funds to coverchargebacks in the event the Company is unable to honor its commitments.  Additionally, the Company is required tomaintain letters of credit in certain of the states in which it operates.  At December 31, 2007, we had $50,000 ina letter of credit required by the state of North Dakota.  At December 31, 2006, we had $1.6million in letters of credit outstanding with various states and agencies.  We consider restricted cash as a currentasset in the Consolidated Balance Sheet as credit card merchants typically holdsuch reserve funds up to one year.  Thetotal amount of restricted cash as of December 31, 2007 and 2006 was $8.4million and $7.5 million, respectively.

 

*Receivablesfrom clearing brokers*

 

Receivables from clearingbrokers consist of cash deposits and receivables from revenue earned, net ofexpenses incurred, from customer transactions conducted through the clearingbrokers.

 

*Inventory*

 

Inventory consistsprimarily of books, videos and training materials held for sale to studentsenrolled in our educational programs. Inventories are stated at the lower of cost using the first-in,first-out method or market.

 

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*Property and equipment, net*

 

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

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

 

Depreciationexpense was approximately $1.6 million and $1.0 million for the years ended December 31,2007 and 2006, respectively.  See Note 7- *Property and Equipment,*for furtherdiscussion.

 

*Intangible assets and goodwill*

 

In accordance with SFAS No. 144, *Accountingfor the Impairment or Disposal of Long Lived Assets* (“SFAS No. 144”),we evaluate the carrying amount of our long-lived assets such as property andequipment, and definite –lived intangible assets subject to amortization forimpairment whenever events or changes in circumstances indicate that thecarrying amount of an asset may not be recoverable.  Recoverability of assets held and used ismeasured by the comparison of its carrying amount with the future net cashflows the asset is expected to generate. We look primarily to the undiscounted future cash flows in theassessment of whether or not long-lived assets have been impaired.  If the carrying amount of an asset exceedsits estimated future cash flows, an impairment charge is recognized for theamount by which the carrying amount of the asset exceeds the estimated fairvalue of the assets.

 

Intangible assetsinclude customer lists and trademarks and are recorded at cost.  Customer lists and trademarks are beingamortized over their estimated useful lives of three and 15 years,respectively.  At December 31, 2007and 2006, we performed impairment testing for our intangible assets.  Based on our evaluations, no impairments wererecorded in 2007.  For the year ended December 31,2006, we recorded an impairment expense in the amount of $3.6 million.  See Note**3*— Impairment of Assets and Special Items*.

 

*Advertising,sales expense and prepaid advertising*

 

We expense advertisingand sales costs as incurred.  Advertisingand sales expenses as reported on the Consolidated Statement of Operations were$61.3 million and $64.4 million for the years ended December 31, 2007 and2006, respectively.  Advertising costs,training room rentals and direct sales expenses are expensed as incurred.  Advertising paid in advance is recorded asprepaid until such time as the advertisement is published.

 

*Deferred course expenses*

 

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

 

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

 

*Income taxes*

 

The Companyadopted the provisions of Financial Accounting Standards Board (“FASB”)Interpretation No. 48 (“FIN No. 48”), *Accountingfor Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109*,on January 1, 2007.  FIN No. 48clarifies the accounting for uncertainty in income taxes recognized in acompany’s financial statements in accordance with Statement of FinancialAccounting Standards 109, *Accounting for IncomeTaxes*, and prescribes a recognition threshold of more likely thannot and a measurement process for financial statement recognition andmeasurement of a tax position taken or 

 

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expected to betaken in a tax return.  In making thisassessment, a company must determine whether it is more likely than not that atax position will sustained upon examination, based solely on the technicalmerits of the position and must assume that the tax position will be examinedby taxing authorities.  FIN No. 48also provides guidance on derecognition, classification, interest andpenalties, accounting in interim periods, disclosures and transition.

 

The provision forincome taxes is based on the consolidated United States entities and theindividual foreign companies’ estimated tax rates for the applicable year.  Our income tax provision has been determinedusing the asset and liability approach of accounting for income tax.  Under this approach, deferred income taxesrepresent the future tax consequences expected to occur when the reportedamounts of assets and liabilities are recovered or paid.  The income tax provision represents incometaxes paid or payable for the current year plus the change in deferred taxesduring the year.  Deferred income taxesresult from differences between the financial and the tax bases of our assetsand liabilities and are measured using the enacted tax rates and laws that willbe in effect when the differences are expected to reverse.  Valuation allowances are established, whennecessary, to reduce deferred tax assets to the amount expected to berealized.  See Note 12*-**Income Taxes.*

 

*Foreign currency translation*

 

We account forforeign currency translation in accordance with SFAS No. 52, *Foreign Currency Translation*.  The functional currencies of the Company’sforeign operations are the reported local currencies.  Translation adjustments result fromtranslating our foreign subsidiaries’ financial statements into United Statesdollars.  The balance sheet accounts ofour foreign subsidiaries are translated into United States dollars using theexchange rate in effect at the balance sheet date.  Revenues and expenses are translated intoU.S. dollars using average exchange rates during the period.  The resulting translation gains or losses arerecorded as a component of accumulated other comprehensive income inshareholders’ equity.  Foreign currencytransaction losses and (gains) totaled approximately $19,000 and $(187,000)during 2007 and 2006, respectively, and were reported on our ConsolidatedStatement of Operations as a component of other income (expense).

 

*Income (loss) per share*

 

Income (loss) pershare is computed by applying the provisions of SFAS No. 128*, Earnings Per Share*.  All dilutive potential common shares in 2007and 2006 were included in the diluted earnings per share calculation.  All dilutive potential common shares in 2007had an anti-dilutive effect on diluted per share amounts and therefore wereexcluded in determining net loss per share. At December 31, 2007, we had 1,218,400 stock options and890,719 warrants outstanding.  A total of 52,826 potentially dilutivesecurities could be dilutive to future earnings.  At December 31, 2006 we had1,253,500 stock options and 890,719 warrants outstanding.  A total of 457,639 potentially dilutedsecurities could be dilutive to earnings. See Note 10*- Stock Options*and**Note 4 *-Offering.*

 

*Revenuerecognition*

 

Werecognize revenue in accordance with Staff Accounting Bulletin, No. 104, *Revenue Recognition* (“SAB No. 104”),and Emerging Issues Tasks Force No. 00-21, *Revenue Arrangements with Multiple Deliverables* (“EITF No. 00-21”).  We recognize revenue when : (i) persuasiveevidence of an arrangement exists, (ii) delivery of product has occurredor services have been rendered, (iii) the price to the buyer is fixed ordeterminable, and (iv) collectibility is reasonable assured.  For product sales, these conditions aregenerally met upon shipment of the product to the customer or completion of thesale transaction.  For training andservice sales, these conditions are generally met upon presentation of thetraining seminar or delivery of the service.

 

Some of our training andconsulting contracts contain multiple deliverable elements that includetraining along with other products and services.  In accordance with EITF No. 00-21, salesarrangements with multiple deliverables are divided into separate units ofaccounting if the deliverables in the sales contract meet the followingcriteria: (i) the delivered training or product has value to the client ona standalone basis; (ii) there is objective and reliable evidence of the fairvalue of undelivered items; and (iii) delivery of any undelivered item isprobable.  The fair value of each elementis generally determined by prices charged when sold separately.  In certain arrangements, we offer theseproducts bundled together at a discount. The discount is allocated on a pro-rata basis to each element based onthe relative fair value of each element when fair value support exists for eachelement in the arrangements.  The overallcontract consideration is allocated among the separate units of accountingbased upon their fair values, with the amount allocated to the delivered itembeing limited to the amount that is not contingent upon the delivery ofadditional items or meeting other specified performance conditions.  If the fair value of all undelivered elementsexists, but fair value does not exist for one or more delivered elements, theresidual method is used.  Under theresidual method, the amount of consideration allocated to the delivered itemsequals the total consideration less the aggregate fair value of the undelivereditems.  Fair value of the undelivereditems is based upon the normal pricing practice for the Company’s existingtraining programs, consulting services, and other products, which are generallythe prices of the items when sold separately.

 

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Each transaction is separated into its specificelements and revenue for each element is recognized according to the followingpolicies:

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

 

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

 

When the likelihood of attendance by the student is remote, coursebreakage is calculated on the historical percentage of (i) students whonever attended a course; (ii) those students who never attended a coursesubsequent to expiration; and (iii) the highest number of days in which95% of students who attended our courses did so subsequent to expiration.

 

We determine our coursebreakage rate based upon estimates developed from historical student attendancepatterns.  Typically, we use a three yearperiod to estimate student attendance patterns. Based on the historical information, we are able to determine thelikelihood of an expired course remaining unattended.  We have determined that the Company does nothave a legal obligation to remit the value of expired courses to the relevanttaxing jurisdictions.

 

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

 

Deferred revenue occursfrom seminars, online courses, coaching sessions and website subscriptions andrenewals in which payment is received before the service has beenperformed.  Deferred revenue isrecognized into revenue over the period that the services are performed.

 

*Stock options and stock-basedcompensation*

 

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

 

Effective January 1, 2006, we adoptedSFAS No. 123 (revised 2004), *Share-BasedPayment* (“SFAS No. 123R”), which requires us to measure thecost of employee services received in exchange for all equity awards grantedincluding stock options based on the fair market value of the award as of thegrant date.  SFAS No. 123Rsupersedes Statement of Financial Accounting Standards No. 123, *Accounting for Stock-Based Compensation* (“SFASNo. 123”) and Accounting Principles Board Opinion No. 25, *Accounting for Stock Issued to Employees* (“APBNo. 25”).  We adopted SFAS No. 123Rusing the modified prospective application method of adoption which requires usto record compensation cost related to unvested stock awards as of December 31,2005, by recognizing the unamortized grant date fair value of these awards overthe remaining service periods of those awards with no change in historicalreported earnings.  Awards granted after December 31,2005, are valued at fair value in accordance with the provisions of SFAS No. 123Rand recognized on the same basis as the vesting period.  We estimated forfeiture rates for 2007 and2006 based on historical experience.

 

The impact of adoption ofSFAS No. 123R is that future share-based payment awards will be recordedas compensation expense over their requisite service period, and such expenseis not expected to be material to future earnings.  See Note 10*– StockOptions*.

 

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*Comprehensive(loss) income*

 

Comprehensive(loss) income includes changes to equity accounts that were not the result oftransactions with shareholders. Comprehensive (loss) income is comprised of net income or loss and othercomprehensive income and loss items.  Ourcomprehensive income and losses generally consist of changes in the cumulativeforeign currency translation adjustment.

* *

*Reclassifications*

 

Certainreclassifications have been made in the 2006 Consolidated Financial Statementsto conform to the 2007 presentation.

* *

*Recentlyissued accounting standards*

 

In February 2008,the Financial Accounting Standards Board (“FASB”) issued Financial StaffPosition No. 157-1 (“FSP No. 157-1”) amending SFAS No. 157 asdefined below to exclude SFAS No. 13,*Accounting for Leases* (“SFAS No. 13”), and other accountingpronouncements that address fair value measurements for purposes of leaseclassification or measurement under SFAS No. 13.  This scope exception does not apply to assetsacquired and liabilities assumed in a business combination that are required tobe measured at fair value under SFAS No. 141 or SFAS No. 141(R) regardlessof whether those assets and liabilities are related to leases.  FSP No.157-1 will be effective upon theinitial adoption of SFAS No.157.  See thediscussion of the effective date of SFAS No. 157 below.  We do notexpect the adoption of this statement to have a material effect on ourconsolidated financial position, results of operations or cash flows.

 

In December 2007,the FASB issued SFAS No. 160,*Noncontrolling Interests in Consolidated Financial Statements—an amendment ofARB No. 51* (“SFAS No 160”).** SFAS No. 160 establishes accounting andreporting standards for a parent company’s noncontrolling, or minority,interests in its subsidiaries.  SFASNo.160 also provides accounting and reporting standards for changes in a parent’sownership interest of a noncontrolling interest as well as deconsolidationprocedures.  This statement aligns thereporting of noncontrolling interests in subsidiaries with the requirements inInternational Accounting Standards 27 and is effective for fiscal yearsbeginning on or after December 15, 2008, and interim periods within thosefiscal years.  We do not expect theadoption of this statement to have a material effect on our consolidatedfinancial position, results of operations or cash flows.

 

In December 2007,the FASB issued SFAS No. 141,*BusinessCombinations - Revised* (“SFAS No. 141R”).  SFAS No. 141Rchanges the accounting for business combinations including the measurement ofacquirer shares issued in consideration for a business combination, therecognition of contingent consideration, the accounting for pre-acquisitiongain and loss contingencies, the recognition of capitalized in-process researchand development, the accounting for acquisition-related restructuring costaccruals, the treatment of acquisition related transaction costs and therecognition of changes in the acquirer’s income tax valuation allowance. SFAS No. 141R iseffective for fiscal years beginning after December 15, 2008, with earlyadoption prohibited.  The Company will berequired to adopt SFAS No. 141R in the first quarter of fiscal year2009.  We do not expect the adoption ofthis statement to have a material effect on our consolidated financialposition, results of operations or cash flows.

 

In February 2007,the FASB issued SFAS No.159,*The Fair ValueOption for Financial Assets and Financial Liabilities* (“SFAS No. 159”).  SFAS No. 159 provides companies with anoption to report selected financial assets and liabilities at fair value.  SFAS No.159 also establishes presentation anddisclosure requirements designed to facilitate comparisons between companiesthat choose different measurement attributes for similar types of assets andliabilities and to provide additional information that will help investors andother financial statement users to more easily understand the effect of acompany’s choice to use fair value on its earnings.  Additionally, SFAS No.159 requires entitiesto display the fair value of those assets and liabilities for which a companyhas chosen to use fair value on the face of the balance sheet.  SFAS No. 159 is effective as of thebeginning of an entity’s first fiscal year beginning after November 15,2007.  We do not expect that the adoptionof SFAS No. 159 will have a material impact on our financial position,results of operations or cash flows.

 

In September 2006,the FASB issued SFAS No. 157, *FairValue Measurements* (“SFAS No. 157”), which establishes aframework for measuring the fair value of assets and liabilities in generallyaccepted accounting principles (“GAAP”) and expands disclosures about fairvalue measurements.  The FASB has issueda proposed interpretation that would defer the implementation of SFAS No. 157for non-financial assets and liabilities until fiscal years beginning after November 15,2008.  The remaining provisions of SFAS No. 157are effective for fiscal years beginning after November 15, 2007 andinterim periods within those fiscal years. We do not expect that the adoption of SFAS No. 157 will have amaterial impact on our financial position, results of operations or cash flows.

 

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***Note 3 -Impairment of Assets and Special Items***

* *

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

 

We performed impairmenttesting of our property and equipment in accordance with SFAS No. 144, *Accounting for the Impairment or Disposal of Long-lived Assets,*and of our goodwill and intangible assets in accordance with SFAS No. 142, *Goodwill and Intangible Assets*.

 

No impairment of assetsor intangible assets were recorded for the year ended 2007 as a result of ourtesting.

 

At year end 2006, weconcluded that the *Star Trader*® brand in our Proprietary Brandsfinancial markets education segment and the *Cash FlowGenerator*® brandin our Proprietary Brands real estate education segment were impaired.  During 2006, both brands generated negativecash flow and declining student enrollment. We have stopped or suspended marketing of these brands and subsequentlyconcluded both were permanently impaired. In addition, we analyzed forecasted future undiscounted cash flows anddetermined the assets had no value.  Thisresulted in a $2.7 million goodwill and intangible asset impairment charge:$2.2 million for the *Star Trader*® brand and $0.5 million for the*Cash Flow Generator*® brand — along with an impairment charge ofapproximately $0.1 million for related inventory.

 

During the fourth quarterof 2006, the Board of Directors approved the sale of our land and officebuilding in the United Kingdom.  Werecorded an impairment loss of $0.4 million in connection with our UnitedKingdom office building to reduce the property to its estimated net realizablevalue as of December 31, 2006. During the second quarter of 2007, we sold the land and building in theUnited Kingdom for net proceeds of approximately $3.7 million.

 

During the fourth quarterof 2006, the Board of Directors approved the sale of our aircraft.  This asset is included in our corporatesegment.  We recorded an impairment lossof $0.4 million to reduce the book value of the aircraft to its estimated netrealizable value as of December 31, 2006. During the second quarter of 2007, we sold the aircraft, for netproceeds of approximately $1.3 million.

 

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

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

 

*Special items*

 

The following table shows the special itemby expense type for the yeas ended 2007 and 2006 (in thousands):

 
| ** **                                                                                                  | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                  | ** ** | **2007**              | ** ** | **2006** | ** ** |
| Professional  fees associated with the SEC and DOJ investigations and the resulting  internal investigation |       | $                     | 10,460     |   | $ | 651 |   |
| Liquidated  damages provision of the registration rights agreement                                          |       | —                |       | 780 |   |
| Withdrawal of  Edutrades, Inc. registration statement and Form S-1                                |       | —                |       | 899 |   |
| Executive severance                                                                                         |       | 1,950                 |       | — |   |
|                                                                                                        |       | $                     | 12,410     |   | $ | 2,330 |   |

 

*Liquidated damages provision inregistration rights agreement*

 

In connection with theOffering, we entered into a registration rights agreement which provided thatwe use our “best efforts” to file a registration statement for the resaleof these shares to be declared effective by April 11, 2006, and requiredus to maintain the effectiveness of the registration statement for a one yearperiod subsequent to the effective date. The registration rights agreement required the payment of liquidateddamages to the investors of approximately $4,500 per day (which representsabout 1% per month of the proceeds) until the registration statement isdeclared effective or effectiveness is 

 

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maintained.  The registration statement was declaredeffective on November 13, 2006, and expired during 2007.  Liquidated damages through November 13,2006, were $1.0 million.  We hadpreviously accrued $0.2 million for the year ended December 31, 2005,resulting in a $0.8 million expense for the year ended December 31,2006.  For further discussion see Note 4 –*Offering.*

 

***Note 4 – Offering***

 

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

 

The common stockand warrants were issued as a $13.5 million private placement in which3,000,000 units of our securities were issued to a group of 17 non-affiliatedaccredited investors.  In addition, aunit warrant was issued to our placement agent exercisable to purchase300,000 shares of common stock at $4.50 per share and 150,000 shares ofcommon stock at $6.00 per share. Including the units to our placement agent, we registered a total of3,000,000 shares of common stock, plus 1,950,000 units underlyingcommon stock purchase warrants.  Wecollected $5.6 million of proceeds on behalf of our former Chairman andChief Executive Officer, who was a selling shareholder in the offering.  At December 31, 2005, we recorded aliability to our former Chairman and Chief Executive Officer of$5.1 million, net of $0.5 million in offering costs, on theaccompanying Consolidated Balance Sheets, which was paid in the first quarterof 2006.

 

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

 
| ** **                                                   | ** ** | **Number of  warrants** | ** ** | **Weighted  average  exercise price** | ** ** |
|--------------------------------------------------------------|------------|------------------------------|------------|--------------------------------------------|------------|
| Outstanding as of December 31, 2005 |       | 1,337                        |       | $                                          |  6.12 |   |
| Granted                                                      |       | 41                           |       | 4.60                                       |       |
| Forfeited                                                    |       | —                       |       | —                                     |       |
| Exercised                                                    |       | (488                         | )          | 6.00                                       |       |
| Outstanding as  of December 31, 2006                    |       | 890                          |       | $                                          | 6.07       |   |
| Granted                                                      |       | —                       |       | —                                     |       |
| Forfeited                                                    |       | —                       |       | —                                     |       |
| Exercised                                                    |       | —                       |       | —                                     |       |
| Outstanding as  of December 31, 2007                    |       | 890                          |       | $                                          | 6.07       |   |

 

In 2006, we issued 41,667warrants at an exercise price of $4.60. In 2005, we sold 1,750,000 shares of common stock and issuedwarrants for 875,000 shares.  Our formerChairman and Chief Executive Officer sold 1,250,000 shares of common stockand warrants for 625,000 shares.  Inaddition, in 2005, we issued a unit warrant to our placement agent exercisableto purchase 300,000 units at $4.50 per share (a unit is comprised of one shareof stock plus a warrant for one-half share). There were no warrants exercised during 2007, as the time period formaintaining the effectiveness of the registration statement expired during2007; the Company did not file a supplement or amendment to the registrationstatement.

 

No warrants wereexercised during the year ended December 31, 2007.

 

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***Note 5 -******Certain Relationships and Related Transactions***

 

We lease approximately 2,200 square feet of training facilities at 1611East Cape Coral Parkway, approximately 9,000 square feet of space at 1625 EastCape Coral Parkway which is used for offices and shipping, and 4,802 squarefeet at 1630 Southeast 47th Terrace which we use as a training facility, all inCape Coral, Florida from Cape Promenade Trust which is for the benefit of ourformer Chairman and Chief Executive Officer, Mr. Whitney and IngridWhitney.  The leases are for three yearsand began on March 1, 2003, March 1, 2003, and June 1, 2004,respectively.  The monthly rentals are$1,943, $13,913 and $7,238 in 2007, respectively.  We terminated the 1611 East Cape CoralParkway and 1630 Southeast 47th Terrace leases onSeptember 17, 2008.  We notifiedCape Promenade Trust on November 21, 2008 we are terminating the 1625 EastCape Coral Parkway lease effective December 31, 2008.  See Note 17 - *SubsequentEvents.*

 

*Gulfstream Development Group, LLC*

 

For the years ended December 31,2003 through 2007, the Company had an agreement with Gulfstream DevelopmentGroup, LLC (“Gulfstream”) in which we were compensated for appointingGulfstream as the exclusive offeror of homes for students of our advanced realestate courses.  Students were offeredthe opportunity to purchase residential lots in Southwest Florida fromGulfstream, other lot owners, or Mr. Whitney.  Gulfstream constructs homes on lots owned byour students.  Under a Referral ServicesAgreement with Gulfstream, Gulfstream paid the Company a flat fee of $100,000for all referrals that occurred before January 1, 2003, and agreed to paythe Company $1,000 for each student that the Company referred to Gulfstream whopurchased and closed on a home built by Gulfstream after January 1,2003.  During 2007, the amount of theCompany’s referral fee was increased to $2,500, with $500 of that being paid toCompany trainers who assisted in the referral. Under this arrangement, the Company received $0.3 million and $0.1million from Gulfstream in the years ended December 31, 2006 and 2007respectively.

 

During the years ended December 31,2006 and 2007, Mr. Whitney and Ingrid Whitney jointly held an indirect 25%beneficial ownership interest in Gulfstream and received 15% of distributionsof net cash flow from Gulfstream.  Mr. andMrs. Whitney hold their investment in Gulfstream through Rec One Inc., anentity owned jointly by them.  Pursuantto an agreement between Mr. and Mrs. Whitney, as of December 31,2007, Mr. Whitney holds an indirect 12.5% beneficial ownership interest inGulfstream and is entitled to 7.5% of distributions of net cash flow fromGulfstream.

 

During the years ended December 31,2004 through 2007, Gulfstream had an informal arrangement with Mr. Whitneypursuant to which Gulfstream paid Mr. Whitney a salary and paid Rec Onetransaction-based compensation for Mr. Whitney’s services, includingmarketing and construction contract administration in connection with homesales to the Company’s students and other persons, as well as for creditsupport provided to Gulfstream by Mr. Whitney.  The transaction-based compensation consistedof payments of $2,500 or $4,000 to Rec One by Gulfstream upon purchases ofGulfstream homes by our students.

 

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

 

The following table setsforth the salary and transaction-based compensation that Mr. Whitneyreceived from Gulfstream during the years ended December 31, 2003, 2004,2005, 2006, and 2007, and is based upon information provided to Mr. Whitneyby Gulfstream:

 
| ** **                                                    | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** | **Total** | ** ** |
|---------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|-----------|------------|
| Salary paid to  R. Whitney by Gulfstream                      |       | $        | —     |     | $          | 120,000  |       | $        | 120,000    |     | $          | 120,000   |       | $ | 120,000 |   | $ | 480,000 |   |
| Transaction-based  compensation paid to Rec One by Gulfstream |       |     | 563,220    |     |       | 41,154   |       |     | 522,315    |     |       | 1,251,105 |       |   | 369,763 |   |   | 2,747,557 |   |
| Management Fees  paid to Rec One by Gulfstream (1)            |       |     | —     |     |       | 300,000  |       |     | 350,000    |     |       | —    |       |   | 175,000 |   |   | 825,000 |   |
| Distributions  from Gulfstream to Rec One (2)(3)              |       |     | —     |     |       | —   |       |     | 1,752,976  |     |       | 1,543,662 |       |   | 1,928,086 |   |   | 5,224,724 |   |
| Total                                                         |       | $        | 563,220    |     | $          | 461,154  |       | $        | 2,745,291  |     | $          | 2,914,767 |       | $ | 2,592,849 |   | $ | 9,277,281 |   |

 

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(1)        Totalmanagement fees shown above reflect amounts paid to Rec One and shared by Mr. Whitneyand Ms. Whitney on a 50/50 basis.

(2)        Totaldistributions include portions paid to Rec One and shared by Mr. Whitneyand Ms. Whitney on a 50/50 basis.

(3)        RecOne was required to fund 25% of capital calls from Gulfstream.  The amounts shown above do not reflect thesecapital calls which, including the portions for both Mr. Whitney and Ms. Whitney,were $202,793 in 2005 and $486,530 in 2006.

 

A committee ofindependent members of the Board of Directors is reviewing the Gulfstreamtransactions regarding compliance with the applicable governance and relatedparty transaction requirements.

* *

*CostaRica*

 

As of December 31,2007, we had investments in several Costa Rican and Panamanian entities.  In addition, two former executives, ourChairman and Chief Executive Officer, Mr. Whitney, and our formerCo-President and Chief Operating Officer, Mr. Simon, have individualownership interests in some of these entities. The entities in which both the Company and one or more former executivesalso has an ownership interest include: Rancho Monterey, S.A., Monterey delEste, S.A., Monterey del Llano, S.A. and Monterey Group, S.A.  Mr. Whitney indirectly ownsapproximately 11.4% of Rancho Monterey, S.A., 8.0% of Monterey del Este, S.A.,50.0% of Monterey del Llano, S.A., and 22.0% of Monterey Group, S.A.  Mr. Simon indirectly owns approximately1.4% of Rancho Monterey, S.A.  Theseentities are managed by Monterey Management, S.A., a company which is 100%owned by Ms. Maria Jimenez, who is paid as an independent contractor bythe Company.

 

MontereyManagement, S.A., receives management fees from these and other entities.  The amounts earned for management fees forthe years ended December 31, 2007 and 2006 were $500,000 and $800,000,respectively.  In addition to managementfees, commissions on the sale of land in Rancho Monterey, S.A. and Monterey delEste, S.A. were paid to Monterey Management, S.A. and others includingunrelated real estate agents and brokers for the year ended December 31,2006.

 

In January 2008,some of our investments in properties located in Costa Rica, including RanchoMonterey S.A., Monterey del Este, S.A. and Beautiful Hill S.A (our conferencecenter) were sold to an unrelated party for a sales price of $12.2 million, ofwhich the Company received $2.5 million for its interests in theseentities.  In addition, working capitaladvances to these entities and to Monterey Management, S.A. totaling $600,000were repaid.  In connection with thesale, consulting fees totaling $802,000 were paid as follows:  Mr. Whitney ($401,000), Mr. Simon($140,400), Mr. Densley, the former Vice President of Real Estate, ($160,600)and Ms. Jimenez, an independent contractor, ($100,000) in January of2008.  Monterey Management S.A. made thefollowing payments from its proceeds from the sale: $210,000 to Mr. Whitneyand $95,000 to each Mr. Simon and Mr. Densley.

 

Mr. Whitney andIngrid Whitney, Mr. Ronald Simon and his wife, former employees,associates and independent contractors and others own shares of Costa RicaConsulting, LLC (“CRC”).  CRC owned a 10%share of Rancho Monterey, S.A. as of December 31, 2007.  These shares were sold in 2008.

 

A committee ofindependent members of the Board of Directors is reviewing the Costa Ricantransactions regarding compliance with the applicable governance and relatedparty transaction requirements.

 

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***Note 6 – Notes Receivable***

 

Notesreceivable consists of the following (in thousands):

 
| ** **                                                                                                                                                                                                                                                             | ** ** | **Years ended December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                                                                                                                                                                                             | ** ** | **2007**                                    | ** ** | **2006** | ** ** |
| Note receivable  from the sale of real estate. Principal and interest monthly at 6.25%, $6.2  million due at maturity, matures November 2015 and is collateralized by  land and a building in Central Florida.                                                    |       | $                                           | 7,087      |   | $ | 7,171 |   |
| Note receivable  from the sale of our 50% equity interest in land in the amount of $4.5  million with no interest. Issued in May 2007, matures December 2007  and is collateralized by 74 acres of land in Southwest Florida (“Tranquility  Bay”). |       | 3,074                                       |       | — |   |
| Total of notes  receivable                                                                                                                                                                                                                                             |       | 10,161                                      |       | 7,171 |   |
| Less: current  portion                                                                                                                                                                                                                                                 |       | (88                                         | )          | (84 |   |
| Long-term notes  receivable                                                                                                                                                                                                                                            |       | $                                           | 10,073     |   | $ | 7,087 |   |

 

See Note 17 – *SubsequentEvents* for further discussion related to Tranquility Bay.

 

***Note 7 - Property and Equipment***

 

Property and equipment consists of the following (inthousands):

 
| ** **                      | ** ** | **December 31,** | ** ** |
|---------------------------------|------------|-----------------------|------------|
| ** **                      | ** ** | **2007**              | ** ** | **2006** | ** ** |
| ** **                      | ** ** | ** **            | ** ** | **(restated)** | ** ** |
| Land                            |       | $                     | 782        |   | $ | 2,460 |   |
| Buildings                       |       | 2,268                 |       | 3,891 |   |
| Aircraft                        |       | 6,680                 |       | 7,867 |   |
| Software                        |       | 2,532                 |       | 2,101 |   |
| Equipment                       |       | 1,765                 |       | 1,424 |   |
| Furniture and  fixtures         |       | 1,043                 |       | 792 |   |
| Leasehold  improvements         |       | 2,109                 |       | 1,908 |   |
|                            |       | 17,179                |       | 20,443 |   |
| Less:  accumulated depreciation |       | (5,278                | )          | (3,979 | ) |
|                            |       | 11,901                |       | 16,464 |   |
| Less: Assets  held for sale     |       | (736                  | )          | (4,719 | ) |
|                            |       | $                     | 11,165     |   | $ | 11,745 |   |

 
| ** **           | ** ** | **Years ended December 31,** | ** ** |
|----------------------|------------|---------------------------------------------|------------|
| ** **           | ** ** | **2007**                                    | ** ** | **2006** | ** ** |
| ** **           | ** ** | ** **                                  | ** ** | **(restated)** | ** ** |
| Depreciation expense |       | $                                           | 1,556      |   | $ | 971 |   |
|                      |            |                                             |            |  |  |  |  |

 

Assets held for sale at December 31, 2007 and2006 consisted of the following (in thousands):

 
| ** **                                                       | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                       | ** ** | **2007**              | ** ** | **2006** | ** ** |
| ** **                                                       | ** ** | ** **            | ** ** | **(restated)** | ** ** |
| Land and  building of European headquarters                      |       | —                |       | $ | 3,340 |   |
| Corporate  aircraft                                              |       | —                |       | 1,379 |   |
| Investment in  Rancho Monterey, S.A. and Monterey del Este, S.A. |       | $                     | 905        |   | — |   |
| Investment in  Monterey del Mar, S.A.                            |       | 1,233                 |       | — |   |
| Beautiful Hill,  S.A.                                            |       | 736                   |       | — |   |
|                                                             |       | $                     | 2,874      |   | $ | 4,719 |   |

 

The assets held for saleas of December 31, 2006, were both sold in the second quarter of2007.  The net proceeds from the sale ofthe land and building of the European headquarters were approximately $3.8million resulting in a net gain of approximately 

 

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$0.3 million.  The net proceeds from the sale of thecorporate aircraft were approximately $1.3 million resulting in net loss ofapproximately $0.2 million.

 

The investment in RanchoMonterey, S.A., Monterey del Este, S.A, and Beautiful Hill, S.A. as of December 31,2007, were sold in January 2008.

 

See Note 3 — *Impairment of Assets and Special Items* regarding theimpairment charge of $0.8 million in 2006 related to property and equipment.

*** ***

***Note 8 - Intangible Assets***

 

Intangible assetsconsist of the following (in thousands):

 
| ** **                      | ** ** | **December 31,** | ** ** |
|---------------------------------|------------|-----------------------|------------|
| ** **                      | ** ** | **2007**              | ** ** | **2006** | ** ** |
| ** **                      | ** ** | ** **            | ** ** | **(restated)** | ** ** |
| Customer lists                  |       | $                     | 1,154      |   | $ | 1,154 |   |
| Trademarks                      |       | 300                   |       | 300 |   |
|                            |       | 1,454                 |       | 1,454 |   |
| Less:  accumulated amortization |       | (1,022                | )          | (958 | ) |
|                            |       | $                     | 432        |   | $ | 496 |   |

 
| ** **            | ** ** | **Years ended December 31,** | ** ** |
|-----------------------|------------|---------------------------------------------|------------|
| ** **            | ** ** | **2007**                                    | ** ** | **2006** | ** ** |
| ** **            | ** ** | ** **                                  | ** ** | **(restated)** | ** ** |
| Amortization  expense |       | $                                           | 64         |   | $ | 282 |   |
|                       |            |                                             |            |  |  |  |  |

 

Goodwill of $2.0 millionwas determined to be impaired at December 31, 2006.  See Note 3 - *Impairmentof Assets and Special Items*.

 

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

 
| **Years ending December 31** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
| 2008                                        |       | $          | 64         |   |
| 2009                                        |       | 64         |       |
| 2010                                        |       | 64         |       |
| 2011                                        |       | 64         |       |
| 2012                                        |       | 64         |       |
| Thereafter                                  |       | 112        |       |
|                                        |       | $          | 432        |   |

 

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***Note 9 - Long-Term Debt***

 

Long-term debtconsists of (in thousands):

 
| ** **                                                                                                                                                                                                                                                                                                     | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                     | ** ** | **2007**              | ** ** | **2006** | ** ** |
| ** **                                                                                                                                                                                                                                                                                                     | ** ** | ** **            | ** ** | ** ** | ** ** |
| Notes payable to  individuals for the purchase of an equity interest in the SCB Building, LLC.  Principal and interest payment beginning in April 2006 at an interest  rate of 6.25%. The note matures in April 2016.                                                                                |       | $                     | 2,942      |   | $ | 2,976 |   |
| Mortgage payable  to a bank. Principal plus interest at 5.7% due monthly until August 2014  and is collateralized by real estate located in the United Kingdom.                                                                                                                                           |       | —                |       | 1,976 |   |
| Note payable to  a finance company. Monthly principal and interest through December 2018.  Interest at the LIBOR rate plus 3.4% and is collateralized by an aircraft.  The note is personally guaranteed (up to $0.2 million) by our former  Chairman and Chief Executive Officer, Mr. Whitney. |       | —                |       | 983 |   |
| Note payable to  an individual for the purchase of an equity interest in Rancho Monterey, S.A  Principal and interest payments beginning in July 2003 at an interest  rate of 5%. The note matures in June 2008 and is collateralized by our  Common Stock.                                          |       | 73                    |       | 213 |   |
| Other  installment notes payable                                                                                                                                                                                                                                                                               |       | 62                    |       | 6 |   |
|                                                                                                                                                                                                                                                                                                           |       | 3,077                 |       | 6,154 |   |
| Less: current  portion                                                                                                                                                                                                                                                                                         |       | (125                  | )          | (3,139 | ) |
|                                                                                                                                                                                                                                                                                                           |       | $                     | 2,952      |   | $ | 3,015 |   |

 

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

 

The followingreflects our commitments for debt and other commitments as of December 31,2007 (in thousands):

 
| ** ** | ** ** | **Notes payable** | ** ** | **Real estate  mortgages** | ** ** | **Other  installment  notes** | ** ** | **Total Debt** | ** ** | **Operating lease  commitments** | ** ** | **Total  Commitments** | ** ** |
|------------|------------|------------------------|------------|---------------------------------|------------|-------------------------------|------------|---------------------|------------|---------------------------------------|------------|------------------------|------------|
| 2008       |       | $                      | 108        |                            | $          | 13                            |       | $                   | 4          |                                  | $          | 125                    |       | $ | 1,122 |   | $ | 1,247 |   |
| 2009       |       | 38                     |       | 14                              |       | 5                             |       | 57                  |       | 755                                   |       | 812                    |       |
| 2010       |       | 41                     |       | 16                              |       | 4                             |       | 61                  |       | 638                                   |       | 699                    |       |
| 2011       |       | 44                     |       | 7                               |       | —                        |       | 51                  |       | 546                                   |       | 597                    |       |
| 2012       |       | 46                     |       | —                          |       | —                        |       | 46                  |       | 470                                   |       | 516                    |       |
| Thereafter |       | 2,737                  |       | —                          |       | —                        |       | 2,737               |       | 37                                    |       | 2,774                  |       |
|       |       |                   |       |                            |       |                          |       |                |       |                                  |       |                   |       |
|       |       | $                      | 3,014      |                            | $          | 50                            |       | $                   | 13         |                                  | $          | 3,077                  |       | $ | 3,568 |   | $ | 6,645 |   |

 

***Note 10 - StockOptions***

* *

*Stock-based compensation plans*

 

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

 

Effective January 1, 2006, we adoptedSFAS No. 123R, which requires us to measure the cost of employee servicesreceived in exchange for all equity awards granted including stock optionsbased on the fair market value of the award as of the grant date.  SFAS No. 123R supersedes SFAS No. 123and APB No. 25.  We adopted SFAS No. 123Rusing the modified prospective application method of adoption which requires usto record compensation cost related to unvested stock awards as of December 31,2005, by recognizing the unamortized grant date fair value of these awards overthe remaining service periods of those awards with no change in historicalreported earnings.  Awards granted after December 31,2005, are valued 

 

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at fair value in accordance with theprovisions of SFAS No. 123R and recognized on the same basis as thevesting period. We estimated forfeiture rates for 2007 and 2006 based onhistorical experience.

 

Prior to 2006, we accounted for stock-basedcompensation in accordance with APB No. 25 using the intrinsic valuemethod, which did not require that compensation cost be recognized for ourstock options provided the option exercise price was established at 100% of thecommon stock fair market value on the date of grant.  In accordance with APB No. 25, we wererequired to record expense over the vesting period for the value of optionsgranted.  Prior to 2006, the Companyprovided pro-forma disclosure amounts in accordance with Statement of FinancialAccounting Standards No. 148, *Accountingfor Stock-Based Compensation - Transition and Disclosure*(“SFAS No. 148”), as if the fairvalue method defined by SFAS No. 123 had been applied to its stock-basedcompensation.  See Note 2 - *Significant Accounting Policies**and RelatedInformation*, *Stock Options andStock-Based Compensation*.

 

The estimated fair value of the option grantswas calculated using a Black Scholes Merton option pricing model (“BlackScholes model”).  The followingsummarizes the assumptions used in the Black Scholes model:

 
| Risk free interest rate           |   | 4.54%-3.92 | %      |
|--------------------------------------------------|--------|------------|--------|
| Expected volatility                              |   | 72.5%-76.5 | %      |
| Dividend yield                                   |   | 0.0        | %      |
| Expected term in years                           |   | 5.25-5.75  |   |
| Weighted average fair market value at grant date |   | $3.31      |   |

 

The Black Scholes model incorporates assumptions to value stock-basedawards.  The risk free rate of interestfor periods within the contractual life of the option is based on a zero-couponU.S. government instrument over the expected term of the equity instrument.  Expected volatility is based on thehistorical volatility of our stock.

 

Our estimation of expected term is based on the guidelines in StaffAccounting Bulletin No. 107, (“SAB No.107”), which allows companies whosestock options meet specific criteria to be considered “plain-vanilla” options,thereby allowing the simplified method of estimating expected term to beapplied.  Our stock option awards meetthe criteria to use the simplified method of calculating expected term.  For our Company, this calculation wasperformed using the average of the mid-points for each vesting tranche.  This methodology is not materially differentfrom our historical data on exercise timing.

 

The followingtable summarizes the components of our stock-based compensation programsrecorded as expense (in thousands):

 
| ** **                                           | ** ** | **Years ended December 31,** | ** ** |
|------------------------------------------------------|------------|---------------------------------------------|------------|
| **(in thousands)**                              | ** ** | **2007**                                    | ** ** | **2006** | ** ** |
| Stock-based  compensation expense:                   |       |                                        |       |   |   |
| Pretax  compensation expense                         |       | $                                           | 753        |   | $ | 881 |   |
| Income tax  benefit                                  |       | —                                      |       | — |   |
| Stock option  expense, net of the related tax effect |       | $                                           | 753        |   | $ | 881 |   |

 

Our compensationexpense is included in the general and administrative financial statementcaption on our Consolidated Statement of Operations.

 

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The followingtable presents the activity for options outstanding (in thousands, except pershare data):

 
| **Total Stock Options**         | ** ** | **Number  of options** | ** ** | **Weighted  average  exercise  price** | ** ** | **Weighted  average  remaining  contractual  life (years)** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|-------------------------------------------|------------|-----------------------------|------------|----------------------------------------|------------|------------------------------------------------------------------|------------|---------------------------------|------------|
| Outstanding as  of December 31, 2006 |       | 1,253                       |       | $                                      | 4.49       |                                                             |       |                            |       |   |
| Granted                                   |       | 280                         |       | 3.78                                   |       |                                                             |       |                            |       |
| Forfeited                                 |       | (315                        | )          | 4.82                                   |       |                                                             |       |                            |       |
| Exercised                                 |       | —                      |       | —                                 |       |                                                             |       |                            |       |
| Outstanding as  of December 31, 2007 |       | 1,218                       |       | $                                      | 4.70       |                                                             | 6.9        |                            | $          | 254 |   |
| Exercisable as  of December 31, 2007 |       | 906                         |       | $                                      | 4.61       |                                                             | 6.1        |                            | $          | 227 |   |

 

The weighted averagegrant-date fair value of options granted during fiscal 2007 and fiscal 2006were $3.31 and $5.47, respectively. During 2007, two stock options were made to executive officers.  On March 15, 2007, 180,000 stock optionswere granted to Alfred Novas, our former Co-President and Chief FinancialOfficer.  On December 5, 2007,50,000 stock option awards were granted to Anne Donoho, our current ChiefFinancial Officer.  In addition, fivegrants of 10,000 stock options each were awarded to members of our Board ofDirectors.  During 2006, stock optionsfor 25,000 shares were granted to a named executive officer, and two stockoptions awards for 10,000 shares each were granted to members of the Board ofDirectors.  Exercise of options duringthe years of 2007 and 2006 resulted in cash receipts of zero and $1.5 million,respectively.  The intrinsic value of a stockoption is the amount by which the current market value of the underlying stockexceeds the exercise price of the stock option.

 

A summary of the statusof our nonvested shares as December 31, 2007, and the changes during theyear ended 2007 is presented below (in thousands, except per share data):

 
| **Nonvested Stock Options**     | ** ** | **Number  of options** | ** ** | **Weighted  average  grant date  fair value** | ** ** |
|-------------------------------------------|------------|-----------------------------|------------|---------------------------------------------------------|------------|
| Outstanding as  of December 31, 2006 |       | 398                         |       | $                                                       | 5.47       |   |
| Granted                                   |       | 182                         |       | 3.78                                                    |       |
| Vested                                    |       | (176                        | )          | 6.00                                                    |       |
| Canceled                                  |       | (92                         | )          | 6.08                                                    |       |
| Outstanding as  of December 31, 2007 |       | 312                         |       | $                                                       | 4.98       |   |

 

As of December 31,2007, there was approximately $0.6 million of total unrecognized compensationcost related to nonvested stock-based compensation arrangements under our stockoption plan.  That cost is expected to berecognized over a weighted average vesting period of approximately 1.8 years.

 

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***Note 11 -Employee Benefit Plan***

 

We have a 401(k) employeesavings plan for eligible employees, which provide for a matching contributionfrom us, determined each year at our discretion.  Our contributions, charged to earnings forthe years ended December 31, 2007 and 2006 were $0.7 million and$0.2 million, respectively.

 

***Note 12 -Income Taxes***

 

We recognizedeferred tax assets and liabilities, at enacted income tax rates, based on thetemporary differences between the financial reporting basis and the tax basisof our assets and liabilities.  Weinclude any effects of changes in income tax rates or tax laws in the provisionfor income taxes in the period of enactment. When it is more likely than not that a portion or all of a deferred taxasset will not be realized in the future, we provide a corresponding valuationallowance against the deferred tax asset.

 

As of December 31, 2007, we are estimating thatour taxable income will not exceed the amount necessary to utilize our deferredtax assets.  Therefore, we are increasingour valuation allowance from $17.6 million to $19.1 million.  We have approximately $30.0 million of netoperating loss carryforwards which will expire in 2027.  We also have an Alternative Minimum TaxCredit of $0.3 million that will carryforward.

 

We estimate that we willbe liable for approximately $0.2 million in state and non-U.S. taxes forthe year ended December 31, 2007.

 

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

 
| ** **                               | ** ** | **Years ended December 31,** | ** ** |
|------------------------------------------|------------|---------------------------------------------|------------|
| ** **                               | ** ** | **2007**                                    | ** ** | **2006** | ** ** |
| ** **                               | ** ** | ** **                                  | ** ** | **(restated)** | ** ** |
| Earnings (loss)  before taxes:           |       |                                        |       |   |   |
| U.S.                                     |       | $                                           | (1,891     | ) | $ | 5,379 |   |
| Non-U.S.                                 |       | (4,522                                      | )          | 4,628 |   |
| Total (loss)  income before income taxes |       | $                                           | (6,413     | ) | $ | 10,007 |   |
| Provision for  taxes:                    |       |                                        |       |   |   |
| Current:                                 |       |                                        |       |   |   |
| Federal                                  |       | $                                           | 61         |   | $ | 71 |   |
| State                                    |       | 130                                         |       | 180 |   |
| Non-U.S.                                 |       | 34                                          |       | 168 |   |
| Total current                            |       | 225                                         |       | 419 |   |
| Deferred:                                |       |                                        |       |   |   |
| Federal                                  |       | 30                                          |       | 3,524 |   |
| State                                    |       | (74                                         | )          | (1,091 | ) |
| Non-U.S.                                 |       | (1,453                                      | )          | 1,377 |   |
| Total Deferred                           |       | (1,497                                      | )          | 3,810 |   |
| Change in  valuation allowance           |       | 1,497                                       |       | 3,477 |   |
| Total income tax  provision              |       | $                                           | 225        |   | $ | 7,706 |   |
| Effective income  tax rate               |       | 3.5                                         | %          | 77.0 | % |

 

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

 
| ** **                                  | ** ** | **Years ended December 31,** | ** ** |
|---------------------------------------------|------------|---------------------------------------------|------------|
| **(in percentages)**                   | ** ** | **2007**                                    | ** ** | **2006** | ** ** |
| ** **                                  | ** ** | ** **                                  | ** ** | **(restated)** | ** ** |
| Statutory  federal income tax rate          |       | (35.0                                       | )%         | 35.0 | % |
| Valuation  allowance                        |       | 24.8                                        |       | 33.4 |   |
| Change in state  apportionment              |       | —                                      |       | (14.6 | ) |
| Goodwill  impairment                        |       | —                                      |       | 6.7 |   |
| Incentive stock  options/stock subscription |       | 6.4                                         |       | 2.5 |   |
| Personal use of  aircraft                   |       | 2.0                                         |       | 0.5 |   |
| State income net  of federal benefit        |       | 0.7                                         |       | 5.3 |   |
| Liquidated  damages                         |       | —                                      |       | 2.6 |   |
| Non-U.S. income  taxed at different rates   |       | 2.8                                         |       | (0.6 | ) |
| Other                                       |       | 1.8                                         |       | 3.3 |   |
| Effective income  tax rate                  |       | 3.5                                         | %          | 74.1 | % |

 

Deferred incometax assets and liabilities reflect the net tax effects of (i) temporarydifferences between the carrying amount of assets and liabilities for financialreporting purposes and the amounts for income tax purposes and (ii) operatingloss carryforwards.  The tax effects ofsignificant components of our deferred tax assets and liabilities are asfollows:

 
| ** **                                  | ** ** | **December 31,** | ** ** |
|---------------------------------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **2007**              | ** ** | **2006** | ** ** |
| ** **                                  | ** ** | ** **            | ** ** | **(restated)** | ** ** |
| **Deferred  tax assets:**                   |       |                  |       |   |   |
| Net operating  losses, federal              |       | $                     | 10,488     |   | $ | 11,442 |   |
| Net operating  losses, state                |       | 2,862                 |       | 3,099 |   |
| Net operating  losses, non-U.S.             |       | 3,479                 |       | 2,026 |   |
| Accrued  compensation, bonuses, severance   |       | 1,250                 |       | — |   |
| Allowance for  bad debt                     |       | 451                   |       | 132 |   |
| Intangible  amortization                    |       | 375                   |       | 404 |   |
| Deferred revenue  asset                     |       | 7,394                 |       | 6,284 |   |
| Tax credits — Alternative  Minimum Tax |       | 291                   |       | 230 |   |
| Other                                       |       | 250                   |       | 196 |   |
| Valuation  allowance                        |       | (19,077               | )          | (17,581 | ) |
| **Total  deferred tax assets**              |       | $                     | 7,763      |   | $ | 6,232 |   |
| **Deferred  tax liabilities:**              |       |                  |       |   |   |
| Deferred course  expenses                   |       | $                     | (7,210     | ) | $ | (5,774 | ) |
| Gain on sale                                |       | (251                  | )          | (188 | ) |
| Depreciation                                |       | (302                  | )          | (270 | ) |
| **Total  deferred tax liabilities**         |       | $                     | (7,763     | ) | $ | (6,232 | ) |
| Reported as:                                |       |                  |       |   |   |
| Noncurrent  deferred tax assets             |       | $                     | 7,763      |   | $ | 6,232 |   |
| Current deferred  tax liabilities           |       | (7,763                | )          | (6,232 | ) |
| **Net  deferred taxes**                     |       | $                     | —     |   | $ | — |   |

 

***Note 13 -(Loss) Income per Share***

 

Basic (loss) income per share is calculated using the weighted averagenumber of common shares outstanding. Diluted (loss) income per share reflect the potential dilution thatcould occur from common shares issuable through stock options and warrants,including zero and 0.5 million, that were dilutive for the years ended December 31,2007 and 2006 respectively.  There are atotal of 1,218,400 stock options, 890,719 warrants to purchase common stockoutstanding as of December 31, 2007 and a 

 

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combined 450,000 unit placement warrants issued to our placement agentin connection with our December 2005 offering.  The following table sets forth thecomputation for basic and diluted (loss) income per share (in thousands, exceptfor per share data):

 

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

 
| ** **                                                                   | ** ** | **Years ended December 31,** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                   | ** ** | **2007**                                    | ** ** | **2006** | ** ** |
| ** **                                                                   | ** ** | ** **                                  | ** ** | **(restated)** | ** ** |
| Numerator for  diluted (loss) income per common share                        |       | $                                           | (6,638     | ) | $ | 2,301 |   |
| Denominator for  basic income per share - weighted average shares            |       | 11,739                                      |       | 11,162 |   |
| Effect of  dilutive securities - options and warrants                        |       | —                                      |       | 458 |   |
| Denominator for  diluted income per share - adjusted weighted average shares |       | 11,739                                      |       | 11,620 |   |
| Diluted (loss)  income per common share                                      |       | $                                           | (0.57      | ) | $ | 0.20 |   |

 

***Note 14 -Business Segment Information***

 

We operate in twobusiness segments:  Proprietary Brandsand RDE.  Our revenues are generatedthrough the sale of real estate and financial market education courses,programs and products and categorized into segments depending upon throughwhich channel the student was acquired. Operating results for the segments reported below are evaluatedregularly by Executive Management.

 
| **(in thousands)**      | ** ** | **Year ended December 31,** | ** ** |
|------------------------------|------------|--------------------------------------------|------------|
| **Segment revenue**     | ** ** | **2007**                                   | ** ** | **2006** | ** ** |
| ** **                   | ** ** | ** **                                 | ** ** | **(restated)** | ** ** |
| Proprietary  Brands:         |       |                                       |       |   |   |
| Real estate education        |       | $                                          | 95,786     |   | $ | 111,701 |   |
| Financial markets  education |       | 70,669                                     |       | 112,493 |   |
|                         |       | 166,455                                    |       | 224,194 |   |
| Rich Dad  Education          |       | 41,179                                     |       | 460 |   |
|                         |       | $                                          | 207,634    |   | $ | 224,654 |   |

 
| **(in thousands)**                                             | ** ** | **Year ended December 31,** | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------------------|------------|
| **Segment gross profit (deficit) contribution** | ** ** | **2007**                                   | ** ** | **2006** | ** ** |
| ** **                                                          | ** ** | ** **                                 | ** ** | **(restated)** | ** ** |
| Proprietary Brands:                                                 |       |                                       |       |   |   |
| Real estate education                                               |       | $                                          | 30,019     |   | $ | 20,349 |   |
| Financial  markets education                                        |       | 23,654                                     |       | 28,937 |   |
|                                                                |       | 53,673                                     |       | 49,286 |   |
| Rich Dad  Education                                                 |       | (10,886                                    | )          | (472 | ) |
|                                                                |       | $                                          | 42,787     |   | $ | 48,814 |   |

 

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| **(in thousands)**                                  | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------------------------------|------------|--------------------------------------------|------------|
| **Depreciation and amortization expense** | ** ** | **2007**                                   | ** ** | **2006** | ** ** |
| ** **                                               | ** ** | ** **                                 | ** ** | **(restated)** | ** ** |
| Proprietary  Brands:                                     |       |                                       |       |   |   |
| Real estate education                                    |       | $                                          | 713        |   | $ | 727 |   |
| Financial  markets education                             |       | 330                                        |       | 367 |   |
|                                                     |       | 1,043                                      |       | 1,094 |   |
| Rich Dad  Education                                      |       | —                                     |       | — |   |
| Corporate                                                |       | 577                                        |       | 159 |   |
|                                                     |       | $                                          | 1,620      |   | $ | 1,253 |   |

 
| **(in thousands)**                   | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------|------------|--------------------------------------------|------------|
| **Segment identifiable assets** | ** ** | **2007**                                   | ** ** | **2006** | ** ** |
| ** **                                | ** ** | ** **                                 | ** ** | **(restated)** | ** ** |
| Proprietary  Brands:                      |       |                                       |       |   |   |
| Real estate education                     |       | $                                          | 10,240     |   | $ | 18,361 |   |
| Financial  markets education              |       | 5,229                                      |       | 9,135 |   |
|                                      |       | 15,469                                     |       | 27,496 |   |
| Rich Dad  Education                       |       | 39,806                                     |       | 1,913 |   |
| Corporate                                 |       | 36,409                                     |       | 62,278 |   |
|                                      |       | $                                          | 91,684     |   | $ | 91,687 |   |

 

***Note 15 -Summarized Quarterly Results (unaudited)***

 

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

 
| ** **                              | ** ** | **First  quarter** | ** ** | **Second  quarter** | ** ** | **Third  quarter** | ** ** | **Fourth  quarter** | ** ** | **Full Year** | ** ** |
|-----------------------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|
|                                    |       |               |       |                |       |               |       |                |       |               |       |
| **2007**                                |       |               |       |                |       |               |       |                |       |               |       |
| Revenue                                 |       | $                  | 56,261     |                | $          | 46,937             |       | $                   | 56,582     |               | $          | 47,854 |   | $ | 207,634 |   |
| Gross profit                            |       | 14,408             |       | 606                 |       | 14,917             |       | 12,856              |       | 42,787             |       |
| Income (loss)  from operations          |       | 1,106              |       | (12,173             | )          | 2,910              |       | 97                  |       | (8,060             | )          |
| Net income  (loss)                      |       | $                  | 1,284      |                | $          | (11,780            | )          | $                   | 3,222      |               | $          | 636 |   | $ | (6,638 | ) |
| Per share  amounts:                     |       |               |       |                |       |               |       |                |       |               |       |
| Diluted income  (loss) per share**(a)** |       | $                  | 0.11       |                | $          | (1.00              | )          | $                   | 0.27       |               | $          | 0.05 |   | $ | (0.57 | ) |
| Basic income  (loss) per share**(a)**   |       | $                  | 0.11       |                | $          | (1.00              | )          | $                   | 0.27       |               | $          | 0.05 |   | $ | (0.57 | ) |

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

 

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

 

(b)                                 Thefourth quarter of 2006 reflected $27.0 million in revenue associated with theinitial application of course breakage in our Proprietary financial marketseducation brands, $3.6 million in impairment charges, $2.3 million in specialcharges and $7.3 million in the reversal of the net deferred tax asset.

 

***Note 16 -Commitments and Contingencies***

 

*Software commitment*

 

In December 2005, weentered into a commitment for a new Customer Relationship Management (“CRM”)system for approximately $3.0 million which includes licensing, training andmaintenance.  During 2007, we recorded$1.1 million in expense and during 2006 we recorded $1.6 million in expense and$0.7 million in capital.  Our annualcommitments for the licensing and maintenance of other software areapproximately $0.4 million.

 

*Operating leases*

 

We lease office space for administrative and training requirements.These leases expire from December 2008 to January 2013 (inthousands).  See******Note 5 - *Certain Relationships and Related Transactions*****forrelated party leases.

 
| ** **                           | ** ** | **Years ended December 31,** | ** ** |
|--------------------------------------|------------|---------------------------------------------|------------|
| ** **                           | ** ** | **2007**                                    | ** ** | **2006** | ** ** |
| ** **                           | ** ** | ** **                                  | ** ** | ** ** | ** ** |
| Rental expense  for operating leases |       | $                                           | 1,213      |   | $ | 855 |   |
|                                      |            |                                             |            |  |  |  |  |

 

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

 
| **Years ending December 31,** | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|------------|------------|
| 2008                                         |       | $          | 1,122      |   |
| 2009                                         |       | 755        |       |
| 2010                                         |       | 638        |       |
| 2011                                         |       | 546        |       |
| 2012                                         |       | 470        |       |
| Thereafter                                   |       | 37         |       |
|                                         |       | $          | 3,568      |   |

 

*Litigation*

 

On November 14, 2006, we were notified by the SEC that theCommission is conducting a formal, nonpublic investigation to determine whetherwe complied with securities laws in connection with (i) the claimedefficacy or trading success of our stock market education programs, and, (ii) ouracquisition of certain other companies. The SEC has requested documents and information from us in the course oftheir investigation.

 

On December 11, 2006, we received a subpoena from the UnitedStates Attorney for the Eastern District of Virginia requesting documents andinformation in connection with an investigation relating to our marketingactivities from January 1, 2002 to the present.  We were notified that a grand juryinvestigation related to this matter had commenced.  Criminal indictments had been returned andcivil charges have been filed against two former contractors.

 

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

 

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On January 30, 2007,we were served a complaint by Rodney Durham on behalf of himself and all otherssimilarly situated v. Whitney Information Network, Inc., Russell A.Whitney and Nicholas S. Maturo, filed on December 28, 2006 in the UnitedStates District Court in the Middle District of Florida accusing us of securitiesviolations.  The complaint seeks damagesfor violations of federal securities laws on behalf of all investors whoacquired our stock from November 18, 2003 through and including December 15,2006.  On November 18, 2008 an ordergranting the defendants motion to dismiss without prejudice was ordered by thecourt.

 

On March 8, 2007, wewere served a complaint styled Robert Ghosio, Jr. on behalf of nominaldefendant Whitney Information Network, Inc. v. Russell A. Whitney,Nicholas S. Maturo, Frederick A. Cardin, Chester P. Schwartz, Ronald S. Simonand Whitney Information Network, Inc., filed in the United States DistrictCourt in the Middle District of Florida. This action is a derivative complaint alleging that the named defendantsviolated certain fiduciary and securities laws. On November 18, 2008 an order granting the defendants motion todismiss without prejudice was ordered by the court.

 

On March 22, 2007, a complaint was received by our wholly ownedsubsidiary, Whitney Education Group, Inc. The case is Glenn Acciard, et.al. vs. Russell Whitney, individually, John Kane, individually and WhitneyEducation Group, Inc. et. al., Case No. 07-CA-002190 in the CircuitCourt of the Fifth Judicial Court in and for Lee County, Florida alleging thatthe Company, including two of our executive officers, and 18 other defendantsnot associated with the Company breached certain of their fiduciary duties tothe named plaintiffs, all of whom were our alleged students.  The allegations in the complaint includeclaims of constructive and common law fraud and other violations.  The case was removed to the United StatesDistrict Court, Middle District of Florida on or about July 31, 2007.  A joint motion to dismiss is pending.

 

On August 8, 2007,Counterclaim Plaintiff, James M. Easterly, in two separate, but related cases,filed a complaint against Russell Whitney, Whitney Information Network, Inc.,John Kane, and other co-defendants in the alleging breach of fiduciary duty,constructive fraud, violation of Florida Land Sales Practices Act, violation ofFlorida’s Deceptive and Unfair Trade Practices Act, civil conspiracy todefraud, and Florida RICO conspiracy through an alleged scheme to enticepersons to invest in real estate at inflated prices through real estateeducation courses offered by the Company’s defendants.  CounterclaimPlaintiff alleges losses in excess of $100,000 as a result of purchase of twoseparate properties.  Multiple motions to dismiss are pending.

 

On August 23, 2007,a complaint was received by our subsidiary, Whitney Education Group, Inc. Plaintiffs, Sirli Jehe and Kalev Kruuk brought suit against Russell Whitney,John Kane, Whitney Education Group, Inc. et. al., in the Twelfth JudicialCircuit Court in and for Sarasota County, Florida alleging breach of fiduciaryduty, fraudulent misrepresentation, a violation of mortgage broker &lending laws, Florida Land Sales Practices Act & Florida Unfair &Deceptive Trade Practices Act based on alleged scheme to induce real estateinvestors to purchase real property at inflated prices.  Plaintiff seeksactual damages in excess of $100,000 plus punitive damages, fees andcosts.  Numerous motions to dismiss are currently pending.

 

On September 21,2007, a complaint was received by our subsidiary, Whitney Education Group, Inc. The lawsuit is Jeffrey Watson v. Whitney Education Group, Inc and RussellWhitney in the Twentieth Judicial Circuit Court in and for Lee County, Floridaand alleges that WEG and Russell Whitney breached a student contract, violatedthe Florida Unfair and Deceptive Trade Practices Act, breached the impliedcovenant of good faith and fair dealing, and conspired to commit fraud byfailing to recommend fair and objective vendors in connection with thedevelopment and purchase of real estate in an investment program purchased byPlaintiff.  Motions to Dismiss Plaintiff’s complaint are currentlypending.

 

We are involved from timeto time in routine legal matters incidental to our business.  Based upon available information, we believethat the resolution of such matters will not have a material adverse effect onour financial position or results of operations.  See Note 17 – *SubsequentEvents*.

 

***Note 17 -Subsequent Events***

 

In January 2008, we sold three of our investmentslocated in Costa Rica.  Those entitieswere: Rancho Monterey, S.A., Monterey del Este, S.A., and Beautiful Hill, S.A.,in which we owned 30%, 8% and 100%, respectively.  Proceeds for these entities net ofcommissions and other expenses were $0.9 million, $0.2 million and $1.4million, respectively.

 

On January 9, 2008, the Company entered into anAssurance of Voluntary Compliance (the “AVC”) with the Office of the AttorneyGeneral of the State of Florida to close a previously disclosedinvestigation.  The AVC was entered intowithout an admission or judicial determination that the Company violated anylaws, rules or regulations.  TheCompany agreed in the AVC to make refunds in the additional amount ofapproximately $450,000 to certain consumers, and also set aside, in an escrowaccount, $125,000 for refunds for potential claims arising from sales prior tothe execution of the AVC.  The Company also agreed to make a payment tothe Attorney General in the amount of $150,000 in satisfaction of the Attorney 

 

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General’s investigative and attorney’s fees.  Nopenalties were imposed on the Company under the AVC.  The Company also made a contribution in theamount of $150,000 to the “Seniors vs. Crime, Inc.” project foreducational, investigative and crime prevention programs for the benefit ofsenior citizens and the community as a whole, in connection with the deliveryof the AVC.

 

On January 23, 2008, we filed a foreclosurelawsuit against Tranquility Bay, Gulf Gateway Enterprises, LLC, Anthony ScottDunlap, and Dunlap Enterprises, LLC—parties to the mortgage and/or securityagreement.  Tranquility Bay of SouthwestFlorida, LLC (“Tranquility Bay”), defaulted on its mortgage payment of $4.5million to Whitney Information Network, Inc., that was due on or before December 31,2007.  The lawsuit seeks a judgment of foreclosure on the mortgageinstrument.  In the alternative, the lawsuit seeks a judgment offoreclosure on a security agreement which would permit the Company to takecontrol of Tranquility Bay and the resulting real property.  Further inthe alternative, we seek damages from Anthony Scott Dunlap due to a personalguarantee that Mr. Dunlap signed in relation to the mortgage.  Thelawsuit is currently pending in the Circuit Court in Lee County, Florida, andis in the discovery phase.

 

On February 1, 2008, Mr. Simon resigned as amember of the Board of Directors of Whitney Information Network, Inc.

 

On February 1, 2008, the Board of Directorsappointed two additional independent directors to its Board, Steven C. Barreand Wallace L. Timmeny.  With these changes, independent directors nowconstitute a majority of our Board of Directors.

 

On March 6, 2008, afederal grand jury in the Eastern District of Virginia returned an indictmentcharging Linda Woolf (“Woolf”) and David Gengler (“Gengler”) with one count ofconspiracy to commit mail fraud and wire fraud.   Woolf and Genglerare alleged in the indictment to have been independent contractors of theCompany’s EduTrades, Inc., subsidiary at the time of their allegedcriminal activities.  The defendants are no longer independent contractorsfor the Company or any of its subsidiaries.  The Company and itssubsidiaries were not charged in the indictment, and none of the Company’spresent or former directors or officers was charged in the indictment.  OnMarch 11, 2008, the Commission filed civil fraud charges against Woolf andGengler alleging that Woolf and Gengler made false and misleading statements tosell “Teach Me to Trade” packages for the Company’s EduTrades, Inc.,subsidiary.

 

On April 9, 2008, the Board of Directorsappointed Anne M. Donoho to serve as the Company’s Chief Financial Officer. Ms. Donoho had been serving as the Company’s interim Chief FinancialOfficer since December 4, 2007.  In her role as Chief FinancialOfficer, Ms. Donoho is the principal financial officer and principalaccounting officer of the Company.

 

On June 20, 2008, the Board of Directorsappointed John F. Kane to serve as the Company’s President and Chief OperatingOfficer.  Mr. Kane had been serving as the Company’s interimPresident and member of the Board of Directors since December 4, 2007.

 

On June 20, 2008, the Board of Directorseliminated the position of Chairman of the Board and created a Lead Directorposition.  The former Chairman, Russell A. Whitney, remains a memberof the Board of Directors.  The Board ofDirectors appointed Steven C. Barre as the Lead Director.

 

On July 8, 2008, the Company received a letterfrom South Dakota Department of Revenue and Regulation requesting certaininformation and documents with respect to the issue of whether or not theCompany was selling business opportunities as defined by South Dakotastatute.  The Company has providedinformation and documentation in response to this request.

 

On September 17, 2008, the leases for (i) thetraining facility located at 1611 East Cape Coral Parkway, and, (ii) thetraining facility at 1630 Southeast 47th Terrace were terminated.  The leases were on a month-to-month basisprior to termination.

 

On September 17, 2008, the Company appointedCharles M. Peck as Chief Executive Officer and member of the Board ofDirectors.

 

On October 17, 2008, John F. Kane resigned as theCompany’s President and Chief Operating Officer.  He also resigned from his position as amember of the Board of Directors.

 

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During October 2008, Mr. Whitney,our former Chairman and Chief Executive Officer, asserted a claim against theCompany for $1.1 million in funds allegedly owed to him principally for a 2007annual bonus, speaking fees, and other reimbursements.  The Company believes this claim is withoutmerit.

 

On October 21, 2008, Mr. Simon,our former Co-President and Chief Operating Officer, filed a lawsuit againstthe Company for $1.4 million for funds allegedly owed to him due to theimproper termination of his employment agreement.   The Company believes this lawsuit is withoutmerit.

 

On November 3, 2008, the Office ofAttorney General of the State of Florida issued an investigative subpoenapursuant to Florida’s Deceptive and Unfair Trade Practices.  The investigation is concerned withconsumer-investors that attended Whitney Information Network, Inc.sponsored seminars and invested in Florida homes with Gulfstream DevelopmentLLC, Gulfstream Realty and Development, LLC since August 1, 2004.

 

On November 21, 2008, we notified CapePromenade Trust that we will be terminatingthe lease at 1625East Cape Coral Parkway effective December 31, 2008.

 

On December 4, 2008, an amended shareholder derivative complaint filedby Robert Ghosio Jr. on behalf of nominal defendant Whitney InformationNetwork, Inc. v Russell A. Whitney, Frederick A. Cardin, Chester P. Schwartzand Ronald S. Simon in the United States District Court Middle District ofFlorida (the "Court") alleging breach of fiduciary duty, abuse ofcontrol, gross mismanagement, waste of corporate assets, and unjustenrichment.  By an order dated November19, 2008, the Court granted the defendants’ motion to dismiss without prejudicethe initial complaint filed by the plaintiffs on March 28, 2007. 

 

On December 8, 2008, the Company was served a consolidated amendedclass action complaint filed by Arnold Friedman individually and on behalf ofall others similarly situated in the Court alleging violations of the federalsecurities laws.  By an order datedNovember 17, 2008, the Court granted the defendants’ motion to dismiss withoutprejudice the initial complaint styled Durham v. Whitney Information Network,Inc. et al. filed by the plaintiffs on December 28, 2006.

 

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**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM**

 

Board of Directors andStockholders

Whitney InformationNetwork, Inc. and Subsidiaries

Cape Coral, Florida

 

We have audited theaccompanying Consolidated Balance Sheets of Whitney Information Network, Inc.and Subsidiaries as of December 31, 2007 and 2006, and the relatedConsolidated Statements of Operations and Comprehensive Income (Loss),Stockholders’ Deficit and Cash Flows for each of the two years in the periodended December 31, 2007.  TheseConsolidated Financial Statements are the responsibility of the Company’smanagement.  Our responsibility is toexpress an opinion on these Consolidated Financial Statements based on ouraudits.

 

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the Consolidated  Financial Statements are free of materialmisstatement. The Company is not required to have, nor were we engaged toperform, an audit of its internal control over financial reporting. Our audit includedconsideration of internal control over financial reporting as a basis fordesigning audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of the Company’sinternal control over financial reporting. Accordingly, we express no suchopinion. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the Consolidated Financial Statements. An audit alsoincludes assessing the accounting principles used and significant estimates madeby management, as well as evaluating the overall Consolidated FinancialStatement presentation. We believe that our audits provide a reasonable basisfor our opinion.

 

In our opinion, theConsolidated Financial Statements referred to above present fairly, in allmaterial respects, the financial position of Whitney Information Network, Inc.and Subsidiaries as of December 31, 2007 and 2006, and the results oftheir operations and their cash flows for each of the two years in the periodended December 31, 2007 in conformity with accounting principles generallyaccepted in the United States of America.

 

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

 

 

January 15, 2009

Denver, Colorado

 

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

 

None.

 

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

 

**Evaluationof Disclosure Controls and Procedures**

 

**(a) Disclosure Controls andProcedures**

 

Our management, with theparticipation of our Chief Executive Officer and Chief Financial Officer,evaluated the effectiveness of our disclosure controls and procedures as of December 31,2007.  Based on this evaluation, ourChief Executive Officer and Chief Financial Officer concluded that as of December 31,2007, our Annual Report on Form 10-K, due to the material weakness ininternal control over financial reporting as discussed below under “Report ofManagement on Internal Control Over Financial Reporting,” our disclosurecontrols and procedures were not effective in providing reasonable assurancethat information we are required to disclose in reports that we file or submitunder the Securities Exchange Act of 1934 is accumulated and communicated toour management, including our Chief Executive Officer and Chief FinancialOfficer, as appropriate to allow timely decisions regarding required disclosureand that such information is recorded, processed, summarized and reportedwithin the time periods specified in Securities and Exchange Commission rules andforms.

 

**(b) Management’s Report on Internal Control overFinancial Reporting**

 

Our management is responsiblefor establishing and maintaining adequate internal control over financialreporting, as such term is defined in Rule 13a-15(f) of the ExchangeAct.  Under the supervision and with theparticipation of the Chief Executive Officer and Chief Financial Officer,management conducted an evaluation of the effectiveness of internal controlsover financial reporting based upon the framework in “InternalControl—Integrated Framework” issued by the Committee of SponsoringOrganizations of the Treadway Commission. Based on this evaluation, our CEO and CFO determined that as of December31, 2007, our internal controls ever financial reporting were not effective.

 

As previously reported inour Annual Report on Form 10-K for the year ended December 31, 2006,material weaknesses and significant deficiencies in our internal controls overfinancial reporting were identified in prior years.  Those material weaknesses and significantdeficiencies related to a lack of knowledgeable personnel in accounting andfinancial reporting areas, a lack of formalized processes and procedures overkey areas in the accounting, tax and reporting functions, and inadequatesupervision and review over the financial reporting function.  Throughout the year ended December 31,2007, we implemented procedures designed to correct these material weaknessesand significant deficiencies noted above, including implementation of newprocesses and controls, the expansion of our accounting management and staff toefficiently and timely execute our new procedures.

 

During the year ended December 31,2007, management, with the participation of our Chief Executive Officer andChief Financial Officer, evaluated the effectiveness of internal controls overfinancial reporting.  Although we notedthat we were able to hire a few more knowledgeable accounting personnel, wecontinued to identify control deficiencies, and the assessment by management ofthe Company’s internal control over financial reporting was not effective.  The deficiencies consisted of:

 

·                  Inadequatecontrols related to our monthly accounting closing process, including limitedevidence of review of reconciliations, account analysis and journal entries.

 

·                  Inadequatefinancial and human resources resulting in excessive involvement by managementin the detailed compilation and preparation of our financial reports andanalyses.  As a consequence, managementwas unable to provide the necessary level of review in the monthly financialstatement preparation.

 

·                  Inadequate disclosure of and accountingfor related party transactions and relationships.

 

·                  Inadequate testing and flawedimplementation of the new CRM system resulting in delays in our financialreporting, the recording of deferred revenue and reconciliation of our bankaccounts.

 

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·                  Inadequate testing and flawedimplementation of the new CRM system resulting in:

 

·                  Delaysin our financial reporting, the recording of deferred revenue andreconciliation of our bank accounts.

 

·                  Errorsin our revenue recognition process resulting in improper determination andassignment of fair value of elements in bundled arrangements, calculation ofdiscounts and application of pricing changes.

 

·                  Time-consumingmanual processes related to the reconciliation of the new CRM system to ouraccounting system.

 

·                  Inadequate review and validation ofcontracts for commissions owed to independent contractors resulting in incorrectpayments.

 

·                  Inadequate review of the income taxprovision calculation, FIN48 analysis, and sales tax returns.

 

We are activelyrecruiting for several new positions that have been approved by the Board ofDirectors in the areas of financial reporting, financial planning and analysisand financial systems.  We will continueto upgrade our personnel and our financial reporting systems to improve ourinternal controls.  In addition, we willcontinue to evaluate the effectiveness of our disclosure controls and internalcontrol over financial reporting on an ongoing basis, taking corrective actionas appropriate.

 

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

 

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

 

This Annual Report doesnot include an attestation report of the Company’s registered public accountingfirm regarding internal control over financial reporting.  Management’s report was not subject toattestation requirements by the Company’s registered public accounting firmpursuant to temporary rules of the Securities and Exchange Commission thatpermit the Company to provide only management’s report in this Annual Report.

 

**ITEM 9B.  OTHER INFORMATION**

 

None.

 

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**PART III**

 

**ITEM10.  DIRECTORS, EXECUTIVE OFFICERS ANDCORPORATE GOVERNANCE**

 

The following table andtext set forth the names of the executive officers and directors of our Companyas of December 31, 2007.  Directorshold office for a period of one year from their election at the annual meetingof stockholders or until their successors is duly elected and qualified.  Officers are elected by, and serve at thediscretion of, the Board of Directors.

 

*Executive Officers as of December 31, 2007:*

 
| **Name**       | ** ** | **Age** | ** ** | **Position**                                     |
|----------------|------------|---------|------------|--------------------------------------------------|
| John F. Kane   |       | 54      |       | President, Chief  Operating Officer and Director |
| Anne M. Donoho |       | 50      |       | Chief Financial Officer                          |

 

*Board of Directors as ofDecember 31, 2007:*

 
| **Name**            | ** ** | **Age** | ** ** | **Position**                                     |
|---------------------|------------|---------|------------|--------------------------------------------------|
| Russell A. Whitney  |       | 52      |       | Non-Executive Chairman  of the Board             |
| John F. Kane        |       | 54      |       | President, Chief  Operating Officer and Director |
| Ronald S. Simon     |       | 64      |       | Director                                         |
| Murray Indick       |       | 48      |       | Director                                         |
| Frederick A. Cardin |       | 61      |       | Director                                         |

 

***ExecutiveOfficers and Directors as of December 31, 2007:***

 

*John F.Kane, President, Chief Operating Officer and Director.*  Mr. Kanewas appointed to serve as the Company’s President and Chief Operating Officeron June 20, 2008, after serving as the Company’s Interim President since December 4,2007.  Mr. Kane has been with the Company and its predecessors sincethe business was founded in 1987.  He hasserved in various capacities with the Company including the positions ofExecutive Vice President, Operations, and Executive Vice President, RealEstate.  In November 2007, he joinedthe Company’s Board of Directors.  Mr. Kanestudied journalism at Bradley University.

 

*Anne M.Donoho, Chief Financial Officer.*  Ms. Donoho wasappointed to serve as the Company’s Chief Financial Officer on April 9,2008 after serving as the Company’s interim Chief Financial Officer since December 4,2007.  Ms. Donoho joined the Company in November 2006 as VicePresident, Finance.  Prior to joining theCompany, she served as an independent financial consultant for 10 years on SECreporting and finance assignments for publicly–held retail and financialservices companies.  Prior to that, sheheld various corporate controller, accounting, and financial reportingpositions with Broadway Department Stores (1995-1996), The Walt Disney Company(1990-1994), Restaurant Enterprises Group, Inc. (1986-1990), and Denny’sInc. (1983-1986).  Ms. Donoho is aCertified Public Accountant licensed in California and holds an M.B.A. from theUniversity of Southern California.

 

*RussellA. Whitney, Chairman of the Board.*  Mr. Whitney isthe founder of our company and had served as the Chief Executive Officer of theCompany and its predecessors from 1987 through December 31, 2007.  He is also an active real estate investor forhis own account and has written and published several books on wealth buildingtopics.  Mr. Whitney resigned fromhis position as our Chief Executive Officer effective as of December 31,2007.  He continued as Chairman of theBoard of Directors until the Board of Directors eliminated that position on June 20,2008. He remains a director on the Board of Directors.

 

*RonaldS. Simon, Director.*  Mr. Simon served as a directorfrom 1998 through February 1, 2008. He formerly served as our Co-President and Chief Operating Officer from2006 through December 5, 2007 and had been our Acting Chief FinancialOfficer from 2004 through 2006.  Mr. Simonwas a self-employed certified public accountant from 1987 until he joined us asour Chief Financial Officer in 1998.  In2002, he was appointed our Executive Vice President.  Mr. Simon holds a Bachelor of Sciencedegree in accounting from the University of Illinois and is a Certified PublicAccountant.  Mr. Simon resigned fromhis position as a director of our company on February 1, 2008, and as ourCo-President and Chief Operating Officer on December 5, 2007.

 

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*FrederickA. Cardin, Director.*  Dr. Cardin has served as adirector since 2003.  Since 1996, he hasbeen managing director of Harvard Growth Strategies, a consulting firm whichadvises clients on business strategies, financing and marketing.  From 1974 to 1981, he was a member, andsubsequently a partner and a director, of the Cambridge Research Institute, astrategic planning consulting firm in Cambridge, Massachusetts.  From 1970 to 1971, he held a facultyappointment in international finance at the Harvard Business School.  Dr. Cardin earned his Masters ofBusiness Administration with distinction and his Doctorate in Finance from theHarvard Graduate School of Business Administration.  He earned a Bachelor’s degree in economics *summa cum laude* from Tufts University.

 

*Murray A. Indick*, *Director*.  Mr. Indickhas served as a director since November 21, 2007.  Mr. Indick co-founded Prides CapitalPartners, LLC (“Prides Capital”), an investment firm specializing in strategicblock, active ownership investing in the small- and micro-cap arena, in March 2004. Mr. Indick is a managing member of the sole general partner of PridesCapital Fund I, LP, which, as of March 2008, owned approximately 14.7% ofthe Company’s outstanding common stock. Prior to joining Prides Capital, Mr. Indick was partner/generalcounsel at Blum Capital, which he joined in 1997.  Mr. Indick earneda B.A. from the University of Pennsylvania and a law degree from the GeorgetownUniversity Law Center.  Mr. Indick also serves as a director of QCHoldings, Inc., a pay-day loan company, and Ameritrans CapitalCorporation, a lender to and investor in small businesses, both publicportfolio companies of Prides Capital.

 

***Changes to our Board of Directors and Chief ExecutiveOfficer subsequent to December 31, 2007:***

 

Effectiveas of February 1, 2008, Ronald Simon resigned as a director and weappointed two new independent directors to our Board of Directors and a ChiefExecutive Officer whose names and biographies are as follows:

 

*Steven C. Barre,**Director*.  Mr. Barre,48, was the Senior Vice President, General Counsel and Secretary of JacuzziBrands, Inc. (a New York Stock Exchange company with annual revenues inexcess of $1 billion) from September 2001 until February 2007, whenthe company was sold to Apollo Management LLC, a private equity firm.  Mr. Barreserved in various roles as in-house counsel from 1995 to 2001 for JacuzziBrands, Inc. (known as U.S. Industries, Inc. from 1995 to 2003) andfrom 1988 to 1995 for its former parent company, the U.S. arm of Hanson PLC, aFortune 100 industrial management company.  Prior to joining Hanson, Mr. Barrewas a corporate attorney with the law firm of Weil, Gotshal &Manges.  Mr. Barre graduated from Cornell University in 1981 andColombia Law School in 1984.

 

*Wallace L. Timmeny, Director.*  Mr. Timmeny, 70, was a securitiesattorney in private practice from 1979 to 2007, most recently as a partner inthe Washington, D.C. office of Dechert LLP, until his retirement from the lawfirm in April 2007.  Mr. Timmeny is a past chairman of theExecutive Council of the Securities Law Committee of the Federal BarAssociation.  From 1965 to 1979, Mr. Timmeny was an attorney with theSEC and ultimately the Deputy Director of its Division of Enforcement.  Mr. Timmeny has served as an adjunctprofessor at American University School of Law, George Mason University Schoolof Law and Georgetown University School of Law.  Mr. Timmeny serveson the board of directors for Friedman, Billings, Ramsey Group, Inc. (FBR)and Waste Services, Inc. (WSII).

 

*CharlesM. Peck, Chief Executive Officer. *Mr. Peck, 62, was President and ChiefOperating Officer of Innovation Ventures, Inc., a strategy formulationconsulting company from January 2008 to the September 2008.  Mr. Peck served as Senior VicePresident, Product Marketing and Development of SchoolNet, Inc. aninstructional management system enterprise software and services company from2006 to 2007.  From 2003 through 2005, Mr. Peckserved as President of Allenbrook, a mission critical, enterprise softwarecompany serving the insurance market.  Mr. Peckalso served as Chief Executive Officer of theglobe.com, a publicly tradedinternet technology company from 2000 through 2002.  From 1995 through 2000, Mr. Peck wasSenior Vice President of the American Institute of Certified PublicAccountants.  He serves on the board ofIndigo Interactive, and Piehead Productions.

 

*Family Relationships*

 

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

 

*Code of Ethics and Conduct*

 

Our Board ofDirectors has adopted a Code of Conduct and a Code of Business Conduct andEthics that embody our commitment to conduct business with the highest ethicalstandards.  The Code of Conduct providesprinciples and standards by which directors, officers, and employees willconduct themselves.  To the extentpossible, we have requested that all 

 

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independentcontractors and key vendors involved with our Company adhere to the principlesset forth in the Code of Conduct.

 

In addition to the Codeof Conduct, our directors, executive officers, and senior financial officers ofour Company are also subject to the Code of Business Conduct and Ethics and areexpected to adhere to the principles and procedures set forth.  Both the Code of Conduct and the Code ofBusiness Conduct and Ethics are posted on the Corporate Governance section ofour Web site located at www.wincorporate.com.

 

*AuditCommittee*

 

Our Board of Directors has established a standingAudit Committee that consists of three independent directors as of February 1,2008.  The current members of the AuditCommittee are Messrs. Cardin, Timmeny and Barre.  The Chairman of the Audit Committee is Mr. Cardin.  The Board of Directors has determined thateach of the directors is “independent” as defined by NASDAQ Rule 4200 andthat Mr. Cardin further qualifies as an “audit committee financial expert”as such term is defined in the applicable rules of the Exchange Act.

 

*Section 16(a) Beneficial OwnershipReporting Compliance*

 

Section 16(a) of the Securities Exchange Actof 1934 requires the Company’s executive officers, directors, and persons whoown more than 10% of a registered class of the Company’s equity securities tofile reports of beneficial ownership and certain changes in beneficialownership with the SEC and to furnish the Company with copies of thosereports.  To our knowledge, based solelyon a review of the copies of such reports furnished to us or writtenrepresentations that no other reports were required, the Company believes thatduring the year ended December 31, 2007, its officers, directors andgreater than 10% shareholders timely filed all reports required by Section 16(a) exceptas follows:

 
| ** **                   | ** ** | **Number of Late Filings** | ** ** | **Number of Transactions that  were not Reported** |
|------------------------------|------------|----------------------------|------------|----------------------------------------------------|
| Alfred Novas                 |       | 1                          |       | 1                                                  |
| Frederick A. Cardin          |       | 1                          |       | 1                                                  |
| Chester P. Schwartz          |       | 1                          |       | 1                                                  |
| Anthony B. Petrelli          |       | 1                          |       | 1                                                  |
| Anne Donoho                  |       | 1                          |       | 1                                                  |
| Prides Capital Partners, LLC |       | 2                          |       | 2                                                  |

 

**ITEM 11.  EXECUTIVE COMPENSATION**

*** ***

**CompensationDiscussion and Analysis**

 

This section describesthe material elements of compensation awarded to, earned by or paid to theindividuals who served as our principal executive officers, principal financialofficers and certain other executive officers during fiscal 2007.  These individuals are listed in the “SummaryCompensation Table” below and are referred to as the “Named Executive Officers.”

 

Our executivecompensation programs are determined and proposed by our Compensation Committeeand are approved by our Board of Directors. None of the Named Executive Officers are members of the CompensationCommittee or otherwise had any role in determining the compensation of otherNamed Executive Officers, although the Compensation Committee does consider therecommendations of our CEO in setting compensation levels for our otherexecutive officers.

 

***Executive Compensation Program Objectives and Overview***

 

The CompensationCommittee conducts an annual review of our executive compensation programs toensure that:

 

·                  theprogram is designed to achieve our goals of promoting financial and operationalsuccess by attracting, motivating and facilitating the retention of keyemployees with outstanding talent and ability; and

 

·                  theprogram adequately rewards performance which is tied to creating stockholdervalue.

 

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Our current executivecompensation program is based on three components, which are designed to beconsistent with our compensation philosophy: (1) base salary; (2) annualincentive bonuses; and (3) grants of stock options.

 

In structuring executivecompensation packages, the Compensation Committee considers how each componentpromotes retention and/or motivates performance by the executive.  Base salaries, perquisites and personalbenefits, and severance and other termination benefits are primarily intendedto attract and retain highly qualified executives.  We believe that in order to attract andretain top executives, we need to provide them with compensation levels thatreward their continued productive service. Annual incentive bonuses are primarily intended to motivate our executiveofficers to achieve specific strategies and operating objectives, although webelieve they also help us to attract and retain top executives.  Our long-term equity incentives are primarilyintended to align executive officers’ long-term interests with stockholders’long-term interests, although we believe they also play a role in helping us toattract and retain top executives. Annual bonuses and stock option grants are the elements of our executivecompensation program designed to reward performance and thus the creation ofstockholder value.

 

We view our currentexecutive compensation program as one in which the individual componentscombine together to create a total compensation package for each executiveofficer that we believe achieves our compensation objectives.  In determining our current executivecompensation program and the amounts of compensation for each component of ourprogram, the Compensation Committee evaluates the current executivecompensation data for companies in our industry.  The Compensation Committee believes that ourcurrent executive compensation program is appropriate based on the evaluationof the compensation paid by companies in our industry.

 

Our Named ExecutiveOfficers in fiscal 2007 were John Kane, our President and Chief OperatingOfficer, and Anne M. Donoho, our Chief Financial Officer.  In addition, Russell Whitney served as ourChief Executive Officer from 1987 through December 31, 2007, Ronald Simonserved as our Co-President and Chief Operating Officer from January 31,2006, through December 5, 2007, and Alfred Novas served as Co-Presidentand Chief Financial Officer from January 31, 2006, to November 29,2007.  We sometimes refer to theseindividuals as the “Named Executive Officers.”

 

*Overview of Executive Compensation Program*

 

***The following discussion and analysis describes the Company’scompensation objectives and policies as applied to the*** NamedExecutive Officers appearing in the Summary Compensation Table.  This section is intended to provide aframework within which to understand the actual compensation awarded to, earnedor held by each Named Executive Officer during 2007.

*** ***

**CompensationPhilosophy and Objectives**

 

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

 

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

 

·                  rewardperformance versus entitlement,

·                  design payprograms at all levels that are aligned with employee, student and shareholdermetrics, and

·                  emphasizelong-term incentive compensation.

 

**Role of Compensation Committee andExecutive Officers in Compensation Decisions**

 

The role of our Compensation Committee is to overseeour compensation programs and retirement plans and policies and review andapprove all compensation decisions relating to the Company’s Named ExecutiveOfficers, including those for our Chief Executive Officer and the other NamedExecutive Officers.  Our CompensationCommittee reviews, and in conjunction with the entire Board of Directors andour Chief Executive Officer, makes all compensation decisions for the NamedExecutive Officers.  The CompensationCommittee reviews and recommends and the independent members of Board ofDirectors approves the annual compensation package of our Chief ExecutiveOfficer.

 

Our Compensation Committee intends to meet with ourChief Executive Officer at least annually to review the performance of theother Named Executive Officers, receive the recommendations of the ChiefExecutive Officer on the Named Executive Officers compensation and approvetheir annual compensation packages.  Thismeeting is intended to include a review by the 

 

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Chief Executive Officer of the performance of eachNamed Executive Officers member who reports directly to our Chief ExecutiveOfficer.

 

**Setting Executive Compensation**

 

In furtherance of the philosophy and objectivesdescribed above, in setting compensation for our Named Executive Officers, ourCompensation Committee considers data which was obtained from the consultingfirm of Mercer Human Resources Consulting, in addition to other factors, toassess competitive pay levels and establish compensation targets for basesalary, annual incentives and long-term incentives.  The data from this consulting firm’s surveysreflect compensation practices of education industry companies with annualrevenues and free cash flow, which is similar in size to the Company, forexecutives with responsibilities cutting across the entire enterprise (“surveydata”).  Mercer Human ResourcesConsulting provided a comprehensive review for the Compensation Committee usingdata from its own survey database for a select group of companies in theeducation industry.  The CompensationCommittee believes that targeting compensation in this manner appropriatelyreflects the labor market for Company executives.

 

***Base Salary***

 

We provide NamedExecutive Officers and other employees with base salary to compensate them forservices rendered during the fiscal year. Our Compensation Committee reviews each Named Executive Officer’s salaryand performance annually.  Market datafrom the survey group is used to determine base salary ranges for NamedExecutive Officers based on the position and responsibility.  A Named Executive Officer’s actual salaryrelative to this competitive salary range varies based on the level of his orher responsibility, experience, individual performance and internal equityconsiderations. Specific salary increases take into account these factors andthe current market for management talent. However, salary increases are reviewed by the Compensation Committeeeach year.  Salary increases are reviewedby the Compensation Committee each year.

 

***Annual IncentiveCompensation***

 

On May 23, 2008, Company’s Compensation Committeegranted incentive bonuses on a preliminary basis to the Named ExecutiveOfficers as of December 31, 2007. These bonuses were discretionary bonuses and were based on a variety offactors including individual performance and retention considerations.

 

The chart below provides the 2007 annual salary andbonus for each Named Executive Officer’s as of December 31, 2007:

 
| **Name and Title of Executive**      | ** ** | **Base salary at  December 31,  2007** | ** ** | **2007 annual  incentive award** | ** ** |
|----------------------------------------------------------|------------|-------------------------------------------------------|------------|--------------------------------------------|------------|
| John F. Kane,  President and Chief Operating Officer (a) |       | $                                                     | 350,000    |                                       | $          | 230,000 |   |
| Anne M. Donoho,  Chief Financial Officer (b)             |       | 250,000                                               |       | 200,000                                    |       |
|                                                          |            |                                                       |            |                                            |            |  |  |

 

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(a) Mr. Kanewas appointed as the Company’s President and Chief Operating Officer on June 20,2008, after serving as the Company’s Interim President since December 4,2007.  He resigned his position on October 17, 2008.

 

(b) Ms. Donoho was appointed as the Company’sChief Financial Officer on April 9, 2008, after serving as the Company’sinterim Chief Financial Officer since December 4, 2007.

 

2007 Bonus Payments

 

On May 23, 2008, the Board of Directors of theCompany determined the expected 2007 bonus payments for its executiveofficers.  Payouts for 2007 weredetermined through examination of the Company’s past practices and market-basedcompensation benchmarks as well as the Board of Director’s recognition ofcurrent management’s performance and its perseverance during the organizationalchanges which occurred since January 2007.

 

The Board of Directors approved preliminary 2007 bonuspayments equal to 50% of the expected aggregate amounts, the bonus paymentswere paid on June 6, 2008.  Thefinal 50% was paid December 4, 2008. No bonuses were approved for any other individuals who served asexecutive officers during 2007.

 

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2008 Base Salary Increases

 

On May 23, 2008, the Board of Directors approvedincreases in the annual salaries for its executive officers and non-executiveemployees.  The base salaries for Mr. Kane and Ms. Donoho for2008 are as follows:

 
| **Name and Title of Executive**                 | ** ** | **2008 Base Salary** | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------|------------|
| John F. Kane, President  and Chief Operating Officer |       | $                              | 350,000    |   |
| Anne M. Donoho,  Chief Financial Officer                            |       | $                              | 260,000    |   |

 

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

 

The principal purpose of our long-term incentivecompensation is to motivate our executives to help us achieve our long-rangeperformance goals that will enhance our value and, as a result, enhance theprice of our stock and our shareholders’ returns on their investments.  Long-term incentives were not awarded exceptfor the promotion of the two executives as discussed below.

 

We award stock option grants at the same time otherelements of annual compensation are determined so that we can consider allpieces of compensation when determining the grant awards.  In addition, we may make grants on otherdates and times when the Compensation Committee or the Board of Directors holdsmeetings.  We set the exercise price atthe closing price of our common stock on the date of grant managementrecommends the awards to be made pursuant to 1998 Stock Option Plan to theCompensation Committee.  While theCompensation Committee gives significant weight to management recommendationsconcerning grants to the Named Executive Officers members, the CompensationCommittee makes the determination whether and to who to issue grants anddetermines the amount of the grant. These stock options typically have ten year contractual terms and vest25% upon grant and vest ratably over the next three years.

 

In 2007, the Compensation Committee granted stockoptions to: Alfred Novas, our former Co-President and Chief Financial Officer,180,000 options, and, Anne Donoho, our current Chief Financial Officer, 50,000options.

 

***Deferredcompensation plans***

 

The Company does not have a deferred compensationplan.

 

***Retirement benefits***

 

The Company typically provides matching contributionsto a 401(k) Plan, although on October 10, 2008, the Company suspendedits matching contribution until further notice.

 

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

 

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

 

**Perquisites**

 

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

 

***Use of corporate aircraft***

 

Beginning March 16, 2007, Mr. Whitneyreimbursed the Company for personal use of the corporate aircraft at theincremental variable cost associated with each trip which is calculated as aportion of the aircraft fuel, hanger cost, flight crew, travel fees, landingfees and catering costs.  Other NamedExecutive Officers may use the corporate aircraft for personal use with theprior approval of the Company.  Fixedcosts which do not change, based on usage, such as pilot salaries and the costsof maintenance not related to trips are excluded.  In addition, depending on seat availability,family members of Named Executive Officers may travel on the corporate aircraftto accompany executives who are traveling on business.  As of December 31, 2007, Mr. Whitney had anoutstanding balance of $30,000 for the use of the corporate aircraft.

 

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There is no incremental cost to the Company for thesetrips.  No other Named Executive Officerused the corporate aircraft for personal travel in 2007.

 

***Other perquisites***

 

Our former Chief Executive Officer, Mr. Whitney,previously received $7,500 annually for expenses associated with the usage of aCompany owned automobile.  The Companyalso paid directly for Mr. Whitney’s use of a Blackberry® device. Mr. Whitney uses the services of the Company’s employees in ourReal Estate Development Department for personal investments.  He reimburses the Company for the use ofthese employees.

 

For the Named Executive Officer members below theChief Executive Officer, we do not provide for any material perquisites.  Mr. Simon is reimbursed for use of aBlackberry®.  Certain temporary housing expenses werecovered by the Company in connection with Mr. Novas’ relocation toSouthwest Florida.

 

***Useof corporate credit cards for personal expenses***

 

Our former Chief Executive Officer, Mr. Whitney,has occasionally used the corporate credit cards for personal expenses.  Our practice has been to collectreimbursement for those charges.

 

**Compensationof our Chief Executive Officer**

 

Our Compensation Committee conducted an evaluation ofthe performance of our former Chief Executive Officer, Russell A. Whitney,which included a review of his leadership in the development and implementationof strategies, his leadership pertaining to business execution, and theachievement of results and his development of diversity and managementtalent.  In addition, the CompensationCommittee met and considered the recommendation of Mercer Human ResourcesConsulting with respect to Mr. Whitney’s compensation.

 

Mr. Whitney’s base compensation for 2007 was$650,000.  The Compensation Committeeapproved this increase in base compensation from $600,000 in 2006 to $650,000in 2007 for Mr. Whitney in April 2007 and it was appliedretroactively to January 1, 2007.

 

The Compensation Committee did not approve any stockoption grants to Mr. Whitney in fiscal 2007.  Mr. Whitney resigned his position asChief Executive Officer as of December 31, 2007, pursuant to the terms ofa Separation Agreement dated January 7, 2008, effective as of December 31,2007, between the Company and Mr. Whitney. The Compensation Committee did not recommend he receive a bonus, and theindependent members of the Board of Directors did not grant him a bonus for theyear ended December 31, 2007.

 

**FamilyMembers Receiving Compensation from the Company**

 

Ingrid Whitney, Thea Whitney, and Russell W. Whitney, Jr.are the former wife, daughter and son, respectively, of Russell A. Whitney, ourformer Chairman and Chief Executive Officer. Ingrid and Thea Whitney have been employees of the Company since itsinception whose total compensation in 2007, calculated in a manner consistentwith the Total column of the Summary Compensation Table, was approximately$98,951 and $135,138 respectively, in 2007. Russell W. Whitney, Jr. who worked as an independent contractor andas an instructor for free introductory workshops of our Company received totalcompensation of $167,135 in 2007.  Webelieve the pay of these individuals to be generally consistent with that ofour other employees at similar levels and independent contractors whose pay isprimarily sales commission–based.

 

Ingrid Whitney resigned her position on November 29,2007 and entered into a Severance Agreement with the Company on December 7,2007.  She received severance equal toher base salary which is being paid over the twelve month period beginning November 29,2007, and ending November 29, 2008.

 

Timothy Kane, a non-executive employee of our Company,is the brother of John Kane, who is our President and Chief OperatingOfficer.  His compensation in 2007, consisting of base salary and salescommissions, calculated in a manner consistent with the Total column of theSummary Compensation Table, was $217,397. Timothy Kane left the company in 2008. We believe that the compensation paid to this employee is consistentwith that of other employees that are paid on a commission basis.  Compensation for the above listed familymembers for the years 2006 and 2007 is detailed in the following chart:

 

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| ** **                   | ** ** | **Income  Type** | ** ** | **2006** | ** ** | **2007** | ** ** |
|------------------------------|------------|------------------|------------|----------|------------|----------|------------|
|                         |       |             |       |     |       |     |       |
| Ingrid  Whitney(a)           |       | W-2              |       | $        | 98,336     |     | $          | 98,951 |   |
|                         |       |             |       |     |       |     |       |
| Thea Whitney                 |       | W-2              |       | $        | 99,253     |     | $          | 135,138 |   |
|                         |       |             |       |     |       |     |       |
| Russell W. Whitney, Jr. |       | 1099             |       | $        | 305,743    |     | $          | 167,135 |   |
|                         |       |             |       |     |       |     |       |
| Timothy Kane                 |       | W-2              |       | $        | 360,593    |     | $          | 217,397 |   |

 

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(a)          On November 29,2007, Ingrid Whitney resigned from the Company.

 

**Deductibilityof Executive Compensation**

 

Under the Omnibus Budget Reconciliation Act of 1993,provisions were added to the Internal Revenue Code under Section 162(m) thatlimits the tax deduction for compensation in excess of $1.0 million paid tocertain executive officers.  However,performance-based compensation can be excluded from the limit so long as itmeets certain requirements.  To qualifyas “performance-based” under Section 162(m), compensation payments must bedetermined pursuant to a plan, by a committee of at least two “outside”directors ( as defined in the regulations promulgated under the Code) and mustbe based on achieving objective performance goals.  In addition, the material terms of the planmust be disclosed to and approved by stockholders and the outside directors orthe Compensation Committee, as applicable, must certify that the performancegoals were achieved before payments can be awarded.  The Compensation Committee believes that thestock option grants satisfy the requirements for exemption under the InternalRevenue Code Section 162(m). Payments made under these plans qualify as performance-basedcompensation.

 

For 2007, the annual salary paid to Mr. Whitneydid not exceed $1.0 million.  TheCompensation Committee sets Mr. Whitney’s salary based on competitivedata.  The other Named Executive Officerswere in each case paid salaries of less than $1.0 million as well.**** Stock optionsgranted under the terms of long-term incentives are exempt as performance-basedcompensation for purposes of calculating the $1.0 million limit.  To maintain flexibility in compensating theNamed Executive Officers in a manner designed to promote varying corporategoals, the Committee reserves the right to recommend and award compensationthat is not deductible under Section 162(m).  The 2007 annual incentive bonuses are notconsidered exempt under Internal Revenue Code Section 162(m) andtherefore are not deductible to the extent that they exceed $1.0 million.

 

**Compensation Committee**

 

As of the time of thisfiling, our Compensation Committee is comprised of Messrs. Indick, Timmenyand Barre, all of whom are independent directors.  Mr. Indick is the Compensation CommitteeChairman.  These directors are alsooutside directors for purposes of Section 162(m) of the InternalRevenue Code and non-employee directors for purposes of Section 16 of theSecurities Exchange Act of 1934.  Eachmember must be free of any relationship that, in the judgment of the Board fromtime to time, would interfere with the exercise of his or her independentjudgment.

 

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**EXECUTIVECOMPENSATION**

 

The following table sets forth information regardingcompensation earned by, awarded to or paid to our Named Executives during 2007.

 

**Summary Compensation**

**For the year ended December 31,2007**

 
| **Name and Principal Position** | ** ** | **Year** | ** ** | **Salary  ($)** | ** ** | **Bonus  ($)(a)** | ** ** | **Option  Awards  ($)(b)** | ** ** | **All Other  Compensation  ($)(c)** | ** ** | **Total($)** | ** ** |
|------------------------------------------------|------------|----------|------------|-----------------|------------|-------------------|------------|----------------------------|------------|------------------------------------------|------------|--------------|------------|
| **John F.  Kane (d)**                          |       | 2007     |       | 298,176         |       | 230,000           |       | 109,511                    |       | 4,203                                    |       | 641,890      |       |
| President and  Chief Operating            |       | 2006     |       | 250,000         |       | 150,000           |       | 126,625                    |       | 2,192                                    |       | 528,817      |       |
| Officer;  Director                             |       |     |       |            |       |              |       |                       |       |                                     |       |         |       |
|                                           |       |     |       |            |       |              |       |                       |       |                                     |       |         |       |
| **Anne M.  Donoho (e)**                        |       | 2007     |       | 175,000         |       | 200,000           |       | 15,914                     |       | 12,000                                   |       | 402,914      |       |
| Chief Financial  Officer                       |       | 2006     |       | 26,923          |       | —            |       | —                     |       | 0                                        |       | 26,923       |       |
|                                           |       |     |       |            |       |              |       |                       |       |                                     |       |         |       |
| **Russell  A. Whitney (f)**                    |       | 2007     |       | 650,000         |       | —            |       | 134,952                    |       | 1,957,500                                |       | 2,742,452    |       |
| Former Chairman  of the Board and              |       | 2006     |       | 600,000         |       | 562,500           |       | 135,000                    |       | 190,050                                  |       | 1,487,550    |       |
| Chief Executive  Officer; Director             |       |     |       |            |       |              |       |                       |       |                                     |       |         |       |
|                                           |       |     |       |            |       |              |       |                       |       |                                     |       |         |       |
| **Ronald  S. Simon (g)**                       |       | 2007     |       | 321,892         |       | 0                 |       | 114,161                    |       | 3,250                                    |       | 439,303      |       |
| Former  Co-President and Chief                 |       | 2006     |       | 300,000         |       | 281,250           |       | 188,042                    |       | 3,077                                    |       | 772,369      |       |
| Operating  Officer                             |       |     |       |            |       |              |       |                       |       |                                     |       |         |       |
|                                           |       |     |       |            |       |              |       |                       |       |                                     |       |         |       |
| **Alfred  R. Novas (h)**                       |       | 2007     |       | 311,550         |       | —            |       | 263,279                    |       | 101,500                                  |       | 676,329      |       |
| Former  Co-President and Chief                 |       | 2006     |       | 241,346         |       | 281,250           |       | 61,453                     |       | 41,971                                   |       | 626,020      |       |
| Financial  Officer                             |       |     |       |            |       |              |       |                       |       |                                     |       |         |       |

 

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(a)          Bonus amount reflects the 2007 awards asapproved by the Board of Directors in 2008.

 

(b)         Stock option awards represent option grantsfor which we recorded a 2007 and 2006 compensation expense.  Under the required SFAS No. 123Rmethodology, the compensation expense reflected in the table above is forgrants made in 2007 and prior years which continue to be expensed.

 

(c)          See table “Other Compensation” for details ofthe amounts paid.

 

(d)         Mr. Kane was appointed President, ChiefOperating Officer on June 20, 2008. Mr. Kane has been with the business from the time it was founded in1987.  In November 2007, he joinedthe Company’s Board of Directors.  Mr. Kaneresigned his positions as President, Chief Operating Officer, and Director on October 17,2008.

 

(e)          Ms. Donoho was appointed Chief FinancialOfficer on April 9, 2008.  Shejoined the Company in December 2006 as Vice President, Finance and wasappointed interim Chief Financial Officer in December 2007.

 

(f)            Mr. Whitney resigned as Chief ExecutiveOfficer effective December 31, 2007. Mr. Whitney’s position as Chairman of the Board was eliminated bythe Board of Directors on June 20, 2008. He currently serves on our Company’s Board of Directors.  Pursuant to the January 7, 2008 letteragreement, Mr. Whitney will receive as severance compensation, the sum of$1,950,000 over a period of twelve months beginning January 1, 2008.

 

(g)         Mr. Simon resigned as Co-President andChief Operating Officer on December 5, 2007, but remained a member of theBoard of Directors through February 1, 2008, and became an employee of theCompany in a non-executive administrative role until August 23, 2008.  Mr. Simon resigned from the Company’sBoard of Directors on February 1, 2008. He was terminated from his non-executive role with cause on August 23,2008.

 

(h)         Mr. Novas was terminated without cause asCo-President and Chief Financial Officer on November 29, 2007.

 

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**All Other Compensation**

**Year ended December 31, 2007**

** **
| **Name**                                                         | ** ** | **Year** | ** ** | **Personal  use of  Company  transportation** | ** ** | **Personal  use of  Company  employee  services** | ** ** | **Executive  relocation** | ** ** | **Company  contributions  to  401(k) Plan** | ** ** | **Severance  payments /  accruals** | ** ** | **Other  benefits** | ** ** | **Total** | ** ** |
|------------------------------------------------------------------|------------|----------|------------|----------------------------------------------------|------------|--------------------------------------------------------|------------|---------------------------|------------|--------------------------------------------------|------------|------------------------------------------|------------|---------------------|------------|-----------|------------|
|                                                             |       |     |       |                                               |       |                                                   |       |                      |       |                                             |       |                                     |       |                |       |      |       |
| John F. Kane                                                     |       | 2007     |       | —                                             |       | —                                                 |       | —                    |       | $                                                | 4,203      |                                     | —     |                | —     |      | $          | 4,203 |   |
| *President and Chief Operating Officer*                          |       | 2006     |       | —                                             |       | —                                                 |       | —                    |       | $                                                | 2,192      |                                     | —     |                | —     |      | $          | 2,192 |   |
|                                                             |       |     |       |                                               |       |                                                   |       |                      |       |                                             |       |                                     |       |                |       |      |       |
| Anne M. Donoho                                                   |       | 2007     |       | —                                             |       | —                                                 |       | $                         | 12,000     |                                             | —     |                                     | —     |                | —     |      | $          | 12,000 |   |
| *Chief  Financial Officer*                                       |       | 2006     |       | —                                             |       | —                                                 |       | —                    |       | —                                           |       | —                                   |       | —              |       | —    |       |
|                                                             |       |     |       |                                               |       |                                                   |       |                      |       |                                             |       |                                     |       |                |       |      |       |
| Russell A.  Whitney (a)                                     |       | 2007     |       | $                                                  | 7,500      |                                                   | —     |                      | —     |                                             | —     |                                     | $          | 1,950,000           |       | —    |       | $ | 1,957,500 |   |
| *Former  Chairman of the Board**and****Chief Executive  Officer* |       | 2006     |       | $                                                  | 152,970    |                                                   | $          | 37,080                    |       | —                                           |       | —                                   |       | $                   | —     |      | —     |   | $ | 190,050 |   |
|                                                             |       |     |       |                                               |       |                                                   |       |                      |       |                                             |       |                                     |       |                |       |      |       |
| Ronald S. Simon                                                  |       | 2007     |       | —                                             |       | —                                                 |       | —                    |       | $                                                | 3,250      |                                     | —     |                | —     |      | $          | 3,250 |   |
| *Former  Co-President and Chief Operating Officer(c)*            |       | 2006     |       | —                                             |       | —                                                 |       | —                    |       | $                                                | 3,077      |                                     | $          | —              |       | —    |       | $ | 3,077 |   |
|                                                             |       |     |       |                                               |       |                                                   |       |                      |       |                                             |       |                                     |       |                |       |      |       |
| Alfred R.  Novas (b)                                        |       | 2007     |       | —                                             |       | —                                                 |       | —                    |       | $                                                | 7,750      |                                     | $          | 93,750              |       | —    |       | 101,500 |   |
| *Former  Co-President and Chief Financial Officer*               |       | 2006     |       | —                                             |       | —                                                 |       | $                         | 41,971     |                                             | —     |                                     | $          | —              |       | —    |       | $ | 41,971 |   |
|                                                                  |            |          |            |                                                    |            |                                                        |            |                           |            |                                                  |            |                                          |            |                     |            |           |            |  |  |  |  |  |  |

 

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(a)          Mr. Whitney’spersonal use of Company transportation in 2007 included $7,500 for Company carexpenses.  Mr. Whitney’s personaluse of Company transportation in 2006 included $7,500 for Company car expensesand $145,470 for personal use of the Company aircraft.  The value of personal use of the Companyaircraft is the incremental variable cost associated with each trip which iscalculated as a portion of the aircraft fuel, hangar cost, flight crew, travelfees, ongoing maintenance and repairs, landing fees and catering costs.  The personal use of Company employee servicesof $37,080 includes a portion of the expense associated with employees in ourReal Estate Development group that spent time on projects related to Mr. Whitney’spersonal business.  Mr. Whitneyreimburses the Company for personal use of the aircraft and employee time.

 

(b)         Mr. Novaswas terminated without cause on November 29, 2007.  His severance was paid at that time.

 

(c)          Mr. Simonwas terminated from his non-executive role with cause on August 23,2008.  He did not receive any severancepayments.

 

The following table provides information on thecurrent holdings of stock options by the Named Executives Officers.  This table includes unexercised and unvestedoption awards.  Stock option awards vest25% on the grant date, an additional 25% vests on the completion of the firstyear of service, another 25% vests on the completion of the second year ofservice and 25% of the shares vest at the end of the third year ofservice.  All options expire ten yearsfrom the date of grant.

 

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**OUTSTANDINGEQUITY AWARDS AT FISCAL YEAR END**

Year ended December 31,2007

 
| ** **           | ** ** | **Option awards** | ** ** |
|----------------------|------------|------------------------|------------|
| ** **           | ** ** | **Option  grant**      | ** ** | **Number of  securities  underlying  unexercised  options** | ** ** | **Number of  securities  underlying  unexercised  options** | ** ** | **Option  exercise** | ** ** | **Option  expiration** | ** ** |
| **Name**             | ** ** | **date**               | ** ** | **Exercisable** | ** ** | **Unexercisable** | ** ** | **price** | ** ** | **date** | ** ** |
|                 |       |                   |       |   |   |   |   |   |   |   |   |
| John F. Kane         |       | 12/13/2005             |       | 75,000 |   | 25,000 |   | $ | 6.75 |   | 12/13/2015 |   |
|                 |       | 01/28/2004             |       | 25,000 |   | — |   | $ | 4.50 |   | 01/28/2014 |   |
|                 |       |                   |       |   |   |   |   |   |   |   |   |
| Anne M. Donoho       |       | 12/05/2007             |       | 12,500 |   | 37,500 |   | $ | 2.30 |   | 12/05/2017 |   |
|                 |       |                   |       |   |   |   |   |   |   |   |   |
| Russell A.  Whitney  |       | 12/13/2005             |       | 93,750 |   | 31,250 |   | $ | 6.75 |   | 12/13/2015 |   |
|                 |       |                   |       |   |   |   |   |   |   |   |   |
| Ronald S. Simon      |       | 12/13/2005             |       | 75,000 |   | 25,000 |   | $ | 6.75 |   | 12/13/2015 |   |
|                 |       | 01/28/2004             |       | 100,000 |   | — |   | $ | 4.50 |   | 01/28/2014 |   |
|                 |       | 02/27/2003             |       | 50,000 |   | — |   | $ | 3.70 |   | 02/27/2013 |   |
|                 |       | 05/01/2000             |       | 68,000 |   | — |   | $ | 2.00 |   | 05/01/2010 |   |
|                 |       | 08/31/1999             |       | 25,000 |   | — |   | $ | 1.88 |   | 08/31/2009 |   |
|                 |       |                   |       |   |   |   |   |   |   |   |   |
| Alfred R. Novas  (a) |       | 02/10/2006             |       | 12,500 |   | 12,500 |   | 7.60 |   | 02/10/2016 |   |

 

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(a)  Mr. Novas was terminated without causeon November 29, 2007, and his stock options were forfeited unexercised on2/29/2008.

 

***Employment andSeparation Agreements****:*

 

**John F.Kane**

 

We entered into an employment agreement with John F.Kane, the Company’s Executive Vice President and Operations (subsequently ourPresident and Chief Operating Officer) on June 30, 2003, to be effectiveas of January 1, 2003.  Under hisagreement during fiscal 2007, Mr. Kane was entitled to receive an annualsalary of $250,000.  The employmentagreement is effective for five years through December 31, 2007, subjectto automatic renewal thereafter unless terminated by either party.  Mr. Kane is also entitled to receivesuch bonuses and increases as may be awarded by the Board of Directors.

 

Mr. Kane resigned his position as President,Chief Operating Officer, and member of our Board of Directors on October 17,2008.  In connection with hisresignation, the Company and Mr. Kane entered into a Separation Agreementdated October 17, 2008 (the “Separation Agreement”).  Pursuant to Mr. Kane’s employmentagreement dated June 30, 2003, Mr. Kane’s resignation shall be deemeda “Voluntary Termination.”

 

Pursuant to the Separation Agreement, the Companyshall provide Mr. Kane a severance benefit in the amount equal to threemonths of his current base rate of pay. In addition, he received the remaining unpaid balance of the $230,000performance bonus the Board of Directors of the Company conditionallyauthorized on May 23, 2008 as described in the Company’s Current Report onForm 8-K dated May 23, 2008.  Mr. Kaneis restricted from directly or indirectly competing with us until July 18,2009.

 

**Anne M.Donoho**

 

On December 5, 2007, the Company promoted Ms. Donohoto the position as interim Chief Financial Officer of the Company and at thattime, agreed to compensate her with an annual salary of $250,000.  In April 2008, the Company appointed Ms. Donohoto Chief Financial Officer and increased her salary to $260,000.  Ms. Donoho is eligible for an incentivebonus to be determined by the Compensation Committee of the Board of Directors,as well as health insurance and other benefits generally awarded to executiveofficers of the Company.  She was alsoawarded, in December 2007, options to purchase 50,000 shares of commonstock at a price of $2.30 per share (the most recent 

 

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reported sale price of the common stock on December 4,2007).   On December 16, 2008, theCompany and Ms. Donoho entered into a written agreement that provides herwith severance compensation if she is terminated prior to December 4, 2010without cause or in connection with a change in control.

 

**Russell A. Whitney**

 

We, through Whitney Education Group, Inc.,entered into an employment agreement (“RW Employment Agreement”) with RussellA. Whitney, the Company’s former Chief Executive Officer on June 30, 2003,to be effective as of January 1, 2003. Under his agreement during fiscal 2006, Mr. Whitney was entitled toreceive an annual salary of $600,000. The employment agreement is effective for five years through December 31,2007, subject to automatic renewal thereafter unless terminated by eitherparty.  Mr. Whitney is also entitledto receive such bonuses and increases as may be awarded by the Board ofDirectors.  In connection with hisemployment agreement, Mr. Whitney is also is subject to the Company’sstandard non-disclosure and non-competition agreement which restricts Mr. Whitneyfrom directly or indirectly competing with us for a period of two years afterthe termination of his employment for any reason.  If Mr. Whitney’s employment with theCompany is terminated, he is entitled to certain payments set forth in thetable below “Potential Payments on Termination or Change of Control.”

 

**Russell Whitney – Resignation**

 

Effective December 31, 2007, Russell A. Whitneyresigned as Chief Executive Officer of the Company.  Mr. Whitney continues to serve as amember of the Board of Directors of the Company, in a non-executive position.

 

The Company and Whitney Education Group, Inc., awholly-owned subsidiary of the Company, entered into an agreement with Mr. Whitneydated January 7, 2008 (the “Agreement”). The Agreement confirmed that Mr. Whitney informed the Company ofhis resignation as Chief Executive Officer, and of the termination of theEmployment Agreement, both effective as of December 31, 2007.  The Board of Directors accepted theresignation and determined that for purposes of the Employment Agreement theresignation would be treated as a “Termination Other Than For Cause” under Section 2.4of the Employment Agreement.  The parties have agreed that WhitneyInformation Network, Inc. will pay severance compensation in the amount of$1,950,000 in twelve, equal monthly installments of $162,500 over a period of12 months, the first such payment to be made January 1, 2008 andcontinuing on the first day of each calendar month thereafter, less applicabletaxes and withholdings (“Severance Compensation”).  To secure its obligation to pay the SeveranceCompensation, the Company agreed to place a lien upon its Citation VIIaircraft.  Mr. Whitney agreed to terminate this lien immediately uponthe payment in full of the Severance Compensation.  If the aircraft issold by the Company at any time prior to the payment in full of the SeveranceCompensation, Mr. Whitney agreed to terminate his lien and the Companyagreed that the balance of the then unpaid Severance Compensation would beaccelerated and paid to Mr. Whitney from the proceeds of the sale of theaircraft at that time.

 

In the Agreement, Mr. Whitneyconfirmed that he had been paid all salary and bonuses and any and all otherpay and incentives due to him under the Employment Agreement or otherwise,except those payments otherwise payable under the Agreement; that Mr. Whitneyhas been provided with all leave (including leave under the Family and Medical LeaveAct) to which he may have been entitled, if any; and that he has not sufferedany workplace illness or injury other than any injury or illness of which hehad already advised the Company about, if any.  Under the Agreement, Mr. Whitneyaffirmed, to the best of his knowledge as of the date of the Agreement, that hewas not aware of any potential claims or causes of action against the Company.

 

Pursuant to theAgreement, the Company agreed that it will indemnify and hold Mr. Whitney harmlessto the fullest extent permitted by applicable law under Section 7.10 ofthe Employment Agreement and under Article VI of the Bylaws of WhitneyInformation Network, Inc.  Withoutlimiting the foregoing, Mr. Whitney shall be entitled to the advancementof his fees and expenses of legal counsel incurred in connection with any legalproceedings arising out of or relating to his services as an officer, directoror employee of the Company.  Mr. Whitney’sacceptance of the Agreement constituted his undertaking to repay any sumsadvanced in the event so ordered by a court of competent jurisdiction.

 

**Ronald S. Simon**

 

We entered into an employment agreement with Ronald S.Simon, the Company’s former Co-President, Chief Operating Officer and Secretaryon June 30, 2003, to be effective as of January 1, 2003.  Under his agreement during fiscal 2006, Mr. Simonwas entitled to receive an annual salary of $300,000.  The employment agreement was effective forfive years through December 31, 2007, subject to automatic renewalthereafter unless terminated by either party. Mr. Simon is also entitled to receive such bonuses and increases asmay be awarded by the Board of Directors. In connection with his employment agreement, Mr. Simon signed theCompany’s standard non-disclosure and non-competition agreement which prevents Mr. Simon

 

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from directly or indirectly competing with us for aperiod of two years after the termination of his employment for any reason.

 

Mr. Simon resigned as Co-President and ChiefOperating Officer on December 5, 2007, and became an employee of theCompany in non-executive administrative role. Mr. Simon’s employment with the Company was terminated on August 23,2008.

 

**Alfred R. Novas**

 

We entered into an employment agreement with Alfred R.Novas, the Company’s former Co-President and Chief Financial Officer, on January 20,2006, to be effective as of January 20, 2006.  Under his agreement during fiscal 2007, Mr. Novaswas entitled to receive an annual salary of $275,000.  The employment agreement was effective forthree years through January 19, 2009. Mr. Novas was also entitled to receive such bonuses and increasesas may be awarded by the Board of Directors. In connection with his employment agreement, Mr. Novas also signedthe Company’s standard non-disclosure and non-competition agreement whichprevents Mr. Novas from directly or indirectly competing with us for aperiod of two years after the termination of his employment for anyreason.  If Mr. Novas’ employmentwith the Company was terminated, he is entitled to certain payments set forthin “Potential Payments on Termination or Change of Control” in the table below.

 

Mr. Novas’ employment with the Company wasterminated on November 29, 2007, and he received severance benefits December 7,2007, of $93,750.

 

**Potential payments upon termination of changein control**

 

We had written employment agreements with John F.Kane, Ronald S. Simon, Russell Whitney and Alfred Novas during 2007.  The employment agreements provide forpayments of certain benefits, as described in the tables below, upon thetermination of the employee.  Theemployee’s rights upon termination of his or her employment depend upon thecircumstance of the termination.  Centralto an understanding of the rights of each employee under the employmentagreements is an understanding of the definitions of termination for cause,termination other than for cause and voluntary termination.  For purposes of the employment agreements:

 

“Termination for Cause” means termination by theCompany of Employee’s employment (i) by reason of Employee’s willfuldishonesty towards, fraud upon, or deliberate injury or attempted injury to,the Company, (ii) by reason of Employee’s material breach of thisAgreement or (iii) by reason of Employee’s gross negligence or intentionalmisconduct with respect to the performance of Employee’s duties under thisAgreement; provided, however, that no such termination will be deemed to be aTermination for Cause unless the Company has provided Employee with writtennotice of what it reasonably believes are the grounds for any Termination forCause and Employee fails to take appropriate remedial actions during the 30 dayperiod following receipt of such written notice.

 

“Termination Other than For Cause” means terminationby the Company of Employee’s employment by the Company for reasons other thanthose which constitute Termination for Cause.

 

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

 

“Disability” means termination of the Employee by theCompany because of illness or physical or mental incapacity (“Disability”) ofthe employee, and such Disability continues for a period of more than threeconsecutive months.  Any determination bythe Board with respect to Employee’s Disability must be based on adetermination of competent medical authority or authorities, a copy of whichdetermination must be delivered to the Employee at the time it is delivered tothe Board.  If the Employee disputes thisfinding, he Employee will have the right to select its own competent medicalauthority and any disputes will be resolved by binding arbitration.

 

These executives have also signed the Company’sstandard confidentiality and non-competition agreement that applies for certaintime periods following the employee’s termination of employment for anyreason.  The non-competition time periodsafter termination of employment are as follows: John F. Kane – 6 months, and Russell A. Whitney – 2 years.  The employment agreements specify payment tothe employees upon each of the following situations:

 

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·                                          death ordisability of the employee;

·                                          terminationby us for cause;

·                                          terminationby us without cause; and

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

 

The table below illustratesthe potential payouts to each Named Executive Officer employed by the Companyin an officer capacity as of December 31, 2007, under each of the variousseparation situations.  The table assumesthat the terminations took place on December 31, 2007.

 
| ** **                  | ** ** | **Termination  with Cause** | ** ** | **Death** | ** ** | **Disability** | ** ** | **Term  without  Cause** | ** ** | **Termination  after Change  in Control** | ** ** |
|-----------------------------|------------|----------------------------------|------------|-----------|------------|----------------|------------|--------------------------|------------|-----------------------------------------------------|------------|
|                        |       |                             |       |      |       |           |       |                     |       |                                                |       |
| **Russell  A. Whitney (a)** |       |                             |       |      |       |           |       |                     |       |                                                |       |
| Severance                   |       | —                           |       | —    |       | $              | 1,950,000  |                     | $          | 1,950,000                                           |       | $ | 1,950,000 |   |
|                        |       |                             |       |      |       |           |       |                     |       |                                                |       |
| **John F.  Kane (b)**       |       |                             |       |      |       |           |       |                     |       |                                                |       |
| Severance                   |       | —                           |       | —    |       | $              | 125,000    |                     | $          | 125,000                                             |       | — |   |
|                        |       |                             |       |      |       |           |       |                     |       |                                                |       |
| **Anne M.  Donoho**         |       | —                           |       | —    |       | —         |       | $                        | 260,000    |                                                | $          | 260,000 |   |
| Severance                   |       |                             |       |      |       |           |       |                     |       |                                                |       |

 

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(a)          ResignedDecember 31, 2007.

(b)         ResignedOctober 17, 2008

 

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**DIRECTORCOMPENSATION**

 

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

 

Our employee directors donot receive any additional compensation for serving on the Board.  During fiscal 2007, our employee directorsserving on the Board were Russell A. Whitney, Ronald Simon and John Kane(effective November 2007).

 

Initially, in 2007, each non-employee directorreceived a $10,000 quarterly retainer. Effective April 1, 2007, this retainer was raised to $25,000 perquarter on a temporary basis to compensate the Directors for the additionalwork involved with the Company while under the SEC investigation.  Expenses incurred by our non-employeedirectors in attending Board meetings are reimbursed.  During fiscal 2007, the Board of Directorsgranted 10,000 stock options to newly appointed Board Members.  In addition to the Board of Directorsreceiving a quarterly retainer, they are eligible to receive 10,000 options peryear, no options were awarded in 2007 except to the new members As describedmore fully below, this table summarizes compensation paid to each non-employeedirector during 2007;

 
| **Name**                 | ** ** | **Fees  earned or  paid in  cash** | ** ** | **Option  awards  (a)** | ** ** | **Total** | ** ** |
|--------------------------|------------|----------------------------------------------|------------|-------------------------|------------|-----------|------------|
|                     |       |                                         |       |                    |       |      |       |
| Frederick A.  Cardin (f) |       | $                                            | 85,000     |                    | $          | 18,288    |       | $ | 103,288 |   |
| Murray A. Indick  (b)(f) |       | 9,066                                        |       | 3,575                   |       | 12,641    |       |
| Stephen L.  Cootey (c)   |       | 10,000                                       |       | —                  |       | 10,000    |       |
| Anthony B.  Petrelli (d) |       | 10,000                                       |       | —                  |       | 10,000    |       |
| Chester R.  Schwartz (e) |       | 20,000                                       |       | —                  |       | 20,000    |       |
|                          |            |                                              |            |                         |            |           |            |  |  |  |

 

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(a)          Thiscolumn shows the amount we have expensed during 2007 under SFAS No. 123Rfor outstanding stock option awards and includes compensation cost recognizedin the Consolidated Financial Statements with respect to awards granted in 2007and previous fiscal years.  The fairvalue of the awards has been determined based on the assumptions set forth inour 2007 Form 10-K (Note 10- *Stock Options*) and do notcorrespond to the actual value that will be recognized by the director.

(b)         Mr. Indickjoined the Board of Directors on November 21, 2007.

(c)          Mr. Cooteyresigned from the Board of Directors on March 22, 2007.

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

(e)          Mr. Schwartzresigned from the Board of Directors on July 2, 2007.

(f)            Theaggregate number of option awards and respective grant date fair value pershare outstanding at December 31, 2007 for each non-employee director isreflected in the following chart:

 
| **Director**         | ** ** | **Grant date**     | ** ** | **Options** | ** ** | **Grant date fair  value per share** | ** ** |
|----------------------|------------|-------------------------|------------|-------------|------------|----------------------------------------------------------|------------|
| Frederick A.  Cardin |       | August 08, 2003    |       | 5,000       |       | $                                                        | 3.90       |   |
|                 |       | May 06,  2005      |       | 15,000      |       | $                                                        | 2.55       |   |
|                 |       | December 13,  2005 |       | 5,000       |       | $                                                        | 6.75       |   |
|                 |       | March 15,  2007    |       | 10,000      |       | $                                                        | 4.18       |   |
|                 |       |                    |       | 35,000      |       |                                                     |       |
|                 |       |                    |       |        |       |                                                     |       |
| Murray A. Indick     |       | November 21, 2007  |       | 10,000      |       | $                                                        | 2.25       |   |

 

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**ITEM12.  SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**

 

Thefollowing table sets forth the beneficial common stock ownership as of March 31,2008, by (i) of each person known by us to be the beneficial owner of fivepercent or more of our common stock, (ii) by each of our directors andNamed Executive Officers (who was employed by the Company as of March 31,2008) and directors and by (iii) all directors and Named ExecutiveOfficers (who were employed by the Company as of March 31, 2008) as agroup.

 

Asused herein, the term beneficial ownership with respect to a security isdefined by Rule 13d-3 under the Securities Exchange Act of 1934 asconsisting of sole or shared voting power (including the power to vote ordirect the vote) and/or sole or shared investment power (including the power todispose or direct the disposition of) with respect to the security through anycontract, arrangement, understanding, relationship or otherwise, including aright to acquire such power(s) during the next 60 days.

 

Unlessotherwise noted, beneficial ownership consists of sole ownership, voting andinvestment rights.  The address for eachnamed Executive Officer and director is care of Whitney Information Networks, Inc.,1612 East Cape Coral Parkway, Cape Coral, Florida 33904.  As of March 31, 2008, we had 11,738,587shares issued and outstanding.  Thistable is based upon information supplied to us by our Named Executive Officers,directors and principal shareholders and/or contained in reports filed by thesepersons with the SEC.

 
| **Name of Owner**                                     | ** ** | **Number of shares (1)** | ** ** | **Percent of class** | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------------------|------------|--------------------------------|------------|
| Named Executive  Officers and directors                         |       |                                    |       |                           |       |
| Russell A. Whitney(2)                                           |       | 5,227,300                               |       | 44.5                           | %          |
| John F. Kane(3)                                                 |       | 325,833                                 |       | 2.8                            |       |
| Anne M. Donoho(4)                                               |       | 12,500                                  |       | *                              |       |
| Frederick A. Cardin(5)                                          |       | 28,750                                  |       | *                              |       |
| Murray A. Indick(6)                                             |       | 5,000                                   |       | *                              |       |
| Steven C. Barre(7)                                              |       | 5,000                                   |       | *                              |       |
| Wallace L. Timmeny(8)                                           |       | 5,000                                   |       | *                              |       |
| Executive Officers and directors as a group (seven  persons)(9) |       | 5,609,383                               |       | 47.8                           |       |
|                                                            |       |                                    |       |                           |       |
| Beneficial owners of more than 5% of the common  stock          |       |                                    |       |                           |       |
| Prides Capital Fund I, LP(10)                                   |       | 1,731,100                               |       | 14.7                           |       |
| Kingstown Capital Partners, LLC(11)                             |       | 478,000                                 |       | 4.1                            |       |
| Hudson Street Capital Management, LLC(11)                       |       | 94,250                                  |       | 0.8                            |       |
| Michael Blitzer(11)                                             |       | 492,800                                 |       | 4.2                            |       |
| Guy Shanon(11)                                                  |       | 96,700                                  |       | 0.8                            |       |
| Springhouse Capital, LP(12)                                     |       | 1,115,000                               |       | 9.5                            |       |
| Ingrid Whitney(13)                                              |       | 4,951,519                               |       | 42.2                           | %          |

 

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*                    Lessthan 1%

 

(1)             Inaccordance with SEC rules, this column includes shares that may be acquiredpursuant to stock options and common stock purchase warrants that are or willbecome exercisable within 60 days of March 31, 2008.

 

(2)             Includes(i) 4,991,850 shares held by International Securities 3, LLC (“IS3”) whichis beneficially owned by Russell Whitney, (ii) 141,700 shares held by DayOne, LLC (“Day One”), which is beneficially owned by Mr. Whitney; 93,750shares underlying vested stock options held by Mr. Whitney.  Mr. Whitney has (i) sole votingpower and dispositive power over the 141,700 shares held by Day One and the93,750 shares underlying his vested stock options and (ii) has sole votingpower over 4,991,850 shares held by IS3 and the power to dispose of 2,714,675shares held by IS3 pursuant to the IS3 Management Delegation Agreement and theSettlement Agreement dated December 7, 2007 between Mr. Whitney andIngrid Whitney, his former wife.  Thisinformation was obtained from Schedule 13D filed by Russell Whitney with theSEC on April 28, 2008 and from the Company’s accounting records withrespect to outstanding vested stock options as of March 31, 2008.  Per the Settlement Agreement dated December 7,2007, Russell Whitney’s exclusive power to vote all of the IS3 shares ends June 7,2009.

 

(3)             Includes100,000 shares underlying vested stock options.

 

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(4)             Includes12,500 shares underlying vested stock options.

 

(5)             Includes28,750 shares underlying vested stock options.

 

(6)             Mr. Indickjoined the Board as an Independent Director effective November 21,2007.  Includes 5,000 shares underlyingvested stock options as of March 31, 2008. Mr. Indick, an employee of Prides Capital LLC, does not vote theshares owned by Prides Capital Fund I, LP and disclaims beneficial ownership ofthe securities, except to the extent of his pecuniary interest in PridesCapital LLC.

 

(7)             Mr. Barre joined the Board as Independent Directors effective February 1,2008.  Includes 5,000 shares each ofunderlying vested stock options as of March 31, 2008.

 

(8)             Mr. Timmenyjoined the Board as Independent Directors effective February 1, 2008.  Includes 5,000 shares each of underlyingvested stock options as of March 31, 2008.

 

(9)             Includes710,450 shares underlying vested stock.

 

(10)       Informationobtained from a Schedule 13D filed by Prides Capital Partners LLC with theSEC on September 15, 2006.  MurrayA. Indick, Kevin A. Richardson, II, Henry J. Lawlor, Jr., Charles E.McCarthy and Christian Puscasiu may be deemed to share voting and dispositivepower over these shares.  Prides CapitalFund I, LP is located at 200 High Street, Suite 700, Boston, MA 02110

 

(11)       Informationobtained from a Schedule 13D filed jointly on February 7, 2008, byKingstown Capital Partners LLC, Hudson Street Capital Management LLC, MichaelBlitzer and Guy Shanon.  According to theSchedule 13D filing, Steven Wolosky, Esq. of Olshan Grundman Frome Rosenzweig &Wolosky LLP located at: Park Avenue Tower, 65 East 55th Street, New York, New York 10022 is authorizedto receive notices and communications. The collective percentage of shares owned as of the date of the filingwas 9.9 percent.

 

(12)       Informationobtained from a Schedule 13G filed by Springhouse Capital, LP (“Springhouse”)with the SEC on February 14, 2006. Brian Gaines, the managing member of the general partner of Springhouse,is deemed to exercise voting and dispositive power over these shares.  Springhouse is located at 535 Madison Avenue,30th Floor, New York, NY 10022.

 

(13)       Includes4,951,250 shares held by IS3, which is beneficially owned by Ingrid Whitney andRussell Whitney, her former husband, and 269 shares held individually by IngridWhitney.  Ms. Whitney has soledispositive power over 2,475,625 shares held by IS3 and shares dispositivepower with Mr. Whitney over 2,475,625 shares held by IS3.  This information was obtained from a Schedule13G filed by Ingrid Whitney with the SEC on March 13, 2008.  Ms. Whitney’s address is 1612 East CapeCoral Parkway, Suite A, Cape Coral, FL 33904.

 

**ITEM13.  CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS, AND DIRECTOR INDEPENDENCE**

 

The following is asummary of transactions during fiscal 2006 and 2007 between the Company and itsexecutive officers, directors, nominees, principal shareholders and otherrelated parties involving amounts in excess of $120,000 or which the Companyhas chosen to voluntarily disclose.

 

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Welease approximately 2,200 square feet of training facilities at 1611 East CapeCoral Parkway, approximately 9,000 square feet of space at 1625 East Cape CoralParkway which is used for offices and shipping, and 4,802 square feet at 1630Southeast 47th Terrace which we use as a training facility, all in Cape Coral,Florida from Cape Promenade Trust which is for the benefit of our formerChairman and Chief Executive Officer, Mr. Whitney and Ingrid Whitney.  The leases are for three years and began on March 1,2003, March 1, 2003, and June 1, 2004, respectively.  The monthly rentals were $1,943, $13,193 and$7,238 in 2007, respectively.  Weterminated the 1611 East Cape Coral Parkway and 1630 Southeast 47th Terrace leases on September 17,2007.  We notified Cape Promenade Truston November 21, 2008 we are terminating the 1625 East Cape Coral Parkwaylease effective December 31, 2008. (Collectively, all the leases described herein shall be referred to asthe “RW Leases”).

* *

*GulfstreamDevelopment Group, LLC*

 

For the years ended December 31,2003 through 2007, the Company had an agreement with Gulfstream DevelopmentGroup, LLC (“Gulfstream”) in which we were compensated for appointingGulfstream as the exclusive offeror of homes for students of our advanced realestate courses.  Students were offeredthe opportunity to purchase residential lots in Southwest Florida fromGulfstream, other lot owners, or Mr. Whitney.  Gulfstream constructs homes on lots owned byour students.  Under a Referral ServicesAgreement with Gulfstream, Gulfstream paid the Company a flat fee of $100,000for all referrals that occurred before January 1, 2003, and agreed to paythe Company $1,000 for each student that the Company referred to Gulfstream whopurchased and closed on a home built by Gulfstream after January 1,2003.  During 2007, the amount of theCompany’s referral fee was increased to $2,500, with $500 of that being paid toCompany trainers who assisted in the referral. Under this arrangement, the Company received $0.3 million and $0.1 millionfrom Gulfstream in the years ended December 31, 2006 and 2007respectively.

 

During the years ended December 31,2006 and 2007, Mr. Whitney and Ingrid Whitney jointly held an indirect 25%beneficial ownership interest in Gulfstream and received 15% of distributionsof net cash flow from Gulfstream.  Mr. andMrs. Whitney hold their investment in Gulfstream through Rec One Inc., anentity owned jointly by them.  Pursuantto an agreement between Mr. and Mrs. Whitney, as of December 31,2007, Mr. Whitney holds an indirect 12.5% beneficial ownership interest inGulfstream and is entitled to 7.5% of distributions of net cash flow fromGulfstream.

 

During the years ended December 31,2004through 2007, Gulfstream had an informal arrangement with Mr. Whitneypursuant to which Gulfstream paid Mr. Whitney a salary and paid Rec Onetransaction-based compensation for Mr. Whitney’s services, includingmarketing and construction contract administration in connection with homesales to the Company’s students and other persons, as well as for creditsupport provided to Gulfstream by Mr. Whitney.  The transaction-based compensation consistedof payments of $2,500 or $4,000 to Rec One by Gulfstream upon purchases ofGulfstream homes by our students.

 

During the years ended December 31,2003, 2004 and 2005, the Company made payments to Gulfstream of approximately $0.1 million,$0.7 million and $0.2 million respectively, for construction services on ourcorporate headquarters building.  Theconstruction services provided in 2003 were for leasehold improvements and in2004 services were provided to repair the extensive damage to our corporateheadquarters as a result of Hurricane Charley.

 

The following table setsforth the salary and transaction-based compensation that Mr. Whitneyreceived from Gulfstream during the years ended December 31, 2003, 2004,2005, 2006, and 2007, and is based upon information provided to Mr. Whitneyby Gulfstream:

 
| ** **                                                    | ** ** | **2003** | ** ** | **2004** | ** ** | **2005**  | ** ** | **2006**  | ** ** | **2007**  | ** ** | **Total** | ** ** |
|---------------------------------------------------------------|------------|----------|------------|----------|------------|-----------|------------|-----------|------------|-----------|------------|-----------|------------|
| Salary paid to  R. Whitney by Gulfstream                      |       | $        | —     |     | $          | 120,000   |       | $         | 120,000    |      | $          | 120,000   |       | $ | 120,000 |   | $ | 480,000 |   |
| Transaction-based  compensation paid to Rec One by Gulfstream |       | 563,220  |       | 41,154   |       | 522,315   |       | 1,251,105 |       | 369,763   |       | 2,747,557 |       |
| Management Fees  paid to Rec One by Gulfstream (1)            |       | —   |       | 300,000  |       | 350,000   |       | —    |       | 175,000   |       | 825,000   |       |
| Distributions  from Gulfstream to Rec One (2)(3)              |       | —   |       | —   |       | 1,752,976 |       | 1,543,662 |       | 1,928,086 |       | 5,224,724 |       |
| Total                                                         |       | $        | 563,220    |     | $          | 461,154   |       | $         | 2,745,291  |      | $          | 2,914,767 |       | $ | 2,592,849 |   | $ | 9,277,281 |   |

 

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(1)          Totalmanagement fees shown above reflect amounts paid to Rec One and shared by Mr. Whitneyand Ms. Whitney on a 50/50 basis.

(2)          Totaldistributions include portions paid to Rec One and shared by Mr. Whitneyand Ms. Whitney on a 50/50 basis.

(3)          RecOne was required to fund 25% of capital calls from Gulfstream.  The amounts shown above do not reflect thesecapital calls which, including the portions for both Mr. Whitney and Ms. Whitney,were $202,793 in 2005 and $486,530 in 2006.

 

(Collectively, thetransactions described herein shall be referred to as the “GulfstreamTransactions”).

 

*CostaRica*

 

As of December 31,2007, we had investments in several Costa Rican and Panamanian entities.  In addition, two former executives, ourChairman and Chief Executive Officer, Mr. Whitney, and our formerCo-President and Chief Operating Officer, Mr. Simon, have individualownership interests in some of these entities. The entities in which both the Company and one or more former executivesalso has an ownership interest include: Rancho Monterey, S.A., Monterey delEste, S.A., Monterey del Llano, S.A. and Monterey Group, S.A.  Mr. Whitney indirectly ownsapproximately 11.4% of Rancho Monterey, S.A., 8.0% of Monterey del Este, S.A.,50.0% of Monterey del Llano, S.A., and 22.0% of Monterey Group, S.A.  Mr. Simon indirectly owns approximately1.4% of Rancho Monterey, S.A.  Theseentities are managed by Monterey Management, S.A., a company which is 100%owned by Ms. Maria Jimenez, who is paid as an independent contractor bythe Company.

 

Monterey Management,S.A., receives management fees from these and other entities.  The amounts earned for management fees forthe years ended December 31, 2007 and 2006 were $500,000 and $800,000,respectively.  In addition to managementfees, commissions on the sale of land in Rancho Monterey, S.A. and Monterey delEste, S.A. were paid to Monterey Management, S.A. and others includingunrelated real estate agents and brokers for the year ended December 31,2006.

 

In January 2008,some of our investments in properties located in Costa Rica, including RanchoMonterey S.A., Monterey del Este, S.A. and Beautiful Hill S.A (our conferencecenter) were sold to an unrelated party for a sales price of $12.2 million, ofwhich the Company received $2.5 million for its interests in theseentities.  In addition, working capitaladvances to these entities and to Monterey Management, S.A. totaling $600,000were repaid.  In connection with thesale, consulting fees totaling $802,000 were paid as follows:  Mr. Whitney ($401,000), Mr. Simon($140,400), Mr. Densley, the former Vice President of Real Estate,($160,600) and Ms. Jimenez, an independent contractor, ($100,000) in January of2008.  Monterey Management S.A. made thefollowing payments from its proceeds from the sale: $210,000 to Mr. Whitneyand $95,000 to each Mr. Simon and Mr. Densley.

 

Mr. Whitney andIngrid Whitney, Mr. Ronald Simon and his wife, former employees,associates and independent contractors and others own shares of Costa RicaConsulting, LLC (“CRC”).  CRC owned a 10%share of Rancho Monterey, S.A. as of December 31, 2007.  These shares were sold in 2008.

 

All of the transactionslisted under the heading “Costa Rica” described herein, shall be collectivelyreferred to as the “Costa Rican Transactions.”

 

**RelatedParty Transactions Policy**

 

The Board of Directorsadopted a Related Party Transaction Policy for the review of related persontransactions on March 23, 2007 which is available on our Web site athttp://www.wincorporate.com/corpgov.htm. Under these policies and procedures, the Audit Committee will reviewrelated person transactions in which we are or will be a participant todetermine if they are in the best interests of our shareholders and theCompany.  Financial transactions,arrangements, relationships or any series of similar transactions, arrangementsor relationships in which a related person had or will have a material interestand that exceed 

 

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$120,000 are subject tothe Committee’s review.  Any member ofthe Audit Committee who is a related person with respect to a transaction underreview may not participate in the deliberation or vote requesting approval orratification of the transaction. Transactions that are subject to the policy include any transaction,arrangement or relationship (including indebtedness or guarantees ofindebtedness) in which the Company is a participant with a related person. Therelated person may have a direct or indirect material interest in thetransaction.

 

Related persons aredirectors, director nominees, executive officers, holders of 5% or more of ourvoting stock, and their immediate family members.  “Immediate family member” is defined as anychild, stepchild, parent, stepparent, spouse, sibling, mother-in-law,father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law,and any person (other than a tenant or employee) sharing the household of anyexecutive officer, director, nominee for director, or holder of more than 5% ofany class of the Company’s voting securities. The related party transactions policy requires all Named ExecutiveOfficers, other executives, directors, and affiliated holders of more than 5%of any class of Company stock, to complete and sign a related persontransaction disclosure questionnaire on a quarterly basis.  This questionnaire must disclose any relatedperson transactions that have occurred the previous quarter or that are plannedto occur during the upcoming year.  An “indirect”interest of a related person in a transaction includes a related person servingas an officer or employee of, or being a significant investor or equity holderin, an entity that is a party to a transaction with the Company.

 

Exemptions from thispolicy include: (i) payment of compensation by the Company to its officersor directors for service to the Company in their stated capacity; (ii) transactionsavailable to all employees or all shareholders of the Company on the sameterms; and (iii) transactions, which when aggregated for any relatedperson, involve equal to or less than $120,000 in a fiscal year.

 

Transaction detailsrequired for disclosure include: (i)  name of the related person and thebasis on which the person is a related person; (ii)  the related person’sinterest in the transaction with the Company, including the related person’sposition(s) or relationship(s) with, or ownership in, a firm,corporation, or other entity that is a party to, or has an interest in, thetransaction; (iii)  the approximate dollar value of the amount involved inthe transaction; (iv)  in the case of indebtedness, disclosure of theamount involved in the transaction shall include the largest aggregate amountof principal outstanding during the period for which disclosure is provided,the current amount outstanding, and the amount of interest paid or payable; and(v)  any other information that is material to investors.

 

The Audit Committee willanalyze the following factors, in addition to any other factors the Committeedeems appropriate, in determining whether to approve a related persontransaction: (i) fairness of the terms for the Company; (ii) materialityof the transaction; (iii) role of the related person in the transaction; (iv) structureof the transaction; and (v) interests of all related parties in thetransaction.

 

The Audit Committee willonly approve a related person transaction if the Audit Committee determinesthat the terms of the related person transaction are beneficial and fair to theCompany.  Approval of a related partytransaction may be conditioned upon the Company and the related person takingany or all of the following additional actions, or any other actions that theAudit Committee deems appropriate, as set forth in more detail in the Company’sRelated Party Transactions Policy.

 

It is the Company’spolicy that the Committee shall approve any related party transaction beforethe commencement of the transaction. However, if the transaction is not identified before commencement, itmust still be presented to the Committee for its review and ratification.  The Audit Committee reviewed and approved theRW Leases.  A committee of independentdirectors of the Board of Directors is reviewing the Gulfstream Transactions,Costa Rican Transactions, Whitney Leadership acquisition and the Equity Corp.acquisition regarding compliance with the applicable governance and related partytransaction requirements.

 

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**ITEM14.  PRINCIPAL ACCOUNTING FEES ANDSERVICES**

 

Ehrhardt Keefe Steiner &Hottman, P.C., Denver, Colorado (“EKS&H”), conducted the audit of ourConsolidated Financial Statements for the years ended December 31, 2007and 2006.  It is our understanding thatthis firm is obligated to maintain audit independence as prescribed by theaccounting profession and certain requirements of the SEC.  As a result, our Audit Committee specificallyapproves, in advance, non-audit services provided by EKS&H, and itconsiders the effect, if any, of such services on audit independence.  All services provided by EKS&H in 2007 werepre-approved in accordance with these procedures and the Audit Committeeconcluded that the services provided by EKS&H for activities unrelated tothe audit in 2007 are compatible with EKS&H maintaining its independence.

 

The following tablepresents fees for professional audit services rendered by EKS&H, ourindependent auditor, for the audit of our Consolidated Financial Statements forthe years ended December 31, 2007 and 2006, and fees billed for otherservices rendered by EKS&H (in thousands).

 
| ** **              | ** ** | **Years ended December 31,** | ** ** |
|-------------------------|------------|---------------------------------------------|------------|
| ** **              | ** ** | **2007**                                    | ** ** | **2006** | ** ** |
| Audit fees              |       | $                                           | 783        |   | $ | 400 |   |
|                    |       |                                        |       |   |   |
| Audit-related  fees (1) |       | 26                                          |       | 25 |   |
|                    |       |                                        |       |   |   |
| Tax fees (3)            |       | 139                                         |       | 115 |   |
|                    |       |                                        |       |   |   |
| All other fees  (2)     |       | 57                                          |       | 570 |   |
|                    |       |                                        |       |   |   |
| Total fees              |       | $                                           | 1,005      |   | $ | 1,110 |   |

 

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(1)          Primarilyincludes the fees for the audit of our 401(k) plan.

(2)          In2006, these fees relate primarily to the Form S-1 registration statementsfor the Company and EduTrades, Inc. filed, and withdrawn, respectively,with the SEC.

(3)          Primarilyrelates to tax compliance, tax advice and tax planning.

 

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**ITEM15.  EXHIBITS AND FINANCIAL STATEMENTSCHEDULES**

 
| Exhibit No. | ** ** | **Title**                                                                 | ** ** | **Method of filing**                                                                                                                                                                                           |
|------------------|------------|---------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.01             |       | Articles of  Incorporation of the Registrant, as amended                  |       | Incorporated by  reference to Exhibit 3.1 in the Registrant’s Registration Statement on  Form 10 SB/12G filed with the SEC on March 6, 2001.                                                         |
|             |       |                                                                      |       |                                                                                                                                                                                                                     |
| 3.02             |       | Bylaws of the  Registrant                                                 |       | Incorporated by  reference to Exhibit 3.2 in the Registrant’s Registration Statement on  Form 10 SB/12G filed with the SEC on March 6, 2001.                                                         |
|             |       |                                                                      |       |                                                                                                                                                                                                                     |
| 10.01            |       | Securities Purchase  Agreement - Private Placement                        |       | Incorporated by  reference to Exhibits 10.01, 10.02, 10.03 and 10.04 of the Registrant’s  Registration Statement on Form S-1 filed with the SEC on  January 11, 2006.                                     |
|             |       |                                                                      |       |                                                                                                                                                                                                                     |
| 10.02            |       | Stockholders Agreement  - Private Placement                               |       | Incorporated by  reference to Exhibits 10.01, 10.02, 10.03 and 10.04 of the Registrant’s  Registration Statement on Form S-1 filed with the SEC on  January 11, 2006.                                     |
|             |       |                                                                      |       |                                                                                                                                                                                                                     |
| 10.03            |       | Registration Rights  Agreement - Private Placement                        |       | Incorporated by  reference to Exhibits 10.01, 10.02, 10.03 and 10.04 of the Registrant’s  Registration Statement on Form S-1 filed with the SEC on January 11,  2006.                                     |
|             |       |                                                                      |       |                                                                                                                                                                                                                     |
| 10.04            |       | Warrant Agreement -  Private Placement                                    |       | Incorporated by  reference to Exhibits 10.01, 10.02, 10.03 and 10.04 of the Registrant’s  Registration Statement on Form S-1 filed with the SEC on  January 11, 2006.                                     |
|             |       |                                                                      |       |                                                                                                                                                                                                                     |
| 10.05            |       | 1998 Stock Option Plan                                                    |       | Incorporated by  reference to Exhibit 99.3 in the Registrant’s Registration Statement on  Form 10 SB/12G filed with the SEC on March 6, 2001.                                                        |
|             |       |                                                                      |       |                                                                                                                                                                                                                     |
| 10.06            |       | Employment Agreement  with Mr. Whitney                               |       | Incorporated by  reference to Exhibits 10.07 through 10.11 in Amendment No. 1 to the  Registrant’s Registration Statement on Form S-1, File  No. 333-103156 filed with the SEC on July 9, 2003. |
|             |       |                                                                      |       |                                                                                                                                                                                                                     |
| 10.07            |       | Employment Agreement  with Mr. Simon                                 |       | Incorporated by  reference to Exhibits 10.07 through 10.11 in Amendment No. 1 to the  Registrant’s Registration Statement on Form S-1, File  No. 333-103156 filed with the SEC on July 9, 2003. |
|             |       |                                                                      |       |                                                                                                                                                                                                                     |
| 10.10            |       | Employment Agreement  with Mr. Kane                                  |       | Incorporated by  reference to Exhibits 10.07 through 10.11 in Amendment No. 1 to the  Registrant’s Registration Statement on Form S-1, File  No. 333-103156 July 9, 2003.                       |
| 10.11            |       | Terms of Employment for  Ms. Donoho                                  |       | Incorporated by  reference to Exhibit 10.11 in the Form 8-K filed with the SEC on December  22, 2008.                                                                                                          |
|             |       |                                                                      |       |                                                                                                                                                                                                                     |
| 10.12            |       | Employment Agreement  with Mr. Novas                                 |       | Incorporated by  reference to Exhibit 10.12 in the Form 8-K filed with the SEC on  January 25, 2006.                                                                                                      |
|             |       |                                                                      |       |                                                                                                                                                                                                                     |
| 10.13            |       | Operating Agreement  dated July 18, 2006 for Rich Dad Education, LLC |       | Filed herewith.  (Portions of Exhibit 10.13 have been omitted pursuant to a request for  confidential treatment with the SEC.)                                                                                      |

 

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| 10.14  |   | Licensing Agreement  dated July 18, 2006 between Rich Dad Global, LLC and Rich Dad Education,  LLC                                  |   | Filed herewith.  (Portions of Exhibit 10.14 have been omitted pursuant to a request for  confidential treatment with the SEC.)                                              |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                     |   |                                                                                                                                                                             |
| 10.15  |   | Licensing Agreement  dated July 18, 2006 between Whitney Information Networks, Inc. and  Rich Dad Education, LLC               |   | Filed herewith.  (Portions of Exhibit 10.15 have been omitted pursuant to a request for  confidential treatment with the SEC.)                                              |
|   |   |                                                                                                                                     |   |                                                                                                                                                                             |
| 10.16  |   | Administrative Services  Agreement dated July 18, 2006 between Rich Dad Education, LLC and  Whitney Information Networks, Inc       |   | Filed herewith.  (Portions of Exhibit 10.16 have been omitted pursuant to a request for  confidential treatment with the SEC.)                                              |
|   |   |                                                                                                                                     |   |                                                                                                                                                                             |
| 10.17  |   | Amendment dated May 2,  2007 to the License Agreement between Whitney Information Network, Inc.  and Rich Dad Education, LLC   |   | Filed herewith.                                                                                                                                                                  |
|   |   |                                                                                                                                     |   |                                                                                                                                                                             |
| 10.18  |   | Agreement dated  January 7, 2008 among Whitney Information Network Inc., Whitney  Education Group, Inc. and Russell A. Whitney |   | Incorporated by  reference to Exhibit 10.1 in the Form 8-K dated January 7,  2008.                                                                                |
|   |   |                                                                                                                                     |   |                                                                                                                                                                             |
| 10.19  |   | Referral Service  Agreement dated June 30, 2003 between Whitney Education Group, Inc.  and Gulfstream Development Group, LLC   |   | Incorporated by  reference in Exhibit 10.14 in the Company’s Form 10-K/A for the  year ended December 31, 2006, filed with the SEC on January 15, 2009. |
|   |   |                                                                                                                                     |   |                                                                                                                                                                             |
| 14.01  |   | Code of Conduct                                                                                                                          |   | Filed herewith.                                                                                                                                                                  |
|   |   |                                                                                                                                     |   |                                                                                                                                                                             |
| 21.01  |   | List of Subsidiaries                                                                                                                     |   | Filed herewith.                                                                                                                                                                  |
|   |   |                                                                                                                                     |   |                                                                                                                                                                             |
| 31.01  |   | Section 302  Certification by the Chief Executive Officer                                                                           |   | Filed herewith.                                                                                                                                                                  |
|   |   |                                                                                                                                     |   |                                                                                                                                                                             |
| 31.02  |   | Section 302  Certification by the Chief Financial Officer                                                                           |   | Filed herewith.                                                                                                                                                                  |
|   |   |                                                                                                                                     |   |                                                                                                                                                                             |
| 32.01  |   | Section 906  Certification of the Chief Executive Officer                                                                           |   | Filed herewith.                                                                                                                                                                  |
|   |   |                                                                                                                                     |   |                                                                                                                                                                             |
| 32.02  |   | Section 906 Certification  of the Chief Financial Officer                                                                           |   | Filed herewith.                                                                                                                                                                  |

 

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**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the Registrant has duly caused this Annual Report on Form 10-K forthe fiscal year ended December 31, 2007 to be signed on its behalf by theundersigned, thereunto duly authorized.

 
|                          | Whitney Information  Network, Inc. |
|-------------------------------|-----------------------------------------|
|                          |                                    |   |
|                          | By:                                     | /s/  Charles M. Peck |
|                          |                                    | Charles  M. Peck |
| Dated: January 15,  2009 | * *                                | *Chief Executive Officer and Director* |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on our behalf of the Registrant and in the capacities and on the dateindicated.

 
| Signature                | ** ** | **Title**                             | ** ** | **Date**              |
|--------------------------|------------|---------------------------------------|------------|-----------------------|
| ** **               | ** ** | ** **                            | ** ** | ** **            |
| /s/  CHARLES M. PECK     |       | Chief Executive Officer  and Director |       | January 15, 2009 |
| Charles  M. Peck         |       |                                  |       |                  |
|                     |       |                                  |       |                  |
| /s/  ANNE M. DONOHO      |       | Chief Financial Officer               |       | January 15, 2009 |
| Anne  M. Donoho          |       |                                  |       |                  |
|                     |       |                                  |       |                  |
| /s/  STEVEN C. BARRE     |       | Director                              |       | January 15, 2009 |
| Steven  C. Barre         |       |                                  |       |                  |
|                     |       |                                  |       |                  |
| /s/  FREDERICK A. CARDIN |       | Director                              |       | January 15, 2009 |
| Frederick  A. Cardin     |       |                                  |       |                  |
|                     |       |                                  |       |                  |
| /s/MURRAY  A. INDICK     |       | Director                              |       | January 15, 2009 |
| Murray  A. Indick        |       |                                  |       |                  |
|                     |       |                                  |       |                  |
| /s/  WALLACE L. TIMMENY  |       | Director                              |       | January 15, 2009 |
| Wallace  L. Timmeny      |       |                                  |       |                  |
|                     |       |                                  |       |                  |
| /s/  RUSSELL A. WHITNEY  |       | Director                              |       | January 15, 2009 |
| Russell  A. Whitney      |       |                                  |       |                  |

 

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