**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**Form 10-K/A**

 

**Annual Report Pursuant to Section 13 or 15(d) of the**

**Securities Exchange Act of 1934**

 

**For the Fiscal Year Ended December 31, 2003**

 

**Whitney Information Network, Inc.**

(Exactname of registrant as specified in its charter)

 

| **Colorado**                                   |   | **0-27403**              |   | **84-1475486**                    |
|------------------------------------------------|--------|--------------------------|--------|-----------------------------------|
| (State  or other jurisdiction ofIncorporation) |   | (Commission  FileNumber) |   | (IRS  EmployerIdentification No.) |

 

**1612 E. Cape Coral Parkway, Cape Coral, Florida 33904**

(Addressof principal executive offices) (Zip Code)

 

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

 

Securitiesregistered under Section 12 (b) of the Exchange Act:  **NONE**

 

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

 

**COMMON STOCK**

 

**No par value per share**

(Titleof Class)

 

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

 

Indicate by a 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 the Registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form10-K.  ý

 

Indicate by a check markwhether the Registrant is an accelerated filer. Yes  o No  ý

 

The aggregate market valueof the voting and nonvoting common equity held by nonaffiliates of theRegistrant, computed by reference to the closing sale price of such commonequity as quoted on the Over the Counter Electronic Bulletin Board of $5.05 pershare as of February 27, 2004 was $9,407,871.

 

The Registrant had 8,555,199common shares of common stock outstanding as of February 29, 2004.

 

The Registrant’s revenuesfor the fiscal year ended December 31, 2003, were $94,958,170.

 

Documents incorporated byreference: None

 

 

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**PART I**

 

**Forward Looking Statements**

 

Certaininformation included in this report contains forward-looking statements madepursuant to the Private Securities Litigation Reform Act of 1995 (“Reform Act”).Such statements are based on current expectations and involve a number of knownand unknown risks and uncertainties that could cause the actual results andperformance of the Company to differ materially from any expected futureresults or performance, expressed or implied, by the forward-lookingstatements. In connection with the safe harbor provisions of the reform act,the Company has identified important factors that could cause actual results todiffer materially from such expectations, including operating uncertainty,acquisition uncertainty, uncertainties relating to economic and politicalconditions and uncertainties regarding the impact of regulations, changes ingovernment policy and competition.

 

**ITEM 1.    BUSINESS**

 

***Current Operations***

 

Since 1992, we have providedpost-secondary educational and training courses for students throughout theUnited States. In recent years we have expanded our operations to includecourse offerings to students in Canada and the United Kingdom. Our coursesprovide instruction in:

 

•                  real estate investing;

 

•                  business strategies;

 

•                  stock market investment techniques;

 

•                  entering international business markets;

 

•                  cash management;

 

•                  asset protection; and

 

•                  other financially-oriented subjects.

 

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

 

Initially, we focusedprimarily on basic and advanced real estate training programs which we offeredthroughout the United States. Our U.S.-based real estate training programsrepresented approximately 53% of our revenue in 2003, where in 2002 itrepresented 80% of our revenue. Since 2001 we have gradually expanded ourcourse offerings and geographical markets. We currently offer approximately 175educational courses and training programs per month covering more than25 financially-oriented subjects which we provide either for free or on afee basis to over 30,000 attendees per month. For the year ended December 31,2003, approximately 86% of our revenue was generated from domestic sales and14% was generated from sales made in Canada and the United Kingdom. For theyear ended December 31, 2003, approximately 60% of our revenue wasgenerated by students enrolled in a previous program of ours. Our tuitionranges from approximately $1,600 to $32,000 per course of study. Our trainingis offered in the U.S. and internationally:

 

•                  in meeting facilities and conference centers;

 

•                  at regional training centers located inhotels or other temporarily rented facilities selected by us; and

 

•                  at our 7,000 square foot internationaltraining facility and conference center in Costa Rica.

 

Our students are initiallyrecruited by attending a free informational training session related to aspecific educational subject which is hosted by one of our trainers and is heldat a local hotel or other rented auditorium facility. The subject, date andlocation of the training session is advertised in local newspapers, on our Website, in television advertisements and through direct mailings andtelemarketing. We hold these sessions in major metropolitan areas throughoutthe United States, Canada and the United

 

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Kingdom. Following the freeinformational training session, the student may purchase reference materials onthe subject discussed or may elect to receive further fee-based training in themany financial subjects we offer either in the student’s hometown or inregional training centers which we rent temporarily in hotels. We engage over85 trainers, instructors and mentors in connection with our various educationalcourse offerings.

 

Following the firstfee-based training session, students interested in learning more on the coursetopics may also subscribe to our periodic publications, purchase books orsoftware programs or attend advanced training courses. In addition to our over25 resource publications, we offer three-day advanced training programsthroughout the United States, in Canada and the United Kingdom. We also providepost-training programs conducted by our over 30 mentors, who travel tostudents’ hometowns for “hands on” business training.

 

Some of oursales are generated by one of our subsidiaries that provides telemarketingservices.  Our telemarketing business isresponsible for approximately 12% of total revenues. We telemarket our productsand services to four types of people: Those who registered to attend one of ourfree preview trainings, but did not attend; those who attended one of our trainingevents, who purchased another of our trainings, and who have completed thetrainings within the last six months; those who attended one of our freepreview trainings and who chose not to purchase any trainings or products; andthose people who contact us through the Internet and express an interest inbeing contacted. Our telemarketing division sells the same products and trainings as our live events, andalso sells personal coaching, which is not offered at our live trainings.

 

Currently, approximately 60%of our revenue is derived from our various real estate training courses, whichinclude leveraged residential and commercial real estate acquisition, realestate financing techniques, the use of purchase/lease options, propertymanagement and real estate foreclosure techniques. The balance of our revenueis divided between courses offering other business strategies, such as stockmarket strategies, options trading, asset protection, acquisition of commercialreal estate properties, creative financing techniques, international financeand topical business subjects along with the sale of reference materials.

 

In June 2002 we acquired theTeach Me To Trade division of Maverick Trading LLC for $688,000 in cash ,750,000 in debt, and 189,655 shares valued at $550,000 of our common stock.Teach Me To Trade offers courses similar to ours, but focuses on stock marketinvestment strategies. We subsequently integrated the Teach Me To Trade coursesinto our own training sessions.

 

In July 2003 we acquiredEquity Corp. Holdings, Inc. and Whitney Leadership Group, Inc. which previouslywere owned by two of our executive officers. Whitney Leadership holds all ofthe copyright and intellectual property rights associated with our educationalmaterials and licenses these rights to us for payments which have averaged$239,000 annually over the last three years. We entered into the acquisitionagreement in order to eliminate these payments and to gain control ofintellectual property rights that form the core of our business. Equity Corp.has developed a program that allows homeowners to make mortgage payments everytwo weeks rather than monthly thereby more quickly reducing principal andaccordingly reducing interest payments. Equity Corp. also manages theprocessing of the payments through the customer’s account to the mortgageholder. We use this program as a part of our basic real estate training coursesand believed it was important to acquire the program to insure the continuityof its use.

 

In May 2003 we agreed toprovide management services for Success Development, Inc., a Florida-basedcompany engaged in the post-secondary real estate training business. Under ouragreement, we acquired SDI’s database of over 200,000 students, agreed toadminister SDI’s Web site and assist it in marketing its training courses,which operated under the Cash Flow Generator brand.  Under this agreement the Company received 30% of profits.  In November 2003, we exercised our option topurchase the assets of SDI for 180,000 shares of our common stock, valued at$900,000. We subsequently integrated the Cash Flow Generator brand into our ownsystems, and its operations are included in the Whitney Information Network,Inc. accounts.

 

In October 2003 we acquiredall of the outstanding stock of SpeakTec, Inc. for $1,550,000. SpeakTec, Inc.is the holding company for Quantum Vision, Inc., which is the operatingcompany. Of this amount, $550,000 was paid in cash and $1,000,000 was paidthrough the issuance of 200,000 shares of restricted common stock.  Fifty-thousand shares of the common stockwill be retained by the Company for a period of six months.  SpeakTec is engaged in the post-secondaryfinancial training business similar to

 

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Teach Me To Trade, andoperates its courses under the brand name of Star Trader. We subsequentlyintegrated the Star Trader brand into our own systems and its operations areincluded in the Whitney Information Network, Inc. accounts.

 

We support our educationaltraining by providing our students with a series of outlines, magazines, books,cassette tapes, CDs, Web-based interactive discussions and learning tools andsoftware programs. Currently, we offer over 25 educational publications andsoftware packages, which are distributed to students registered in oureducational programs and sold directly to the public.

 

**OurStrategy**

 

We believe we have theopportunity to significantly expand our leadership position in the financialeducation industry. In order to do so, we have implemented a strategy thatincludes:

 

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

 

•                  *Expanding our marketsoutside the United States.*   Consistentwith our earlier expansions to Canada and the United Kingdom, we intend to addnew markets in order to attract students we do not currently reach. Initially,we expect to focus our expansion efforts on English speaking Europeancountries, beginning with Ireland and Scotland. However, we expect to offercourses in non-English speaking countries in the near future, beginning withSpain.

 

•                  *Marketing our referencematerials and online courses.*   Weintend to emphasize the direct marketing of educational products and referencematerials which we currently use primarily to support our training programs.These products will be marketed on a stand alone basis through direct mailcampaigns and promotions on our Web sites. We also intend to develop selectedcourses electronically, primarily online, as well as through traditionalstudent-attended programs and classes. Our electronic courses will be used tosupplement our existing courses and will be marketed using televisioninfomercials developed and produced by us. Responses generated from our directmail and infomercial campaigns will also be used to market our existingtraining programs and courses to those who responded.

 

•                  *Diversifying our mediaadvertising.*   Weintend to increase our print and television advertising and test new forms ofmarketing, including direct mail campaigns, e-mail campaigns and attending realestate and financial product shows, seminars and conventions. We also intend todevelop and produce infomercials to specifically market our reference materialsand our electronic courses.

 

•                  *Developing or acquiringaccredited or licensed proprietary schools.*   We are licensed in Texas as a proprietary school andintend to develop this portion of our financial education business. We may seekto expand our proprietary school operations by developing new schools thatoffer post-secondary education technical courses or by acquiring existingschools from third parties. We have no understandings or agreements to developor acquire such schools at the present time.

 

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**EducationalTraining**

 

Following a freeinformational training session, we offer our students a variety of educationalcourses, which we also refer to as “programs,” as well as educationalmaterials. These programs provide the opportunity to train either in thestudent’s home town or at local or regional camps. Our trainers take studentsstep-by-step through a curriculum that stresses a broad range of financialeducational training, money management and asset protection. Our financialeducational training is taught to students in the United States, Canada and theUnited Kingdom through traditional course study and hands-on training, andincludes the following subjects. We do not have any specific educationalrequirements for our trainers, but we do require that they have experience withrespect to the subjects they teach and that they have completed trainingprograms which we provide that prepares them to teach their particularsubjects.

 

*BasicTraining*

 

Following the freeeducational training session, our students may elect to learn more about thesubject by attending a basic course in the student’s home town.

 

*RealEstate*.    OurBuilding Wealth Workshop training is a local training program offering acurriculum that focuses on the general business of real estate and teaches thefundamentals of negotiating real estate purchases with sellers, rehabilitatingdistressed properties, leasing rental units to tenants and using a database togenerate multiple sources of cash flow. Students are taught the mechanics ofcompleting a real estate transaction in their community, from writing acontract to closing the transaction, with emphasis upon creative financing strategies.

 

Our Cash Flow Generatortraining is also a local training program offering a curriculum in real estatebut with a different emphasis. It concentrates on the “buy, fix up and sellconcept.” It emphasizes turning real estate quickly rather than holdinglong-term.

 

Each of these brands appealsto different students depending upon business acumen and risk tolerances.

 

*Business*.    Our three-daybusiness local training workshops currently are in development and are beingdesigned to teach students how to organize and build a business, how to brokeror buy discount notes and mortgages, how to fund a retirement plan at maximumlevels, how to purchase property at discount prices through auctions or onlinetrading and how to arrange E-commerce accounts for clients and customers.

 

*Financial*.    Our Teach Me ToTrade Training Academy is a local training program offering a curriculum thatfocuses on stock market trading strategies and uses proprietary software andspecific teaching techniques designed by us. Students are taught to understandthe stock markets, investment strategies, risks and how to maximize returns inbull and bear markets.

 

Our Star Trader training issimilar to the Teach Me To Trade training, but with different emphasis. StarTrader emphasizes stock trading and the use of options and option trading inits program. Similar to our two real estate training brands, Star Traderappeals to students who have a higher risk tolerance than the Teach Me To Tradestudents.

 

*AdvancedReal Estate Training*

 

Upon completion of a localbasic training program, students may seek more advanced training at ourspecialized regional training centers, which are generally three days in lengthand are held in locations 

 

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around the country. Many ofthese programs offer local tours so that students can observe negotiatingtechniques and view properties in the area. Students are led through realestate acquisition and financing transactions from beginning to end and areprovided with a number of real estate acquisition strategies.

 

*IntensifiedReal Estate Training*.    OurIntensified Real Estate Training course is offered at a training center in CapeCoral, Florida. This course expands upon the students’ knowledge of real estategained from our basic course. During Intensified Real Estate Training, studentslearn how to locate and analyze various property types and how to effectivelyanalyze property income and expense. Students telephone actual sellers and thentour properties offered for sale throughout the Cape Coral and Fort Myers,Florida areas. Students then conduct real estate investment negotiations andmay complete transactions under the supervision of their instructor. Guestspeakers including investors, property managers, developers, grant officers,loan officers, realtors and mortgage brokers explain how students can locatefinancing for a variety of transactions, from multi-unit apartment complexes tounimproved land.

 

*WholesaleBuying*.    OurWholesale Buying training course instructs students on the fundamentals ofidentifying, locating, negotiating, financing and disposing of wholesaleproperties. Students are also taught how to develop an investor database andhow to manage out-of-state properties. While enrolled in this program, studentsdevelop a five-year investment plan with the help of our instructors. Thisprogram is focused upon taking students from the level of novice investor to aproficiency in managing a real estate investment portfolio.

 

*Foreclosure*.    Our ForeclosureTraining course teaches the intricacies of the real estate foreclosure process,how and why foreclosures occur, the role of secured lenders in foreclosureactions and discusses laws that affect lenders and borrowers. Students visit alocal county courthouse to search foreclosure records and review title and taxinformation. Students visit with owners of properties that are in foreclosureand learn how to negotiate transactions for properties in foreclosure. Ourinstructors also teach students how to read foreclosure notices and how torefinance their acquisitions to generate cash at the closing. Students alsolearn how to inspect, estimate the value of and rehabilitate houses.

 

*PurchaseOptions*.    OurPurchase Option training course is designed to teach students how to control anequitable interest in property without actually owning the property and how tocreate lease options on properties. Students learn how to structure leaseoptions and purchase options and how to generate cash from purchase real estatetransactions. Included with the course is a field trip and detailed informationon how to select appropriate properties for option or purchase. Other sessionsinclude negotiating with prospective sellers and prospecting for tenants,buyers and lessees.

 

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

 

*Investingin Mobile Homes*.    OurManufactured/Mobile Homes & RV Parks training course teaches students howto buy, sell and rent mobile homes and parks, an often overlooked segment ofthe real estate market. While mobile homes cost far less than frame constructedhomes, they can yield a significant rate of return on investment. Othersubjects include developing and operating a mobile home park, expanding rental“pads” and lots to hold more units, obtaining standard and unconventionalfinancings, estimating fix-up, improvement and moving costs, obtaining sellerfinancing terms and identifying attractive properties at foreclosures andrepossessions.

 

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*CommercialReal Estate Investing*.    OurCommercial Real Estate Investing training course highlights the fundamentals ofanalyzing, buying, managing and disposing of commercial properties. Studentsalso learn how to establish relationships with lenders and government financingagencies. This course, like many of our courses, teaches students how torehabilitate properties and how to locate and pre-qualify tenants. Our trainersalso teach students about various leasing arrangements and describe variouslegal forms used in commercial property management. Students finish theirtraining with a four-hour analysis tour of commercial properties.

 

*Keys toCreative Real Estate Financing*.    Our Keys to Creative Real Estate Financingcourse teaches students how to create and refinance mortgages, how to exchangeproperties without tax consequences and how to structure financings in light ofprior credit problems. Discussions also include determining home equity,engaging in real estate negotiations and the use of hard-money lenders.

 

*BusinessSuccess Training*

 

Our Business Successprograms offer a series of training courses associated with starting abusiness, growing a business and protecting assets.

 

*AssetProtection and Tax Relief*.    Our Asset Protection and Tax Relief training coursedescribes various legal entities used to hold property such as partnerships,corporations, and land and international trusts and the use of these entitiesto protect assets. Students also learn how to minimize income tax and estatetax liabilities and to develop their own personal investment plans.

 

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

 

*FinancialTraining Programs*

 

Our Financial Trainingprograms are designed to help students learn about stock market andinternational equity investing.

 

*MasterTrader*.    OurMaster Trader Advanced Training course is a three-day program offeringintensified training designed to provide traders and investors with theknowledge needed to prosper in various market environments. This program offersthe students a selection of long and short-term strategies and uses state ofthe art proprietary software. Course work includes technical analysis, fundamentalanalysis and our Master Training techniques.

 

*Trading P*.*I.T*.    OurTrading P.I.T. (pros-in-training) course describes the trading approaches oftop money managers. The course teaches students how to create an income streamusing more conservative trading techniques and other strategies designed tolimit risk while increasing the probability of success. Strategies coveredinclude a number of trading approaches such as bidirectional trading, hedgeddirectional trading, nondirectional trading, floor-trading strategies andcapital preservation. Our 5-Point STAR Trader Formula allows users to quicklyscan the market, generate forecasts and select strategies.

 

*SingleStock Futures*.    OurSingle Stock Futures course addresses changes in rules regarding single stockfutures. We discuss new tools associated with spread trading and leveragedtrading. Students are taught the legal framework of single stock futures,set-ups and strategies and where single stock futures fit into theirdiversified portfolios.

 

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

 

*InternationalFinance and Investment Training Course*.    We have recently developed a new advancedtraining program in international finance and investment which is offered inour Costa Rica Conference Center. This program offers a curriculum thatincludes wealth building and investment opportunities overseas. The trainingalso addresses the benefits of establishing a business internationally,investing in foreign markets, raising venture and working capitalinternationally and asset protection.

 

*MentoringPrograms*

 

We offeradvanced training programs conducted by our over 30 mentors, who travel to thestudents’ home towns for “hands-on” business training.

 

*Real Estate*.    OurReal Estate mentoring program applies the curriculum of the basic real estatecamps to the student’s city of choice. Under this program, one of our mentorstravels to the student’s city for four days to guide the student through aninvestment transaction. Students review the real estate acquisition techniquesinvolved and learn the real estate characteristics of the local market.Students can put to practice the skills they have gained while working directlywith an experienced mentor.

 

*Financial*.    For mentoredfinancial training, our students travel to a brokerage firm and spend three andone-half days coached by an experienced stock market trader.

 

*AdditionalProducts*

 

We market directly tocustomers a wide range of educational and reference products that supplementour training programs, such as our Building Wealth Real Estate Home Study Course;Real Estate Success System Software; Business Success System Software; DiscountNotes and Mortgages Home Study Course; self-help courses and manuals thatprovide students with information about their credit along with first-timehomebuyers’ manuals. We are planning to develop on-line courses covering anumber of our educational training subjects and expect to market these coursesin the first half of 2004.

 

**Sales andMarketing**

 

We create interest in anddemand for our educational programs, products and services through a mix oftelevision advertising, print advertising, direct mail, attendance at tradeshows and Internet marketing. We employ a sales force of over 150 individualstrained to handle the needs of new students, to promote new products andservices to existing and former students and to respond to customer inquiriesvia phone, e-mail or the Internet.

 

Our marketing programsinclude:

 

•                  Television advertising, which is our primarymeans for promoting our educational courses. We generally concentrate ourtelevision advertising in the cities where our courses are scheduled to beheld. Television advertising is often used in coordination with direct mailmarketing in order to maximize sales efforts and create greater namerecognition within the target population. In the future we intend to developtelevision infomercials to sell our new electronic course offerings.

 

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

 

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

 

•                  Internet marketing, which is primarilyfocused on our Web site at http://www.russwhitney.com. The site containsinformation about our products, programs and services, many of which may bepurchased online.

 

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

 

**Competition**

 

The financial educationtraining business is highly-fragmented and intensely competitive. In a broadsense, we compete with national and international post-secondary educationcompanies, such as Apollo Group, Devry Educational, Sylvan and New Horizon,that offer technical and industrial training and career training. We do not,however, compete with these or other companies that offer undergraduate oradvanced degrees or continuing education programs. More specifically, wecompete with a number of smaller companies, such as Wyse Trade and RobbinsResearch International, that offer training on specific business subjectsincluding real estate and stock market investing. Generally, competitivefactors within the proprietary educational market include the range and depthof course offerings, the quality of teachers and trainers, the quality of referencematerials provided in connection with course studies and the cost of theeducational process. We believe that the range and depth of our courseofferings and our brand name offer competitive advantages over many of ourdirect competitors. We train our own teachers and trainers and we prepare mostof our own course materials which we believe offer us competitive advantagesover companies that do not train their own teachers or develop their owneducational materials. As a result of constantly attending the trainingsessions of our competitors, we believe that the quality of our teachers,trainers and reference materials are consistent or superior to those of ourcompetitors. Our charges for our educational courses are also consistent withthose of our competitors. Many of our competitors have financial and marketingresources and name recognition superior to ours.

 

**IntellectualProperty**

 

We regard our educationalmaterials and products, trademarks, servicemarks and trade symbols asproprietary and we rely primarily on statutory and common law protections, suchas copyrights and trademarks, to protect our interests in these materials.While some of our products and trade names are commonly used terms and do notafford us significant copyright or trademark protection, we also use employeeand third-party non- competition and non-disclosure agreements and othercontractual methods of protecting proprietary rights to safeguard ourintellectual property.

 

**Employees**

 

At December 31, 2003, we hadapproximately 360 employees, plus over 85 independent contractors who act astrainers, instructors and mentors. Our employees are not represented by a laborunion, and we believe our relations with our employees are satisfactory.

 

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**GovernmentRegulation**

 

We rely on advertising toattract new students and most states regulate post-secondary educationadvertising practices Since our inception we are aware of four occasions inwhich states have investigated our advertising practices. These states wereFlorida, Michigan, Pennsylvania and Tennessee.

 

In 1996, Florida terminatedits investigation into our advertising practices without charges or penalties.In 1998, we agreed to a Michigan Assurance of Discontinuance that required usto be licensed to sell business opportunities. We paid an investigation fee of$250, did not admit wrongdoing and have been conducting business in Michigansince 1998 without incident. In 1998, we agreed to a Pennsylvania Assurance ofVoluntary Compliance pursuant to which we agreed to comply with all applicablerequirements of the Consumer Protection Law. We did not admit wrongdoing andhave been conducting business in Pennsylvania since 1998 without incident. Wepaid Pennsylvania $4,000 to cover investigative costs. In 1997, we agreed to aTennessee Agreed Final Order pursuant to which we agreed not to violate theTennessee Consumer Protection Act in connection with our advertisements. We didnot admit wrongdoing and have been conducting business in Tennessee since 1997without incident. We paid Tennessee $9,500, of which $7,500 was to coverinvestigative costs.

 

**RiskFactors**

 

Investors should considerthe following risks prior to investing in our securities.

 

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

 

Our growth strategy isdependent on our ability to sell existing training programs, products andservices to new students, to open new markets and to develop and introduce neweducational programs, products and services. If we are unable to expand ourmarkets and products, our growth rate and revenue will be reduced. Marketconditions and the level of customer interest may be different for our currentproducts than for new products, and there can be no assurance that we will beable to compete favorably with, and obtain market acceptance for, any such newprograms, products or services.

 

**Volatility in the SecuritiesMarkets May Reduce Interest in Our Stock Market Courses.**

 

The level of public interestin investing, particularly in the securities and option markets as well aselectronic trading, significantly influences the demand for our stock marketprograms and related financial education products and services. The securitiesmarkets have experienced weakness and substantial volatility over the last fewyears. A further decline in securities prices or other negative developments inthe securities markets could cause a reduced demand for these programs,products and services.

 

**Failure to Comply with State LawsRegulating the Marketing and Sale of Proprietary Educational Courses Could HarmOur Reputation and the Demand for Our Course Offerings.**

 

Many states regulate themarketing and sale of proprietary educational courses, including the content ofadvertisements to attract students. Failure to comply with these regulationscould result in legal action instituted by the states, including cease anddesist and injunction actions. In the event we are subject to such legalaction, our reputation would be harmed and the demand for our course offeringscould be significantly reduced.

 

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**If Our Planned Expansion IntoForeign Markets is Unsuccessful, Our Profits Will be Reduced.**

 

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

 

**ContinuedSignificant Compensation Payments to Our Chief Executive Officer Could ImpairOur Working Capital Thereby Reducing Our Operations**

 

In 2003 we paid Russell A.Whitney, our Chief Executive Officer, a salary and bonus of $400,000 and$275,000, respectively. In May 2003, we entered into a three year employmentagreement with Mr. Whitney which provides for a salary of $400,000 per year,together with bonuses to be granted by the independent compensation committeeof our Board of Directors, and customary employee benefits, including healthinsurance. Bonuses granted by the Board of Directors to Mr. Whitney areexpected to be between 50% and 150% of his salary, depending on our level ofprofitability. Nevertheless, substantial payments in the future to Mr. Whitneycould impair our working capital, thereby reducing our operations.

 

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**The CurrentMarket Price of Our Common Stock Significantly Exceeds Our Book Value Per Shareand Increases the Risk That Our Market Value Per Share May Decline in theFuture.**

 

The current market price pershare of our common stock greatly exceeds our book value per share, which was adeficit of $(.49) at December 31, 2003. The lower book value per shareincreases the risk that our market value per share may decline in the future.

 

**Our ChiefExecutive Officer Controls a Majority of Our Outstanding Capital Stock, WhichMeans That He Has the Ability to Approve Any Matter Requiring ShareholderApproval.**

 

Russell A. Whitney, OurChief Executive Officer and Chairman, controls approximately 77% of ouroutstanding capital stock. As such, Mr. Whitney can approve any matterrequiring the vote of our stockholders, including the election of directors.Mr. Whitney could, without other stockholders, vote to approve a transactionthat is not necessarily in the best interests of other stockholders or reject atransaction that may be in the best interests of other stockholders. Forexample, Mr. Whitney’s stock ownership may prevent a third party from acquiringa controlling position in our common stock. In many instances, a third partydesiring to purchase a controlling position is willing to pay a premium to themarket price. Mr. Whitney’s stock ownership would likely prevent such an eventfrom occurring.

 

**Our Boardof Directors, Without Stockholder Approval, May Issue Preferred Stock WhichCould Reduce the Voting Power of Our Other Stockholders**

 

Our Board of Directors,without stockholder approval, may issue up to 10,000,000 shares of preferredstock. The Board of Directors can fix the rights, preferences and privileges ofthe shares of each series and any qualifications, limitations or restrictions,which could adversely affect the voting power or other rights of the holders ofcommon stock. Further, issuance of preferred stock could have the effect ofmaking it more difficult for a third-party to acquire, or of discouraging athird-party from attempting to acquire, a majority of our outstanding votingstock.

 

**The Loss ofAny of Our Key Personnel, Especially Mr. Whitney, Would Disrupt Our Operationsand Hurt Our Profitability.**

 

Our future success dependsto a significant extent on the continued services of our senior management,especially, Russell A. Whitney, our Chairman of the Board of Directors and ChiefExecutive Officer. We do not maintain key-man life insurance on the life of Mr.Whitney. The loss of the services of Mr. Whitney would likely have asignificant detrimental effect on our business as he is our founder and isinvolved in every aspect of our business.

 

**OurStockholders May Suffer Dilution As a Result of Our Outstanding Common StockOptions.**

 

As of December 31, 2003,there were 1,422,250 common stock options outstanding at exercise pricesranging from $1.70 to 4.10 per share. The issuance of option shares belowmarket price can cause dilution in the value of our common stock as compared tothe then market price of the common stock paid by purchasers in the offering.

 

**ITEM2.    PROPERTIES**

 

Our executive offices arelocated in a 30,000 square foot office building we own at 1612 E. Cape CoralParkway, Cape Coral, Florida 33904. We also own a 7,000 square foot conferenceand training center in Costa Rica, which we designed and built in 2002.

 

12

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We lease 2,200 square feetof training facilities at 1611 E. Cape Coral Parkway, Cape Coral, Florida 33904from Russell A. Whitney, our Chairman and Chief Executive Officer, under amonth-to-month lease, at $1,943 per month. The terms of the lease are no lessfavorable than those which we could obtain from an independent third party.

 

We lease 6,840 square feetof office space at 12244 South Business Park Drive, Suite 230, in Draper, Utah.The lease expires in October 2006 and is payable at the rate of $6,128 permonth.

 

Our Canadian subsidiaryleases 1,200 square feet of office space at 3780-14th Avenue, Unit20, Ontario, Canada. The lease expires in May 2005 and is payable at ratesincreasing from $1,081 to $1,654 per month over the term of the lease.

 

We locate what we refer toas regional training centers in hotels in a number of cities across our marketareas. We rent, generally for three to five days, meeting rooms in these hotelsfor use in training our students.

 

**ITEM3.    LEGAL PROCEEDINGS**

 

None

 

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

 

None

 

**PART II**

 

**ITEM5.    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERMATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES**

 

Our common stock has tradedon the Electronic Bulletin Board operated by the National Association ofSecurities Dealers, Inc. under the trading symbol “RUSS” since August 1998. Thehigh and low closing prices of our common stock for the last two years, bycalendar quarter, are set forth below. These quotations reflect inter-dealerprices, without retail mark-up, markdown or commissions and may not representactual transactions.

 
|                         |   | **High  Closing Price** |   | **Low  Closing Price** |   |
|------------------------------|--------|-------------------------|--------|------------------------|--------|
| Year Ended December 31, 2003 |   |                    |   |                   |   |
| Fourth Quarter               |   | $                       | 5.2    |                   | $      | 4.10 |   |
| Third Quarter                |   | $                       | 5.2    |                   | $      | 4.00 |   |
| Second Quarter               |   | $                       | 5.3    |                   | $      | 3.55 |   |
| First Quarter                |   | $                       | 4.5    |                   | $      | 3.55 |   |
|                         |   |                    |   |                   |   |
|                         |   | **High  Closing Price** |   | **Low  Closing Price** |   |
| Year Ended December 31, 2002 |   |                    |   |                   |   |
| Fourth Quarter               |   | $                       | 4.20   |                   | $      | 2.20 |   |
| Third Quarter                |   | $                       | 3.35   |                   | $      | 2.20 |   |
| Second Quarter               |   | $                       | 3.25   |                   | $      | 1.45 |   |
| First Quarter                |   | $                       | 3.60   |                   | $      | 1.15 |   |

 

13

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As of February 29, 2004, wehad approximately 350 record and beneficial stockholders, and the closing priceof our common stock on that date was $5.05 per share.

 

**ITEM 6.    SELECTEDFINANCIAL DATA**

 

The following table setsforth our consolidated selected financial data as of and for the five yearperiod ended December 31, 2003. The data for the five years has been derivedfrom our consolidated financial statements, which have been audited byEhrhardt, Keefe, Steiner and Hottman, PC for 2000, 2001, 2002 and 2003 andLarry Legel CPA, for 1999, independent certified public auditors.  The following selected consolidatedfinancial data should be read in conjunction with the consolidated financialstatements and the notes thereto.

 
|                                |   | **Year Ended  December 31,** |       |
|-------------------------------------|--------|------------------------------|------------|
|                                |   | **2003**                     |       | **2002** |   | **2001** |   | **2000** |   | **1999** |   |
|                                |   |                         |       |   |   |   |   |   |   |   |   |
| Operating revenue                   |   | $                            | 94,958,170 |   | $ | 62,145,237 |   | $ | 42,157,740 |   | $ | 32,859,857 |   | $ | 26,775,589 |   |
| Net income (loss)                   |   | $                            | (1,557,659 | ) | $ | 6,229,740 |   | $ | 2,534,247 |   | $ | (8,703,127 | ) | $ | (1,962,266 | ) |
| Net income (loss) per share         |   | $                            | (.19       | ) | $ | .78 |   | $ | .33 |   | $ | (1.16 | ) | $ | (.26 | ) |
| Total assets                        |   | $                            | 54,033,756 |   | $ | 26,167,287 |   | $ | 16,626,475 |   | $ | 13,654,597 |   | $ | 6,284,403 |   |
| Long-term obligations               |   | $                            | 9,421,331  |   | $ | 1,606,410 |   | $ | 575,000 |   | $ | 1,200,000 |   | $ | — |   |
| Stockholders’ (deficit) equity |   | $                            | (4,157,117 | ) | $ | (3,102,555 | ) | $ | (10,382,725 | ) | $ | (12,936,972 | ) | $ | 4,233,845 |   |
| Cash flow from operations           |   | $                            | 7,938,416  |   | $ | 9,731,185 |   | $ | 5,276,500 |   | $ | 3,545,361 |   | $ | 1,250,950 |   |

 

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

 

**CriticalAccounting Policies**

 

We are engaged primarily inthe business of providing financial education through training courses, whichwe also refer to as “programs” as well as educational materials. We record therevenue from training programs as deferred revenue when the proceeds arereceived in full and until the training program takes place. The revenue isrecognized (earned) when the student attends the training program or at theexpiration of our obligation to provide training, whichever comes first.Students pay for the courses in advance, the fees are generally non-refundable,and the students are allowed one year to complete their program.  A student of a advanced training course mayrequest and receive a refund before the start of the second day oftraining.  A student may also receive arefund within three days of their purchase by exercising a right of recision.  In such cases, the corresponding amount ofdeferred revenue is relieved with no impact on the consolidated statement ofoperations.

 

Speaker fee commissionpayments earned for generating the revenue are deferred until such time as therevenue is earned. Advertising costs, training room rentals, and direct sellingexpenses are expensed as incurred. Advertising paid in advance is recorded asprepaid until such time as the advertisement is published.

 

Historically, the amount ofadvertising and direct selling expenses that we incur is directly related tothe amount of revenue we earn in the form of course revenue.  The revenue from the training courses can bedeferred as much as one year after the advertising and selling expenses toacquire that revenue are spent. From a financial reporting standpoint, thisbusiness model, coupled with this revenue recognition and expense deferralpolicy will create increased losses, or reduced net income, in periods in whichsales are growing at a fast rate.

 

14

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From a balance sheetperspective, the liability, which we designate as “deferred revenue,” willincrease when the amount of program sales exceed the amount of programsattended and the amount of program expirations. A significant increase in thenumber of students completing our training courses over the amount of newprogram sales will cause our deferred revenue to decrease and thereforeincrease our taxable income. Stated differently, deferred revenue will increasein times of business growth and decrease in times of business contraction.Furthermore, since we receive cash in advance of providing the training, wemust retain sufficient cash to pay both income taxes on future profits andfinal training costs.

 

**Results OfOperations**

 

**Year EndedDecember 31, 2003 Compared to December 31, 2002**

 

Revenue

 

Total revenue for the yearended December 31, 2003 was $95,000,000, an increase of $33,000,000 or 53%compared to the same period in 2002. The increase in sales was caused byseveral factors. First, there was significant growth all segments of thebusiness.  Co-marketing efforts withbusiness joint ventures had an increase in sales over 2002 of $7,000,000. TheCash Flow Generator brand was new in 2003 and showed strong results for thefirst year ($9,500,000) The Star Trader brand began training programs inNovember 2003 and did not show significant revenue in 2003. The Teach Me ToTrade brand showed a large increase in sales over 2002 (18,000,000 gross,15,200,000 earned), UK based sales increased over 2002 (8,100,000 gross,5,700,000 earned) as well as the Canadian based sales ($2,500,000). Much ofthis increase in sales was treated as deferred revenue at December 31, 2003($14,000,000) as the course deliveries were unable to grow as fast as sales.  In addition to growth in the trainingsegments, our telemarketing sales increased by 41% from $8,600,000 in 2002 to$12,100,000 in 2003. The financial education training programs wereapproximately 25% of gross revenues for 2003. They were not significant inprior periods. The UK and Canadian based sales for 2003 were approximately 15%of gross revenues, and they were not significant in prior periods.

 

Secondly, our customers’contract periods were shortened to one year. Consequently, our responsibilityto deliver additional training expired in one year. Prior to July 2002, thecontract period lasted eighteen months. This resulted in an increase in revenuerealized from contract expirations compared to 2002 ($5,500,000). And lastly,we were able to significantly increase the number of students completing ourtraining courses over the prior year ($ 6,300,000).

 

The proceedingdiscussion provides a breakdown of what operations and products have accountedfor our increase in revenues for the year ended December 31, 2003 over thecomparable period for 2002.  Theoverriding theme is that the increase in revenues has been caused by theincrease in our sales volume, courses held, and course attendees.  The company has not had a price increase inits courses for over two years. Consequently, all of the increase in revenuesis attributable to volume increases. The following table shows the number ofcourses held and the number of attendees in 2002 and 2003:

 
|                         |   | **# of  Events** |   | **# of  Students** |   |
|------------------------------|--------|------------------|--------|--------------------|--------|
| Free Preview Trainings- 2002 |   | 258              |   | 133,844            |   |
| Free Preview Trainings- 2003 |   | 476              |   | 201,555            |   |
| Fulfillment Trainings- 2002  |   | 318              |   | 11,597             |   |
| Fulfillment Trainings- 2003  |   | 310              |   | 14,974             |   |
| Advanced Trainings- 2002     |   | 850              |   | 5,314              |   |
| Advanced Trainings- 2003     |   | 1,346            |   | 9,960              |   |

 

Based upon the business planof the company, we are planning for the same trends to continue forward. Thefinancial education training segment will continue to grow domestically withthe introduction of the second brand (Star Trader) into normal operations, andwith the expansion of the number of events with the Teach Me To Trade brand.And the segment will grow internationally, as both of the brands are expandinginto Canada in 2004, and Teach Me To Trade is expanding into the UK in 2004.The real estate training segments will continue to grow in 2004 domestically,as the Cash Flow Generator brand expands its course offerings, and as the jointventures with other affiliates expand their course offerings in 2004. The realestate course offerings are also being expanded in the UK, and we intend toincrease the real estate course offerings in other countries in Europe.

 

There are uncertaintieswhich, if they were to occur, could hinder our expansion plans. First, with anational election in the U.S. occurring in 2004, the available media time inthe summer and fall of 2004 could diminish our ability to advertise and attractnew students. Second, with the planned international

 

15

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expansion, those resultscould be diminished if political or world events occurred which affected ourability to travel and train internationally.

 

Direct Course Expenses

 

Direct course expenses,which consist of instructors’ fees, facilities costs and field representatives’salaries and travel expenses, increased proportionately in comparison with theincrease in sales for the year ended December 31, 2003 to $46,800,000, anincrease of $18,400,000 or 65% compared to $28,400,000 in the same period of2002. Direct course expenses as a percent of revenue were 49% for 2003 versus46% for 2002. Direct course expenses are primarily driven by the numberof courses that are held.  The overallincrease in courses held during 2003 of 2,132 compared to 1,426 in 2002 drivesthese expenses.  The only expenses thatare deferred and matched to the amount of revenue that is deferred is thespeaker commissions that are paid for the sales that are generated.  So included in the consolidated statement ofoperations for direct course expenses is the expense related to the commissionsthat are paid on deferred revenue that is earned.  The increase in the amount of deferred revenue earned isillustrated in the increase in the number of advanced course attendees from5,314 in 2002 to 9,960 in 2003.  Speakerfee commissions are approximately 12% of the revenue amount generated. We do not expect this ratio to significantlychange, although some areas will see increased expense and some will seereductions. Economies of scale are anticipated in the direct course expenses asalternative delivery methods are being developed and implemented. Also, webelieve that significant reductions in the cost of instructor fees and facilitycosts can be obtained in 2004 and beyond. These improvements will however, beoffset by an increase in the cost of delivering a higher ratio of courses tostudents. The amount of course revenue generated from contract expirations is asignificant issue in our eyes and we intend to increase the percentage ofrevenue realized from course attendance over the revenue realized from contractexpirations.

 

General and administrativeexpenses increased to $22,300,000, an increase of $8,400,000 or 60% compared to$13,900,000 for the same period in 2002. This increase was due primarily toincreased personnel hired to handle the increase in our volume of business.Payroll and payroll benefits account for approximately 80% of general andadministrative expenses. This makes general and administrative expensescontrollable as the volume of the company grows or contracts. General andadministrative expenses as a per cent of sales have increased by 2-4% over thepast three years, and we believe that this trend will continue, although at amoderate rate. Significant increases in the following administrative areas areplanned:

 

•                  recruiting more professional managers withprior experience operating high growth companies of this size

•                  improving and upgrading the content of ourcourse offerings, and our student services department

•                  improving and upgrading the company’stechnology platforms

•                  increasing corporate training for ourtrainers, managers, and employees.

•                  adding more administrative offices as thecompany expands into new countries.

 

Advertising,Selling and General and Administrative Expenses

 

Advertising and salesexpense, of which advertising represents approximately 22% of the expenses forthe year ended December 31, 2003, were $27,500,000, an increase of $13,000,000or 98% compared to $13,600,000 in the same period in 2002.  The addition of more brands, the continuedexpansion of the brands internationally, and the expansion in the number ofselling teams for each brand were reflected in this increase.  Advertising and sales expense isprimarily driven by the number of free previews held as this is where theinitial investment is made.  Under thecurrent methods of accounting used, all of the advertising expenses and mostsales expenses are attributable to the free preview trainings and are notdeferred until the related deferred revenue is earned.  The growth of the advertising and salesexpense over the comparable period of 2002 is primarily due to the increase infree preview trainings held from 258 to 476 in 2002 and 2003,respectively.  We expect that this trend will continue andthat advertising and selling expenses will continue to increase as the companyincreases its course offerings.

 

Net Income 

 

Net loss for the year endedDecember 31, 2003 was $1,600,000 as compared with net income of $6,200,000 forthe year ended December 31, 2002, a decrease of 100% or $.19 per share as comparedto $.78 per share for the prior period. The decrease is directly attributableto increased expenses in all categories in 2003 over the prior period, and tothe fact that new sales of advanced training courses continue to outpace therate at which courses are offered and delivered to students. This is reflectedin the

 

16

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fact that deferred revenueincreased by $14,000,000 in 2003, as compared to an increase of only $600,000in 2002. As discussed in the revenue and expense recognition policies, thistrend will continue. So long as the company sales show high growth rates itmust also expand its course offerings to keep pace with that growth. This is acritical performance indicator for us. So long as course delivery can keep pacewith sales, then the company can report net income more closely related to cashprovided from operations. In the event that sales of courses continue tooutpace the delivery of those courses, then the company may continue to show losses,or lower net profits.

 

**Liquidityand Capital Resources at December 31, 2003**

 

At December 31, 2003, we hadcash of $15,000,000 as compared with $12,100,000 at December 31, 2002. Thisincrease of $2,900,000 was attributable primarily to cash provided byoperations.

 

Cash provided by operatingactivities was $7,900,000 versus $9,700,000 for the period ended December 31,2002. This decrease in the amount of cash generated as a percentage of saleswas caused by an increase in working capital needed to fund the expansion ofbrands ($750,000), and the amount of pre-paid advertising needed for eachbrand ($1,100,000).  We expect tocontinue using cash from operating activities to expand operations, as cashprovided from operations should continue to average 8-12% of revenue.

 

Our cash used in investingactivities was $2,900,000 and $4,900,000 for the years ended December 31, 2003,and 2002, respectively. The decrease in cash used in investing for the yearended December 31, 2003 was due to a decrease in our overall investingactivities and due to a change in the way we have been structuringacquisitions. Our acquisitions of the Cash Flow Generator brand and the StarTrader brand in 2003 were accomplished with a large percentage of theacquisition price being paid in company stock. $550,000 was paid in cashfor the acquisition of the Star Trader brand of which $450,000 was allocated toidentifiable intangible assets. In 2003, we also paid $2,000,000 for a 50%equity interest is SCB Building, LLC which is constructing an office buildingin Orlando, FL. In 2002, weacquired for cash the Teach Me To Trade brand, purchased an airplane, and madeprogress payments on our facility in Costa Rica. We plan to continue futureacquisitions in the same manner as we did in 2003. Therefore, we feel that thecompany has adequate cash available for investing activities.

 

At December 31, 2003 we hadunused amounts under letters of credit to secure merchant accounts and certainstate bonding requirements aggregating $1,500,000.  These letters of credit expire in January 2005 and October 2005and carry an interest rate of 2.98% and 3.68%, respectively.

 

From time to time, weevaluate potential acquisitions of business products or technologies thatcomplement our business. To the extent that resources are insufficient to fundfuture activities, we may need to raise additional funds. However, there can beno assurance that additional funding, if needed, will be available. If adequatefunds are not 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.

 

The following reflects ourcommitments for capital expenditures, debt and other commitments.

 
|       |   | **Capital  Expenditures** |   | **Debt**   |   | **Operating  Lease  Commitments** |   | **Total**  |   |
|------------|--------|---------------------------|--------|------------|--------|-----------------------------------|--------|------------|--------|
|       |   |                      |   |       |   |                              |   |       |   |
| 2004       |   | —                    |   | 1,531,397  |   | 140,093                           |   | 1,671,490  |   |
| 2005       |   | —                    |   | 1,061,842  |   | 102,896                           |   | 1,164,738  |   |
| 2006       |   | —                    |   | 1,109,217  |   | 73,359                            |   | 1,182,576  |   |
| 2007       |   | —                    |   | 825,821    |   | —                            |   | 825,821    |   |
| 2008       |   | —                    |   | 5,009,880  |   | —                            |   | 5,009,880  |   |
| Thereafter |   | —                    |   | 1,414,571  |   | —                            |   | 1,414,571  |   |
|       |   |                      |   |       |   |                              |   |       |   |
| Total      |   | —                    |   | 10,952,728 |   | 316,348                           |   | 11,269,076 |   |

 

17

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We develop and introducemost of our courses internally and therefore our expansion into new overseasmarkets requires few strategic relationships or contracts. Normally we visitthe market and contact realtors, attorneys and media people, to determine localprocedures and customs. We then develop the manuals and course materialsinternally. We lease temporary office space in each market until we can findpermanent facilities and hire and train personnel to staff our offices. Ourcontractual commitments are extremely minimal but our investment in personnelis significant and our largest expense. We estimate that the cost of developinga new foreign market, including air travel, personnel and incidental costs,will amount to $300,000 to $400,000. This amount includes development ofmanuals and training materials, development of marketing materials, analysis ofmarkets and laws for the target country to be funded over an approximately 10month period.

 

Although we have not madeany commitments for software or technology investments in 2004, we anticipatethat we will invest significant resources in that area. We cannot say at thistime how much liquidity will be needed, as there are a variety of financingalternatives.

 

We believe our cashresources are more than sufficient to fund our operation and growth plans forthe next 12 months.

 

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

 

*Revenue*

 

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

 

*DirectCourse Expenses*

 

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

 

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

 

*Advertising,Selling and General and Administrative Expenses*

 

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

 

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

 

*Net Income*

 

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

 

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

 

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

 

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

 

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

** **

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

 

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

 

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

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

 

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

** **

**ITEM7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKETRISK**

 

Market risk generallyrepresents the risk that losses may occur in the values of financialinstruments as a result of movements in interest rates, foreign currencyexchange rates and commodity prices. We do not have commodity price marketrisk.  We are exposed to market risk fromchanges in foreign currency exchange rates and interest rates which couldimpact our results of operations and financial condition.  We manage our exposure to these market risksthrough our regular operating and financing activities.

 

ForeignCurrency Exchange Rate Risk- We may face foreign currency exchange risk becauseof the growth of our United Kingdom and Canadian subsidiaries and our plans toexpand into other European markets.  Thefluctuations in the foreign exchange rate between the U.S. and foreigncurrencies will result in fluctuations in our annual and quarterlyresults.  Management does not expectthat it will employ the use of foreign currency derivative financialinstruments that would allow the reduction in our exposure to exchange rate movements.

 

Interest Rate Risk — Fromtime to time we temporarily invest our excess cash and restricted cash ininterest-bearing securities issued by high-quality issuers. Our managementmonitors risk exposure to monies invested in securities of these financialinstitutions. Due to the sort time the investments are outstanding and theirgeneral liquidity, these instruments are classified as cash equivalents in theconsolidated balance sheet and do not represent a material interest rate riskto us. Our primary market risk exposure for changes in interest rates relatesto our long-term debt obligations. We manage our exposure to changing interestrates principally through the use of a combination of fixed and floating ratedebt. In addition, certain of our debt instruments have interest rate floorsand ceilings.

 

TheCompany evaluated the potential effect that near term changes in interest rateswould have had on the fair value of its interest rate risk sensitive financialinstruments at December 31, 2003. Assuming a 100 basis point increase in theprime interest rate at December 31, 2003 the potential increase in the fairvalue of the Company’s debt obligations would have been approximately $13,000at December 31, 2003.

 

18

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**ITEM8.    FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA**

 

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

 

**Table of Contents**

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

 

----

 

**INDEPENDENT AUDITORS’ REPORT**

 

 

Board of Directors and Stockholders

Whitney Information Network, Inc. and Subsidiaries

Cape Coral, Florida

 

We have audited the accompanying consolidated balance sheets of WhitneyInformation Network, Inc. and Subsidiaries as of December 31, 2003 and2002, and the related consolidated statements of operations, changes instockholders’ deficit and cash flows for each of the three years in the periodended December 31, 2003.  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 audits in accordance with auditing standards generallyaccepted in the United States of America. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the consolidated financial statements arefree of material misstatement.  An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles usedand significant estimates made by management, as well as evaluating the overallconsolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the financial position of WhitneyInformation Network, Inc. and Subsidiaries as of December 31, 2003 and2002, and the results of their operations and their cash flows for each of thethree years in the period ended December 31, 2003 in conformity withaccounting principles generally accepted in the United States of America.

 

 

Ehrhardt Keefe Steiner &Hottman PC

 

 

February 20, 2004

Denver, Colorado

 

----

 

**WHITNEY INFORMATION NETWORK, INC. ANDSUBSIDIARIES**

 

**Consolidated Balance Sheets**

 
|                                                                                                                            |   | **December 31,** |       |
|---------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|------------|
|                                                                                                                            |   | **2003**              |       | **2002** |   |
| **Assets**                                                                                                                      |   |                  | ** ** |   | ** ** |
| Current assets                                                                                                                  |   |                  |       |   |   |
| Cash and cash equivalents                                                                                                       |   | $                     | 15,021,485 |   | $ | 12,080,553 |   |
| Accounts receivable, net                                                                                                        |   | 1,314,562             |       | 507,919 |   |
| Accounts receivable, affiliates                                                                                                 |   | 2,482,436             |       | — |   |
| Due from affiliates                                                                                                             |   | —                |       | 4,089 |   |
| Prepaid advertising and other                                                                                                   |   | 2,329,726             |       | 696,441 |   |
| Inventory                                                                                                                       |   | 712,703               |       | 363,555 |   |
| Deferred seminar expenses                                                                                                       |   | 6,833,784             |       | 2,907,414 |   |
| Total current assets                                                                                                            |   | 28,694,696            |       | 16,559,971 |   |
|                                                                                                                            |   |                  |       |   |   |
| Non-current assets                                                                                                              |   |                  |       |   |   |
| Property and equipment, net                                                                                                     |   | 16,585,497            |       | 8,400,731 |   |
| Intangible assets, net                                                                                                          |   | 6,998,841             |       | 994,700 |   |
| Goodwill                                                                                                                        |   | 1,000,000             |       | — |   |
| Investment in foreign corporation                                                                                               |   | 734,757               |       | 184,757 |   |
| Other assets                                                                                                                    |   | 19,965                |       | 27,128 |   |
| Total non-current assets                                                                                                        |   | 25,339,060            |       | 9,607,316 |   |
|                                                                                                                            |   |                  |       |   |   |
| Total assets                                                                                                                    |   | $                     | 54,033,756 |   | $ | 26,167,287 |   |
|                                                                                                                            |   |                  |       |   |   |
| **Liabilities and Stockholders’ Deficit**                                                                                  |   |                  | ** ** |   | ** ** |
| Current liabilities                                                                                                             |   |                  |       |   |   |
| Accounts payable                                                                                                                |   | $                     | 3,218,370  |   | $ | 1,762,614 |   |
| Accrued seminar expenses                                                                                                        |   | 1,645,601             |       | 63,622 |   |
| Deferred revenue                                                                                                                |   | 38,593,130            |       | 24,549,429 |   |
| Accrued expenses                                                                                                                |   | 1,781,044             |       | 1,125,662 |   |
| Current portion of long-term debt                                                                                               |   | 168,897               |       | 43,590 |   |
| Current portion of note payable-  officer/stockholder                                                                           |   | 1,362,500             |       | 118,515 |   |
| Total current liabilities                                                                                                       |   | 46,769,542            |       | 27,663,432 |   |
|                                                                                                                            |   |                  |       |   |   |
| Long-term debt, less current portion                                                                                            |   | 6,071,331             |       | 1,606,410 |   |
| Note payable- officer/stockholder, less current  portion                                                                        |   | 3,350,000             |       | — |   |
| Total liabilities                                                                                                               |   | 56,190,873            |       | 29,269,842 |   |
|                                                                                                                            |   |                  |       |   |   |
| Commitments and contingencies                                                                                                   |   |                  |       |   |   |
|                                                                                                                            |   |                  |       |   |   |
| Minority interest                                                                                                               |   | 2,000,000             |       | — |   |
| Stockholders’ deficit                                                                                                      |   |                  |       |   |   |
| Preferred stock, no par value, 10,000,000 shares  authorized, no shares issued and outstanding                                  |   | —                |       | — |   |
| Common stock, no par value, 25,000,000 shares  authorized, issued and outstanding shares 8,547,749 (2003) and 8,096,624  (2002) |   | 2,990,755             |       | 939,832 |   |
| Paid-in capital                                                                                                                 |   | 448,600               |       | 448,600 |   |
| Foreign currency translation adjustment                                                                                         |   | (347,826              | )          | — |   |
| Accumulated deficit                                                                                                             |   | (7,248,646            | )          | (4,490,987 | ) |
| Total stockholders’ deficit                                                                                                |   | (4,157,117            | )          | (3,102,555 | ) |
|                                                                                                                            |   |                  |       |   |   |
| Total liabilities and stockholders’ deficit                                                                                |   | $                     | 54,033,756 |   | $ | 26,167,287 |   |

 

See notes to consolidated financialstatements.

 

F-2

----

 

**WHITNEY INFORMATION NETWORK, INC. ANDSUBSIDIARIES**

 

**Consolidated Statements of Operations**

 
|                                                |   | **For the  Years Ended  December 31,** |       |
|-----------------------------------------------------|--------|---------------------------------------------|------------|
|                                                |   | **2003**                                    |       | **2002** |   | **2001** |   |
|                                                |   |                                        |       |   |   |   |   |
| Sales                                               |   | $                                           | 94,958,170 |   | $ | 62,145,237 |   | $ | 42,157,740 |   |
|                                                |   |                                        |       |   |   |   |   |
| Expenses                                            |   |                                        |       |   |   |   |   |
| Direct course expenses                              |   | 46,803,705                                  |       | 28,384,333 |   | 19,741,418 |   |
| Advertising and sales expense                       |   | 27,507,604                                  |       | 13,936,860 |   | 11,563,640 |   |
| General and administrative expense                  |   | 22,355,374                                  |       | 13,863,598 |   | 8,571,319 |   |
| Total expenses                                      |   | 96,666,683                                  |       | 56,184,791 |   | 39,876,377 |   |
|                                                |   |                                        |       |   |   |   |   |
| (Loss) income from operations                       |   | (1,708,513                                  | )          | 5,960,446 |   | 2,281,363 |   |
|                                                |   |                                        |       |   |   |   |   |
| Other income (expense)                              |   |                                        |       |   |   |   |   |
| Interest and other income                           |   | 236,949                                     |       | 339,842 |   | 356,989 |   |
| Interest expense                                    |   | (86,095                                     | )          | (70,548 | ) | (104,105 | ) |
|                                                |   | 150,854                                     |       | 269,294 |   | 252,884 |   |
|                                                |   |                                        |       |   |   |   |   |
| Net (loss) income                                   |   | $                                           | (1,557,659 | ) | $ | 6,229,740 |   | $ | 2,534,247 |   |
|                                                |   |                                        |       |   |   |   |   |
| Basic weighted average common shares  outstanding   |   | 8,187,658                                   |       | 7,952,180 |   | 7,587,474 |   |
|                                                |   |                                        |       |   |   |   |   |
| Basic (loss) income per common share                |   | $                                           | (0.19      | ) | $ | 0.78 |   | $ | 0.33 |   |
|                                                |   |                                        |       |   |   |   |   |
| Diluted weighted average common shares  outstanding |   | 8,187,658                                   |       | 8,840,922 |   | 7,587,474 |   |
|                                                |   |                                        |       |   |   |   |   |
| Diluted (loss) income per common share              |   | $                                           | (0.19      | ) | $ | .70 |   | $ | 0.33 |   |

 

See notes to consolidated financialstatements.

 

F-3

----

 

**WHITNEY INFORMATION NETWORK, INC. ANDSUBSIDIARIES**

 

**Consolidated Statement of Changes inStockholders’ Deficit**

**For the Years Ended****December 31, 2003, 2002 and 2001**

 
|                                                                                                                |   |              |      |       |   | **Additional  Paid-in  Capital** |   | **Foreign  Currency  Translation  Adjustment** |    | **Comprehensive  Income (Loss)** |      | **Accumulated  Deficit** |        | **Total  Stockholders’  Deficit** |        |
|---------------------------------------------------------------------------------------------------------------------|--------|-------------------|-----------|------------|--------|----------------------------------|--------|------------------------------------------------|---------|----------------------------------|-----------|--------------------------|-------------|----------------------------------------|-------------|
|                                                                                                                |   |              |      |       |   |                             |   |                                           |    |
|                                                                                                                |   | **Common  Stock** |      |       |   |                             |   |
|                                                                                                                |   | **Shares**        |      | **Amount** |   |                             |   |                                           |    |
|                                                                                                                |   |              |      |       |   |                             |   |                                           |    |                             |      |                     |        |                                   |        |
| Balance - December 31, 2000                                                                                    |   | 7,528,022         |      | $          | 67,102 |                             | $      | 900                                            |    | $                                | —    |                     |        |                                   | $           |  (13,004,974 | ) | $ | (12,936,972 | ) |
|                                                                                                                |   |              |      |       |   |                             |   |                                           |    |                             |      |                     |        |                                   |        |
| Issuance of stock for software                                                                                      |   | 163,334           |      | 245,000    |   | —                           |   | —                                         |    |                             |      | —                   |        | 245,000                                |        |
|                                                                                                                |   |              |      |       |   |                             |   |                                           |    |                             |      |                     |        |                                   |        |
| Issuance of stock, cash and note payable to  majority stockholder for interest in Precision Software Services, Inc. |   | 170,000           |      | —     |   | —                           |   | —                                         |    |                             |      | (250,000                 | )           | (250,000                               | )           |
|                                                                                                                |   |              |      |       |   |                             |   |                                           |    |                             |      |                     |        |                                   |        |
| Issuance of stock for services                                                                                      |   | 16,667            |      | 25,000     |   | —                           |   | —                                         |    |                             |      | —                   |        | 25,000                                 |        |
|                                                                                                                |   |              |      |       |   |                             |   |                                           |    |                             |      |                     |        |                                   |        |
| Net income                                                                                                          |   | —            |      | —     |   | —                           |   | —                                         |    | 2,534,247                        |      | 2,534,247                |        | 2,534,247                              |        |
|                                                                                                                |   |              |      |       |   |                             |   |                                           |    |                             |      |                     |        |                                   |        |
| Balance - December 31, 2001                                                                                    |   | 7,878,023         |      | 337,102    |   | 900                              |   | —                                         |    | $                                | 2,534,247 |                     | (10,720,727 | )                                      | (10,382,725 | ) |
|                                                                                                                |   |              |      |       |   |                             |   |                                           |    |                             |      |                     |        |                                   |        |
| Issuance of stock for assets purchased                                                                              |   | 189,655           |      | 550,000    |   | —                           |   | —                                         |    |                             |      | —                   |        | 550,000                                |        |
|                                                                                                                |   |              |      |       |   |                             |   |                                           |    |                             |      |                     |        |                                   |        |
| Issuance of stock for stock options exercised                                                                       |   | 26,375            |      | 48,230     |   | —                           |   | —                                         |    |                             |      | —                   |        | 48,230                                 |        |
|                                                                                                                |   |              |      |       |   |                             |   |                                           |    |                             |      |                     |        |                                   |        |
| Issuance of stock for services                                                                                      |   | 2,571             |      | 4,500      |   | —                           |   | —                                         |    |                             |      | —                   |        | 4,500                                  |        |
|                                                                                                                |   |              |      |       |   |                             |   |                                           |    |                             |      |                     |        |                                   |        |
| Compensation expense related to the issuance of  stock options                                                      |   | —            |      | —     |   | 447,700                          |   | —                                         |    |                             |      | —                   |        | 447,700                                |        |
|                                                                                                                |   |              |      |       |   |                             |   |                                           |    |                             |      |                     |        |                                   |        |
| Net income                                                                                                          |   | —            |      | —     |   | —                           |   | —                                         |    | 6,229,740                        |      | 6,229,740                |        | 6,229,740                              |        |
|                                                                                                                |   |              |      |       |   |                             |   |                                           |    |                             |      |                     |        |                                   |        |
| Balance - December 31, 2002                                                                                    |   | 8,096,624         |      | 939,832    |   | 448,600                          |   | —                                         |    | $                                | 6,229,740 |                     | (4,490,987  | )                                      | (3,102,555  | ) |
|                                                                                                                |   |              |      |       |   |                             |   |                                           |    |                             |      |                     |        |                                   |        |
| Issuance of stock for the stock purchased of MRS Equity  Corp.                                                      |   | 62,500            |      | 125,000    |   | —                           |   | —                                         |    |                             |      | —                   |        | 125,000                                |        |
|                                                                                                                |   |              |      |       |   |                             |   |                                           |    |                             |      |                     |        |                                   |        |
| Issuance of stock for assets purchased of Success  Development, Inc.                                                |   | 180,000           |      | 900,000    |   | —                           |   | —                                         |    |                             |      | —                   |        | 900,000                                |        |
|                                                                                                                |   |              |      |       |   |                             |   |                                           |    |                             |      |                     |        |                                   |        |
| Issuance of stock for the stock purchased of  SpeakTec, Inc.                                                        |   | 200,000           |      | 1,000,000  |   | —                           |   | —                                         |    |                             |      | —                   |        | 1,000,000                              |        |
|                                                                                                                |   |              |      |       |   |                             |   |                                           |    |                             |      |                     |        |                                   |        |
| Issuance of stock for assets purchased                                                                              |   | 2,500             |      | 10,000     |   | —                           |   | —                                         |    |                             |      | —                   |        | 10,000                                 |        |
|                                                                                                                |   |              |      |       |   |                             |   |                                           |    |                             |      |                     |        |                                   |        |
| Issuance of stock for stock options exercised                                                                       |   | 6,125             |      | 15,923     |   | —                           |   | —                                         |    |                             |      | —                   |        | 15,923                                 |        |
|                                                                                                                |   |              |      |       |   |                             |   |                                           |    |                             |      |                     |        |                                   |        |
| Issuance of cash and note payable to majority  stockholder for interest in Whitney Leadership Group, Inc.           |   | —            |      | —     |   | —                           |   | —                                         |    |                             |      | (1,200,000               | )           | (1,200,000                             | )           |
|                                                                                                                |   |              |      |       |   |                             |   |                                           |    |                             |      |                     |        |                                   |        |
| Foreign currency translation adjustment                                                                             |   | —            |      | —     |   | —                           |   | (347,826                                       | )       | (347,826                         | )         | —                   |        | (347,826                               | )           |
|                                                                                                                |   |              |      |       |   |                             |   |                                           |    |                             |      |                     |        |                                   |        |
| Net loss                                                                                                            |   | —            |      | —     |   | —                           |   | —                                         |    | (1,557,659                       | )    | (1,557,659               | )           | (1,557,659                             | )           |
|                                                                                                                |   |              |      |       |   |                             |   |                                           |    |                             |      |                     |        |                                   |        |
| Balance – December 31, 2003                                                                               |   | $                 | 8,547,749 |       | $      | 2,990,755                        |   | $                                              | 448,600 |                             | $         | (347,826                 |        | $                                      | (1,905,485  | ) | $ | (7,248,646 | ) | $ | (4,157,117 | ) |
|                                                                                                                     |        |                   |           |            |        |                                  |        |                                                |         |                                  |           |                          |             |                                        |             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

See notes to consolidated financialstatements.

 

F-4

----

 

**WHITNEY INFORMATION NETWORK, INC. ANDSUBSIDIARIES**

 

**Consolidated Statements of Cash Flows**

 
|                                                                                     |   | **For the  Years Ended  December 31,** |       |
|------------------------------------------------------------------------------------------|--------|---------------------------------------------|------------|
|                                                                                     |   | **2003**                                    |       | **2002** |   | **2001** |   |
| Cash flows from operating activities                                                     |   |                                        |       |   |   |   |   |
| Net (loss) income                                                                        |   | $                                           | (1,557,659 | ) | $ | 6,229,740 |   | $ | 2,534,247 |   |
| Adjustments to reconcile net income (loss)  to net cash provided by operating activities |   |                                        |       |   |   |   |   |
| Allowance for doubtful accounts                                                          |   | —                                      |       | — |   | (91,885 | ) |
| Equity earnings in foreign corporation                                                   |   | —                                      |       | (102,257 | ) | — |   |
| Compensation expense relating to stock  options                                          |   | —                                      |       | 447,700 |   | — |   |
| Depreciation and amortization                                                            |   | 949,796                                     |       | 598,320 |   | 292,522 |   |
| (Gain) loss on disposal of assets                                                        |   | 180                                         |       | (3,150 | ) | 72,485 |   |
| Stock issued for services                                                                |   | —                                      |       | 4,500 |   | 25,000 |   |
| Changes in assets and liabilities                                                        |   |                                        |       |   |   |   |   |
| Accounts receivable                                                                      |   | (806,643                                    | )          | 14,596 |   | 1,362,824 |   |
| Accounts receivable, affliates                                                           |   | (2,482,436                                  | )          | — |   | — |   |
| Prepaid advertising and other                                                            |   | (1,633,285                                  | )          | 260,583 |   | (331,996 | ) |
| Income taxes receivable and prepayments                                                  |   | —                                      |       | 497,499 |   | 1,396,500 |   |
| Inventory                                                                                |   | (349,148                                    | )          | (227,011 | ) | 132,119 |   |
| Deferred seminar expenses                                                                |   | (3,926,370                                  | )          | 731,142 |   | (994,152 | ) |
| Other assets                                                                             |   | 7,163                                       |       | 5,790 |   | 42,811 |   |
| Accounts payable                                                                         |   | 1,455,756                                   |       | 610,277 |   | (790,467 | ) |
| Accrued seminar expenses                                                                 |   | 1,581,979                                   |       | (371,738 | ) | 86,019 |   |
| Deferred revenue                                                                         |   | 14,043,701                                  |       | 612,080 |   | 1,296,907 |   |
| Accrued expenses                                                                         |   | 655,382                                     |       | 423,114 |   | 243,566 |   |
|                                                                                     |   | 9,496,075                                   |       | 3,501,445 |   | 2,742,253 |   |
| Net cash provided by operating activities                                                |   | 7,938,416                                   |       | 9,731,185 |   | 5,276,500 |   |
|                                                                                     |   |                                        |       |   |   |   |   |
| Cash flows from investing activities                                                     |   |                                        |       |   |   |   |   |
| Purchase of property and equipment                                                       |   | (383,959                                    | )          | (4,611,982 | ) | (657,529 | ) |
| Purchase of intangible assets                                                            |   | (469,924                                    | )          | (450,172 | ) | — |   |
| Purchase of equity interest in building                                                  |   | (2,000,000                                  | )          | — |   | — |   |
| Loans to affiliates, net                                                                 |   | 4,089                                       |       | 155,502 |   | (89,101 | ) |
| Investment in foreign corporation and land                                               |   | 100,000                                     |       | — |   | (82,500 | ) |
| Net cash used in investing activities                                                    |   | (2,749,794                                  | )          | (4,906,652 | ) | (829,130 | ) |
|                                                                                     |   |                                        |       |   |   |   |   |
| Cash flows from financing activities                                                     |   |                                        |       |   |   |   |   |
| Proceeds from note payable, officer                                                      |   | 62,500                                      |       | 1,200,000 |   | — |   |
| Payments of principal on long-term debt                                                  |   | (619,233                                    | )          | (815,539 | ) | (750,000 | ) |
| Principal payments on note payable -  officer/stockholder                                |   | (1,059,054                                  | )          | (65,946 | ) | — |   |
| Proceeds from exercise of stock options                                                  |   | 15,923                                      |       | 48,230 |   | — |   |
| Distribution to officer/stockholder                                                      |   | (300,000                                    | )          | — |   | (125,000 | ) |
| Net cash provided by (used in) financing  activities                                     |   | (1,899,864                                  | )          | 366,745 |   | (875,000 | ) |
|                                                                                     |   |                                        |       |   |   |   |   |
| Net increase in cash and cash equivalents                                                |   | 3,288,758                                   |       | 5,191,278 |   | 3,572,370 |   |
|                                                                                     |   |                                        |       |   |   |   |   |
| Foreign currency translation                                                             |   | (347,826                                    | )          | — |   | — |   |
|                                                                                     |   |                                        |       |   |   |   |   |
| Cash and cash equivalents - beginning of  year                                           |   | 12,080,553                                  |       | 6,889,275 |   | 3,316,905 |   |
|                                                                                     |   |                                        |       |   |   |   |   |
| Cash and cash equivalents - end of year                                                  |   | $                                           | 15,021,485 |   | $ | 12,080,553 |   | $ | 6,889,275 |   |

 

See notes to consolidated financialstatements.

 

F-5

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Supplemental disclosure of cash flow information

 

Cash paid for income taxes was $0, $0 and $0 for 2003, 2002 and 2001,respectively.

 

Cash paid for interest was $86,095, $70,548 and $104,105 for 2003, 2002and 2001, respectively.

 

Supplemental disclosure of non-cash activity:

 

During 2003, the Company acquired a $650,000 equity interest in itsinvestment in foreign corporation through the issuance of debt.

 

During 2003, the Company acquired a 50% equity interest in a SCBBuilding, LLC (“LLC”) constructing an office building.  The other 50% member has a $2,000,000minority interest in the LLC, which was contributed in the form of a $4,000,000building subject to a $2,000,000 mortgage.

 

During 2003, the LLC made improvements to the building of $2,500,000through the use of proceeds of long-term debt.

 

During 2003, the Company acquired an intangible asset through theissuance of 2,500 shares of the Company’s common stock valued at $10,000.

 

During 2003, the Company acquired the common stock of WhitneyLeadership Group, Inc. from the Company’s Chairman and his wife.  The purchase price of $1,200,000 wasrecorded as a distribution as the entity was under common control.  The purchase price was paid through 300,000cash at closing and the issuance of a $900,000 promissory note.

 

During 2003, the Company acquired the common stock of MRS Equity Corp.,which resulted in $4,875,000 in identified intangible assets.  Of this amount $125,000 was paid through theissuance of the Company’s common stock and the remaining through the assumptionof $4,750,000 notes payable to the majority stockholder by the Company.

 

During 2003, the Company acquired the assets of Success DevelopmentInc. through an option to purchase by issuing 180,000 shares of common stockvalued at $900,000 resulting in identifiable intangible assets.

 

During 2003, the Company acquired the common stock of SpeakTec,Inc.  Of the purchase price amount,$1,000,000 was paid through the issuance of 200,000 shares of the Company’scommon stock.  The purchase price ofSpeakTec, Inc has been recorded as goodwill.

 

During 2002, the Company issued 189,655 shares of common stock valuedat $550,000 for intangible assets and $750,000 in debt for software inconnection with the asset purchase from Teach Me To Trade, LLC.

 

During 2001, the Company acquired software rights of $370,000 throughthe issuance of common stock of $245,000 and debt of $125,000.

 

During 2001, the Company acquired software rights owned by anofficer/shareholder through the issuance of stock at zero value and debt of$125,000.  These transactions wererecorded as distributions in the accompanying financial statements.

 

See notes to consolidated financialstatements.

 

F-6

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**WHITNEY INFORMATION NETWORK, INC. ANDSUBSIDIARIES**

 

**Notes to Consolidated Financial Statements**

 

**Note 1 - Description of Business and Summaryof Significant Accounting Policies**

 

Organization and History

 

Whitney Information Network, Inc. and Subsidiaries (the Company) isengaged primarily in the business of providing financial education and trainingservices through seminars, workshops and publications.  The Company’s educational and trainingservices are concentrated in the area of financial management and real estateinvestment.  The Company markets itsservices and products primarily through periodic publications, telemarketing,television and radio.

 

Whitney Information Network, Inc., formerly known as Win SystemsInternational, Inc., incorporated in Colorado on February 23, 1996 underthe name of Gimmel Enterprises, Inc.

 

Whitney Education Group, Inc., formerly known as Win Systems, Inc.,incorporated in Florida on November 12, 1992.  An exchange of shares was completed between the shareholders ofWin Systems, Inc. and Gimmel Enterprises, Inc. on August 18, 1998.  Subsequently, the name of GimmelEnterprises, Inc. was changed to Win Systems International, Inc. onAugust 25, 1998, and that name was changed to Whitney Information Network,Inc. on February 11, 1999.  Thename of Win Systems, Inc. was changed to Whitney Education Group, Inc. onSeptember 10, 1999.

 

Win Systems, Inc. has been operating in the educational seminarsindustry since 1992 and expanded its operation in the industry subsequent tothe aforesaid exchange of shares and name change to Whitney Education Group,Inc.

 

During 1998, Win Systems International, Inc. expanded its educationalseminars business into Canada through the opening of a wholly owned subsidiary,1311448 Ontario, Inc.  The Canadianoperations continued to expand and at the end of 1999 the operations weretransferred to Whitney Canada, Inc. through an amalgamation of two wholly ownedsubsidiaries.

 

Whitney Canada, Inc. incorporated in Canada on October 5, 1998 andis the surviving corporation of an amalgamation with 3667057 Canada, Inc.3667057 Canada, Inc. was incorporated in Ontario, Canada on August 21,1998 under the name of 1311448 Ontario, Inc. The name was changed to 3667057 Canada, Inc. on October 5, 1999 asa preliminary requirement of federalization of the corporation, which had beenan Ontario corporation, in order to qualify for the amalgamation with WhitneyCanada, Inc., which was completed January 6, 2000.  There are no significant differences oncomprehensive income and foreign exchange prior to the year endedDecember 31, 2003.

 

Whitney Internet Services, Inc. incorporated in Wyoming on June 8,1999, is located in Cape Coral, Florida and provides web programming andmaintenance services to the Company. The Company’s other operating subsidiaries use the site to offer theirproducts and services for sale and the site also includes general informationon the Company, its products and services.

 

F-7

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Wealth Intelligence Network, Inc. incorporated in Florida on May 26,1996 under the name of Real Estate Link, Inc. The name was changed to WealthIntelligence Network, Inc. on September 20, 1998.  Win Systems International, Inc. acquired theshares of Wealth Intelligence Network, Inc. on November 18, 1998.  Wealth Intelligence Network, Inc. is an operatingsubsidiary marketing financial training seminars, which represents an expansionfrom the real estate investment training seminar business.

 

Whitney Mortgage.com, Inc. incorporated in Florida onSeptember 30, 1999 has no significant operations and is intended tooperate as a full service Internet mortgage broker affiliated with a nationalInternet mortgage provider.  Brokeringmortgages represents an expansion from educational seminars into a differentindustry.

 

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

 

Whitney Consulting Services, Inc. incorporated in Wyoming onJuly 28, 1998 under the name of Financial Consulting Services, Inc. andthe name was changed to Whitney Consulting Group, Inc. on April 28, 1999when that corporation was acquired by Win Systems International, Inc. whichthen changed its name to Whitney Consulting Services, Inc. on March 21,2000.  Whitney Consulting Services, Inc.is located in Salt Lake City, Utah and is an operating subsidiary telemarketingreal estate investments and financial training seminars and an individualone-on-one mentor program.

 

Precision Software Services, Inc. was acquired during 2001.  Precision Software Services, Inc. wasincorporated August 1993 and is a Florida corporation that holds a licenseto distribute and sell certain real estate and business software sold byseveral subsidiaries of the Company. Precision Software Services, Inc. and was formerly owned 51% by theChairman of the Board and majority stockholder of the Company.

 

Whitney U.K. Limited is a United Kingdom corporation formed andincorporated in October 2001 to engage in educational and trainingseminars throughout the United Kingdom. This subsidiary had no significant operations in 2001 and accounted forless than 4% of revenues for 2002.

 

N123RF, Inc. is a Delaware corporation formed and incorporated inAugust 2002 to manage and operate the Company’s airplane.

 

F-8

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Whitney Leadership Group was acquired in July 2003 and holds allof the copyright and intellectual property rights associated with theeducational materials and licenses these rights for payments.  Whitney acquired this company to gaincontrol of intellectual property rights that form the core of thebusiness.  We subsequently integratedthe Whitney Leadership Group materials into our training sessions and theiroperations are included in Whitney Information Network, Inc. accounts.

 

MRS Equity Corp. was acquired in July 2003 and manages theprocessing of the payments of homeowners, paying every two weeks instead ofmonthly, through the customer’s account to the mortgage holder.  We subsequently integrated the MRS Equity Corp.courses into our training sessions and their operations are included in WhitneyInformation Network, Inc. accounts.

 

SpeakTec, Inc. was acquired in October 2003 for its intellectualproperty which provides for financial training courses.  We subsequently integrated the SpeakTec,Inc. courses into our training sessions and their operations are included in aWhitney Information Network, Inc. subsidiary.

 

Success Development, Inc. was acquired in November 2003 and is aFlorida based company engaged in the post secondary real estate trainingbusiness, acquired for their customer database and marketing and trainingcourses.  We subsequently integrated theSuccess Development, Inc. courses into our training sessions and theiroperations are included in Whitney Information Network, Inc. accounts.

 

Principles of Consolidation

 

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

 

Cash and Cash Equivalents

 

The Company considers all highly liquid instruments purchased with anoriginal maturity of three months or less to be cash equivalents.  The Company continually monitors itspositions with, and the credit quality of, the financial institutions itinvests with.

 

Concentrations of Credit Risk

 

Financial instruments, which potentially subject the Company toconcentration of credit risk consist principally of cash and short-term cashinvestments and accounts receivable. The Company places its temporary cash investments with what managementbelieves are high-credit, quality financial institutions.   As of the balance sheet date, andperiodically throughout the year, the Company has maintained balances invarious operating accounts in excess of federally insured limits.  The Company periodically performs creditanalysis and monitors the financial condition of its customers in order tominimize credit risk.

 

F-9

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Accounts Receivable

 

Accounts receivable consists of trade receivables from the sale ofeducational products and services for which a contract has been entered into,payments have not been received, and the related revenue has beendeferred.  An adjustment is recorded towrite off any amounts deemed to be unrealizable and uncollectable.  An adjustment is also recorded for theoffsetting deferred revenue resulting in no net effect on the Company’s incomestatement.  As such, no allowance fordoubtful accounts or deferred revenue was recorded as of December 31, 2003and 2002.

 

Inventory

 

Inventory consists primarily of books, videos and training materialsand is stated at the lower of cost or market, determined using the first-in,first-out method (FIFO).

 

Fair Value of Financial Instruments

 

The carrying amounts of financial instruments including cash and cashequivalents, short-term investments, receivables, deferred seminar expense,accounts payable, accrued expenses, deferred educational revenues, and notespayable approximated fair value as of December 31, 2003 because of therelatively short maturity of these instruments.

 

Revenue Recognition, Deferred Revenue and Deferred Expenses

 

The Company recognizes revenue for the sale of products and software,upon delivery.  Revenue from educationalseminars is recognized upon the earlier of (1) when the non-refundable depositis received for the seminars and the seminar has taken place; or (2) upon thecontractual expiration of the Company’s obligation to provide a seminar only ifthe seminar was paid for.  Deferredrevenue is recorded when the seminar proceeds are received prior to the relatedseminar taking place.  Expenses for commissionpayments made to Company speakers for revenues generated are deferred until therelated revenue is recognized.

 

The Company recognizes commission revenue related to sales made byWhitney Information Network and Subsidiaries for other parties.  Only the commission part of thesetransactions are recognized.  Thecommissions are recorded as revenue when the amount is earned.

 

Advertising Expense and Prepaid Advertising

 

The Company expenses advertising costs as incurred.  Advertising costs were approximately$21,143,430, $8,907,257, and $7,829,406 for the years ended December 31,2003, 2002 and 2001, respectively. Advertising paid for in advance is recorded as prepaid until such timeas the advertisement is published. Advertising costs recorded as prepaid as of December 31, 2003 and2002 were $1,335,098 and $480,053 respectively.

 

F-10

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Deferred Offering Costs

 

During2003, the Company was in the process of stock registration.  Expensesrelated to this offering had been accounted for as deferred offeringcosts.  If the offering is successful, such costs would have been chargedagainst the gross proceeds received.  If at any time it became probablethat the offering would not be consummated or after an unreasonablepostponement, such costs would be expensed.  As of December 31, 2003, theCompany has expensed $330,245, previously recorded as deferred offering costs,as the registration has been postponed until 2004.

 

Property and Equipment

 

Property and equipment is stated at cost.  Depreciation is provided utilizing the straight-line method overthe estimated useful lives for owned assets. The estimated useful life of the buildings is 40 years.  The furniture and fixtures’ estimated usefullife is seven years, the airplane, equipment and leasehold improvements is fiveyears, and the software is three years.

 

Intangible Assets

 

Intangible assets include customer lists, trademarks, goodwill,intellectual property, and loan costs and are recorded at cost.  Customer lists and trademarks are beingamortized over their estimated useful lives of three and fifteen years,respectively.  Loan costs are amortizedover the term of the loan.  Goodwill istested for impairment on an annual basis. At December 31, 2003, management performed impairment testing inaccordance with Statement of Financial Accounting Standard No. 142 and 144(SFAS 142 and 144) for all intangible assets and determined that impairment wasnot considered necessary.

 

Investment in Foreign Corporation

 

The Company acquired a 20% ownership interest in Rancho Monterey, S.A.,a Panama corporation, in 2001.  Thiscorporation was formed with the purpose of acquiring, developing, and sellingland on the Pacific coast of Costa Rica. The Company is an investor in phase one of this project which includesapproximately 830 acres and is projected to produce approximately $3,000,000 inrevenues.  Prior to January 2004,this venture has incurred solely capitalized development costs and had not hadany sales activity.  The Companyaccounts for its investment using the equity method of accounting and recordsits proportionate share of the corporation’s profit or loss.  The Company’s share of the corporation’sprofits for the year ended December 31, 2002 was $102,257.  In 2003, the Company acquired an additional10% equity interest in the investment for $650,000 through the issuance ofdebt.  As part of of this transaction,the Company also received a 6% interest in Monterey del Este, a PanamaCorporation organized to develop unimproved real estate in Costa Rica; and a20% interest in Monterey del Mar, a Panama Corporation organized to develop anocean front hotel on the Pacific coast of Costa Rica.  The Company’s Chief Executive Officer individually indirectlyowns 11% of Rancho Monterey, S.A. and 6% of Monterey del Este.  The Company’s Chief Financial Officerindividually indirectly owns 1% of Rancho Monterey, S.A.

 

The Company has, at times, advanced funds to this entity for workingcapital purposes to secure and protect its investment.  As of December 31, 2003, the Companyhas recorded a $1,227,293 receivable relating to this venture in accountsreceivable, affiliates.  The Company’sagreement with the management of this venture is that the Company will bereimbursed for these funds from future land sales.

 

F-11

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Investment in Building

 

The Company acquired a 50% equity interest in a SCB Building, LLC(“LLC”) constructing an office building in Orlando, Florida.  The other 50% member has a $2,000,000minority interest in the LLC, which was contributed in the form of a $4,000,000building subject to a $2,000,000 mortgage. The Company is a guarantor of the debt of the LLC.

 

Long-Lived Assets

 

The Company reviews its long-lived assets under SFAS 144 for impairmentwhenever events or changes in circumstances indicate that the carrying amountof the asset may not be recovered.  TheCompany looks primarily to the undiscounted future cash flows in its assessmentof whether or not long-lived assets have been impaired.

 

Use of Estimates

 

The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities, disclosures of contingent assets and liabilities atthe date of the financial statements and the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from those estimates.

 

Income Taxes

 

The Company recognizes deferred tax liabilities and assets based on thedifferences between the tax basis of assets and liabilities and their reportedamounts in the financial statements that will result in taxable or deductibleamounts in future years.  The Company’s temporarydifferences result primarily from the recognition of deferred expenses for taxpurposes.

 

Translation of Foreign Currency

 

The Company accounts for foreign currency translation in accordancewith Financial Accounting Standard No. 52. As such, the financial position and results of operations of theCompany’s foreign subsidiaries are measured using local currency as thefunctional currency.  Revenues andexpenses of the subsidiaries have been translated into U.S. dollars at averageexchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange asof December 31, 2003 and 2002, respectively.

 

Basic Loss Per Share

 

The Company applies the provisions of Statement of Financial AccountingStandard No. 128, “Earnings Per Share” (FAS 128).  All dilutive potential common shares in 2003 and 2001 had anantidilutive effect on diluted per share amounts and therefore were excluded indetermining net loss per share.

 

Stock Options

 

The Company has adopted the disclosure-only provisions of Statement of FinancialAccounting Standards No. 123, “Accounting for Stock-Based Compensation.”  Accordingly, no compensation cost has beenrecognized for the stock option plans. Had compensation cost for the Company’s option plan been determinedbased on the fair value at the grant date for awards consistent with theprovisions of SFAS No. 123, the Company’s net income (loss) and basic income(loss) per common share would have been changed to the pro forma amountsindicated below:

 
|                                                |   | **For the  Years Ended  December 31,** |       |
|-----------------------------------------------------|--------|---------------------------------------------|------------|
|                                                |   | **2003**                                    |       | **2002** |   | **2001** |   |
| Net income (loss) - as reported                     |   | $                                           | (1,557,659 | ) | $ | 6,229,740 |   | $ | 2,534,247 |   |
| Net income (loss) - pro forma                       |   | $                                           | (1,955,848 | ) | $ | 5,272,458 |   | $ | 2,517,922 |   |
| Basic income (loss) per common share - as  reported |   | $                                           | (0.19      | ) | $ | 0.78 |   | $ | 0.33 |   |
| Basic income (loss) per common share - pro  forma   |   | $                                           | (0.24      | ) | $ | .65 |   | $ | .32 |   |

 

The fair value of each option grant is estimated on the date of grantusing the Black-Scholes option-pricing model with the followingweighted-average assumptions used:

 
|                                           |   | **For the  Years Ended  December 31,** |    |
|------------------------------------------------|--------|---------------------------------------------|---------|
|                                           |   | **2003**                                    |    | **2002** |   | **2001** |   |
| Approximate risk free rate                     |   | 4.25                                        | %       | 3.83 | % | 5.07 | % |
| Average expected life                          |   | 10 years                                    |    | 10 years |   | 10 years |   |
| Dividend yield                                 |   | 0                                           | %       | 0 | % | 0 | % |
| Volatility                                     |   | 33.77                                       | %       | 59.97 | % | 73.57 | % |
| Estimated fair value of total options  granted |   | $                                           | 398,189 |   | $ | 957,282 |   | $ | 16,325 |   |
|                                                |        |                                             |         |  |  |  |  |  |  |  |

 

F-12

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Recently Issued Accounting Pronouncements

 

In June 2002, the FASB issued SFAS No. 146, “Accounting for CostsAssociated with Exit or Disposal Activities.” SFAS No. 146 addresses accounting and reporting for costs associatedwith exit or disposal activities and nullifies Emerging Issues Task Force IssueNo. 94-3, “Liability Recognition for Certain Employee Termination Benefits andOther Costs to Exit an Activity (Including Certain Costs Incurred in aRestructuring).”  SFAS No. 146 requiresthat a liability for a cost associated with an exit or disposal activity berecognized and measured initially at fair value when the liability isincurred.  SFAS No. 146 is effective forexit or disposal activities that are initiated after December 31, 2002,with early application encouraged.   Theadoption of this statement has not had a material effect on the Company’s financialstatements.

 

In November 2002, the FASB published interpretation No, 45“Guarantor’s Accounting and Disclosure requirements for Guarantees, IncludingIndirect Guarantees of Indebtedness of Others”.  The Interpretation expands on the accounting guidance ofStatements No. 5, 57, and 107 and incorporates without change the provisions ofFASB Interpretation No. 34, which is being superseded.  The Interpretation elaborates on theexisting disclosure requirements for most guarantees, including loan guaranteessuch as standby letters of credit. It also clarifies that at the time a companyissues a guarantee, the company must recognize an initial liability for thefair value, or market value, of the obligations it assumes under that guaranteeand must disclose that information in its interim and annual financialstatements.  The initial recognition andinitial measurement provisions apply on a prospective basis to guaranteesissued or modified after December 31, 2002, regardless of the guarantor’sfiscal year-end. The disclosure requirements in the Interpretation areeffective for financial statements of interim or annual periods ending afterDecember 15, 2002.  The Company hasadopted this statement which has resulted in the reporting of the assets andliabilities of an LLC in which the Company owns a 50% interest and areguarantors on the debt.

 

In December 2002, the FASB issued SFAS No. 148 “Accounting forStock-Based Compensation-  Transitionand Disclosure”.  This statement amendsSFAS No. 123,  “Accounting forStock-Based Compensation” to provide alternative methods of transition for anentity that voluntarily changes to the fair value method of accounting forstock-based compensation.  In addition,SFAS 148 amends the disclosure provision of SFAS 123 to require more prominentdisclosure about the effects of an entity’s accounting policy decisions withrespect to stock-based employee compensation on reported net income.  The effective date for this Statement is forfiscal years ended after December 15, 2002.  The adoption of this statement has not had a material effect onthe Company’s financial statements.

 

F-13

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In December 2003, the FASB issued Interpretation No. 46R, *Consolidation of Variable Interest Entities, aninterpretation of ARB 51* (FIN No. 46R) and replaces FIN No. 46.The primary objectives of FIN 46R are to provide guidance on the identificationof entities for which control is achieved through means other than throughvoting rights (Variable Interest Entities or “VIEs”) and to determine when andwhich business enterprise should consolidate the VIE. This new model forconsolidation applies to an entity which either (1) the equity investors(if any) do not have a controlling financial interest, (2) the equityinvestment at risk is insufficient to finance that entity’s activities withoutreceiving additional subordinated financial support from other partiesincluding equity holder or (3) voting rights of some investors are notproportional to the obligation to absorb future losses and/or receive expectedresidual returns or all activities of an entity are conducted on behalf of aninvestor that has disproportionate fewer voting rights.  The disclosure requirements of FINNo. 46R became effective for financial statements issued afterDecember 31, 2003. For all other variable interests public, non smallbusinesses filers, shall apply the provisions of this Interpretation to thatentity no later than the beginning of the first reporting period ending afterMarch 15, 2004.  The adoption of this statement impacted the Company’sfinancial statements in that an investment in a SCB Building, LLC has beenconsolidated.

 

In April 2003,  FASB issuedSFAS No. 149,  “Accounting forDerivative Instruments and Hedging Activities,” which is effective forcontracts entered into or modified after June  30, 2003 and for hedgingrelationships designated after June 30, 2003. This statement amends andclarifies financial accounting and reporting for derivative instrumentsincluding certain instruments embedded in other contracts and for hedgingactivities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” Theadoption of this standard is not expected to have a material impact on theCompany’s financial statements.

 

In May 2003, FASB issued SFAS No. 150, “Accounting for CertainFinancial Instruments with Characteristics of Both Liabilities and Equity,”which is effective for financial instruments entered into or modified after May31, 2003,  and otherwise is effective atthe beginning of the first interim period beginning after June 15,2003.  SFAS No. 150  establishes standards for how an issuerclassifies and measures certain financial instruments with characteristics ofboth liabilities and equity.  Theadoption of this standard is not expected to have a material impact on theCompany’s financial statements.

 

Reclassifications

 

Certain amounts in the 2002 consolidated financial statements have beenreclassified to conform to the 2003 presentation.

 

F-14

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**Note 2 - Mergers, Acquisitions and CapitalAccounts**

 

On August 18, 1998, Whitney Education Group, Inc. (formerly WinSystems, Inc.) was acquired by Whitney Information Network, Inc. (formerly WinSystems International, Inc. and prior to that Gimmel Enterprises, Inc.) in areverse merger whereby Whitney Education group, Inc. exchanged 100% of itsshares for 90% of Gimmel’s shares bringing the total shares of WhitneyInformation Network, Inc. (issued and outstanding) at August 18, 1998 to7,500,047.  Whitney Education Group,Inc. became a wholly owned subsidiary of Whitney Information Network, Inc.(WIN).  The financial statements fromJanuary 1, 1997 through December 31, 1999 are based upon theassumption that the companies were combined for the entire period and all stocksplits have been reflected in the statements as of the beginning of theperiod.  Also, on August 18, 1998,WIN issued 187,500 Class A stock purchase warrants and 340,000 Class B stock purchasewarrants.  Both the Class A and Class Bwarrants were exercisable at $4.00 per share.

 

The Company also instituted a stock option plan for key personnel.  Under the plan, options are to be granted atthe fair market value at the date of the grant and exercisable for a ten-yearperiod after the grant with a three-year vesting schedule.  The Company has reserved 2,000,000 sharesfor the stock option plan of which 1,422,250 option shares have been granted,net of forfeitures and cancellations, at exercise prices from $1.75 to $4.10per share.  No options have beenexercised.

 

On February 1, 1999, the Company purchased all of the assets ofWealth Intelligence Network, Inc. for 20,000 shares of stock at $2.50 pershare.  In addition, the Company issued(during the period from May to August 1999) 7,975 shares to a financialpublic relations firm in lieu of cash for services valued at $14,500.

 

In April 2000, the Company converted their 340,000 class Bwarrants issued to employees in August 1998 into stock options.  In the conversion, the Company reduced theexercise price from $4 to $2 (fair market value at date of conversion).  This transaction has since been accountedfor using variable accounting in accordance with FIN 44: Accounting for CertainTransactions Involving Stock Compensation an Interpretation of APB Opinion No.25 (FIN 44).  At December 31, 2003,47,600 of these options have been forfeited. At December 31, 2003 and 2002, $0 and $447,700 was recorded asadditional compensation expense to employees based on a market value of $4.20and $4.20 per share, respectively.  Noadjustment was made for the period ending December 31, 2001 because themarket price of the stock was less than the $2 exercise price.

 

In November 2001, the Company issued 333,334 shares of commonstock valued at $500,000 and $250,000 in notes payable for all of theoutstanding stock of Precision Software Services, Inc. which had a minimal netbook value at the time of the acquisition. Precision Software Services, Inc. was 51% owned by the Chairman andmajority stockholder of the Company who received 170,000 of the shares and$125,000 in notes payable.  The excessof the purchase price over material, identifiable net assets relating to theminority interest was allocated to software rights.  The shares issued to the officer were recorded as a distributionas the Company and Precision Software Services, Inc. are under common control.

 

F-15

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In November 2001, the Company paid $212,500 for a 20% interest ina Panama corporation named Rancho Monterrey, S.A., which was formed inApril 2001 to own, operate, improve and sell certain real estate in CostaRica.  As part of the investment inRancho Monterrey, S.A., the Company received a 12-acre parcel of land valued at$130,000, resulting in a net investment of $82,500

 

In April 2002, the Company converted its 187,500 Class A warrantsissued to outside investors and parties in August 1998 into stockoptions.  In the conversion, the Companyreduced the exercise price from $4 to $2. This transaction does not require treatment under FIN 44.

 

In August 2002, 189,655 shares valued at $550,000 of the Company’scommon stock were issued in exchange for assets of a former joint venturepartner, Teach Me To Trade, LLC.  Thepurchase price was $1,988,000, net of a $12,000 discount, and was paid for with$688,000 in cash, $550,000 in stock, and $750,000 in debt.  During the first and second quarters of2002, the Company had advanced $200,000 to Teach Me To Trade, which wascredited towards the purchase price. The purchase price was allocated $1,000,000 to software, $688,000 tocustomer lists and $300,000 to trademarks.

 

In May 2003, the Company paid $450,000 under a six-month managementagreement with Success Development, Inc. (“SDI”).  Under the agreement, the Company acquired SDI’s customer databaseand operated is Cash Flow Generator brand. Under this agreement, the Company received 30% of SDI’s profits.  During this time period, the Company alsomade advances to SDI for working capital purposes.  As of December 31, 2003, the Company has recorded a $631,210receivable from the owners of SDI as accounts receivable, affiliates.  The Company believes that this balance iscollateralized by bank account maintained by SDI.  In November 2003, the Company exercised its option topurchase Success Development, Inc. for 180,000 shares of common stock, valuedat $900,000.  This resulted in a$550,000 trademark, $250,000 customer list and $100,000 non-compete.

 

In July 2003, the Company purchased two related companies, EquityCorp. Holdings, Inc. and Whitney Leadership Group, Inc.  The purchase price of Whitney Leadership,Inc. was $1,200,000 paid to the Chairman and his wife, payable $300,000 in cashat closing and a $900,000 promissory note payable in semiannual installmentsbeginning in February 2004 bearing an interest rate of 7%.  The payments and debt issued were recordedas a distribution as the Company and Whitney Leadership Group, Inc. were undercommon control.  The acquisition ofEquity Corp. Holdings from the Company Vice President of Marketing resulted in$4,875,000 of intellectual property. The purchaseprice of $250,000, comprised of $62,500 in cash, 62,500 shares of our commonstock valued at $125,000 at closing, and $62,500 payable one year from theclosing date evidenced by a promissory note bearing interest at 7% per annum.The Company also agreed to assume and pay a promissory note issued to theCompany’s chairman by Equity Corp. on June 1, 2002 in the amount of$4,750,000 payable $1,000,000 in July 2003 and July 2004 and teninstallments of $275,000 payable in January and July beginning in2005 through 2009. The unpaid balance bears interest at 7% per annum. EquityCorp. incurred this $4,750,000 obligation when it elected to redeem all ofchairman’s stock ownership in Equity Corp., which amounted to 90% of theoutstanding stock of Equity Corp., as of June 1, 2002.

 

F-16

----

 

In October 2003, the Company acquired the stock of SpeakTec, Inc.for $1,550,000, which resulted in $1,000,000 in goodwill, $450,000 in customerlists and other intangibles and $100,000 in current assets.  SpeakTec, Inc. is the holding company forQuantum Vision, Inc., which is the operating company.  Of this amount $550,000 is payable in cash, and $1,000,000 ispayable through 200,000 shares of newly issued, restricted common stock of theCompany.  Fifty-thousand shares of thecommon stock will be retained by the Company for a period of six months.

 

Thefollowing table summarizes the 2003 final purchase price allocation of WhitneyInformation Network, Inc.

 
| Assets                                    |   |       |    |
|-------------------------------------------|--------|------------|---------|
|                                      |   |       |    |
| Other assets                              |   | $          | 100,000 |   |
| Intangible assets                         |   | 6,225,000  |    |
| Goodwill                                  |   | 1,000,000  |    |
|                                      |   |       |    |
| Total assets                              |   | 7,325,000  |    |
|                                      |   |       |    |
| Liabilities and Stockholders’ Equity |   |       |    |
|                                      |   |       |    |
| Distributions                             |   | 1,200,000  |    |
| Fair value of net assets acquired         |   | 8,525,000  |    |
| Borrowings and common stock               |   | (7,675,000 | )       |
|                                      |   |       |    |
| Cash purchase price, net of cash acquired |   | $          | 850,000 |   |

 

F-17

----

 

**Note 3 - Related Party Transactions**

 

Accounts receivable, affiliates are as follows:

 
|                                              |   | **December 31,** |      |
|---------------------------------------------------|--------|-----------------------|-----------|
|                                              |   | **2003**              |      | **2002** |   |
|                                              |   |                  |      |   |   |
| Accounts receivable, foreign investment  (Note 1) |   | $                     | 1,227,293 |   | $ | — |   |
| Accounts receivable, SDI (Note 2)                 |   | 631,210               |      | — |   |
| Accounts receivable, commission overpayment       |   | 623,933               |      | — |   |
|                                              |   |                  |      |   |   |
| Total accounts receivable, affiliates             |   | $                     | 2,482,436 |   | $ | — |   |

 

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

 
|               |   | **December 31,** |   |
|--------------------|--------|-----------------------|--------|
|               |   | **2003**              |   | **2002** |   |
|               |   |                  |   |   |   |
| Due from RAW, Inc. |   | —                |   | 4,089 |   |
|               |   |                  |   |   |   |
|               |   | $                     | — |   | $ | 4,089 |   |
|                    |        |                       |        |  |  |  |  |

 

The following balances were the amount of payroll services provided torelated parties for the periods ended:

 
|                                                                  |   | **December 31,** |   |
|-----------------------------------------------------------------------|--------|-----------------------|--------|
|                                                                  |   | **2003**              |   | **2002** |   | **2001** |   |
|                                                                  |   |                  |   |   |   |   |   |
| MRS Equity Corp. (prior to the acquisition  in 2003)                  |   | $                     | 63,204 |   | $ | 145,190 |   | $ | 53,105 |   |
| Precision Software Services, Inc. (prior to  the acquisition in 2001) |   | —                |   | — |   | 42,024 |   |
| Whitney Leadership Group, Inc. (prior to  the acquisition in 2003)    |   | —                |   | 14,204 |   | — |   |
|                                                                  |   |                  |   |   |   |   |   |
|                                                                  |   | $                     | 63,204 |   | $ | 159,394 |   | $ | 95,129 |   |

 

F-18

----

 

The following balances were the amount of products purchased andpayments made for registration fees and commissions from related parties forthe periods ended:

 
|                                                                  |   | **December 31,** |    |
|-----------------------------------------------------------------------|--------|-----------------------|---------|
|                                                                  |   | **2003**              |    | **2002** |   | **2001** |   |
|                                                                  |   |                  |    |   |   |   |   |
| MRS Equity Corp. (prior to the acquisition  in 2003)                  |   | $                     | 47,405  |   | $ | 678,325 |   | $ | 720,504 |   |
| Precision Software Services, Inc. (prior to  the acquisition in 2001) |   | —                |    | — |   | 371,644 |   |
| Whitney Leadership Group, Inc. (prior to  the acquisition in 2003)    |   | 88,358                |    | 210,849 |   | 279,313 |   |
| Corporation Company of Nevada, Inc.                                   |   | —                |    | — |   | 458,877 |   |
|                                                                  |   |                  |    |   |   |   |   |
|                                                                  |   | $                     | 135,763 |   | $ | 889,174 |   | $ | 1,830,338 |   |

 

TheCompany has rented a training facility located in Cape Coral, Florida, since1992 from the Chairman of the Board and pays rent on annual leases.  Rentals under the related party lease were$84,738, $78,844 and $86,944 during 2003, 2002 and 2001, respectively.  The Company leases approximately 2,200square feet and the lease terminates in January 2004.  The Company currently pays rent on a month-to-monthbasis.

 

MRS Equity Corp. is a 100 percent subsidiary of Equity Corp. Holdings,Inc. which manages the processing of payments through customer’s accounts tothe mortgage holder, was acquired by the Company in 2003 (Note 2).  Prior to July 2003, the Vice Presidentof Marketing of Whitney Information Network, Inc. owned and controlled MRSEquity Corp.

 

Whitney Leadership Group is a company that holds all the copyright andintellectual property rights associated with the educational materials and licensesthe rights to the Company for payment, and was acquired by the Company inJuly 2003 (Note 2).  Prior toJuly 2003 the Chairman of the Board of Whitney Information Network, Inc.was the President and Chief Operating Officer of Whitney Leadership Group, Inc.

 

Precision Software Services, Inc. is a company that develops andlicenses software primarily for the real estate and small business industriesand was acquired by the Company in 2001 (Note 2).  Prior to November 2001, the Chairman of the Board ofDirectors of Whitney Information Network, Inc. owned a majority interest inPrecision Software Services.

 

Until January 2003, Corporation Company of Nevada, Inc. providedto us trainers for some of our asset protection courses along with formationservices for which the Company was billed for. Formation services involved Corporation Company forming legal entitiessuch as corporations and limited liability companies for use by our students.  The students used these entities to operatetheir business in a corporation, partnership, or trust form.  Mr. Whitney and Mr. Simon were directors ofthat company until the fourth quarter of 2001.

 

F-19

----

 

RAW, Inc. is a company owned by the Chairman of the Board of WhitneyInformation Network, Inc., which buys, sells and invests in real property.

 

Those items above that are reasonably expected to be collected withinone year are shown as current and those that are not expected to be collectedduring the next year are shown as non-current.

 

**Note 4 - Property and Equipment**

 

Property and equipment consist of the following:

 
|                          |   | **December 31,** |       |
|-------------------------------|--------|-----------------------|------------|
|                          |   | **2003**              |       | **2002** |   |
|                          |   |                  |       |   |   |
| Building                      |   | $                     | 11,593,460 |   | $ | 3,093,460 |   |
| Airplane                      |   | 2,114,474             |       | 2,114,474 |   |
| Software                      |   | 1,495,000             |       | 1,495,000 |   |
| Land                          |   | 1,399,071             |       | 1,395,571 |   |
| Equipment                     |   | 683,091               |       | 774,608 |   |
| Furniture and fixtures        |   | 548,065               |       | 369,934 |   |
| Leasehold improvements        |   | 327,623               |       | 211,741 |   |
|                          |   | 18,160,784            |       | 9,454,788 |   |
| Less accumulated depreciation |   | (1,575,287            | )          | (1,054,057 | ) |
|                          |   |                  |       |   |   |
|                          |   | $                     | 16,585,497 |   | $ | 8,400,731 |   |

 

F-20

----

 

Depreciation expense for the periods endedDecember 31:

 
| 2003 |   | $ | 691,506 |   |
|------|--------|---|---------|--------|
| 2002 |   | $ | 587,209 |   |
| 2001 |   | $ | 292,522 |   |

 

Intangible assets consist of the following:

 
|                          |   | **December 31,** |      |
|-------------------------------|--------|-----------------------|-----------|
|                          |   | **2003**              |      | **2002** |   |
|                          |   |                  |      |   |   |
| Intellectual property         |   | $                     | 4,875,000 |   | $ | — |   |
| Customer list                 |   | 1,218,055             |      | 688,000 |   |
| Trademarks                    |   | 850,000               |      | 300,000 |   |
| Other intangibles             |   | 317,680               |      | 17,811 |   |
|                          |   | 7,260,735             |      | 1,005,811 |   |
| Less accumulated amortization |   | (261,894              | )         | (11,111 | ) |
|                          |   |                  |      |   |   |
|                          |   | $                     | 6,998,841 |   | $ | 994,700 |   |

 

Amortization expense for the periods endedDecember 31:

 
| 2003 |   | $ | 250,810 |   |
|------|--------|---|---------|--------|
| 2002 |   | $ | 11,111  |   |
| 2001 |   | $ | —  |   |

 

Future amortization expense of intangibles is as follows:

 
| **Year Ending December 31,** |   | **Total** |      |
|-----------------------------------|--------|-----------|-----------|
|                              |   |      |      |
| 2004                              |   | 633,374   |      |
| 2005                              |   | 682,827   |      |
| 2006                              |   | 519,501   |      |
| 2007                              |   | 446,694   |      |
| 2008                              |   | 446,694   |      |
| Thereafter                        |   | 4,269,751 |      |
|                              |   |      |      |
|                              |   | $         | 6,998,841 |   |
|                                   |        |           |           |  |

 

F-21

----

 

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

 

Long-term debt consists of:

 
|                                                                                                                                                                                                                                                                                                                                                 |   | **December 31,** |      |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|-----------|
|                                                                                                                                                                                                                                                                                                                                                 |   | **2003**              |      | **2002** |   |
| Note payable to a finance company. Monthly  principal and interest of $9,204 through December 2018. Interest at the  LIBOR rate plus 3.42% (4.54% total as of December 31, 2003).  Collateralized by an airplane. The note is personally guaranteed (to  $170,000) by the majority stockholder.                                            |   | $                     | 1,148,176 |   | $ | 1,200,000 |   |
|                                                                                                                                                                                                                                                                                                                                                 |   |                  |      |   |   |   |   |
| Note payable to an individual for purchase  of equity interest in Rancho Monterey.   Principal and interest payments of $12,266 beginning in July 2003  at an interest rate of 5%.  The note  matures in June 2008 and is collateralized by the Company’s stock.                                                            |   | 592,052               |      | — |   |
|                                                                                                                                                                                                                                                                                                                                                 |   |                  |      |   |   |
| Note payable to a bank.  Interest only payments beginning in  July 2003 due monthly until June 2005.  Principal and interest payments due beginning July 2005  and amortized over 20 years.  Interest  at a fixed rate of 7.5%.  The note  matures June 2008 with all the unpaid principal and interest due. |   | 4,500,000             |      | — |   |
|                                                                                                                                                                                                                                                                                                                                                 |   |                  |      |   |   |
| Note payable to seller of building, paid in  2003.                                                                                                                                                                                                                                                                                                   |   | —                |      | 450,000 |   |
|                                                                                                                                                                                                                                                                                                                                                 |   | 6,240,228             |      | 1,650,000 |   |
|                                                                                                                                                                                                                                                                                                                                                 |   |                  |      |   |   |
| Less current portion                                                                                                                                                                                                                                                                                                                                 |   | (168,897              | )         | (43,590 | ) |
|                                                                                                                                                                                                                                                                                                                                                 |   |                  |      |   |   |
|                                                                                                                                                                                                                                                                                                                                                 |   | $                     | 6,071,331 |   | $ | 1,606,410 |   |

 

F-22

----

 

Notes payable- related party consists of:

 
|                                                                                                                                                                                                                                              |   | **December 31,** |      |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|-----------|
|                                                                                                                                                                                                                                              |   | **2003**              |      | **2002** |   |
| Note payable to an officer/stockholder  relating to the purchase of MRS Equity Corp.   Semi-annual payments of principal and interest of $275,000 beginning  July 2004 through January 2009 at an interest rate of 7%.             |   | $                     | 3,750,000 |   | $ | — |   |
|                                                                                                                                                                                                                                              |   |                  |      |   |   |   |   |
| Note payable to an officer/stockholder  relating to the purchase of Whitney Leadership Group.  Semi-annual payments of principal and  interest of $150,000 beginning January 2004 through January 2006 at  an interest rate of 7%. |   | 900,000               |      | — |   |
|                                                                                                                                                                                                                                              |   |                  |      |   |   |
| Note payable to an officer/stockholder.  Principal payment due in July 2003 and  remaining principal and interest payment due in July 2004 with interest  at 7%.                                                                   |   | 62,500                |      | — |   |
|                                                                                                                                                                                                                                              |   |                  |      |   |   |
| Notes payable to officers/stockholders of  the Company paid in 2003.                                                                                                                                                                              |   | —                |      | 118,515 |   |
|                                                                                                                                                                                                                                              |   | 4,712,500             |      | 118,515 |   |
| Less current portion                                                                                                                                                                                                                              |   | (1,362,500            | )         | (118,515 | ) |
|                                                                                                                                                                                                                                              |   |                  |      |   |   |
|                                                                                                                                                                                                                                              |   | $                     | 3,350,000 |   | $ | — |   |

 

Maturities of long-term obligations are as follows:

 
| **Year Ending December 31,** |   | **Related  Party   Notes** |      | **Other  Notes** |   | **Total** |   |
|-----------------------------------|--------|----------------------------|-----------|------------------|--------|-----------|--------|
|                              |   |                       |      |             |   |      |   |
| 2004                              |   | 1,362,500                  |      | 168,897          |   | 1,531,397 |   |
| 2005                              |   | 850,000                    |      | 211,842          |   | 1,061,842 |   |
| 2006                              |   | 850,000                    |      | 259,217          |   | 1,109,217 |   |
| 2007                              |   | 550,000                    |      | 275,821          |   | 825,821   |   |
| 2008                              |   | 550,000                    |      | 4,459,880        |   | 5,009,880 |   |
| Thereafter                        |   | 550,000                    |      | 864,571          |   | 1,414,571 |   |
|                              |   |                       |      |             |   |      |   |
|                              |   | $                          | 4,712,500 |             | $      | 6,240,228 |   | $ | 10,952,728 |   |
|                                   |        |                            |           |                  |        |           |        |  |  |  |

 

Interest expense on the related party notes was approximately $14,100and $6,000 for the year ending December 31, 2003 and 2002, respectively.

 

F-23

----

 

**Note 6 - Commitments and Contingencies**

 

Operating Leases

 

The Company leases the following properties: (1) its headquartersbuilding in Cape Coral, Florida (Note 3); (2) its telemarketing facility inDraper, Utah; and (3) its Whitney Canada location in Ontario.  These leases expire from May 2005 toOctober 2006.

 

Rent expense for all operating leases was:

 
| **Year Ending December 31,** |   |   |    |
|-----------------------------------|--------|--------|---------|
|                              |   |   |    |
| 2003                              |   | $      | 383,592 |   |
| 2002                              |   | $      | 237,025 |   |
| 2001                              |   | $      | 227,807 |   |

 

Future minimum lease payments under these leases are approximately asfollows:

 
| **Year Ending December 31,** |   |    |    |
|-----------------------------------|--------|---------|---------|
|                              |   |    |    |
| 2004                              |   | 140,093 |    |
| 2005                              |   | 102,896 |    |
| 2006                              |   | 73,359  |    |
|                              |   |    |    |
|                              |   | $       | 316,348 |   |
|                                   |        |         |         |  |

 

Litigation

 

The Company is not involved in any material unasserted claims andaction arising out of the normal course of its business that in the opinion ofthe Company, based upon knowledge of facts and advice of counsel, will resultin a material adverse effect on the Company’s financial position.

 

Other

 

The Company carries liability insurance coverage, which it considerssufficient to meet regulatory and consumer requirements and to protect theCompany’s employees, assets and operations.

 

The Company, in the ordinary course of conducting its business, issubject to various state and federal requirements.  In the opinion of management, the Company is in compliance withthese requirements.

 

Credit Facilities

 

The Company has obtained two letters of credit, totaling $1,500,000,and has available unused amounts totaling $1,500,000, which are supported bycertificates of deposit.  These lettersof credit expire in January 2005 and October 2005 and carry an interestrate of 2.98% and 3.68%, respectively.

 

F-24

----

 

**Note 7 - Stockholders’ Equity andTransactions**

 

Stock Based Compensation Plans

 

The Company’s stock option plans provide for the granting of stockoptions to key employees.  Under theterms and conditions of the plans, any time between the grant date and twoyears of service, the employee may purchase up to 25% of the optionshares.  After three years of continuousservice, the employee may purchase all remaining option shares.  All options expire ten years from the dateof the grant.

 

The following table presents the activity for options outstanding:

 
|                                 |   | **Options  Related To  A Plan** |   | **Weighted  Average  Exercise  Price** |   |
|--------------------------------------|--------|---------------------------------|--------|----------------------------------------|--------|
| Outstanding - December 31, 2000 |   | 1,093,650                       |   | $                                      | 1.94   |   |
| Granted                              |   | 10,000                          |   | $                                      | 1.70   |   |
| Forfeited/canceled                   |   | (181,850                        | )      | $                                      | (1.94  | ) |
|                                 |   |                            |   |                                   |   |
| Outstanding - December 31, 2001 |   | 921,800                         |   | $                                      | 1.94   |   |
| Granted                              |   | 651,750                         |   | $                                      | 1.81   |   |
| Forfeited/canceled                   |   | (141,000                        | )      | $                                      | (1.98  | ) |
| Exercised                            |   | (26,375                         | )      | $                                      | (2.13  | ) |
|                                 |   |                            |   |                                   |   |
| Outstanding - December 31, 2002 |   | 1,406,175                       |   | $                                      | 1.93   |   |
| Granted                              |   | 202,500                         |   | $                                      | 3.80   |   |
| Forfeited/canceled                   |   | (180,300                        | )      | $                                      | (2.19  | ) |
| Exercised                            |   | (6,125                          | )      | $                                      | 2.60   |   |
|                                 |   |                            |   |                                   |   |
| Outstanding - December 31, 2003 |   | 1,422,250                       |   | $                                      | 2.17   |   |

 

F-25

----

 

The following table presents the composition of options outstanding andexercisable:

 
| **Range of Exercise Prices** |   | **Number of  Options** |      | **Number of  Option  Exercisable** |    | **Price*** |   | **Life*** |   |
|------------------------------|--------|------------------------|-----------|------------------------------------|---------|------------|--------|-----------|--------|
| $                            | 1.75   |                   |      | 45,000                             |    | 45,000     |   | $         | 1.75   |   | 6.34 |   |
| $                            | 1.81   |                   |      | 311,450                            |    | 77,863     |   | $         | 1.81   |   | 8.25 |   |
| $                            | 1.88   |                   |      | 249,900                            |    | 250,100    |   | $         | 1.88   |   | 5.66 |   |
| $                            | 2.00   |                   |      | 613,400                            |    | 472,775    |   | $         | 2.00   |   | 6.56 |   |
| $                            | 3.10   |                   |      | 15,000                             |    | 3,750      |   | $         | 3.10   |   | 8.68 |   |
| $                            | 3.70   |                   |      | 152,500                            |    | 38,125     |   | $         | 3.70   |   | 9.16 |   |
| $                            | 3.90   |                   |      | 25,000                             |    | 6,250      |   | $         | 3.90   |   | 9.66 |   |
| $                            | 4.10   |                   |      | 10,000                             |    | 2,500      |   | $         | 4.10   |   | 9.28 |   |
|                         |   |                   |      |                               |    |       |   |      |   |   |
| $ 1.75 to $4.10              |   |                   | 1,422,250 |                               | 896,363 |       |   |      | 7.14   |   |
|                              |        |                        |           |                                    |         |            |        |           |        |  |  |  |  |

 

----

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

 

F-26

----

 

**Note 8 - Income (Loss) Per Share**

 

The following table sets forth the computation for basic and dilutedearnings per share:

 
|                                                                           |   | **For the  Years Ended  December 31,** |       |
|--------------------------------------------------------------------------------|--------|---------------------------------------------|------------|
|                                                                           |   | **2003**                                    |       | **2002** |   | **2001** |   |
|                                                                           |   |                                        |       |   |   |   |   |
| Numerator for diluted income (loss) per  common share                          |   | $                                           | (1,557,659 | ) | $ | 6,229,740 |   | $ | 2,534,247 |   |
|                                                                           |   |                                        |       |   |   |   |   |
| Denominator for basic earnings per share -  weighted average shares            |   | 8,187,658                                   |       | 7,952,180 |   | 7,587,474 |   |
| Effect of dilutive securities - options and  warrants                          |   | —                                      |       | 888,742 |   | — |   |
| Denominator for diluted earnings per share  - adjusted weighted average shares |   | 8,187,658                                   |       | 8,840,922 |   | 7,587,474 |   |
|                                                                           |   |                                        |       |   |   |   |   |
| Diluted income (loss) per common share                                         |   | $                                           | (0.19      | ) | $ | .70 |   | $ | 0.33 |   |

 

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

 

**Note 9 - Business Segment Information**

 

The Company and its subsidiaries operate primarily in only one businesssegment.  The Company’s revenues aregenerated through the sale of real estate seminars, programs and products.  The Company and each of its subsidiarieseither directly participate in the real estate market or provide services toone of the subsidiaries.  The Companydoes maintain operations in foreign countries outside the United States.

 

F-27

----

 

The following provides both revenues and long-lived asset values bylocation for the period and years ending December 31, 2003 and 2002.  Foreign operations prior to 2002 are notsignificant.

 
|           |   | **Revenues** |       | **Long-Lived  Assets** |   |
|----------------|--------|--------------|------------|------------------------|--------|
| **Location**   |   | **2003**     |       | **2002**               |   | **2003** |   | **2002** |   |
|           |   |         |       |                   |   |   |   |   |   |
| United States  |   | $            | 81,633,450 |                   | $      | 57,091,029 |   | $ | 23,677,297 |   | $ | 8,722,138 |   |
| Canada         |   | 5,242,379    |       | 2,648,171              |   | 6,917 |   | 19,689 |   |
| United Kingdom |   | 8,082,341    |       | 2,406,037              |   | 104,282 |   | 47,976 |   |
| Costa Rica     |   | —       |       | —                 |   | 795,942 |   | 817,513 |   |
|           |   |         |       |                   |   |   |   |   |   |
|           |   | $            | 94,958,170 |                   | $      | 62,145,237 |   | $ | 24,584,338 |   | $ | 9,607,316 |   |

 

The following provides revenues received from external customers by theCompany’s reportable segments for the years ended December 31, 2003, 2002and 2001.

 
|                           |   | **For the  Years Ended December 31,** |       |
|--------------------------------|--------|--------------------------------------------|------------|
| **Segment**                    |   | **2003**                                   |       | **2002** |   | **2001** |   |
| Real Estate Products/Services  |   | $                                          | 58,325,333 |   | $ | 53,339,275 |   | $ | 38,024,356 |   |
| Real Estate Mentoring/Coaching |   | 17,113,692                                 |       | 6,486,180 |   | 3,315,936 |   |
| Commission/Other               |   | 3,700,542                                  |       | 1,739,436 |   | 805,049 |   |
| Teach Me To Trade              |   | 15,818,603                                 |       | 574,484 |   | — |   |
| Internet Sales                 |   | —                                     |       | 5,862 |   | 12,399 |   |
| Total revenues                 |   | $                                          | 94,958,170 |   | $ | 62,145,237 |   | $ | 42,157,740 |   |

 

F-28

----

 

**Note 10 - Income Taxes**

 

At December 31, 2003, the Company had net operating losses (NOL)carryforwards for tax purposes of approximately $10,225,000 respectively, whichexpire in the years 2004 through 2023.

 

Deferred tax liabilities and assets are determined based on thedifference between the financial statement assets and liabilities and tax basisassets and liabilities using the tax rates in effect for the year in which thedifferences occur.  The measurement ofdeferred tax assets is reduced, if necessary, by the amount of any tax benefitsthat based on available evidence, are not expected to be realized.  The accompanying balance sheets include thefollowing:

 
|                                                          |   | **December 31,** |      |
|---------------------------------------------------------------|--------|-----------------------|-----------|
|                                                          |   | **2003**              |      | **2002** |   |
| Deferred tax asset from NOL carryforward                      |   | $                     | 3,814,000 |   | $ | 1,301,000 |   |
| Deferred tax asset (liability) from  deferred expense/revenue |   | (2,758,000            | )         | (1,142,000 | ) |
| Total deferred tax assets                                     |   | 1,056,000             |      | 159,000 |   |
| Valuation allowance for deferred tax assets                   |   | (1,056,000            | )         | (159,000 | ) |
|                                                          |   |                  |      |   |   |
| Net deferred tax asset                                        |   | $                     | —    |   | $ | — |   |

 

**Note 11 – Employee Benefit Plan**

 

The Company has a 401(k) employee savings plan for eligible employees,which provides for a Company matching contribution determined each year at thediscretion of the Company.  No Companycontributions were charged to operations for the years ended December 31,2003, 2002, and 2001, respectively.

 

F-29

----

 

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

 

The following table presents unaudited operating results for eachquarter within the two most recent years. The Company believes that all necessary adjustments consisting only ofnormal recurring adjustments, have been included in the amounts stated below topresent fairly the following quarterly results when read in conjunction withthe financial statements.  Results ofoperations for any particular quarter are not necessarily indicative of resultsof operations for a full fiscal year.

 
|                                  |   | **First  Quarter** |       | **Second  Quarter** |   | **Third  Quarter** |   | **Fourth  Quarter** |       |
|---------------------------------------|--------|--------------------|------------|---------------------|--------|--------------------|--------|---------------------|------------|
| **December 31,  2002**           |   |               |       |                |   |               |   |                |       |
| Revenues                              |   | $                  | 15,453,018 |                | $      | 17,535,080         |   | $                   | 13,875,257 |   | $ | 15,281,882 |   |
| Operating expenses                    |   | 12,173,963         |       | 13,494,194          |   | 13,078,696         |   | 17,437,938          |       |
| Income (loss) from operations         |   | 3,279,055          |       | 4,040,886           |   | 796,561            |   | (2,156,056          | )          |
| Net income (loss)                     |   | 3,371,041          |       | 2,763,941           |   | 672,169            |   | (577,411            | )          |
| Basic income (loss) per share (1)     |   | .43                |       | .35                 |   | .08                |   | (.08                | )          |
| Diluted earnings (loss) per share (1) |   | .43                |       | .31                 |   | .08                |   | (.08                | )          |
|                                  |   |               |       |                |   |               |   |                |       |
| **December 31,  2003**           |   |               |       |                |   |               |   |                |       |
| Revenues                              |   | $                  | 13,303,839 |                | $      | 17,420,985         |   | $                   | 23,567,782 |   | $ | 40,665,564 |   |
| Operating expenses                    |   | 15,951,926         |       | 21,861,788          |   | 27,173,284         |   | 31,679,685          |       |
|                                  |   |               |       |                |   |               |   |                |       |
| (Loss) income from operations         |   | (2,648,087         | )          | (4,440,803          | )      | (3,605,502         | )      | 8,985,879           |       |
| Net (loss) income                     |   | (1,411,379         | )          | (3,549,264          | )      | (1,570,829         | )      | 4,973,813           |       |
| Basic (loss) earnings per share (1)   |   | (.17               | )          | (.44                | )      | (.19               | )      | .61                 |       |
| Diluted (loss) earnings per share (1) |   | (.17               | )          | (.44                | )      | (.19               | )      | .56                 |       |

 

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(1)               Earnings per share are computedindependently for each quarter and the full year based upon respective averageshares outstanding.  Therefore, the sumof the quarterly net earnings per share amounts may not equal the annualamounts reported.

 

F-30

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**ITEM9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ONACCOUNTING AND FINANCIAL DISCLOSURE**

 

None

 

**ITEM 9A.    CONTROLS AND PROCEDURES**

 

Our Chief Executive Officerand Chief Financial Officer have evaluated the effectiveness of our disclosurecontrols and procedures (as such term is defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”) as of the end of the period covered by this report.  Based on such evaluation, such officers haveconcluded that, as of December 31, 2003, our disclosure controls and proceduresare effective in alerting them on a timely basis to material informationrelating to our Company (including our consolidated subsidiaries) required tobe included in our reports filed or submitted under the Exchange Act.

 

In connection with the auditof the year ended December 31, 2003, there were no “Reportable Events” withinthe meaning of Item 304(a)(1)(v) of Regulation S-K.  However, the Company’s auditors communicatedto the Registrant matters it considered to be a weakness in the Registrant’sinternal controls relating to the adequacy of staffing of its accounting andfinance department.  The auditorsconsidered the scope of responsibilities and duties of the Chief FinancialOfficer and the Vice-President of Finance to be somewhat overextended. Theauditors communicated that additional resources were needed in the Finance andaccounting department to take the workload off these individuals. In addition,the auditors also communicated to the Company that additional expertise wasneeded in those departments in the area of SEC reporting.  Thisstaffing situation contributed to certain accounts not being reconciled on atimely basis and certain business transactions not documented in an appropriatemanner.  The Registrant is addressingthis concern and is in the process of further enhancing its staff.

 

**PART III**

 

**ITEM10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT**

 

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

 
| **Name**            |   | **Age** |   | **Position**                                                                                                            |
|---------------------|--------|---------|--------|-------------------------------------------------------------------------------------------------------------------------|
| Russell A. Whitney  |   | 47      |   | Chairman of the Board of Directors,  Chief Executive Officer and President |
| Ronald S. Simon     |   | 60      |   | Executive Vice President, Chief Financial  Officer, Secretary and Director                          |
| Nicholas S. Maturo  |   | 55      |   | Chief Operating Officer                                                                                                 |
| Charles E. Miller   |   | 53      |   | Vice President—Finance                                                                                             |
| John F. Kane        |   | 49      |   | Vice President—Marketing                                                                                           |
| Gonzalo DeRamon     |   | 39      |   | Director                                                                                                                |
| Frederick A. Cardin |   | 57      |   | Director                                                                                                                |
| Chester P. Schwartz |   | 58      |   | Director                                                                                                                |

 

Directors hold office for aperiod of one year from their election at the annual meeting of stockholders oruntil their successors are duly elected and qualified. Officers are elected by,and serve at the discretion of, the Board of Directors. Our Audit andCompensation Committees are composed of Messrs. DeRamon, Schwartz and Dr.Cardin, all of whom are independent directors. Mr. Schwartz is the chairman ofour Audit Committee and our Audit Committee financial expert. John B. Gallagherjoined our Board of Directors in April 2003 and resigned in July 2003.

 

*Russell A.Whitney, Chairman of the Board of Directors and Chief Executive Officer. *Mr. Whitney is our founder and has been Chairman and Chief ExecutiveOfficer of our company and its predecessors since 1987. He is also ChiefExecutive Officer and a director of all of our wholly-owned subsidiaries. Mr.Whitney is also an active real estate investor for his own account and haswritten and published three books on wealth building topics. Mr. Whitneydevotes substantially all of his time to our business.

 

*Ronald S.Simon, Executive Vice President, Chief Financial Officer, Secretary andDirector. *Mr. Simon is a Certified Public Accountanthas been our Chief Financial Officer and a member of our Board of Directorssince August 1998. Mr. Simon was a self-employed certified public accountantfrom 1987 until he joined us as our Chief Financial Officer in June 1998. InJune 2002, he was appointed our Executive Vice President. Mr. Simon holds aBachelor of Science degree in accounting from the University of Illinois.

 

21

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*NicholasS. Maturo, Chief Operating Officer.*   Mr. Maturo joined us in September 2002 and became ourChief Operating Officer in January 2003. He was the Chief Operating Officer ofFood Trader, Inc. from March 2000 to November 2002. From 1981 to January 2000,he held a number of executive positions with Kraft Foods and was ChiefInformation Officer when he left Kraft.

 

*Charles E.Miller, Vice President—Finance.*   Mr. Miller joined us in June 2002. From 1996 untilMay 2002, he was the Chief Financial Officer for First Home Builders, aprivately-held Florida-based home building company. Mr. Miller is a CertifiedPublic Accountant and an attorney. He graduated in 1971 from Colgate Universitywith a Bachelor of Arts degree and earned a J.D. degree from Albany Law Schoolin 1974.

 

*John F.Kane, Vice President—Marketing.*   Mr. Kane has been the President of Precision SoftwareServices, Inc., one of our wholly-owned subsidiaries since 1993. Precisiondevelops real estate investment and other basic business software and was purchasedby us in November 2001. We appointed Mr. Kane our Vice President of Marketingin January 2003.

 

*GonzaloDeRamon, Director,*joined us as a director in April 2003. Since May 2000, Mr. DeRamon has beenVice President of Development Banking for the Bank of America, responsible fordevelopment of affordable housing in the South Florida market. Hisresponsibilities include negotiating land acquisitions, structuring jointventures and financings, selecting professional consultants as well as projectunderwriting through closing. From 1996 to May 2000, Mr. DeRamon was VicePresident of Finance and Treasurer for Greater Miami Neighborhoods, where hewas responsible for the management of 2,800 multi-family units and over 250single family units, all located in the Greater Miami, Florida metropolitanarea. From 1993 to 1996, he was Comptroller for Greater Miami Neighborhoods,responsible for receiving and distributing institutional and bank funds used torevitalize inner city neighborhoods. Mr. DeRamon received a Bachelor of Sciencedegree in industrial engineering from Santa Domingo Institute of Technology inthe Dominican Republic and an MBA in investment and corporate finance fromFlorida International University.

 

*FrederickA. Cardin, Director,*joined us as a director in April 2003, and since June 1996, has been managingdirector of Harvard Growth Strategies, a consulting firm which advises clientson business strategies, financing and marketing. Dr. Cardin publishes articlesand lectures on such topics as corporate, investment and international finance,strategic planning, financing, entrepreneurship, management, merger andacquisition planning and health care and environmental economics. From 1974 to1981, he was first a member and then a partner and a director of the CambridgeResearch Institute, a strategic planning consulting firm in Cambridge,Massachusetts. At the Cambridge Research Institute he led strategic analyses ofthe computer and telecommunications industries. In 1985 he founded and acted asChairman and Chief Executive Officer of O!Deli Corporation, a publicly-tradedfood franchisor. O!Deli grew to 50 franchisees before its acquisition byPacific Equities. From 1970 to 1971 he held a faculty appointment ininternational finance at the Harvard Business School, where he developed casesand teaching materials on speculation, arbitration and hedging in foreignexchanges. Dr. Cardin earned his MBA with distinction and his Doctorate inFinance from the Harvard Graduate School of Business Administration. He earneda Bachelor’s degree in economics Summa Cum Laude from Tufts University, wherehe fulfilled degree requirements in economics, math and astronomy, minoring inphysics. In 1968 he was elected to Phi Beta Kappa.

 

*Chester P.Schwartz, Director*,joined us as a director in July 2003. Since 1970 he has been engaged in theprivate practice of law in Denver, Colorado, specializing in real estate andcommercial law. He earned a Bachelor of Science and Juris Doctor degrees fromthe University of Colorado.

 

22

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**Identification and Description of the Audit Committee**

 

The Company’s Board ofDirectors has established a standing Audit Committee that consists of threedirectors. The current members of the Audit Committee are Messrs. DeRamon,Cardin and Schwartz. The Board of Directors has determined that each of thesedirectors is “independent” as defined by the applicable rules of the Securitiesand Exchange Commission. The Board of Directors has also determined that eachof these directors is financially literate and that Mr. Schwartz furtherqualifies as an “audit committee financial expert” as such term is defined inthe applicable rules of the Securities and Exchange Commission.

 

The Audit Committee assiststhe Board in fulfilling its responsibility to provide oversight with respect toour financial statements and reports and other disclosures provided tostockholders, the system of internal controls and the audit process. Its dutiesinclude reviewing the adequacy of our internal accounting and financialcontrols, reviewing the scope and results of the audit plans of our independentand internal auditors, reviewing the objectivity, effectiveness and resourcesof the internal audit function, and assessing our financial reportingactivities and accounting standards and principles. The Audit Committee alsoselects and engages our independent auditors and approves their fees. In 2003,the Committee met two times. All members of the Audit Committee meet theindependence standards of the Securities and Exchange Commission.

 

The Audit Committee hasconsidered whether the provision of nonaudit services performed by ourindependent auditors is compatible with maintaining that firm’s independence.

 

**Code of Ethics**

 

Our Board of Directors hasadopted a Code of Ethics that applies to the Company’s Chief Executive Officer,Chief Financial Officer and other senior executive officers. We have posted theCode of Ethics on our Web site at http://russwhitney.com. We intend to discloseany amendment to or waiver from the Code of Ethics applicable to any seniorofficer on a Form 8-K or on our Web site.

 

**ITEM11.    EXECUTIVE COMPENSATION**

 

The following table providescertain summary information concerning compensation paid to our Chief ExecutiveOfficer and others for the calendar years indicated below.

 

**SUMMARY COMPENSATION TABLE**

 

 
|                                  |   | **Annual  Compensation** |   | **Long-Term  Compensation Awards** |   |
|---------------------------------------|--------|--------------------------|--------|------------------------------------|--------|
| **Name and  Principal Position** |   | **Year**                 |   | **Salary ($)**                |   | **Bonus ($)** |   | **Other Annual  Compensation ($)** |   | **Restricted Stock  Award(s) (#)** |   | **Shares Underlying  Options ($)** |   | **All Other  Compensation ($)** |   |
| Russell A. Whitney, CEO               |   | 2003                     |   | 400,000                            |   | 275,000 |   | — |   | — |   | — |   | — |   |
|                                  |   | 2002                     |   | 350,000                            |   | 450,000 |   | — |   | — |   | 75,000 |   | — |   |
|                                  |   | 2001                     |   | 250,000                            |   | 100,000 |   | — |   | — |   | — |   | — |   |
|                                  |   | 2000                     |   | 250,000                            |   | 20,455 |   | — |   | — |   | — |   | — |   |
| Richard Brevoort, President(1)        |   | 2003                     |   | 0                                  |   | 0 |   | — |   | — |   | — |   | — |   |
|                                  |   | 2002                     |   | 125,000                            |   | 50,000 |   | — |   | — |   | 78,500 |   | — |   |
|                                  |   | 2001                     |   | 100,000                            |   | 50,000 |   | — |   | — |   | — |   | — |   |
|                                  |   | 2000                     |   | 75,000                             |   | 14,602 |   | — |   | — |   | 68,000 |   | — |   |

 

23

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| Ronald S. Simon, Executive Vice President, CFO |   | 2003 |   | 180,000 |   | 75,000 |   | — |   | — |   | 50,000 |   | — |   |
|------------------------------------------------|--------|------|--------|---------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                           |   | 2002 |   | 100,000 |   | 50,000 |   | — |   | — |   | 75,000 |   | — |   |
|                                           |   | 2001 |   | 55,000  |   | 25,000 |   | — |   | — |   | — |   | — |   |
|                                           |   | 2000 |   | 47,500  |   | 14,602 |   | — |   | — |   | 68,000 |   | — |   |
| Nicholas Maturo, COO                           |   | 2003 |   | 180,000 |   | 20,000 |   | — |   | — |   | 45,000 |   | — |   |
| John Kane, Vice President                      |   | 2003 |   | 120,000 |   | 15,000 |   | — |   | — |   | 25,000 |   | — |   |
| Charles Miller, V.P. Finance                   |   | 2003 |   | 120,000 |   | 15,000 |   | — |   | — |   | 10,000 |   | — |   |

 

----

(1)          Mr. Brevoort passed away in September 2002. 

 

In May, 2003, we enteredinto a three-year employment agreement with Mr. Whitney which provides for asalary of $400,000 per year, together with bonuses to be granted by theCompensation Committee of our Board of Directors, and customary employeebenefits, including health insurance. Bonuses granted by the Board of Directorsto Mr. Whitney are expected to be between 50% and 150% of his salary, dependingupon our level of profitability. In May, 2003, we also entered into three-yearemployment agreements with Messrs. Simon, Maturo, Miller and Kane, providingfor initial annual salaries of $180,000, $180,000, $120,000 and $120,000,respectively.

 

We intend to institute acash bonus plan which will be administered by the Compensation Committee of ourBoard of Directors. Under the bonus plan, employees, including all of ourexecutive officers, except our Chief Executive Officer, may receive cashbonuses of up to 50% of their salaries based upon a number of factors,including the meeting or exceeding of internally prepared budgets andforecasts, along with a number of subjective criteria.

 

The following table setsforth certain information regarding grants of stock options to Russell A.Whitney, Nicholas Maturo, Richard Brevoort, and Ronald S. Simon, the executiveofficers who received stock options during the years 2000 through 2003. Thefair value of the grants have been estimated utilizing the Black-Scholes optionpricing.

 
| **Name**           |   | **Number of  Underlying  Securities  Options/  SARs  Granted  During  Last 12  Months** |   | **% of  Total  Options/SARs  Granted  During  Last 12  Months** |   | **Exercise  or Base  Price  ($/Sh)  (weighted  average)** |   | **Expiration  Date** |    | **Grant Date  Present Value** |   |
|--------------------|--------|-----------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------|--------|-----------------------------------------------------------|--------|----------------------|---------|-----------------------------------------|--------|
|               |   |                                                                                    |   |                                                            |   |                                                      |   |                 |    |                                    |   |
| Russell A. Whitney |   | 35,000                                                                                  | (1)    | 17                                                              | %      | $                                                         | 3.70   |                 | 03/2013 |                                    | $      | 68,823 | (3) |
| Richard Brevoort   |   | 0                                                                                       | (2)    | 0                                                               | %      | $                                                         | — |                 | —  |                                    | $      | — | (3) |
| Ronald S. Simon    |   | 50,000                                                                                  |   | 25                                                              | %      | $                                                         | 3.70   |                 | 02/2013 |                                    | $      | 93,318 | (3) |
| Nicholas Maturo    |   | 45,000                                                                                  |   | 22                                                              | %      | $                                                         | 3.9    |                 | 04/2013 |                                    | $      | 88,487 | (3) |

 

----

| (1) | Comprised of options  granted to Mr. Whitney’s wife and two children all of whom are our employees.                                                                |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Mr. Brevoort passed away  in September 2002.                                                                                                                            |
| (3) | Our present value  computations were based upon the following assumptions: 33.7% volatility, ten  year life, risk free rate of return of 4.25% and a 0% dividend yield. |

 

The following table setsforth, on an aggregated basis, each exercise of stock options (or tandem SARs)and freestanding SARs during the last completed fiscal year by each of thenamed executive officers and the fiscal year-end value of unexercised optionsand SARs. 

 

24

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| **Name**           |   | **Shares Acquired  on Exercise** |   | **Value  Realized** |   | **# of Securities Underlying  Unexercised Options/SARs  at December 31, 2003** |   | **Value of Unexercised In-The  Money Options/SARs at  December 31, 2003** |    |
|--------------------|--------|---------------------------------------|--------|---------------------|--------|----------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------|---------|
|               |   |                                  |   |                |   |                                                                                               |   |                                                                                               |    |
| Russell A. Whitney |   | 0                                     |   | 0                   |   | 91,000                                                                                             |   | $                                                                                                  | 189,140 |   |
| Richard Brevoort   |   | 0                                     |   | 0                   |   | 268,600                                                                                            |   | $                                                                                                  | 614,983 |   |
| Ronald S. Simon    |   | 0                                     |   | 0                   |   | 343,000                                                                                            |   | $                                                                                                  | 699,475 |   |
| Nicholas Maturo    |   | 0                                     |   | 0                   |   | 45,000                                                                                             |   |                                                                                               | 16,500  |   |

 

We have not adopted anyretirement, pension or profit sharing plans for the benefit of our officers ordirectors although we adopted our 1998 Stock Option Plan for the benefit of ourofficers, directors, employees and consultants. We also offer our employees a401(k) plan, although we do not make any contributions to the plans.

 

**Compensationof Directors**

 

Independent directorsreceive $10,000 per year for serving as members of the Board of Directors.Expenses incurred by our directors in attending Board meetings are reimbursed,and independent directors each receive 5,000 stock options under our 1998 StockOption Plan upon joining our Board of Directors.

 

**1998 StockOption Plan**

 

In 1998 we adopted a stockoption plan which provides for the grant of options intended to qualify as“incentive stock options” or “nonqualified stock options” within the meaning ofSection 422 of the United States Internal Revenue Code of 1986 (the “Code”).Incentive stock options are issuable only to employees.

 

The purposes of the Plan areto attract and retain the best available personnel, to provide additionalincentives to our employees and to promote the success of our business.

 

We have reserved 2,187,500shares of common stock for issuance under the Plan, which is administered bythe compensation committee of our board of directors. Under the Plan, thecompensation committee determines which individuals will receive options, thetime period during which the options may be partially or fully exercised, thenumber of shares of common stock that may be purchased under each option andthe option price. As of December 31, 2003, options to purchase 1,422,250 sharesof common stock at exercise prices ranging from $1.75 per share to $4.10 pershare were outstanding under the Plan, and 765,250 shares remained availablefor future option grants. Of these options, 828,800 have been issued toexecutive officers and directors at exercise prices ranging from $1.81 pershare to $3.70 per share.

 

The per share exercise priceof the common stock subject to options must not be less than the fair marketvalue of the common stock on the date the option is granted. In the case ofincentive stock options, the aggregate fair market value, determined as of thedate the option is granted, of the common stock that any person may purchase inany calendar year pursuant to the exercise of incentive stock options must notexceed $100,000. No person who owns, directly or indirectly, at the time of thegranting of an incentive stock option, more than 10% of the total combinedvoting power of all classes of our stock is eligible to receive incentive stockoptions under the Plan unless the option price is at least 110% of the fairmarket value of the common stock subject to the option on the date of grant.The stock options are subject to anti-dilution provisions in the event of stocksplits, stock dividends and the like.

 

No incentive stock optionsare transferable by an optionee other than by will or the laws of descent anddistribution, and during the lifetime of an optionee, the option is onlyexercisable by the optionee. The exercise date of an option granted under thePlan must not be later than ten years from the

 

25

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date of grant. Any optionsthat expire unexercised or that terminate upon an optionee’s ceasing to beemployed by us will become available once again for issuance. Shares issuedupon exercise of an option rank equally with other shares then outstanding. Nooptions have been exercised under the Plan.

 

**EquityCompensation Plan Information**

 

The following table providesinformation about compensation plans, including individual compensationarrangements, under which our equity securities are authorized for issuance toemployees or non-employees, such as directors and consultants, as of December31, 2003:

 
| **Plan  Category**                                            |   | **Number of securities to  be issued upon exercise  of outstanding options,  warrants and rights (a)** |   | **Weighted-average  exercise price of  outstanding options,  warrants and rights (b)** |   | **Number of securities remaining  available for future issuance  under equity compensation  plans (excluding) securities  reflected in column (a))  (c)** |    |
|---------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|
|                                                          |   |                                                                                                                            |   |                                                                                        |   |                                                                                                                                                                                    |    |
| Equity compensation plans   approved by security holders |   |                                                                                                                            |   |                                                                                        |   |                                                                                                                                                                                    |    |
| •   1998 Stock Option Plan                     |   | 1,422,250                                                                                                                       |   | $                                                                                           | 2.17   |                                                                                                                                                                                    | 765,250 |   |
| Equity compensation plans not approved by security holders    |   | —                                                                                                                          |   | —                                                                                      |   | —                                                                                                                                                                                  |    |
|                                                          |   |                                                                                                                            |   |                                                                                        |   |                                                                                                                                                                                    |    |
| Total                                                         |   | 1,422,250                                                                                                                       |   | $                                                                                           | 2.17   |                                                                                                                                                                                    |    |   |

 

**ITEM12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT AND RELATED STOCKHOLDER MATTERS**

 

The following table setsforth the common stock ownership of each person known by us to be thebeneficial owner of five percent or more of our common stock, by certain of ourofficers, by each of our directors individually and by all officers anddirectors as a group. Each person holds record and beneficial ownership and hassole voting and investment power with respect to the shares of common stockshown. The address of all of these individuals is in our care at 1612 E. CapeCoral Parkway, Cape Coral, Florida 33904.

 
| **Name of  Owner**                                        |   | **Number of  Shares** |   | **Position**                                                                 |   | **Percent of  Class(1)** |   |
|-----------------------------------------------------------|--------|-----------------------|--------|------------------------------------------------------------------------------|--------|-------------------------------|--------|
|                                                      |   |                  |   |                                                                         |   |                          |   |
| Russell A. Whitney(2)                                     |   | 6,706,600             |   | Chairman of the Board ofDirectors and Chief Executive Officer |   | 81.9                          | %      |
| Ronald S. Simon(3)                                        |   | 378,125               |   | Executive Vice President,Chief Financial Officer, Secretary  and Director    |   | 3.9                           | %      |
| Nicholas S. Maturo                                        |   | 25,000                |   | Chief Operating Officer                                                      |   | (4                            | )      |
| Charles S. Miller                                         |   | 19,523                |   | Vice President—Finance                                             |   | (4                            | )      |
| John F. Kane                                              |   | 206,333               |   | Vice President—Marketing                                           |   | 2.5                           | %      |
| Gonzalo DeRamon                                           |   | 5,000                 |   | Director                                                                     |   | (4                            | )      |
| Frederick A. Cardin                                       |   | 5,000                 |   | Director                                                                     |   | (4                            | )      |
| Chester P. Schwartz                                       |   | 5,000                 |   | Director                                                                     |   | (4                            | )      |
| All officers and directorsas a group (eight persons) |   | 7,353,581             |   |                                                                         |   | 85.1                          | %      |

 

26

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----

| (1) | Includes stock options  exercisable within 60 days from the date of the prospectus.                                                             |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Comprised of 6,615,600  shares held jointly by Mr. Whitney and his wife and 90,000 stock options held  by members of Mr. Whitney’s family. |
| (3) | Comprised of 35,125 shares  and 343,000 stock options.                                                                                          |
| (4) | Less than 1%                                                                                                                                    |

 

**ITEM 13.    CERTAIN RELATIONSHIPS ANDRELATED TRANSACTIONS**

 

In 2003 we leased 2,242square feet of office space at 4818 Coronado Parkway, Cape Coral, Florida 33904from Russell A. Whitney, our Chairman and Chief Executive Officer, on a monthlybasis without a written lease for $2,242 per month. We elected to lease theproperty on a monthly basis without a written lease as we were uncertain ofwhether we would continue to use this space, considering we recently purchasedour own office building in Cape Coral and may move into additional space in thatbuilding when current leases to non-affiliates expire. In 2004 we vacated thisspace. We currently lease 2,200 square feet of training facilities at 1611 E.Cape Coral Parkway, Cape Coral, Florida 33904 from Mr. Whitney for $1,943 permonth on a monthly basis.

 

We provide payroll servicesto Whitney Leadership Group, Inc., a company previously owned and manageriallyand operationally controlled by Mr. Whitney which we acquired in July2003. In 2002 we made a short-term advance to Whitney Leadership $232,126 withno interest to fund a Whitney product show, which was repaid in 2002. WhitneyLeadership owns the rights to our television real estate infomercials which weuse to attract students to our free informational training sessions, a numberof our educational books and tapes and one of our course offerings, for whichwe pay Whitney Leadership $1.00 for each person who registers for our freeinformational training sessions.

 

MRS Equity Corp. providessoftware products and services to us which we market that allows mortgagees topay their mortgages every two weeks rather than monthly, thereby reducingmortgage payments over the life of the mortgage and increasing principalreductions. We provide MRS with payroll services. MRS is a wholly-ownedsubsidiary of Equity Corp. Holdings, Inc., which was previously owned andmanagerially and operationally controlled by John F. Kane, our Vice Presidentof Marketing and which we acquired in July 2003.

 

Precision Software Services,Inc. develops and licenses software to us. Mr. Whitney owned a controllinginterest in Precision until we acquired all of its outstanding shares inNovember 2001 for 333,334 shares of our common stock valued at $1.50 per share.

 

Corporation Company ofNevada, Inc., formerly known as United States Fiduciary Corp., provides to ustrainers for some of our asset protection courses along with formation servicesfor which the Company was billed for.  Formation services involvedCorporation Company forming legal entities such as corporations and limitedliability companies for use by our students.  The students used theseentities to operate their business in a corporation, partnership, or trustform.  Mr. Whitney and Mr. Simon were directors of that company until thefourth quarter of 2001.

 

The dollar amount ofproducts we purchased from MRS and Precision Software Services is as follows:

 
|                              |   | **2003** |   | **2002** |   | **2001** |   |
|-----------------------------------|--------|----------|--------|----------|--------|----------|--------|
|                              |   |     |   |     |   |     |   |
| MRS Equity Corp.                  |   | $        | 47,405 |     | $      | 678,325  |   | $ | 720,504 |   |
| Precision Software Services, Inc. |   | $        | 0      |     | $      | 0        |   | $ | 371,644 |   |

 

27

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Fees we paid to WhitneyLeadership and Corporation Company are as follows:

 
|                                |   | **2003** |   | **2002** |   | **2001** |   |
|-------------------------------------|--------|----------|--------|----------|--------|----------|--------|
|                                |   |     |   |     |   |     |   |
| Whitney Leadership Group, Inc.      |   | $        | 88,358 |     | $      | 210,849  |   | $ | 279,313 |   |
| Corporation Company of Nevada, Inc. |   | $        | 0      |     | $      | 0        |   | $ | 458,877 |   |

 

Payroll service fees wereceived from affiliates are as follows:

 
|                              |   | **2003** |   | **2002** |   | **2001** |   |
|-----------------------------------|--------|----------|--------|----------|--------|----------|--------|
|                              |   |     |   |     |   |     |   |
| MRS Equity Corp.                  |   | $        | 63,204 |     | $      | 145,190  |   | $ | 53,105 |   |
| Precision Software Services, Inc. |   | $        | 0      |     | $      | 0        |   | $ | 42,024 |   |
| Whitney Leadership Group, Inc.    |   | $        | 0      |     | $      | 14,204   |   | $ | 0 |   |

 

In September2001, we purchased for $212,500 a 20% interest in Rancho Monterey, S.A., aPanama company organized in May 2001 to develop unimproved real estate in CostaRica.  Prior to our investment, RanchoMonterey was owned by four persons, comprised of three nonaffiliated personsand Mr. Whitney, each of whom owned 25% of Rancho Monterey.  We paid the same price for our interest inRancho Monterey as the other four persons paid.  In the summer of 2003, we acquired an additional 10% interest inRancho Monterey, thus increasing our holdings to 30% of Rancho Monterey throughthe issuance of $650,000 indebt.  Wealso own 6% of Monterey del Este (a Panama Company organized to developunimproved real estate in Costa Rica) and a 20% interest in Monterey del Mar (aPanama Company organized to develop an ocean-front boutique hotel on thepacific Coast Rica). Mr. Whitney also indirectly owns 11.4% of Rancho Montereyand 6% of Monterey del Este.  Ronald Simon,Chief Financial Officer, indirectly owns 1.4% of Rancho Monterey.

 

In November 2001 wepurchased all of the outstanding common stock of Precision Software Services,Inc. from Mr. Whitney and John F. Kane, who subsequently became one of ourexecutive officers, in exchange for 170,000 shares and 163,324 shares,respectively, of our common stock. Prior to the purchase, Precision developedand licensed educational software for us. Precision continues to developsoftware for us as a wholly-owned subsidiary.

 

In July 2003, we acquiredfrom John F. Kane, our Vice President of Marketing, all of the outstandingshares of Equity Corp. Holdings, Inc., which owns MRS Equity Corp., for apurchase price of $250,000, comprised of $62,500 in cash, 62,500 shares of ourcommon stock valued at $125,000 at closing and $62,500 payable one year fromthe closing date evidenced by a promissory note bearing interest at 7% perannum.  We also agreed to assume and paya promissory note issued to Mr. Whitney by Equity Corp. on June 1, 2002 in theamount of $4,750,000 payable $1,000,000 in July 2003 and July 2004 and teninstallments of $275,000 payable in January and July beginning in 2005 through2009. The unpaid balance bears interest at 7% per annum. Equity Corp. incurredthis $4,750,000 obligation when it elected to redeem all of Mr. Whitney’sstock ownership in Equity Corp., which amounted to 90% of the outstanding stockof Equity Corp., as of June 1, 2002.

 

In July 2003, we acquiredall of the outstanding common stock of Whitney Leadership Group, Inc. from Mr.Whitney and his wife, for a purchase price of $1,200,000, which was paid$300,000 at closing and $300,000 payable in each of the following three years.The outstanding balance is evidenced by a promissory note bearing interest at7% per annum.

 

From 1999 to 2002 we granted91,000 stock options to Mr. Whitney’s wife and two children, all of whom areemployees of our company. Mr. Whitney’s wife has been an employee since 1992,his daughter has been an employee since 1995 and his son has been an employeesince 2000. We also granted 25,600 stock options to the wife of Mr. Brevoort, aformer executive officer. Mrs. Brevoort has been an employee since 1992. Allwere granted stock options under our employee stock option plan.

 

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Historically, our Board ofDirectors has been composed solely of Messrs. Whitney and Simon who areresponsible for setting the compensation of all of our executive officers,including Messrs. Whitney and Simon. These two individuals also approved theabove described related party transactions with Whitney Leadership and EquityCorp. Holdings prior to our appointment of our three independent directors.However pursuant to the acquisition agreements, we obtained independentfairness opinions for these acquisitions.

 

From time to time Mr.Whitney benefits from our students’ purchase of residential lots and theconstruction of homes on lots they acquire in the Cape Coral, Florida area.Lots purchased by students may be sold to them by Mr. Whitney or other lotowners. The purchase price of lots sold by Mr. Whitney is consistent with lotprices sold by others in the Cape Coral area. Mr. Whitney receives a commissionof $5,000 from Gulf Stream Development Group, Inc. for houses built by GulfStream for our students. Mr. Whitney owns 25% of the stock of Gulf Stream.  Mr. Whitney personally benefits from thesetransactions and the Company receives no additional compensation.  As the Company is not in the business ofselling land and constructing homes, Mr. Whitney is not preventing revenue opportunities with his personalactivities.  We have elected not toenter into the business of selling lots to students or building homes for them,as we do not believe the returns in doing so would match our returns in the post-secondaryeducation business. Our decision not to enter either of these businesses wasunanimously ratified by a vote of our independent directors.

 

In our view, the terms ofthe transactions described above are no less favorable than could have been obtainedfrom independent third parties. Further, all ongoing and future affiliatedtransactions will be made or entered into on terms that are no less favorableto us than those that could be obtained from unaffiliated third parties, andall ongoing and future affiliated transactions and any forgiveness of loanswill be approved by a majority of the independent and disinterested members ofour Board of Directors.

 

**ITEM 14.    PRINCIPAL ACCOUNTANT FEES ANDSERVICES**

 

Ehrhardt Keefe Steiner &Hottman, P.C., Denver, Colorado (“EKS&H”), conducted the audit of ourfinancial statements for the year ended December 31, 2003. It is ourunderstanding that this firm is obligated to maintain audit independence asprescribed by the accounting profession and certain requirements of theSecurities and Exchange Commission. As a result, our directors do specificallyapprove, in advance, nonaudit services provided by EKS&H, and it considersthe effect, if any, of such services on audit independence.

 

EKS&H’s fees for the2003 annual audit, review of interim financial statements, and registrationstatement filings were approximately $ 180,000. Fees for all other professionalservices rendered by EKS&H during the year ended December 31, 2003 totaledapproximately $ 48,000 and were related primarily to tax services andregulatory reviews. No fees were billed for financial information systemsdesign and implementation services. We have concluded that the provision ofservices by EKS&H is compatible with maintaining its independence.

 

29

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**PART IV**

 

**ITEM15.    EXHIBITS AND REPORTS ON FORM 8-K**

 
| (a)    | Reports on Form 8K                                                                                                                                                        |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (i)            On October 17, 2003, the Registrant filed on 8K  disclosing its acquisition of SpeakTec, Inc.       |
|   | (ii)           On December 2, 2003, the Registrant  filed an 8K disclosing its acquisition of Success Development, Inc. |
| (b)    | Exhibits                                                                                                                                                                  |

 
| **Exhibit No.** |   | **Description**                                                                                                                                                                                                                                                                                                                                                  |
|----------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |   |                                                                                                                                                                                                                                                                                                                                                             |
| 3.1                  |   | Articles of Incorporation  (1)                                                                                                                                                                                                                                                                                                                                   |
| 3.2                  |   | Bylaws (1)                                                                                                                                                                                                                                                                                                                                                       |
| 3.3                  |   | Amended Articles of  Incorporation (1)                                                                                                                                                                                                                                                                                                                           |
| 3.4                  |   | Amended Articles of Incorporation  (1)                                                                                                                                                                                                                                                                                                                           |
| 4.1                  |   | Specimen Stock Certificate  (1)                                                                                                                                                                                                                                                                                                                                  |
| 10.01                |   | Ontario Canada Office  Lease (2)                                                                                                                                                                                                                                                                                                                                 |
| 10.02                |   | Utah Office Lease (2)                                                                                                                                                                                                                                                                                                                                            |
| 10.03                |   | Business Advisory  Agreement with Newbridge Securities Corporation (2)                                                                                                                                                                                                                                                                                           |
| 10.04                |   | 1998 Stock Option  Agreement (2)                                                                                                                                                                                                                                                                                                                                 |
| 10.05                |   | Agreement to Purchase  Precision Software Services, Inc. (2)                                                                                                                                                                                                                                                                                                     |
| 10.06                |   | Agreement to Purchase MRS  Equity Corp. (2)                                                                                                                                                                                                                                                                                                                      |
| 10.07                |   | Employment Agreement with  Mr. Whitney (2)                                                                                                                                                                                                                                                                                                                       |
| 10.08                |   | Employment Agreement with  Mr. Simon (2)                                                                                                                                                                                                                                                                                                                         |
| 10.09                |   | Employment Agreement with  Mr. Maturo (2)                                                                                                                                                                                                                                                                                                                        |
| 10.10                |   | Employment Agreement with  Mr. Miller (2)                                                                                                                                                                                                                                                                                                                        |
| 10.11                |   | Employment Agreement with  Mr. Kane (2)                                                                                                                                                                                                                                                                                                                          |
| 10.12                |   | Purchase Agreement – Teach  Me To Trade (2)                                                                                                                                                                                                                                                                                                                 |
| 10.13                |   | Purchase Agreement –  Whitney Leadership Group (2)                                                                                                                                                                                                                                                                                                          |
| 10.14                |   | Purchase Agreement –  Success Development, Inc.(3)                                                                                                                                                                                                                                                                                                          |
| 10.15                |   | Purchase Agreement -  SpeakTec, Inc.(4)                                                                                                                                                                                                                                                                                                                          |
| 14.1            |   | Code of Ethics (5)                                                                                                                                                                                                                                                                                                                                               |
| 21         |   | The Registrant has ten  active subsidiaries as follows: Precision Software Services, Inc.;  Intelligence Network, Inc.; Whitney Canada, Inc.; Whitney Consulting  Services, Inc.; Whitney Education Group, Inc.; Whitney Internet Services,  Inc.; Whitney Mortgage.com, Inc.; Whitney U.K., Limited; Coral Aviation,  Inc.; American Home Buyers Alliance, Inc. |
| 31.1                 |   | Certification of Periodic  Report – Chief Executive Officer                                                                                                                                                                                                                                                                                                 |
| 31.2                 |   | Certification of Periodic  Report – Chief Financial Officer                                                                                                                                                                                                                                                                                                 |
| 32.1                 |   | Certification of Periodic  Report – Chief Executive Officer                                                                                                                                                                                                                                                                                                 |
| 32.2                 |   | Certification of Periodic  Report – Chief Financial Officer                                                                                                                                                                                                                                                                                                 |
| 99.1                 |   | Class A Warrant Agreement  (1)                                                                                                                                                                                                                                                                                                                                   |
| 99.2                 |   | Class B Warrant Agreement  (1)                                                                                                                                                                                                                                                                                                                                   |
| 99.3                 |   | Non-Qualified Incentive  Stock Option Plan (1)                                                                                                                                                                                                                                                                                                                   |

 

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| (1) | Incorporated by reference  to the Registrant’s Registration Statement on Form 10SB12G(SEC File No. 000-27403). |
|-----|---------------------------------------------------------------------------------------------------------------------|
| (2) | Incorporated by reference  to the Registrant’s Registration Statement on Form S-1(SEC File No. 333-103156).    |
| (3) | Incorporated by reference  to the Registrant’s current report on Form 8K dated December 2, 2003                |
| (4) | Incorporated by reference  to the Registrant’s current report on Form 8K dated October 17, 2003                |
| (5) | Incorporated by reference  to the Registrant’s current report on Form 10K dated March 30, 2004                 |

 

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**SIGNATURES**

 

In accordance with Section13 or 15(d) of the Exchange Act, the Registrant caused this Report to be signedon its behalf by the undersigned, thereunto duly authorized.

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

 

In accordance with theExchange Act, this Report has been signed below by the following persons onbehalf of the Registrant and in the capacities and on the dates indicated:

 
| **Signature**                             |   | **Title**                                                       |   | **Date**     |
|-------------------------------------------|--------|-----------------------------------------------------------------|--------|--------------|
|                                      |   |                                                            |   |         |
| /s/   RUSSELL  A. WHITNEY  |   | Chairman of the Board of  Directors and Chief Executive Officer |   | June 2, 2004 |
| **Russell A. Whitney**                    |   |                                                            |   |         |
|                                      |   |                                                            |   |         |
| /s/   RONALD  S. SIMON     |   | Executive Vice President,  Chief Financial Officer,             |   | June 2, 2004 |
| **Ronald S. Simon**                       |   | Principal Accounting  Officer and Director                      |   |         |
|                                      |   |                                                            |   |         |
| /s/   GONZALO  DeRAMON     |   | Director                                                        |   | June 2, 2004 |
| **Gonzalo DeRamon**                       |   |                                                            |   |         |
|                                      |   |                                                            |   |         |
| /s/   FREDERICK  A. CARDIN |   | Director                                                        |   | June 2, 2004 |
| **Frederick A. Cardin**                   |   |                                                            |   |         |
|                                      |   |                                                            |   |         |
| /s/   CHESTER  P. SCHWARTZ |   | Director                                                        |   | June 2, 2004 |
| **Chester P. Schwartz**                   |   |                                                            |   |         |

 

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