<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------------------------
FORM 10-Q
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from:
------------------------------
Commission file number 0-27403
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WHITNEY INFORMATION NETWORK, INC.
(Exact name of Registrant as specified in its charter.)
COLORADO 84-1475486
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4818 Coronado Parkway
Cape Coral, Florida 33904
(Address of principal executive offices, including zip code.)
(941) 542-8999
Registrant's telephone number, including area code.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934
during the preceding 12 months (or for such 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 x NO
The number of shares outstanding of the Registrant's Common Stock, no par
value per share, at September 30, 1999 was 7,500,047 shares.
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<PAGE> 2
PART I
ITEM 1. FINANCIAL STATEMENTS.
WHITNEY INFORMATION NETWORK, INC.
Consolidated Financial Statements
For the Nine Months Ended September 30, 1999 and 1998
Index
Consolidated Balance Sheet . . . . . . 1
Consolidated Statement of Operations . . . . 2
Consolidated Statement of Cash Flows . . . . 3
Consolidated Statement of Changes in Shareholders'
Equity . . . . . . . . . . 4
Comparative Consolidated Statement of Operations . . 5
Notes to the Consolidated Financial Statements. . . 6-15
<PAGE> 3
WHITNEY INFORMATION NETWORK, INC.
Consolidated Balance Sheet
At September 30, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,205,523 $ 465,010
Accounts Receivable $ 1,436,997 $ 1,067,572
Notes Receivable $ 6,364 $ 19,083
Prepaid Advertising, Taxes and Other $ 1,076,705 $ 262,523
Due From Affiliates $ 99,211 $ 11,210
Land for Resale $ 9,686 $ 12,336
Deferred Production Costs $ 114,953 $ 114,953
Deferred Seminar Costs $ 8,012,511 $ 621,934
Miscellaneous Receivable and
Other Current Assets $ 95,226 $ 24,098
----------- -----------
Total Current Assets $ 12,057,176 $ 2,598,719
------------ -----------
PROPERTY AND EQUIPMENT
depreciation of $16,653 in 1999 $ 181,481 $ -
------------ -----------
OTHER ASSETS
Contract Rights
(net of amortization of $1,634) $ 48,683 $ -
------------ -----------
TOTAL ASSETS $ 12,287,340 $ 2,598,719
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
CURRENT LIABILITIES
Accounts Payable $ 874,294 $ 363,273
Income Taxes Currently Payable $ 528,538 $ 240,000
Loans From Affiliates $ 89,755
Deferred Educational Revenues $ 8,801,815 $ 1,445,792
Other Accrued Liabilities $ 172,395 $ 29,750
------------ -----------
TOTAL CURRENT LIABILITIES $ 10,377,042 $ 2,168,570
------------ -----------
OTHER LIABILITIES AND DEFERRED CREDITS
Deferred Income Taxes $ 267,000
Loans from Shareholder $ 64,979
------------ -----------
TOTAL OTHER LIABILITIES $ 267,000 $ 64,979
------------ -----------
TOTAL LIABILITIES $ 10,644,042 $ 2,233,549
------------ -----------
SHAREHOLDERS' EQUITY
Common Stock (no par value stock, 7,500,047
shares issued and outstanding) $ 67,102 $ 2,602
Paid In Capital $ 900 $ 900
Retained Earnings $ 1,575,296 $ 361,668
------------ -----------
TOTAL SHAREHOLDERS' EQUITY $ 1,643,298 $ 365,170
------------ -----------
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $ 12,287,340 $ 2,598,719
============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
1
<PAGE> 4
WHITNEY INFORMATION NETWORK, INC.
Consolidated Statement of Operations
For the Nine Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Sales $ 16,715,387 $ 13,058,283
COST OF SALES $ 7,082,955 $ 4,626,462
------------ ------------
Gross Profit $ 9,632,432 $ 8,431,821
------------ ------------
EXPENSES
Advertising and Sales Expense $ 4,780,332 $ 4,953,484
General and Administrative Expense $ 3,395,366 $ 2,775,364
------------ ------------
$ 8,175,698 $ 7,728,848
------------ ------------
Income Before Taxes $ 1,456,734 $ 702,973
Income Taxes (see note) $ (548,600) $ (240,000)
------------ ------------
NET INCOME $ 908,134 $ 462,973
Retained Earnings, beginning of year $ 667,162 $ (101,274)
------------ ------------
Retained Earnings, end of year $ 1,575,296 $ 361,699
============ ============
Basic and Fully Diluted
Earnings Per Share** $ 0.12 $ 0.06
============ ============
Weighted average number of shares outstanding
during the period 7,513,859 7,500,047
============ ============
</TABLE>
** Prior periods have been restated to reflect
the merger as if it took place at the beginning
of the period.
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE> 5
WHITNEY INFORMATION NETWORK, INC.
Consolidated Statement of Cash Flows
For the Nine Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings from operations $ 908,134 $ 462,942
Add back Depreciation and Amortization $ 18,287
----------- -----------
$ 926,421 $ 462,942
Changes in operating assets and liabilities
Increase in Accounts Receivable $ (456,734) $ (989,456)
Decrease in Notes Receivable $ 4,194 $ 6,454
(Increase) Decrease in
Prepaids and other assets $ (935,257) $ (82,835)
Increase in Other Receivables $ (74,745) $ (16,772)
Increase in Accounts Payable $ 309,586 $ 279,166
Increase in Deferred Income $ 4,843,571 $ 1,206,793
Increase in Income Tax Payable $ 380,538 $ 240,000
Increase in Other Liabilities $ 109,447 $ 22,937
------------ -----------
Net cash flow from operations $ 5,107,021 $ 1,129,229
------------ -----------
CASH USED IN INVESTING ACTIVITIES
Purchase of Property and Equipment $ (198,134)
Acquisition of Contract Rights $ (50,317)
Real Estate Sold $ 67,625
Loans made to Affiliates $ (77,407)
------------ -----------
Net cash used in investing activities $ (325,858) $ 67,625
------------ -----------
CASH USED IN FINANCING ACTIVITIES
Issuance of Common Stock $ 64,500
Loans from affiliates $ 18,111 $ (90,992)
Increase in Deferred Expenses $ (4,028,822) $ (670,888)
------------ -----------
Net cash used in financing activities $ (3,946,211) $ (761,880)
------------ -----------
Increase in cash $ 834,952 $ 434,974
Cash at beginning of year $ 370,571 $ 30,036
------------ -----------
Cash at end of year $ 1,205,523 $ 465,010
============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 6
WHITNEY INFORMATION NETWORK, INC.
Consolidated Statement of Changes in Stockholders' Equity
For the Nine Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
Common Stock Paid Retained Total
Number of In Earnings Shareholders'
Shares Value Capital (Deficit) Equity
<S> <C> <C> <C> <C> <C>
Balance
December 31, 1996 976,200 $ 2,602 $ (2,500) 102
Net loss for 1997 $ (64) $ (64)
--------- -------- ----- ----------- -----------
Balance
December 31, 1997 976,200 $ 2,602 $ (2,564) $ 38
Reverse Split (226,153)
Merger with Win Systems,
Inc. 6,750,000 $ 900 $ (98,710) $ (97,810)
Net income for the
period ending
December 31, 1998 $ 768,436 $ 768,436
--------- -------- ----- ----------- -----------
Balance
December 31, 1998 7,500,047 $ 2,602 $ 900 $ 667,162 $ 670,664
Issuance of Shares
for Acquisitions 20,000 $ 50,000 $ 50,000
Issuance of Shares
for Services 8,000 $ 14,500 $ 14,500
Net income for the
Nine months ending
September 30, 1999 $ 908,134 $ 908,134
--------- -------- ----- ----------- -----------
Balance
September 30, 1999 7,528,047 67,102 900 1,575,296 1,643,298
========= ======== ===== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
4
<PAGE> 7
WHITNEY INFORMATION NETWORK, INC.
Comparative Consolidated Statement of Operations
For the Nine Months and Three Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Sales $ 6,429,067 $ 4,879,288 $16,715,387 $13,058,283
Cost of Sales $ 2,742,865 $ 1,760,533 $ 7,082,955 $ 4,626,462
----------- ----------- ----------- -----------
Gross Profit $ 3,686,202 $ 3,118,755 $ 9,632,432 $ 8,431,821
----------- ----------- ----------- -----------
Expenses
Advertising and
Sales Expense $ 1,806,134 $ 1,697,127 $ 4,780,332 $ 4,953,484
General and
Administrative Expense $ 1,393,324 $ 1,097,771 $ 3,395,366 $ 2,775,364
----------- ----------- ----------- -----------
$ 3,199,458 $ 2,794,898 $ 8,175,698 $ 7,728,848
----------- ----------- ----------- -----------
Income Before Taxes $ 486,744 $ 323,857 $ 1,456,734 $ 702,973
Income Taxes (see note) $ (204,719) $ (133,000) $ (548,600) $ (240,000)
----------- ----------- ----------- -----------
NET INCOME $ 282,025 $ 190,857 $ 908,134 $ 462,973
Retained Earnings,
beginning of period $ 1,293,271 $ 170,842 $ 667,162 $ (101,274)
----------- ----------- ----------- -----------
Retained Earnings,
end of period $ 1,575,296 $ 361,699 $ 1,575,296 $ 361,699
=========== =========== =========== ===========
Basic and Fully Diluted
Earnings Per Share** $ 0.04 $ 0.03 $ 0.12 $ 0.06
=========== =========== =========== ===========
Weighted average number of
shares outstanding during
the period. 7,526,025 7,500,047 7,519,945 7,500,047
=========== =========== =========== ===========
</TABLE>
** Prior periods have been restated to reflect
the merger as if it took place at the beginning
of the period.
The accompanying notes are an integral part of the consolidated
financial statements.
5
<PAGE> 8
WHITNEY INFORMATION NETWORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
SIGNIFICANT ACCOUNTING POLICIES
General
WHITNEY INFORMATION NETWORK, INC. (formerly Win Systems International,
Inc.) was incorporated under the laws of the State of Colorado and began
operations in the Educational Seminar industry on August 18, 1998 when
it merged with Win Systems, Inc.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair Value of Financial Statements
The Company's financial instruments consist principally of cash,
accounts receivable and notes receivable, deferred seminar costs,
accounts payable, accrued expenses, deferred educational revenues, and
notes payable. The carrying amounts of such financial instruments as
reflected in the balance sheets approximate their estimated fair value
as of September 30, 1999. The estimated fair value is not necessarily
indicative of the amounts the Company could realize in a current market
exchange or of future earnings or cash flows.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of WHITNEY INFORMATION NETWORK, INC. and its wholly owned subsidiaries,
Whitney Education Group, Inc. (formerly Win Systems, Inc,) Whitney
Canada, Ltd. and 1311448 Ontario Corp and Wealth Intelligence Network,
Inc., Whitney Consulting Services, Inc., Russ Whitney's Wealth Centers,
Inc. and Whitney Internet Services, Inc. All significant inter-company
accounts and transactions have been eliminated.
6
<PAGE> 9
WHITNEY INFORMATION NETWORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Revenue Recognition
Revenue from product sales is recognized at the time the sale is made.
Revenue from educational seminars is recorded (1) when the non
refundable deposit is received for the seminars (2) when it is
reasonably certain that the balance of the option to purchase additional
educational programs will be exercised and paid and (3) revenues are
deferred when the seminar proceeds are received in full in the current
period and the seminar takes place in a subsequent period. See
liability for Deferred Revenues on the balance sheet in the amount of
$8.801815 at September 30, 1999 and $1,445792 at September 30, 1998.
Deferred Expenses for Future Educational Programs
The Company incurs a liability when a student signs up to attend a
future educational seminar with the Company and the tuition that was
collected or accrued is deferred. The expenses related to the deferred
tuition are also deferred. The deferred expenses associated with future
educational programs are shown on the balance sheet as Deferred Seminar
Costs in the amount of $8,012,511 at September 30, 1999 and $621,934 at
September 30, 1998.
September 30,
Components of Deferred Expenses 1999 1998
Advertising Expense $ 4,223,395 $ 327,821
Instructors and Trainers Compensation 1,361,326 105,667
Support Services 775,611 60,203
Travel and Facility Costs 1,109,733 86,138
Administrative Expense 542,447 42,105
----------- ---------
Total $ 8,012,511 $ 21,934
=========== =========
Property and Equipment
Property and equipment are carried at cost. Depreciation is provided
using accelerated and straight-line methods over the following useful
lives:
Office Furniture . . . . . . . . 7 years
Office Equipment . . . . . . . . 5 years
Intangibles (Contract Rights) . . . . . . 15 years
Also; the Company owned land for resale at September 30, 1999, which it
plans to sell to an affiliate in the second half of 1999 (at the same
price it purchased the land from the affiliate at the beginning of
1997). See related party transactions.
7
<PAGE> 10
WHITNEY INFORMATION NETWORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Income Taxes
The Company adopted Statement of Financial Accounting Standards No. 109
(SFAS No. 109), "Accounting for Income Taxes" in 1993. SFAS No. 109
requires the liability method of accounting for income taxes. Deferred
income taxes result in temporary differences in the recognition of
revenue and expenses for income tax and financial reporting purposes.
These differences are primarily due to the differences in accrual basis
reporting for statement purposes and cash basis reporting for tax
purposes.
Accounts and Notes Receivable
Notes Receivable represent one-year notes at various interest rates
received on sales of real estate. The accounts receivable are trade
receivables arising from the sale of educational products and seminars.
The company believes the allowance for doubtful accounts is sufficient
to cover any uncollectible amounts as of September 30, 1998.
Land for Resale
The land held for resale on the balance sheet is recorded at cost and is
reasonably expected to be sold or exchanged during the succeeding year.
Net Income Per Common Share
In 1997 the Company adopted SFAS No. 128 "Earnings Per Share." SFAS No.
128 (the "Statement") establishes standards for computing and presenting
earnings per share ("EPS"). This Statement replaces the presentation of
primary EPS with a presentation of basic EPS and requires dual
presentation of basic and diluted EPS on the face of the statement of
operations for all entities with complex capital structures. This
Statement also requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation.
Mergers, Acquisitions and Capital Accounts
On August 18, 1998, Whitney Education Group, Inc. (formerly Win Systems,
Inc.) was acquired by WHITNEY INFORMATION NETWORK, INC. (formerly Win
Systems International, Inc. and prior to that Gimmel Enterprises, Inc.)
in a reverse merger whereby Whitney Education Group, Inc. exchanged 100%
of its shares for 90% of Gimmel's shares bringing the total shares of
WHITNEY INFORMATION NETWORK, INC. (issued and outstanding) at August 18,
1998 to 7,500,047. Whitney Education Group, Inc. became a wholly owned
subsidiary of Whitney Information Network, Inc. (WIN). The financial
statements from January 1, 1997 through September 30, 1999 are based
upon the assumption that the companies were combined for the entire
period and all stock splits have been reflected in the statements as of
the beginning of the period. Also on August 18, 1998, WIN issued
187,500 Class A stock purchase warrants and 340,000 Class B stock
purchase warrants. Both the Class A and Class B warrants are
exercisable at $4.00 per share.
8
<PAGE> 11
WHITNEY INFORMATION NETWORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Mergers, Acquisitions and Capital Accounts (continued)
The Class A warrants and the Class B warrants are exercisable 2 years
and 4 years respectively after the underlying stock is registered. The
Company also instituted a stock option plan for key personnel. Under
the plan options are to be granted at the fair market value at the date
of the grant and exercisable for a 10-year period after the grant with a
three-year vesting schedule. The Company has reserved 750,000 shares
for the stock option plan of which 415,000 option shares have been
granted (at an exercise price of approximately $2.00 per share) to the
balance sheet date. None have been exercised or expired to date.
On February 1, 1999 the Company purchased all of the Assets of Wealth
Intelligence Network, Inc. for 20,000 shares of stock at $2.50 per
share. In addition the Company (during the period from May to August
1999) issued 8,000 shares to a financial public relations firm in lieu
of cash for services valued at $14,500.
Related Party Transactions
The Company has rented its headquarters premises in Cape Coral, Florida
since 1992 from the Chairman of the Board and pays rent on annual
leases. Rentals under the related party lease were $35,622 and $26,606
for the nine months ended September 30, 1999 and 1998, respectively. The
company leases approximately 8,700 square feet presently. Future
minimum payments, by year and in the aggregate under capital and
noncancellable operating leases with initial or remaining terms of one
year or more are shown in the Commitments footnote.
At September 30,1999 and September 30, 1998 the related party
receivables and payables on the balance sheet were as follows:
Sept 30, 1998 Sept 30, 1999
Payables:
Long-term
Loans Payable to the Chairman
of the Board $ 64,979 $ -0-
======== =======
Short-Term
Amounts due to Whitney
Leadership Group, Inc. $ 225 $ -0-
Amounts Due to RAW, Inc. $ 1,747 $ -0-
Amounts Due to MRS Equity
Corp. $ 87,783 $ -0-
-------- -------
$ 89,755 $ -0-
======== =======
9
<PAGE> 12
WHITNEY INFORMATION NETWORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Related Party Transactions (continued)
Receivables:
Due from Whitney Leadership Group $ 98,269
Due form MRS Equity Corp $ 888
Due from RAW, Inc. $ 54
--------
$ 99,211
========
The Company has receivables from Whitney Leadership Group in the amount of
$98,269; Precision Software Services, Inc. in the amount of $0; MRS Equity
Corp. in the amount of $888 and RAW, Inc. in the amount of $54 shown on
the balance sheet as Due from Affiliates at September 30, 1999.
MRS Equity Corp. provides certain products and services for WHITNEY
INFORMATION NETWORK, INC. and WHITNEY INFORMATION NETWORK, INC. provides
MRS Equity Corp. with payroll services including leased employees.
WHITNEY INFORMATION NETWORK, INC. provides payroll services to MRS Equity
Corp in the amount of $78,844 for the six months ended September 30 1999
and $51,795 for the six months ended September 30,1998. MRS Equity Corp.
provided WHITNEY INFORMATION NETWORK, INC. with $214,800 and $159,515 for
product costs for the nine months ending1999 and 1998 respectively. MRS
Equity Corp. is a 100 percent subsidiary of Equity Corp. Holdings, Inc. of
which the Chairman of the Board of WHITNEY INFORMATION NETWORK, INC. owns
a controlling interest.
Precision Software Services, Inc. is a Company that develops and licenses
software primarily for the real estate and small business industries. The
Chairman of the Board of Directors of WHITNEY INFORMATION NETWORK, INC.
owns a majority interest in Precision Software Services, Inc. During the
first nine months of 1999 and 1998 the Company provided WHITNEY
INFORMATION NETWORK, INC. $247,623 and $139,389 in product cost,
respectively. WHITNEY INFORMATION NETWORK, INC. provides payroll services
to Precision Software Services, Inc in the amount of $31,608 for the nine
months ended September 30, 1999 and $21,900 for nine months ended
September 30, 1998.
10
<PAGE> 13
WHITNEY INFORMATION NETWORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Related Party Transactions (continued):
WHITNEY INFORMATION NETWORK, INC. provides payroll services to Whitney
Leadership Group, Inc. in the amount of $54,948 for 1999 and $75,071 for
1998. The Chairman of the Board of WHITNEY INFORMATION NETWORK, INC. is
the President and Chief Operating Officer of Whitney Leadership Group,
Inc.
RAW, Inc. is a company owned by the Chairman of the Board of WHITNEY
INFORMATION NETWORK, INC., which buys, sells and invests in real
property. It was felt that the Company could enhance its operations if
it could also provide the same services that RAW, Inc. did. RAW, Inc.
on January 1, 1997 sold WHITNEY INFORMATION NETWORK, INC., a portion of
its inventory of real estate on hand at that date, Management decided in
late 1997 to discontinue real estate purchases in WHITNEY INFORMATION
NETWORK, INC., as this practice detracted the Company from its primary
focus of education and training.
In 1998, the company's outside accountant became the Chief Financial
Officer of the company and a shareholder of the company. In the year
ended December 31, 1998 the company paid $ 19,052 in accounting fees to
its now Chief Financial Officer and $-0- in 1999.
Those items above that are reasonably expected to be collected within
one year are shown as short term and those, which are not expected to be
collected during the next twelve months, are shown as long-term.
Income Taxes
The reconciliation between the provision for income taxes and the amount
which results from applying the federal statutory rate of 34% to the
income before income taxes is as follows:
Income tax expense at the statutory rate
for continuing operations 9/30/99 $ 496,450
State taxes, net of federal tax benefit $ 52,150
Income tax expense per books $ 548,600
=========
Currently Payable $ 548,600
Deferred -0-
---------
$ 548,600
=========
11
<PAGE> 14
WHITNEY INFORMATION NETWORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Income Taxes (continued)
At December 31, 1997 the company had Federal net operating loss carry
forwards of approximately $96,000 that were used in 1998. The company
has previously reported its revenues and expenses for income tax
purposes on the "cash basis" of accounting. Deferred income taxes of
$267,000 reflect primarily the taxes owing on the change of accounting
method (at the end of 1998) to be paid over the next six years and the
net tax effects of differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used
for income tax purposes.
Indebtedness
There were no short or long-term borrowings from unrelated third parties
for the nine months ending September 30, 1998 and 1999. The interest
expense was $-0- for the nine months ending September 30, 1998 and 1999
to date. (See Related Party Transactions). The Company was indebted to
its Chairman for short-term non-interest bearing advances in the amount
of $64,979 at September 30, 1998 and $0 at September 30, 1999.
Commitments and Contingencies
The company carries liability insurance coverage, which it considers
sufficient to meet regulatory and consumer requirements and to protect
the company's employees, assets and operations.
The company, in the ordinary course of conducting its business, is
subject to various state and federal requirements. In the opinion of
management, the company is in compliance with these requirements.
The company is currently working to resolve the potential impact of the
Year 2000 on the processing of date-sensitive information by the
Company's computerized information systems. The year 2000 problem is
the result of computer programs being written using two digits (rather
than four) to define the applicable year. Any of the Company's programs
that have time-sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000, which could result in
miscalculations or system failures. Costs of addressing potential
problems are expensed as incurred and are not expected to have a
material adverse impact on the Company's financial position, results of
operations or cash flows in future periods. However, if the Company
12
<PAGE> 15
WHITNEY INFORMATION NETWORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Commitments and Contingencies (Continued)
or its vendors are unable to resolve such issues in a timely manner; it
could result in a financial risk. Accordingly, the Company plans to
devote the necessary resources to resolve all significant Year 2000
issues in a timely manner. While the Company does not at this time
anticipate significant problems with suppliers, it will develop
contingency plans, if required, with these third parties due to the
possibility of compliance issues.
The Company leases the following properties: (1) Its headquarters
building in Cape Coral Florida at an annual rental of $73,844 for
approximately 8,700 square feet, (2) Its telemarketing facility in
Draper, Utah at an annual rental of $46,563 for 3,678 square feet
beginning August 8, 1999 and (3) a Wealth Center facility in Jackson, MS
for $42,600 per year for 3,000 square feet beginning September 1, 1999.
Future minimum payments, by year and in the aggregate under capital and
noncancellable operating leases with initial or remaining terms of one
year or more are as follows:
First year $ 133,795
Second Year $ 158,820
Third Year $ 120,020
Fourth Year $ 39,675
13
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto.
OVERVIEW
On August 18, 1998, Gimmel Enterprises, Inc., a shell company listed
on the NASD OTC Bulletin Board acquired all of the outstanding shares of
Whitney Education Group, Inc. (formerly Win Systems, Inc.). Prior to this
Gimmel Enterprises, Inc. had no operations and its activities consisted of
efforts to establish a new business. Gimmel Enterprises, Inc. changed its
name to Whitney Information Network, Inc (WIN!). Whitney Education Group,
Inc was a privately held company formed in 1992. For financial and
reporting purposes the acquisition has been treated as a recapitalization
of WIN! with WIN! as the acquirer (a reverse merger). The historical
financial statements prior to August 19, 1998 are those of Whitney
Education Group, Inc.
Whitney Information Network, Inc. (WIN!) is a provider of education
in the areas of real estate, finance, Internet and other post secondary
career related training. Its learning solutions are designed to deploy
and manage knowledge practically and more effectively for use as a
competitive advantage. The Company has accomplished its position in the
market and growth through its innovative distribution channels, including
classroom education, one-on-one mentoring, group instruction, training
centers and Internet marketing.
NINE MONTHS AND QUARTER ENDED SEPTEMBER 30, 1999
REVENUE
Revenue decreased by 34.2% from $4,789,288 to $6,429,067 for the
three months ended September 30, 1999 as compared to the three months
ended September 30, 1998. The increase in revenue is a direct result of
increased basic and advance real estate courses available to students
along with a successful media campaign.
Revenues
Revenues for the nine months ended September 30, 1999 increased to
$16,715,387 as compared with $13,058,283 for the nine months ended
September 30, 1998 an increase of $3,657,149,or 28%. Total deferred
revenues on the balance sheet were $8,357,501 and $842,304 at September
30, 1999 and 1998, respectively. Cost of sales increased to $2,139,434 in
the three months ending September 30, 1999 from $1,886,438 in the three
months ending September 30, 1998. Total cost of sales increased to
$4,340,090 in the six months ending September 30, 1998 from $2,865,029 in
the six months ending September 30, 1998.
Advertising and Sales Expense
Total Advertising and Sales Expense increased in the 3rd quarter of
1999 to $1,806,134 form $1,697,127 and remained substantially the same for
the nine months ending September 30, 1999 as compared with the same six
month period in 1998 (being $4,780,332 and $4,953,484 respectively. This
lack of change in advertising and sales expenses represents a greater
number of period costs incurred in the first six months of 1998 where
certain marketing strategies were being tested and refined. The results
of these tests and refinements have materialized in the first six months
of the current year. Thus, expenses did not increase proportionately with
sales due to the increased expenditures in the first half of 1998.
<PAGE> 17
Advertising, sales and marketing expenses consist primarily of TV and
newspaper advertising, direct mailings, travel, public relations, trade
shows and other marketing literature and overhead allocations.
General and Administrative Expense
General and Administrative Expenses (G & A) increased in the 3rd
quarter to $1,393,324 at September 30, 1999 from $1,097,771 at September
30, 1998 an increase of $299,453 or 27% and decreased from $4,953,484 for
the nine months ending September 30, 1998 to $4,780,332 for the nine
months ending September 30, 1999. The increase in the current quarter
represents start up expenses for several new divisions and increased
administrative hiring to facilitate the increase in revenues and volume.
The overall reduction in the nine months ending September 30, 1999 of
$173,152 reflects the initial startup expenses in adding more crews in the
first half of 1998 and development of additional products in 1998 that
were one time expenditures. General and administrative expenses consist
mainly of salaries and other personnel-related expenses for the Company's
administrative, executive and finance personnel as well as outside legal
and audit costs.
Net income $282,025 (net of taxes of $204,719) in the 3rd quarter of
1999 increased by 48% over the prior 3rd quarter of 1998 of $190,857 or
$.04 a share as compared with $.03 a share for the comparable quarter last
year. Nine months net income was $908,134 for the period ending September
30, 1999 and $462,973 for the period ending September 30, 1998, an
increase of $445,161 or 96% over the prior period. This resulted in
earnings per share of $.012 per share for the nine months ending September
30, 1999 as compared with $.06 for the nine months ending September 30,
1998.
Liquidity and Working Capital
At September 30, 1999 the company had cash of $1,205,523 as compared
with $465,010 at September 30, 1998. This increase of $740,513 is
attributable solely to operations. The company anticipates that its cash
flow from operations will be sufficient to meet its working capital needs
for the next 12 months.
Receivables and Prepaid Advertising
Accounts receivable increased by $369,425 to $1,436,997 at September
30, 1999 over $1,067,572 at September 30, 1998. This increase reflects
the portion of the increased revenues that were credit sales. Prepaid
Advertising, Taxes and other consisted of prepaid Federal income taxes of
$448,000 and prepaid state income taxes of $72,000 for a total of $520,000
and prepaid media was $490,825. There were no prepaid taxes at September
30, 1998 and prepaid media at September 30, 1998 was approximately
$250,000. The prepaid media is usually purchased four to six weeks in
advance of each educational conference held. The prepaid taxes are for
1999 taxes and a portion of the taxes payable due to the change in the
accounting method for tax purposes at December 31, 1998.
Deferred Educational Revenues
Deferred educational revenues arise when a student purchases a course
or courses and does not attend those courses until after the balance sheet
date. All courses must be scheduled by the students within 90 days of
registration and taken within one year. Deferred revenues at the
September 30, 1999 were $8,801,815 as compared with those at September 30,
1998 of $1,445,792. This substantial increase represents a natural
increase from increased volume and an increase due to a change in emphasis
from basic training to intensified training and educational camps. Thus;
a greater amount of revenue has been deferred as a larger proportion
<PAGE> 18
educational products sold in the current nine months will not be realized
until the student attends the courses that he/she has been registered. In
addition to the deferred revenues, there is a commensurate amount of
expenses associated with those revenues that is also deferred. At
September 30, 1999 there were $8,012,511 of expenses that were deferred as
compared to $621,934 for the period ending September 30, 1998. A
breakdown of the amounts deferred appears below:
September 30,
Components of Deferred Expenses 1999 1998
Advertising Expense $ 4,223,395 $ 327,821
Instructors and Trainers Compensation 1,361,326 105,667
Support Services 775,611 60,203
Travel and Facility Costs 1,109,733 86,138
Administrative Expense 542,447 42,105
----------- ---------
Total $ 8,012,511 $ 621,934
=========== =========
YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
Revenues for the year ended December 31, 1998 increased to
$12,760,208 as compared with $5,558,280 for the year ended December 31,
1997 an increase of $7,201,928 or 130%. Total deferred revenues on the
balance sheet were $3,958,244 and $239,000 at December 31, 1998 and 1997,
respectively. Cost of sales increased to $4,682,850 in the year ended
December 31, 1998 from $1,910,300 in the year ended December 31, 1997.
Total Advertising, Selling and General and Administrative expenses
increased in the year ended December 31, 1998 to $7,893,922 form
$3,637,716 as compared with 1997. These substantial increases in revenues
and expenses in 1998 over 1997 reflect a general increase in business and
reflect the results of the company's plan to expand its business into new
markets and develop new products.
Sales and marketing expenses consist primarily of TV and newspaper
advertising, direct mailings, travel, public relations, trade shows and
other marketing literature and overhead allocations. General and
administrative expenses consist mainly of salaries and other personnel-
related expenses for the Company's administrative, executive and finance
personnel as well as outside legal and audit costs.
Net income $768,436 (net of taxes of $415,000) for the year ended
December 31, 1998 increased dramatically over the year ended December 31,
1997 of $10,264 or $.10 a share as compared with $.01 a share for the
comparable year.
Liquidity and Working Capital
At December 31, 1998 the company had cash of $370,571 as compared
with $30,036 at December 31, 1997. This increase of $340,535 is
attributable primarily to operations. The company anticipates that its
cash flow from operations will be sufficient to meet its needs in the next
12 months.
In addition, the company from time to time evaluates potential
acquisitions of business, products and/or technologies that complement the
company's business. To the extent that resources are insufficient to fund
the company's activities, the company may need to raise additional funds.
There can be no assurance that such additional funding, if needed, will be
available. If adequate funds are not available on acceptable terms, the
<PAGE> 19
company may be unable to expand its business, develop or enhance its
products and services, take advantage of future opportunities or respond
to competitive pressures, any of which could have a material adverse
effect on the Company's business, operating results and financial
condition.
The Company does not anticipate a problem in funding its "Wealth
Centers" (Storefront adult education facilities located in upscale strip
malls), as the up front costs are minimal and its Joint Venture Partners
will pay half of the star-up costs.
Fluctuations in Quarterly Operating Results
The Company's quarterly operating results have varied in the past and
are expected to vary in the future as a result of a variety of factors,
some of which are outside the Company's control. Factors that may
adversely affect the Company's quarterly operating results include the
demand for technology-based training in general and demand for online
learning solutions in particular: the size and timing of educational
sessions and registrations, the mix of revenue from products and services,
the mix of products sold, market acceptance, etc.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company knows of no litigation present, threatened or
contemplated or unsatisfied judgment against the Company, its officers or
directors or any proceedings in which the Company, its officers or
directors are a party.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
The rights of the holders of the Company's securities have not been
modified nor have the rights evidenced by the securities been limited or
qualified by the issuance or modification of any other class of
securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
There are no senior securities issued by the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters presented to the shareholders for vote during
the nine months ended October 31, 1999.
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS
Number Description
27 Financial Data Schedule
REPORTS ON FORM 8-K
No reports on Form 8-K were filed for the quarter ended October 31,
1999.
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated this 6th day of January, 1999.
WHITNEY INFORMATION NETWORK, INC.
(the "Registrant")
BY: /s/ Ronald S. Simon
Ronald S. Simon
Secretary/Treasurer, Chief Financial Officer
and a member of the Board of Directors
Chief Financial Officer and a member of
the Board of Directors.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at September 30, 1999 (Unaudited)
and the Consolidated Statement of Income for the nine months ended September 30,
1999 (Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,205,523
<SECURITIES> 0
<RECEIVABLES> 1,436,997
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,057,176
<PP&E> 198,134
<DEPRECIATION> 16,663
<TOTAL-ASSETS> 12,287,340
<CURRENT-LIABILITIES> 10,377,042
<BONDS> 0
0
0
<COMMON> 67,102
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 12,287,340
<SALES> 16,715,387
<TOTAL-REVENUES> 16,715,387
<CGS> 7,082,955
<TOTAL-COSTS> 7,082,955
<OTHER-EXPENSES> 8,175,698
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,456,734
<INCOME-TAX> 548,600
<INCOME-CONTINUING> 908,134
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 908,134
<EPS-BASIC> 0.12
<EPS-DILUTED> 0.12
</TABLE>
