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John T. Reed analysis of the lowlights in Whitney Information Network, Inc.' 2003 annual report 2 "Our Board of Directors, Without Stockholder Approval, May Issue Preferred Stock Which Could Reduce the Voting Power of Our Other Stockholders" ' "Our Board of Directors, without stockholder approval, may issue up to 10,000,000 shares of preferred stock. The Board of Directors can fix the rights, preferences and privileges of the shares of each series and any qualifications, limitations or restrictions, which could adversely affect the voting power or other rights of the holders of common stock. Further, issuance of preferred stock could have the effect of making it more difficult for a third-party to acquire, or of discouraging a third-party from attempting to acquire, a majority of our outstanding voting stock." There are now 8,555,199 shares of stock. So if you own 100,000 shares, you own 100,000 ÷ 8,555,199 = 1.17% of the company. If they issue another 10,000,000 shares, your percent ownership drops to 100,000 ÷ 18,555,199 = .54%"”and there is nothing you can do about it. So WIN has a negative net worth. Their income and expenses for their entire existence add up to a negative number or a net loss. And at any time, your share of the company could be reduced by more than half without consulting you. What a deal! "The Loss of Any of Our Key Personnel, Especially Mr. Whitney, Would Disrupt Our Operations and Hurt Our Profitability." ' "Our future success depends to a significant extent on the continued services of our senior management, especially, Russell A. Whitney, our Chairman of the Board of Directors and Chief Executive 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 a significant detrimental effect on our business as he is our founder and is involved in every aspect of our business." [Emphasis added] He has his last name and photograph all over the company. His first name is the company stock symbol. He is the chief executive officer and chairman of the board. He hosts the infomercials. The company grossed $95 million in 2003. The man Russ Whitney claims was his biological father, Russell Walter Whitney, died of a heart attack at age 39. Russ turns 49 in November of 2004. Here is an article on whether a company ought to have key man life insurance: https://www.buyerzone.com/features/savvy_shopper/ss080701.html "Our Stockholders May Suffer Dilution As a Result of Our Outstanding Common Stock Options." ' "As of December 31, 2003, there were 1,422,250 common stock options outstanding at exercise prices ranging from $1.70 to 4.10 per share. The issuance of option shares below market price can cause dilution in the value of our common stock as compared to the then market price of the common stock paid by purchasers in the offering." The annual report said the stock price was $5.05 on February 29, 2004.' Lease property from Russ Whitney "We lease 2,200 square feet of training facilities at 1611 E. Cape Coral Parkway, Cape Coral, Florida 33904 from Russell A. Whitney, our Chairman and Chief Executive Officer, under a month-to-month lease, at $1,943 per month. The terms of the lease are no less favorable than those which we could obtain from an independent third party." This is more money leaving the shareholders" pockets and going into Russ Whitney' pocket. I do not know whether the rent is fair, but several people have told me the building appears to be mostly empty and little used. Why is WIN renting a building it does not appear to use much? "ITEM 3.' ' ' ' LEGAL PROCEEDINGS" '

"None" What am I? Chopped liver? He sued me. I countersued him. In their court papers, they say I am costing them millions. But in their SEC filings, I"m "None." Sounds like either the litigation between us is a "material fact" or they are exaggerating in their legal papers. Both omitting material facts from SEC filings and exaggerating in court papers are illegal. Net income negative $1,557,659 According to Item 6 on page 14 of WIN' 2003 annual report, their net income for 2003 was a loss of $1,557,659. WIN has a cumulative net loss after seven years of existence. They also have a negative net worth (-$4,157,117). Most people would have moved on to other things if they started a business and after seven years it was still losing money and had a negative net worth. Most corporations would have found another guy to run the company. ""¦the expiration of our obligation to provide training" Page 14 also says, "The revenue is recognized (earned) when the student attends the training program or at the expiration of our obligation to provide training, whichever comes first." I find this rather odd and unfair. It means that WIN sells you a seminar, but if you do not attend within a year of paying for it, they get to keep all your money. WIN says it is a certified Texas Proprietary School. The way I read it, the Texas Proprietary School Act prohibits such a policy. That law says if the student does not attend at all, the company has to refund all the money paid except for a small cancellation fee. Other states and the Federal Trade Commission ought to have similar rules if they do not already. I wonder what percentage of WIN' income comes from such confiscated tuitions for seminars never delivered. If some one can read that from their annual report, please let me know. Commissions Page 14 also says, "Speaker fee commission payments earned for generating the revenue are deferred until such time as the revenue is earned." That appears to mean that the high-pressure salesmen who get hundreds of thousands of dollars a year to browbeat you into signing up for the seminar do not get paid until you take it or your year expires. That, in turn, would mean those speakers are extending much credit to WIN unless WIN is paying them advances against commissions. It also means that the speakers are trusting WIN to give an accurate accounting. I have never heard that they do not, but it is easy for the speakers to count how many they sold at the selling seminar. The speakers must rely on WIN to tell them which sales later attended and when and who demanded refunds. Shortened from 18 months to 12 months "Secondly, our customers" contract periods were shortened to one year. Consequently, our responsibility to deliver additional training expired in one year. Prior to July 2002, the contract period lasted eighteen months. This resulted in an increase in revenue realized from contract expirations compared to 2002 ($5,500,000). They got paid $5.5 million for nothing and they still managed to lose $1.6 million?! Under direct expenses, the annual report says, "The amount of course revenue generated from contract expirations is a significant issue in our eyes and we intend to increase the percentage of revenue realized from course attendance over the revenue realized from contract expirations." Right. That' why they cut the time you have to take the course from 18 to 12 months. An outrage Apparently, this is at least part of the answer to the question I just posed above. I am not clear whether WIN got $5,500,000 from people neglecting to take their seminar within a year or whether that is only the increase in the amount of that category for 2003. Either way it is an outrage. It means WIN made $5,500,000 for nothing"”that they tricked people into paying them that much for absolutely nothing. Whitney targets people with no cash or credit and brags about being a high-school dropout which attracts the uneducated. Then he takes $5,500,000 from about three thousand of these poor people ($5,500,000 ÷ $1,790 = 3,073) and gives them absolutely nothing in return"”often after pressuring them into running their credit cards to the limit to pay for the seminar they never took. You would think WIN pocketing $5,500,000 not for "services rendered" but for "services unclaimed" would be illegal. I believe it is in Texas as I said above. It either ought to be illegal elsewhere"”if it isn"t already. Must grow This is on page 17: So long as the company sales show high growth rates it must also expand its course offerings to keep pace with that growth. Why? I do not understand the logic of this statement. Why would they ever have to add a single course? Why not just keep teaching the many they now teach and make them better? Why not grow by increasing the number of students rather than the number of courses? One reason may be that there are only so many suckers so they have to find as many ways as possible to empty their pockets"”that it' easier to take more from those who were ignorant enough to buy what Whitney already offers than to convince new customers to buy these seminars. This notion that you have to grow is the mindset of a cancer tumor. No company has to grow. You are allowed to stay the same or shrink. Borrowing I have commented elsewhere that Whitney' ignorant students have loaned him more than any other lender would ever lend him: $38,593,130 in 2003. Not only have they loaned his negative net worth WIN corporation that enormous sum of money, they charge him no interest. Why? Probably because they are not even aware that they are making the loan. I commented that no lender who knew what they were doing would loan such sums to a corporation like WIN which has a negative net worth and negative cumulative income for its whole existence. You can see some indications that I was right in the annual report"”if you understand what the report means. "Airplane" WIN has what they call an "airplane." They borrowed the money to buy it ($2,100,000) from a real lender. How? According to page 19, the "airplane" is pledged as security for the 16-year loan"”similar to how you would pledge a house via a mortgage. They also required Russ Whitney to personally guarantee $170,000 of the loan. Why? It' probably analogous to the equity that lenders generally require real estate owners to have above the amount of their mortgage. If the lender has to foreclose on the plane, they probably would lose money if that were the only thing they could go after. The fact that they had to mortgage the plane and have Russ co-sign on the loan suggests that the lending community would not trust WIN alone to pay back that amount. Lots of corporations have an airplane"”although most corporations probably think they need a positive net worth and consistent positive net income before they buy one. Letters of credit There' another little item pertinent to borrowing that most laymen would probably not notice in the report. It' on page 17. It says, At December 31, 2003, we had unused amounts under letters of credit to secure merchant accounts and certain state bonding requirements aggregating $1,500,000. These letters of credit expire in January 2005 and October 2005 and carry an interest rate of 2.98% and 3.68%, respectively. What does that mean in plain English? A letter of credit is a document by which a bank guarantees payment on a loan or other extension of credit. Letters of credit are generally required by businesses who are extending credit to a person or entity they do not completely trust to pay it back. They are often used in international trade because the seller in one country is concerned that the buyer in another country may not pay and that the seller will have great difficulty collecting because of having to go to another country to do so. In such cases, the buyer often has to provide a letter of credit from a bank in the seller' country. Note the phrase "merchant accounts." I believe that means a bank account in which credit card charges are processed. WIN would appear to be processing around $8 million a month in credit card charges. If the bank providing the merchant account is requiring a letter of credit, I suspect that that bank is somewhat nervous that they may get stuck holding a bag. If that happens, they want to be able to turn to the bank providing the letter of credit and say, "You guaranteed we would get paid. WIN is not paying us on time so you now have to." "State bonding requirements" sound like some bond that WIN has to post to do business in some state. That may or may not be meaningful. It depends on the state, the nature of the bond and the criterion for requiring the corporation to post it. It may be that the particular bonding requirements do not reflect on anyone' conclusions about WIN creditworthiness. The word "unused" probably means that WIN has not behaved in a manner that would trigger the merchant account' right to demand payment from the bank. In other words, they are paying their bills on time to the merchant account bank. Essentially, an unused letter of credit is like a co-signer whose debtor has made his payments on time. The co-signer is still on the hook, but not yet having to take money out of his pocket. The meaningful aspect of this is that when WIN has to borrow money from real lenders, the company does not qualify for unsecured credit. Those lenders require guarantees like pledging of collateral, a personal guarantee from the CEO, and letters of credit. Meanwhile, the clueless students are lending tens of millions of dollars (in the form of seminar fees paid in advance) to the same WIN corporation interest-free and with no such guarantees or collateral. Foreign currency risk Whenever you operate in more than one country, you have foreign currency risk. That is, everything could stay exactly the same"”except the value of the one currency in terms of the other. If the value of the currency of your home country drops in value in relation to the currency of the other country in which you operate, your company suffers. In Whitney' specific case, if the U.S. Dollar drops in relation to the Canadian Dollar or the British pound, the net income received from his Canadian and United Kingdom seminars will fall in terms of U.S. dollars. To prevent that from happening, you hedge. That is, you use the financial markets to place "bets" on both sides. If the value of the U.S. dollar goes up, you lose on the hedge that bet it would go down. But your loss is offset by the benefits in your business. And vice versa. Hedging essentially prevents you from either making money or losing money as a result of foreign currency movements. It is analogous to insurance against adverse foreign currency fluctuations. Seems to me that companies that operate in more than one country should therefore hedge at all times. WIN does not. On page 20 of the report they say, Management does not expect that it will employ the use of foreign currency derivative financial instruments that would allow the reduction in our exposure to exchange rate movements. In other words, they are gambling that the value of the dollar will not fall in relation to the Canadian Dollar or British pound. That strikes me as irresponsible and unnecessary risk taking, but, hey, I"m not the big shot CEO of a $100 million international corporation so what do I know? To be continued"¦ John T. Reed John T. Reed, a.k.a. John Reed, Jack Reed, 342 Bryan Drive, Alamo, CA 94507, Voice: 925-820-7262, Fax: 925-820-1259, www.johntreed.com

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