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John T. Reed analysis of the lowlights in Whitney Information Network, Inc.' 2003 annual report 1 There is a saying on Wall Street that when it comes to annual reports, "the numbers giveth and the footnotes taketh away." Here are some of the interesting lowlights from the footnotes and other parts of Whitney Information Network' (WIN) 2003 SEC Form 10-K which is also known as their annual report. You can read the whole report yourself at https://www.sec.gov/Archives/edgar/data/1095276/000110465904008936/a04-3984_110k.htm. Omniscience A phenomenon I have noticed about gurus is that they often metamorphose from being the world' biggest real estate expert to a state of financial omniscience. This appears to have happened to Whitney. The report says, "Our courses provide instruction in: real estate investing; business strategies; stock market investment techniques; entering international business markets; cash management; asset protection; and other financially-oriented subjects." I"m just a little old Harvard MBA. I can"t teach about all those subjects. I"m still trying to figure real estate investment out. Whitney likes to claim that he is a high school dropout. Go figure. Meeting facilities The report says, "Our training is offered in the U.S."¦in meeting facilities and conference centers"¦" This is noteworthy because sales in such settings are considered especially rife with abuse by the Federal Trade Commission among other agencies. They have special laws regarding sales in such places. Read about one such law"”the three-day "cooling-off" period"”at Whitneyrefund.html. "two of our executive officers" "In July 2003 we acquired Equity Corp. Holdings, Inc. and Whitney Leadership Group, Inc. which previously were owned by two of our executive officers." In other words, WIN, Inc. paid Whitney a bunch of shareholders" money to buy two of Whitney' personal corporations from Russ Whitney. The net effect of this is that Russ Whitney has more cash and owns less of his guru business than previously. Shareholders have the opposite effect. They now have less cash and more Russ stuff. Was the price paid fair? Is there any larger meaning to the fact that Russ is cashing out of at least part of the business? His percentage ownership in WIN has also been declining. When an insider like Russ, who is the CEO and chairman of the board, is selling his stock and other businesses, one wonders if it' because he knows something we outsiders do not about the company' future prospects. No specific educational requirements for trainers "We do not have any specific educational requirements for our trainers, but we do require that they have experience with respect to the subjects they teach and that they have completed training programs which we provide that prepares[sic] them to teach their particular subjects." In other words, you are paying thousands of

dollars to be trained by people who may have no education in the subject in question"”even though subjects are highly technical financial or legal disciplines. They may even be, as Russ claims he is, high school dropouts. With regard to another guru, I heard that they put new guys on the phone to sell seminars. If they fail at that, they make them "coaches" or "mentors." My impression of the Whitney operation is that there are few, if any, pure trainers. Everybody seems to be paid at least in part by commission. And the main criterion seems to be can you sell. Whether you can teach or know the subject seems to be secondary. You can read about one of Whitney' former "Hall of Fame" instructors"”Lee Bolongia, alias Lee Antoine Bellenger"”and thereby get an idea of the standards Whitney has for instructors"”at WhitneyBellenger.html. Whitney says they are a Texas certified proprietary school. As my article on that law and whether Whitney is complying says, Texas has educational standards for proprietary school teachers whether Whitney likes it or not. Generally, they require that the instructor have a masters degree in the subject. Texas will allow experience as a substitute for education to an extent, but many of the subjects"”like asset protection law"”are generally fields in which you cannot gain experience unless you have substantial education like college and a law degree. Property tours "Students telephone actual sellers and then tour properties offered for sale throughout the Cape Coral and Fort Myers, Florida areas." You go to the "Millionaire University" in Cape Coral and part of the deal is they take you around and show you properties. I also heard that many of the properties thus shown are owned by Russ Whitney, not Whitney Information Network, Inc., and are sold to Millionaire U. Students as a result. This puts the expense of marketing those Whitney personally-owned properties to these students entirely on WIN shareholders and on the students themselves. In other words, the students are paying to hear a marketing pitch"”a sort of reverse version of the "free" vacation you get if you agree to listen to a sale pitch for vacation condos. So it appears that Russ Whitney the individual gets all the profits from the sale of the real estate to the students and his shareholders and students bear all the expenses of marketing those properties to the students. The officers and board members of publicly-traded corporations like WIN have a fiduciary duty to place the interests of the shareholders ahead of their own personal interests and they are not supposed to commingle their business interests with those of the corporation. "Protect assets" "Our Asset Protection and Tax Relief training course describes various legal entities used to hold property such as partnerships, corporations, and land and international trusts and the use of these entities to protect assets." Protect assets from what? The whole idea of protecting assets is suspect from a legal standpoint. The American Bar Association has numerous "Sections" which focus on various legal specialities. Is there an asset-protection section? No. Why not? Because it is against the law to do things that hinder or delay creditors or to transfer assets away from yourself for less than fair market value (like putting property in your wife' name) to prevent creditors from getting at them should you declare bankruptcy (called fraudulent transfer in anticipation of bankruptcy). When you combine the fact that asset protection is of dubious legality and that Whitney does not require his instructors to meet any "specific educational requirements," you have to wonder who is teaching this extremely complex legal course and what exactly is he or she teaching. Non-compete agreements "While some of our products and trade names are commonly used terms and do not afford us significant copyright or trademark protection, we also use employee and third-party non-competition and non-disclosure agreements and other contractual methods of protecting proprietary rights to safeguard our intellectual property." I have been trying for some time to get copies of these. Former Whitney employees to whom I have spoken tell me they were not allowed to have a copy. If you have one, please send me a copy. Non-union "Our employees are not represented by a labor union, and we believe our relations with our employees are satisfactory." Whitney and his wife were highly-paid union members when he worked at "the slaughterhouse" (Tobin Packing) in Albany, NY. Because of the way he advertises (get-rich-quick infomercials showing Joe and Jean Average testimonials), I suspect his audiences are disproportionately unionized compared to the general population. "We are aware"¦" "Since our inception we are aware of four occasions in which states have investigated our advertising practices. These states were Florida, Michigan, Pennsylvania and Tennessee." Son of a gun! This sounds like that came directly from my Web site. I found those actions against Whitney and publicized them there. Click on the state to read about it: Florida, Michigan, Pennsylvania and Tennessee. I guess Whitney got nervous that there was greater disclosure of "material facts" about him and his company at my Web site than there was in his filings with the Securities and Exchange Commission. Such filings are supposed to contain all material facts. What do they mean "investigated?" They were sued. They generally had to pay money to the agencies in question and agree to stop doing the things that were allegedly illegal. And what is this "we are aware" stuff? The phrase "we are aware" is a strange way to phrase such a statement. It suggests that there are or may be other similar state actions of which they are not aware. How can you not be aware that a state agency has sued you? In the Florida case, Whitney got nailed for lying to the government about what he was aware of. Here are the exact words from the Florida suit: i) "Respondents Whitney and [name withheld because may be private person] represented that no regulatory actions had been taken against Compuworld [a Whitney company]. In fact, on December 5, 1989, Compuworld entered into an agreement with the Attorney General of the State of Michigan to stop selling business opportunities in that state." [Emphasis added] ii) "Respondents Whitney and [name withheld because may be private person] stated that the response to the Department' subpoena was delayed because they had no experience with a subpoena. In fact, the State of Kansas has subpoenaed extensive materials from Compuworld' affiliate "Nellie Mae," in October of 1989 and [name withheld because may be private person] is an experienced attorney. [Emphasis added] [Not to mention the hit-and-run lawsuit against Whitney that lasted from 1980 to 1988 which might have involved a subpoena or two] Lying to Florida officials was a state offense. If one lies in an SEC filing, it' a federal offense. In fact, I believe the pertinent law would be 18 USC § 1001, which is the law the Martha Stewart was convicted of violating. Note the mention of Kansas"”a state which is not listed in the four states Whitney says "investigated" him in the 2003 annual report. In the annual report, Whitney says they did not admit to any wrongdoing and settled out of court to avoid the expense of litigation, etc. Yeah. And they also did not go to trial where they could exonerate themselves and thereby protect their reputation. You remember their reputation. That is their purported motivation for suing me for the last two years. Apparently they place a much lower value on their reputation when government prosecutors are accusing them of "unfair, unconscionable, or deceptive" practices than when I am publishing one email from one of their unhappy customers at my Web site. Or maybe they figure they can cry a bunch of crocodile tears about their reputation in a lawsuit against me and bury me in legal expenses. Their choice of when to settle litigation to avoid legal expenses and when to fight to save their "great" reputation seems to be more a function of the financial resources of the opponent than the justice of their position. Failure to comply with regulations "Many states regulate the marketing and sale of proprietary educational courses, including the content of advertisements to attract students. Failure to comply with these regulations could result in legal action instituted by the states, including cease and desist and injunction actions. In the event we are subject to such legal action, our reputation would be harmed and the demand for our course offerings could be significantly reduced." They already were in such trouble in the past as noted above. "Continued Significant Compensation Payments to Our Chief Executive Officer Could Impair Our 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 employment agreement with Mr. Whitney which provides for a salary of $400,000 per year, together with bonuses to be granted by the independent compensation committee of our Board of Directors, and customary employee benefits, including health insurance. Bonuses granted by the Board of Directors to Mr. Whitney are expected to be between 50% and 150% of his salary, depending on our level of profitability. Nevertheless, substantial payments in the future to Mr. Whitney could impair our working capital, thereby reducing our operations." This is another statement that seems to have been motivated by Whitney' people reading my Web site. I wondered why they are paying this guy so much to run a company that still has a negative net worth and negative cumulative net income after 12 years of his "leadership." Note their statement that "we" paid Russell A. Whitney. He is the majority stock holder, CEO, and chairman of the board. He paid himself that much. And how about the phrase "could impair our working capital"? If something may impair anything, why are you continuing to do it?! Once again, officers and board members have a fiduciary duty to shareholders to place the shareholders" interest ahead of the officer' or director' personal interest. "The Current Market Price of Our Common Stock Significantly Exceeds Our Book Value Per Share and Increases the Risk That Our Market Value Per Share May Decline in the Future."  "The current market price per share of our common stock greatly exceeds our book value per share, which was a deficit of $(.49) at December 31, 2003. The lower book value per share increases the risk that our market value per share may decline in the future." I guess so, unless they have some assets whose real value is understated by the book value. According to the company' annual report, WIN has millions more liabilities than assets. In real estate, a similar situation would be an "upside-down" property, that is one with a mortgage that was larger than its value. It does not necessarily mean the same in the stock market, but the above quote is from Whitney' annual report, not me. Why are people buying stock in a company with a negative net worth? I don"t know. This annual report statement suggests it' a risky thing to do. Makes sense. "Our Chief Executive Officer Controls a Majority of Our Outstanding Capital Stock, Which Means That He Has the Ability to Approve Any Matter Requiring Shareholder Approval."  "Russell A. Whitney, our Chief Executive Officer and Chairman, controls approximately 77% of our outstanding capital stock. As such, Mr. Whitney can approve any matter requiring the vote of our stockholders, including the election of directors. Mr. Whitney could, without other stockholders, vote to approve a transaction that is not necessarily in the best interests of other stockholders or reject a transaction that may be in the best interests of other stockholders. For example, Mr. Whitney' stock ownership may prevent a third party from acquiring a controlling position in our common stock. In many instances, a third party desiring to purchase a controlling position is willing to pay a premium to the market price. Mr. Whitney' stock ownership would likely prevent such an event from occurring." [emphasis added] Well put. I have nothing to add.

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