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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2007

WHITNEY INFORMATION NETWORK, INC.

(Exact name of registrant as specified in charter)

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

Yes o No x

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by section 13 or 15 (d) of the Exchange Act during the preceding 12 months (or 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 o No x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this From 10-K or any amendment to this form 10-K. o

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

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

Yes o No x

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

DOCUMENTS INCORPORATED BY REFERENCE:

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PART 1

In this annual report on Form 10-K, “Whitney” and the terms “Company,” “we,” “us,” and “our” refer to Whitney Information Network, Inc.

Cautionary Statement Regarding Forward-Looking Statements

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

Industry data and other statistical information used in this document are based on independent publications, government publications, reports by market research firms or other published independent sources.  Some data is based on good faith estimates, derived from our review of internal surveys and independent sources.  Although we believe these sources to be reliable, we have not independently verified the information.

ITEM 1.  BUSINESS

Overview

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

We incorporated in Colorado in 1996 under the name Gimmel Enterprises, Inc.  In 1998, we acquired all of the outstanding common stock of Whitney Education Group, Inc. a Florida company organized in 1992, and changed our name to WIN Systems International, Inc.  In 1999, we changed our name to Whitney Information Network, Inc.

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

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

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

In 2007, we began offering our Rich Dad® Education basic training to students in the United States, Canada and the United Kingdom.  For the fiscal year ending December 31, 2007, RDE represented approximately 19.8% of our total revenues of

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

Our Strategy

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

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

·                  Expanded channel reach.  Through strategic partnerships, alliances and new business models, we may be able to generate new revenues without incurring significant additional marketing or administrative costs.  We intend to identify potential partnerships and alliances that can result in increased revenues. We will research underserved market segments and changes in the non-degreed education market that will provide insights to reach new market segments.  We will evaluate complementary business possibilities, including potentially entering business-to-business markets.

·                  Improved technology and innovation capabilities.  Achieving the necessary steps for us to grow may require significant improvements to our technology and innovation structure and external delivery platforms.  We intend to further develop enhanced technology platforms capable of streaming video, interactive e-learning, distributed e-learning and Web advertising.  We also intend to improve the technology platforms currently used in our financial markets and real estate courses.  Further, we intend to enhance our internal financial systems and fully utilize our Customer Relationship Management (CRM) capabilities.

·                  Enhanced core offerings and e-enablements.  Our overall brand strategy will be redefined and redirected to maximize marketing effectiveness and to improve customer understanding.  We intend to develop a system of ongoing student involvement to enhance the student life cycle, resulting in an enhancement to the student experience.  Further, we intend to develop new interactive and online distributed course content for all brands.

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

·                  International expansion.  We believe that there are many valuable international markets where we could introduce our products in a cost-effective and profitable manner.  We currently provide courses in Canada and the United Kingdom and it is our intention to explore potential market expansion in these areas as well as in Europe and Asia-Pacific.  We believe that with the right resources and technological support, we can potentially increase our student base across the globe.

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

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Intellectual Property

We regard our educational materials and products, trademarks, service marks, trade dress, trade names and patents as proprietary and we rely primarily on federal statutory and common law protections to protect our interests in these materials.  We market some courses and training programs under our Proprietary Brands, which include Wealth Intelligence Academy®, Millionaire U® Training and Teach Me To Trade®.  While some of our proprietary materials may contain commonly used terms and do not afford us significant trademark protection, we also use employee and third party non-compete and confidentiality agreements and other contractual methods of protecting proprietary rights to safeguard our intellectual property.

Licensing Agreements with Rich Dad Global, LLC

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

Marketing

We acquire our students through direct marketing in the form of television long form infomercials, short form commercials, radio advertising, direct mail, newspaper advertising, email marketing, and internet based banner ads.  Potential students are invited to attend a free introductory two-hour workshop in their local area during which we offer a follow-up three day basic training class.  Students enroll and attend the basic training course and receive the reference materials that are designed to accompany the training, which is usually held over the weekend within two or three weeks of the initial free introductory workshop.  In 2007, approximately 24.7% of the attendees at the free introductory workshop enrolled in the basic training course.

At the basic training course, students are taught the basics of course topics and are encouraged to enroll in advanced, detailed classes covering specific topics within the education segment.  Our basic and advanced trainings are described below in “Education Training.”

Education Training

In 2007, we offered free introductory workshops and basic training courses under the following marketing programs and brands:

Basic training courses

Russ Whitney®’s Building Wealth is a program offering a curriculum that focuses on the general business of real estate and teaches the fundamentals of negotiating real estate purchases with sellers, rehabilitating distressed properties, and leasing rental units to tenants to generate multiple sources of cash flow.  Students are taught the mechanics of completing a real estate transaction in their community, from making an offer to closing the transaction, with emphasis upon creative financing strategies.

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

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

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The course concentrates on real estate principles while allowing students to apply what they have learned from playing the board game, CASHFLOW®.

Teach Me To Trade® program offers curriculum that focuses on stock market trading strategies and uses software and specific teaching techniques designed by us. Students are taught to understand the stock market, investment strategies, risks and how to improve returns in both bull and bear markets.

Advanced training courses

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

Real Estate Advanced Courses

Millionaire U® RE Training

Asset Protection & Tax Relief

Rich U™ Training

Wholesale Buying

Discount Notes & Mortgages

Profits in Probate

Manufactured Mobile Homes & RV Parks

Foreclosure Training

Rehabbing for Profit

Short Sales and Mortgages

Tax Liens & Deeds

Lease Option

Commercial Real Estate Investing

Property Management & Cash Flow

Land Investment & Development-Domestic

Land Development-International

Creative Real Estate Financing

Real Estate Sales and Negotiating Techniques

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Financial Markets Education Advanced Courses

Master Trader™ Training

Advanced Covered Calls

The Trading Room™

The Trading P.I.T.™

Advanced Technical Analysis

The Advanced P.I.T.™

H.I.T.S.™

Asset Protection & Tax Relief

WIA maintains contact with the student from the time the student purchases his or her first advanced training course until the program is complete.

A complete description of these advanced training courses is available on the WIA website at http://www.wiacademy.com.  In addition, students can purchase a license to use software for real estate or financial market investing.  With either software program, a subscription based data service is available for purchase which allows students to interactively determine real time investment options and make better informed decisions about those potential investments.

All of our WIA classes are available for students to attend live and in person, at various regional locations in the United States, Canada, the United Kingdom and Costa Rica (Land Development-International course only).  Also, many of our classes are offered in a virtual live classroom environment over the internet.  Other forms of WIA educational delivery include on-demand streaming internet based classes and packaged CDs and DVDs.

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

Each month, we offer over 200 classes and training programs throughout our geographic markets.  For year ending December 31, 2007, 93.3% of our revenues were generated domestically and 6.7% from Canadian and United Kingdom operations.  Basic training accounted for 13.6% of worldwide revenues, with the remaining 86.4% of revenues coming from advanced training courses and our other educational services and programs in 2007.

Competition

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

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

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

In addition, we have developed a broad line of educational resource materials for real estate and financial products which support our course offerings.  Charges for our educational courses are also consistent with those of our competitors.

Employees

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

Available Information

We regularly file reports with the Securities and Exchange Commission (“SEC”).  These reports include, but are not limited to, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and other forms as required.  The public may read and copy any materials that the Company files with the SEC at the SEC’s Public Reference Room located at 100 F Street NE, Washington, DC 20459.  The public may obtain information from the public reference room by calling the SEC at 1-800-SEC-0330.  The SEC maintains an internet website that contains the annual, quarterly, and current reports, proxy and information statements and other information that public companies (including us) file electronically with the SEC.  Our electronic filings are available to the public at the SEC’s website www.sec.gov.

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

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ITEM 1A.  RISK FACTORS

Before deciding to purchase, hold or sell our common stock, you should carefully consider the risks described below in addition to the other cautionary statements and risks described elsewhere, and the other information contained, in this Report and in our other filings with the SEC, including our subsequent reports on Forms 10-Q and 8-K.  The risks and uncertainties described below are not the only ones we face.  Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business.  If any of these known or unknown risks or uncertainties actually occurs with material adverse effects on the Company, our business, financial condition, results of operations and/or liquidity could be seriously harmed.  In that event, the market price for our common stock will likely decline and you may lose all or part of your investment.

We have a high concentration of sales from our Rich Dad Education brand and termination of this relationship would have an adverse impact on our financial results

Our Rich Dad real estate course offerings accounted for approximately 46.2% of our total cash sales and 19.8% of revenue for fiscal year 2007 and have increased in 2008.  See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures.   If  sales from the Rich Dad brand were to decrease for any reason or if our relationship with RG was terminated due to our default under our licensing agreement with RG or for any other reason, it would have an adverse effect on our business, results of operations and financial condition.  Our relationship with Rich Dad does not have a fixed term and there can be no assurances on how long this business relationship will continue.

Our uses of cash are restricted by the Rich Dad joint venture and licensing agreements

Our joint venture and licensing agreements with Rich Global, LLC, requires us to segregate our cash balances between (i) funds received from RDE students and; (ii) funds received from the sale of our Proprietary Brands. The Company is restricted from using cash generated from the RDE brand to pay for expenses incurred by our non-RDE Brands, except in the payment of license and management fees owed to us in accordance with our agreement with Rich Global, LLC, as reimbursement for the fulfillment of advanced courses purchased by RDE students and partner distributions paid when cash balances exceed the cost to fulfill outstanding student contracts.   These restrictions on uses of cash associated with the Rich Dad products impact our liquidity and create additional administrative obligations for the Company.

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

If the Rich Dad brand were to experience a decrease in popularity, it would have a significant impact on our business, results of operations and financial condition. In the current economic environment,  many individuals are not interested in purchasing real estate investments courses or products.  The decreased interest in real estate investing could impact the Rich Dad brand.  Additionally, if Mr. and Mrs. Kiyosaki, the founders of the Rich Dad brand, do not spend as much time in the public eye, it could impact the popularity of the Rich Dad brand and consequently impact our sales of Rich Dad products.

If we are unable to successfully conclude the litigation, governmental investigations and inquiries pending against us, our business, financial condition, results of operations and growth prospects could be adversely affected.

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

We cannot predict the ultimate outcome of these matters, and we expect to incur significant defense costs and other expenses in connection with them.  Such costs and expenses could have a material adverse effect on our business, financial condition, results of operations and the market price of our common stock.  We may be required to pay substantial damages or settlement costs in excess of our insurance coverage related to these matters, which could have a further material adverse effect on our financial condition or results of operations.

While we continue in our efforts to cooperate with the government investigations, we cannot predict the duration or outcome of the investigations, and the investigations may expand, and other regulatory agencies may become involved.  The outcome and costs associated with these investigations could have a material adverse effect on our business, financial condition, or results of operations, and the investigations could result in adverse publicity and divert the efforts and attention of our management team from our ordinary business operations.  The government investigations and any related legal and administrative proceedings could also include the institution of administrative, civil injunctive or criminal proceedings against us and/or our current or former officers or employees, the imposition of fines and penalties, suspensions and/or other remedies and sanctions.

We face significant competition in our markets.

Our success will depend upon our ability to attract customers by providing high-quality courses and educational materials.  The market for training courses for specific business issues, such as real estate or stock market investing, is intensely competitive.  If we are unable to successfully compete, our business, operating results and financial condition would be materially harmed.  Some of our current and potential competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than we do.  Certain competitors may be able to secure alliances with customers and affiliates on more favorable terms, devote greater resources to marketing and promotional campaigns and devote substantially more resources to course development than we can.  In addition, it is possible that certain

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competitors, or potential competitors, could reduce their pricing to levels that would make it difficult for us to compete. Increased competition may result in reduced operating margins, as well as loss of market share and brand recognition.

In addition, in order to compete effectively in our markets, we may need to change our business in significant ways.  For example, we may change our pricing, product, or service offerings, make key decisions about technology directions or marketing strategies, or acquire additional businesses or technologies.  Any of these actions could hurt our business, results of operations, and financial condition.

Laws and regulations can affect the operations of our business and may limit our ability to operate in certain jurisdictions.

Federal, state and international laws and regulations impact our operations and may limit our ability to obtain authorization to operate in some states or countries.  Many federal, state and international governmental agencies assert authority to regulate providers of investment education programs.  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 could be harmed and the demand for our course offerings could be significantly reduced.  See Item 3, Legal Proceedings, for a detailed discussion of these regulatory proceedings.

Failure to comply with federal and state laws regulating the marketing and sale of proprietary educational courses could significantly reduce the demand for our course offerings.

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

Our ability to offer courses may be affected by natural disaster, strikes and other unpredictable events.

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

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

Our growth strategy for our business is dependent on our ability to sell existing training programs, products and services to new students, to open new markets and to develop and introduce new educational programs, products and services.  If we are unable to expand our markets and products, our growth rate and revenue may be reduced.  Market conditions and the level of customer interest may be different for our current products than for new products and marketing costs and methods may differ in new markets, and there can be no assurance that we will be able to compete favorably with, and obtain market acceptance for, any such new programs, products or services.  Our growth strategy also is dependent upon the development of new products and services and the enhancement of existing products and services.  The financial services and real estate industries have continually evolving industry standards and practices.  Our failure to keep abreast of such changes could result in our technology and systems and our product offerings becoming obsolete.  The development of new products involves significant risks.  We may not be able to adapt our new products or services to new standards in the marketplace.  In addition, changes in technologies could force us to incur substantial expenditures to appropriately modify our infrastructure and our products and services.

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Our results of operations are materially affected by economic conditions including significant price increases, inflation or adverse events related to various industries. Additionally, other changes experienced by our students including the willingness to trade or invest in securities or real estate could influence discretionary spending contributing to uncertainty in our results of operations.

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

•                  Demand for training and our related products;

•                  Conditions in the securities and investment market;

•                  Conditions in the real estate market;

•                  Availability of mortgage financing and other forms of credit;

•                  General economic and business conditions;

•                  General political developments; and

•                  Natural or man-made disasters.

A prolonged economic downturn, particularly in the United States, could increase these effects on our business.

Expansion into additional markets outside the United States, if successful, will subject us to additional risks inherent in international operations.

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

•                  Complexity of operations across borders;

•                  Currency exchange rate fluctuations;

•                  Multiple and possibly overlapping and conflicting tax laws;

•                  Applicability of educational concepts to foreign markets; and

•                  Compliance with foreign regulatory requirements.

The current market price of our common stock significantly exceeds our book value per share and increases the risk that our market price per share may decline in the future.

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

Our former Chairman and Chief Executive Officer, Mr. Whitney, beneficially owns 5,227,300 shares of our Common Stock which constitutes approximately 44.5% of our outstanding Common Stock, which means he has the ability to significantly influence any matter requiring stockholder approval or prevent a change of control in our Company.

Mr. Whitney, our former Chairman and Chief Executive Officer, beneficially owns 5,227,300 which represents approximately 44.5% of our outstanding common stock as of March 31, 2008 as reported on Form SC 13D filed with the SEC on April 28, 2008. As such, Mr. Whitney can significantly influence any matter requiring the vote of our stockholders, including the election

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of directors. Mr. Whitney could, with a relatively small number of other stockholders, vote to approve a transaction that may not be in the best interests of other stockholders or reject a transaction that may be in the best interests of other stockholders. Moreover, Mr. Whitney’s stock ownership may deter a third party from making a general tender offer for our Common Stock. Mr. Whitney’s stock ownership may prevent such an event from occurring. The Addendum to the Agreement to Settle Property Rights and Other Martial Affairs of Russell Whitney and Ingrid Whitney, dated December 7, 2007 (the “Settlement Agreement”) contains certain covenants relating to the 4,991,850 shares of Common Stock held by International Securities 3 LLC (the “IS3 Shares”). Specifically, during the period beginning December 7, 2007 and ending on June 2, 2009 (the “Lock-up Period”), Mr. Whitney has exclusive power to vote all of the IS3 shares. During the Lock-up Period, Mr. Whitney has agreed he will be in a fiduciary relationship with Ingrid Whitney and will not vote the shares in a manner that will materially harm Ingrid Whitney. During the Lock-up Period, Ingrid Whitney has agreed not to sell, transfer or assign any of the shares of Common Stock that make up her 50% portion of the IS3 Shares (2,277,175 shares of Common Stock). During the Lock-up Period, Mr. Whitney holds an exclusive right to purchase the shares of Common Stock that comprise Ingrid Whitney’s 50% portion of IS3 shares. The purchase price per share will be equal to the current market price at the time Mr. Whitney exercises his right to purchase such shares.

Our Board of Directors, without stockholder approval, may issue preferred stock which could reduce the voting power or rights of our other stockholders and make it more difficult for a third party to acquire a majority of our outstanding voter’s stock.

Our Board of Directors, without stockholder approval, may issue up to 10.0 million 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 reduce the voting power or other rights of the holders of common stock. Issuance of preferred stock could also 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.

Our transition to new senior executives, or the loss of any of our key executive  personnel, or high performing instructors, could disrupt our operations and reduce our profitability.

Our future success depends to a significant extent on the successful transition of our senior executive management in the continuing development of our operations. The loss of the services of certain of these individuals would have a material adverse effect on out business. Although, we have employment agreements and non-competition agreements with certain of our key employees, as a practical matter, those agreements will not assure the retention of our employees. We currently do not maintain key man insurance on any member of our senior executive management team.

Our future success also depends on our ability to retain and attract high performing instructors. The loss and/or inability to recruit suitable replacements may affect our performance and reduce our profitability.

Outside business ventures of Mr. Whitney could result in conflicts of interest that could negatively impact our ability to attract investors.

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

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We have material weaknesses in our internal control over financial reporting which could adversely affect our ability to report our financial condition and results of operations accurately and on a timely basis.

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

Material weaknesses in our internal control over financial reporting could adversely impact our ability to provide timely and accurate financial information. We are developing remediation plans to strengthen our internal controls in response to the previously identified material weaknesses. If we are unsuccessful in developing, implementing or following our remediation plans, or fail to update our internal controls as our business evolves, we may not be able to timely or accurately report our financial condition, results of operations or cash flows or maintain effective disclosure controls and procedures. If we are unable to report financial information timely and accurately or to maintain effective disclosure controls and procedures, we could be subject to, among other things, regulatory or enforcement actions by the SEC, securities litigation and a general loss of investor confidence, any one of which could adversely affect our business prospects and the valuation of our common stock.

Furthermore, there are inherent limitations to the effectiveness of any system of controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. We could face additional litigation exposure and a greater likelihood of an SEC enforcement regulatory action if further restatements were to occur or other accounting-related problems emerge. In addition, any future restatements or other accounting-related problems may adversely affect our financial condition, results of operations and cash flows.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

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

(1)           Related party lease.

We own the land and building of our executive offices in Cape Coral, Florida. Our executive office building is approximately 40,734 square feet and is situated on approximately 4.5 acres. We lease approximately 32,646 square feet of office space in Murray, Utah for our EduTrades and telemarketing headquarters. The lease expires in January 2013 and rent is payable at rates increasing from $32,646 to $36,743 per month over the remainder of the lease.

We lease approximately 2,727 square feet of office space in London, England for our European headquarters. The lease expires in April of 2012 and our monthly rental rate is $9,917.

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

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

We lease approximately 1,990 square feet of office space in London, England which is being used as a training center. The lease expires in December 2009 and the rent is $299,200 for the year.

We own an approximately 7,200 square foot conference and training center in Monterey, Costa Rica, which we designed and built in 2002. This property was sold in January 2008.

Related party leases

We lease approximately 2,200 square feet of training facilities at 1611 East Cape Coral Parkway, approximately 9,000 square feet of space at 1625 East Cape Coral Parkway which is used for offices and shipping and 4,802 square feet at 1630 Southeast 47th Terrace, which we use as a training facility, all in Cape Coral, Florida, from Cape Promenade Trust, which is for the benefit of our former Chairman and Chief Executive Officer, Russell Whitney, and his former spouse, Ingrid Whitney.

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

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

ITEM 3. LEGAL PROCEEDINGS

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

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock was quoted on the NASD Over-the-Counter Bulletin Board under the trading symbol “RUSS” from August 1998 through June 25, 2007 and has been quoted on the Pink Sheet under the symbol RUSS.PK since June 25, 2007 through the present date. The following table shows the high and low sales prices of our common stock for each quarter in 2007 and 2006. These quotations reflect inter-dealer prices, without retail mark-up, markdown or commissions, and may not represent actual transactions.

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

Dividend Policy

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

Equity Compensation Plan Information

The following table summarizes, as of December 31, 2007, the equity compensation plans under which we may issue shares of stock to our directors, officers and employees under the 1998 Stock Option Plan (in thousands).

1998 Stock Option Plan

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

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Plan is to motivate participants to achieve long range goals, attract and retain eligible employees, provide incentives competitive with other similar companies and align the interest of employees and directors with those of our shareholders. The 1998 Plan is administered by the Compensation Committee of the Board of Directors. The exercise price of a stock option grant under the 1998 Plan may not be less than the average market price of our stock on the date of the grant and no options may have a term of more than ten years. Options granted under the 1998 Plan typically vest as follows:  25% of the options vest on the grant date, an additional 25% vests on the completion of the first year of service, another 25% vests on the completion of the second year of service, and 100% of the shares vest at the end of the third year of service, although the Compensation Committee may approve a different vesting period. All options expire ten years from the date of grant. The 1998 Plan expired on August 30, 2008, but any options that were issued under the 1998 Plan prior to the expiration date are still outstanding and exercisable when vested.

ITEM 6. SELECTED FINANCIAL DATA

Not required.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Executive Overview

In the United States, the United Kingdom and Canada, we offer post-secondary, non-accredited introductory workshops, primary and advanced courses, and training in two primary fields of study:

·                  Real estate education

·                  Financial markets education

Through our branded and private label curricula, our content is expansive and our significant investment in these brands provides for the opportunity to build long-term value. Our brand portfolio includes:

·                  For real estate investment workshops and introductory courses:

·                       Russ Whitney®’s Building Wealth™

·                       Teach Me Foreclosure™ and Real Estate Investing

·                       Rich Dad® Education (“RDE”)

·                       Private label brands:

·                  M2 Advantage®

·                  Real Estate Success System

·                  For financial markets investment workshops and introductory courses:

·                       Teach Me to Trade®

·                       Private label brand:

·                  Stock Success System™

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·                  Our umbrella brand for advanced courses:

·                       Wealth Intelligence Academy®

The advanced courses of study under the Wealth Intelligence Academy® brand include:

We offer our students several ways to access our educational content:

·                  Live instruction in classroom settings

·                  Onsite mentoring

·                  Telephonic coaching

·                  Electronic access

·                  Online Live

·                  On Demand Recorded

·                  Conferences

·                  Teleconference

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Results of Operations

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

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

Non-GAAP Financial Measures

Adjusted EBITDA

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

We use Adjusted EBITDA as a key measure in evaluating our operations and decision-making. We feel it is a useful measure in determining our performance since it takes into account the change in deferred revenue and deferred course expenses in combination with our operating expenses. We reference Adjusted EBITDA frequently, since it provides supplemental information that facilitates internal comparisons to historical operating performance of prior periods and external comparisons to competitors’ historical operating performance in our industry. We plan and forecast our business using Adjusted EBITDA, with comparisons of actual to planned and forecasted Adjusted EBITDA and we provide incentives to management based on Adjusted EBITDA goals. In addition, we provide Adjusted EBITDA because we believe investors and security analysts find it to be a useful measure for evaluating our performance.

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

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revenue is considered earned. Thus, reporting in accordance with GAAP creates significant timing differences with respect to revenue and expenses, both in our consolidated statements of cash flows and consolidated statements of operations. As a result of these factors, our operating cash flows can vary significantly from our results of operations for the same period. For this reason, we believe Adjusted EBITDA is an important non-GAAP financial measure.

Adjusted EBITDA has material limitations and should not be considered as an alternative to net (loss) income, cash flows provided by operations, investing or financing activities or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity. Items excluded from Adjusted EBITDA are significant components in understanding our financial performance. Because Adjusted EBITDA is not a measurement determined in accordance with GAAP and is subject to varying calculations, Adjusted EBITDA as presented may not be comparable to other similarly titled measures of performance used by other companies.

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

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Cash Sales

The following table provides a reconciliation of the Company’s reported revenue to cash sales by segment. Cash sales are a metric used by management in assessing the Company’s segments performance. We define cash sales as revenue plus the change in deferred revenue. Cash sales are not a financial performance measurement in accordance to GAAP, therefore we are presenting a table to reconcile the cash sales to revenue reported in accordance with GAAP (table presented in thousands):

Business Segments

 We operate in two business segments:  Proprietary Brands and RDE. The proportion of revenue and gross profit (deficit) of each segment is as follows:

Proprietary Brands

Real estate education

We began providing basic and advanced real estate investment training in 1992 with our historical flagship brand Russ Whitney^®’s Building Wealth^™. We have added to our brand portfolio by offering our students additional real estate education offerings. We launched Teach Me Foreclosure^™ & Real Estate Investing in 2006.

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

Gross profit (calculated as revenue less direct course expenses less advertising and sales costs as presented in our statement of operations) in the Proprietary Brands real estate education segment was $30.0 million for the year ended December 31, 2007, compared to a gross profit of $20.3 million for the year ended December 31, 2006, an increase of $9.7 million, or 47.8% primarily due to intersegment revenue of $11.3 million related to licensing fees paid by RDE to us in accordance with our agreement with Rich Global, LLC, for the year ended December 31, 2007. For the same period in 2006, the licensing fees related to RDE were $0.2 million as this brand began sales in November 2006. Excluding the effect of intersegment revenue for both years, the gross profit for the Proprietary Brands real estate education segment decreased by $1.4 million, or 7.0% in 2007 primarily due to the increase in cost of student acquisition and declines of our Russ Whitney^®’s Building Wealth ™ and Cash Flow Generator ^® product.

Financial markets education

EduTrades, the Proprietary Brands financial markets education segment, began operations in July 2002, with the acquisition of Teach Me to Trade^®, and began sales in the fourth quarter of 2002. We provide education to avocational investors in financial instruments, such as stocks and stock options. Our training teaches trading fundamentals as well as advanced technical analysis to potential investors.

Cash sales for the years ended December 31, 2007 and 2006 were $41.4 million and $112.6 million, respectively, and revenues for these years were $70.7 million and $112.5 million, respectively. The decrease of $71.2 million in cash sales and $41.7 million in revenue in 2007 as compared with 2006 primarily due to the success of our Star Trader^® and Options Success Systems™ brands in 2006, while minimal sales were attributed to these brands in 2007. Options Success™ was suspended during the fourth quarter of 2006 and Star Trader^® was suspended during the first quarter of 2007.

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

Rich Dad Education

In November 2006, we launched Rich Dad^® Education, in alliance with Rich Global, LLC, which is based on the investing principles and philosophy of Robert Kiyosaki, detailed in his best-selling book, Rich Dad Poor Dad. Our RDE brand provides investor education in the United States, United Kingdom and Canada.

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

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

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

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accordance with our revenue recognition policy as described in Critical Accounting Policies below, the Company is required to defer the recognition of revenue until certain criteria are met. Although the cash sales of RDE are increasing, a substantial portion of the sales are not included in our revenue on the statement of operations.

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

Revenue

Revenue for the year ended December 31, 2007 was $207.6 million, a decrease of $17.1 million or 7.6%, as compared to revenue of $224.7 million for the year ended December 31, 2006 (in thousands):

Total revenue decreased by 7.6% in 2007 as compared with 2006 primarily because course breakage decreased by $12.4 million, or 22.4%, from $55.4 million in 2006 to $43.0 million in 2007. The primary driver of the change in breakage revenues year-over-year is the introduction of our RDE Brands. Courses associated with the new brand must establish a historical trend of attendance in order for us to estimate breakage which means that the revenues from unattended courses for these brands will remain deferred for approximately three years.

The following table illustrates the number of educational events, the number of students and the average number of students per paid course for the comparative periods:

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

The following table provides the percentage of each media source by which prospective students accessed our free introductory workshops:

Prospective students registering for our free introductory workshops via our branded websites increased by 0.2% in 2007 as compared to 2006. We introduced on-line advertising in 2006 and in that year 1.9% of our prospective students were obtained from this source as compared to 13.0 % in 2007, an increase of 632.4% year-over-year. Further, we experienced an increase of 144.6% from our newspaper advertising 2007 as compared to 2006.

Change in deferred revenue

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

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

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

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Operating Expenses

Direct course expenses

Direct course expenses relate to our basic training sessions and advanced courses, and consist of instructor fees, facility costs, salaries associated with our field representatives and related travel expenses.

Direct course expenses were $103.5 million in 2007, a decrease of $8.0 million or 7.2%, as compared to $111.5 million in 2006. As a percentage of revenue, direct course expenses increased 0.3 percentage points (pp) from 49.6% in 2006 to 49.9% in 2007. This increase as a percentage of revenue was due to the introduction of the RDE Brand.

The components of direct course expenses as a percentage of revenue are as follows:

Advertising and sales expense

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

•                  Purchased media to generate registrations to our free introductory workshops, and

•                  Costs associated with supporting student recruitment.

Our cost structure is particularly sensitive to increases in advertising costs and its subsequent efficiency, production costs and travel related expenses. However, a significant portion of our cost structure includes variable costs, such as instructor, field representative and outreach related costs which are primarily a function of sales.

We obtain the majority of our students through free introductory workshops. These introductory workshops are established in various metropolitan areas in the United States, the United Kingdom and Canada. Prior to the actual workshop, we expend a significant amount of money in the form of advertising through various media channels.

The following table represents the expense categories that comprise advertising and sales expense in 2007 and 2006 and the expense categories as a percentage of total advertising and sales expense (in thousands):

(1) RDE licensing fees were not significant prior to 2007.

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

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

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

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

Gross profit

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

General and administrative expenses

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

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

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Impairment of assets

No impairment of assets was recorded in 2007.

We recorded an impairment of assets totaling $3.6 million in 2006 for property and equipment, inventory and intangible assets.  The following table includes the items impaired in 2006 (in thousands):

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

Special items

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

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

(Loss) income from operations

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

Other income (expense)

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

Interest income

Interest income in 2007 decreased by $0.2 million to $2.2 million, as compared to $2.4 million in 2006.  The decrease in interest income is due to a reduction in invested balances in our cash accounts due to the increase in our required restricted cash balances.

Interest expense

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

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Equity (loss) from related parties

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

Income tax provision (benefit)

We recognize deferred tax assets and liabilities, at enacted income tax rates, based on the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities.  We include any effects of changes in income tax rates or tax laws in the provision for income taxes in the period of enactment.  When it is more likely than not that a portion or all of a deferred tax asset will not be realized in the future, we provide a corresponding valuation allowance against the deferred tax asset.

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

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

Net (loss) income

Net loss in 2007 totaled $6.6 million, as compared to net income of $2.3 million in 2006.  The decrease in income was $8.9 million, or 387.0%.  The increase of $10.1 million in expenses due to the special items and the $17.0 million decline in revenue due to the reduction in course breakage and a decrease in sales of our Proprietary Brands contributed to the decline in net income in 2007 as compared to 2006.

Known Trends

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

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

Liquidity and Capital Resources

Cash flows from operating activities

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

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

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

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

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

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the SEC and DOJ investigations.  In addition, the decrease in the sales of our Proprietary Brands that we experienced as result of focusing our efforts on RDE Brand growth, the slowdown in our real estate business due to economic declines in the housing market, the significant turnover among our instructors and field representatives in our financial markets segment, and the suspension of the Options Success™ and Star Trader^® products resulted in the use of cash balances.

Cash flows from investing activities

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

Cash flows from financing activities

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

Cash used in financing activities in 2006 primarily related to the $11.7 million distributed as a special dividend to our holders of common stock.  In August 2006, our Board of Directors declared a special dividend of $1.00 per share for shareholders of record on September 15, 2006.  In addition, $5.1 million was paid to Mr. Whitney in January 2006 in connection with the partial sale of his common stock in December 2005 in which we received funds on his behalf.  This amount was partially offset by $4.2 million received from the exercise of stock options and warrants.

Sources of liquidity

Restricted cash balances, consisting primarily of funds on deposit with credit card merchants, totaled $8.4 million and $7.5 million at December 31, 2007, and December 31, 2006, respectively, including the letters of credit required to secure merchant accounts and certain state bonding requirements for approximately $0.1 million and $1.6 million, as of December 31, 2007 and 2006, respectively.  The letters of credit are supported by certificates of deposit which earn interest rates ranging from 4.3% to 5.2%.  The majority of our cash equivalents are invested in short-term, liquid, investment grade commercial paper with yields ranging from 5.2% to 5.3%.

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

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

From time to time, we evaluate potential acquisitions of business products or technologies that complement our business.  To the extent that financial resources are insufficient to fund future activities, we may need to raise additional funds.  However, there can be no assurance that additional funding, if needed, will be available.  If adequate funds are not available on acceptable terms, we may be unable to expand our business, develop or enhance our products and services, take advantage of future opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, operating results and financial condition.

We believe our cash resources are sufficient to fund our operations, special items and growth plans in 2008.

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Non-core investments

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

The ownership interests in the entities are presented in the following table:

N/A – Not Applicable

(a)          These entities were sold in January 2008.

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

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

(d)         The historical cost and related depreciation for the conference center are reflected in “property and equipment” in our consolidated balance sheets.

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

Additionally, we own a 50% interest in Monterey del Llano, S.A. which owns a one-third interest in Monterey Group, S.A whose only asset is two and one-half acres of beachfront land adjacent to Monterey del Mar, S.A. / Mar y Tierra del Oeste, S.A., our hotel property.  Monterey del Llano, S.A. and Monterey Group, S.A. are not operating entities and have no operating results.  Therefore, we do not record an equity interest related to these entities.

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

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

SCB building

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

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to the building and were financed primarily by long-term debt.  In March 2006, we acquired the remaining 50% of SCB Building, LLC through the issuance of $3.6 million of long-term debt.  The only asset of SCB was a note receivable resulting from the sale of the building.

Southwest Florida investment

In 2004, we entered into a joint venture in which we acquired a 50% interest in Tranquility Bay of Southwest Florida, LLC which owns 74 acres of land zoned for residential development in Southwest Florida.  The investment entity had no ongoing activity other than minimal costs of carrying the land.  We recorded our share of these costs under the equity method of accounting.

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

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

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

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States.  The preparation of these financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes.  Actual results could differ from these estimates under different assumptions or conditions.  We believe the following critical accounting policies affect our more significant estimates and assumptions used in the preparation of our consolidated financial statements and accompanying.

Revenue Recognition Policy

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

Some of our training and consulting contracts contain multiple deliverable elements that include training along with other products and services.  In accordance with EITF No. 00-21, sales arrangements with multiple deliverables are divided into separate units of accounting if the deliverables in the sales contract meet the following criteria: (i) the delivered training or product has value to the client on a standalone basis: (ii) there is objective and reliable evidence of the fair value of undelivered items; and (iii) delivery of any undelivered item is probable.  The fair value of each element is generally determined by prices charged when sold separately.  In certain arrangements, we offer these products bundled together at a discount.  The discount is allocated pro-rata to each element based on the relative fair value of each element when fair value support exists for each element in the arrangements.  The overall contract consideration is allocated among the separate units of accounting based upon their fair values, with the amount allocated to the delivered item being limited to the amount that is not contingent upon the delivery of additional items or meeting other specified performance conditions.  If the fair value of all undelivered elements exists, but fair value does not exist for one or more delivered elements, the residual method is used.  Under the residual method, the amount of consideration allocated to the delivered items equals the total consideration less the aggregate fair value of the undelivered items.  Fair value of the undelivered items is based upon the normal pricing practice for the Company’s existing training programs, consulting services, and other products, which are generally the prices of the items when sold separately.

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Each transaction is separated into its specific elements and revenue for each element is recognized according to the following policies: