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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



---

FORM 10-QSB



(Mark One)



|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
|- |  | ---------------------------------------------------

THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended March 31, 2003



OR



| ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
|- |  | ----------------------------------------------------

THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from  to



Commission file number  0-29615



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COMPASS
KNOWLEDGE HOLDINGS, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)



|NEVADA                                                         |  | 87-0471549                          
|-------------------------------------------------------------- |  | ------------------------------------
|(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) |  | (IRS EMPLOYER IDENTIFICATION NUMBER)



2710
REW CIRCLE, SUITE 100

OCOEE, FLORIDA 34761

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)



(407) 573-2000

(REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE)



(407) 656-7585

(REGISTRANTS FACSIMILE NUMBER, INCLUDING AREA
CODE)



WWW.COMPASSKNOWLEDGE.COM

(REGISTRANTS WEBSITE ADDRESS)



Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.



x  Yes ̈No



There were 15,861,250 shares outstanding of the
Registrants common stock, $0.001 par value, as of May 14, 2003.



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##### Table of Contents

COMPASS KNOWLEDGE HOLDINGS, INC.

FORM 10-QSB

For the Quarter ended March 31, 2003



|PART I  Financial Information |  |                                                                                         
|------------------------------ |  | ----------------------------------------------------------------------------------------
|                              
|Item 1                         |  | Financial Statements                                                                    
|                              
|                               |  | Consolidated Balance Sheet as of March 31, 2003 and December 31, 2002                   
|                              
|                               |  | Consolidated Statements of Operations for the Three Months ended March 31, 2003 and 2002
|                              
|                               |  | Consolidated Statements of Cash Flows for the Three Months ended March 31, 2003 and 2002
|                              
|                               |  | Notes to Financial Statements                                                           
|                              
|Item 2                         |  | Managements Discussion and Analysis of Results of Operations and Financial Condition   
|                              
|PART II  Other Information    |  |                                                                                         
|                              
|Item 6                         |  | Exhibits and Reports on Form 8-K                                                        
|                              
|                               |  | Signatures                                                                              



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PART I FINANCIAL INFORMATION



|ITEM |  | 1. FINANCIAL STATEMENTS
|---- |  | -----------------------



COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS

(in Thousands)

AS OF MARCH 31, 2003 AND DECEMBER 31, 2002



|                                                                                                                                                                        |  | March 31, 2003 |             |   | December 31, 2002 |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - | ----------------- | -
|ASSETS                                                                                                                                                                  |  |                | (Unaudited) |   |                   |  
|CURRENT ASSETS:                                                                                                                                                         |  |                |             |   |                   |  
|Cash                                                                                                                                                                    |  | $              | 193         |   |                   | $
|Accounts receivable, net of allowance for doubtful accounts of $6 & $6 at March 31,
2003 and December 31, 2002, respectively                                            |  |                | 837         |   |                   |  
|Note receivable                                                                                                                                                         |  |                |            |   |                   |  
|Prepaid expenses                                                                                                                                                        |  |                | 100         |   |                   |  
|Other assets, net                                                                                                                                                       |  |                | 735         |   |                   |  
|                                                                                                                                                                        |  |                |             |   |                   |  
|Total current assets                                                                                                                                                    |  |                | 1,865       |   |                   |  
|                                                                                                                                                                       
|PROPERTY AND EQUIPMENT, net                                                                                                                                             |  |                | 247         |   |                   |  
|                                                                                                                                                                       
|GOODWILL, net                                                                                                                                                           |  |                | 847         |   |                   |  
|                                                                                                                                                                       
|OTHER ASSETS, net                                                                                                                                                       |  |                | 547         |   |                   |  
|                                                                                                                                                                       
|NET ASSETS OF DISCONTINUED OPERATIONS                                                                                                                                   |  |                |            |   |                   |  
|                                                                                                                                                                        |  |                |             |   |                   |  
|Total assets                                                                                                                                                            |  | $              | 3,506       |   |                   | $
|                                                                                                                                                                        |  |                |             |   |                   |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                    |  |                |             |   |                   |  
|                                                                                                                                                                       
|CURRENT LIABILITIES:                                                                                                                                                    |  |                |             |   |                   |  
|Accounts payable and accrued expenses                                                                                                                                   |  | $              | 336         |   |                   | $
|Deferred student fees                                                                                                                                                   |  |                | 761         |   |                   |  
|Note payable-current portion                                                                                                                                            |  |                | 75          |   |                   |  
|Provision for Loss from Disposal of Discontinued Operations                                                                                                             |  |                |            |   |                   |  
|                                                                                                                                                                        |  |                |             |   |                   |  
|Total current liabilities                                                                                                                                               |  |                | 1,172       |   |                   |  
|                                                                                                                                                                        |  |                |             |   |                   |  
|Total liabilities                                                                                                                                                       |  |                | 1,172       |   |                   |  
|                                                                                                                                                                       
|STOCKHOLDERS EQUITY:                                                                                                                                                   |  |                |             |   |                   |  
|Preferred stock, 5,000,000 shares authorized,2,000 shares issued and
outstanding                                                                                        |  |                | 1,667       |   |                   |  
|Common stock, $0.001 par value; 50,000,000shares authorized, 15,861,250 and
15,861,250 sharesissued and outstanding at March 31, 2003and December 31, 2002 respectively |  |                | 16          |   |                   |  
|Additional paid-in-capital                                                                                                                                              |  |                | 6,020       |   |                   |  
|Unearned compensation                                                                                                                                                   |  |                |            |   |                   |  
|Accumulated deficit                                                                                                                                                     |  |                | (5,368      | ) |                   |  
|                                                                                                                                                                        |  |                |             |   |                   |  
|Total stockholders equity                                                                                                                                              |  |                | 2,334       |   |                   |  
|                                                                                                                                                                        |  |                |             |   |                   |  
|Total liabilities and stockholders equity                                                                                                                              |  | $              | 3,506       |   |                   | $
|                                                                                                                                                                        |  |                |             |   |                   |  



The
accompanying notes are an integral part of the consolidated financial statements



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COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except share and per share amounts)

FOR THREE MONTHS ENDED MARCH 31, 2003 AND 2002

|                                                                                                 |  | 2003 |            |   | 2002          |  
|------------------------------------------------------------------------------------------------ |  | ---- | ---------- | - | ------------- | -
|                                                                                                 |  |      |            |   | (As restated) |  
|TOTAL STUDENT FEE REVENUE                                                                        |  |      |            |   |               |  
|Net student fee revenue from degree programs                                                     |  | $    | 1,274      |   |               | $
|Gross student fee revenue from non-degree programs                                               |  |      | 128        |   |               |  
|Gross revenue from subscriptions and consulting services                                         |  |      | 6          |   |               |  
|Other revenue                                                                                    |  |      | 5          |   |               |  
|                                                                                                 |  |      |            |   |               |  
|Total revenue                                                                                    |  |      | 1,413      |   |               |  
|INSTRUCTION COSTS AND SERVICES                                                                   |  |      | 260        |   |               |  
|                                                                                                 |  |      |            |   |               |  
|Gross profit                                                                                     |  |      | 1,153      |   |               |  
|                                                                                                 |  |      |            |   |               |  
|OPERATING EXPENSES                                                                               |  |      |            |   |               |  
|Selling and promotional                                                                          |  |      | 450        |   |               |  
|General and administrative                                                                       |  |      | 614        |   |               |  
|                                                                                                 |  |      |            |   |               |  
|Total operating expenses                                                                         |  |      | 1,064      |   |               |  
|                                                                                                 |  |      |            |   |               |  
|INCOME (LOSS) FROM OPERATIONS                                                                    |  |      | 89         |   |               |  
|                                                                                                 |  |      |            |   |               |  
|OTHER INCOME (EXPENSE)                                                                           |  |      |            |   |               |  
|Interest income                                                                                  |  |      | 1          |   |               |  
|Interest expense                                                                                 |  |      | (2         | ) |               |  
|Other Income                                                                                     |  |      | 1          |   |               |  
|                                                                                                 |  |      |            |   |               |  
|Total other income                                                                               |  |      | 0          |   |               |  
|                                                                                                 |  |      |            |   |               |  
|                                                                                                 |  |      |            |   |               |  
|INCOME (LOSS) FROM CONTINUING OPERATIONSBEFORE PREFERRED DIVIDENDS                               |  |      | 89         |   |               |  
|DISCONTINUED OPERATIONS                                                                          |  |      |           |   |               |  
|                                                                                                 |  |      |            |   |               |  
|INCOME (LOSS) BEFORE PREFERRED DIVIDENDS AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE |  |      | 89         |   |               |  
|CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                                              |  |      |           |   |               |  
|                                                                                                 |  |      |            |   |               |  
|INCOME (LOSS) BEFORE PREFERRED DIVIDENDS                                                         |  |      | 89         |   |               |  
|LESS: PREFERRED STOCK DIVIDENDS                                                                  |  |      | (35        | ) |               |  
|                                                                                                 |  |      |            |   |               |  
|NET (LOSS) INCOME AVAILABLE TO COMMON STOCKHOLDERS                                               |  | $    | 54         |   |               | $
|                                                                                                 |  |      |            |   |               |  
|BASIC EARNINGS (LOSS) PER SHARE                                                                  |  |      |            |   |               |  
|Net Income (Loss) Per Share                                                                      |  | $    | 0.003      |   |               | $
|                                                                                                 |  |      |            |   |               |  
|Basic Weighted Average Shares Outstanding                                                        |  |      | 15,861,250 |   |               |  
|                                                                                                 |  |      |            |   |               |  
|DILUTED EARNINGS (LOSS) PER SHARE                                                                |  |      |            |   |               |  
|Net Income (Loss) Per Share                                                                      |  | $    | 0.003      |   |               | $
|                                                                                                 |  |      |            |   |               |  
|Diluted Weighted Average Shares Outstanding                                                      |  |      | 15,861,250 |   |               |  
|                                                                                                 |  |      |            |   |               |  



The
accompanying notes are an integral part of the consolidated financial statements



4



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COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in Thousands)

FOR THE THREE MONTHS ENDED MARCH 31, 2003 and 2002

|                                                                                                   |  | 2003 |      |   | 2002          |  
|-------------------------------------------------------------------------------------------------- |  | ---- | ---- | - | ------------- | -
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                              |  |      |      |   | (As Restated) |  
|Net (loss) income                                                                                  |  | $    | 89   |   |               | $
|Adjustments to reconcile net (loss) income to net cash providedby (used for)
operating activities- |  |      |      |   |               |  
|Depreciation and amortization                                                                      |  |      | 296  |   |               |  
|Transitional goodwill impairment loss                                                              |  |      |     |   |               |  
|Provision for loss from disposal of discontinued operations                                        |  |      |     |   |               |  
|Amortization of unearned compensation                                                              |  |      |     |   |               |  
|Stock-based compensation                                                                           |  |      |     |   |               |  
|Decrease (increase) in operating assets and liabilities-                                           |  |      |      |   |               |  
|Accounts receivable                                                                                |  |      | 68   |   |               |  
|Provision for losses on accounts receivable                                                        |  |      |     |   |               |  
|Prepaid expenses                                                                                   |  |      |     |   |               |  
|Other current assets                                                                               |  |      | (28  | ) |               |  
|Other long-term assets                                                                             |  |      |     |   |               |  
|Accounts payable and accrued expenses                                                              |  |      | (247 | ) |               |  
|Deferred revenue                                                                                   |  |      | (356 | ) |               |  
|                                                                                                   |  |      |      |   |               |  
|Net cash provided by (used in) operating activities                                                |  |      | (178 | ) |               |  
|                                                                                                   |  |      |      |   |               |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                              |  |      |      |   |               |  
|Purchases of property and equipment                                                                |  |      | (52  | ) |               |  
|Cash payments for content development costs                                                        |  |      | (79  | ) |               |  
|Cash payments for direct marketing costs                                                           |  |      | (158 | ) |               |  
|Acquisitions, net of cash/divestiture                                                              |  |      |     |   |               |  
|Proceeds from sale of disposal of discontinued operations                                          |  |      | 244  |   |               |  
|                                                                                                   |  |      |      |   |               |  
|Net cash provided by (used in) investing activities                                                |  |      | (45  | ) |               |  
|                                                                                                   |  |      |      |   |               |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                              |  |      |      |   |               |  
|Proceeds from issuance of common stock and warrants                                                |  |      |     |   |               |  
|Proceeds from issuance of note payable                                                             |  |      |     |   |               |  
|Proceeds from notes receivable                                                                     |  |      |     |   |               |  
|Payment on notes payable                                                                           |  |      |     |   |               |  
|Payment of preferred dividend                                                                      |  |      | (35  | ) |               |  
|                                                                                                   |  |      |      |   |               |  
|Net cash provided by (used in) financing activities                                                |  |      | (35  | ) |               |  
|                                                                                                   |  |      |      |   |               |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                               |  |      | (258 | ) |               |  
|CASH AND CASH EQUIVALENTS, beginning of period                                                     |  |      | 451  |   |               |  
|                                                                                                   |  |      |      |   |               |  
|CASH AND CASH EQUIVALENTS, end of period                                                           |  | $    | 193  |   |               | $
|                                                                                                   |  |      |      |   |               |  
|Supplemental disclosure of cash flow information:                                                  |  |      |      |   |               |  
|Cash paid during the year for:                                                                     |  |      |      |   |               |  
|Interest                                                                                           |  | $    | 2    |   |               | $
|                                                                                                   |  |      |      |   |               |  



The
accompanying notes are an integral part of the consolidated financial statements



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Compass
Knowledge Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements



|1. |  | Principles of Interim Statements. The following unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and note disclosures which are normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to those rules and regulations.
The information presented in the unaudited consolidated financial statements reflects all adjustments, which are, in the opinion of the management, necessary to present fairly the Companys financial position and the results of operations for
the interim periods. The consolidated format is designed to be read in conjunction with the Companys Form 10-KSB. For further information, refer to the consolidated financial statements and the notes thereto included in the Companys Form
10-KSB/A for the year ended December 31, 2002 filed with the Securities and Exchange Commission on May 14, 2003.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The results of operations for the three months ended March 31, 2003 are not necessarily indicative of results to be expected for the
entire year.



The consolidated financial
statements include the accounts of the Company and its subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.



|2. |  | As of March 31, 2003 there were 2,000 shares of Preferred Stock outstanding, convertible into 875,000 common shares. Also, there were options to purchase 3,255,100
shares of common stock and warrants to purchase 765,000 shares of common stock outstanding at March 31, 2003. The impact of the assumed conversion of the preferred stock and warrants were not included in the computation of diluted earnings per share
because the effect of the assumed conversion had an antidilutive effect.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | During the quarter ended March 31, 2003, saving 1,000,000 options at market to an employee, the Company granted no options. Accordingly, no compensation expense will
be recognized in the statement of operations.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | There was no stock and option-based compensation expense for the three months ended March 31, 2003 compared to $34 for the three months ended March 31, 2002.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



Had total compensation expense
been calculated using SFAS 123, the Companys net loss and loss per common share for the quarter ended March 31, 2003 and 2002, would have been changed to the following pro forma amounts:



2003

2002Net (loss) income:

As reported

$
54,000

$
(1,982,000
)Pro forma

$
33,000

$
(2,003,000
)diluted earnings (loss)per common share:

As reported

$
0.003

$
(0.125
)Pro forma

$
0.002

$
(0.126
)




|5. |  | No provision for income taxes has been recorded for the period ending March 31, 2003, as the periods net income has been offset by tax loss carryforwards. No
benefit for income taxes has been recorded for the three months ending March 31, 2003 or 2002 as the benefit resulting from the operating loss has been entirely offset by a valuation allowance due to the uncertainty surrounding the Companys
ability to realize the deferred tax assets in the future.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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|6. |  | In the fourth quarter of 2002 the Company discontinued its K-12 operations and in February of 2003 the Company completed the sale of this discontinued subsidiary. As
a result, the 2002 comparative results of the Companys financial operations as reflected in its financial statements have been restated to reflect the elimination of this subsidiarys prior period results.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|7. |  | Beginning with this filing, the Company, for purposes of clarification and presentation, has included in selling and promotion expenses payroll and benefits of its
enrollment center and marketing personnel. Likewise, these same expenses in the year ago period have been separately presented to properly reflect the comparative results. Selling and promotion expenses include in addition to these payroll and
benefit expenses: indirect marketing and marketing amortization expenses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
|------- |  | --------------------------------------------------------------------------------------



The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes that appear elsewhere in this
document.



This Report includes
forward-looking statements made based on current management expectations pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and actual outcomes
may differ materially from what is expressed or forecasted. Factors that could cause future results to differ from the Companys expectations include the factors described on page ii of this Report under Forward-Looking Statements
as well as under Factors Affecting Operating Results And Market Price Of Securities beginning on page 31 of this Report.



The financial results discussed in this section are presented in thousands except for income (loss) on a per share basis and those
presented on a percentage basis.



Overview



During 2002, we experienced a significant
period of transition. In early 2001, management undertook a strategic review of its business and established the following strategic objectives for the succeeding year: simplify the business strategies and operations, reduce and right size the cost
structure, including reductions in staffing, and return to a path which management believed would lead to sustainable profitability. In connection with these objectives, we wrote-off investments in unprofitable programs, exited our initiatives to
develop multiple new market niches and undertook significant restructuring and other actions, which served to reduce costs and align its operation with its goals of being profitable in 2002.



Beginning in the first quarter of this year, we sold our K-12
operations which were discontinued in the fourth quarter of 2002 and continued to focus on and grow our core degree program business. In connection with this strategy, our first quarter results reflect a more aggressive execution, pricing and
marketing strategy. Overall, the outcomes from operations during the first quarter of 2003 were favorable as the Company experienced its fifth consecutive quarter of profitability. In line with this growth strategy, the Company hired additional
marketing and recruitment personnel and incurred other related infrastructure costs which resulting in a 29.6% overall increase in gross revenues (57.7% increase in degree program revenues) and a 23.4% increase in our gross margins. Consistent with
this strategy our selling and promotion expenses increased 120% and general and administration expenses increased 22.7% resulting in income from operations of $89, or a 61.3% reduction from the year ago period.



Outlook



We intend to continue our strategy of focusing on our core
business and accelerate our growth



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by increasing sales of our core products and services. Notwithstanding this more aggressive execution,
pricing and marketing strategy, based on some early, not so favorable, indicators we have and intend to appropriately moderate our growth strategy. This more moderate strategy will likely result in a delay and reduction of our budgeted expenditures
for additional marketing and recruitment personnel and other related infrastructure costs and possibly a short term modification of our anticipated marketing expenditures. Likewise, we will continue to pursue synergistic knowledge partner alliances
and develop new programs on a highly selective basis. Based on this strategy, we expect to continue to be profitable in 2003. This prospect is based on, managements expectation of increased student counts and the associated revenues in our
degree and consulting businesses, launching at least one new program to replace the discontinuation of our nursing programs with Graceland University and the reduction in revenues associated with the discontinuation of our Audiology program with the
University of Florida in September 2003 combined with lower levels, on a percentage basis, of general and administrative spending compared to 2002.



Effective January 2003, the Company retained the services of Richard M. Flaherty to oversee its operations with a concentration on sales
and marketing efforts. Due to his desire to pursue other opportunities, Mr. Flaherty is currently negotiating a settlement and termination agreement with the Company which is expected to be announced shortly. Notwithstanding Mr. Flahertys
anticipated termination, it is expected that the Company will retain Mr. Flaherty on a consulting basis as well as hire a highly qualified replacement to monitor and manage the Companys revised marketing and sales strategies and tactics which
were initiated in the first quarter of this year.



In order for the Company to increase its revenues and earnings, the efforts and plans of management must be successful and as of this date, no assurance can be given that these efforts will be effective or that the Company will be
successful in gaining market share with respect to its existing programs or will enjoy acceptance for any new products or offerings it may develop and launch. Likewise, no assurance can be given that the Company will be able to recruit and retain
the required number and level of skilled business development, sales, marketing, service and support personnel, that will be needed to execute these strategies and plans. To the extent that the Company is unsuccessful in its efforts, the financial
results of the Company will be materially adversely affected.



Critical Accounting Policies and Estimates



Compasss consolidated financial statements, which have been prepared in accordance 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 reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to marketing expenses, customer incentives, student attrition rates, bad debts, intangible assets, income taxes, financing operations,
contractual obligations, restructuring costs, retirement benefits, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions
or conditions.



Our critical accounting policies
are more fully described in Note 2 to our consolidated financial statements. However, certain of our accounting policies are particularly important to the portrayal of our financial position and results of operations and require the application of
significant judgment by our management; as a result they are subject to an inherent degree of uncertainty. In applying those policies, our management uses its judgment to determine the appropriate assumptions to be used in the determination of
certain estimates. Those estimates are based on our historical experience, terms of existing contracts, our observance of trends in the industry, information provided by our customers and information available from other outside sources, as
appropriate. Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.



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##### Table of Contents



Our critical
accounting policies include:



    Revenue Recognition.    The Company offers consulting services and two types of educational programs: degree programs and non-degree programs.



For degree programs, in which the Companys University
Partners are responsible for course curricula and for conferring a degree, the Company receives a stated percentage of student fees. For these degree programs, Company currently records as revenues only the stated percentage of the student fees paid
to the Company by the University Partners. For non-degree programs, in which the Company is responsible for course curricula, the Company records all student fees as gross revenue. For both degree and non-degree programs, student fees must be paid
prior to the students attendance of the program. The Company defers this revenue and recognizes it as income over the period of instruction. If a student withdraws from a course or program prior to the start date or expiration of the drop
date, the student fees may be refunded or applied to a later seminar. The Company has based its revenue recognition policy on recent guidance by the Securities and Exchange Commission (SEC) and the Emerging Issues Task Force (EITF), in EITF Issue
No. 99-19, Reporting Revenue Gross versus Net, regarding the recognition of gross versus net revenues for Internet-based entities.



The revenue generated in fiscal 2002 and in prior years by subscription services originated from our K-12 operations which was
discontinued in the fourth quarter of 2002 and sold in February 2003 and as a result, is no longer presented in our financial statements.



The revenues generated by consulting projects is recognized when the service procedures have been completed or applicable milestones have
been achieved.



    Other Assets.    The Company enters into long-term contracts with certain universities (the University Partners) for the development and delivery of degree programs. Costs
incurred by the Company in entering into these contracts are deferred and amortized over the life of the contract, generally three to seven years.



Under some of the long-term contracts with its University Partners, the Company is responsible for developing and delivering a degree
program for the duration of the contract period. Direct external and internal costs incurred in the design and development of course content and the master copy of course materials are capitalized as content development costs. These costs are
recognized as expense over the life of the contract, based on the expected revenue stream from course offerings during the contract period.



The Company expenses the production costs of advertising the first time the advertising takes place, except for direct-response
advertising and other direct marketing costs, which are deferred and amortized over their expected period of future benefits. Direct-response advertising consists primarily of marketing materials mailed to potential students, which include direct
response cards. Other direct marketing costs consist primarily of brochures and mailing lists, which will be utilized over future periods. The deferred costs of the marketing and advertising are amortized over periods up to 12 months.



    Financial Accounting
Standards.    In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142 (SFAS 142), which establishes accounting standards for the recognition and measurement of an asset retirement
obligation and its associated asset retirement cost. The changes in these rules may have a significant impact on our reported financial results. In June 2001, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 141, Business
Combinations and SFAS No.142, Goodwill and Other Intangible Assets. These statements would continue to require recognition of goodwill as an asset but would not permit amortization of goodwill as is currently required by Accounting Principles Board
(APB) Opinion No. 17, Intangible Assets. Under the SFAS 142, goodwill would be separately tested for impairment using a fair-value-based approach when an event occurs indicating the potential for impairment. Any required goodwill impairment charges
would be presented as a separate line item within the operating section of the income statement. The change from an



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amortization approach to an impairment approach would apply to previously recorded goodwill, as well as goodwill arising from acquisitions
completed after the application of the new standard. The Company adopted SFAS No. 142 for its fiscal year beginning January 1, 2002 and as a result, the Company no longer amortized goodwill.



RESULTS OF OPERATIONS



Set forth below is certain of our selected consolidated
financial and operating information for the Three months ended March 31, 2003 and the comparable period in 2002, respectively. The selected consolidated financial information is derived from our consolidated financial statements for such periods.
The information set forth below should be read in conjunction with Managements Discussion and Analysis of Results of Operations and Financial Condition and our Consolidated Financial Statements and Notes thereto.



|                                                                    |  | Three Months Ended March 31                       |           
|------------------------------------------------------------------- |  | ------------------------------------------------- | ----------
|                                                                    |  | in thousands, except share and per share amounts) |           
|                                                                    |  | 2003                                              |           
|Total revenue                                                       |  | $                                                 | 1,413     
|Gross profit                                                        |  | $                                                 | 1,153     
|Income (Loss) from Continuing Operations before Preferred Dividends |  | $                                                 | 89        
|Change in Accounting Principle and Discontinued Operations          |  | $                                                 | -0-       
|Income (Loss) before Preferred Dividends                            |  | $                                                 | 89        
|Earnings (Loss) per share, basic                                    |  | $                                                 | 0.003     
|Earnings (Loss) per share, diluted                                  |  | $                                                 | 0.003     
|                                                                   
|Weighted average shares outstanding                                 |  |                                                   |           
|Basic                                                               |  |                                                   | 15,861,250
|Diluted                                                             |  |                                                   | 15,861,250



|                                  |  | At March 31, 2003
|--------------------------------- |  | -----------------
|Working Capital                   |  | $                
|Total Current Assets              |  | $                
|Total Property and Equipment, net |  | $                
|Total Current Liabilities         |  | $                
|Stockholders Equity              |  | $                



THREE MONTHS ENDED
MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002



Total revenues increased by $323 to $1,413 for the three months ended March 31, 2003, from $1,090 in the comparable 2002 period, representing an increase of 29.6%. Revenues increased in both of our degree and non-degree
programs compared to the year ago period. Degree program revenue increased by $466 or 57.5%, to $1,277 for the three months ended March 31, 2003 from $811 in the comparable 2002 period. This increase is primarily related to: (i) a 157.4% increase in
revenues with respect to our radiology degree program which is reflective of increased student enrollments; (ii) a 74.5% increase in revenues with respect to our bachelors of criminal justice program; (iii) ) a 1,485.5% increase in revenues
with respect to our nursing programs with Graceland University (which has now been discontinued); and, (iv) a 119.9% increase in revenues with respect to our masters degree program in criminal justice launched last year with the University of
Cincinnati; coupled with slight increases in our



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revenues with respect our audiology (10.0%) and pharmacy (6.8%) programs. The increase in the degree program revenues were offset by a $156
decline in our consulting and other revenues. Our certificate program revenues increased by 10.1% from the year ago period.



Gross Profit increased $219, or 23.4%, to $1,153 for the three months ended March 31, 2003 from $934 in the comparable 2002 period, due
primarily to an overall increase in our revenues. For the three months ended March 31, 2003, our gross profit margin slightly decreased to 81.6%, compared to 85.7% in the comparable 2002 period, reflecting the impact of higher instructional and
service costs in some of our degree programs and higher costs as compared to revenues with respect to our consulting business.



Selling and promotion expenses (which include expenses associated with payroll and benefits of our enrollment center and marketing
personnel is presented for the first time beginning this quarter) increased by $245, or 120%, to $450 for the three months ended March 31, 2003 from $205 in the comparable 2002 period. The increase was primarily due to expenses associated with
increased staffing in our enrollment center and increased amortization associated with marketing expenditures.



General and administration expenses increased by $114, or 22.7%, to $614 for the three months ended March 31, 2003 from $501 in the
comparable 2002 period. The increase was primarily due to expenses associated with the payment of certain executive salaries which were waived in the first quarter of 2002, an increase in executive and administrative staffing, and less capitalized
legal and accounting costs.



Net interest income
decreased $3, or 75%, to $1 for the three months ended March 31, 2003 from $4, in the year ago period.



As a result of the increase in sales, improvement of gross margins and increases in operating expenses, net income before preferred
dividends and the cumulative effect of change in accounting principle decreased by $142, resulting in net income before preferred dividends of $89 for the three months ended March 31, 2003 compared with a net income before preferred dividends of
$231 in the comparable 2002 period.



LIQUIDITY AND CAPITAL
RESOURCES



Our cash amounted to $193 at
March 31, 2003, compared to $451 at December 31, 2002. The net cash used in our operations was $178 during the three months ended March 31, 2003 compared with net cash provided by $150 in the comparable 2002 period. In the second quarter of 2001, we
began accounting for capitalized direct marketing and content development costs as investing activities. These costs totaled $237 for the three months ended March 31, 2003 and $239 in the year ago period. As a result, these costs are not included as
a use of cash from operating activities for the three months ending March 31, 2003 and March 31, 2002.



We used $45 of cash for investing activities in the three months ended March 31, 2003 compared with $274 in the year ago period.



SEASONALITY



We experience seasonality in our results of operations
primarily as a result of changes in the level of student enrollments and course completion. We typically offer courses during all three semesters (FallAugust through December; springDecember through April; and summerMay through
August) of the school year. The summer semester typically experiences lower enrollment of new students as well as an increase in the number of students taking a break from their programs thereby resulting in lower revenues. Accordingly,
costs and expenses historically increase as a percentage of revenues as a result of certain fixed costs not significantly affected by the seasonal summer semester declines in net revenues. Changes in the start and finish dates of courses also impact
the quarter in which revenue is recognized and impact comparability on a year-to-year basis. We anticipate that these seasonal trends will continue in the



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future.



RISK FACTORS



Special Note Regarding Forward-Looking Statements and Risk Factors



Certain statements in this Form 10-QSB
contain forward-looking statements. Forward-looking statements are any statements other than statements of historical fact. Examples of forward-looking statements include projections of earnings, revenues or other financial items, statements of the
plans and objectives of management for future operations, and statements concerning proposed new products and services, and any statements of assumptions underlying any of the foregoing. In some cases, you can identify forward-looking statements by
the use of words such as may, will, expects, should, believes, plans, anticipates, estimates, predicts, potential, or continue, and any other words of similar meaning.



Statements regarding the Companys future financial performance or results of operations, including
expected revenue growth, EBITDA growth, future expenses, future operating margins and other future or expected performance are subject to the following risks: that projected operating efficiencies and cost-reduction initiatives will not be achieved
due to implementation difficulties or contractual spending commitments that cant be reduced; the acquisition of businesses or the launch of new lines of business, which could increase operating expenses and dilute operating margins; the
inability to raise additional capital or to attract new customers; increased competition, which could lead to negative pressure on the Companys pricing and the need for increased marketing; the inability to maintain, establish or renew
relationships with customers, whether due to competition or other factors; costs associated with the Companys initiatives to upgrade its technology platforms or the failure of the Company to successfully complete that initiative; and to the
general risks associated with the Companys businesses.



Factors Affecting Operating Results and Market Price Of Securities



You should consider the risks described below before making an investment decision. We believe that the risks and uncertainties described below are the principal material risks facing our company as of
the date of this Form 10-QSB. In the future, we may become subject to additional risks that are not currently known to us. Our business, financial condition or results of operations could be materially adversely affected by any of the following
risks. The trading price of our common stock could decline due to any of the following risks.



Adoption Of New Accounting Standards Has Had An Adverse Affect On The Companys Financial Statements And May Have A Material Adverse Effect On Its Future Business And Financial Condition



In June 2001, the Financial Accounting
Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. In
accordance with these standards, the Company wrote off $2 million dollars in goodwill during 2002 and no assurance can be given at this time that further write-offs of goodwill will not occur, although no such write-offs are expected in 2003.



The Emerging E-Learning Market Makes it Difficult To Evaluate
Our Business and Future Prospects.



We are
still in the early stages of our development, which, when combined with the emerging e-learning market, and general economic factors affecting the education sector, make it difficult to evaluate our business or our prospects. Because of these
factors, we have a limited and unproven ability to predict the trends in the e-learning market and in our business. The uncertainty of our future performance, in particular, and the uncertainty regarding the acceptance of e-learning, in general,
increases the risk that



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we will be unable to build a
sustainable business and that our stockholder value will decline.



In Recognizing Revenue, We Depend On The Timely Achievement of Various Milestones, and Our Inability to Recognize Revenue In Accordance With Our Expectations Will Harm Our Operating Results.



In accordance with our revenue recognition policy, our
ability to record revenues depends upon several factors. These factors include acceptance by our customers of new courses and the pace of participant registrations in courses once they are completed and made available for access. Our ability to
recognize revenues from our courses depends upon our content partners providing us with subject matter experts and content to be incorporated into the courses as well as our completion of production and obtaining customer acceptance at each stage of
development. Accordingly, if our content partners do not provide us with the subject matter experts or content in a timely manner, we will not be able to recognize the revenues at the times we anticipate with respect to that program, which would
harm our operating results.



In addition, if the
expected number of students do not sign up for a course, our ability to recognize revenues will be delayed, which could also harm our operating results in any quarter. Student registration depends in large part on our marketing and promotional
activities. If we fail to take necessary measures to achieve enrollment in our courses, our ability to recognize revenues, and therefore our operating results, could be harmed. Likewise, our prospects for growth will be delayed and adversely
affected if we are to generate sufficient cash from operations or raise additional capital to fuel our marketing efforts.



In any Quarter, a Delay In Receiving Payment from a Content Partner or Customers Could Harm Our Performance.



We expect that we will continue to depend upon a small number
of content partners for a significant portion of our revenues. As a result, our operating results could suffer if we lose any of these partners or if these partners delayed payment in any future fiscal period. For example, in fiscal 2002, our
largest content partner accounted for approximately 47% of our total revenues. We expect that the University of Florida will account for a significant portion of our revenues at least through fiscal 2003. However, the contract with respect to our
Doctor of Audiology program with the University of Florida expires in September of 2003 and the University of Florida is advised the Company that it is not going to renew our contract or enter into a new contract with respect to this program. With
respect to this program, approximately 26% of our degree program revenues and approximately 20% of our total revenues were derived from this program during the year ended December 31, 2002. Accordingly, the loss of this contract will have a
material adverse impact on our revenues and earnings and if not replaced with anticipated revenue and earnings increases due to growth in our other existing programs and/or new programs, will result in a material adverse impact on the Company and
its financial results.



Our Growth Depends On Hiring and
Retaining Third-Party Instructors and Other Qualified Personnel In A Highly Competitive Employment Market.



The growth of our business and revenues will depend in large part upon our ability to attract and retain sufficient numbers of highly
skilled employees. We primarily rely on individual third parties to provide the majority of our program instruction and our ability to support our courses depends on the availability and competency of these third-party instructors. Education and
Internet related industries create high demand for qualified personnel. We require personnel with educational course and design experience. Candidates experienced in both areas are limited. Currently, we contract with individual instructors
throughout the United States. Our failure to attract and retain sufficient skilled personnel and program instructors may limit the rate at which we can grow, which will harm our business and financial performance.



The Growth of Our Business Requires Wide Acceptance of E-Learning
Solutions.



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The market
for e-learning solutions is new and rapidly evolving. A number of factors could impact the acceptance of our e-learning solutions, including:



| |  |  | historic reliance on traditional education methods;
| | - |  | ---------------------------------------------------



| |  |  | limited allocation of our customers and prospective customers education budgets to e-learning; and
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | ineffective use of distance learning solutions.
| | - |  | -----------------------------------------------



Our e-learning solutions are relatively new, largely untested and less familiar to prospective customers than more established education
methods. If the market for e-learning fails to develop or develops more slowly than we expect, we will not achieve our growth and revenue targets and our stock price will likely decline.



The Length and Variability of Our Sales Cycle May Make Our Operating Results Unpredictable and Volatile.



The period between our initial contact with a potential
customer and the first purchase of our solution by that customer typically ranges from three to nine months. In some cases the cycle has extended for close to two years. Because we rely on large sales for a substantial portion of our revenues, these
long sales cycles can adversely affect our financial performance in any quarter. Factors which may contribute to the variability and length of our sales cycle include the time periods required for:



| |  |  | our education of potential customers about the benefits of our distance learning solutions;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | our potential customers assessment of the value of distance learning solutions compared to traditional educational solutions;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | our potential customers evaluation of competitive distance learning solutions; and
| | - |  | -----------------------------------------------------------------------------------



| |  |  | our potential customers internal budget and approval processes.
| | - |  | ----------------------------------------------------------------



Our lengthy sales cycle limits our ability to forecast the timing and size of specific sales. This, in turn,
makes it difficult to predict quarterly financial performance.



We May Not Have Adequate Resources To Compete Effectively, Acquire and Retain Customers and Attain Future Growth In The Highly Competitive E-Learning Market.



The e-learning market is evolving quickly and is subject to rapid technological change, shifts in customer
demands and evolving learning methodologies. In recent months e-learning has received more attention and numerous new companies have entered the market. As a result, customers and potential customers have more choices. This challenges us to
distinguish our offerings. If we fail to adapt to changes and the increased competition in our industry, we may lose existing customers or fail to gain new customers. No single competitor accounts for a dominant market share, yet competition is
intense. We compete primarily with:



| |  |  | third-party suppliers of instructor-led education and learning;
| | - |  | ---------------------------------------------------------------



| |  |  | internal education departments; and
| | - |  | -----------------------------------



| |  |  | other suppliers of technology-based learning solutions.
| | - |  | -------------------------------------------------------



Due to the high market fragmentation, we do not often compete head-to-head with any particular company. On occasion, our customers may
evaluate our end-to-end solution by comparison with point



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solutions offered by other e-learning companies. We may not provide solutions that compare favorably with
traditional instructor-led techniques or other technology-based learning methodologies. Our competitors vary in size and in the scope and breadth of the courses and services they offer. Several of our competitors have longer operating histories and
significantly greater financial, technical and marketing resources. Larger companies may enter the e-learning market through the acquisition of our competitors. We anticipate that the lack of significant entry barriers to the e-learning market will
allow other competitors to enter the market, increasing competition.



To succeed, we must continue to expand our course offerings, upgrade our technology and distinguish our solutions. We may not be able to do so successfully. Any failure by us to anticipate or respond adequately to changes in
technology and customer preferences, or any significant delays in course development or implementation, could impact our ability to capture market share. As competition continues to intensify, we expect the e-learning market to undergo significant
price competition. We also expect to face increasing price pressures from customers as they demand more value for their learning related expenditures. Increased competition, or our inability to compete successfully against current and future
competitors, could reduce operating margins, loss of market share and thought leadership resulting in a diminution of our brand.



We Rely On Cooperation from Our Content Partners and Third Parties To Develop and Deliver Courses and Our Business Will Suffer If Such Cooperation
Occurs in an Untimely or Inefficient Manner.



To be competitive, we must develop and introduce on a timely basis new course offerings, which meet the needs of the working profession seeking to use our e-learning solutions. The quality of our learning solutions depends in large
part on our ability to frequently update our courses and develop new content as the underlying subject matter changes. We create courses by incorporating subject matter expertise provided by our content partners and third party content developers
into our e-learning delivery model. The quality of our courses depends on receiving content and cooperation from our content partners, subject matter experts, and third-party content developers. If we do not receive materials from these sources in a
timely manner, we may not be able to develop or deliver specialized courses to our customers in the expected time frame. Even if we do receive necessary materials from third parties, our employees and consultants must complete their work in a timely
manner or we will not meet customer expectations. In the past, we have experienced delays in obtaining access to experts, which has contributed to a longer development cycle and inefficient allocation of our resources. Any prolonged delays, even
when caused by our customers, can result in failure to satisfy a customers demands and damage our reputation.



We Could Inhibit Increases In Our Revenues If We Do Not Increase Our Marketing.



To date, substantially all of our sales have been made through direct marketing and sales efforts. We believe
that we will need to expand our marketing and diversify our sales efforts to be successful. If we do not increase our marketing efforts and develop indirect sales channels, we may miss sales opportunities. We are currently investing in personnel and
marketing activities to develop indirect sales channels.



Although we are currently investing in marketing these direct and indirect sales channels, we may not succeed. Our focus on increasing sales through marketing and indirect channels may divert management resources and attention.
Conflicts across sales channels could cause us to encounter pricing pressures and lose revenue opportunities, which could harm our business and cause our operating results to decline.



A Failure to Manage Our Growth Could Adversely Affect Our Business.



In 2003, we have modified our growth
strategy by focusing all of our available resources on our current core offerings with the addition of one new program expected in the fall of 2003. Our strategy is to grow aggressively. This strategy will place significant demands on our financial,
operational, and



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management resources and will expose us to a variety of risks. Our expected growth will result in an
increase in the level of responsibility for our key personnel. Expenses arising from our efforts to develop new products, or increase our existing market penetration could have an adverse impact on our business, results of operations, and financial
condition.



We might not be able to manage any
additional products and services. We might experience slower than expected uptake on our new product offerings. Acquisition or new product development will require our management to develop expertise in new areas and to attract new customers, both
of which may be difficult to do.



We Do Not Anticipate Any
Acquisitions During 2003.



As part of our
business strategy, we do not anticipate at this time to acquire businesses. We may, however, engage in strategic ventures and alliances or investments will be accompanied by certain risks. These risks include, among other things, the:



| |  |  | expenditures of cash which may reduce our cash reserves to critical levels,
| | - |  | ---------------------------------------------------------------------------



| |  |  | difficulty of assimilating the operations and personnel of the venture,
| | - |  | -----------------------------------------------------------------------



| |  |  | potential disruption of our ongoing business,
| | - |  | ---------------------------------------------



| |  |  | distraction of management from our core business,
| | - |  | -------------------------------------------------



| |  |  | inability of management to maximize our financial and strategic position,
| | - |  | -------------------------------------------------------------------------



| |  |  | increase in general and administrative expenses,
| | - |  | ------------------------------------------------



| |  |  | expansion of management information systems,
| | - |  | --------------------------------------------



| |  |  | need for greater facilities requirements,
| | - |  | -----------------------------------------



| |  |  | increase in overall headcount,
| | - |  | ------------------------------



| |  |  | maintenance of uniform standards, controls, procedures and policies, and
| | - |  | ------------------------------------------------------------------------



| |  |  | impairment of relationships with employees and clients as a result of any integration of new management personnel
| | - |  | -----------------------------------------------------------------------------------------------------------------



Any of these factors could have a material adverse effect on
our business, results of operations or financial conditions, particularly in the case of a larger acquisition.



Some of Our Products Are Less Profitable Than Others.



Some of our revenues are derived from products such as our non-degree programs which, as a percentage of revenues, currently require a
higher level of development, distribution and support expenditures compared to some of our degree programs. To the extent that revenues generated from these products become a greater percentage of our total revenues (which could occur as the result
of the loss of our contract with the University of Florida regarding our Audiology program), our operating margins will decrease, unless the expenses associated with these products decline as a percentage of revenues or unless viable like-kind
programs are launched within a timely manner.



Our Stock Price
Will Likely Continue To Be Volatile.



The
market price of our common stock has experienced significant decreases in value and fluctuations and may continue to fluctuate significantly. The trading price of our common stock could be subject to wide fluctuations in response to various factors,
some of which are beyond our control, including:



| |  |  | unanticipated adverse market conditions,
| | - |  | ----------------------------------------



| |  |  | actual or anticipated variations in quarterly results of operations,
| | - |  | --------------------------------------------------------------------



| |  |  | changes in our intellectual property rights or our competitors,
| | - |  | ---------------------------------------------------------------



| |  |  | announcements of technological innovations,
| | - |  | -------------------------------------------



| |  |  | our introduction or elimination of new programs, products or services or changes in product pricing by our competitors,
| | - |  | -----------------------------------------------------------------------------------------------------------------------



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| |  |  | changes in financial estimates,
| | - |  | -------------------------------



| |  |  | announcement of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors,
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | additions or departures of key personnel,
| | - |  | -----------------------------------------



| |  |  | increased needs for operating capital, and
| | - |  | ------------------------------------------



| |  |  | regulatory changes or interpretations.
| | - |  | --------------------------------------



The stock prices for many companies in the education sectors have experienced wide fluctuations, which often have been unrelated to their
operating performance. We believe that these fluctuations have adversely affected the market price of our common stock.



Our Market Is Characterized By Rapid Technological Change.



The market for our products and services is characterized by rapid technological change, changes in customer
demands and evolving industry standards. The introduction of services embodying new technologies and the emergence of new industry standards can render existing services obsolete and unmarketable. To succeed, we must address the increasingly
sophisticated needs of higher education by improving our software and services to keep pace with technological developments, emerging industry standards and customer requirements. Presently, we purchase our technology from third party vendors as we
have no proprietary technology. While we continue to strive to upgrade our technology and seek to acquire or partner with companies with state of the art technology, we may not be competitively successful in the future.



Our Operating Results Are Likely To Fluctuate Significantly And May Be
Below Expectations.



The following factors
may affect our quarterly, as well as our annual, operating results:



| |  |  | our ability to attract and retain colleges, universities, associations and companies;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | our ability to successfully implement our proposed distributed learning programs;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | the amount and timing of operating costs and capital expenditures relating to expansion of our business;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | our introduction of new or enhanced services and products, and similar introductions by our competitors;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | our ability to upgrade and develop our systems and infrastructure;
| | - |  | ------------------------------------------------------------------



| |  |  | our ability to attract, motivate and retain personnel;
| | - |  | ------------------------------------------------------



| |  |  | our lack of operating capital; and
| | - |  | ----------------------------------



| |  |  | technical difficulties in delivering our services.
| | - |  | --------------------------------------------------



As a result, we believe that our prior sales and operating results may not necessarily be meaningful, and that such comparisons may not be
accurate indicators of future performance. Just because our business grew during the last two years, we can give no assurance that these percentages will reflect the ongoing pattern of our business.



Our Future Capital Needs; Potential Need for Additional Financing.



While we presently have a limited amount of
working capital, we believe that our current cash position and line of credit, together with the expected revenues of the Company will be sufficient to provide the Company with capital sufficient to fund our required working capital needs for the
fiscal year 2003. However, in order to expand our business we may be required to raise additional capital. If the Company needs to raise additional financing, there can be no assurance that such funds will, in fact, be available or if available will
be sufficient in the near term or that conditions and circumstances described herein may not result in subsequent cash requirements by the Company or that future funds will be sufficient to meet such needs. In the event of such developments,
attaining financing under such conditions may not be possible, or even if additional capital may be otherwise available, the terms on which such capital may be available may not be commercially feasible or advantageous.



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Considering
our current cash position as well as our projected cash flows for fiscal 2003 including the attendant risks and contingencies associated with the expected realization of cash flows, we believe, based upon current operations, business strategies and
reasonable expectations and assumptions, that our cash position will be sufficient to fund our business operations. However, we may be unable in the near term to continue to develop new product offerings, and expand our infrastructure for which cash
would be required to consummate these transactions without obtaining an infusion of additional capital. Further, to the extent that recently developed program offerings as well as offerings currently under development or planned do not prove
financially viable within a reasonable period of time; it is our intention to terminate the offering and/or production of such programs. Further, to the extent that we experience a material adverse cash position resulting from our growth strategy,
it is our intention to take all appropriate and reasonably necessary measures to immediately reduce and/or eliminate certain members of our staff and infrastructure costs and expenses related to such terminated or discontinued programs.



New Marketing Personnel and Strategies Will Affect Our
Ability to Increase Revenues and Profits.



Beginning in early 2003, the Company developed and implemented new marketing strategies and tactics and in connection with same, the Company has committed a large portion of its available cash and human resources to execute these
plans. In order for the Company to increase its revenues and earnings, its efforts and plans must be successful and as of this date, no assurance can be given that these efforts will be effective or that the Company will be successful in gaining
market share with respect to its existing programs or will enjoy acceptance for any new products or offerings it may develop. Likewise, no assurance can be given that the Company will be able to recruit and retain required number and level of
skilled business development, sales, marketing, service or support personnel, that will be needed to execute these strategies and plans. To the extent that the Company is unsuccessful in its efforts, the financial results of the Company will be
materially adversely affected.



Authorization and
Discretionary Issuance of Preferred Stock Could Adversely Affect the Voting Power or Other Rights of Our Stockholders.



The Companys Articles of Incorporation authorize the issuance of blank check preferred stock with such designations,
rights, and preferences as may be determined from time to time by the Board of Directors. Accordingly, the Board of Directors is empowered, without stockholder approval, to designate and issue additional series of preferred stock with dividend,
liquidation, conversion, voting or other rights, including the right to issue convertible securities with no limitations on conversion, which could adversely affect the voting power or other rights of the holders of the Companys common stock,
substantially dilute the common shareholders interest and depress the price of the Companys common stock. In addition, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of the Company. Moreover, the substantial amount of outstanding options and number of warrants, and their terms of conversion may discourage or prevent an acquisition of the Company.



You Should Not Invest If You Expect Dividends.



The Company has never paid dividends on its common stock and
does not presently intend to pay any dividends in the foreseeable future. The Company anticipates that any funds available for payment of dividends will be re-invested into the Company to assist the Company in furthering its business strategy.
Accordingly, interested parties should not make an investment in the Company if you expect dividends.



Possible Sales of Securities by Current Shareholders May Have Depressive Effect On Market.



There are currently approximately 15,861,250 shares of the Companys common stock outstanding which are either freely tradable
or may be traded as restricted securities pursuant to Rule 144 under the Securities Act. Under Rule 144, a person who has held restricted securities for a period of



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one year may sell a limited number of shares to the public in ordinary brokerage transactions. Sales of a
large number of these securities will likely have a depressive effect on the market price of the Companys common stock.



We Are Highly Dependent Upon Management and A Loss Could Be Critical.



The Company and its subsidiaries will be dependent to a significant extent on the continued efforts and
abilities of its executive officers and other key employees. If the Company were to lose the services of such key employees before a qualified replacement could be obtained, its business and the financial affairs of the Company could be materially
adversely affected.



ITEM 3  CONTROLS AND PROCEDURES



The Companys Chief Executive
Officer and Chief Financial Officer, Rogers W. Kirven, Jr., (the Certifying Officer) is responsible for establishing and maintaining disclosure controls and procedures for the Company. Such officer has concluded (based upon his
evaluation of these controls and procedures as of a date within 90 days of the filing of this report) that the Companys disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in this
report is accumulated and communicated to the Companys management, including its principal executive officers as appropriate, to allow timely decisions regarding required disclosure.



The Certifying Officer also has indicated that there were no significant changes in the Companys
internal controls or other factors that could significantly affect such controls subsequent to the date of their evaluation, and there were no corrective actions with regard to significant deficiencies and material weaknesses.



PART II  OTHER INFORMATION



ITEM 6  EXHIBITS AND REPORTS ON FORM 8-K



(a) List of Exhibits



Exhibit 99.1 and 99.2 Certifications.



(b) Reports on Form 8-K



A Form
8-K filed by the Company on January 6, 2003.



SIGNATURES



In
accordance with Section 12 of the Securities Exchange Act of 1934, the registrant caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.



|                   |  |  |  | COMPASS
KNOWLEDGE HOLDINGS, INC.
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|Date: May 15, 2003 |  |  |  |                                 
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