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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-QSB



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(Mark One)



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

THE SECURITIES EXCHANGE
ACT OF 1934



For the quarterly period ended June 30, 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 |  | (IRS EMPLOYER         
|INCORPORATION OR ORGANIZATION)  |  | 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)



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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 August 13, 2003.



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##### Table of Contents

COMPASS KNOWLEDGE HOLDINGS, INC.



FORM
10-QSB

For the Quarter ended June 30, 2003



|PART I  Financial Information |  |                                                                                                
|------------------------------ |  | -----------------------------------------------------------------------------------------------
|                               |  |                                                                                                
|Item 1                         |  | Financial Statements                                                                           
|                               |  |                                                                                                
|                               |  | Consolidated Balance Sheet as of June 30, 2003 and December 31, 2002                           
|                               |  |                                                                                                
|                               |  | Consolidated Statements of Operations for the Three and Six Months ended June 30, 2003 and 2002
|                               |  |                                                                                                
|                               |  | Consolidated Statements of Cash Flows for the Three and Six Months ended June 30, 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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##### Table of Contents

PART IFINANCIAL INFORMATION



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



|COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES                                                                                                                         
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                          
|CONSOLIDATED BALANCE SHEETS                                                                                                                                               
|(in Thousands)                                                                                                                                                            
|AS OF JUNE 30, 2003 AND DECEMBER 31, 2002                                                                                                                                 
|                                                                                                                                                                          
|                                                                                                                                                                          
|ASSETS                                                                                                                                                                    
|CURRENT ASSETS:                                                                                                                                                           
|Cash                                                                                                                                                                      
|Accounts receivable, net of allowance for doubtful accounts of $6 & $6 at June 30, 2003 and December 31, 2002,
respectively                                               
|Note receivable                                                                                                                                                           
|Prepaid expenses                                                                                                                                                          
|Other assets, net                                                                                                                                                         
|                                                                                                                                                                          
|Total current assets                                                                                                                                                      
|PROPERTY AND EQUIPMENT, net                                                                                                                                               
|GOODWILL, net                                                                                                                                                             
|OTHER ASSETS, net                                                                                                                                                         
|NET ASSETS OF DISCONTINUED OPERATIONS                                                                                                                                     
|                                                                                                                                                                          
|Total assets                                                                                                                                                              
|                                                                                                                                                                          
|                                                                                                                                                                          
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                      
|CURRENT LIABILITIES:                                                                                                                                                      
|Accounts payable and accrued expenses                                                                                                                                     
|Deferred student fees                                                                                                                                                     
|Note payable-current portion                                                                                                                                              
|Provision for Loss from Disposal of Discontinued Operations                                                                                                               
|                                                                                                                                                                          
|Total current liabilities                                                                                                                                                 
|                                                                                                                                                                          
|Total liabilities                                                                                                                                                         
|                                                                                                                                                                          
|STOCKHOLDERS EQUITY:                                                                                                                                                     
|Preferred stock, 5,000,000 shares authorized, 2,000 shares issued and outstanding                                                                                         
|Common stock, $0.001 par value; 50,000,000 shares authorized, 15,861,250 and 15,861,250 shares issued and outstanding at June 30,
2003 and December 31, 2002, respectively
|Additional paid-in-capital                                                                                                                                                
|Unearned compensation                                                                                                                                                     
|Accumulated deficit                                                                                                                                                       
|                                                                                                                                                                          
|Total stockholders equity                                                                                                                                                
|                                                                                                                                                                          
|Total liabilities and stockholdersequity                                                                                                                                 
|                                                                                                                                                                          



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 THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2003



|                                                                                                 |  | For the Three Months Ended June 30, |            |   | For the Six Months Ended June 30, |  
|------------------------------------------------------------------------------------------------ |  | ----------------------------------- | ---------- | - | --------------------------------- | -
|                                                                                                 |  | 2003                                |            |   | 2002                              |  
|TOTAL STUDENT FEE REVENUE                                                                        |  |                                     |            |   |                                   |  
|Net student fee revenue from degree programs                                                     |  | $                                   | 1,154      |   |                                   | $
|Gross student fee revenue from non-degree programs                                               |  |                                     | 112        |   |                                   |  
|Gross revenue from subscriptions and consulting services                                         |  |                                     | 197        |   |                                   |  
|Other revenue                                                                                    |  |                                     | 1          |   |                                   |  
|                                                                                                 |  |                                     |            |   |                                   |  
|Total revenue                                                                                    |  |                                     | 1,464      |   |                                   |  
|INSTRUCTION COSTS AND SERVICES                                                                   |  |                                     | 422        |   |                                   |  
|                                                                                                 |  |                                     |            |   |                                   |  
|Gross profit                                                                                     |  |                                     | 1,042      |   |                                   |  
|                                                                                                 |  |                                     |            |   |                                   |  
|OPERATING EXPENSES                                                                               |  |                                     |            |   |                                   |  
|Selling and promotional                                                                          |  |                                     | 479        |   |                                   |  
|General and administrative                                                                       |  |                                     | 1,159      |   |                                   |  
|                                                                                                 |  |                                     |            |   |                                   |  
|Total operating expenses                                                                         |  |                                     | 1,638      |   |                                   |  
|                                                                                                 |  |                                     |            |   |                                   |  
|INCOME (LOSS) FROM OPERATIONS                                                                    |  |                                     | (594       | ) |                                   |  
|                                                                                                 |  |                                     |            |   |                                   |  
|OTHER INCOME (EXPENSE)                                                                           |  |                                     |            |   |                                   |  
|Interest income                                                                                  |  |                                     | 1          |   |                                   |  
|Interest expense                                                                                 |  |                                     | (2         | ) |                                   |  
|Other Income                                                                                     |  |                                     | 0          |   |                                   |  
|                                                                                                 |  |                                     |            |   |                                   |  
|Total other income                                                                               |  |                                     | (1         | ) |                                   |  
|                                                                                                 |  |                                     |            |   |                                   |  
|INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE PREFERRED DIVIDENDS                              |  |                                     | (595       | ) |                                   |  
|DISCONTINUED OPERATIONS                                                                          |  |                                     |           |   |                                   |  
|                                                                                                 |  |                                     |            |   |                                   |  
|INCOME (LOSS) BEFORE PREFERRED DIVIDENDS AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE |  |                                     | (595       | ) |                                   |  
|CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                                              |  |                                     |           |   |                                   |  
|                                                                                                 |  |                                     |            |   |                                   |  
|INCOME (LOSS) BEFORE PREFERRED DIVIDENDS                                                         |  |                                     | (595       | ) |                                   |  
|LESS: PREFERRED STOCK DIVIDENDS                                                                  |  |                                     | (35        | ) |                                   |  
|                                                                                                 |  |                                     |            |   |                                   |  
|NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS                                               |  | $                                   | (630       | ) |                                   | $
|                                                                                                 |  |                                     |            |   |                                   |  
|BASIC EARNINGS (LOSS) PER SHARE                                                                  |  |                                     |            |   |                                   |  
|Net Income (Loss) Per Share                                                                      |  | $                                   | (0.040     | ) |                                   | $
|                                                                                                 |  |                                     |            |   |                                   |  
|Basic Weighted Average Shares Outstanding                                                        |  |                                     | 15,861,250 |   |                                   |  
|                                                                                                 |  |                                     |            |   |                                   |  
|DILUTED EARNINGS (LOSS) PER SHARE                                                                |  |                                     |            |   |                                   |  
|Net Income (Loss) Per Share                                                                      |  | $                                   | (0.040     | ) |                                   | $
|                                                                                                 |  |                                     |            |   |                                   |  
|Diluted Weighted Average Shares Outstanding                                                      |  |                                     | 15,918,213 |   |                                   |  
|                                                                                                 |  |                                     |            |   |                                   |  



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 CASH FLOWS (UNAUDITED)

(in Thousands)

FOR THE SIX MONTHS ENDED JUNE 30, 2003 and 2002



|                                                                                                    |  | 2003 |      |   | 2002 |  
|--------------------------------------------------------------------------------------------------- |  | ---- | ---- | - | ---- | -
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                               |  |      |      |   |      |  
|Net (loss) income                                                                                   |  | $    | (508 | ) |      | $
|Adjustments to reconcile net (loss) income to net cash provided by (used for) operating activities- |  |      |      |   |      |  
|Depreciation and amortization                                                                       |  |      | 541  |   |      |  
|Transitional goodwill impairment loss                                                               |  |      |     |   |      |  
|Provision for loss from disposal of discontinued operations                                         |  |      |     |   |      |  
|Write-off Content Development                                                                       |  |      | 100  |   |      |  
|Write-off Direct Marketing                                                                          |  |      | 26   |   |      |  
|Amortization of unearned compensation                                                               |  |      |     |   |      |  
|Stock-based compensation                                                                            |  |      |     |   |      |  
|Decrease (increase) in operating assets and liabilities-                                            |  |      |      |   |      |  
|Accounts receivable                                                                                 |  |      | 443  |   |      |  
|Provision for losses on accounts receivable                                                         |  |      |     |   |      |  
|Prepaid expenses                                                                                    |  |      |     |   |      |  
|Other current assets                                                                                |  |      | (13  | ) |      |  
|Accounts payable and accrued expenses                                                               |  |      | 89   |   |      |  
|Deferred revenue                                                                                    |  |      | (507 | ) |      |  
|Accrued Dividends                                                                                   |  |      |     |   |      |  
|                                                                                                    |  |      |      |   |      |  
|Net cash provided by (used in) operating activities                                                 |  |      | 170  |   |      |  
|                                                                                                    |  |      |      |   |      |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                               |  |      |      |   |      |  
|Purchases of property and equipment                                                                 |  |      | (41  | ) |      |  
|Cash payments for content development costs                                                         |  |      | (124 | ) |      |  
|Cash payments for direct marketing costs                                                            |  |      | (331 | ) |      |  
|Acquisitions, net of cash/divestiture                                                               |  |      |     |   |      |  
|Proceeds from Investment in Subsidiary                                                              |  |      | 244  |   |      |  
|                                                                                                    |  |      |      |   |      |  
|Net cash provided by (used in) investing activities                                                 |  |      | (252 | ) |      |  
|                                                                                                    |  |      |      |   |      |  
|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                                                                       |  |      | (70  | ) |      |  
|                                                                                                    |  |      |      |   |      |  
|Net cash provided by (used in) financing activities                                                 |  |      | (70  | ) |      |  
|                                                                                                    |  |      |      |   |      |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                |  |      | (152 | ) |      |  
|CASH AND CASH EQUIVALENTS, beginning of period                                                      |  |      | 451  |   |      |  
|                                                                                                    |  |      |      |   |      |  
|CASH AND CASH EQUIVALENTS, end of period                                                            |  | $    | 299  |   |      | $
|                                                                                                    |  |      |      |   |      |  
|Supplemental disclosure of cash flow information:                                                   |  |      |      |   |      |  
|Cash paid during the year for:                                                                      |  |      |      |   |      |  
|Interest                                                                                            |  | $    | 4    |   |      | $
|                                                                                                    |  |      |      |   |      |  





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 and six months ended June 30, 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 June 30, 2003 there were 2,000 shares of Preferred Stock outstanding, convertible into 875,000 common shares. Also, there were options to purchase 2,305,100 shares of common
stock and warrants to purchase 765,000 shares of common stock outstanding at June 30, 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 June 30, 2003, saving the grant of 100,000 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 June 30, 2003 compared to $88 for the three months ended June 30, 2002.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



Had total compensation expense been calculated using SFAS 123, the
Companys net loss and loss per common share for the quarter ended June 30, 2003 and 2002, would have been changed to the following pro forma amounts:



|                                          |  |             |  |  |  | 2003 |          |   |  |  | 2002
|----------------------------------------- |  | ----------- |  |  |  | ---- | -------- | - |  |  | ----
|Net (loss) income:                        |  | As reported |  |  |  | $    | (630,000 | ) |  |  |     
|                                          |  | Pro forma   |  |  |  | $    | (654,000 | ) |  |  |     
|diluted earnings (loss) per common share: |  | As reported |  |  |  | $    | (0.04    | ) |  |  |     
|                                          |  | Pro forma   |  |  |  | $    | (0.04    | ) |  |  |     



|5. |  | No provision for income taxes has been recorded for the period ending June 30, 2003, as there was no net income for the period. No benefit for income taxes has been recorded for the
three months ending June 30, 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 Form 10QSB for the first quarter of this year, 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



Beginning in the first quarter of this year, we sold our K-12 operations
which were discontinued in the fourth quarter of 2002 and we continued the strategy developed in 2002 to focus on and grow our core degree program business. In connection with this strategy, the first quarter results reflected a significantly more
aggressive personnel and marketing spend. In line with this growth strategy, the Company hired additional marketing and recruitment personnel and incurred other related infrastructure costs which resulted in an increase with respect to our selling
and promotion expenses for the first quarter of 2003 of over 120% and with respect to our general and administration expenses an increase of over 22.7%.



Consistent with this growth plan, for the three months ended June 30, 2003 our selling and promotion expenses increased over 85% from the year ago period
and our general and administration expenses increased over 197% from the year ago period. We experienced a loss from operations for the three months ended June 30, 2003 of $594 as compared to income from operations for the year ago period of $118,
or a 607.4% decrease. This loss was primarily due to the following one-time expenses:



|      Termination Awards for CEO(1) and COO                                                              |  | $ | 353
|--------------------------------------------------------------------------------------------------------- |  | - | ---
|      Accrual of contingent settlement amount to previous
owners of ELNet plus additional ELNet Expenses |  |   | 61 
|      Write-off of content development and marketing for discontinued Nursing
Program                    |  |   | 154
|                                                                                                          |  |   |    
|                                                                                                          |  | $ | 568



(1) While the Termination Award for
the CEO was accrued in the second quarter, such amount will be paid in accordance with the settlement agreement in equal monthly payments over a 16 month period. For details please see our Form 8-K filed with the SEC on June 5, 2003.



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Furthermore, we began to recognize in the second quarter that our planned growth strategy was not
delivering the anticipated results and had exposed us to a variety of risks and caused us to experience significant cash deficiencies. As a result of the deficiencies in our growth plan coupled with the loss of our Audiology and Nursing Programs and
the resignation of our CEO and COO (see the Companys Form 8-K filed with the Commission on May 15, 2003 and Form 8-K filed with the Commission of June 5, 2003), we have significantly moderated our growth strategy and reduced our operating
expenses. 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.



Outlook



While we intend to continue our strategy of focusing on our core business, our ability to accelerate our growth will be
severely restricted. Likewise, we expect to experience nominal operating profits for the remainder of 2003. This prospect is based on managements expectation of increased student counts and the associated revenues in our degree and consulting
businesses, the 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 marketing and general and administrative spends.



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 remainder of this year. However, we may be unable in the near term to continue to develop new product
offerings, and increase our marketing spends for which cash would be required 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. As we began doing this quarter as a result of our cash position we will, to the extent that
our cash position decreases, take all appropriate and reasonably necessary measures to immediately further reduce and/or eliminate certain members of our staff and infrastructure costs and expenses related to such terminated or discontinued
programs.



In order for the Company to increase its
revenues and earnings, the efforts and the revised 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.



The Company and its subsidiaries have been
dependent, to a significant extent, on the continued efforts and abilities of its Chairman and Chief Executive Officer, Rogers W. Kirven, Jr., its President, Daniel J. Devine and other key employees. Effective this quarter, our CEO, Mr. Kirven, and
our Executive Vice President and Chief Operating Officer, Mr. Rich Flaherty, both resigned from the Company leaving Mr. Devine to operate and manage the Companys business until such time as suitable replacements can be found. As a result of
the loss of these key individuals and the added responsibilities imposed upon Mr. Devine, our business and financial affairs could 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



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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.



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 generally over five 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.



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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 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 amortizes goodwill.



RESULTS OF OPERATIONS



Set forth below is certain of our selected consolidated financial and
operating information for the Three months ended June 30, 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 June 30 (in thousands, except share andper share amounts) |            | Six Months Ended June 30 (in thousands, except share andper share amounts) |     
|------------------------------------------------------------------- |  | ---------------------------------------------------------------------------- | ---------- | -------------------------------------------------------------------------- | ----
|                                                                    |  | 2003                                                                         |            |                                                                            | 2002
|Total revenue                                                       |  | $                                                                            | 1,464      |                                                                            |     
|Gross profit                                                        |  | $                                                                            | 1,042      |                                                                            |     
|Income (Loss) from Continuing Operations before Preferred Dividends |  | $                                                                            | (595       | )                                                                          |     
|Earnings (Loss) per share, basic                                    |  | $                                                                            | (0.040     | )                                                                          |     
|Earnings (Loss) per share, diluted                                  |  | $                                                                            | (0.040     | )                                                                          |     
|Weighted average shares outstanding                                 |  |                                                                              |            |                                                                            |     
|Basic                                                               |  |                                                                              | 15,861,250 |                                                                            |     
|Diluted                                                             |  |                                                                              | 15,918,213 |                                                                            |     



|                                  |  | At June 30, 2003
|--------------------------------- |  | ----------------
|Working Capital                   |  | $               
|Total Current Assets              |  | $               
|Total Property and Equipment, net |  | $               
|Total Current Liabilities         |  | $               
|Stockholders Equity              |  | $               



THREE MONTHS ENDED JUNE 30, 2003
COMPARED TO THREE MONTHS ENDED JUNE 30, 2002



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Total revenues increased by $332 to $1,464 for the three months ended June 30, 2003, from $1,132 in the
comparable 2002 period, representing an increase of 29.3%. Degree program revenue increased by $271 or 30.7%, to $1,154 for the three months ended June 30, 2003 from $883 in the comparable 2002 period. This increase is primarily related to: (i) a
106.7% increase in revenues with respect to our radiology degree program which is reflective of increased student enrollments; (ii) a 90.7% increase in revenues with respect to our masters degree program in criminal justice launched last year
with the University of Cincinnati; (iii) a 53.2% increase in revenues with respect to our bachelors of criminal justice program; and, (iv); slight increases in our revenues with respect to our audiology (11.6%) and pharmacy (9.8%) programs.
Consulting revenues increased by $142 to $197 for the three months ended June 30, 2003, from $55 in the comparable 2002 period, representing an increase of 258.2%. This increase in consulting revenues is primarily attributed to a one-time payment in
the amount of $180 received from Graceland University in settlement of the termination of the parties Nursing Programs which were discontinued in the second quarter. The increase in the degree program and consulting revenues were offset by an
$81 decline in our non-degree programs and other revenues as compared to the year ago period. This decline is largely the result of the timing and reduced student counts of certain programs in the current year.



Gross Profit increased $277, or 36.2%, to $1,042 for the three months ended
June 30, 2003 from $765 in the comparable 2002 period, due primarily to an overall increase in our revenues. Likewise, for the three months ended June 30, 2003, our gross profit margin slightly increased to 71.2%, compared to 67.6% in the comparable
2002 period, reflecting the impact of slightly higher margins in our degree programs due to the increase in revenues which were partially offset by higher costs as compared to revenues with respect to our non-degree program business.



Selling and promotion expenses (which this year includes expenses associated
with payroll and benefits of our enrollment center and marketing personnel) increased by $221, or 85.8%, to $479 for the three months ended June 30, 2003 from $258 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 $770, or 197.9%, to $1,159 for the three months ended June 30, 2003 from $389 in the comparable 2002
period. The increase was primarily due to the following one-time expenses:



|      Termination Awards for CEO and COO                                                                 |  | $ | 353
|--------------------------------------------------------------------------------------------------------- |  | - | ---
|      Accrual of contingent settlement amount to previous owners of ELNet plus additional
ELNet Expenses |  |   | 61 
|      Write-off of content development and marketing for discontinued Nursing
Program                    |  |   | 154
|                                                                                                          |  |   |    
|                                                                                                          |  | $ | 568



While the Termination
Award for the CEO was accrued in the second quarter, such amount will be paid in accordance with the settlement agreement in equal monthly payments over a 16 month period. For details please see our Form 8-K filed with the SEC on June 5, 2003.



Primarily as a result of these one-time expenses, we
experienced a loss from operations for the three months ended June 30, 2003 of $594 as compared to income from operations for the year ago period of $118, or a 603.4% decrease.



Inclusive of other net expenses of $1 (as compared to other net income of $2 in 2002) we realized a net loss before
preferred dividends of $595 for the three months ended June 30, 2003 compared to net income before preferred dividends (excluding losses from discontinued operations of $4 in 2002) of $120 in the comparable 2002 period.



SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO SIX MONTHS ENDED JUNE 30, 2002



Total revenues increased by $654 to $2,876 for the six months ended June
30, 2003 from $2,222 for the comparable 2002 period, representing an increase of 29.4%. Degree program revenue increased by $734, or 43.3%, to $2,428 for the six months ended June 30, 2003 from $1,694 for the comparable 2002





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period. This increase was partially offset by a decline in revenue from non-degree programs as well as revenue from consulting services. Revenue from
non-degree programs declined $67, or 21.9%, to $239 for the six months ended June 30, 2003 from $306 in the year ago period. This decline is largely the result of the timing and reduced student counts of certain programs in the current year. Revenue
from consulting services declined $14, or 6.4%, to $203 from $217 in the year ago period despite a one-time payment in the amount of $180 received from Graceland University in settlement of the termination of the parties Nursing Programs which
were discontinued in the second quarter.



Gross profit
increased 29.2% to $2,195 for the six months ended June 30, 2003 from $1,699 for the comparable 2002 period due to an overall increase in revenues and improved gross margins in our degree programs. For the six months ended June 30, 2002, our gross
profit margin slightly decreased to 76.3%, compared to 76.5% in the comparable 2002 period, reflecting the impact of a margin decrease of 11.2% with respect to our non-degree programs attributed primarily to the significant decrease (21.9%) in
revenues.



Selling and promotion expenses (which this year
includes expenses associated with payroll and benefits of our enrollment center and marketing personnel) increased by $467, or 101.1%, to $929 for the six months ended June 30, 2003 from $462 in the comparable 2002 period. The increase was primarily
due to expenses associated with increased staffing in our enrollment center (an increase of over 205%) and increased amortization associated with marketing expenditures (an increase of over 39%).



General and administration expenses increased by $883, or 99.2%, to $1,773
for the six months ended June 30, 2003 from $890 in the comparable 2002 period. The increase was primarily due to waiver of salaries by certain officers in 2002 and the following one-time expenses:



|      Termination Awards for CEO and COO                                                                 |  | $ | 353
|--------------------------------------------------------------------------------------------------------- |  | - | ---
|      Accrual of contingent settlement amount to previous owners of ELNet plus additional
ELNet Expenses |  |   | 61 
|      Write-off of content development and marketing for discontinued Nursing
Program                    |  |   | 154
|                                                                                                          |  |   |    
|                                                                                                          |  | $ | 568



While the Termination
Award for the CEO was accrued in the second quarter, such amount will be paid in accordance with the settlement agreement in equal monthly payments over a 16 month period. For details please see our Form 8-K filed with the SEC on June 5, 2003.



Primarily as a result of these one-time expenses, we
experienced a loss from operations for the six months ended June 30, 2003 of $507 as compared to income from operations for the year ago period of $347, or a 246.1% decrease.



Inclusive of other net expenses of $1 (as compared to other net income of $4 in 2002) we realized a net loss before
preferred dividends of $508 for the six months ended June 30, 2003 compared to net income before preferred dividends (excluding losses from discontinued operations of $182 and a loss of $2,000 with respect to the cumulative effect of change in
accounting principle in 2002) of $351 in the comparable 2002 period.



LIQUIDITY AND CAPITAL RESOURCES



Our cash
amounted to $299 at June 30, 2003, compared to $198 at June 30, 2002. The net cash provided by our operations was $170 for the six months ended June 30, 2003 compared with net cash provided by our operations of $575 in the comparable 2002 period.
Cash used in investing activities, which include direct marketing and content development costs, totaled $252 for the six months ended June 30, 2003 and $738 in the year ago period. We used $70 of cash for financing activities for the six months
ended June 30, 2003 compared with $120 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







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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 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 programs, 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; 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.



When considering our rather moderate growth, loss of several programs and liquidity issues,



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which, when combined with the rapidly growing 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, increases the risk that 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 has 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 revenue and
earnings increases 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



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performance.



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. 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;
| | - |  | -------------------------------



| |  |  | for profit universities; 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 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 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



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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. While our business plan for 2003 called for increased investing in personnel and marketing activities, our present cash position has caused us to substantially temper our investing activities for the remainder of this year which is
likely to result in nominal growth throughout the remainder of this year and early 2004.



A Failure to Manage Our Growth Has Had an Adverse 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 two new
programs in the fall of 2003. While our initial strategy was to grow aggressively, we began to recognize in the second quarter that this strategy was not delivering the anticipated results and had exposed us to a variety of risks. In essence,
expenses arising from our efforts to develop new programs and increase our market penetration was having a material adverse impact on our business, results of operations, and financial condition. Accordingly, we have now substantially reduced our
investing and marketing activities which will likely result in nominal growth throughout the remainder of this year and early 2004.



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,
| | - |  | -----------------------------------------



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| |  |  | 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,
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | 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.



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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.



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. As we began doing this quarter as a result of our cash position we will, to the extent that our cash position decreases, 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 Affected 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 committed a large portion of its available cash and human resources to execute these plans. In the second quarter, we began to recognize that this strategy was not delivering the anticipated results and had exposed us to a variety
of risks. In essence, expenses arising from our efforts to develop new programs and increase our market penetration was having a material adverse impact on our business, results of operations, and financial condition. Accordingly, we have now
substantially reduced our investing and marketing activities which will likely result in nominal growth throughout the remainder of this year and early 2004.



Authorization and Discretionary Issuance of Preferred Stock Could Adversely Affect the Voting



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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 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 Recent Losses Could Be Critical.



The Company and its subsidiaries have been dependent, to a significant extent, on the continued efforts and abilities of its
Chairman and Chief Executive Officer, Rogers W. Kirven, Jr., its President, Daniel J. Devine and other key employees. Effective this quarter, our CEO, Mr. Kirven, and our Executive Vice President and Chief Operating Officer, Mr. Rich Flaherty, both
resigned from the Company leaving Mr. Devine to operate and mange the Companys business until such time as suitable replacements can be found. As a result of the loss of these key individuals and the added responsibilities imposed upon Mr.
Devine, our business and financial affairs could be materially adversely affected.



For details concerning these resignations, please see the Companys Form 8-K filed with the Commission of May 15, 2003 and Form 8-K filed with the Commission of June 5, 2003.



ITEM 3CONTROLS AND PROCEDURES



The Companys President and Treasurer, Daniel J. Devine (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 Board 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



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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
31.1 and 32.1 Certifications.



(b) Reports on Form 8-K



Form 8-K filed with the Commission of May 15, 2003; and

Form 8-K filed with the Commission of June 5, 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.



|Date: August 13, 2003 | /s/  Daniel J. Devine
|--------------------- | ---------------------

President and Treasurer



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