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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15( ) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15( ) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM        TO

Commission file number: 0-24936

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LEARN2.COM, INC.(Exact name of registrant as specified in its charter)

|Delaware(State of incorporation)                                                      |  | 75-2480669(I.R.S. Employer Identification No.)
|------------------------------------------------------------------------------------- |  | ----------------------------------------------
|1311 Mamaroneck Avenue
White Plains, New York(Address of principal executive offices) |  | 10605(Zip Code)                               

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Registrant's telephone number, including area code: (914) 682-4300

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of Class)

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. Yes No

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

As
of April 11, 2001, there were approximately 52,881,618 shares of the registrant's Common Stock outstanding. The aggregate market value of the Common Stock held by
non-affiliates of the registrant (based on the closing price of the Common Stock on The Nasdaq National Market) on April 11, 2001 was approximately $10,463,551 or $0.24 per share
(calculated by excluding shares actually owned by our current directors and officers).

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LEARN2.COM, INC.  FORM 10-K  FOR THE YEAR ENDED DECEMBER 31, 2000

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TABLE OF CONTENTS

|         |  |                                                                                       |  | Page
|-------- |  | ------------------------------------------------------------------------------------- |  | ----
|PART I   |  |                                                                                      
|ITEM 1.  |  | Business                                                                              |  | 3   
|ITEM 2.  |  | Properties                                                                            |  | 20  
|ITEM 3.  |  | Legal Proceedings                                                                     |  | 21  
|ITEM 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  | 21  
|PART II  |  |                                                                                      
|ITEM 5.  |  | Market for Registrant's Common Equity and Related Stockholder Matters                 |  | 21  
|ITEM 6.  |  | Selected Consolidated Financial Data                                                  |  | 22  
|ITEM 7.  |  | Management's Discussion and Analysis of Financial Condition
and Results of Operations |  | 23  
|ITEM 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 33  
|ITEM 8.  |  | Financial Statements and Supplementary Data                                           |  | 34  
|ITEM 9.  |  | Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure  |  | 34  
|PART III |  |                                                                                      
|ITEM 10. |  | Directors and Executive Officers of the Registrant                                    |  | 35  
|ITEM 11. |  | Director and Executive Compensation                                                   |  | 35  
|ITEM 12. |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 35  
|ITEM 13. |  | Certain Relationships and Related Transactions                                        |  | 35  
|PART IV  |  |                                                                                      
|ITEM 14. |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                      |  | 36  

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PART I

THIS REPORT AND OTHER ORAL AND WRITTEN STATEMENTS MADE BY US TO THE PUBLIC CONTAIN AND INCORPORATE BY REFERENCE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THE FORWARD-LOOKING STATEMENTS ARE BASED ON OUR CURRENT EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND BELIEFS AND
ARE SUBJECT TO A NUMBER OF FACTORS AND UNCERTAINTIES, INCLUDING BUT NOT LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS RELATING TO OUR COMPANY AND OUR BUSINESS", THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS. WE UNDERTAKE NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS FOR ANY REASON, EVEN IF NEW INFORMATION BECOMES
AVAILABLE OR OTHER EVENTS OCCUR IN THE FUTURE.

ITEM 1. BUSINESS.

Overview

Learn2.com, Inc. together with its subsidiaries ("Learn2") is a Learning Service Provider ("LSP") for corporate, government and individual clients and
customers. Our offerings include engaging online and physical learning and training products and complementary services. We believe our mix of products and services provides us with a competitive
advantage toward becoming the solutions provider of choice to our customers.

Our
products provide an engaging learning experience to corporate and individual customers through interactive multimedia and animated tutorials and courseware. Our corporate and
government customers have access to these high quality tutorials and additional features such as reporting and administration through www.Learn2University.com. Additionally, through www.Learn2.com,
visitors can access our content that includes tips and step-by-step instructions on a broad spectrum of skills, activities and tasks, as well as our multimedia tutorials. Our
e-learning products are also available on CD-ROM and video and can be purchased from our Website and major retailers nationwide.

Through
our subsidiary, etracks.com, Inc., ("etracks") we provide permission e-mail marketing and tracking services to customers that have "opt-in"
e-mail customer lists. etracks' services include e-mail creation, delivery, tracking and response analysis for a high volume of client e-mail accounts in a short
period of time. We also have developed a proprietary member database of over approximately 500,000 Internet users who have "opted-in" to receive promotional e-mails. Our
clients can supplement their internally developed customer lists with our member database. In addition, during 2000 and prior, through periodic e-mails we marketed various electronics and
other products to our members. The demand for permission e-mail marketing and tracking services has increased over the past few years and we expect that the demand will continue to grow
for the foreseeable future. We believe that etracks' technology enables more robust and useful tracking capabilities than its competitors'.

Our
goal is to become the world's leading provider of engaging e-learning products and services. To achieve this goal, we expect to focus on our four primary objectives:
creating a trusted brand, developing and owning creative and engaging content, leveraging our patented state-of-the-art technologies and offering services to meet
the needs of our clients. In 1999, we changed our company's name from 7th Level, Inc. to Learn2.com, Inc. We made the change to create a single recognized brand that more closely aligned
our corporate identity with our product and service offerings.

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History

Learn2 was founded in 1993 with the goal of becoming a leading developer and publisher of interactive entertainment and educational content as well as a
creator of state-of-the-art tools and technologies. In 1998, our research and development activities were focused primarily on developing and enhancing our agent
technology. In early 1999, we recognized that appropriate applications of this technology were in the delivery of training and learning and therefore we abandoned our interactive entertainment
business and focused our efforts on e-learning.

In
1999, to strengthen our position in the e-learning marketplace, we acquired three companies that enhanced our brand, content, technologies and services capabilities:
Street Technologies, Inc., a privately held company that developed and marketed technology-based training solutions delivered over intranets and the Internet utilizing a patented streaming
technology and provided custom service capabilities; Panmedia Corporation, a privately held company that produced www.Learn2.com, a popular Website that offered step-by-step
instructions on skills, activities and tasks; and ViaGrafix Corporation, a publicly traded company which developed, produced and marketed technology-based training tutorials delivered on
CD-ROMs and video tapes as well as computer aided design ("CAD") software. The CAD product line was sold in March 2000. Through etracks, ViaGrafix also provided permission
e-mail broadcast
solutions and conducted e-commerce. These acquisitions provided us with the Learn2 brand, and a stronger mix of content, technologies and service offerings.

Learn2
was incorporated in Delaware in April 1993. Our principal executive offices are located at 1311 Mamaroneck Avenue, White Plains, New York 10605.

Marketplace

We provide e-learning solutions for corporate, government and non-profit markets as well as individuals. According to W.R.
Hambrecht & Co., corporate e-learning is one of the fastest growing and most promising markets in the education industry. They expect the online training market to nearly double in
size annually through 2003, to approximately $11.5 billion. International Data Corporation projects similar growth rates for the market. Training Magazine estimated that domestic corporations
with over 100 employees budgeted approximately $62.5 billion on training, of which approximately 24% was outsourced. Additionally, Training Magazine estimates that classroom,
instructor-led training represented 73% of the total training delivery market, whereas Web-based training represented 14% of the market. The remaining 13% was composed
primarily of self-study programs that use books, manuals, videotapes, or audiocassettes. W.R. Hambrecht & Co. estimates that the continuing education market in 1999 was
$12 billion and the existing education and training marketplace, including K-12, higher education and corporate training, in the U.S. alone, is a
$722 billion-a-year industry.

The
permission e-mail marketing and tracking industry is in its early stages of development. We believe that the industry will evolve over the next few years as
e-mail marketing becomes even more widely used and e-mail marketers and Web advertisers require more information about the behavior of their permission e-mail
recipients and Website visitors. The permission e-mail market is becoming increasingly competitive. Participants compete primarily in the following areas: reporting and tracking
capabilities, customer service, brand recognition, ease of implementation, time-to-market of a campaign and price.

Competitive Strengths



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The Learn2 Brand

Learn2 is a leading brand in the e-learning marketplace. More than 4.0 million users visited www.Learn2.com in the fourth quarter of 2000.
The site has been named "#1 Most Incredibly Useful Site" by Yahoo Internet Life, the "#1 Distance Learning Site" by Lycos and a "Yahoo! Pick of the Ages." The Learn2 logo is distributed through our
advertising and is prominently displayed on our physical product offerings on shelves in major national and regional retail outlets.

Learn2 Content

We own over 80% of the training and learning content which we market. Our library of courses and tutorials covers a wide range of topics in an engaging and
interactive manner. Developing and owning content provides us with a strategic advantage by:



We
currently market hundreds of titles in five broad categories: personal computer applications, information technology certification preparation, computer programming, "soft skills,"
and safety. In addition we provide instruction in thousands of "life skills" topics for our Website visitors.



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We
develop our content to be engaging and interactive. We use well-researched facts, conversational narrative and multimedia to create a learning environment that keeps
the attention of our users resulting in improved comprehension and retention.

Learn2 Technologies

We own unique, patented, proprietary technologies that allow us to develop engaging, multimedia, technology-based tutorials and courses. Our content is
deliverable over any network, including the Internet; at modem connections as slow as 28.8.

We
have developed and use the following technologies to create integrated e-learning solutions for our customers:



StreamMakerOur
rapid development authoring tool utilizes patented technologies to produce fully synchronized, interactive, CD-ROM quality multimedia streams
that can be delivered through computer network connections, including 28.8 modem connections, without download delays or network congestion. StreamMaker produces multimedia streams that can be viewed
using both Microsoft Windows and Macintosh operating systems. The following benefits of StreamMaker provide us with a competitive strategic advantage:



LearningAgentsOur
customizable, animated LearningAgents use a patented technology that allows users to create quickly, personalized animated messages to communicate a
"call to action" in e-learning and other environments. The quality and impact of the experience exceeds that which would be experienced using other technologies. No special programming
skills are necessary. Users can program interactivity to link the characters to Web pages and applications. Using LearningAgents, we create for our customers an engaging e-learning
environment that results in increased comprehension and retention.

Learn2 Services

We leverage our technologies and resources to provide our customers with engaging, multimedia e-learning solutions. We work with them to create
custom solutions based upon their specific needs and corporate objectives. The result is Web-enabled, multimedia content that is hosted on our servers and delivered and tracked through our
Learn2University learning management system or LMS. Our customers, by outsourcing a portion or all of their training and learning requirements to us benefit from a custom approach to their
e-learning needs, without having to develop and support human and technology resources for that purpose.

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Learn2 Distribution Network

Our products are available from retailers, catalogs, on the Internet, through our direct sales force and through resellers and distributors. This multi-channel
approach to product distribution creates a broad market for our products, giving us a competitive advantage.



As
one of the first permission e-mail marketing and tracking companies, etracks has managed hundreds of permission e-mail campaigns. We are able to send over
five million unique e-mail messages per day and expect to more than double capacity this year. Our proprietary mail transfer agent technology allows for extensive data mining, broadcasting
and tracking, and real-time reporting. We own substantially all of our mail transfer agent and Adaptive Proxy, or AP tracking technologies. AP tracking utilizes noninvasive
technology, provides tracking and logging information and analysis that can cross application and server boundaries without requiring our clients to modify their HTML code or place cookies on a user's
hard drive, which is something that other technologies cannot do efficiently.

Products and Services

Products and Services for Corporations and Government Agencies

Learn2UniversityLearn2University is an interactive, asynchronous LMS that we maintain for our customers. It includes tutorials,
administration, reporting and e-commerce capabilities, providing a cost effective, value added service that is generally superior to that which an organization can deliver on its own.
Learn2University allows for corporate and government customers and their employees to tailor to their individual needs. Our customers pay us based on the specific tutorials, number of tutorials and
number of users they choose. Learn2University enables users to practice and test skills as they learn, utilizing simulation technologies that allow them to practice many of the concepts introduced.
Upon completion of each tutorial, users can print a completion certificate indicating that they have successfully met all the requirements of the tutorial. The solution features interactive,
self-paced tutorials for Microsoft Windows, Microsoft Office, Java and hundreds other titles. We have licensed Learn2University to companies and organizations including U.S. Department of
Labor, U.S. Department of Veterans Affairs, Microsoft-Great Plains, Honeywell and Anheuser-Busch.

Learn2
LearningAgentsWe license LearningAgent software to customers meeting our profile criteria who wish to create personalized animated messages to
communicate a "call to action" in e-learning and other environments quickly and easily. Our customers have the option of contracting for maintenance plans, which entitle them to product
support and updates. We have licensed LearningAgents to companies including Canon, Compaq and Accel Healthcare.

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StreamMakerStreamMaker is a rapid-development authoring tool that allows for the creation of streamed e-learning content. StreamMaker utilizes patented
technology to produce fully synchronized, interactive, CD-ROM-quality multimedia streams that can be delivered through the Internet and intranets.

Learn2
SmartCardThe Learn2 SmartCard provides a physical link to e-learning. The card, which is sized to fit in a standard wallet, provides users
with the information they need to access our courseware. Each SmartCard includes an encoded serial number and unique URL, which represents a specific Learn2 online courseware library and enables
access to the courseware at the office, at home, or on the road. Compaq has deployed the SmartCard in its Presario line of computers sold to Radio Shack.

Custom
CoursewareWe incorporate StreamMaker and LearningAgent technologies into custom courseware. We use StreamMaker to produce fully synchronized, interactive,
CD-ROM-quality multimedia streams that can be delivered through the Internet and intranets. Our embedded LearningAgent provides an interactive, audio-visual dialog with users,
by guiding them through key concepts and facilitating learning through interaction. It is designed to emulate an instructor, by giving personalized help.

Products and Services for Individuals

TutorialsThrough our Learn2.com Website, retailers and catalogs, we market interactive multimedia tutorials, including desktop application
software, computer programming, life skills, and language courses to consumers, students, and work-at-home professionals. Our tutorials are packaged for individuals as single
titles and in suites or libraries of related content. Our individual customers can purchase these tutorials on physical digital media (CD-ROMs or videotapes); or they can access the
tutorials from our Website for a specified period time.

Products and Services Related to Permission e-Mail

Permission e-mail servicesWe offer list development and refinement, e-mail creation, broadcasting, tracking and reporting.
We charge for this service on a cost per thousand, or CPM, basis.

List
rentalWe rent e-mail addresses, which we have collected with the permission of address holders to our partners. We charge for this service on a CPM
basis.

Tracking
servicesWe offer our AP tracking service to customers who do not use our broadcast e-mail services.

Business Strategy and Strategic Direction

Our goal is to become the world's leading provider of e-learning solutions. Our mission is to provide our customers, including corporations,
government agencies, educational organizations and individuals
with a complete engaging, e-learning solution. To achieve this goal, we expect to promote our brand, expand our content offerings, improve our technologies, improve and expand our service
offerings and expand our distribution.

Increase Brand Awareness In Our Target Markets

We intend to solidify our position as a leading provider of e-learning products and services by increasing our brand name recognition in our target
markets. We intend to use advertising, public relations and marketing programs to promote our brand and build loyalty among businesses, government agencies and individual customers.

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Expand Our Content Offerings

We intend to introduce new tutorials and expand our product offerings into new markets. We will modify content developed for existing customers in order to
provide similar tutorials to customers in different industries. This approach allows us to generate additional revenue opportunities while leveraging previous tutorial development efforts.

We
are pursuing relationships with specialized publishers and content providers to develop tutorials directed toward new markets. For example, we plan to develop certification,
licensing and continuing education tutorials for professionals in areas such as finance, law and accounting.

Enhance Our Technologies

We will continue to invest in our technologies in order to remain on the cutting edge of multimedia, engaging e-learning solutions and permission
e-mail services.

Develop Long-Term Strategic Relationships With Our Customers

We plan to extend our presence within our customers' enterprises by helping them to understand the value and applicability of our solutions to a broad range of
operational initiatives. In addition, we will continue to develop new e-learning solutions that are aligned with our customers' evolving business objectives.

Leverage Development Alliances And Reseller Relationships

We plan to grow both our direct and indirect sales channels to expand within our existing markets and penetrate new ones.

Expand Our International Presence

As the rate of Internet adoption accelerates abroad, we believe that significant international market demand will exist for e-learning solutions.
We currently have distributors or resellers in Africa, Brazil, Ireland, South Korea, New Zealand and the United Kingdom.

Suppliers

We currently have relationships with several content providers. However, as an owner of over 80% of our content, we are not reliant upon any outside content
providers. We may increase the number of content providers in the future to broaden the scope of our subject matter.

Customers

None of our customers individually accounted for more than 10% of our net revenues in 2000. The following is a representative list of our customers:



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Competition

E-Learning and Training

We provide e-learning solutions for corporate, government and non-profit markets as well as to individuals. The e-learning
market is evolving. The market is fragmented and competitive, with no dominant players. Our competitors vary in size and in the scope and breadth of the products and services they offer. Some of our
competitors have greater financial resources than we have. We anticipate that new competitors will enter the market, increasing the level of competition. We believe that the principal competitive
factors in our market include:



We
face competition from a variety of sources, including:



Multimedia Streaming and Agent Technologies

The three most prominent providers of multimedia streaming technologies are Macromedia, Microsoft Corporation and RealNetworks Inc. StreamMaker is
different than other multimedia streaming technologies because we engineered it specifically for use in training and e-learning applications. However, these other companies have
substantial resources.

Permission E-mail Marketing Services

Our competitors in the permission e-mail marketing and tracking arena include providers of e-mail based services such as: Double Click,
MessageMedia, Exactis, Responsys.com, Digital Impact, and DeliverE. The majority of these companies operate with greater financial resources than we do.

Intellectual Property and Licenses

Our success and ability to compete effectively will depend, in part, on our ability to protect our intellectual property. We rely primarily on a combination of
statutory and common law copyright, trademark and trade secret laws, customer licensing agreements, employee and third-party nondisclosure agreements and other methods to protect our proprietary
rights. We have received patents that are important in the operation of our business. These patents may not be broad enough to protect our rights.

We
generally require the execution of a license agreement that restricts copying and use of our products. In addition, we have agreements with resellers and customers that requires
the other party to

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pay us royalties based on sales or use of our products. We may not be compensated properly if those sales or uses are not reported to us. If unauthorized copying or misuse of our products were to
occur to any substantial degree, then our business could be affected materially and adversely. It may be possible for a third-party to copy or otherwise obtain and use our tutorials or technologies
without authorization, or to develop similar tutorials or technologies independently.

We
use employee and third-party confidentiality and non-disclosure agreements to protect our trade secrets and unpatented know-how. We require our employees to
assign to us all rights in any proprietary information or technology made or contributed by the employee during his or her employment with us. In addition, we regularly enter into
non-disclosure agreements with third parties including consultants, potential strategic partners and customers. Unfortunately, these agreements cannot guarantee the confidentiality of our
trade secrets or unpatented know-how, nor can they prevent third parties from independently developing substantially equivalent proprietary information or copying, developing, or otherwise
obtaining and using our proprietary information without authorization.

We
may resort to litigation to enforce our intellectual property rights, determine the validity and scope of the proprietary rights of others, or defend ourselves against claims of
infringement or invalidity by others. While we are not currently engaged in any intellectual property litigation or proceedings, we may be in the future. An adverse outcome in a litigation or similar
proceeding could subject us to significant liabilities to third parties, require disputed rights to be licensed from others, or require us to cease marketing or using certain products or services. The
cost of addressing any intellectual property litigation, both in legal fees and the diversion of management resources, regardless of whether the claim is valid, could be significant.

Third
parties may claim that our current or future products infringe on their proprietary rights. We may be subject to these claims as the number of products and competitors in the
education and training industry grows and the functionality of products in the marketplace overlap. Any of these claims, with or without merit, could result in costly litigation or might require us to
enter into royalty or licensing agreements. These royalty or license agreements, if required, may not be available on terms acceptable to us, if at all.

Employees

As of April 10, 2001 we had a total of 138 full-time employees, of whom 64 were engaged in research and product development, 54 in sales and
marketing and 20 in general and administrative functions. Substantially all of the employees work in our offices in Pryor, Oklahoma, Belmont, California, Golden, Colorado or White Plains, New York.
None of our employees are subject to a collective bargaining agreement and we have not experienced any work stoppages. We believe that our relationship with our employees is good.

Risk Factors Relating To Our Company And Our Business

In addition to other information in this Form 10-K, you should consider carefully the following risk factors when evaluating our company and
our business because such factors may have a significant impact on our business, operating results and financial condition. As a result of the risk factors set forth below and elsewhere in this
Form 10-K, and the risks disclosed in our public filings, actual results could differ materially from those projected in any forward-looking statement.

We Have A History Of Losses And An Accumulated Deficit; We May Continue to Experience Losses

As of December 31, 2000, we had an accumulated deficit of approximately $164 million. As a relatively new company in a relatively new market our
revenue opportunities are evolving constantly. Therefore forecasting our results can be somewhat unpredictable. In addition, we face intense

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competition and we must manage our growth and respond to rapid changes in customer demands, industry standards and the economy. We may not succeed in addressing these challenges and risks.

We May Need To Raise Additional Funds.

In March 2000, we raised $10.0 million through the issuance of a convertible debenture. We may raise additional funds to develop, acquire and/or
market products, businesses or technologies. These funds may be raised through joint ventures, the sale of assets, the incurrence of debt, or the issuance of securities. If additional funds are raised
through the issuance of equity or convertible securities, the percentage ownership of current stockholders in Learn2 will be reduced. Also, these securities may have rights, preferences or privileges
senior to our common stock. However, it is possible that additional financing may not be available on terms favorable to us, or at all. If adequate funds are not available or are not available on
acceptable terms, we may not be able to realize our business plan.

We May Experience Significant Fluctuations In Revenues And Operating Results, Which Could Cause Our Share Price To Be Volatile.

Due to the emerging nature of the e-learning market and a sluggish economy, we may be unable to forecast our revenues and profitability accurately.
Our revenues and operating results could vary significantly from quarter to quarter depending on:



Because
many of our costs are fixed and are based on anticipated revenue levels, variations in the timing of revenue recognition could cause significant variations in operating
results from quarter to quarter. As a result, we believe that quarter-to-quarter comparisons of our sales and operating results are not necessarily meaningful and may not be
accurate indicators of future performance. If our future operating results are below the expectations of securities analysts or investors, the trading price of our common stock is likely to fall.

If We Are Unable To Develop Awareness Of The Learn2 Brand, Our Customer Base May Not Grow As Expected.

We believe that developing our brand within our target markets is critical to achieving widespread acceptance of our tutorials and a broad customer base. We
may not succeed in developing our brand if more successful competitors emerge, we are unable or fail to devote sufficient resources to marketing efforts, or course performance problems cause customer
dissatisfaction. Our inability to develop our brand would hinder growth.

We Operate In A Rapidly Changing, Competitive Market and We May Not Have Adequate Resources To Compete Successfully.

The e-learning market is evolving quickly and is subject to rapid technological change, shifts in customer demands and evolving industry standards.
To succeed, we must continue to expand our tutorial offerings and upgrade our technologies. We may not be able to do so successfully. If we fail to anticipate or respond adequately to changes in
technology and customer preferences, or we have any significant delays in tutorial development or introduction, our competitors may be able to attract and maintain a greater customer base.

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The e-learning market is characterized by significant price competition. We may face increasing price pressures from competitors, as customers demand more value for their
budgets. This could result in reduced operating margins, as well as loss of market share and brand recognition.

Although
the e-learning market is highly fragmented with no single competitor accounting for a dominant market share, competition is intense. Our competitors vary in size
and in the scope and breadth of the tutorials and services they offer. Several of our competitors have longer operating histories and significantly greater financial, technical and marketing resources
than us. We believe that the lack of significant entry barriers to the e-learning market will allow other competitors to enter the market, increasing competition.

Our Business Will Suffer If e-Learning Is Not Widely Accepted.

The market for e-learning solutions is new and evolving. We expect that we will engage in intensive marketing and sales efforts to enable
prospective customers to learn about the benefits of our e-learning solutions. There are a number of factors that could impact the acceptance of our e-learning solutions, which
are new and largely untested compared to more established training and educational methods, including:



If
the market for e-learning fails to develop or develops more slowly than we expect, we will not achieve our growth and revenue targets and the value of our common stock
will likely decline.

The Successful Operation Of Our Business Depends Upon A Continual Supply Of Content Other Than Related To Our Current Library.

Our inability to develop our own content or obtain it from third parties could result in delays in product introductions or shipments. We depend on the quality
and reliability of the content licensed and timely delivery of this content by our sources. Although we have agreements specifying the terms of the licenses, these agreements may not be enforceable.
We believe that we can arrange alternate sources for some or all of our content, but our inability to provide content to our customers and prospects on a timely basis could affect the performance of
our business.

We Must Deliver Tutorials That Meet The Needs Of Our Customers Or Our Business Will Suffer.

To be competitive, we must develop and introduce on a timely basis new tutorial offerings that meet the needs of companies seeking to use our
e-learning solutions. Furthermore, the viability of our e-learning solutions depends in large part on our ability to update our tutorials and develop new content as the
underlying subject matter changes.

Our Plans To Expand The Scope Of Our Tutorials May Depend On Our Ability To Attract Experts Or Specialists. If We Are Unable To Attract The Necessary Expertise, We Will Not Be
Able To Enter New Fields.

Our strategy involves broadening the fields presently covered by our tutorials. In particular, to date we have been focused primarily on tutorials in the
information technology area and we are planning to develop and introduce new tutorial offerings in other fields. These new tutorial offerings may encompass areas in which we have little or no
experience or expertise. Therefore, our ability to expand our tutorials into these areas may require us to locate and evaluate third-party experts or specialists who would develop or assist us in
developing the tutorial content. If we are unable to locate and

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evaluate these experts, we may fail to develop the tutorials our customers demand or be unable to pursue new market opportunities. If we do not extend our tutorial offerings into new fields, our
revenue growth could be constrained.

Our Tutorial Content Providers Supply Us With The Learning Content Of Our Tutorials And Are Generally Not Restricted From Developing Similar Content For Our Competitors Which
Could Make It Easier For Our Competitors To Compete With Us.

We rely on independent third parties to provide us with certain content. Our agreements with these content providers do not restrict them from developing
tutorials on similar topics for our competitors or from competing directly with us. As a result, our competitors may be able to duplicate some of our tutorial content.

The Variability And Length Of Our Sales Cycle For Our e-Learning Solutions May Make Our Operating Results Unpredictable And Volatile.

The period between our initial contact with a potential customer and the first purchase of our product by that customer typically ranges from three to nine
months and in some cases may be as long as two years. Because we rely on large sales for a substantial portion of our revenues, these long sales cycles can have a particularly significant effect on
our financial performance in any quarter. Factors which may contribute to the variability and length of our sales cycle include:



As
a result of our lengthy sales cycle, we have only a limited ability to forecast the timing and size of specific sales and thus to predict quarterly financial performance.

We Also Depend On Major Retailers To Market Our Products.

We will continue to invest resources to expand our relationships with retailers and to develop relationships with new retailers. However, these retailers or
other retailers may not continue to provide shelf space and marketing for our products. This failure of retailers to market our products effectively could have a material adverse effect on our
business and financial condition.

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Our Products Are Designed For Microsoft Technologies.

Our products are designed primarily for Microsoft technologies. We believe that Microsoft technologies are and will continue to be, widely utilized by our
customers. However, if these customers do not actually adopt and continue to utilize these technologies as anticipated or in the future migrate to other computing technologies that we do not support,
we may have to spend significant capital and other resources including personnel to adapt our products to these alternative technologies. Our streaming technology does not function in a Linux
environment.

The Development Of Our Authoring, Compression, Animation and Streaming Technologies Is Complex.

The development of our authoring, compression, animation and streaming technologies is complex. This can result in lengthy development cycles, extended testing
periods and undetected errors or bugs in the software programs. These factors can result in loss of market acceptance, loss of reputation and loss of market share if products of competitors either are
available on the market first, or are viewed as more reliable than our products.

Our Future Growth Depends On Our Ability To Retain Key Personnel And Successful Hiring And Retention, Particularly With Respect To Sales, Marketing And Development Personnel,
And We May Be Unable To Hire And Retain The Skilled Personnel We Need To Succeed.

We are dependent on the continued services of Stephen P. Gott, our President and Chief Executive Officer and Donald Schupak, Chairman of the Board. If either
one of them were to leave our company, we could face substantial difficulty in hiring a qualified successor and could experience a loss in productivity while any successor obtains the necessary
company and industry knowledge.

We
may not be able to retain our key executives and engineers. We expect to continue to hire additional staff. We may not be successful in attracting, retaining or motivating key
personnel. Our industry is experiencing a shortage in qualified personnel. If we do not succeed in attracting new personnel, or retaining and motivating existing personnel, our business may be
affected adversely.

We Face A Risk Of System Failure.

Our operations depend to a significant extent on our ability to maintain our computer and telecommunications systems. We must also protect our systems against
damage from fire, natural disaster, power loss, telecommunications failure or similar events. In addition, growth of our customer base may strain the capacity of our computer operations center and
telecommunications systems and/or lead to degradations in performance or system failure. Any damage to or loss of our computer and telecommunications networks including our operations center could
affect adversely the performance of our business.

Unauthorized Break-ins To Our Service Could Harm Our Business.

Our servers are vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions,
delays, loss of data or the inability to complete customer transactions. In addition, unauthorized persons may improperly access our data, which could harm us. Actions like these may be very expensive
to remedy and could damage our reputation and discourage new and existing users from purchasing our products and services.

Amortization of Intangible Assets, Which Represent Approximately 68.2% Of Our Assets As Of December 31, 2000, Will Have An Adverse Impact On Our Financial Results.

Approximately $34.2 million or 68.2% of our assets as of December 31, 2000 consisted of intangible assets, including goodwill arising from our
acquisitions. This amount is being amortized over

15

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periods ranging from two to twenty years. This non-cash expense, some of which is not tax deductible, will reduce net income or increase net loss in each amortization period. This
reduction in our net income or increase in our net loss may have an adverse effect on the market price of our common stock. In addition, we may never realize the value of our intangible assets. We
evaluate current events and circumstances to determine whether the remaining balance of our intangible assets will be recoverable. If we deem all or part of our intangible assets to be not
recoverable, as we did in 2000, we would reduce the carrying value of our intangible assets, which could have a material adverse effect on our operating results for the period in which the reduction
is recognized.

Future
acquisitions or business combinations could result in potentially dilutive issuances of equity securities, the incurrence of debt, contingent liabilities or amortization
expenses related to goodwill and other intangible assets, any of which could have an adverse impact on our operating results.

In
addition, the market price of our common stock may decline as a result of a merger or acquisition if:



We May Not Be Able To Implement Our Growth Strategy.

Successfully achieving our growth plan depends on our ability to:



We May Be Subject To Intellectual Property Infringement Claims, Which Are Costly To Defend And Could Limit Our Ability To Use Certain Technologies In The Future.

Many parties are developing and improving technologies which compete with our proprietary technologies and patents. We believe that these parties will continue
to take steps to protect these technologies, including seeking patent protection. As a result, disputes regarding the ownership of these technologies could arise in the future.

Third
parties may assert claims against us alleging infringement of patents, copyrights, trademark rights, trade secret rights or other proprietary rights or alleging unfair
competition. In the event that we determine that licensing patents or other proprietary rights is appropriate, we may not be able to license proprietary rights on reasonable terms or at all. As the
number of products in our target markets increase and the functionality of these products further overlap, we may become subject to infringement claims. We may incur substantial expenses in defending
against third-party infringement claims regardless of the merit of those claims. In the event that there is a determination that we have infringed third-party proprietary rights, we could incur
substantial monetary liability and be prevented from using the rights in the future.

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Our Intellectual Property Rights Are Costly And Difficult To Protect.

We rely on a combination of the following to protect our intellectual property rights:



None
of these protections may be adequate to prevent our competitors from copying or reverse-engineering our products, concepts, trade names and trade dress. Furthermore, none of
these protections prohibit our competitors from independently developing technologies that are substantially equivalent or superior to our technologies.

We
license certain products under shrink-wrap licenses that are not signed by our licensees. These shrink-wrap licenses may be unenforceable under the laws of
certain jurisdictions. In addition, the laws of certain countries in which our products are or may be licensed do not protect us to the same extent as the laws of the United States.

We May Be Unable To Protect Our Intellectual Property Rights And We May Be Liable For Infringing The Intellectual Property Rights Of Others.

Third parties may infringe or misappropriate our patents, trademarks or other proprietary rights, which could have a material adverse effect on our business,
results of operations or financial condition. While we enter into confidentiality agreements with many of our employees, consultants and strategic partners and generally control access to and
distribution of our proprietary information, the steps we have taken to protect our proprietary rights may not prevent misappropriation. We also attempt to register our trademarks and service marks.
However, we may not receive approval on all of our trademark registrations or patent applications. Even if they are approved, such trademarks or patents may be challenged by others or invalidated. In
addition, we do not know whether we will be able to defend our proprietary rights because the validity, enforceability and scope of protection of proprietary rights in Internet-related industries is
uncertain and still evolving.

Third
parties may assert infringement claims against us. From time to time in the ordinary course of business we have been and we expect to continue to be, subject to claims alleging
infringement of the intellectual property rights of third parties. These claims and any resulting litigation, if it occurs, could subject us to significant liability for damages. In addition, even if
we prevail, litigation could be time-consuming and expensive and could result in the diversion of our time and attention. Any claims from third parties may also result in limitations on
our ability to use the intellectual property subject to these claims unless we are able to enter into agreements with the third parties making these claims.

Changes In Laws Relating To Data Collection And Use Practices And The Privacy Of Internet Users And Other Individuals Could Harm Our Business.

Websites usually place certain information ("cookies") on a user's hard drive usually without the user's knowledge or consent. Websites use cookies for a
variety of reasons. We employ the use of cookies on our Website. Certain Internet browsers allow users to modify their browser settings to remove cookies at any time or to prevent cookies from being
stored on their hard drive. In addition, some Internet commentators, privacy advocates and governmental bodies have suggested limiting or eliminating the use of cookies. The effectiveness of our
technology could be limited by any reduction or limitation in the use of cookies. In this regard, there are a large number of legislative proposals before

17

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the United States Congress, foreign governments and other international regulatory agencies regarding privacy issues and the regulation and use of cookies. It is not possible to predict whether or
when such legislation may be adopted, and certain proposals, if adopted, could adversely affect our business. This could be caused by, among other possible provisions, the requirement that permission
be obtained before we use cookies.

We May Be Exposed To Product Liability Claims.

Our license agreements with customers typically contain provisions designed to limit our exposure to potential product liability claims. It is possible,
however, that the limitation of liability provisions contained in our license agreements may not be effective under the laws of certain state and foreign jurisdictions.

Net Operating Loss Carryforwards May Be Limited Severely.

Our net operating loss carryforwards were approximately $100.0 million as of December 31, 2000. These net operating loss carryforwards expire at various
dates through 2020 and under Section 382 of the Internal Revenue Code are limited due to ownership changes. Future stock issuances may result in future ownership changes of our company under
Section 382. Section 382 contains rules that limit the ability of a company to offset pre-ownership change net operating losses and credit carryovers against
post-ownership change taxable income. As a result, our ability to utilize our net operating loss carryforwards could be limited severely.

We Face Legal Uncertainties Relating To The Internet In General And To Our Industry In Particular And May Become Subject To Costly Government Regulation.

The applicability to the Internet of existing laws is uncertain and developing with regard to many issues, including sales tax, intellectual property ownership
and infringement, copyright, trademark, trade secret, obscenity, libel, export of encryption technology and personal privacy.

There
are an increasing number of laws and regulations pertaining to liability for information received from or transmitted over the Internet, online content regulation, user privacy,
taxation and quality of products and services. In addition, it is possible that more laws and regulations may be adopted with respect to the Internet, such as laws or regulations relating to user
privacy, taxation, e-mail, pricing, Internet access, content, copyrights, distribution and characteristics and quality of products and services. Various state statutes govern private
post-secondary educational institutions. We are uncertain whether states will attempt to apply these statutes to regulate the offering of tutorials over the Internet.

Changes
in existing laws and the adoption of additional laws or regulations may decrease the popularity or limit expansion of the Internet. A decline in the growth of the Internet
could decrease demand for our tutorials and services and increase our cost of doing business.

Our Business Could Be Harmed By Consumers' Concerns About The Security Of Transactions Over The Internet.

We believe that concerns regarding the security of confidential information transmitted over the Internet, such as credit card numbers, prevent many potential
customers from engaging in online transactions. Our success may depend on our ability to add sufficient security features to our e-commerce engine and to instill confidence in those
features to our customers. If we fail to do so, we may not realize our business plan.

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Our Stock Price Has Been Volatile, Which May Make It More Difficult For You To Resell Shares When You Want To Do So And At Prices You Find Attractive.

The trading price of our common stock can fluctuate significantly. For example, during the 52 week period ended March 31, 2001, the market price of our
common stock ranged from $4.13 to $0.19. The stock price may fluctuate in response to a number of events and factors, including:



In
addition, the stock market in general and the market prices for Internet related, technology and e-learning companies in particular, have experienced extreme volatility that often
has been unrelated to the operating performance of those companies. These broad market and industry fluctuations may affect adversely the price of our common stock, regardless of operating
performance. A drop in the market price of our common stock may affect adversely our business and financial opportunities.

Certain Events Could Result In A Dilution Of Your Ownership Of Our Common Stock.

As of December 31, 2000, we had approximately 52.9 million shares of common stock outstanding and approximately 13.2 million shares of common
stock equivalents including convertible notes, warrants and stock options. The exercise prices and conversion prices, as the case may be, of the common stock equivalents range from $0.01 to $7.50 per
share. These common stock equivalents also provide for antidilution protection upon the occurrence of stock splits, redemptions, mergers and other similar transactions. If one or more of these events
occurs the number of shares of our common stock that
may be issued upon conversion or exercise would increase. If converted or exercised these securities will result in a dilution to your percentage ownership of our common stock. In addition, if we
continue to acquire new companies through the issuance of common or preferred stock your percentage of ownership may be diluted.

We Will Continue To Expand Into International Markets In Which We Have Limited Experience.

A part of our strategy is to develop international markets. We have entered into distribution or reseller arrangements in Africa, Brazil, Ireland, South Korea,
New Zealand and the United Kingdom. We, or our partners may not be able to market our products and services in foreign markets successfully.

We
have limited experience in developing localized versions of our products and marketing our products and services internationally. We rely on the efforts and abilities of our
international business partners in those activities.

In
addition to uncertainty about our ability to continue to generate revenues and expand our international presence, we face certain risks inherent in doing business internationally,
including:



19

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One
or more of these factors could have a material adverse effect on our future international presence and, consequently, on our business, operating results and financial condition.

We May Lose Our Listing On The Nasdaq Stock Market

We received a letter from the Nasdaq Stock Market, Inc. ("Nasdaq") concerning the continued listing of our common stock on the Nasdaq Market. Our common stock
has failed to maintain a closing price of greater than or equal to $1.00 in a accordance with Nasdaq's rules. We have been provided with ninety (90) calendar days in which to regain compliance with
these rules. If we are unable to demonstrate compliance on or before the end of the ninety day period ending April 16, 2001, our securities could be delisted. Under certain circumstances this
delisting could be an event of default under our $10 million 6% Convertible Debenture issued to RGC International Investors LDC. In addition if our securities are delisted the liquidity and
trading price of our securities may be impacted adversely.

Available Information

We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission. Any document we file with
the Commission may be read or copied at the Commission's public reference room at 450 Fifth Street, N.W., Washington, DC 20549. Please call the Commission at
1-800-SEC-0330 for further information on the public reference room. Our Commission filings are also available to the public on the Commissions' Website at
http://www.sec.gov.

ITEM 2.  PROPERTIES.

We maintain facilities and offices at the following locations:

Location

Purpose

Sq.
Feet

Lease
Expiration
Date

Lease
Renewal
OptionWhite Plains, New York

Headquarters Office

12,000

12/31/04

One 5 year-termPryor, Oklahoma

Marketing, Production and Product Development

89,000

Owned

OwnedGolden, Colorado

Research & Development and Production

8,521

04/06/03

N/ABelmont, California

Office

7,788

04/30/04

Two 5 year-terms


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ITEM 3.  LEGAL PROCEEDINGS.

On May 22, 1998, a lawsuit was filed in the United States District Court for the Northern District of Texas by Jonathan L. Gordon, as a putative class
action against ViaGrafix Corporation and certain of its officers and directors claiming violations of the Securities Act of 1993 for alleged misrepresentations and omissions in ViaGrafix's prospectus
issued in connection with its initial public offering made in March 1998. On February 1, 2001, a United States District Judge for the Northern District of Texas entered a judgment
dismissing, with prejudice, the lawsuit. On February 16, 2001, plaintiffs agreed not to take any steps to vacate, modify or amend that judgment, and we agreed not to seek recovery of our
attorney's fees or costs against the plaintiffs.

In
addition, we are involved in certain other legal proceedings and claims in the ordinary course of our business. We are contesting vigorously all such matters and believe that their
ultimate resolution will not have a materially adverse effect on our financial position, results of operations or cash flows.

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

Not Applicable.

PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Our common stock is quoted on The Nasdaq National Market under the symbol "LTWO." As of April 12, 2001, we had more than 700 record holders of our
common stock as reported by our transfer agent. The following table sets forth the range of high and low bid quotations for our common stock as reported by The Nasdaq National Market System during the
periods as indicated.

High

Low2000Fourth Quarter

$
2.03

$
0.38Third Quarter


3.13


1.97Second Quarter


4.13


1.60First Quarter


9.50


3.341999Fourth Quarter

$
5.75

$
2.91Third Quarter


4.81


2.78Second Quarter


8.94


3.88First Quarter


10.00


2.28


Learn2
received a letter from the NASDAQ Stock Market, Inc. ("NASDAQ") concerning the continued listing of the Company's common stock (LTWO) on the Nasdaq National Market.
Learn2's common stock has failed to maintain a closing price of greater than or equal to $1.00 in accordance with Marketplace Rule 4450(b)(4) under Maintenance Standard 1. Learn2 has been
provided with ninety (90) calendar days in which to regain compliance with Marketplace Rule 4450(b)(4). If Learn2 is unable to demonstrate compliance on or before the end of the ninety
day period ended April 16, 2001 Learn2 could be notified by NASDAQ of the delisting of Learn2's securities. Under certain circumstances such delisting could be an event of default under
Learn2's $10.0 million 6% convertible debenture issued to RGC International Investors LDC.

On
November 12, 1999, we granted a right to Fletcher International Limited to purchase 50,000 shares of our common stock for $0.01 per share as settlement for our obligations
incurred due to the late effectiveness of a registration statement.

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On March 10, 2000, we entered into a Securities Purchase Agreement with RGC International Investors LDC and pursuant thereto, we issued a $10.0 million 6% convertible
debenture to RGC due March 10, 2003. The debenture is convertible at any time, in whole or in part, at the option of the holder at a conversion price of $0.40 per share and is subject to
anti-dilution provisions. Under certain conditions, the debenture automatically converts after one year. The conversion price of the debenture may also be reset to the market value of our
common stock on the second anniversary of the convertible debenture if the price of our common stock declines below $0.40 on such anniversary. In addition, RGC was granted a five-year
warrant to purchase 337,268 shares of our common stock exercisable at $7.41 per share. The value of this warrant will be recorded as debt discount and amortized over the life of the related debt.
Learn2 will record additional interest expense as a result of the reset of the original conversion price from $6.00 to $0.41 during the first quarter of 2001.

RGC
agreed to waive its rights under the Debenture to declare an event of default with regard to Learn2's failure to register shares of common stock, issuable as result of a
conversion price reset on March 10, 2001, provided Learn2 files a registration statement by July 31, 2001, or earlier in certain circumstances.

We
have never declared, nor have we paid, any cash dividends on our common stock. We intend to retain our earnings to finance future growth and, therefore, we do not anticipate paying
any cash dividends on our common stock in the foreseeable future.

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA.

The selected consolidated financial data set forth below with respect to our consolidated statements of operations for each of the years ended
December 31, 2000, 1999 and 1998 and with respect to our consolidated balance sheets as of December 31, 2000 and 1999 have been derived from our audited financial statements. The
selected consolidated financial data set forth with respect to our consolidated statements of operations for each of the years ended December 31, 1997 and 1996 and with respect to our
consolidated balance sheets as of December 31, 1998, 1997 and 1996 are derived from our audited financial statements which are not included herein. The results as of and for the years ended
December 31, 1997 and 1996 do not include the results and financial condition of Panmedia Corporation as its impact would be immaterial.

The
selected consolidated financial data set forth below is qualified in its entirety by and should be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements and the notes to those statements included elsewhere herein.

|                                           |                                                    | Year Ended December 31, |  
|------------------------------------------ | -------------------------------------------------- | ----------------------- | -
|
|
|Consolidated Statement of Operations Data: |                                                    |                         |  
|                                           | Net revenues                                       |                         | $
|                                           | Cost of revenues                                   |                         |  
|                                           |                                                    |                         |  
|                                           | Gross profit                                       |                         |  
|Operating expenses:                        |                                                    |                         |  
|                                           | Research and product development                   |                         |  
|                                           | Sales and marketing                                |                         |  
|                                           | General and administrative                         |                         |  
|                                           | Depreciation and amortization                      |                         |  
|                                           | Restructuring and other non-recurring charges      |                         |  
|                                           | Acquired in-process technology                     |                         |  
|                                           | Impairment of goodwill and other intangible assets |                         |  
|                                           |                                                    |                         |  
|                                           | Total operating expenses                           |                         |  

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|Other income (expense)                                            |                                            |   | (139    | )      |   | 90      |        |   | (2,674  | )      |   | 1,333   |       |   | 1,255   |       
|----------------------------------------------------------------- | ------------------------------------------ | - | ------- | ------ | - | ------- | ------ | - | ------- | ------ | - | ------- | ----- | - | ------- | ------
|                                                                  |                                            |   |         |        |   |         |        |   |         |        |  
|Net loss                                                          |                                            |   | (37,990 | )      |   | (41,036 | )      |   | (10,611 | )      |   | (22,412 | )     |   | (24,253 | )     
|Dividends on preferred stock                                      |                                            |   |        |        |   |        |        |   | 338     |        |   |        |       |   |        |       
|Beneficial conversion feature associated with Preferred Stock     |                                            |   |        |        |   |        |        |   | 5,479   |        |   |        |       |   |        |       
|                                                                  |                                            |   |         |        |   |         |        |   |         |        |  
|Net loss available to common stockholders                         |                                            |   | (37,990 | )      | $ | (41,036 | )      | $ | (16,428 | )      | $ | (22,412 | )     | $ | (24,253 | )     
|                                                                  |                                            |   |         |        |   |         |        |   |         |        |  
|Basic and diluted loss per share available to common stockholders |                                            | $ | (0.72   | )      | $ | (1.06   | )      | $ | (0.92   | )      | $ | (1.47   | )     | $ | (1.80   | )     
|                                                                  |                                            |   |         |        |   |         |        |   |         |        |  
|Basic and diluted weighted average shares outstanding             |                                            |   | 52,702  |        |   | 38,846  |        |   | 17,899  |        |   | 15,241  |       |   | 13,442  |       
|                                                                  |                                            |   |         |        |   |         |        |   |         |        |  
|Consolidated Balance Sheet Data:                                  |                                            |   |         |        |   |         |        |   |         |        |   |         |       |   |         |       
|                                                                  | Total assets                               |   | $       | 50,321 |   | $       | 75,625 |   | $       | 13,419 |   | $       | 9,946 |   | $       | 38,933
|                                                                  | Long-term debt (including current portion) |   |         | 9,271  |   |         |       |   |         | 194    |   |         | 946   |   |         | 6,790 
|                                                                  | Stockholders' equity                       |   |         | 32,123 |   |         | 66,514 |   |         | 10,123 |   |         | 2,525 |   |         | 24,652

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

The following information should be read in conjunction with our consolidated financial statements and the notes thereto contained elsewhere herein. This
analysis is provided pursuant to applicable Securities and Exchange Commission regulations and is not intended to serve as a basis for projections of future events. Our actual results may differ
materially from those anticipated as a result of certain factors, including but not limited to, those set forth under "Risk Factors Relating to Our Company and Our Business" beginning on page 11.

Overview

Learn2.com, Inc. together with its subsidiaries ("Learn2") is a Learning Service Provider ("LSP") for corporate, government and individual clients. Our
offerings include engaging online and physical learning and training products and complementary services. We believe our mix of products and services provides us with a competitive advantage toward
becoming the solutions provider of choice to our customers.

Our
products provide an engaging learning experience to corporate and individual customers through interactive multimedia and animated tutorials and courseware. Our corporate and
government customers have access to these high quality tutorials and additional features such as reporting and administration through www.Learn2University.com. Additionally, through www.Learn2.com,
visitors can access our content that includes tips and step-by-step instructions on a broad spectrum of skills, activities and tasks, as well as our multimedia tutorials. Our
e-learning products are also available on CD-ROM and video and can be purchased from our Website and major retailers nationwide.

Through
our subsidiary, etracks.com, Inc., we provide permission e-mail marketing and tracking services to customers that have "opt-in"
e-mail customer lists. etracks' services include e-mail creation, delivery, tracking and response analysis for a high volume of client e-mail accounts in a short
period of time. We also have developed a proprietary member database of over 500,000 Internet users who have "opted-in" to receive promotional e-mails. Our clients can
supplement their internally developed customer lists with our member database. In addition, during 2000 and prior, through periodic e-mails

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we marketed various electronics and other products to our members. The demand for permission e-mail marketing and tracking services has increased over the past few years and we expect that
the demand will continue to grow for the foreseeable future. We believe that etracks' technology enables more robust and useful tracking capabilities than its competitors'.

Our
goal is to become the world's leading provider of engaging e-learning products and services. To achieve this goal, we expect to focus on our four primary objectives:
creating a trusted brand, developing and owning creative and engaging content, enhancing our patented state-of-the-art technologies and offering services to meet
the needs of our clients. In 1999, we changed our company's name from 7th Level, Inc. to Learn2.com, Inc. We made the change to create a single recognized brand that more closely aligned
our corporate identity with our product and service offerings.

History

Learn2 was founded in 1993 with the goal of becoming a leading developer and publisher of interactive entertainment and educational content as well as a
creator of state-of-the-art tools and technologies. In 1998, our research and development activities were focused primarily on developing and enhancing our agent
technology. In early 1999, we recognized that appropriate applications of this technology were in the delivery of training and learning and therefore we abandoned our interactive entertainment
business and focused our efforts on e-learning.

In
1999, to strengthen our position in the e-learning marketplace, we acquired three companies that enhanced our brand, content, technologies and services capabilities:
Street Technologies, Inc., a privately held company that developed and marketed technology-based training solutions delivered over intranets and the Internet utilizing a patented streaming
technology and provided custom service capabilities; Panmedia Corporation, a privately held company that produced www.Learn2.com, a popular Website that offered step-by-step
instructions on skills, activities and tasks; and ViaGrafix Corporation, a publicly traded company which developed, produced and marketed technology-based training tutorials delivered on
CD-ROMs and video tapes as well as computer aided design ("CAD") software. The CAD product line was sold in March 2000. Through etracks, ViaGrafix also provided permission
e-mail broadcast solutions and conducted e-commerce. These acquisitions provided us with the Learn2 brand, and a stronger mix of content, technologies and service offerings.

As
set forth in Note 4 to our consolidated financial statements, our reported results of operations for all periods prior to August 23, 1999 do not reflect the results of
ViaGrafix and prior to February 16, 1999 do not reflect the results of Street Technologies, Inc. Consequently, the results prior to these dates and our consolidated balance sheet at
December 31, 1998 are not reflective of our operations and financial position as presently constituted.

Effective
January 1, 2000, Learn2 has adopted Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition In Financial Statements". SAB 101 expresses the views of the
Securities and Exchange Commission ("SEC") in applying accounting principles generally accepted in the United States to certain revenue recognition issues.

Learn2's
adoption of SAB No. 101 resulted in a change in method of accounting for cooperative advertising expenses. In accordance with previously existing accounting
principles, Learn2 recorded cooperative advertising expenses as a sales and marketing expense. During 2000, as a result of new interpretations of generally accepted accounting principles by the SEC
through the issuance of SAB 101, Learn2 was required to change the accounting policy for cooperative advertising, to record these expenses as a reduction of gross revenues.

The
effect of the adoption of SAB No. 101 was to decrease both revenues and sales and marketing expenses by $3.5 million. SAB No. 101 has been adopted as a change
in accounting principle, effective January 1, 2000. The adoption of SAB No. 101 resulted in no change to previously reported earnings,

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as this was a reclassification between revenue and sales and marketing expenses. Learn2 has restated its results for the first three quarters of the year ended December 31, 2000, as reflected
in Quarterly Financial Data on page 31. Pro forma amounts assuming the new revenue recognition method is
applied on a pro forma basis for the year ended December 31, 1999 was a decrease to both net revenues and sales and marketing expenses by $1.3 million.

Sources of Revenue and Revenue Recognition Policy

Learn2
generates revenue primarily from the sales and licensing of computer software training products and technologies, product development agreements, and broadcast messaging
services.

Revenue
from software license agreements is recognized in accordance with the provisions of American Institute of Certified Public Accountants ("AICPA") Statement of Position ("SOP")
No. 97-2, "Software Revenue Recognition". Software product sales under such license agreements are recognized as revenue upon shipment of the products to customers, provided that
there are no significant vendor obligations and collection of the related receivable is probable. In circumstances whereby Learn2 has established vendor specific objective evidence, Learn2 accounts
for insignificant vendor obligations and post-contract support over the service period.

Revenue
from on-line sales is recognized when persuasive evidence of an arrangement exits, delivery has occurred, the sales price is fixed or determinable and
collectibility is probable. Learn2 defers a portion, generally 10% of the selling price of on-line products for hosting and recognizes that hosting ratably over the contractual period.
Learn2 recognizes the two components, the software, (or training course) and the service (or hosting) based on their relative fair values.

Revenue
from physical product sales is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectibility
is probable. Generally, these criteria are met at the time product is shipped. A reserve is made at the time the related revenue is recognized for estimated product returns based on history,
cooperative advertising, or other promotions which may occur under programs Learn2 has with its customers.

Revenues
from broadcast messaging transactions are recognized at the time the broadcast is sent, as Learn2 has no further significant obligations.

Many
of our costs are fixed and are based on anticipated revenue levels. We may be unable to adjust spending quickly enough to offset any unexpected revenue shortfall. If we have a
shortfall in revenues
in relation to expenses, or if expenses continue to exceed revenues, then our results of operations and financial condition would be affected materially and adversely. We expect to incur losses on a
quarterly and annual basis for the foreseeable future, however we believe we have adequate resources to realize our business plan.

Results of Operations

2000 revenues and gross profits increased over 1999 primarily as the result of the inclusion of the full year of revenues from our acquisition of ViaGrafix in
1999. Revenues and gross profits also increased as a result of volume increases in corporate training revenue and revenue associated with our custom business. Operating expenses increased to
$53.5 million from $51.5 million in 1999, and included $17.9 million in goodwill and other intangible asset impairments, $6.1 million in fixed and intangible asset
amortization, and $600,000 in non-recurring charges in 2000. Operating expenses for the year ended December 31, 1999 included the write-off of acquired
in-process technology of $24.8 million, fixed and intangible asset amortization of $3.3 million, restructuring charges of $3.3 million, and non-recurring
costs of $300,000. Net loss including these charges was $38.0 million in 2000 as compared to $41.0 million in 1999.

25

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The
following tables set forth industry segment information for the years ended December 31, 2000, 1999 and 1998:

Revenues

Gross Profit2000

1999

1998

2000

1999

1998(in thousands)Learning Services

$
17,932

$
11,657

$
2,674

$
13,487

$
9,365

$
2,202Broadcast Messaging Services


4,308


1,970





2,331


1,027


Intersegment elimination


(170
)

(60
)




(128
)

(49
)

Total

$
22,070

$
13,567

$
2,674

$
15,690

$
10,343

$
2,202


Identifiable Assets2000

1999

1998Learning Services

$
49,918

$
74,987

$
13,419Broadcast Messaging Services


403


638


Total

$
50,321

$
75,625

$
13,419


2000 COMPARED TO 1999

Learning Services

Learning Services revenues primarily consist of corporate learning products, technologies and services sold or distributed through the Internet and of physical
products sold online, to online merchants and through traditional retail channels. Cost of revenues consists of the expenses associated with the production and shipment of our physical products, costs
related to develop custom courses, for specific customers and content royalties.

Revenues
for Learning Services increased $6.2 million or 53.0% to $17.9 million for 2000 from $11.7 million for 1999. The gross profit for Learning Services was
approximately 75.2% of revenues for 2000 and approximately 80.3% of revenues for 1999. In 2000, as a result of the adoption of SAB 101, cooperative advertising expenses were recorded as a reduction of
gross revenue.

For
2000, these revenues consisted of corporate learning products, technologies and services sold, licensed or distributed through the Internet of approximately $9.2 million,
physical learning products sold online, to online merchants and through traditional retail channels of approximately $7.6 million,
software sales related to our CAD product line (sold in March 2000) of approximately $400,000 and other revenue of approximately $700,000. For 1999, Learning Services revenues were
$11.7 million and consisted of approximately $4.1 million of corporate learning products, technologies and services sold or distributed through the Internet, approximately
$5.5 million of physical learning products sold online, to online merchants and through traditional retail channels, and approximately $400,000 of software sales related to our CAD product
line, and advertising and other legacy revenues of approximately $1.7 million. The 1999 revenues include revenue from the operations acquired in the ViaGrafix acquisition that relate to our
Learning Services segment from August 23, 1999. Gross profit fluctuated from year to year as a result of differences in the composition of revenues.

Broadcast Messaging Services

Broadcast Messaging Services consists primarily of permission e-mail marketing and tracking services and e-commerce. Cost of revenues
consists of the expenses associated with the delivery of permission e-mail and tracking services, including Internet access and personnel related costs incurred to operate our marketing
and tracking services and cost of merchandise sold through our e-commerce operations.

26

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Revenues for Broadcast Messaging Services increased $2.3 million or 115.8% to $4.3 million for 2000, compared to $1.9 for 1999. Broadcast Messaging Services gross profit
was 54.1% of revenues for 2000 compared to 51.2% of revenues for 1999. The 1999 revenues include revenues from the operations acquired in the ViaGrafix acquisition that relate to our Broadcast
Messaging Services segment from August 23, 1999.

Operating Expenses

Research and Product Development

For 2000, research and product development expenses were $6.9 million compared to $4.0 million in 1999. Research and product development expenses
relate to the development and enhancement of our technologies, content, Website and product design. The 2000 amount includes the research and product development expenses of ViaGrafix and Street
Technologies, Inc. for 2000, whereas the 1999 amounts include the results of ViaGrafix from August 23, 1999 and the results of Street Technologies, Inc. from
February 16, 1999. The overall increase is attributable primarily to costs associated with the production and development of multimedia content.

We
believe that investment in research and product development is required to remain competitive. Therefore, we anticipate continued spending for research and product development in
future periods.

Sales and Marketing

For 2000, sales and marketing expenses were $12.1 million compared to $10.5 million 1999. Sales and marketing expenses consist primarily of
salaries, commissions, advertising, trade show expenses and costs of marketing materials. The 2000 amount includes the sales and marketing expenses of ViaGrafix and Street Technologies for 2000,
whereas the 1999 amounts include the results of ViaGrafix from August 23, 1999 and the results of Street Technologies, Inc. from February 16, 1999. The 1999 amount also includes
cooperative advertising of approximately $1.3 million which effective January 1, 2000 has been accounted for as a reduction of gross revenues. The overall increase is attributable
primarily to increased sales and marketing personnel, costs for print media and other product related advertising.

Sales
and marketing expenses may increase in future periods in our continued effort to achieve growth in revenue and as we introduce new products.

General and Administrative

For 2000, general and administrative expenses were $9.9 million compared to $5.3 million for 1999. General and administrative expenses consist
primarily of personnel related costs, occupancy costs and professional service fees. The 2000 amount includes the general and administrative expenses of ViaGrafix and Street Technologies for the year
ended December 31, 2000, whereas the 1999 amounts include the results of ViaGrafix from August 23, 1999 and the results of Street Technologies, Inc. from February 16, 1999.
The overall increase is attributable primarily to increased personnel costs and professional fees associated with a larger organization.

Depreciation and Amortization

Depreciation and amortization expenses were $6.1 million for 2000 compared to $3.3 million for 1999. The 2000 expenses included approximately
$1.2 million of depreciation of fixed assets, $1.9 million of amortization of capitalized content development and $3.0 million of amortization of goodwill and intangible assets
related to the Street Technologies, Inc. and ViaGrafix acquisitions. The 1999 expenses included approximately $708,000 of depreciation of fixed assets, $311,000 of amortization

27

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of computer software and $2.3 million of amortization of goodwill and intangible assets related to the acquisitions of Street Technologies, Inc. and ViaGrafix Corporation.

Restructuring Charges

Restructuring charges incurred for 1999 were approximately $3.3 million and related to our business combinations with Street Technologies, Inc.
and ViaGrafix Corporation of approximately $2.3 million and $1.0 million, respectively. The charges were comprised of approximately $1.4 million related to the
write-off of redundant assets, $551,000 related to excess office space and other costs and $1.4 million in employee severance costs.

Non-recurring Costs

During the second quarter of 2000, we completed the intergration of the ViaGrafix and Panmedia mergers which began in 1999. As a result, we recorded a
non-recurring charge of approximately $641,000 primarily for severance. During the second quarter of 1999, we completed our merger with Panmedia Corporation. We recorded a
non-recurring charge of approximately $277,000 for transaction costs associated with the merger.

Acquired In-process Technology

In 1999, in connection with our acquisitions of Street Technologies, Inc., and ViaGrafix, we allocated approximately $9.7 million and
$15.1 million of their respective purchase prices to acquired in-process technology. Accordingly these cost were expensed as of the acquisition date. Amounts allocated to
acquired in-process technology relate to projects that had not yet reached technological feasibility and that, until completion of development, had no alternative future use. The
technologies acquired required substantial additional development.

Impairment of Goodwill and Other Intangible Assets

As a result of the operating losses incurred by ViaGrafix, Learn2 reviewed the recoverabilitity of the goodwill and other intangible assets associated with its
acquisition of ViaGrafix in accordance with its accounting policy for long-lived assets. Based on an analysis of projected undiscounted cash flows, Learn2 determined that the carrying
value of such goodwill and other intangible assets was impaired. Accordingly, Learn2 engaged an outside appraiser to assist with the analysis and based upon the resulting valuation, Learn2 recognized
approximately $17.9 million in impairment charges. The impairment charge was comprised of approximately $8.9 million of goodwill, $8.5 million of intangible assets, and $500,000
of capitalized software. The impairment charges are equal to the difference between the carrying amount of these assets and the estimated fair value at December 31, 2000.

Interest Expense

Interest expense was approximately $994,000 for 2000 compared to $146,000 for 1999. Interest expense in 2000 related primarily to interest on the
$10.0 million convertible debenture issued in 2000. Interest expense in 1999 related primarily to expense on the conversion of notes payable.

Interest Income

Interest income was approximately $632,000 for 2000 compared to $404,000 for 1999. Interest income consists primarily of interest earned on overnight
investments.

28

---

Other Income (Expense), Net

Other income (expense), net was approximately $223,000 of income for 2000 compared to $168,000 of expense for 1999.

Net Loss

The net loss was $38.0 million for 2000 compared to $41.0 million for 1999 and was attributable to the factors discussed above.

1999 COMPARED TO 1998

1999 revenues and gross profits increased over 1998 primarily as the result of the inclusion of the revenues from our acquisitions of Street Technologies from
February 16, 1999 and ViaGrafix from August 23, 1999. Total operating expenses increased to $51.5 million from $10.1 million in 1998, and included the write-off of acquired
in-process technology of $24.8 million, fixed and intangible asset amortization of $3.3 million, restructuring charges of $3.3 million, and non-recurring costs of $300,000. Net
loss including these charges was $41.0 million in 1999 as compared to $10.6 million in 1998.

REVENUES

Learning Services

Learning Services revenues primarily consist of corporate learning products, technologies and services sold or distributed through the Internet and of physical
products sold online, to online merchants and through traditional retail channels through traditional retail channels. Cost of revenues consists of the expenses associated with the production and
shipment of our physical products, costs related to develop custom courses, for specific customers and content royalties.

Revenues
increased $10.9 million or 404% over 1998 revenues to $11.7 million in 1999 from $2.7 million in 1998. In 1998, revenues related primarily to royalties
on licensed technologies related to our entertainment business and Web development. The gross profit for Learning Services was approximately 80.3% of revenues for 1999 and approximately 82.3% of
revenues 1998.

In
1999, these revenues consisted of approximately $4.0 million of corporate learning products, technologies and services sold or distributed through the Internet,
approximately $5.5 million of physical learning products sold online, to online merchants and through traditional retail channels, approximately $400,000 of software sales related to our CAD
product line, and advertising and other legacy revenues of approximately $1.7 million. The 1999 revenues include revenue from the operations acquired in the ViaGrafix acquisition that relate to
our Learning Services segment from August 23, 1999 and the results from Street Technologies from February 16, 1999. Gross profit fluctuated from year to year as a result of differences
in the composition of revenues.

Broadcast Messaging Services

Broadcast Messaging Services consists primarily of permission e-mail marketing and tracking services and e-commerce. Cost of revenues
consists of the expenses associated with the delivery of permission e-mail and tracking services, including Internet access and personnel related costs incurred to operate our marketing
and tracking services and cost of merchandise sold through our e-commerce operations.

Revenues
for Broadcast Messaging Services was $1.9 million for 1999 and were related to our ViaGrafix acquisition on August 23, 1999. Broadcast Messaging Services gross
profit was 51.2% of revenues for 1999. In 1998, there were no revenues associated with this segment.

29

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Operating Expenses

Research And Product Development Expenses

Research and product development expenses were $4.0 million for 1999, as compared to $2.4 million for 1998. Research and product development
relates to technology, Website and tutorial development. The overall increase is attributable primarily to costs associated with the production and development of multimedia content.

Sales And Marketing

Sales and marketing expenses increased $9.9 million, from $600,000 in 1998 to $10.5 million in 1999. Sales and marketing expenses consist
primarily of salaries, commissions, advertising, trade-show expenses and costs of marketing materials. The overall increase was attributable to $6.5 million in costs related to
increased sales and marketing staff to focus on direct and indirect licensing and sales to corporations, $2.6 million for cooperative, print media and other product related advertising expenses
and $800,000 for promoting the Learn2 brand.

General And Administrative Expenses

General and administrative expenses remained unchanged at $5.3 million for 1999 and 1998 General and administrative expenses consist primarily of
personnel related costs, occupancy costs and professional service fees. The 1999 expenses relate to the structure of the newly merged companies. In 1998, expenses included approximately
$1.4 million related to stock grants to two of our directors.

Depreciation And Amortization

Depreciation and amortization expenses were $3.3 million in 1999 and $1.8 million in 1998. The 1999 expenses included approximately $708,000 of
depreciation on fixed assets, $311,000 of amortization of capitalized content development, $1.5 million of amortization on goodwill, capitalized software and intangible assets related to the
Street Technologies, Inc. acquisition and $796,000 of amortization on goodwill and other intangible assets related to the ViaGrafix acquisition. The 1998 expenses related primarily to
depreciation and amortization on fixed assets.

Restructuring Charges

Restructuring charges for 1999 were approximately $3.3 million and were related to our business combinations with Street Technologies, Inc. and
ViaGrafix. The charges were comprised of $1.4 million related to the write-off of redundant assets, $551,000 related to excess office space and other costs and $1.4 million
in employee severance costs.

Acquired In-Process Technology

In 1999, in connection with our acquisitions of Street Technologies, Inc. and ViaGrafix, we allocated approximately $9.7 million and
$15.1 million, respectively, of the purchase prices to acquired in-process technology. Accordingly, these costs were expensed as of the respective acquisition dates. Amounts
allocated to acquired in-process technology relate to projects that had not yet reached technological feasibility and that, until completion of development, had no alternative future use.
The technologies acquired required substantial additional development.

Non-Recurring Costs

During the second quarter of 1999, we recorded a non-recurring charge of approximately $277,000 for transaction costs associated with the Panmedia
merger.

30

---

Interest Expense

Interest expense was approximately $146,000 for 1999 compared to $1.8 million in 1998. Interest expense in 1999 primarily related to expense on the
conversion of notes payable. Interest expense in 1998 primarily related to related primarily to debt issuance costs and the accretion of debt discount.

Interest Income

Interest income was approximately $404,000 for 1999 compared to $335,000 in 1998. Interest income consists primarily of interest earned on overnight
investments.

Other Income (Expense), Net

Other
income (expense), net was approximately $168,000 of expense compared to $1.3 million of expense in 1998. Other expenses in 1998 consisted primarily of a
$1.5 million charge relating to the disposal of assets offset by the reversal of accrued royalty expense in excess of actual liabilities.

Net Loss

The net loss was $41.0 million for 1999 compared to $10.6 million for 1998 and was attributable to the factors discussed above.

QUARTERLY RESULTS OF OPERATIONS

|     |                                           | Three Months Ended |  
|---- | ----------------------------------------- | ------------------ | -
|
|
|2000 |                                           |                    |  
|     | Revenue                                   |                    | $
|     | Gross margin                              |                    |  
|     | Net loss available to common shareholders |                    |  
|     | Basic and diluted loss per common share   |                    |  

|     |                                           | Three Months Ended |  
|---- | ----------------------------------------- | ------------------ | -
|
|1999 |                                           |                    |  
|     | Revenue                                   |                    | $
|     | Gross margin                              |                    |  
|     | Net loss available to common shareholders |                    |  
|     | Basic and diluted loss per common share   |                    |  

On
a quarterly basis, Learn2 reports pro forma results. These results exclude the effects of interest, other income and most non-cash operating expenses, including depreciation and
amortization. In addition other items not related to the on-going operations of Learn2 are also included in the determination of pro forma results.

In
2000, other items included a charge of $17.9 million in the fourth quarter, related to impairment of intangible assets and goodwill (Note 4); and a charge of $641,000
related to non-recurring charges, in the second quarter (Note 8).

31

---

Reconciliation of Net Loss to Pro Forma Loss:

|     |                                                    | Three Months Ended |  
|---- | -------------------------------------------------- | ------------------ | -
|
|
|2000 |                                                    |                    |  
|     | Net loss available to common shareholders          |                    | $
|     | Interest and other, net                            |                    |  
|     | Non-recurring charges                              |                    |  
|     | Impairment of goodwill and other intangible assets |                    |  
|     | Depreciation and amortization                      |                    |  
|     |                                                    |                    |  
|     | Pro forma loss                                     |                    |  
|     | Pro forma loss per common share                    |                    |  

|     |                                           | Three Months Ended |  
|---- | ----------------------------------------- | ------------------ | -
|
|
|1999 |                                           |                    |  
|     | Net loss available to common shareholders |                    | $
|     | Interest and other, net                   |                    |  
|     | Non-recurring charges                     |                    |  
|     | Acquired in-process technology            |                    |  
|     | Restructuring charges                     |                    |  
|     | Depreciation and amortization             |                    |  
|     |                                           |                    |  
|     | Pro forma loss                            |                    |  
|     | Pro forma loss per common share           |                    |  

The
quarterly earnings per share data above are computed independently for each of the quarters presented. As such, the sum of the quarterly per common share information may not equal
the full
year amounts due to rounding differences resulting from changes in the weighted-average number of common shares outstanding.

---

In
1999, other items included various charges associated with the business combinations Learn2 completed in 1999 (Note 4).

LIQUIDITY AND CAPITAL RESOURCES

Since inception we have financed our operations primarily through private placements of equity and debt securities and public offerings of our common stock. To
date, we continue to use cash and operate at a loss. Our ability to achieve positive cash flow depends upon a variety of factors, including the timely introduction and market success of our products,
the costs of developing, producing and

32

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marketing these products, adoption of the Internet as a medium of commerce and delivery of services, and various other factors, some of which may be beyond our control. We are making a substantial
investment in our business and may need to raise additional funds. In the event that we need to raise additional funds we may not be successful nor can we predict the terms under which such funds
would be available. If additional funds are not available we may not be able to meet our on-going expense unless we change our business plan, sell non-strategic assets, curtail
expenditures, and/or employ other strategies as are required in these circumstances.

We
have and continue to seek ways of facilitating our ability to attract larger companies as customers and augmenting our balance sheet. In that regard the we have explored various
alternatives relating to potential financings, strategic alliances and business combinations. We are currently in advanced discussions with another company concerning a business combination pursuant
to which our outstanding debt would be converted into equity and our shareholders (including holders of our outstanding debt) would receive slightly less than one half of the equity of the combined
entity.

Net
cash used in operating activities was $14.6 million. Cash used in operating activities resulted primarily from our net loss and an overall decrease in operating assets and
liabilities, partially offset by increases from non-cash charges. Non-cash charges primarily include the impairment of goodwill and other intangible assets and depreciation and
amoritzation of fixed and intangible assets.

Net
cash used in investing activities was $123,000 and consists primarily of proceeds of $1.6 million from the sale of assets and $902,000 from the sale of
short-term investments, offset by capital expenditures of approximately $2.1 million and capitalized development costs of $602,000.

Net
cash provided by financing activities was $12.3 million and consists of proceeds of $10.0 million from the issuance of a convertible debenture (as described below),
$2.3 million from the issuance of common stock under stock option plans. As of December 31, 2000, we had $4.8 million of cash and cash equivalents. As of December 31, 2000,
our commitments consisted primarily of obligations under operating leases. We have no material commitments for capital expenditures. Additionally, we will continue to evaluate possible acquisitions of
products and technologies that are complementary to ours, which may require the use of cash.

On
March 10, 2000, we entered into a Securities Purchase Agreement with RGC International Investors LDC and pursuant thereto we issued a $10.0 million 6% convertible
debenture to RGC due March 10, 2003. The debenture is convertible at any time at the option of the holder at a conversion price of $0.41 per share and is subject to anti-dilution
provisions. Under certain conditions, the debenture automatically converts after one year. The conversion price of the debenture may also be reset to the market value of our common stock on the second
anniversary of the convertible debenture if the price of our common stock declines below $0.41 on the second anniversary. In addition, RGC was granted a five-year warrant to purchase
337,268 shares of our common stock exercisable at $7.41 per share. The value of this warrant has been recorded as a debt discount and is being amortized over the life of the related debt.

NEW ACCOUNTING PRONOUNCEMENTS

We continually assess the effects of recently issued accounting standards. The impact of all recently adopted and issued accounting standards has been
disclosed in the consolidated financial statements included herein.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

INTEREST RATE RISK

The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To
achieve this objective, we maintain our

33

---

portfolio of cash equivalents and investments in marketable securities in a variety of securities, including both government and corporate obligations and money market funds.

We
did not hold derivative financial instruments as of December 31, 2000 and have never held these instruments in the past.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements required pursuant to this item are included in Item 14 of this Annual Report on Form 10-K and are presented
beginning on page      .

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES.

As of January 15, 1999, we replaced our principal accountant KPMG LLP with Arthur Andersen LLP. Our decision to change accountants was recommended by
our Board of Directors.

KPMG
LLP's report on our consolidated financial statements as of December 31, 1997 and 1996 and for each of the years in the three-year period ended
December 31, 1997 contained a separate paragraph stating that "the Company has suffered recurring losses since inception and does not currently have sufficient resources to meet its anticipated
operating requirements during 1998, which conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also
described in Note 3. The consolidated financial statements and financial statement schedule do not include any adjustments that might result from the outcome of these uncertainties."

On
April 20, 1998, we received commitments for an aggregate $10 million in financing which was comprised of $4.5 million principal amount of senior secured
promissory notes and $5.5 million liquidation preference of non-convertible preferred stock. The terms of the financing provided that upon stockholder approval the
non-convertible preferred stock would be automatically exchanged into convertible preferred stock and the holders of the senior secured promissory notes would have the option of exchanging
their notes into convertible preferred stock. On July 13, 1998, an aggregate of $10 million liquidation preference of our Series B Convertible Preferred Stock was issued to the
holders of the senior secured promissory notes and non-convertible preferred stock. Between April 20, 1998 and July 13, 1998, the market price of our common stock increased
such that the conversion price of the Series B Convertible Preferred Stock was greater than the market price of our common stock on April 20, 1998 but less than the market price of our
common stock on July 13, 1998. Due to the beneficial conversion feature of the Series B Convertible Preferred Stock, we were required to increase the loss attributable to common
stockholders for the quarter ended September 30, 1998. The one-time occurrence was accounted for similar to a non-cash dividend and had no effect on our net loss or
aggregate stockholders' equity.

KPMG
LLP informed us about the accounting treatment of the beneficial conversion feature. Management then requested KPMG LLP to look into alternative accounting treatments. Management
believes that its inquiries and discussions regarding this matter did not constitute a disagreement. However, KPMG LLP has informed us that in view of all the circumstances surrounding the discussions
about this issue this matter constitutes a disagreement as contemplated by Item 4 of Form 8-K and Item 304(a)(1) of Regulation S-K. Upon KPMG LLP informing us
that in KPMG's opinion there was no alternative accounting treatment, we followed the advice of KPMG LLP and accounted for the Series B Convertible Preferred Stock as described above to the
satisfaction of KPMG LLP.

34

---

We have authorized KPMG LLP to respond fully to the inquiries of Arthur Andersen LLP concerning the subject matter of the beneficial conversion feature. The following is the response
submitted to the SEC by KPMG LLP:



After
the change in accountants took place it came to the Company's attention that at the November 18, 1998 meeting of the Emerging Issues Task Force, the staff of the
Securities Exchange Commission ("SEC") issued a statement regarding how issuers should account for convertible securities. The minutes dealt with, among other things, the observation, by the Task
Force, that in certain circumstances, the intrinsic value of the beneficial conversion feature may be greater than the proceeds received from the sale of the convertible instrument. In those
situations, the Task Force reached a tentative conclusion that the amount of the discount assigned to the beneficial conversion feature should be limited to the amount of proceeds received. As a
result of the foregoing, the Company has restated the financial statements contained in the Quarterly Report on Form 10-Q for the three and nine month periods ended
September 30, 1998. The Company has reduced the beneficial conversion feature originally recorded in the amount of approximately $15,000,000 to approximately $5,500,000. The impact of such
restatement on the Company's Condensed Consolidated Statement of Operations and Balance Sheet is as follows and has not been adjusted for our acquisition of Panmedia:

|                                          |  | Three Months Ended
September 30, 1998 |            | Nine Months Ended
September 30, 1998 |  
|----------------------------------------- |  | ------------------------------------- | ---------- | ------------------------------------ | -
|
|Net loss available to common Stockholders |  | $                                     | (7,922,802 | )                                    | $
|Loss per common share                     |  | $                                     | (0.45      | )                                    | $

|                    |  | September 30, 1998 |            
|------------------- |  | ------------------ | -----------
|
|Additional capital  |  | $                  | 83,990,864 
|Accumulated deficit |  | $                  | (83,635,328

PART III

The Items comprising Part III information will be filed as an amendment to this Form 10-K no later than 120 days after
December 31, 2000, the end of Learn2's fiscal year covered by this Form 10-K.

35

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PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)(1)  Consolidated
Financial Statements. The following consolidated financial statements, and related notes, of Learn2.com, Inc. and the Report of Independent Public
Accountants are filed as part of this Form 10-K.

|                                                          |  | PAGE
|--------------------------------------------------------- |  | ----
|Index to Consolidated Financial Statements:               |  |     
|Report of Independent Public Accountants                  |  | F   
|Consolidated Balance Sheets                               |  | F   
|Consolidated Statements of Operations                     |  | F   
|Consolidated Statement of Changes in Stockholders' Equity |  | F   
|Consolidated Statements of Cash Flows                     |  | F   
|Notes to Consolidated Financial Statements                |  | F   

(a)(2)  Financial
Statement Schedules. All financial statement schedules required by Item 14(a)(2) have been omitted because they are inapplicable or because the required information
has been included in the Consolidated Financial Statements or Notes thereto.

(a)(3)  Exhibits.
The exhibits listed on the accompanying index to exhibits immediately following the financial statement schedule are filed as part of, or incorporated by reference
into, this Form 10-K.

|Exhibit No. |   | Description                                                                                                                                                                                                                                                                                                                                                                                                                                    
|----------- | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1         |   | Agreement and Plan of Merger, dated as of February 16, 1999, by and among Learn2.com, Inc. (formerly 7th Level, Inc.) (the "Company"), 7th Level Merger Corporation, Street Technologies, Inc. and the stockholders of Street
Technologies, Inc. named therein (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission (the "Commission") on February 25, 1999).
|2.2         |   | Agreement and Plan of Merger, dated as of May 13, 1999, by and among the Company, 7th Level Acquisition Corporation, Panmedia Corporation, Jason Roberts and Patricia Roberts (incorporated by reference as an exhibit to the
Company's Current Report on Form 8-K filed with the Commission on May 26, 1999).                                                                                                                                 
|2.3         |   | Agreement and Plan of Merger, dated as of June 1, 1999, by and among the Company, 7th Level Merger Corporation and ViaGrafix Corporation (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K
filed with the Commission on June 15, 1999).                                                                                                                                                                     
|3(i         | ) | Amended and Restated Certificate of Incorporation of the Company (incorporated by reference as an exhibit to the Company's Amendment No. 1 to the Registration Statement on Form S-1 filed with the Commission on May 18,
1994).                                                                                                                                                                                                               
|3(ii        | ) | Bylaws of the Company (incorporated by reference as an exhibit to the Company's Registration Statement on Form S-1 filed with the Commission on May 18, 1994).                                                                                                                                                                                                                                                                                 
|10.1        |   | Amended and Restated Incentive Stock Option Plan (incorporated by reference as an exhibit to the Company's Definitive Proxy Statement filed with the Commission on June 22, 1999).                                                                                                                                                                                                                                                             
|10.2        |   | Employee Stock Purchase Plan (incorporated by reference as an exhibit to the Company's Amendment No. 1 to Registration Statement on Form S-1 filed with the Commission on September 19, 1994).                                                                                                                                                                                                                                                 

36

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|10.3  |  | 1999 Stock Option Plan (incorporated by reference as an exhibit to the Company's Definitive Proxy Statement filed with the Commission on June 22, 1999).                                                                                                                              
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.4  |  | 2000 Non-Employee Directors' Stock Option Plan (incorporated by reference to the Company's Definitive Proxy Statement filed with the Commission on July 13, 2000).                                                                                                                    
|10.5  |  | Subscription Agreement, dated as of December 14, 1998, as amended, by and between the Company and Fletcher International Limited (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K filed
with the Commission on December 17, 1998).                
|10.6  |  | Employment Agreement dated as of February 16, 1999 by and between the Company and Stephen Gott (incorporated by reference as an exhibit to the Company's Form 10-K for the year ended December 31, 1998).                                                                             
|10.7  |  | Form of Non-Competition Agreement by and between the Company and Michael A. Webster (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K filed with the Commission on June 15,
1999).                                                                 
|10.8  |  | Form of Non-Competition Agreement by and between the Company and Robert E. Webster (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K filed with the Commission on June 15,
1999).                                                                  
|10.9  |  | Form of Indemnity Agreement by and among the Company, Michael A. Webster, Robert E. Webster and Robert C. Moore, Jr. (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K filed with the
Commission on June 15, 1999).                                
|10.10 |  | Warrant issued to RGC International Investors, LDC (incorporated by reference into the Company's Current Report on Form 8-K filed with the Commission on March 15, 2000).                                                                                                             
|10.11 |  | Securities Purchase Agreement, dated as of March 10, 2000, by and among the Company and RGC International Investors, LDC (incorporated by reference into the Company's Current Report on Form 8-K filed with the Commission
on March 15, 2000).                                       
|10.12 |  | Registration Rights Agreement, dated as of March 10, 2000, by and among the Company and RGC International Investors, LDC (incorporated by reference into the Company's Current Report on Form 8-K filed with the Commission
on March 15, 2000).                                       
|10.13 |  | Convertible Debenture issued to RGC International Investors, LDC (incorporated by reference into the Company's Current Report on Form 8-K filed with the Commission on March 15, 2000).                                                                                               
|16.1  |  | KPMG LLP letter dated January 22, 1999 (incorporated by reference into the Company's Current Report on Form 8-K filed with the Commission on January 22, 1999).                                                                                                                       
|23.1  |  | Consent of Arthur Andersen LLP                                                                                                                                                                                                                                                        
|99.1  |  | Unaudited Pro Form Condensed Combined Financial Statements as of and for the six months ended June 30, 1999 and the year ended December 31, 1998 (incorporated by reference as an exhibit to the Company's Current Report on
Form 8-K filed with the Commission on November 12, 1999).
|99.2  |  | Report of Independent Auditors (incorporated by reference as an exhibit to the Company's Current Report on Form 8-K filed with the Commission on November 12, 1999).                                                                                                                  

---

37

---



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of White Plains, State of New York, on April 13, 2001.

| |  | LEARN2.COM, INC.
| |  | ----------------
| |  | By:             

Pursuant
to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and
on the dates indicated.

|Signature                               |  | Title                                                                                         |  | Date          
|--------------------------------------- |  | --------------------------------------------------------------------------------------------- |  | --------------
|                                        |  |                                                                                               |  |               
|/s/JAMES A. CANNAVINOJames A. Cannavino |  | Director                                                                                      |  | April 13, 2001
|/s/DONALD SCHUPAKDonald Schupak         |  | Chairman of the Board of Directors                                                            |  | April 13, 2001
|/s/S. LEE KLINGS. Lee Kling             |  | Director                                                                                      |  | April 13, 2001
|/s/ROBERT ALAN EZRINRobert Alan Ezrin   |  | Vice Chairman of the Board                                                                    |  | April 13, 2001
|/s/STEPHEN P. GOTTStephen P. Gott       |  | President, Chief Executive Officer and Director (Principal Executive Officer)                 |  | April 13, 2001
|/s/MARC E. LANDYMarc E. Landy           |  | Chief Financial Officer, Executive Vice President and Secretary
(Principal Financial Officer) |  | April 13, 2001

38

---



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To
the Board of Directors and Stockholders of
Learn2.com, Inc.

We
have audited the accompanying consolidated balance sheets of Learn2.com, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These consolidated financial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company and subsidiaries as of
December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.

As
discussed in Note 3 the Company changed its method of accounting for revenue recognition related to arrangements that include cooperative advertising.



New
York, New York
April 13, 2001

F-1

---



LEARN2.COM, INC.  CONSOLIDATED BALANCE SHEETS  AS OF DECEMBER 31, 2000 AND 1999  (in thousands, except share and per share data)

|                                                                                                                                                               |  | 2000 |          | 1999 |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -------- | ---- | -
|ASSETS                                                                                                                                                         | 
|Current assets:                                                                                                                                                |  |      |          |      |  
|Cash and cash equivalents                                                                                                                                      |  | $    | 4,760    |      | $
|Short term investments                                                                                                                                         |  |      |         |      |  
|Accounts receivable, net of allowances of $1,439 and $1,662, respectively                                                                                      |  |      | 3,373    |      |  
|Inventories                                                                                                                                                    |  |      | 1,493    |      |  
|Prepaid expenses and other current assets                                                                                                                      |  |      | 906      |      |  
|                                                                                                                                                               |  |      |          |      |  
|Total current assets                                                                                                                                           |  |      | 10,532   |      |  
|Fixed assets, net                                                                                                                                              |  |      | 4,981    |      |  
|Capitalized software, net                                                                                                                                      |  |      | 14,915   |      |  
|Intangible assets, net                                                                                                                                         |  |      | 5,011    |      |  
|Goodwill, net                                                                                                                                                  |  |      | 14,343   |      |  
|Other assets                                                                                                                                                   |  |      | 539      |      |  
|                                                                                                                                                               |  |      |          |      |  
|Total assets                                                                                                                                                   |  | $    | 50,321   |      | $
|                                                                                                                                                               |  |      |          |      |  
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                           | 
|Current liabilities:                                                                                                                                           |  |      |          |      |  
|Accounts payable                                                                                                                                               |  | $    | 3,692    |      | $
|Accrued expenses                                                                                                                                               |  |      | 3,531    |      |  
|Current portion of deferred revenue                                                                                                                            |  |      | 1,345    |      |  
|Other current liabilities                                                                                                                                      |  |      | 246      |      |  
|                                                                                                                                                               |  |      |          |      |  
|Total current liabilities                                                                                                                                      |  |      | 8,814    |      |  
|Deferred revenue                                                                                                                                               |  |      | 93       |      |  
|Convertible debenture, net of unamortized debt discount of $729                                                                                                |  |      | 9,271    |      |  
|Other liabilities                                                                                                                                              |  |      | 20       |      |  
|                                                                                                                                                               |  |      |          |      |  
|Total liabilities                                                                                                                                              |  |      | 18,198   |      |  
|Commitments and contingencies (Note 14)                                                                                                                        |  |      |          |      |  
|Stockholders' equity:                                                                                                                                          |  |      |          |      |  
|Common stock, par value $0.01 per share, 100,000,000 shares authorized; 52,881,618 and 51,715,739 shares issued and outstanding in 2000 and 1999, respectively |  |      | 529      |      |  
|Additional paid-in capital                                                                                                                                     |  |      | 197,287  |      |  
|Notes receivable from directors                                                                                                                                |  |      | (1,687   | )    |  
|Accumulated deficit                                                                                                                                            |  |      | (164,006 | )    |  
|                                                                                                                                                               |  |      |          |      |  
|Total stockholders' equity                                                                                                                                     |  |      | 32,123   |      |  
|                                                                                                                                                               |  |      |          |      |  
|Total liabilities and stockholders' equity                                                                                                                     |  | $    | 50,321   |      | $
|                                                                                                                                                               |  |      |          |      |  

The
accompanying notes are an integral part of these consolidated balance sheets.

F-2

---



LEARN2.COM, INC.  CONSOLIDATED STATEMENTS OF OPERATIONS  FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998  (in thousands, except share and per share data)

|                                                              |  | 2000 |            | 1999 |   | 1998       |  
|------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|Net revenues                                                  |  | $    | 22,070     |      | $ | 13,567     |  
|Cost of revenues                                              |  |      | 6,380      |      |   | 3,224      |  
|                                                              |  |      |            |      |   |            |  
|Gross profit                                                  |  |      | 15,690     |      |   | 10,343     |  
|Operating expenses:                                           |  |      |            |      |   |            |  
|Research and product development                              |  |      | 6,891      |      |   | 3,952      |  
|Sales and marketing                                           |  |      | 12,146     |      |   | 10,547     |  
|General and administrative                                    |  |      | 9,920      |      |   | 5,274      |  
|Depreciation and amortization                                 |  |      | 6,060      |      |   | 3,300      |  
|Restructuring charges                                         |  |      |           |      |   | 3,342      |  
|Acquired in-process technology                                |  |      |           |      |   | 24,777     |  
|Impairment of goodwill and other intangible assets            |  |      | 17,883     |      |   |           |  
|Non-recurring costs                                           |  |      | 641        |      |   | 277        |  
|                                                              |  |      |            |      |   |            |  
|Total operating expenses                                      |  |      | 53,541     |      |   | 51,469     |  
|                                                              |  |      |            |      |   |            |  
|Operating loss                                                |  |      | (37,851    | )    |   | (41,126    | )
|Interest expense                                              |  |      | (994       | )    |   | (146       | )
|Interest income                                               |  |      | 632        |      |   | 404        |  
|Other income (expense), net                                   |  |      | 223        |      |   | (168       | )
|                                                              |  |      |            |      |   |            |  
|Net loss                                                      |  |      | (37,990    | )    |   | (41,036    | )
|Dividends on Preferred Stock                                  |  |      |           |      |   |           |  
|Beneficial conversion feature associated with Preferred Stock |  |      |           |      |   |           |  
|                                                              |  |      |            |      |   |            |  
|Net loss available to common stockholders                     |  | $    | (37,990    | )    | $ | (41,036    | )
|                                                              |  |      |            |      |   |            |  
|Basic and diluted loss per common share                       |  | $    | (0.72      | )    | $ | (1.06      | )
|                                                              |  |      |            |      |   |            |  
|Weighted average basic and diluted common shares outstanding  |  |      | 52,702,411 |      |   | 38,846,236 |  
|                                                              |  |      |            |      |   |            |  

The
accompanying notes are an integral part of these consolidated financial statements.

F-3

---



LEARN2.COM, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For The Years Ended December 31, 2000, 1999 And 1998
(in thousands)

|                             |                                                                                              |        |        |   |     |     |   |   |        |   |     |        |   | Notes and
Accounts
Receivable
From
Directors |        |   |    |     |  
|---------------------------- | -------------------------------------------------------------------------------------------- | ------ | ------ | - | --- | --- | - | - | ------ | - | --- | ------ | - | -------------------------------------------- | ------ | - | -- | --- | -
|
|
|
|Balance at December 31, 1997 |                                                                                              | 15,328 |        | $ | 153 |     | $ |  |        | $ |    |        | $ | 70,640                                       |        | $ | 13 |     | $
|                             | Issuance of Series A Preferred Stock (net of issuance costs of $3,021)                       |        |       |   |     |    |   |   | 2,479  |   |     |       |   |                                              | 2,790  |   |    |    |  
|                             | Issuance costs in connection with Notes                                                      |        |       |   |     |    |   |   |       |   |     |       |   |                                              | 1,467  |   |    |    |  
|                             | Beneficial conversion feature                                                                |        |       |   |     |    |   |   |       |   |     |       |   |                                              | 5,479  |   |    |    |  
|                             | Conversion of Series A Preferred Stock to Series B Preferred Stock                           |        |       |   |     |    |   |   | (2,479 | ) |     | 2,479  |   |                                              |       |   |    |    |  
|                             | Conversion of Notes to Series B Preferred Stock                                              |        |       |   |     |    |   |   |       |   |     | 3,000  |   |                                              | 1,500  |   |    |    |  
|                             | Common Stock issued on conversion of Series B Preferred Stock                                |        | 4,303  |   |     | 43  |   |   |       |   |     | (4,850 | ) |                                              | 4,807  |   |    |    |  
|                             | Common Stock dividends                                                                       |        | 107    |   |     | 1   |   |   |       |   |     |       |   |                                              | 278    |   |    |    |  
|                             | Common Stock issued in private placement                                                     |        | 1,667  |   |     | 17  |   |   |       |   |     |       |   |                                              | 4,683  |   |    |    |  
|                             | Warrants issued to non-employees                                                             |        |       |   |     |    |   |   |       |   |     |       |   |                                              | 32     |   |    |    |  
|                             | Common Stock issued upon exercise of warrants                                                |        | 2,813  |   |     | 28  |   |   |       |   |     |       |   |                                              |       |   |    |    |  
|                             | Common Stock granted to Officers                                                             |        | 765    |   |     | 7   |   |   |       |   |     |       |   |                                              | 1,379  |   |    |    |  
|                             | Common Stock issued under Stock Option Plans and Stock Purchase Plan                         |        | 325    |   |     | 3   |   |   |       |   |     |       |   |                                              | 867    |   |    |    |  
|                             | Compensation expense on options issued to non-employees                                      |        |       |   |     |    |   |   |       |   |     |       |   |                                              | 41     |   |    |    |  
|                             | Foreign currency translation adjustment                                                      |        |       |   |     |    |   |   |       |   |     |       |   |                                              |       |   |    | (13 | )
|                             | Dividend distribution                                                                        |        |       |   |     |    |   |   |       |   |     |       |   |                                              |       |   |    |    |  
|                             | Net loss                                                                                     |        |       |   |     |    |   |   |       |   |     |       |   |                                              |       |   |    |    |  
|                             |                                                                                              |        |        |   |     |     |   |   |        |   |     |        |   |                                              |        |   |    |     |  
|Balance at December 31, 1998 |                                                                                              | 25,308 |        |   | 252 |     |   |  |        |   | 629 |        |   | 93,963                                       |        |   |   |     |  
|                             | Common Stock issued on conversion of Series B Preferred Stock                                |        | 698    |   |     | 7   |   |   |       |   |     | (629   | ) |                                              | 622    |   |    |    |  
|                             | Common Stock issued on conversion of Series D Preferred Stock                                |        | 7,220  |   |     | 72  |   |   |       |   |     |       |   |                                              | (72    | ) |    |    |  
|                             | Stock issued in connection with Street Technologies, Inc. acquisition                        |        | 4,948  |   |     | 49  |   |   |       |   |     |       |   |                                              | 36,439 |   |    |    |  
|                             | Series B dividends paid in Common Stock                                                      |        | 24     |   |     |    |   |   |       |   |     |       |   |                                              | 73     |   |    |    |  
|                             | Common Stock issued on exercise of warrants                                                  |        | 575    |   |     | 6   |   |   |       |   |     |       |   |                                              |       |   |    |    |  
|                             | Common Stock issued upon conversion of notes payable                                         |        | 187    |   |     | 2   |   |   |       |   |     |       |   |                                              | 571    |   |    |    |  
|                             | Warrants and options issued to non-employees                                                 |        |       |   |     |    |   |   |       |   |     |       |   |                                              | 1,522  |   |    |    |  
|                             | Notes and accounts receivable from directors from the exercise of stock options              |        |       |   |     |    |   |   |       |   |     |       |   |                                              |       |   |    |    |  
|                             | Repayment of notes and accounts receivable from directors from the exercise of stock options |        |       |   |     |    |   |   |       |   |     |       |   |                                              |       |   |    |    |  
|                             | Common Stock issued under Stock Option Plans and Stock Purchase Plan                         |        | 2,020  |   |     | 21  |   |   |       |   |     |       |   |                                              | 3,895  |   |    |    |  
|                             | Stock issued in connection with ViaGrafix acquisition                                        |        | 10,686 |   |     | 107 |   |   |       |   |     |       |   |                                              | 56,669 |   |    |    |  
|                             | Series D Preferred Stock issued under Stock Option Plan                                      |        |       |   |     |    |   |   |       |   |     |       |   |                                              | 18     |   |    |    |  
|                             | Dividend distribution                                                                        |        |       |   |     |    |   |   |       |   |     |       |   |                                              |       |   |    |    |  
|                             | Financing costs                                                                              |        | 50     |   |     | 1   |   |   |       |   |     |       |   |                                              |       |   |    |    |  
|                             | Net loss                                                                                     |        |       |   |     |    |   |   |       |   |     |       |   |                                              |       |   |    |    |  
|                             |                                                                                              |        |        |   |     |     |   |   |        |   |     |        |   |                                              |        |   |    |     |  
|Balance at December 31, 1999 |                                                                                              | 51,716 |        |   | 517 |     |   |  |        |   |    |        |   | 193,700                                      |        |   |   |     |  
|                             | Warrant issued in connection with convertible note                                           |        |       |   |     |    |   |   |       |   |     |       |   |                                              | 1,000  |   |    |    |  
|                             | Common Stock issued under Stock Option Plans                                                 |        | 1,166  |   |     | 12  |   |   |       |   |     |       |   |                                              | 2,266  |   |    |    |  
|                             | Warrants issued to non-employees                                                             |        |       |   |     |    |   |   |       |   |     |       |   |                                              | 321    |   |    |    |  
|                             | Net loss                                                                                     |        |       |   |     |    |   |   |       |   |     |       |   |                                              |       |   |    |    |  
|                             |                                                                                              |        |        |   |     |     |   |   |        |   |     |        |   |                                              |        |   |    |     |  
|Balance at December 31, 2000 |                                                                                              | 52,882 |        | $ | 529 |     | $ |  |        | $ |    |        | $ | 197,287                                      |        | $ |   |     | $
|                             |                                                                                              |        |        |   |     |     |   |   |        |   |     |        |   |                                              |        |   |    |     |  

The accompanying notes are an integral part of these consolidated financial statements.

F-4

---

LEARN2.COM, INC.  CONSOLIDATED STATEMENTS OF CASH FLOWS  FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998  (in thousands)

|                                                                        |                                                                             | 2000                                           |                                                      | 1999    |        | 1998    |        
|----------------------------------------------------------------------- | --------------------------------------------------------------------------- | ---------------------------------------------- | ---------------------------------------------------- | ------- | ------ | ------- | -------
|Cash flows from operating activities:                                   |                                                                             |                                                |                                                      |         |        |         |        
|                                                                        | Net loss                                                                    |                                                | $                                                    | (37,990 | )      | $       | (41,036
|                                                                        | Adjustments to reconcile net loss to net cash used in operating activities: |                                                |                                                      |         |        |         |        
|                                                                        |                                                                             | Non-cash compensation and interest             |                                                      |         | 1,932  |         |        
|                                                                        |                                                                             | Depreciation and amortization                  |                                                      |         | 6,060  |         |        
|                                                                        |                                                                             | Impairment of long-lived assets                |                                                      |         | 17,883 |         |        
|                                                                        |                                                                             | Bad debt expense                               |                                                      |         | 603    |         |        
|                                                                        |                                                                             |                                                |                                                      |         |       |         |        
|                                                                        |                                                                             | Gain (loss) on sale of assets                  |                                                      |         | (52    | )       |        
|                                                                        |                                                                             | Restructuring charges                          |                                                      |         |       |         |        
|                                                                        |                                                                             | Acquired in-process technology                 |                                                      |         |       |         |        
|                                                                        |                                                                             | Other                                          |                                                      |         | (88    | )       |        
|                                                                        | Changes in assets and liabilities, net of effects of businesses acquired:   |                                                |                                                      |         |        |         |        
|                                                                        |                                                                             | Accounts receivable                            |                                                      |         | (824   | )       |        
|                                                                        |                                                                             | Inventories                                    |                                                      |         | (763   | )       |        
|                                                                        |                                                                             | Other current assets                           |                                                      |         | (212   | )       |        
|                                                                        |                                                                             | Other assets                                   |                                                      |         | (371   | )       |        
|                                                                        |                                                                             | Accounts payable                               |                                                      |         | 557    |         |        
|                                                                        |                                                                             | Accrued expenses and other current liabilities |                                                      |         | (883   | )       |        
|                                                                        |                                                                             | Other net long-term liabilities                |                                                      |         | (475   | )       |        
|                                                                        |                                                                             |                                                |                                                      |         |        |         |        
|                                                                        |                                                                             |                                                | Net cash used in operating activities                |         |        | (14,623 | )      
|                                                                        |                                                                             |                                                |                                                      |         |        |         |        
|Cash flows from investing activities:                                   |                                                                             |                                                |                                                      |         |        |         |        
|                                                                        | Proceeds from sale of assets                                                |                                                |                                                      | 1,632   |        |         |       
|                                                                        | Proceeds from sales of short-term investments                               |                                                |                                                      | 902     |        |         |       
|                                                                        | Cash acquired from acquisition of businesses, net of acquisition costs      |                                                |                                                      |        |        |         | 6,516  
|                                                                        | Capitalized content development costs                                       |                                                |                                                      | (602    | )      |         | (1,015 
|                                                                        | Capital expenditures, net                                                   |                                                |                                                      | (2,055  | )      |         | (2,649 
|                                                                        | Non-recurring charges related to acquisition                                |                                                |                                                      |        |        |         | 277    
|                                                                        |                                                                             |                                                |                                                      |         |        |         |        
|                                                                        |                                                                             |                                                | Net cash (used in) provided by investing activities  |         |        | (123    | )      
|                                                                        |                                                                             |                                                |                                                      |         |        |         |        
|Cash flows from financing activities:                                   |                                                                             |                                                |                                                      |         |        |         |        
|                                                                        | Net proceeds from private placement of common stock                         |                                                |                                                      |        |        |         |       
|                                                                        | Net proceeds from issuance of Preferred Stock                               |                                                |                                                      |        |        |         |       
|                                                                        | Net proceeds from debt issuance                                             |                                                |                                                      | 10,000  |        |         | (46    
|                                                                        | Dividends distributed                                                       |                                                |                                                      |        |        |         | (186   
|                                                                        | Principal payments under capital lease obligations                          |                                                |                                                      |        |        |         | (120   
|                                                                        | Issuance of common stock under stock option and stock purchase plan         |                                                |                                                      | 2,278   |        |         | 2,229  
|                                                                        | Other                                                                       |                                                |                                                      |        |        |         | (132   
|                                                                        |                                                                             |                                                |                                                      |         |        |         |        
|                                                                        |                                                                             |                                                | Net cash provided by financing activities            |         |        | 12,278  |        
|                                                                        |                                                                             |                                                |                                                      |         |        |         |        
|                                                                        |                                                                             |                                                | Net (decrease) increase in cash and cash equivalents |         |        | (2,468  | )      
|                                                                        |                                                                             |                                                |                                                      |         |        |         |        
|Cash and cash equivalents, beginning of period                          |                                                                             |                                                | 7,228                                                |         |        | 11,313  |        
|                                                                        |                                                                             |                                                |                                                      |         |        |         |        
|Cash and cash equivalents, end of period                                |                                                                             | $                                              | 4,760                                                |         | $      | 7,228   |        
|                                                                        |                                                                             |                                                |                                                      |         |        |         |        
|Supplemental disclosure of cash flow informationCash paid for interest |                                                                             | $                                              | 15                                                   |         | $      | 31      |        
|                                                                        |                                                                             |                                                |                                                      |         |        |         |        

See notes 4,6,7, and 11 for supplemental disclosures on acquisition information and non-cash financing activities.

The
accompanying notes are an integral part of these consolidated financial statements.

F-5

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LEARN2.COM, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        AS OF DECEMBER 31, 2000

NOTE 1. INCORPORATION AND NATURE OF BUSINESS

Learn2.com, Inc. together with its subsidiaries ("Learn2") is a Learning Service Provider ("LSP") for corporate, government and individual clients.
Learn2's offerings include engaging learning and training products delivered on physical media and online and complementary services. Learn2 also provides permission e-mail marketing and
tracking services to companies that engage in commerce and advertising on the Internet as well as other companies that have a need for these services. During the third quarter, as a result of the
realignment of the responsibilities of certain senior executives, management began to manage the business in two operating segments: Learning Services and Broadcast Messaging Services.

Learn2
has incurred significant losses since inception including operating losses of approximately $37.9 million in 2000, $41.1 million in 1999 and $7.9 million
in 1998. As a relatively new company in a relatively new market, our revenue opportunities are evolving constantly. However in management's judgment Learn2 has adequate resources to realize its
current business plan.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles Of Consolidation

The accompanying consolidated financial statements include the accounts of Learn2 and its subsidiaries. All significant intercompany transactions and accounts
have been eliminated in consolidation. (Note 4)

Reclassifications

Certain amounts in the prior periods' consolidated financial statements have been reclassified for comparative purposes to conform to the current period
presentation.

Use Of Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and 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. Actual results could differ from those estimates.

Revenue Recognition

Effective January 1, 2000, Learn2 adopted Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in Financial Statements". SAB
No. 101 expresses the views of the Securities and Exchange Commission ("SEC") in applying accounting principles generally accepted in the United States to certain revenue recognition issues
(Note 3).

Learn2
generates revenue primarily from the sales and licensing of computer software training products and technologies, product development agreements, and broadcast messaging
services.

Revenue
from software license agreements is recognized in accordance with the provisions of American Institute of Certified Public Accountants ("AICPA") Statement of Position ("SOP")
No. 97-2, "Software Revenue Recognition". Software product sales under such license agreements are recognized as revenue upon shipment of the products to customers, provided that
there are no significant vendor

F-6

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obligations and collection of the related receivable is probable. In circumstances whereby Learn2 has established vendor specific objective evidence, Learn2 accounts for insignificant vendor
obligations and post-contract support over the service period.

Revenue
from on-line sales is recognized when persuasive evidence of an arrangement exits, delivery has occurred, the sales price is fixed or determinable and
collectibility is probable. Learn2 defers a portion, generally 10% of the selling price of on-line products for hosting and recognizes that hosting ratably over the contractual period.
Learn2 recognizes the two components, the software, (or training course) and the service (or hosting) based on their relative fair values.

Revenue
from physical product sales is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectibility
is probable. Generally, these criteria are met at the time product is shipped. A reserve is made at the time the related revenue is recognized for estimated product returns based on history,
cooperative advertising, or other promotions which may occur under programs Learn2 has with its customers.

Revenues
from broadcast messaging transactions are recognized at the time the broadcast is sent, as Learn2 has no further significant obligations.

Research and Product Development Capitalized Expenditures

SFAS No. 86 "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed", provides for the capitalization of certain
software development costs once technological feasibility has been established and until such time as the product is available for general release. All costs incurred prior to technological
feasibility are expensed as research and development costs when incurred.

As
described in Note 4, Learn2 allocates a portion of the cost of acquired enterprises to capitalized software based upon the estimated fair value of capitalized software,
including software in various stages of development. The fair value of software development projects which have not yet reached technological feasibility and which have no alternative use are expensed
as research and development in the period acquired. The fair values of all other developed software products are included in capitalized software and amortized over the expected remaining life of the
specific software products. During 1999, in connection with businesses acquired, Learn2 acquired approximately $16.5 million of capitalized software.

Certain
costs of developing and producing tutorials have also been capitalized. In addition, Learn2 capitalizes certain development costs related to its Broadcast Messaging Services
Segment. Capitalized costs include direct labor, materials, subcontractors and applicable overhead. During 2000 and 1999, Learn2 capitalized approximately $602,000 and $1.0 million,
respectively. These capitalized costs are amortized on a straight-line basis over an estimated useful life of two years.

Total
amortization expense related to capitalized software for the years ended December 31, 2000 and 1999, was approximately $1.9 million and $1.3 million,
respectively.

F-7

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Advertising Expenses

Except for cooperative advertising (Note 3), Learn2 expenses the cost of advertising and promoting its services as incurred. Such costs are included in
sales and marketing in the consolidated statements of operations and totaled approximately $1.3 million, $5.1 million and $178,000 for the years ended December 31, 2000, 1999 and
1998, respectively.

Internal-Use Software

Learn2 accounts for internal use software in accordance with AICPA's SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use." This standard requires certain direct development costs associated with internal-use software to be capitalized including external direct costs of material and services
and payroll costs for employees devoting time to the software projects. Costs incurred during the preliminary project stage, as well as for maintenance and training are expensed as incurred.

Concentration of Credit Risk

Financial instruments, which subject Learn2 to concentrations of credit risk, consist primarily of its holdings of cash and cash equivalents and accounts
receivable. Learn2's credit risk is managed by
investing its cash in high-quality money market instruments and securities of high grade corporate issuers.

Credit
is extended to customers based on an evaluation of their financial condition and collateral is not required. Learn2 performs on-going credit evaluations of its
customers and maintains an allowance for doubtful accounts.

Fair Value Of Financial Instruments

Learn2's financial instruments consist of cash and cash equivalents, investments in marketable securities, accounts receivable, accounts payable and accrued
expenses. At December 31, 2000 and 1999, the carrying amounts of these instruments approximated their fair value.

Income Taxes

Learn2 accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using currently enacted tax rates. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the
results of operations in the period that includes the enactment date.

Stock-Based Compensation

Learn2 accounts for its employee stock option plans in accordance with the provisions of Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees" and

F-8

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related interpretations, in accounting for employee stock options rather than the alternative fair value accounting allowed by SFAS No. 123, "Accounting for Stock-Based Compensation". APB
No. 25 provides that the compensation expense related to Learn2's employee stock options is measured based on the intrinsic value of the stock option. SFAS No. 123 requires companies
that continue to follow APB No. 25 to provide a pro forma disclosure of the impact of applying the fair value method of SFAS No. 123 (Note 11). Learn2 accounts for stock issued to
non-employees in accordance with the provisions of SFAS No. 123 and the Emerging Issues Task Force consensus in Issue No. 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services."

In
April 2000, the FASB issued FASB Interpretation No. 44, ("FIN 44") "Accounting for Certain Transactions Involving Stock Compensationan interpretation of
APB Opinion No. 25." This interpretation, which is effective from July 1, 2000, (although certain conclusions in the Interpretation cover specific events that occurred after either
December 15, 1998 or January 12, 2000), is intended to clarify certain problems that have arisen in practice since the issuance of APB 25 including the definition of employee for the
purpose of applying APB 25, the criteria for determining whether a plan qualifies as a non-compensatory plan, the accounting consequence of various modifications to the terms of a
previously fixed stock option award and the accounting for an exchange of stock compensation awards in a business combination. Learn2 adopted FIN 44 during the year ended December 31, 2000. The
adoption of FIN 44 did not have a material impact on Learn2's financial statements.

Cash, Cash Equivalents and Investments in Marketable Securities

Learn2 considers cash equivalents to be all highly liquid investments with a remaining contractual maturity at the date of purchase of three months or less.

Learn2
classifies its investments in marketable securities as available-for-sale. Accordingly, these investments are carried at fair value, with the unrealized
gains and losses, net of tax, reported as a separate component of stockholders' equity. Learn2 had no material unrecognized gains or losses for the years ended December 31, 2000, 1999 or 1998.
Learn2 recognizes gains and losses when securities are sold using the specific identification method. For the years ended December 31, 2000, 1999 and 1998, Learn2 did not recognize any material
gains or losses upon the sale of securities.

Inventories

Inventories are carried at the lower of cost or market, determined on a first-in first-out basis. Cost is determined using the average
cost method. Inventories consist primarily of finished goods.

Fixed Assets

Fixed assets are recorded at cost and are depreciated using accelerated and straight-line methods. Leasehold improvements are amortized over their
estimated useful lives, or the term of the leases, whichever is shorter.

F-9

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Intangible Assets

Intangible assets relate primarily to the value of installed customer lists, proven research and development and trade names of companies acquired. The cost of
the installed customer base, proven research and development and trade names is being amortized on a straight-line basis over periods ranging from 5 to 20 years.

Goodwill

Goodwill represents the excess of purchase price over the fair value of the identified net assets acquired. Goodwill is amortized over its estimated useful
life, generally twenty years. Goodwill amortization expense for the year ended December 31, 2000 and 1999 was approximately $1.3 million and $796,000, respectively. No goodwill
amortization was recorded in 1998. Learn2 wrote-off approximately $8.9 million in goodwill during the year ended December 31, 2000 (Note 4).

Impairment of Long-Lived Assets

Long-lived assets including goodwill, intangible assets, and capitalized software are impaired whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable and provides currently for any identified impairments. Impairment is measured by
comparing the carrying value of the long-lived assets to the estimated and undiscounted future cash flows expected to result from use of the assets and their ultimate disposition. In
circumstances where impairment is determined to exist, Learn2 will write down the asset to its fair value. As a result of this review, in 2000, Learn2 recorded an impairment charge of approximately
$17.9 million (Note 4).

Basic and Diluted Net Loss Per Share

Basic loss per share was determined by dividing net loss available to common stockholders by the weighted average common shares outstanding during the period.
Diluted earnings per share is determined by dividing net loss by diluted weighted average shares outstanding. Diluted weighted average shares reflects the dilutive effect, if any, of common equivalent
shares and nominal issuances. Common equivalent shares include common stock options and warrants to the extent their effect is not antidilutive, based on the treasury stock method.

Diluted
weighted average shares outstanding do not include 13,188,181, 13,033,193 and 3,903,679 common equivalent shares at December 31, 2000, 1999 and 1998, respectively, as
their effect would be anti-dilutive.

New Accounting Pronouncements

In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilitiesa Replacement of Statement No. 125", which replaces SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities".
SFAS No. 140 revises criteria for accounting for securitizations, other financial asset transfers and collateral, and introduces certain new disclosures, but otherwise carries forward most of
the provisions
of SFAS No. 125 without amendment. SFAS No. 140 has an immediate impact with respect to the collateral provisions of SFAS No. 125, which must be applied for fiscal years

F-10

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ending after December 15, 2000. The other provisions of SFAS No. 140 apply prospectively to transfers of financial assets and extinguishments of liabilities occurring after
March 31, 2001, except for transfers of assets required by commitments made before March 31, 2001, to transferees or beneficial interest holders other than the transferor, its
affiliates, or its agents. Management does not believe that the adoption of SFAS No. 140 will have a material impact on the Learn2's results of operations.

In
June 2000, FASB issued SFAS No. 138, "Accounting for Derivative Instruments and Certain Hedging Activities", which amends the accounting and reporting standards of
SFAS No. 133, "Accounting For Derivatives and Hedging Activities." The statement establishes accounting and reporting standards for derivative instruments (including certain derivative
instruments embedded in other contracts) and for hedging activities. SFAS No 133 is effective for all fiscal quarters beginning after June 15, 2000 (as amended by SFAS No. 137) and will
not require retroactive restatement of prior period financial statements. The adoption of SFAS 133 did not have a material impact on Learn2's results of operations.

NOTE 3. CHANGE IN ACCOUNTING PRINCIPLE

Effective January 1, 2000, Learn2 adopted SAB No. 101. Learn2's adoption of SAB 101 resulted in a change in method of accounting for cooperative
advertising expenses. In accordance with previously existing accounting principles, Learn2 recorded cooperative advertising expenses as a sales and marketing expense. During 2000, as a result of new
interpretations of generally accepted accounting principles by the SEC through the issuance of SAB No. 101, Learn2 was required to change the accounting policy for cooperative advertising, to
record these expenses as a reduction of gross revenues.

The
effect of the adoption of SAB No. 101 as of January 1, 2000 for the year ended December 31, 2000 was to decrease both revenues and sales and marketing
expenses by approximately $3.5 million. SAB No. 101 has been adopted as a change in accounting principle, effective January 1, 2000. The SAB No. 101 of the change resulted
in no change to previously reported results, as this was only a reclassification between revenue and sales and marketing expenses. In addition, Learn2 has applied the provisions of SAB No. 101
to its results for the first three quarters of the year ended December 31, 2000, as reflected in Quarterly Financial Data on page 31. Pro forma amounts assuming the new revenue recognition
method is applied on a pro forma basis for the year ended December 31, 1999 was a decrease to both net revenues and sales and marketing expenses of $1.3 million.

NOTE 4. BUSINESS COMBINATIONS

Pooling Transaction

Panmedia Acquisition

On May 13, 1999, Learn2 acquired all of the outstanding common stock of Panmedia and accounted for the transaction as a
pooling-of-interests. Learn2 exchanged 1,543,860 shares of Learn2 common stock for all the outstanding common shares of Panmedia. Accordingly, the accompanying consolidated
financial statements and footnotes for the years ended December 31, 1999 and 1998 have been restated to include the operations of Panmedia.

F-11

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For the year ended December 31, 1998, Panmedia's revenues were approximately $1.1 million. For the year ended December 31, 1998, Panmedia's net income was
approximately $347,000. For the period from January 1, 1999 through May 13, 1999, prior to acquisition, Panmedia's revenues and net income were approximately $631,000 and $17,000,
respectively.

Purchase Transactions

ViaGrafix Acquisition

On August 23, 1999, Learn2 acquired all of the outstanding stock of ViaGrafix Corporation ("ViaGrafix"), a publicly traded company. Under the terms of
the agreement, Learn2 issued approximately 10.7 million shares of its common stock. This represented 1.846 shares for each share of ViaGrafix common stock outstanding. The total value of the
transaction was approximately $62.0 million including approximately $2.2 million of assumed liabilities, which consisted primarily of accounts payable, accrued expenses and other current
liabilities. The transaction was accounted for using the purchase method of accounting. The results of ViaGrafix for the period from August 23, 1999 through December 31, 1999 are
included in the consolidated statements of operations for the year ended December 31, 1999.

Under
the purchase method of accounting, the assets and liabilities acquired were recorded based upon fair values at the date of acquisition. Learn2 recorded approximately
$15.7 million in goodwill and $14.1 million in other intangible assets and capitalized software which were being amortized over five to twenty years. Learn2 recorded approximately
$804,000 and $365,000 in amortization expense relating to these intangible assets during the years ended December 31, 2000 and 1999, respectively. The accompanying consolidated statement of
operations for the year ended December 31, 1999 also includes charges of approximately $15.1 million associated with the write-off of acquired in-process
technology and approximately $1.0 million associated with a restructuring charge which includes the write-off of redundant assets, excess office space and employee severance.

As
a result of the operating losses incurred by ViaGrafix, Learn2 reviewed the recoverabilitity of the goodwill and other intangible assets associated with its acquisition of
ViaGrafix in accordance with its accounting policy for long-lived assets. Based on an analysis of projected undiscounted cash flows, Learn2 determined that the carrying value of such
goodwill and other intangible assets was impaired. Learn2 engaged an outside appraiser to assist with the analysis and based upon the resulting valuation, Learn2 recognized approximately
$17.9 million in impairment charges. The impairment charge was comprised of approximately $8.9 million of goodwill, $8.5 million of intangible assets, and $465,000 of
capitalized software. The impairment charges are equal to the difference between the carrying amount of these assets and the estimated fair value at December 31, 2000.

Street Technologies Acquisition

On February 16, 1999, Learn2 acquired all of the outstanding stock of Street Technologies, Inc., a privately held company. To consummate the
transaction, Learn2 issued 4,948,182 shares of common stock and 21,644 shares of Series D 8% Preferred Stock (the "Series D Preferred Stock") with an aggregate liquidation preference of
$21.6 million. On July 29, 1999, the Series D Preferred Stock was converted into 7,214,666 shares of common stock, the day after the common stockholders' approved the

F-12

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conversion. The total value of the transaction was approximately $40.4 million including $3.1 million of assumed liabilities, which consisted primarily of deferred revenue. The
transaction was accounted for using the purchase method of accounting. The results of Street Technologies, Inc. are included in Learn2's consolidated statement of operations from
February 16, 1999 through December 31, 1999.

Under
the purchase method of accounting, the assets and liabilities acquired were recorded based upon fair values at the date of acquisition. Learn2 recorded approximately
$9.9 million in goodwill and $18.2 in other intangible assets and capitalized software which are being amortized over seven to twenty years. Learn2 recognized approximately $4.9 million
and $1.5 million in amortization expense relating to these intangible assets during the years ended December 31, 2000 and 1999, respectively. The accompanying consolidated statement of
operations for the year ended December 31, 1999 also includes approximately $2.3 million associated with a restructuring charge which includes the write-off of redundant
assets, excess office space and employee severance.

F-13

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The following table sets forth the calculation of the purchase price for the acquisitions (in thousands):

Street Technologies, Inc.

ViaGrafix

TotalCommon and Preferred Stock issued

$
36,489

$
56,776

$
93,265Assumed liabilities


3,133


2,177


5,310Acquisition costs


782


3,042


3,824Total

$
40,404

$
61,995

$
102,399


The
purchase price of the acquisitions were allocated to the net assets based upon their fair values at the time of the acquisitions. Their fair values were determined by an
independent appraisal. The appraisal incorporated proven valuation procedures and techniques. The following table sets forth the allocation of the purchase price of the acquisitions (in thousands):

Street Technologies, Inc.

ViaGrafix

TotalCurrent assets

$
1,763

$
13,077

$
14,840Fixed assets


343


3,407


3,750Other assets


490


693


1,183Capitalized software


14,717


1,768


16,485Intangible assets


3,519


12,300


15,819Acquired in-process technology


9,677


15,100


24,777Goodwill


9,895


15,650


25,545Total assets acquired

$
40,404

$
61,995

$
102,399


The
following table sets forth the cash utilized and acquired in the acquisitions (in thousands):

Street Technologies, Inc.

ViaGrafix

TotalCash acquired

$
774

$
9,566

$
10,340Less: acquisitions costs


(782
)

(3,042
)

(3,824
)Net cash (utilized) acquired in acquisitions, net of acquisition costs

$
(8
)
$
6,524

$
6,516


Acquired
in-process technology has been expensed as a charge against operations and is included in the accompanying consolidated statement of operations for the year ended
December 31, 1999. The amount allocated to acquired in-process technology relates to projects that had not yet reached technological feasibility and that, until completion of
development, had no alternative future use. These projects required substantial development and testing prior to reaching technological feasibility.

The
following unaudited pro forma information has been prepared assuming that the acquisitions of ViaGrafix and Street Technologies, Inc. had taken place at the beginning of
the respective periods

F-14

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presented. The pro forma financial information is not necessarily indicative of the combined results that may occur in the future.

Pro Forma for the Years Ended December 31,1999

1998(Unaudited)(in thousands, except per share data)Revenue

$
28,702

$
25,241Loss from operations


(34,937
)

(8,530
)Net loss available to common shareholders


(33,504
)

(16,808
)Loss per share


(0.73
)

(0.51
)


NOTE 5. CERTAIN CONSOLIDATED BALANCE SHEET COMPONENTS

Inventories
consisted of the following:

December 31,2000

1999(in thousands)Raw materials

$
577

$
375Finished goods


916


422$
1,493

$
797


Fixed
assets, at cost consisted of the following:

December 31,Depreciable
Life (years)2000

1999(in thousands)Land



$
315

$
430Building and leasehold improvements

5-39


2,232


2,532Equipment

3-7


4,344


2,520Furniture and fixtures and other

3-7


661


6707,552


6,152Less: accumulated depreciation and accumulated amortization




(2,571
)

(1,605
)$
4,981

$
4,547


Depreciation
expense related to fixed assets was approximately $1.1 million, $708,000, and 1.8 million in 2000, 1999 and 1998, respectively.

During
2000, Learn2 disposed of approximately $792,000 of fixed assets as a result of a reduction in capacity and recognized a gain on those assets of $46,000 in the
December 31, 2000 consolidated financial statements. In 1999, Learn2 wrote-off approximately $1.4 million of redundant fixed assets in

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connection with the acquisition of Street Technologies, Inc. During 1998, Learn2 disposed of approximately $1.8 million of fixed assets as a result of a reduction in capacity and
recognized a loss in
the December 31, 1998 consolidated financial statements related to the disposition of these assets of approximately $1.5 million.

Intangible
assets consisted of the following:

December 31,2000

1999(in thousands)Assembled workforce

$
1,954

$
2,841Customer lists


2,080


4,561Tradenames


3,229


8,7787,263


16,180Less: accumulated amortization


(2,252
)

(923
)$
5,011

$
15,257


Amortization
expense related to intangible assets was approximately $1.7 million and $923,000 in 2000 and 1999, respectively. Amortization expense in 1998 was immaterial.

Accrued
expenses consisted of the following:

December 31,2000

1999(in thousands)Payroll and related

$
598

$
849Restructuring





691Acquisition





643Royalties


198


192Legal and corporate


640


555Interest and taxes


624


57Due to factor


752


Other


719


1,028$
3,531

$
4,015


During
2000 Learn2 entered into a financing arrangement, expiring June 1, 2001, with a lender. The arrangement provides for sale, assignment and transfer of certain trade
receivables, as defined. Based upon the terms of the arrangement, the lender may return any of the transferred trade receivables not collected in ninety days of original invoice date. As of
December 31, 2000, Learn2 transferred approximately $1.2 million of trade receivables, and was obligated to the lender for $752,000 (included in other accrued expenses above), and
recorded $51,000 in financing expenses at a rate of 5%.

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NOTE 6. CONVERTIBLE DEBENTURE

On March 10, 2000, Learn2 sold a three year, $10.0 million, 6% convertible debenture and a warrant to purchase 337,268 shares of common stock to
an investor. The debenture is convertible at any time at the option of the holder at a conversion price of $0.41 per share and is subject to anti-dilution provisions. Under certain
conditions, the debenture automatically converts after one year. The conversion price of the debenture may be reset to the market value of Learn2's common stock on the second anniversary of the
issuance of the convertible debenture if the price of Learn2's common stock declines below $0.41. Learn2 will record additional interest expense as a result of the reset of the original conversion
price from $6.00 to $0.41 during the first quarter of 2001.

The
warrant to purchase 337,268 shares of Learn2's common stock is exercisable for a five-year period at $7.41 per share. The fair value of the warrant of
$1.0 million has been recorded as a debt discount to be amortized over the life of the related debt.

RGC
agreed to waive its rights under the Debenture to declare an event of default with regard to Learn2's failure to register shares of common stock, issuable as a result of a
conversion price reset on March 10, 2001, provided Learn2 files a registration statement by July 31, 2001 and is registered within 90 days thereafter, or earlier in certain
circumstances.

NOTE 7. PRIVATE PLACEMENTS

In May 1998, Learn2 sold, pursuant to a private placement, Secured Promissory Notes ("Notes") in the aggregate principal amount of $4,500,000 and
warrants for 675,000 shares of common stock at an exercise price of $0.01 per share. Learn2 allocated approximately $1,200,000 of the proceeds from the Notes to the warrants based on the relative fair
values of the Notes and the warrants. Accordingly, Learn2 amortized the related debt discount to interest expense over the period from May 6, 1998 (date of issuance) to July 13, 1998.
All of such warrants were exercised in June 1998. On July 9, 1998, Learn2 obtained stockholder approval for, among other things, an increase in its authorized common stock (the
"Certificate of Amendment") at its 1998 Annual Meeting of Stockholders. The Certificate of Amendment was filed on July 10, 1998. On July 13, 1998, the holders of the Notes exchanged the
Notes for 4,500 shares of Learn2's Series B Convertible Preferred Stock, $0.01 par value per share and
warrants to purchase 1,125,000 shares of common stock at an exercise price of $0.01 per share. Learn2 allocated $3,000,000 to Series B Convertible Preferred Stock and $1,500,000 to warrants in
accounting for the exchange.

In
May 1998, Learn2 also sold, pursuant to a private placement, shares of Series A Preferred Stock in the aggregate amount of $5,500,000 and warrants for 1,375,000
shares of common stock at an exercise price of $0.01 per share. Learn2 allocated approximately $2,500,000 of the proceeds from the Series A Preferred Stock to the warrants based on the relative
fair values of the Series A Preferred Stock and the warrants. All of such warrants were exercised in June 1998. On July 13, 1998, after the Certificate of Amendment was approved
by Learn2's stockholders and was filed with the Secretary of State of the State of Delaware, the exchange of 5,500 shares of Series A Preferred Stock for 5,500 shares of Series B
Convertible Preferred Stock was effected. As of December 31, 1999, all shares of Series A and Series B Convertible Preferred Stock were converted into common stock.

For
the year ended December 31, 1998, Learn2 was required to increase the loss attributable to common stockholders, as a result of the beneficial conversion feature which arose
due to the increase in the market price of the Company's common stock from the date Learn2 received commitments with

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respect to the $10,000,000 financing (April 20, 1998) to the date of issuance of the Series B Convertible Preferred Stock (July 13, 1998). The beneficial conversion feature is
based upon the difference between the market price of the 5,000,000 shares of common stock into which the Series B Convertible Preferred Stock is convertible and the carrying value of the
Series B Convertible Preferred Stock on the date of authorized issuance, but is limited (as discussed above) to the proceeds received with respect to each security issued. As Learn2 allocated
$3,000,000 of proceeds to the Series B Convertible Preferred Stock and approximately $2,500,000 of proceeds to the Series A Preferred Stock, the amount of the beneficial conversion
feature is approximately $5,500,000. The one-time occurrence was accounted as a non-cash dividend and had no effect on Learn2's net loss or aggregate stockholders' equity.

In
December 1998, Learn2 sold, pursuant to a subscription agreement, 1,666,667 shares of common stock for $5,000,000, or $3.00 per share and rights to purchase an additional
100,000 and 650,000 shares of common stock for $0.01 and $4.50, respectively, to Fletcher International Limited ("Fletcher"). In January 1999, the above agreement was amended and Learn2 granted
a new right to Fletcher to purchase an additional 100,000 shares of common stock for $0.01 per share.

In
November 1999, Learn2 granted an additional right to Fletcher to purchase 50,000 shares of common stock for $0.01 per share as settlement for our obligations incurred due to
the late effectiveness of a registration statement.

NOTE 8. NON-RECURRING AND RESTRUCTURING CHARGES

During the second quarter of 2000, Learn2 completed the integration of the ViaGrafix and Panmedia mergers which began in 1999. As a result, Learn2 recorded a
non-recurring charge of $641,000, primarily for serverance.

In
May 1999, Learn2 recorded a non-recurring charge of $277,000 for transaction costs associated with the Panmedia merger.

During
1999, Learn2 recorded a charge of approximately $2.3 million of incurred direct costs primarily related to the acquisition of Street Technologies, Inc. and
Learn2's reorganization plans to integrate the operations of Street Technologies, Inc. and Learn2. The charges were primarily comprised of the following: approximately $1.4 million to
write-off redundant assets, $383,000 excess office space and other costs and $600,000 in employee severance costs.

During
1999, following the acquisition of ViaGrafix, Learn2 recorded restructuring charges of approximately $999,000 comprised of $791,000 related to employee severance, $40,000
representing the write-off of redundant assets and $168,000 related to excess office space and other costs.

NOTE 9. SALE OF DESIGN CAD SOFTWARE PRODUCT LINE

On March 8, 2000, Learn2 sold the DesignCAD software product line for $800,000 in cash to Websoft, Inc., a privately held company, the president
of which is a former employee of Learn2. Learn2
recognized a loss on this transaction of approximately $14,000 that is included in interest and other income (expense), net in the consolidated statement of operations for the year ended
December 31, 2000.

F-18

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NOTE 10. INCOME TAXES-

Learn2 did not provide any current or deferred United States federal income tax provision or benefit for any of the periods presented because it has
experienced operating losses since inception. Deferred tax assets reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Because Learn2's utilization of these deferred tax assets is dependent on future profits which are not assured, a valuation allowance equal to
the deferred tax assets has been provided.

At
December 31, 2000, Learn2 had approximately $100.0 million of net operating loss carryforwards ("NOL's") that will expire through 2020. Due to the issuance
and sale of common stock, Learn2 incurred ownership changes that will result in a limitation of the use of NOL's incurred through the date of these ownership changes.

Significant
components of Learn2's deferred income tax assets and liabilities as of December 31, 2000 and 1999 are as follows (in thousands):

2000

1999Net operating loss

$
40,000

$
33,168Other





3,818Net deferred tax assets


40,000


36,986Valuation allowance


(40,000
)

(36,986
)Net asset

$


$



Prior
to being acquired by Learn2, Panmedia elected S Corporation status for federal and state income tax reporting purposes. As a result, Panmedia's earnings prior to the acquisition
date are taxable directly to its shareholders. Learn2 remains liable, however, for the State of California taxes that are imposed on S Corporations.

NOTE 11. STOCKHOLDERS' EQUITY

Preferred Stock

In February 1999, Learn2 issued 21,644 shares of Series D Convertible Preferred Stock in connection with the acquisition of Street
Technologies, Inc. which were converted into 7,214,666 shares of common stock in the third quarter of 1999. There are no shares of Preferred Stock issued or outstanding as of
December 31, 2000.

F-19

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LEARN2.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 (Continued)

NOTE 11. STOCKHOLDERS' EQUITY (Continued)

Stock Incentive Plans

The Learn2 Stock Incentive Plans (collectively the "Plans") allow Learn2 to grant options to certain employees, directors and outside consultants allowing them
to purchase common stock under one of several incentive stock option plans. Learn2 assumed options outstanding under stock option plans in connection with its acquisitions of Street
Technologies, Inc. and ViaGrafix totaling 2,897,147 shares on an as-converted basis. The exercise prices represent the estimated fair value of the options at the date of grant
adjusted for the conversion ratio relating to the acquisitions. Under the Plans, Learn2 may grant options to its employees and outside directors for up to 9,473,871 shares of common stock. As of
December 31, 2000 the Plans had 6,977,644 option shares outstanding and 2,496,227 shares available to grant. Of the 6,977,644 shares outstanding, 21,250 shares are subject to an Option Share
Repurchase Agreement with certain stockholders.

Pursuant
to the Option Share Repurchase Agreement, Learn2 had the right to purchase up to 948,000 shares of common stock from certain stockholders at $0.003 per share. Learn2 may
invoke this right in the event certain outstanding options are exercised. Learn2 intends to satisfy its obligations to issue shares of common stock upon any exercise of such options by delivering to
the exercising optionee(s) shares of treasury stock, thereby resulting in no change in the number of outstanding shares of common stock. All of the 21,250 shares remaining under the Option Share
Repurchase Agreement have corresponding option grants. Transactions in stock options under the Plans are summarized as follows:

Option Share
Repurchase
Agreement

Weighted Average
Exercise Price

Stock
Options

Weighted Average
Exercise PriceBalance at December 31, 1997

51,000

$
2.24

1,041,265

$
4.96Granted






516,825


1.72Exercised

(41,500
)

0.63

(308,115
)

2.65Reassigned

69,000


1.25

(69,000
)

1.25Canceled

(33,000
)

3.56

(998,200
)

4.90Balance at December 31, 1998

45,500

$
1.25

182,775

$
1.44Granted






7,686,850


3.60Assumed






2,897,147


3.52Exercised






(365,013
)

1.57Canceled

(24,250
)

1.25

(598,176
)

4.47Balance at December 31, 1999

21,250

$
1.25

9,803,583

$
3.55Granted






2,912,200


2.61Exercised






(819,865
)

(1.89
)Canceled






(4,939,524
)

(3.92
)Balance at December 31, 2000

21,250

$
1.25

6,956,394

$
3.06


F-20

---

Transactions
in stock options to employees, directors and consultants outside the Plans are summarized as follows:

Stock
Options

Weighted Average
Exercise PriceBalance at December 31, 1997

737,500

$
3.76Granted

3,056,500


1.98Exercised

(11,000
)

1.32Canceled

(956,000
)

3.26Balance at December 31, 1998

2,827,000

$
2.02Granted

Exercised

(1,655,222
)

1.99Canceled

(682,289
)

2.04Balance at December 31, 1999

489,489

$
2.08Granted

Exercised

(305,223
)

1.84Canceled

(29,266
)

4.43Balance at December 31, 2000

155,000

$
1.90


In
May 1998, Learn2 exchanged with two board members their options to purchase 715,000 shares of common stock with an exercise price of $0.01 per share for
765,000 shares of common stock. Learn2 recognized a compensation charge of $1,377,000 related to this stock issuance.

In
February 1999, three members of the Board of Directors exercised options to purchase 960,000 shares of common stock for an aggregate amount of approximately
$1.9 million. In connection with these exercises, Learn2 received promissory notes from these directors in the approximate amount of $1.7 million. The notes are due in 2004 and accrue
interest at rates between 6% and 7%.

On
February 16, 1999, options to purchase 1,818,500 shares of Learn2's common stock were granted to certain employees of Street Technologies, Inc. as an inducement to
retain the services of these employees. These options were all granted at fair market value on the date of grant and vest over a period of three to four years.

On
May 13, 1999, options to purchase 600,000 shares of Learn2's common stock were granted to certain employees of Panmedia as an inducement to retain the services of these
employees. These options were all granted at fair market value on the date of grant and vest over a period of three to four years.

On
August 23, 1999, options to purchase 3,237,500 shares of Learn2's common stock were granted to certain employees of ViaGrafix as an inducement to retain the services of
these employees. These options were all granted at fair market value on the date of acquisition by Learn2 and vest over a period of four years.

The
Learn2 Non-Employee Directors Plan ("Directors Plan"), adopted in 2000, allows Learn2 to grant options to its non-employee directors for up to 2,500,000
shares of common stock. As of December 31, 2000, the Directors Plan had 975,000 option shares outstanding and 1,525,000 available for grant.

F-21

---

Transaction in stock options to outside non-employee directors are summarized as follows:

Stock
Options

Weighted Average
Exercise PriceBalance at December 31, 1999



$
Granted

975,000


2.00Exercised




Canceled




Balance at December 31, 2000

975,000

$
2.00


The
following table summarizes information about the Plans and non-plan stock options outstanding at December 31, 2000:

Total options outstanding

Total options exercisableWeighted
Average
Remaining
Contractual
LifeRange of exercise prices

Number
Outstanding

Weighted
Average
Exercise price

Number
Exercisable

Weighted
average
exercise price$
.002-$1.90

1,458,831

6.9

$
1.50

758,234

$
1.39$
1.90-$3.80

5,569,951

7.3

$
2.89

2,526,922

$
2.62$
3.80-$5.69

689,775

8.6

$
4.17

39,855

$
4.80$
5.69-$7.59

383,087

5.6

$
6.34

137,928

$
6.61$
7.60-$9.49

6,000

.5

$
7.96

6,000

$
7.978,107,644






3,468,939


Options
vest over varying time periods ranging from zero to six years. During 1998, 527,500 outstanding options were repriced at the then current market value. Such options are
included in both the granted and canceled options reported in the above schedule.

Learn2
adopted SFAS No. 123, "Accounting for Stock Based Compensation", during 1996 and elected to continue to apply the intrinsic value method provided under APB Opinion
No. 25 and related interpretations in accounting for its stock based compensation plans described above. If compensation costs for Learn2's's stock-based compensation plans had been determined
under the fair value method, Learn2's net loss available to common shareholders per share would have been increased to the pro forma amounts indicated below:

|                                        |             |  | 2000 |         | 1999 |   | 1998    |  
|--------------------------------------- | ----------- |  | ---- | ------- | ---- | - | ------- | -
|Net loss (in thousands)                 | As Reported |  | $    | (37,990 | )    | $ | (41,036 | )
|                                        | Pro forma   |  |      | (40,972 | )    |   | (54,490 | )
|Basic and diluted loss per common share | As Reported |  | $    | (0.72   | )    | $ | (1.06   | )
|                                        | Pro forma   |  | $    | (0.78   | )    | $ | (1.40   | )

The
fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: no expected
dividend yield; expected volatility of 124%; risk free interest rate of 4.62%; and expected lives of two to ten years,

F-22

---

depending on the characteristics of the individual grants. The pro forma amounts are based upon assumptions that Learn2's management believes are reasonable. The assumptions used in option pricing
models significantly affect the estimated value of stock benefits and, accordingly, the pro forma amounts do not purport to represent Learn2's results of operations for any future period.

Warrants

In
2000, the Board of Directors approved the grant of a warrant to purchase 250,000 shares of common stock at $1.31 per share in connection with the execution of a consulting
agreement. The warrant was valued using the Black Scholes option pricing model. The warrant is being accounted for under the variable method and, accordingly, is required to be revalued at each
reporting period until such time the warrant is exercised or the service period is completed. Non-cash compensation expense related to the warrant for the year ended December 31, 2000 was
approximately $11,000.

In
2000, the Board of Directors approved the grant of warrants to purchase 150,000 shares of common stock with exercise prices ranging from $0.094 to $2.00 in connection with the
execution of a consulting agreement. The warrant was valued using the Black Scholes option pricing model. The value of the warrant of $87,000 is included in other current assets in the accompanying
consolidated balance sheet as of Decmeber 31, 2000 and is being amortized over the life of the agreement. Amortization expense related to this asset for the year ended December 31, 2000 was
approximately $5,000.

Learn2
entered into certain advisory service agreements in 1999 and issued warrants totaling 1,000,000 shares of common stock with exercise prices ranging from $3.00 to $7.50 per
share. The warrant expense is being amortized over the lives of the agreements ranging from six to eighteen months. As of December 31, 2000 all of these warrants were outstanding.

In
May 1999, as part of a settlement of litigation, Learn2 issued warrants to purchase 25,126 shares of common stock with an exercise price of $5.97. The value of the warrant
was immediately expensed. As of December 31, 2000, this warrant has not been exercised.

In
connection with the convertible debenture (Note 6), Learn2 issued a warrant to purchase 337,268 shares of our common stock, exercisable at $7.41 per share with a
five-year exercise period. The fair value of the warrant of approximately $1.0 million has been recorded as a debt discount and is being amortized over the life of the related debt.

In
May 1998, in connection with the private placements (Note 7), Learn2 issued warrants to purchase 675,000 and 1,375,000 shares of common stock at an exercise price of
$0.01 per share. Learn2 allocated approximately $1,200,000 and $2,500,000, respectively, of the total proceeds of $10,000,000 to these warrants. All of the warrants were exercised in June 1998.
In connection with the exchange of the Notes (Note 7) issued in the above mentioned private placement, Learn2 issued additional warrants to purchase 1,125,000 shares of common stock at an exercise
price of $0.01 per share. In 1999 and 1998, 750,000 and 375,000, respectively shares of common stock were issued upon the exercise of these warrants.

In
December 1998, as part of the stock subscription agreement between Learn2 and Fletcher (See Note 7), Learn2 issued rights to purchase an additional 100,000 and 650,000
shares of common stock for $0.01 and $4.50 per share, respectively. In January 1999, the above agreement was amended and a

F-23

---

new right was granted to Fletcher for an additional 100,000 shares of common stock for $0.01 per share. As of December 31, 2000, 650,000 shares, exercisable at $4.50 per share remain
outstanding.

NOTE 12. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK

SFAS No. 105, "Disclosure of Information About Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk", requires disclosure of any significant off balance sheet and credit risk concentration. Learn2 has no significant off-balance-sheet concentration of credit
risk such as foreign currency exchange contracts or other hedging arrangements. Financial instruments that subject Learn2 to credit risk are accounts receivable. Learn2 places its temporary cash in
financial institutions. No customer represented greater than 10% of Learn2's total net revenues in
2000 or 1999. For the year ended December 31, 1998, two customers represented approximately 43% of Learn2's total net revenues.

Two
customers represented approximately 16.5% and 12.0%, respectively, of accounts receivable as of December 31, 2000.

Learn2
does not require collateral from its customers. Its credit policy is in accordance with normal industry trade and credit terms. During 2000, Learn2 recognized a bad debt from
one customer who filed for bankruptcy totaling $385,000.

NOTE 13. EMPLOYEE BENEFIT PLANS

Learn2 sponsors 401(k) plans for its employees allowing employees that qualify for participation under the plans to contribute up to 15% of their salary,
before taxes, subject to a maximum contribution limit determined by the Internal Revenue Service. Learn2 matches 50% of participant contributions up to a maximum of 6% of a participant's salary. For
the years ended December 31, 2000, 1999 and 1998, Learn2 made contributions to the plans of approximately $250,000, $104,000 and $148,000, respectively. Learn2 does not provide any
post-retirement benefits other than the 401(k) plans.

NOTE 14. COMMITMENTS AND CONTINGENCIES

(a) Leases

Learn2 leases office facilities in New York, Colorado and California and certain office equipment under operating leases that expire at various dates through
2004. Rental expense for operating leases amounted to approximately $340,000, $397,000 and $462,000 for 2000, 1999 and 1998, respectively.

Learn2's
minimum payments under leases at December 31, 2000 are approximately $610,000 in 2001, $610,000 in 2002, $455,000 in 2003, and $314,000 in 2004. There are no rental
commitments beyond 2004.

(b) Litigation

On May 22, 1998, a lawsuit was filed in the United States District Court for the Northern District of Texas by Jonathan L. Gordon, as a putative class
action against ViaGrafix Corporation and certain of its officers and directors claiming violations of the Securities Act of 1993 for alleged misrepresentations

F-24

---

and omissions in ViaGrafix's prospectus issued in connection with its initial public offering made in March 1998. On February 1, 2001, a United States District Judge for the Northern
District of Texas, entered a judgment dismissing, with prejudice, the lawsuit. On February 16, 2001, plaintiffs agreed not to take any steps to vacate, modify or amend that judgment, and Learn2
agreed not to seek recovery of their attorney's fees or costs against the plaintiffs.

In
addition, Learn2 is involved in certain other legal proceedings and claims in the ordinary course of our business. Learn2 is vigorously contesting all such matters and management
believes that their ultimate resolution will not have a materially adverse effect on its consolidated financial position, results of operations or cash flows.

NOTE 15. INDUSTRY SEGMENTS

Based on the criteria established by SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," Learn2 operates in two
principal business segments: Learning Services and Broadcast Messaging Services. SFAS No. 131 establishes standards for the way public business enterprises report information about operating
segments. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. Management evaluates the performance of each segment on their
respective revenues and gross profits. Learn2 does not allocate corporate overhead costs between the two segments. Management does not believe that allocating these expenses is material in evaluating
each segment's performance.

The
accounting policies of the segments are the same as those described in the summary of significant accounting policies. Intersegment revenues, which relate primarily to
intercompany sales are valued at substantially the same rates and prices charged to external customers. The following tables set forth industry segment information for the years ended
December 31, 2000, 1999, and 1998 (in thousands).

|                             |       | Revenues |        | Gross Profit
|---------------------------- | ----- | -------- | ------ | ------------
|
|Learning Services            |       | $        | 17,932 |             
|Broadcast Messaging Services |       |          | 4,308  |             
|Intersegment elimination     |       |          | (170   | )           
|                             |       |          |        |             
|                             | Total |          | $      | 22,070      
|                             |       |          |        |             

|                             |       | Identifiable Assets
|---------------------------- | ----- | -------------------
|
|Learning Services            |       | $                  
|Broadcast Messaging Services |       |                    
|                             |       |                    
|                             | Total |                    
|                             |       |                    

Revenues
from international sales represent 7.9% of net revenue for the year ended December 31, 2000. Revenues from international sales for the year ended December 31,
1999 were immaterial. There were no revenues from international sales in 1998.

F-25

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