UNITED
STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-KSB/A



Amendment No. 1



(Mark One)



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



For the fiscal year ended December 31, 2002



or



| ̈ |  | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required]
|- |  | ----------------------------------------------------------------------------------------------------------



For the transition period from
             to



Commission file number: 0-29615



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COMPASS
KNOWLEDGE HOLDINGS, INC.

(Exact Name of Registrant as Specified in its Charter)



|Nevada                                 |  | 87-0471549            
|-------------------------------------- |  | ----------------------
|(State or other jurisdiction of incor- |  | (I.R.S. Employer      
|poration or organization)              |  | Identification Number)



2710
REW CIRCLE, SUITE 100

OCOEE, FLORIDA 34761

(Address of principal executive offices) (Zip Code)



Registrants telephone number, including area code: (407) 573-2000



Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act:



Common Stock, $.001 par value

(Title of Class)



Check 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  x    No ̈



Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B (Section 29.405 of this chapter) is not contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. ̈



The Registrants revenues for the year ended December 31, 2002 were $4,868,000.



As of March 20, 2003, the aggregate market value of the voting and non-voting
common equity of the Registrant based upon the last sale price of $0.40 for such common stock as quoted by the NASDAQ Over-The-Counter Bulletin Board (symbol CKNO) held by non-affiliates of the Registrant was approximately $2,725,333.



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As of March 20, 2003, there were 15,861,250 shares of the common stock of the Registrant issued and
outstanding.



DOCUMENTS INCORPORATED BY REFERENCE



The description in this Report relating to the contents of
any agreements or other documents are qualified in their entirety by reference to those documents, copies of which are filed with this Report or otherwise filed with the Securities and Exchange Commission.



FORWARD-LOOKING STATEMENTS



IN ADDITION TO HISTORICAL INFORMATION, THIS REPORT CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, AND CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS MAY, EXPECT, ANTICIPATE,
ESTIMATE, OR CONTINUE OR THE NEGATIVE THEREOF, OR OTHER VARIATIONS THEREOF AND WHICH ARE THUS PROSPECTIVE. THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, COMPETITIVE PRESSURES, CHANGING ECONOMIC CONDITIONS, FACTORS DISCUSSED IN THE SECTION
ENTITLED MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, AND OTHER FACTORS, SOME OF WHICH WILL BE OUTSIDE THE CONTROL OF MANAGEMENT. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH REFLECT MANAGEMENTS ANALYSIS ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES THAT ARISE AFTER THE DATE
HEREOF. READERS SHOULD REFER TO AND CAREFULLY REVIEW THE INFORMATION DESCRIBED IN FUTURE DOCUMENTS THE COMPANY FILES WITH THE SECURITIES AND EXCHANGE COMMISSION.



AMENDMENT AND RESTATEMENT OF FINANCIAL STATEMENTS



THIS FORM 10-KSB/A IS BEING FILED FOR THE PURPOSE OF AMENDING AND RESTATING PARTS OF 10-KSB/A TO REFLECT THE RESTATEMENT OF
OUR CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE PERIODS ENDED DECEMBER 31, 2002. THESE REVISIONS HAVE BEEN MADE AS A RESULT OF A CLERICAL ERROR IN CALCULATING THE COMPANYS LOSS FROM DISCONTINUED OPERATIONS. ALL PORTIONS OF THE 10-KSB/A
THAT ARE AFFECTED BY THESE REVISIONS HAVE BEEN ADJUSTED ACCORDINGLY. ALL INFORMATION IN THIS 10-KSB/A IS AS OF DECEMBER 31, 2002, AND DOES NOT REFLECT ANY SUBSEQUENT INFORMATION OR EVENTS OTHER THAN THE RESTATEMENT.



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TABLE OF
CONTENTS



|PART I     |  |                                                                                       |  |   
|---------- |  | ------------------------------------------------------------------------------------- |  | --
|          
|Item 1.    |  | Description of Business                                                               |  | 1 
|          
|Item 2.    |  | Description of Property                                                               |  | 20
|          
|Item 3.    |  | Legal Proceedings                                                                     |  | 21
|          
|Item 4.    |  | Submission of Matters To A Vote of Security Holders                                   |  | 21
|          
|Item 5.    |  | Market for Common Equity and Related Stockholder Matters                              |  | 21
|          
|Item 6.    |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 25
|          
|Item 7.    |  | Financial Statements                                                                  |  | 40
|          
|Item 9.    |  | Directors, Executive Officers, Promoters and Control Person                           |  | 41
|          
|Item 10.   |  | Executive Compensation                                                                |  | 44
|          
|Item 11.   |  | Security Ownership of Management and Principal Stockholders                           |  | 49
|          
|Item 12.   |  | Transactions with Management and Others                                               |  | 51
|          
|Item 13.   |  | Exhibits and Reports on Form 8-K                                                      |  | 53
|          
|ITEM 14.   |  | Controls and Procedures                                                               |  | 56
|          
|SIGNATURES |  | 58                                                                                   
|          
|PART F/S   |  | F-1                                                                                  



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PART I



Item 1.    
Description of Business



Overview



Compass Knowledge Holdings, Inc. (the
Company) has been providing education to working professionals since 1993. The Company is engaged, through it subsidiaries, in the distance learning industry with a focus on providing accessible, high quality education for working
professionals, primarily focused in the healthcare and law enforcement marketplace and a preferred provider of select training courses and business solutions to the corporate marketplace. We provide a fully-integrated suite of learning solutions
that combines marketing, student administration, content services, and technology to our university partners in a fully hosted e-technology environment.



As of March 20, 2003, the Company has four operating subsidiaries, Compass Knowledge Group, Inc. (Compass), Intelicus, L.C.
(Intelicus), Juris Alliance.com, Inc. (Juris Alliance) and Compass Direct, LLC (Compass Direct), which provide the Companys product offerings.



The Company discontinued its K-12 subscription program operations in the fourth quarter of 2002 because of
substantial decreases in its customer base, lack of contract backlog, declining revenues and uncertainty in the market. This business operation had been operated within the Companys wholly owned subsidiary, Educators Learning Network,
Inc, since its acquisition in 2000. Effective February 28, 2003, we sold our Educators Learning Network, Inc. For details with respect to this transaction see our Historical Background below as well as our Financial Statements and
the attendant footnotes.



The Company maintains
its principal executive offices at 2710 Rew Circle, Suite 100, Ocoee, Florida 34761. Our telephone number is (407) 573-2000. Our Internet website addresses are as follows:



www.CompassKnowledge.com

www.Intelicus.com

www.KnowledgePharm.com

www.JurisAlliance.com

www.CJ-Direct.com

www.GlobalHealthEd.com



Historical Background



The Companys business began with Professional Educational Seminars, Inc., a Florida corporation which purchased the operating
division and intellectual property of Paul M. Deutsch Press, Inc. in November 1993. Professional Educational Seminars was formed for the purpose of developing, owning and operating seminars, developing and providing non-degree programs and
developing and publishing materials in life care planning for catastrophic injuries and impairments. In November 1993, Rogers W. Kirven, Jr., our Chief Executive Officer, and several other individuals acquired all the issued and outstanding stock of
Professional Educational Seminars, and in 1994 the name of Professional Educational Seminars, Inc. was changed to Rehabilitation Training Institute, Inc.



In March of 1996, Rehabilitation Training Institute with the University of Florida Health Services, Inc., a Florida corporation and an
affiliate of the University of Florida, formed Intelicus, LC, a Florida limited liability company organized for the purpose of developing, marketing and operating degree and non-degree programs for healthcare professionals. Rehabilitation Training
Institute was issued 64.5% of the ownership interest in Intelicus and University of Florida Health Services was issued the remaining 35.5% ownership interest. Intelicus was managed by four managing members, two



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appointed by Rehabilitation Training Institute and two appointed by University of Florida Health Services.



On February 9, 1999, Compass Knowledge Group,
Inc. was incorporated under the laws of the State of Florida for the purpose of establishing a company to acquire companies and develop and operate businesses involved in distance learning. Compass Knowledge Group had no operating history. Upon
formation, the shareholders of Compass Knowledge Group were issued 9,188,257 shares of its common stock, $.001 par value.



Effective October 31, 1999, Compass Knowledge Group, Inc. consummated a tax-free stock exchange with the shareholders of Rehabilitation
Training Institute whereby Rehabilitation Training Institute shareholders exchanged, on a one-for-one basis, all of their common stock in Rehabilitation Training Institute for common stock in Compass Knowledge Group, Inc. No new shares of common
stock were issued to the shareholders of Compass Knowledge Group, Inc. as part of the exchange. Upon consummation of the stock exchange, Compass Knowledge Group owned 100% of Rehabilitation Training Institute and Rehabilitation Training Institute
owned 64.5% of Intelicus. The University of Florida Health Services owned the remaining 35.5% of Intelicus. The exchange was accounted for as a business combination among control groups, similar to a pooling of interests.



In October 1999, Compass Knowledge Group agreed to purchase
the 35.5% equity interest in Intelicus, LC which was then owned by the University of Florida Foundation, Inc. as a result of a gift from the University of Florida Health Services, Inc. In exchange for the 35.5% interest, Compass Knowledge Group
agreed to issue to the University of Florida Foundation 465,000 shares of its common stock and to contribute $300,000 to the University of Florida Foundation for the purpose of establishing an endowment fund for health professionals. As a condition
to the closing, the University of Florida, College of Pharmacy agreed to extend for a period of five (5) years the term of its professional service agreements with Compass Knowledge Group for an additional 35,000 shares of its common stock. This
transaction was valued at $2.00 per share, which was the fair market value of the stock of Compass Knowledge Group at that time. These transactions were closed on December 1, 1999. Other than that of an arms-length business arrangement and the
ownership of 5.27% of our common stock, there is no affiliation between us and the University of Florida.



The purchase of the University of Florida Foundations interest in Intelicus was structured as an equity exchange whereby the
University of Florida Foundation received 465,000 shares of our common stock (approximately 3.2% of our then issued and outstanding common stock) in exchange for its 35.5% ownership interest in Intelicus, thereby making Intelicus our wholly owned
subsidiary. The University of Florida Foundation is entitled to a one-time piggy-back registration right and a nominee of the University of Florida Foundation, Inc. shall be appointed to our board of directors for so long as the University of
Florida Foundation owns at least 1% of our issued and outstanding stock, as calculated on a fully diluted basis.



On November 5, 1999, we entered into and consummated a Stock Purchase Agreement with Pioneer Ventures Limited Partnership whereby we sold
to Pioneer Ventures Limited Partnership 2,000 shares of our Series A Senior Convertible Preferred Stock raising proceeds of $1,667,026, net of offering expenses of $82,974. The Preferred Stock may be convertible at any time by the holder at his
option into our common stock at $2.00 per share at any time. The Preferred Stock is subject to an annual cash and/or preferred stock cumulative dividend of 8%. The Preferred Stock also has senior liquidation preferences, voting rights equal to our
common stockholders and other rights and preferences common to such securities, including the right to designate one of our directors. The Preferred Stock is also entitled to a one-time demand and unlimited piggy-back registration rights including
any common stock issued upon conversion thereof.



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On November 15, 1999, the Company was recapitalized in a tax-free acquisition of Winthrop
Industries, Inc., a Nevada corporation. In accordance with the acquisition agreement, our common stockholders received one share of Winthrop Industries common stock for each share of common stock owned by them and our preferred shareholders
received a like kind and number with identical preferences of Series A Preferred Stock in Winthrop Industries in exchange for our Series A Preferred Stock. Winthrop Industries also adopted our Stock Option Plan, thereby allowing our option holders
to exercise their options to acquire common shares of Winthrop Industries in accordance with the adopted Stock Option Plan. No new shares of common stock were issued to the shareholders of Winthrop as part of the exchange. For accounting purposes,
the acquisition was accounted for as a recapitalization of Compass Knowledge Group, Inc. with Compass Knowledge Group as the acquirer.



As an additional negotiated condition of the Winthrop Industries acquisition, the management of Winthrop Industries completed an offering
on November 15, 1999 of 2,000,000 shares of its common stock, at an offering price $2.00 per share. The offering was made pursuant to an exemption from registration under the Securities Act of 1933, provided by Regulation D, Rule 506, of said Act,
raising proceeds of $3,936,025, net of offering costs of $63,975. Neither Compass Knowledge Group nor any of its officers, directors or shareholders assisted or participated in this offering.



At the time we closed the transaction with Winthrop
Industries, Winthrop had no operations. The principal reasons for this transaction were to obtain cash in the amount of $3,936,025 (which Winthrop had raised as a result of a sale pursuant to the private placement of 2,000,000 shares of its common
stock) and to become a publicly traded company, listed on the NASDAQ Over-The-Counter Bulletin Board.



Contemporaneous with the acquisition of Winthrop Industries, its officers and directors resigned and were replaced by our officers and
directors. The name of Winthrop Industries was changed to Compass Knowledge Holdings, Inc. Prior to the acquisition of Winthrop Industries, our management had no relationship with Winthrop Industries or its shareholders. At the time of the Exchange,
none of the shareholders of Winthrop or their officers or directors owned any stock in Compass and none of the Compass shareholders or their officers or directors owned any stock in Winthrop. The net proceeds from its offering was the only
material asset of Winthrop at the time of the closing of the exchange. Upon the consummation of the Winthrop Industries acquisition, Mr. Kirven, our Chief Executive Officer, owned approximately 30% of our issued and outstanding voting common stock
and Mr. Devine, our President, owned approximately 21%.



On December 24, 1999, two of our principal shareholders and officers, Rogers W. Kirven, Jr. and Daniel J. Devine, collectively gifted 350,000 shares of our common stock owned by them to the University of Florida Foundation for the
purpose of providing an endowment for health professionals.



Beginning with the purchase of Professional Education Seminars, Inc. in November 1993 and continuing through the present, Mr. Kirven, our Chief Executive Officer, and Mr. Devine, our President, who collectively own approximately 50%
of our issued and outstanding voting common stock and held proxies for the other shareholders of the Company prior to the Winthrop Industries acquisition, have controlled and directed our operations.



Effective December 1, 1999, we issued 500,000 shares of our
common stock, $.001 par value, to the University of Florida Foundation, Inc. in consideration of its 35.5% in Intelicus, L.C., a operating subsidiary and an extension of the term of contracts with the College of Pharmacy, University of Florida.
These shares were valued at $2.00, which was the market value of our stock on the date the parties reached an agreement. The shares were issued in reliance upon an exempt from registration under Section 4(2) of the Securities Act.



On August 15, 2000, we acquired all of the outstanding capital
stock of Educators Learning Network, Inc., (eLNet), f/k/a Jamita, Inc., a distance learning leadership development services firm



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serving the K-12 educators marketplace headquartered in Cincinnati, Ohio. The capital stock was
acquired from a group of employee shareholders and their family members who had no prior relationships with us. The purchase price of $1.875 million (before contingent consideration) was paid solely in cash. In addition, 562,500 shares of our common
stock valued at $2.00 per share (which was approximately the average closing price of the stock for the 20-day period ended August 14, 2000) was placed into an escrow account for distribution to the Jamita shareholders subject to Jamita having net
collections of approximately $1 million in the first fiscal year following the closing. This condition was satisfied and the escrowed shares were released in August 2001. Additionally, we made a payment to the Jamita shareholders in 2001 and 2002
based on the attainment of sales to new customers (the Incentive Payments).



The acquisition was accounted for using the purchase method of accounting. We filed a Form 8-K with respect to this transaction with the SEC on August 23, 2000 which was amended in Form 8-K/A filed
with the SEC on October 23, 2000 and subsequently amended on October 30, 2000 with inclusion of the audited financial information required by Form 8-K. Parties interested in the Company are encouraged to review these filings for more detail with
respect to this transaction.



On August 15, 2000,
we also completed the acquisition of the outstanding capital stock of Rutherford Learning Group, Inc., (RLG), an educational leadership and professional development company services firm headquartered in Charlotte, North Carolina. Prior
to the acquisition, RLG, through a consulting agreement, provided eLNet with onsite consulting and video presentation materials for its K-12 leadership programs. The capital stock was acquired from Michael Rutherford, the sole employee shareholder.
Mr. Rutherford had no prior relationships with us. The purchase price consisted of $50,000 in cash, 125,000 shares of our common stock valued at $2.00 per share (which is approximately the average closing price of the stock for the 20-day period
ended August 14, 2000) and 10% of the total issued and outstanding capital stock of eLNet. The acquisition has been accounted for using the purchase method of accounting. We filed Form 8-K with respect to this transaction with the SEC on August 23,
2000 which was amended in Form 8-K/A filed with the SEC on October 23, 2000 and subsequently amended on October 30, 2000 with inclusion of the audited financial information required by Form 8-K. Investors are encouraged to review these filings for
more detail with respect to this transaction.



We
funded the cash portion of the purchase price of eLNet and RLG from our existing cash reserves.



Effective July 1, 2001, the Company entered into a Settlement Agreement with Michael Rutherford whereby Mr. Rutherford resigned as an officer and director of two of the Companys
subsidiaries, his employment agreement with such subsidiaries was terminated and substantially all of the assets of the Companys subsidiary, Rutherford Learning Group (RLG), were conveyed to Mr. Rutherford. In connection with this
transaction, Mr. Rutherford returned to the Company 181,250 common shares of the Company and his 10 percent equity interest in the Companys subsidiary, Educators Learning Network, which he acquired in connection with the Companys
acquisition of RLG in August 2000. Parties interested in this transaction are encouraged to review Item 5 of our Form 10-QSB filed with the SEC on August 8, 2001.



Effective July 31, 2002, the employment contract of Dr. Larry Rowedder, the founder and President of eLNet,
expired and as a result of the parties inability to reach mutually agreeable renewal terms, Dr. Rowedder decided to pursue other business opportunities.



The Company discontinued its K-12 subscription program operations in the fourth quarter of 2002 because of substantial decreases in its
customer base, lack of contract backlog, declining revenues, customer budget cuts and uncertainty in the market. This business operation had been operated within the Companys wholly owned subsidiary, eLNet, since its acquisition in 2000. eLNet
had annual revenues of $1,359,037 for the fiscal year ending December 31, 2001 and $1,058,910 for the fiscal year ending



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December 31, 2002, with a net loss of $356,908 in 2001 and $166,000 in 2002.



Effective February 28, 2003, we entered into and consummated
the closing of a Stock Purchase Agreement with R&B Holdings, Inc., a Virginia corporation whereby we sold all of the issued and outstanding stock of eLNet for $326,704 in cash and the assignment to the Company of an eLNet receivable in the
amount of $123,296. In connection with that transaction, eLNet maintained its right to collect and keep all of the remaining outstanding receivables totaling approximately $29,000 and remained responsible for the payment of approximately $34,537 of
accounts payable and other accrued expenses. Each of the parties was responsible for their legal, accounting and other expenses incurred in connection with the transaction.



As a result of the sale of eLNet, we recognized an additional loss on the disposal of discontinued operations
of approximately $993,000 (as restated) as of December 31, 2002. At this time, we do not expect to experience any material additional losses or expenses associated with this business saving certain pending claims the most significant of which is a
claim made on or about January 13, 2003 by some of the former shareholders of eLNet. These shareholders filed an objection to the amount of the incentive payments previously paid them pursuant to the original acquisition agreement indicating that
they are of the belief that they are entitled to an unspecified additional amount. While we believe that our accounting with respect to these incentive payments is accurate and that no additional monies are due these shareholders, no assurance can
be given that we will not be required to make additional payments to these shareholders either in settlement of this matter or as ordered by a court of competent jurisdiction.



Our Business



We are a distance learning company that provides educational products to working professionals and a suite of education solutions and
services to universities, colleges and corporations. We offer a fully-integrated suite of learning solutions that combines marketing, program development, market research, student recruitment, proprietary course content, and accounting and
administrative services. We also provide our clients and customers with fully hosted e-technology platforms.



We offer, sell and deliver, our programs, and the programs of our university and corporate partners, through our multi-modal delivery
system, which is an innovative, flexible delivery model that gives working professionals the ability to earn advanced degrees and certificates and gain specialized knowledge in a synchronous and asynchronous distance learning environment.



Our Business Model



Our business model is based on the following characteristics:



| |  |  | Identification of specialized, high demand markets primarily in the healthcare, law enforcement and education marketplaces for working professionals that
allow for scalability and significant profit margins.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Recurring and multiple revenue streams from student enrollments and multiple year contracts with our knowledge partners which enhance predictability and reduce
volatility.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Cash flow from steady tuition payments.
| | - |  | ---------------------------------------



| |  |  | Broad operating margins, which supports debt-free growth and scalability.
| | - |  | -------------------------------------------------------------------------



| |  |  | A centralized cost structure and cross-utilization of curricula creating opportunities for operating leverage.
| | - |  | --------------------------------------------------------------------------------------------------------------



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| |  |  | Multiple knowledge partner relationships without the regulatory risks customarily associated with education institutions.
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | Designed for easy accessibility and with multiple entry points.
| | - |  | ---------------------------------------------------------------



Learning Solutions



Compass contracts with educational institutions and corporations to provide a wide array of services, which may vary from one client to
another. Services to our clients may include:



| |  |  | Conducting market research;
| | - |  | ---------------------------



| |  |  | Assisting with curriculum development;
| | - |  | --------------------------------------



| |  |  | Developing and executing marketing strategies;
| | - |  | ----------------------------------------------



| |  |  | Marketing and recruiting of students;
| | - |  | -------------------------------------



| |  |  | Establishing operational and administrative infrastructures;
| | - |  | ------------------------------------------------------------



| |  |  | Training of faculty;
| | - |  | --------------------



| |  |  | Developing and implementing financial, accounting and academic quality management systems;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | Assessing the future needs of adult students;
| | - |  | ---------------------------------------------



| |  |  | Assisting in developing additional degree programs suitable for the adult higher education market; and
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | Training of program staff.
| | - |  | --------------------------



In consideration for our services, we sometimes receive a cash fee and often a share of revenues generated from any programs developed
with our assistance



Degree Programs



During the fiscal year ending December 31, 2002, we offered
the following degree programs in conjunction with our university partners:



| |  |  | Doctor of Pharmacy (University of Florida)
| | - |  | ------------------------------------------

| |  |  | Doctor of Audiology (University of Florida)
| | - |  | -------------------------------------------

| |  |  | Masters in Criminal Justice Administration (University of Cincinnati)
| | - |  | ---------------------------------------------------------------------

| |  |  | Bachelor of Science in Administration of Criminal Justice (Mountain State University)
| | - |  | -------------------------------------------------------------------------------------

| |  |  | Bachelor of Science in Radiologic Science (Florida Hospital, College of Health Sciences)
| | - |  | ----------------------------------------------------------------------------------------

| |  |  | Masters of Science in Nursing (Graceland University)
| | - |  | ----------------------------------------------------

| |  |  | Bachelors of Science in Nursing (Graceland University)
| | - |  | ------------------------------------------------------

| |  |  | Registered Nurse to Masters of Science in Nursing (Graceland University)
| | - |  | ------------------------------------------------------------------------



On March 5, 2003, we received a letter from Graceland University whereby Graceland, exercising its option
under our agreement, elected to terminate its relationship with us as a result of the failure to meet the minimum number of students threshold by the spring of 2003. Accordingly, we are in



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in the process of discontinuing our Masters of Science in Nursing, Bachelors of Science in Nursing and
Registered Nurse to Masters of Science in Nursing programs as well as a one certificate program with Graceland. As of this date, the details of our transitional arrangement with Graceland University are uncertain as well as the financial impact
that the loss of this relationship will have on our financial performance for 2003 and beyond.



Non-degree Programs



During the fiscal year ending December 31, 2002, we offered the following non-degree programs:



| |  |  | Life Care Planning
| | - |  | ------------------

| |  |  | Medical Coding
| | - |  | --------------

| |  |  | Post Masters Family Nurse Practitioner Certificate
| | - |  | --------------------------------------------------



Current Programs



1.    The Working Professional Doctor of Pharmacy Program



This degree program is designed for pharmacists who wish to advance their careers by upgrading their
professional credentials to a Doctor of Pharmacy. This program is offered in conjunction with the University of Florida, College of Pharmacy.



Presently, our Doctor of Pharmacy Program has 537 students enrolled for the Spring 2003 semester. Tuition currently ranges from $1,825 to
$2,900 per semester for this three-year degree program, depending on whether the student is a resident or nonresident of Florida or is a student enrolled under a corporate plan.



2.    The Working Professional Doctor of Audiology Program



This degree program is designed for the working professional
audiologist to upgrade their degree to the Doctorate of Audiology (Au.D.) and to provide working audiologists with the complex and diverse skills necessary to meet the challenges of the healthcare marketplace. This program is offered in conjunction
with the University of Florida.



There are
presently 222 students enrolled in this 18-month program, each paying $2,790 in tuition per semester.



3.    Masters in Criminal Justice Administration



This degree program is designed for the working professional interested in criminal justice or corrections to advance their education from
a Bachelor in Criminal Justice to a Masters in Criminal Justice Administration. This program is offered in conjunction with the University of Cincinnati.



There are presently 140 students enrolled in this program for the Spring 2003 quarter, each paying $1,800 in tuition per quarter.



4.    Bachelor in Criminal Justice
Administration



This degree program is
designed for the working professional interested in criminal justice or corrections to advance their education from basic training to a Bachelor in Criminal Justice Administration. This program is offered in conjunction with Mountain State
University, formerly the College of West Virginia.



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There are presently 113 students enrolled in this program for the Spring 2003 semester,
each paying $2,280 in tuition per semester.



5.    Radiologic Science



This degree program is designed for the working professional interested in Radiologic Sciences and who wish to advance their education to a Bachelor Radiologic Science. We are offering this program in conjunction with the
Florida Hospital College of Health Sciences.



There are currently 221 students enrolled in this program for the Spring 2003 semester, each paying $1,800 in tuition per semester.



6.    Bachelors of Science in Nursing



This degree program was launched in the spring semester of 2002 with Graceland University. This program is
designed for the working professional nurse to upgrade their degree to a Bachelors of Science in Nursing and is essential for nurses seeking to perform at the case-manager or supervisory level or move across employment settings.



There are currently 38 students enrolled in this program for
the Spring 2003 semester. Each new student pays $1,998 in tuition per semester. This program will be discontinued upon the completion of the Spring 2003 semester due to the termination of our agreement with Graceland University.



7.    Masters of Science in Nursing



This degree program was launched in the Spring semester of
2002 with Graceland University. This program is designed for the working professional nurse to upgrade their RN degree to a Masters of Science in Nursing or Masters in Science in Nursing  Family Nurse Practitioner. This program prepares nurses
to perform in the expanded role of providing primary care for families in a variety of settings.



There are presently 115 students enrolled in this program. Each new student pays approximately $2,622 in tuition per semester. This program will be discontinued upon the completion of the Spring 2003
semester due to the termination of our agreement with Graceland University.



8.    Life Care Planning



This non-degree program is targeted toward rehabilitation professionals desiring to add billable skills to their professional capabilities. Life Care Plans are used most commonly as a litigation tool, or to set medical
reserves for claims adjusters. The Life Care Plan is a dynamic document based upon published standards of practice, comprehensive assessment, data analysis and research, which provides an organized concise plan for current and future needs, with
associated costs, for individuals who have experienced catastrophic injury or have chronic health needs. This program consists of eight training sessions, offering over 128 post-graduate hours, with continuing education units available for students
to maintain licensure requirements in their area(s) of expertise.



We currently train between 300-500 students per year. The total tuition cost for this program is approximately $3,560. In addition to this certificate program, nine (9) additional advanced courses may be offered at a cost of
$425 per course; and an annual conference is held during the fourth quarter of each year at a cost of $445, depending on time of registration.



9.    Medical Coding





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This non-degree program prepares students for challenging coding positions in hospitals,
clinics, ambulatory surgery centers, insurance companies and other settings where diagnostic and procedural data are coded in ICD-9-CM and CPT for reimbursement purposes. Credits in this program are fully applicable to the Associate in Science
degree in Health Information Technology program at Fisher College and partially applicable to the Associate in Science degree in Medical Assistant Program. Program graduates are eligible to take the Certified Coding Specialist (CCS) exam offered by
the American Health Information Management Association (AHIMA). Work experience before taking the national exam is recommended.



In the current semester there are 16 students enrolled in our Medical Coding program each paying $540 per semester.



Our Marketing Model



| |  |  | Our Market Model
| | - |  | ----------------



We believe marketplace assessment is one of the most critical components of a successful program. We begin the marketplace assessment by
conducting an extensive evaluation of certain identified market niches using a model which utilizes various criteria and methods for determining the viability of a given market. Our evaluation model consists of a series of low cost direct response
market tests to prove or disprove market acceptance of a specific program. The evaluation model also schedules and scores the effectiveness of each specific marketing test. This model has proven to be effective in pre-testing programs in a low cost
manner, allowing management to determine how successful a possible program will be before investing in complete program development.



| |  |  | Comprehensive Marketing Management
| | - |  | ----------------------------------



We use a media mix of direct response marketing, advertising, public relations, internet marketing, telephone call center technology and
database management to acquire students. Every marketing event is tracked, allowing for effective evaluation of each marketed program. Our call center, in combination with our marketing software program, provides immediate feed back on various
aspects of the marketed program. The data is also used to further refine the targeted market using our call center and direct marketing services.



We also utilize software that allows for consistent tracking of all student and task contact. Not only does this improve current student
communication, it also allows us to continue a relationship with the student. The database tracks which new programs and which new products would be of interest to students.



Quality improvement is implemented by surveys of participants in each program. Instructor knowledge,
instructor effectiveness and curriculum application is rated. Once analyzed, action programs are implemented to upgrade and enhance our products and services.



Market



The United States and international education market may be generally divided into the following segments:



| |  |  | Kindergarten through twelfth grade schools (K-12);
| | - |  | ----------------------------------------------------



| |  |  | Vocational and technical training;
| | - |  | ----------------------------------



| |  |  | Workplace and consumer training; and
| | - |  | ------------------------------------



| |  |  | Degree-granting (Higher Education).
| | - |  | -------------------------------------



9



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We operate primarily in the Higher Education, workplace and consumer training segments
focusing on the healthcare and criminal justice workplace markets. The adult education market is a significant and growing component of the post-secondary education market, which is estimated by the U.S. Department of Education to be a more than
$200 billion industry. The U.S. Department of Education estimated that for 1998, adults over the age of 24 comprised approximately 6.1 million, or 39.2%, of the students enrolled in higher education programs. The U.S. Census Bureau estimates that
approximately 76% of students over the age of 24 work while attending school. The market for adult education should continue to increase as working adults seek additional education and training to update and improve their skills, to enhance their
earnings potential, and to keep pace with the rapidly expanding knowledge-based economy.



Many working adults are seeking accredited degree and certificate programs that provide flexibility to accommodate the fixed schedules and time commitments associated with their professional and
personal obligations. Our format enables working adult students to attend virtual classes and complete coursework on a more convenient schedule. Many universities and emerging technology-based education and training companies currently do not
effectively address the unique requirements of working adult students due to the following specific constraints:



| |  |  | Traditional universities and colleges were designed to fulfill the educational needs of conventional, full-time students aged 18 to 24, who remain the primary focus
of these universities and colleges. This focus has resulted in a capital-intensive teaching/learning model that may be characterized by:
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Ø |  | a high percentage of full-time tenured faculty with doctoral degrees;
| | - |  | ---------------------------------------------------------------------



| | Ø |  | a fully-conformed library facilities and related full-time staff;
| | - |  | -----------------------------------------------------------------



| | Ø |  | dormitories, student unions, and other significant plant assets to support the needs of younger students; and
| | - |  | -------------------------------------------------------------------------------------------------------------



| | Ø |  | an emphasis on research and the related staff and facilities.
| | - |  | -------------------------------------------------------------



| |  |  | The majority of accredited colleges and universities continue to provide the bulk of their educational programming from September to mid-December and from
mid-January to May. As a result, most full-time faculty members only teach during that limited period of time. While this structure serves the needs of the full-time 18 to 24 year old student, it limits the educational opportunity for working adults
who must delay their education for up to five months during these spring, summer, and winter breaks.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We believe that our track record for enrollment and revenue growth is attributable to our offering a comprehensive service combining
education content, teaching resources, and customer service with a format that is accessible and easy to use for students and corporate clients.



We serve the needs of mid-career, working professional adults, by providing:



| |  |  | Convenient access to a learning environment (primarily through its Internet and satellite-based delivery systems);
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | Degree programs offered by accredited institutions that can be completed in a reasonable amount of time for a reasonable cost;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | Certificate programs that provide knowledge and skills with immediate practical value in the workplace;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | Education provided by qualified faculty members with current practical experience in fields related to the subjects they instruct; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Learning resources available electronically and other mediums regardless of geographical location.
| | - |  | --------------------------------------------------------------------------------------------------





10



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We believe that the requirements of the adult working population represent a significant
market opportunity to accredited Higher Education institutions that can offer programs that meet these unique needs.



Presently, all but two of our programs (our Bachelors and Masters Degree programs in Criminal Justice Administration) provide
educational degrees and non-degrees to the healthcare marketplace. Approximately, 84% of our 2002 revenues are derived from this marketplace. Currently, approximately 78% of our net revenues are derived from our degree programs, approximately 14% is
derived from our non-degree programs, and approximately 8% is derived from subscription, consulting and other services. We believe, based upon recent trends in the healthcare industries and technology advancements that this market will continue to
increase. Our opinion is also based on the following factors:



| |  |  | generally healthcare professionals are required by their profession to take continuing education courses;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | healthcare professionals have a history of taking education courses; and
| | - |  | ------------------------------------------------------------------------



| |  |  | healthcare professionals have historically been rewarded by increase in compensation for taking continuing education courses.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



With respect to our healthcare programs, our research also
leads us to believe that, as with the healthcare industry in general, growth in the education healthcare marketplace will also be driven by pressures to reduce cost from managed care organizations, government agencies, regulators, large
corporations, small businesses, and consumers. These cost pressures have generally resulted in lower incomes, downsizing, and greater workloads for all healthcare workers, which we believe prompts the learning of new skills. Besides maintaining
proficiency, many healthcare professionals also obtain additional education so that they can increase their income through specialization. We believe that these factors are the primary drivers for the increased interest in distance learning
programs.



Competition



The higher education and workplace markets are still, for the
most part, highly fragmented and competitive with no private or public institution enjoying a significant market share. We compete with a number, of large, highly capitalized for-profit companies that focus on the higher education market such as the
University of Phoenix Online, Sylvan Learning, Strayer University, Apollo Group, Inc., DeVry, Cantor & Associates, Inc., and ITT Educational Services. We also compete with four-year and two-year degree-granting public and private regionally
accredited colleges and universities. Other companies focus on the corporate training and workplace market (e.g., the CBT Group, The Learning Tree) and a smaller number are recognized as specialty providers including ProSoft Training and NCS
Computer.



While we believe that our menu of
distance learning solutions and services, delivery models, our niche marketing strategy and our focus on customer acquisition and care differentiates us from the competition, we believe that the level of competition will continue to increase as
current competitors increase the sophistication of their offerings and as new participants enter the market. Many of our current and potential competitors have longer operating histories, larger customer bases, greater brand recognition and
significantly greater financial, marketing and other resources than we do and may enter into strategic or commercial relationships with larger, more established and well-financed companies and institutions. Certain competitors may be able to secure
alliances with customers and affiliates on more favorable terms, devote greater resources to marketing and promotional campaigns and devote substantially more resources to systems development than we can. In addition, new technologies and the
expansion of existing technologies may increase the competitive pressures we face. Increased competition may result in reduced operating margins, as well as loss of market share and brand recognition. We may not be able to compete successfully
against current and future competitors, and the competitive pressures we face could have a material adverse effect on our business and financial results.



11



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Government Regulations



General.    With
the exception of certain state licensing regulations described below, we are subject to little governmental regulation other than the securities laws and regulations applicable to all publicly owned companies and laws and regulations applicable to
businesses generally. Few laws and regulations are directly applicable to access to, or commerce on, the Internet. Due to the increasing popularity and use of the Internet, it is likely that a number of laws and regulations may be adopted at the
local, state, national or international levels with respect to the Internet. Any new legislation could inhibit the growth in use of the Internet and decrease the acceptance of the Internet as a communications and commercial medium, which could in
turn decrease the demand for its services or otherwise have a material adverse effect on our future operating performance.



State Regulations.    Educational institutions are required to have authorization to operate as degree-granting
institutions in each state where they operate physical sites which provide educational programs. Certain states also take the position that any education institution providing online degrees to students residing in their state is required to satisfy
certain state standards. Some states accept accreditation as evidence of meeting minimum state standards for authorization. Other states require separate evaluations for authorization. Depending on the state, the addition of a degree program not
offered previously or the addition of a new location must be included in the institutions accreditation and be approved by the appropriate state authorization agency. Only one of our knowledge partners, the University of Florida, is presently
authorized to operate in only three states in which it provides degrees through our web-utilized delivery system. If the University of Florida and/or our other knowledge partners are required to obtain authorization to provide distance learning
degree and non-degree programs in such other states, it could have a material adverse effect on our business, financial status and our ability to expand our business.



The adoption of any additional laws or regulations may decrease the popularity or expansion of the Internet.
A decline in the growth of the Internet could decrease demand for our products and services and increase our cost of doing business. Moreover, the applicability of existing laws to the Internet is uncertain with regard to many issues including
property ownership, intellectual property, export of encryption technology, sales tax, libel and personal privacy. Our business and financial results could be seriously harmed by any new legislation or regulation of these types. There are an
increasing number of laws and regulations pertaining to the Internet. These laws and regulations relate to liability for information received from or transmitted over the Internet, online content regulation, user privacy, taxation and quality of
products and services. Moreover, the applicability to the Internet of existing laws governing intellectual property ownership and infringement, copyright, trademark, trade secret, obscenity, libel, employment, personal privacy and other issues is
uncertain and developing. We cannot predict the impact, if any, that future regulation or regulatory changes may have on our business.



Federal Regulations.    The Higher Education Act of 1965 and the related regulations govern all higher
education institutions participating in Title IV programs. The Higher Education Act mandates specific additional regulatory responsibilities for each of the following components:



| | Ø |  | the accrediting agencies recognized by the U.S. Department of Education;
| | - |  | ------------------------------------------------------------------------



| | Ø |  | the federal government through the U.S. Department of Education; and
| | - |  | --------------------------------------------------------------------



| | Ø |  | state higher education regulatory bodies.
| | - |  | -----------------------------------------



All higher education institutions participating in Title IV programs must be accredited by an association recognized by the U.S.
Department of Education. The U.S. Department of Education reviews all participating institutions for compliance with all applicable standards and regulations under the Higher Education Act. Accrediting associations are required to include the
monitoring of Title IV program compliance as part of their accreditation evaluations under the Higher Education Act.



12



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Title IV
regulations prohibit an institution from providing any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any person or entity engaged in any student recruitment,
admission, or financial aid awarding activity. Regulations published on November 1, 2002 clarified and defined safe harbors with respect to incentive compensation. We believe that our current method of being by our knowledge partners and our methods
of compensating enrollment advisors complies with the Title IV regulations.



Tax Reform Act of 1997 and Tax Relief Act of 2001



In August 1997, Congress passed the Tax Reform Act of 1997 that added several new tax credits and incentives for students and extended benefits associated with the educational assistance program. The Hope Scholarship Credit
provides up to $1,500 tax credit per year per eligible student for tuition expenses in the first two years of postsecondary education in a degree program. The Lifetime Learning Credit provides up to $1,000 tax credit per year per taxpayer with
modified adjusted gross income between education, including graduate studies. Both of these credits are phased out for taxpayers with 2001 modified adjusted gross income between $40,000 and $50,000 ($80,000 and $100,000 for joint returns) and are
subject to other restrictions and limitations. The Tax Reform Act of 1997 also provides for the deduction of interest from gross income on education loans and limited educational IRAs for children under the age of 18. These deductions are also
subject to adjusted gross income limitations and other restrictions. These new provisions become effective for 1998 individual tax returns.



In June 2001, Congress passed the Tax Relief Act of 2001 that provided even more educational tax incentives. The major enhancements
include: increased contribution limits to Education IRAs; tax-free withdrawals from Section 529 Qualified Tuition Programs; employer-provided graduate education assistance; and expansion of the student loan interest deduction. In addition, the
Lifetime Learning Credit was increased beginning in 2003 to up to $2,000 per year per taxpayer return and a new above-the-line deduction will be allowed for qualified higher education expenses paid by a taxpayer on behalf of the taxpayer, spouse, or
dependent. Taxpayers may not claim the new deduction and a Hope or Lifetime Learning Credit in the same year with respect to the same student.



Employer Tuition Assistance



Many of our students receive some form of tuition assistance from their employers. The Internal Revenue Code, defines situations where
this tuition assistance qualifies as a deductible business expense when adequately documented by the employer and employee. The Internal Revenue Code also provides a safe-harbor provision for an exclusion from wages of up to $5,250 of tuition
reimbursement per year per student under the Educational Assistance Program. The Educational Assistance Program provision did not apply to graduate level programs and was set to expire in December 2001. The Tax Relief Act of 2001 extends the
exclusion for employer-provided education assistance to graduate courses beginning after December 31, 2001 and makes the exclusion for both undergraduate and graduate courses permanent. Employers or employees may still continue to deduct such
tuition assistance where it qualifies as a deductible business expense and is adequately documented.



Strategic Alliances



An important part of our strategy is to enhance our business by establishing long term strategic alliances with universities, colleges and other knowledge content providers. These alliances are based
upon a model whereby we bear all or a portion of the risk of marketplace development and obtain content from our knowledge partner, thereby making our central operations the delivery of specialized content in the context of our delivery system.



Generally, our university partners provide us
with the curriculum and content for our degree and non-degree programs. While the universities own the content and curriculum that make up the core of our



13



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existing programs, we otherwise typically own all rights, title and interest in the derivative works and our systems.



We perform the following activities with respect to our programs:



| |  |  | Student Registration Processing
| | - |  | -------------------------------



| |  |  | Student Support
| | - |  | ---------------



| |  |  | Assistance in Curriculum Development
| | - |  | ------------------------------------



| |  |  | Administration of Multimedia
| | - |  | ----------------------------



| |  |  | Administration of Hardcopy Materials
| | - |  | ------------------------------------



| |  |  | Daily Management of Student Database
| | - |  | ------------------------------------



| |  |  | Daily Financial Management
| | - |  | --------------------------



| |  |  | Quality Control
| | - |  | ---------------



| |  |  | Facilities Management
| | - |  | ---------------------



| |  |  | Approval and Maintenance of Program Content
| | - |  | -------------------------------------------



| |  |  | Creation of Video Content as well as editing and enhancement.
| | - |  | -------------------------------------------------------------



| |  |  | Creation of Audio Content as well as editing and enhancement
| | - |  | ------------------------------------------------------------



| |  |  | Marketing of Programs
| | - |  | ---------------------



| |  |  | Development of Market Strategies
| | - |  | --------------------------------



| |  |  | Execution of Market Strategy
| | - |  | ----------------------------



| |  |  | Development of Promotional Literature
| | - |  | -------------------------------------



| |  |  | Development of Collateral Materials
| | - |  | -----------------------------------



| |  |  | Development and Management of Mailing Lists
| | - |  | -------------------------------------------



| |  |  | Management of Telephone Database
| | - |  | --------------------------------



| |  |  | Providing Software and Technology Platforms
| | - |  | -------------------------------------------



We currently have approximately 40 contracts with the University of Florida for two ongoing degree and three ongoing non-degree programs.
The contract with respect to one of our degree programs, Doctor of Audiology, expires in September of 2003 and as of this date, there is no indication that the University of Florida is willing to renew our contract or enter into a new contract. With
respect to this program, approximately 26% of our degree program revenues and approximately 20% of our total revenues were derived from this program during the year ended December 31, 2002. Accordingly, the loss of this contract will have a
material adverse impact on our revenues and earnings and if not replaced



14



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with anticipated revenue and earnings increases due to growth in our other existing programs and/or new
programs, will result in a material adverse impact on the Company and its financial results.



The contracts with the University of Florida with respect to our other degree program, Doctor of Pharmacy, have between two to four years left on their terms. We received approximately 34% of our
degree program revenues and approximately 27% of our total revenues from this program during the year ended December 31, 2002.



Our non-degree programs have terms tied to the economic life of the program which we estimate to be approximately 10 years. We pay the
University of Florida 3 to 15 percent of total student fees collected with respect to non-degree programs.



In January, 2001 we began an initiative with GE Medical Systems, a division of General Electric Company (GE) whereby we use
the marketing channels and marketing strength of GE to assist in marketing certain healthcare programs. In consideration for their channels and efforts, we have agreed to pay a commission on all sales made as a result of their channels or efforts.
To date, the Company has received minimal benefits with respect to this channel relationship.



In January of 2001, we signed an agreement with Eduprise, Inc., a private e-Learning services company, to provide the following e-Learning services with respect to certain of our programs:



| |  |  | Solution Management Services
| | - |  | ----------------------------

| |  |  | Strategic Services
| | - |  | ------------------



| | Ø |  | Assessment and status review of university and corporate partner instructional technology systems
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | Infrastructure Support Services
| | - |  | -------------------------------



| | Ø |  | 24x7 student and instructor help desk
| | - |  | -------------------------------------

| | Ø |  | 24x7 high-bandwidth, redundant global network
| | - |  | ---------------------------------------------

| | Ø |  | 24x7 hosting and support services for software platforms
| | - |  | --------------------------------------------------------



| |  |  | Instructional Development Services
| | - |  | ----------------------------------



| | Ø |  | Instructional Design Help Desk for Instructors
| | - |  | ----------------------------------------------

| | Ø |  | Resource Center
| | - |  | ---------------

| | Ø |  | Software Training for Instructors
| | - |  | ---------------------------------



| |  |  | Course Conversion Services
| | - |  | --------------------------



Program Development Strategy



Our program management and development team consists of senior professionals who hold at least a masters or doctorate degree. Our
entry-level new program management staff is required to have a bachelors degree. We believe that these educational requirements will enable them to work more effectively with the academic personnel of our content partners. Additionally, we
updated our software and development tools to include a multi-step management process to effectively monitor and manage each individual program as it is developed. With these additional resources, we anticipate that the typical program development
will be three to six months in length.



Our
Program Development strategy is organized around a four-step process that includes:



1.    Course/Program Identification



A program or course is developed from an analysis of the marketplace. We only develop and deliver a specific program after we have completed several market tests and received the level of marketplace
interest that we believe is necessary to develop, sell and operate a program profitably.



15



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We scan the marketplace to find educational opportunities that are quickly transferable to
our delivery models. The criteria that are required for initial consideration of a potential program include:



| |  |  | Identified opportunity in the working professional marketplace;
| | - |  | ---------------------------------------------------------------



| |  |  | Designed for the working professional;
| | - |  | --------------------------------------



| |  |  | Suitable to the technology and marketing approach of our delivery system and our learning model; and
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | Offers financial and specific career benefits to the student which are consistent with our slogan Knowledge That Earns.
| | - |  | -------------------------------------------------------------------------------------------------------------------------



2.    Curriculum Design



Once a new product is identified, the curriculum must be
designed to operate within our delivery system. Most existing degree or non-degree programs that are identified are not scalable or able to be easily integrated into a distributed learning format without completely restructuring the curriculum.
Therefore, our first step is to locate the best Knowledge Experts and begin the design. Where it is needed, an Academic Curriculum Committee will provide oversight and recommendations regarding the curriculums academic
goals and structure. An Academic Accreditation Partner may also be involved, particularly where degree accreditation is needed.



Once the educational objectives have been determined, the Knowledge Expert will become a part of our instructional design team
whose members include an instructional designer, media/art producer, and a technology specialist. The task of the instructional design team is to create the highest quality, dynamic, and interactive learning environment possible. The team uses
technology and Internet communication tools in combination with proven curriculum design methods. We believe that this instructional design system produces the highest outcomes as measured in student knowledge, application of that knowledge and
successful graduation.



3.    The Object
Learning Model



Our object-learning model
has been developed to be delivered to students utilizing, as a component of, our web-based or satellite delivery systems. Our learning model is based upon the following characteristics:



| |  |  | Curriculum
| | - |  | ----------

Programs are
developed to provide for specific educational outcomes. We believe that by integrating academic theory with professional practice that the marketability of our students in the work place is increased thereby creating the opportunity for higher pay
and better positions.



We are in a constant
process of updating and improving our programs and the curriculum. In conjunction with this process we have implemented a quality assessment program which allows our students and professors to assess and rate our programs and curriculum based on a
number of factors which includes:



| |  |  | Effectiveness of our programs
| | - |  | -----------------------------



| |  |  | Ease of participation and access
| | - |  | --------------------------------



| |  |  | Quality of content
| | - |  | ------------------



16



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| |  |  | Depth of content
| | - |  | ----------------



| |  |  | Program efficiency and length
| | - |  | -----------------------------



| |  |  | Outcome satisfaction
| | - |  | --------------------



Based upon the level of rating, we make the necessary and appropriate modifications and adjustments in an effort to achieve the intended
and desired results.



| |  |  | Faculty
| | - |  | -------



A key characteristic of all of our programs is to supply our students with mentor professors and facilitators with the appropriate
academic credentials and demonstrated professional experience in the area of instruction. We also require the professors to have the requisite professional experience. We maintain a quality assessment program which serves to develop continuous
curriculum and professor improvement which, we believe, helps students attain their objectives. Our quality assessment program allows our students to assess and rate the quality of the professors. If a professor is given a less than better
than average rating by our students, we immediately remedy the problem or replace him or her.



| |  |  | Competency-based Evaluation
| | - |  | ---------------------------



In assessing a students progress, we utilize competency-based evaluations throughout our programs. This allows students to focus
their attention on their areas of weakness.



| |  |  | Interactive Learning
| | - |  | --------------------



Courses are designed for maximum faculty and student interaction. Group activity coupled with interactive electronic applications allows
the students access to our professors and fellow students.



| |  |  | Case Method of Learning
| | - |  | -----------------------



Many of our programs utilize the case method learning approach. This methodology provides students with real-life case studies that they
can apply to the workplace.



| |  |  | Academic Degrees and Non-degrees
| | - |  | --------------------------------



The programs are developed to award academic degrees and non-degrees from partner educational institutions, upon successful completion of
all courses. In addition, non-degrees of completion are awarded for successful completion of each individual course.



4.    Our Delivery System



The working professional has a select set of educational requirements. We attempt to meet these needs for accessibility, time and cost
effectiveness, and immediate applicability to work through our delivery system. This system allows the student to utilize the program within the time and access demands of the working professional. This system is designed to let students in any
geographic location take the program. Some programs require the student to travel to a centralized location at least once per course to interact with their mentor/professor and other students. The key components of the model include:



17



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| |  |  | Internet casework prescribed by mentor/professor.
| | - |  | -------------------------------------------------



The Internet is used as a component of our system by giving the student the ability to:



| |  |  | Communicate with their mentor/professor and fellow students via e-mail and web chat
| | - |  | -----------------------------------------------------------------------------------



| |  |  | Research online resources
| | - |  | -------------------------



| |  |  | Review syllabus and course information
| | - |  | --------------------------------------



| |  |  | Complete online tests
| | - |  | ---------------------



| |  |  | Submit homework
| | - |  | ---------------



| |  |  | Video workbook completed at home.
| | - |  | ---------------------------------



The majority of the lecture material is presently videotaped and distributed to the students to be viewed at their own schedule. Expert
presenters are brought to a video production facility for filming prior to the beginning of the course. This format allows the students to view the material at a time convenient for them and allows them to review it multiple times if required.



| |  |  | Audio Streaming
| | - |  | ---------------



We have also use with certain of our programs audio streaming with PowerPoint presentations. We believe that this additional feature will
enhance the quality of our programs and provide a more effective learning experience for our students.



| |  |  | Clinical class work on a select basis to determine competence.
| | - |  | --------------------------------------------------------------



Some courses require students to demonstrate certain competencies in order to successfully complete the
program. These competencies are related to the applicable course and in the case of our Doctor of Pharmacy, Doctor of Audiology and Life Care Planning programs are developed in regional meeting sites.



For our Doctor of Pharmacy and Doctor of Audiology programs,
we establish regional meeting sites in select geographical areas where at least one instructor is provided for at least five but typically no more than 25 students who are within two to three hours driving distance from the meeting site. Generally,
if there are less than five students in any given geographical area then in order to take the program the student will be required to travel to the nearest regional meeting site. Usually, if there are more than 25 students in any such area, we break
the region into as many multiple areas as are necessary to satisfy our enrollment/instructor criteria.



For our Life Care Planning program where student enrollment has been historically less than our doctorial programs and where the students
typically live in diverse, unconcentrated locations, we provide for rotating multiple meeting sites to minimize the distance which the students are required to travel.



| |  |  | Group interaction allowing for specific study of content topics and case presentations.
| | - |  | ---------------------------------------------------------------------------------------



Group interaction is utilized to give the student the opportunity to discuss and express their understanding
of the applicable material. Group interaction can take place in person at a regional location or it can take place via the telephone or web chat. We feel that the group interaction component reinforces the learning experience and effectiveness of
the curriculum.





18



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Employees



As of March 26, 2003, we employed 61 people comprised of 10 program managers, 6 marketing and sales
personnel, 3 technology experts, 35 admission advisors, and 7 individuals in general administration. We will hire additional employees on an as needed basis. We believe that our relationship with our employees is good. None of our employees are
members of collective bargaining units or labor union contract nor have we been subjected to any strikes or employment disruptions.



Major Suppliers



Except for curriculum obtained from the University of Florida, which is currently a large portion of our educational content on an
absolute revenue basis, we obtain our products and supplies from many different individuals and entities and are not dependent on any major suppliers. An interruption or loss of our relationship with the University of Florida, such as the loss of
the previously described Doctor of Audiology program without additional revenue and earnings increases in our other programs and/or revenue and earnings derived from replacement programs, will have a material adverse effect on our future business
and financial results.



Dependence on Key Customers



Presently, we have only five university
knowledge partners, with the University of Florida providing a major portion of our content for our healthcare programs. We are highly dependant on the University of Florida but anticipate continuing to enter into agreements with other colleges,
universities, associations and companies at large for content. An interruption or loss of our relationship with the University of Florida, such as the loss of the previously described Doctor of Audiology program, will have a material adverse effect
on our business and financial results.



Patents, Trademarks,
Licenses



We do not depend upon any patents
to conduct our business; nor do we hold any such patents. We have, however, registered with the US Patent and Trademark Office (PTO) the following trade names, trademarks and service marks:



| |  |  | Knowledge That Earns
| | - |  | --------------------

| |  |  | JurisAlliance
| | - |  | -------------

| |  |  | KnowledgePharm
| | - |  | --------------

| |  |  | Intelicus
| | - |  | ---------

| |  |  | CJ-Direct
| | - |  | ---------

| |  |  | Global HealthEd
| | - |  | ---------------

| |  |  | Compass Knowledge
| | - |  | -----------------



We have approximately 40 professional service agreements (or license arrangements) with the University of Florida with respect to use of
the University of Floridas name, logo and content in both course development and marketing.



Software



Our material component software is obtained from the following vendors:



|Microsoft Corporation                     |  | FrontRange Software (Goldmine)
|----------------------------------------- |  | ------------------------------
|Akiva Software (Webboard6)                |  | Respondus2.0                  
|Adobe (Acrobat 5, Photoshop 6, PageMaker) |  | Flowerfire (Sawmill6.4.1)     



19



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|eShare Communications (Expressions 4.3)                                          |  | GlobalScape (CuteFTP)       
|-------------------------------------------------------------------------------- |  | ----------------------------
|Nero (Ahead)                                                                     |  | Navision Financial Solutions
|WebCT                                                                            |  | Symantec                    
|Macromedia (Flash, Fireworks4, Director8.5, Dreamweaver3, Dreamweaver
UltraDev4)



The
Microsoft Corporation provides the NT Small Business Server 4.5. for our file servers. Eshare Technology provides our chat server software. We have obtained a license from WebCt to provide the software necessary to operate our educational programs
in conjunction with our university and college partners. We run our accounting systems utilizing Navison Financial Solutions. We utilize a hosting company for the majority of our web hosting needs.



Research and Development



In our Form 10-SB filed with the Commission in May 2000, we
reported $167,063 of costs incurred with respect to research and development activities. Upon further review with our accountants we have determined that such costs are not associated with research and development activities as those terms are
traditionally understood but rather program development costs. Accordingly, we have not incurred any costs associated with research and development activities for the years ended December 31, 2001 and 2002.



Costs and Effects of Compliance with Environment Laws



To the best of our knowledge, we are in compliance with all
applicable federal, state, and local environmental laws and regulations. We are unaware of any federal, state or local environmental laws or regulations which have a material effect on our operations and business. We have incurred minimal costs
associated with environmental compliance.



Item 2.    Description of Property



The majority of our business activities are conducted out of our corporate offices located at Suite 100 and 200, 2710 Rew Circle and Suites 104 and 105, 2704 Rew Circle, Ocoee, Florida 34761. These
facilities house our technical and administrative offices. These spaces consist of approximately 7,000 square feet of office and production space. The lease term expired on September 30, 2002 and the Company executed an Addendum extending the term
of the Lease until September 2004. With respect to our facility at 2704 Rew Circle, we are on a month to month basis. The average monthly rent is approximately $10,170, or $122,043 per annum. We believe that our leased property is in good condition
and is well maintained.



As a result of our
planned growth, we recently entered into a lease for approximately 3,260 additional square feet of office space in the same office park as where our corporate offices are located. The space is to be utilized to accommodate the anticipated and
planned expansion of our sales, marketing and enrollment departments. The lease has a term of two years at an average monthly rate of $3,667.50, or $44,010 per annum.



We do not have any policies regarding investments in real estate, securities or other forms of property.



Item 3.    Legal Proceedings



Neither the Company, nor any of its subsidiaries are a party to any legal action or proceeding which would have a material adverse effect on its business or results of operation.





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On or about January 13, 2003, the former shareholders of eLNet filed an objection to the
amount of the incentive payments previously paid them pursuant to the original acquisition agreement of eLNet indicating that they are of the belief that they are entitled to an unspecified additional amount. While we believe that our accounting
with respect to these incentive payments is accurate and that no additional monies are due these shareholders, no assurance can be given that we will not be required to make additional payments to these shareholders either in settlement of this
matter or as ordered by a court of competent jurisdiction in the event a lawsuit against the Company is instituted.



Item 4.     Submission of Matters To A Vote of Security Holders



No matter was submitted to a vote of our security holders during the fourth quarter of 2002.



PART II



Item 5.    Market for Common Equity and Related Stockholder Matters



(a) Market Prices of Common Stock. Our common stock, par value $.001 per share, was eligible in July 1998 for trading on the NASDAQ
Over-The-Counter Bulletin Board service under the symbol WTHP which was changed to CKNO effective with our recapitalization on November 15, 1999.



Until November 15, 1999 there was no established trading market for our common stock. The Companys
shares of common stock are currently listed and traded on the NASDAQ Over-the-Counter Bulletin Board under the symbol CKNO. Because we engage in Over-The Counter market quotations, these quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commissions and may not represent actual transactions. The high and low closing prices for the Companys common shares for each quarter of 2001 and 2002 were as follows:



|Period         |  | Per Share of Common Stock Closing Prices
|-------------- |  | ----------------------------------------
|               |  | High                                    
|2001           |  |                                         
|First Quarter  |  | $                                       
|Second Quarter |  | $                                       
|Third Quarter  |  | $                                       
|Fourth Quarter |  | $                                       
|              
|2002           |  |                                         
|First Quarter  |  | $                                       
|Second Quarter |  | $                                       
|Third Quarter  |  | $                                       
|Fourth Quarter |  | $                                       



The last
sales price of our common stock on March 20, 2003 as reported on the NASDAQ OTC:BB was $0.40 per share.



(b) Shareholders. As of March 20, 2003, we had 15,861,250 shares of common stock outstanding, and 2,000 shares of Series A Preferred
outstanding. The Company has approximately 110 common stockholders of record and one Series A Preferred stockholder.



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(c) Dividends. We have never declared or paid any cash dividends on our common stock and
do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain future earnings, if any, to finance operations and the expansion of our business. Any future determination to pay cash dividends will be at the
discretion of the board of directors and will be based upon our financial condition, operating results, capital requirements, plans for expansion, restrictions imposed by any financing arrangements and any other factors that the board of directors
deems relevant.



(d) Recent Sales of Unregistered
Securities.



The following information
sets forth certain information for all securities sold by the Company during the past three years without registration under the Securities Act of 1933, as amended (the Securities Act).



Fiscal Year 1999



Effective October 31, 1999, Compass Knowledge Group, Inc.
consummated a tax-free stock exchange with the shareholders of Rehabilitation Training Institute whereby Rehabilitation Training Institute shareholders exchanged, on a one-for-one basis, all of their common stock in Rehabilitation Training Institute
for common stock in Compass Knowledge Group, Inc.



Effective November 5, 1999, the Company sold to Pioneer Ventures Ltd. Partnership 2,000 shares of its Series A Preferred Stock for cash proceeds totaling $1,750,000.



On November 15, 1999, the Company was recapitalized in a tax-free acquisition of Winthrop Industries, Inc., a
Nevada corporation. In accordance with the acquisition agreement, our common stockholders received one share of Winthrop Industries common stock for each share of common stock owned by them and our preferred shareholders received a like kind
and number with identical preferences of Series A Preferred Stock in Winthrop Industries in exchange for our Series A Preferred Stock. No new shares of common stock were issued to the shareholders of Winthrop as part of the exchange.



As an additional negotiated condition of the Winthrop
Industries acquisition, the management of Winthrop Industries completed an offering on November 15, 1999 of 2,000,000 shares of its common stock, at an offering price $2.00 per share, raising proceeds of $3,936,025, net of offering costs of $63,975.
Neither the Company nor any of its officers, directors or shareholders assisted or participated in this offering.



On December 1, 1999, the Company purchased the 35.5% equity interest in Intelicus, LC which was then owned by the University of Florida
Foundation, Inc. In exchange for the 35.5% interest, Compass issued to the University of Florida Foundation 500,000 shares of its common stock and contributed $300,000 in cash consideration to the University of Florida Foundation.



With respect to the foregoing offers and sales of restricted
and unregistered securities, the Company relied on the provisions of Sections 3(b) and 4(2) of the Securities Act and rules and regulations promulgated thereunder, including, but not limited to Rules 505 and 506 of Regulation D, in that such
transactions did not involve any public offering of securities and were exempt from registration under the Securities Act. The offer and sale of the securities in each instance was not made by any means of general solicitation, the securities were
acquired by the investors without a view toward distribution, and all purchasers represented to the Company that they were sophisticated and experienced in such transactions and investments and able to bear the economic risk of their investment. A
legend was placed on the certificates and instruments representing these securities stating that the securities evidenced by such certificates or instruments, as the case may be, have not been registered under the Securities Act and setting forth
the restrictions on their transfer and sale. Each investor also signed a written agreement that the securities would not be sold without registration under the Securities act or pursuant to an applicable



22



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exemption from such registration.



Fiscal Year 2000



On August 15, 2000, the Company completed the acquisition of the outstanding capital stock of Educators
Learning Network, Inc., (eLNet), f/k/a Jamita, Inc., a distance learning leadership development services firm serving the K-12 educators marketplace headquartered in Cincinnati, Ohio. The capital stock was acquired from a group of
employee shareholders and their family members who had no prior relationships with us. The purchase price of $1.875 million (before contingent consideration) was paid solely in cash. In addition, 562,500 shares of our common stock valued at $2.00
per share (which was approximately the average closing price of the stock for the 20-day period ended August 14, 2000) was placed into an escrow account for distribution to the Jamita shareholders subject to Jamita having net collections of
approximately $1 million in the first fiscal year following the closing. This condition was satisfied and the escrowed shares were released in August 2001.



On August 15, 2000, we also completed the acquisition of the outstanding capital stock of Rutherford Learning Group, Inc.,
(RLG), an educational leadership and professional development company services firm headquartered in Charlotte, North Carolina. Prior to the acquisition, RLG, through a consulting agreement, provided eLNet with onsite consulting and
video presentation materials for its K-12 leadership programs. The capital stock was acquired from Michael Rutherford, the sole employee shareholder. Mr. Rutherford had no prior relationships with us. The purchase price consisted of $50,000 in cash,
125,000 shares of our common stock valued at $2.00 per share (which is approximately the average closing price of the stock for the 20-day period ended August 14, 2000) and 10% of the total issued and outstanding capital stock of eLNet.



With respect to the foregoing offers and sales
of restricted and unregistered securities, the Company relied on the provisions of Sections 3(b) and 4(2) of the Securities Act and rules and regulations promulgated thereunder, including, but not limited to Rules 505 and 506 of Regulation D, in
that such transactions did not involve any public offering of securities and were exempt from registration under the Securities Act. The offer and sale of the securities in each instance was not made by any means of general solicitation, the
securities were acquired by the investors without a view toward distribution, and all purchasers represented to the Company that they were sophisticated and experienced in such transactions and investments and able to bear the economic risk of their
investment. A legend was placed on the certificates and instruments representing these securities stating that the securities evidenced by such certificates or instruments, as the case may be, have not been registered under the Securities Act and
setting forth the restrictions on their transfer and sale. Each investor also signed a written agreement that the securities would not be sold without registration under the Securities act or pursuant to an applicable exemption from such
registration.



Fiscal Year
2001



Beginning in March 2001, through a
Board authorized private placement of our common stock, the Company sold 605,000 shares of its restricted common stock at $0.50 per share and warrants to purchase an additional 302,500 shares at an exercise price of $0.50 per share. This private
offering was closed in July 2001.



In July of
2001 in exchange for Pioneer Ventures Ltd. Partnerships consent to allow us to change accountants, the Company granted Pioneer warrants to purchase: 100,000 of our common shares at $0.55 per share expiring on December 31, 2002; 100,000 of our
common shares at $0.75 per share expiring on December 31, 2003; and, 100,000 of our common shares at $1.00 per shares expiring on June 30, 2004.



With respect to the foregoing offers and sales of restricted and unregistered securities, the Company relied on the provisions of Sections
3(b) and 4(2) of the Securities Act and rules and regulations



23



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promulgated thereunder, including, but not limited to Rules 505 and 506 of Regulation D, in that such
transactions did not involve any public offering of securities and were exempt from registration under the Securities Act. The offer and sale of the securities in each instance was not made by any means of general solicitation, the securities were
acquired by the investors without a view toward distribution, and all purchasers represented to the Company that they were sophisticated and experienced in such transactions and investments and able to bear the economic risk of their investment. A
legend was placed on the certificates and instruments representing these securities stating that the securities evidenced by such certificates or instruments, as the case may be, have not been registered under the Securities Act and setting forth
the restrictions on their transfer and sale. Each investor also signed a written agreement that the securities would not be sold without registration under the Securities act or pursuant to an applicable exemption from such registration.



Fiscal Year 2002



On February 5, 2002, Michael J. Etchison, a
non-related party, provided the Company with a line of credit in the principal amount of $250,000 (Loan) secured by the assets of the Company. Under the Loan, the Company can borrow up to $250,000 with interest payable monthly at a rate
of approximately 5% over prime at anytime during the loan commitment term which originally was scheduled to expire on March 1, 2003, unless renewed by the parties. Effective March 1, 2003 the Loan commitment was extended until July 1, 2003 with the
agreement that the Loan commitment was reduced to $150,000 and the interest rate accruing on all outstanding principal amounts was increased to 6% over prime.



In accordance with the terms of the Loan, the Company issued to Mr. Etchison a commitment warrant to purchase 75,000 shares of the
Companys common stock, $.001 par value, exercisable at anytime within 5 years at an exercise price of $0.30 per share. In addition, contemporaneous with each draw down (which to date totals $75,000 in the aggregate), the Company will issue and
deliver to Mr. Etchison a warrant to purchase that number of shares of the Companys common stock that equals 50% of the principal amount of each draw down. For example, in connection with the Company draws of $75,000 on the Loan, the Company
issued to Mr. Etchison a coverage warrant to purchase 37,500 Shares. The term of these coverage warrants is five years and the exercise price is: (i) if all or any portion of the warrant is exercised within six (6) months of its issue date, then the
exercise price will be $0.50 per share; or, (ii) at anytime after six (6) months from its issue date the exercise price will be equal to 80% of the Fair Market Value of one share of Lenders common stock. Notwithstanding, in no
event shall the conversion price be less than $0.30 per share.



With respect to the foregoing offer and sale of restricted and unregistered securities, the Company relied on the provisions of Sections 3(b) and 4(2) of the Securities Act and rules and regulations promulgated thereunder, in that
such transactions did not involve any public offering of securities and were exempt from registration under the Securities Act. The offer and sale of the securities in each instance was not made by any means of general solicitation, the securities
were acquired by the investors without a view toward distribution, and all purchasers represented to the Company that they were sophisticated and experienced in such transactions and investments and able to bear the economic risk of their
investment. A legend was placed on the certificates and instruments representing these securities stating that the securities evidenced by such certificates or instruments, as the case may be, have not been registered under the Securities Act and
setting forth the restrictions on their transfer and sale. Each investor also signed a written agreement that the securities would not be sold without registration under the Securities act or pursuant to an applicable exemption from such
registration.



Item 6. Managements Discussion and Analysis of Financial Condition and Results of Operations



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





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Amendment and Restatement
of Financial Statements



THIS FORM 10-KSB/A IS BEING FILED
FOR THE PURPOSE OF AMENDING AND RESTATING PARTS OF 10-KSB/A TO REFLECT THE RESTATEMENT OF OUR CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE PERIODS ENDED DECEMBER 31, 2002. THESE REVISIONS HAVE BEEN MADE AS A RESULT OF A CLERICAL ERROR IN
CALCULATING THE COMPANYS LOSS FROM DISCONTINUED OPERATIONS. ALL PORTIONS OF THE 10-KSB/A THAT ARE AFFECTED BY THESE REVISIONS HAVE BEEN ADJUSTED ACCORDINGLY. ALL INFORMATION IN THIS 10-KSB/A IS AS OF DECEMBER 31, 2002, AND DOES NOT REFLECT ANY
SUBSEQUENT INFORMATION OR EVENTS OTHER THAN THE RESTATEMENT.



The
restated financial statements in this report incorporate the proper entries for these expenses and all necessary adjustments have been made to the balance sheet, statement of operations, stockholders equity and cash flows in the financial
statements.



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



Overview



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



Overall, the outcomes from operations were
favorable as the Company experienced four consecutive quarters of profits from operations and ended the year with income from operations of approximately $470,000 compared to a loss of $717,000 in the year ago period, or an increase of over 159%.



Notwithstanding, the favorable operating results
were diminished by the discontinuation of the Companys K-12 subscription program operations in the fourth quarter of 2002 because of substantial decreases in its customer base, customer budget cuts, lack of contract backlog, declining revenues
and uncertainty in the market. This business operation had been operated within the Companys wholly owned subsidiary, eLNet, since its acquisition in 2000.



Outlook



We intend to continue our strategy of focusing on our core business and accelerate our growth through the increase in sales by investing
in our core products and services through the adoption of a more aggressive execution, pricing and marketing strategy in 2003. At the same time, we intend to continue to develop and refine our program management, technology solutions and consulting
business as



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a complement to our core program offerings. Likewise, we will continue to pursue synergistic knowledge
partner alliances and develop new programs on a highly selective basis. Based on this strategy, we expect to be profitable in 2003. This prospect is based on, managements expectation of increased student counts and the associated revenues in
our degree and consulting businesses, launching at least one new program to replace the loss of our nursing programs with Graceland University and the reduction in revenues or anticipated loss of our Audiology program with the University of Florida
in September 2003 combined with lower levels, on a percentage basis, of general and administrative spending compared to 2002.



Effective January 2003 the Company retained the services of Rich Flaherty to oversee its operations with a concentration on sales and
marketing efforts. Beginning in early 2003, Mr. Flaherty has developed and implemented new marketing and sales strategies and tactics and in connection with same, the Company has committed a large portion of its available cash and human resources to
execute these plans.



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



Critical Accounting Policies and
Estimates



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



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



Our critical accounting policies include:



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| |  |  | Revenue Recognition. The Company offers consulting services and three types of educational programs: degree programs, non-degree programs, and
subscription-based programs.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



The revenue generated in fiscal 2002 and in prior years by
subscription services originated from our K-12 operations (which was discontinued in the fourth quarter of 2002 and sold in February 2003) is in the form of subscription contracts with eLNet. These contracts are generally for a period of two to
three years. Revenue is billed for a six- or twelve-month period in advance and is recognized ratably over the billing and service period.



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



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



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



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



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



27



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indicating the potential for impairment. Any required goodwill impairment charges would be presented as a
separate line item within the operating section of the income statement. The change from an amortization approach to an impairment approach would apply to previously recorded goodwill, as well as goodwill arising from acquisitions completed after
the application of the new standard. The Company adopted SFAS No. 142 for its fiscal year beginning January 1, 2002 and as a result, the Company no longer amortized goodwill.



In accordance with the provisions of SFAS 142, the Company completed its initial assignment of previously
recognized goodwill to its subsidiaries during the second quarter of 2002. Based on this assignment, management believed, at that time, that the carrying amount of the net assets (including goodwill) of its subsidiary, eLNet, exceeded its fair
value. Accordingly, the Company wrote-off $2,000,000 of goodwill related to eLNet. As a result of the discontinuation of eLNets operations in the fourth quarter of 2002 and the sale of eLNet effective February 28, 2003, we recognized an
additional loss from discontinued operations of approximately $993,000 (as restated) as of December 31, 2002. Net liabilities to be disposed of, at their expected realizable values, have been separately classified in the accompanying balance sheet
at December 31, 2002.



Analysis of Financial Condition and
Results of Operations For The Twelve Months Ended December 31, 2002 Compared To Twelve Months Ended December 31, 2001



Readers of the following information and our Financial Statements must be aware that due to the discontinuation as of December 31, 2002
and sale in February of 2003 of our K-12 operations, which was previously undertaken by our wholly owned subsidiary, eLNet, the analysis of our financial condition and results of operation contained herein with respect to revenues, cost of goods
sold, and operating expenses and margins and our liquidity analysis is presented with the understanding that all financial information of eLNet for the periods ending December 31, 2002 and 2001 are netted and reflected as Net Assets From
Discontinued Operations and Provision for Loss From Disposal of Discontinued Operations on our Balance Sheet, Discontinued Operations after Income From Continuing Operations Before Preferred Dividends on our
Statement of Operations and Transitional Goodwill Impairment Loss and Provision for Loss From Disposal of Discontinued Operations on our Statements of Cash Flows.



The restated financial statements in this report
incorporate the proper entries for these expenses and all necessary adjustments have been made to the balance sheet, statement of operations, stockholders equity and cash flows in the financial statements.



Our revenues increased by $863,053 to $4,868,211 for fiscal
2002, from $4,005,158 in fiscal 2001, representing an increase of 21.5%. This increase is primarily attributed to a 37% increase in our degree programs primarily related to: (i) a 227% increase in revenues with respect to our radiology degree
program reflecting a full year of revenue recognition combined with a more sales to new students; (ii) a 13.3% increase in revenues with respect to our bachelors of criminal justice program; (iii) the launching of two new nursing programs with
Graceland University (which will be discontinued in 2003) and a new masters degree program in criminal justice with the University of Cincinnati; (iv) coupled with slight increases in our revenues with respect to our audiology (7.1%) and
pharmacy (5.1%) programs. The increase in the degree program revenues were slightly offset with a 12.9% decline in our certificate revenues, consulting and other revenues. Consulting contracts, a new source of revenue for us in 2001, contributed
$384,000 during fiscal 2002, a decline of $98,000 or approximately 20%.



Gross profit increased by $936,572, or 33.4%, to $3,741,744 for fiscal 2002 from $2,805,172 in fiscal 2001, primarily due to increased margins in our degree programs of 54.1% and partially offset by decreases of
approximately 18.1% in our non-degree program margins (principally related to the write-off of content with respect to certain discontinued certificate programs). In fiscal 2002, our gross profit margin increased to 76.9% from 70% in the comparable
2001 period. The



28



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increase is primarily attributed to increased margins in our radiology program and bachelors of
criminal justice program, which collectively account for a higher percentage of revenues than in the year ago period.



Operating expenses decreased by 251,802 to 3,283,137 for fiscal 2002 from $3,534,939 for fiscal 2001, representing a decrease of
approximately 7.1%. This decrease is primarily due to:



| |  |  | A reduction of payroll and contract labor collectively aggregating $119,067 primarily resulting from the resignation of the Companys CFO in May of 2002.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | A reduction of $39,053, or 48.4%, in travel as the exploration for new programs and other initiatives was significantly curtailed.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------

| |  |  | Recruiting expenses was down $28,257 as few new employees were brought on board in fiscal 2002.
| | - |  | -----------------------------------------------------------------------------------------------

| |  |  | Depreciation and amortization expense classified as operating expenses decreased by $22,012 to $221,028 in fiscal 2002 from $243,040 in fiscal 2001 reflecting the
continued and reduced amortization of other assets, primarily marketing and content development investments undertaken in support of degree programs.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | These decreases were partially offset by rising directors and officers liability insurance and professional fees of $27,374 (25.6%) and $30,718 (37.3%),
respectively
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



Net interest income
decreased by $7,000 to $6,000 in fiscal 2002 from $13,000 in fiscal 2001. This decrease reflects our allocation of cash reserves to the investments we made in people, programs and marketing.



As a result of the increase in revenues and gross margin,
coupled with slightly lower operating expenses and lower net interest income, net income from continuing operations before preferred dividends increased by $1,187,000, resulting in a net income from continuing operations before preferred dividends
of approximately $470,000 for fiscal 2002 compared with a net loss before dividends of approximately $717,000 in fiscal 2001.



Discontinued Operations



The Company discontinued its K-12 subscription program operations in the fourth quarter of 2002 because of substantial decreases in its
customer base, customer budget cuts, lack of contract backlog, declining revenues and uncertainty in the market. This business operation had been operated within the Companys wholly owned subsidiary, eLNet, since its acquisition in 2000. eLNet
had annual revenues of $1,359,037 for the fiscal year ending December 31, 2001 and $1,058,910 for the fiscal year ending December 31, 2002, with a net loss of $356,908 in 2001 and $165,796 in 2002.



Effective February 28, 2003, we entered into and consummated
the closing of a Stock Purchase Agreement with R&B Holdings, Inc., a Virginia corporation whereby we sold all of the issued and outstanding stock of eLNet for $326,704 in cash and the assignment to the Company of an eLNet receivable in the
amount of $123,296. In connection with that transaction, eLNet maintained its right to collect and keep all of the remaining outstanding receivables totaling approximately $29,000 and remained responsible for the payment of approximately $34,537 of
accounts payable and other accrued expenses. Each of the parties was responsible for their legal, accounting and other expenses incurred in connection with the transaction.



The summary of the results from discontinued operations is as follows:



The contractual net assets identified as part of the disposition of eLNet are
recorded as net assets of discontinued operations and the net cash flow of this business are reported asNet cash provided by discontinued operations.



29



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|Net assets of discontinued operations                         |  | 2002                   |        |   | 2002        |   |        | 2001                   |  |   | 2001        |  
|------------------------------------------------------------- |  | ---------------------- | ------ | - | ----------- | - | ------ | ---------------------- |  | - | ----------- | -
|(thousands of dollars)                                        |  | As Previously Reported |        |   | As Restated |   |        | As Previously Reported |  |   | As Restated |  
|Net current assets                                            |  | $                      | 37     |   |             | $ | 37     |                        |  | $ | 72          |  
|Property, plant and equipmentnet                             |  |                        | 18     |   |             |   | 18     |                        |  |   | 33          |  
|Other net noncurrent assets                                   |  |                        | 1,514  |   |             |   | 1,514  |                        |  |   | 3,360       |  
|Net assets of discontinued operations                         |  | $                      | 1,570  |   |             | $ | 1,570  |                        |  | $ | 3,465       |  
|                                                             
|Discontinued operationsnet of tax were as follows:           |  | 2002                   |        |   | 2002        |   |        | 2001                   |  |   | 2001        |  
|(thousands of dollars)                                        |  | As Previously Reported |        |   | As Restated |   |        | As Previously Reported |  |   | As Restated |  
|Net Sales                                                     |  | $                      | 1,059  |   |             | $ | 1,059  |                        |  | $ | 1,359       |  
|                                                             
|Pre-tax income/(loss)                                         |  | $                      | (166   | ) |             | $ | (166   | )                      |  | $ | (357        | )
|Provision for taxes on income                                 |  |                        |       |   |             |   |       |                        |  |   |            |  
|Loss from operations of discontinued businesses-net of tax    |  |                        | (166   | ) |             |   | (166   | )                      |  |   | (357        | )
|Pre-tax gain/(loss) on disposal of discontinued businesses    |  |                        | (1,550 | ) |             |   | (993   | )                      |  |   |            |  
|Provision/(benefit) for taxes on gain/(loss)                  |  |                        |       |   |             |   |       |                        |  |   |            |  
|Gain/(loss) on disposal of discontinued businesses-net of tax |  |                        | (1,550 | ) |             |   | (993   | )                      |  |   |            |  
|Discontinued operationsnet of tax                            |  | $                      | (1,716 | ) |             | $ | (1,159 | )                      |  | $ | (357        | )



Liquidity and Capital
Resources



Our cash and cash equivalents
totaled $451,000 as of December 31, 2002 as compared to $481,000 in 2001.



This slight decrease in cash was attributed to:



| |  |  | Cash provided by operating activities was $1,376,000 as compared to $857,000 in the year ago period, or an increase of approximately 62%.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Cash used in investing activities (principally marketing and content development) remained relatively consistent in 2002 as compared to 2001 reflecting a total spend
of $1,366,000 as compared to $1,355,000 in 2001.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We spent approximately $40,000 in cash related to financing activities primarily related to the payment of preferred dividends of $140,000 which was offset with the
receipt of $75,000 from our line of credit and the repayment of a $75,000 bridge loan made to an acquisition target in 2001.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



30



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to growth strategy, it is our intention to take all appropriate and reasonably necessary measures to
immediately reduce and/or eliminate certain members of our staff and infrastructure costs and expenses related to such terminated or discontinued programs.



Subsequent Events.



On March 5, 2003, we received a letter from Graceland University whereby Graceland, exercising its option under our agreement, elected to
terminate its relationship with us as a result of the failure to meet the minimum number of students threshold by the spring of 2003. Accordingly, we are in the process of discontinuing our Masters of Science in Nursing, Bachelors of Science
in Nursing and Registered Nurse to Masters of Science in Nursing programs as well as a one certificate program with Graceland. With respect to this program, approximately 4% of our degree program revenues and approximately 3% of our other revenues
were derived from these programs during the year ended December 31, 2002. As of this date, the details of our transitional arrangement with Graceland University are uncertain as well as the financial impact that the loss of this relationship will
have on our overall financial performance for 2003 and beyond.



We currently have contracts with the University of Florida for two ongoing degree and three ongoing non-degree programs. The contract with respect to one of our degree programs, Doctor of Audiology, expires in September of
2003 and as of this date, there is no indication that the University of Florida is willing to renew our contract or enter into a new contract with respect to this program. With respect to this program, approximately 26% of our degree program
revenues and approximately 20% of our total revenues were derived from this program during the year ended December 31, 2002. Accordingly, the loss of this contract will have a material adverse impact on our revenues and earnings and if not
replaced with anticipated revenue and earnings increases due to growth in our other existing programs and/or new programs, will result in a material adverse impact on the Company and its financial results.



Special Note Regarding Forward-Looking Statements and Risk Factors



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



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



31



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FACTORS AFFECTING OPERATING RESULTS AND MARKET PRICE OF SECURITIES



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



Our Business and Future Prospects.



We commenced operations in November 1993 and did not begin to
generate significant revenues until fiscal 1999. For the year ended December 31, 2002, we had revenues of $4.8 million and net income before dividends, changes in accounting principles and losses from discontinued operations of $459,000.



In June 2002 management utilizing the criteria
set forth in SFAS 142 determined that a portion of the goodwill associated with the acquisition of our wholly-owned subsidiary, eLNet, should be written-off. The fair value of eLNet as of that time was estimated by management using a combination of
traditionally accepted valuation methods (i.e., multiples of revenue and EBITDA as well as discounted cash flow and industry comparables). As a result, effective March 31, 2002 we recorded a transitional goodwill impairment loss of $2,000,000 as the
effect of a change in accounting principle. The recognized transitional goodwill impairment loss was an estimate that was not finalized until the filing of this Form 10-KSB due to managements inability, as of June 2002 to predict, with any
reasonable degree of accuracy, the long-term effect of the foregoing described factors.



The Company discontinued its K-12 subscription program operations in the fourth quarter of 2002 because of substantial decreases in its customer base, customer budget cuts, lack of contract backlog,
declining revenues and uncertainty in the market. This business operation had been operated within the Companys wholly owned subsidiary, eLNet, since its acquisition in 2000. eLNet had annual revenues of $1,359,037 for the fiscal year ending
December 31, 2001 and $1,058,910 for the fiscal year ending December 31, 2002, with a net loss of $356,908 in 2001 and $165,796 in 2002. Effective February 28, 2003, we entered into and consummated the closing of a Stock Purchase Agreement with
R&B Holdings, Inc., a Virginia corporation whereby we sold all of the issued and outstanding stock of eLNet for $326,704 in cash and the assignment to the Company of an eLNet receivable in the amount of $123,296. As a result of the sale of eLNet
which was effective as of February 28, 2003, we recognized an additional loss from discontinued operations of approximately $993,000 (as restated) as of December 31, 2002 resulting in a net loss for the year ending December 31, 2002 of approximately
$3.159 million (as restated).



On March 5,
2003, we received a letter from Graceland University whereby Graceland, exercising its option under our agreement, elected to terminate its relationship with us as a result of the failure to meet the minimum number of students threshold by the
spring of 2003. Accordingly, we are in the process of discontinuing our Masters of Science in Nursing, Bachelors of Science in Nursing and Registered Nurse to Masters of Science in Nursing programs as well as a one certificate program with
Graceland. With respect to this program, approximately 4% of our degree program revenues and approximately 3% of our other revenues were derived from these programs during the year ended December 31, 2002. As of this date, the details of our
transitional arrangement with Graceland University are uncertain as well as the financial impact that the loss of this relationship will have on our overall financial performance for 2003 and beyond.



We currently have contracts with the University of Florida for
two ongoing degree and three ongoing non-degree programs. The contract with respect to one of our degree programs, Doctor of Audiology, expires in September of 2003 and as of this date, there is no indication that the University of



32



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Florida is willing to renew our contract or enter into a new contract with respect to this program. With
respect to this program, approximately 26% of our degree program revenues and approximately 20% of our total revenues were derived from this program during the year ended December 31, 2002. Accordingly, the loss of this contract will have a
material adverse impact on our revenues and earnings and if not replaced with anticipated revenue and earnings increases due to growth in our other existing programs and/or new programs, will result in a material adverse impact on the Company and
its financial results.



The uncertainty of
our future performance, in particular, and the uncertainty regarding the contract with the University of Florida with respect to our Doctor of Audiology contract coupled with the loss of our nursing contract with Graceland University and the
uncertainty of our future growth prospects, in general, increases the risk that we will be unable to build a sustainable business and that our stockholder value will decline.



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



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



In addition, if the expected number of students do not sign up
for a course, our ability to recognize revenues will be delayed, which could also harm our operating results in any quarter. Student registration depends in large part on our marketing and promotional activities. If we fail to take necessary
measures to achieve enrollment in our courses, our ability to recognize revenues, and therefore our operating results, could be harmed.



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



We expect that we will continue to depend upon a small number
of content partners for a significant portion of our revenues. As a result, our operating results could suffer if we lose any of these partners or if these partners delayed payment in any future fiscal period. For example, in fiscal 2002, our
largest content partner accounted for approximately 47% of our total revenues. We expect that the University of Florida will account for a significant portion of our revenues at least through fiscal 2003. However, the contract with respect to our
Doctor of Audiology program with the University of Florida expires in September of 2003 and as of this date, there is no indication that the University of Florida is willing to renew our contract or enter into a new contract with respect to this
program. With respect to this program, approximately 26% of our degree program revenues and approximately 20% of our total revenues were derived from this program during the year ended December 31, 2002. Accordingly, the loss of this contract
will have a material adverse impact on our revenues and earnings and if not replacedwith anticipated revenue and earnings increases due to growth in our other existing programs and/or new programs, will result in a material adverse impact on
the Company and its financial results.



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



33



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



The e-learning market is evolving quickly and is subject to rapid technological change, shifts in



34



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



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



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



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



Due to the high market fragmentation, we do not often compete head-to-head with any particular company. On occasion, our customers may
evaluate our end-to-end solution by comparison with point solutions offered by other e-learning companies. We may not provide solutions that compare favorably with traditional new instructor-led techniques or other technology-based learning
methodologies. Our competitors vary in size and in the scope and breadth of the courses and services they offer. Several of our competitors have longer operating histories and significantly greater financial, technical and marketing resources.
Larger companies may enter the e-learning market through the acquisition of our competitors. We anticipate that the lack of significant entry barriers to the e-learning market will allow other competitors to enter the market, increasing competition.



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



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



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



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



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



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



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



In 2003, we have modified our growth
strategy by focusing all of our available resources on our current core offerings with the addition of one new program expected in the fall of 2003. Our strategy is to grow aggressively. This strategy will place significant demands on our financial,
operational, and management resources and will expose us to a variety of risks. Our expected growth will result in an increase in the level of responsibility for our key personnel. Expenses arising from our efforts to develop new products, or
increase our existing market penetration could have an adverse impact on our business, results of operations, and financial condition.



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



We Do Not Anticipate Any Acquisitions During 2003.



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



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



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



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



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



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



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



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



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



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



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



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



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



Some of Our Products Are Less Profitable Than Others.





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



Our Stock Price Will Likely Continue To Be Volatile.



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



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



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



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



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



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



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



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



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



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



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



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



Our Market Is Characterized By Rapid Technological Change.



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



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



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



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



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



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



37



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



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



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



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



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



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



We Have A History of Losses and No Assurance Can Be Given of Return to
Profitability.



Prior to expanding our
infrastructure and business in fiscal year 2000, the Company was profitable, but during the fiscal years 2000 and 2001 the Company was unable to generate revenue sufficient offset these additional expenses and in 2002, to offset losses resulting
from discontinued operations. Consequently, the Company again sustained substantial losses in 2002. Net losses before preferred dividends for the twelve (12) months ended December 31, 2002 were approximately $2.689 million (as restated) ($2.829
million after preferred dividends, as restated) or $(0.18, as restated) per share. This loss results from charges incurred with respect to the write off of goodwill and discontinued operations of eLNet in the aggregate amount of $3.159 million (as
restated). While no assurance can be given, we believe our continuing business operations which were profitable in 2002 will continue to be profitable in 2003 and that with the elimination of eLNet our resources, both human and capital, our cash is
largely adequate to support our planned growth in 2003.



Our Future Capital Needs; Potential Need for Additional Financing.



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



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





38



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



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



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



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



You Should Not Invest If You Expect Dividends.



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



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



There are currently approximately 15,861,250 shares of the Companys common stock outstanding which are either freely tradable or may be traded as restricted securities pursuant to Rule 144 under the Securities Act.
Under Rule 144, a person who has held restricted securities for a period of one year may sell a limited number of shares to the public in ordinary brokerage transactions. Sales of a large number of these securities will likely have a depressive
effect on the market price of the Companys common stock.



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



The Company and its subsidiaries will be dependent to a significant extent on the continued efforts and abilities of its Chairman and Chief Executive Officer, Rogers W. Kirven, Jr., its President,
Daniel J. Devine and other key employees. Notwithstanding its ownership of key-man life on Mr. Kirven, if the Company were to lose the services of such key employees before a qualified replacement could be obtained, its business and the financial
affairs of the Company could be materially adversely affected.



39



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Item 7.    Financial Statements



Financial Statements. The Financial Statements required by this Item are included at the end of this report beginning on Page F-1 as follows:



|Index to Financial Statements                                                                            |  | F-1
|-------------------------------------------------------------------------------------------------------- |  | ---
|Report of Independent Certified Public Accountants Parks, Tschopp, Whitcomb & Orr, P.A.                  |  | F-2
|Consolidated Balance SheetsAs of December 31, 2002 and 2001                                              |  | F-3
|Consolidated Statements of OperationFor The Years Ended December 31, 2002 and 2001                       |  | F-4
|Consolidated Statements of Changes in Stockholders EquityFor the Years Ended December 31, 2002 and
2001 |  | F-5
|Consolidated Statements of Cash FlowsFor The Years Ended December 31, 2002 and 2001                      |  | F-6
|Notes To Consolidated Financial StatementsDecember 31, 2002 and 2001                                     |  | F-7



PART
III



Item 9.    Directors, Executive Officers, Promoters and Control Person



Board of Directors and Executive Officers



The name and age of each nominee, his principal occupation, and the period during which such person has served as a director is set forth
below:



|Name Of Nominee              |  | Age |  | First BecameA DirectorOf The Company |  | Position                    
|---------------------------- |  | --- |  | ------------------------------------ |  | ----------------------------
|Rogers W. Kirven, Jr. (1)(2) |  | 49  |  | 1999                                 |  | Chairman of the Board/CEO   
|Daniel J. Devine (1)(2)      |  | 41  |  | 1999                                 |  | President and Director      
|Dr. Robert Frank (2)         |  | 50  |  | 1999                                 |  | Director                    
|Dr. Paul Lerman              |  | 61  |  | 1999                                 |  | Director                    
|Thomas J. Crane (1)          |  | 45  |  | 2000                                 |  | Director                    
|Richard M. Flaherty          |  | 44  |  | N/A                                  |  | Executive Vice President/COO

---

|(1) |  | Member of Audit Committee.
|--- |  | --------------------------

|(2) |  | Member of Compensation Committee.
|--- |  | ---------------------------------



Rogers W. Kirven, Jr., Co-founder of the Company, Chairman of the Board and Chief Executive Officer, Secretary and Treasurer. Mr. Kirven
has served as one of our Directors and Chief Executive Officer since 1999. From April of 1994 until May of 1999, Mr. Kirven served as CEO of Ivanhoe Medical Systems, Inc., a company that operated several sleep apnea centers located in Ocoee,
Florida. From May of 1999 until March 2000, Mr. Kirven served as CEO of Valley Pain Centers, Inc. and Back



40



---

Genesis, Inc., companies that operated orthopedic pain management and rehabilitation businesses with their
principle offices located in Ocoee, Florida. Since 1991, Mr. Kirven also serves as Managing Partner of the Kirven Group, Inc., located in Ocoee, Florida, a private investment firm that specializes in investments in healthcare and education. Mr.
Kirven holds a Bachelor of Arts degree from Clemson University and is a graduate of the Executive Program for Small Companies, Stanford University.



Daniel J. Devine, Co-founder of the Company, Director and President. Mr. Devine is responsible for the overall management of our business,
including all operations and research and development of new programs. He has served as our President and Chief Operating Officer since 1999. From 1993 to 1995, he was a partner with The Kirven Group, Inc located in Ocoee, Florida. Prior to joining
the Kirven Group, Mr. Devine was manager of business development for the Global Messaging Group of the Harris Corporation, located in Melbourne, Florida, which focused on the commercial electronic messaging marketplace. Mr. Devine has a Bachelor of
Science degree in Electrical Engineering from the University of Florida and completed the Stanford University Executive Program for Growing Companies in the Spring of 1999.



Dr. Paul Lerman. Dr. Lerman became a Director of the Company in November 1999. Since April 1990, Dr. Lerman
has served as Dean and Professor of the College of Business Administration for Fairleigh Dickinson University. Dr. Lerman also provides consulting services to a number of major corporations including, the BASF Corporation and the AT&T
Corporation. Dr. Lerman received his Ph.D. in Operations Research from New York University, a Masters degree in Mechanical Engineering from New York University, a Bachelor of Arts degree in Mathematics and Economics and a B.M.E. in Mechanical
Engineering from the New York University.



Dr.
Robert G. Frank. Dr. Frank became a Director of the Company in November 1999. Dr. Frank has dedicated his entire career to education and research in the areas of Clinical and Health Psychology. Dr. Frank has served since February of 1995 and
continues to serve as the Dean of the College of Health Professions at the University of Florida and Vice President for Rehabilitation and Behavioral Health at Shands Healthcare, both located in Gainesville, Florida. Prior to that time, Dr. Frank
served as the Director of Clinical Health Psychology and Neuropsychology at the University of Missouri School of Medicine. Dr. Frank received his Ph.D. from the University of New Mexico in Clinical Psychology.



Thomas J. Crane, Esq. Mr. Crane was elected by our
Shareholders as a Director of the Company on December 12, 2000. Mr. Crane is also the Managing Director of Cloverleaf Capital International, LLC (Cloverleaf), a Miami, Florida based investment company established in July, 2000. Cloverleaf, an
entrepreneurial based boutique investment banking firm, counsels clients in the areas of mergers & acquisitions, equity markets, debt financing, international strategies and information technology issues. Since January 1991, Mr. Crane has owned
and operated a law practice from his Miami, Florida office. In January 1990, Mr. Crane founded and became President/CEO of Southwestern Broadcasting Corporation (SBC), based in Naples, Florida. In August of 1998, SBC sold its assets to Broadcast
Entertainment Corporation (BEC), an affiliated company operating radio stations in Texas, New Mexico, and California. Mr. Crane was, at the time of the sale, and remains a principal shareholder and Chairman of the Board of Directors of BEC, with its
principal offices located in Clovis, New Mexico. Mr. Crane also sits on the Board of Xtel Networks based in Miami, Florida. Mr. Crane holds a Juris Doctor degree from the University of Miami School of Law, Miami, Florida, a Bachelor of Arts degree
from Florida State University, Tallahassee, Florida and a Certificate of Languages from the University of Paris (Sorbonne), Paris, France. Mr. Crane is licensed to practice law in the States of Florida and Texas.



Non-Director Executive Officers



Anthony Ruben. Effective May 24, 2002, the Company entered
into a Termination and Settlement Agreement with Anthony Ruben its Chief Financial Officer. The principal terms of the Settlement Agreement are as follows:



41



---



| |  |  | Mr. Ruben resigned effective as of May 24, 2002 (the Termination Date) as CFO of the Company.
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | The Company agreed to pay and did pay Mr. Ruben his base salary and benefits accrued through the Termination Date.
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | The Company agreed to pay and did pay the cost of COBRA insurance coverage for Mr. Ruben for the months of June and July 2002.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company agreed to pay and did pay Mr. Ruben the sum of $15,000.00 for certain transition services.
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | Mr. Ruben was entitled to keep 50,000 options to purchase the Companys common stock with the understanding that such options would expire if not sooner
exercised on April 30, 2003.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The execution by Mr. Ruben of a release of the Company and its subsidiaries.
| | - |  | ----------------------------------------------------------------------------



Richard M. Flaherty. Effective January 6, 2003, Mr. Flaherty became the Companys Executive Vice
President and Chief Operating Officer. Mr. Flaherty comes to us with over fifteen years senior management experience in high growth companies as President, Chief Operating Officer, Executive Vice President of Sales and Marketing and Chief Financial
Officer. From 2000-2002, Mr. Flaherty was president of Special Data Processing, a $150 million direct marketing firm with over 25,000 employees located in Clearwater, Florida. Mr. Flaherty served as Executive Vice President of Sales and Marketing
from 1994 to 1999 for Crown Marketing Group, a marketing and promotional company located in Clearwater, Florida and was later promoted to President of the Company in 2000. Mr. Flaherty holds a Bachelor of Arts Degree in Business Administration from
the University of Notre Dame, South Bend, Indiana.



Committees
and Meetings.



The Board of Directors held 4
meetings in 2002 and each director of the Board attended either in person or via teleconference. All directors hold office until the next annual meeting of stockholders and the election and qualification of their successors. Directors receive
compensation for serving on the Board of Directors as described below.



For so long as the University of Florida Foundation (UFF) owns at least one (1) percent of our common stock, as calculated on a fully diluted basis, it has the right to designate one nominee, reasonably
acceptable to the Company, for election to the Board of Directors. Likewise, for so long as Pioneer Ventures Associates Partnership (Pioneer) owns at least three (3) percent of our common stock, or Series A Preferred Stock which could be
converted into at least three (3) percent of our common stock, it has the right to designate one nominee to our Board of Directors. Presently, Dr. Robert Frank serves as the UFF appointee and Dr. Paul Lerman serves as the Pioneer appointee.



The Company has established a standing Audit
Committee and a Compensation Committee. The Audit Committee recommends to the Board of Directors an accounting firm to serve as the Companys independent accountants, reviews the scope and results of the annual audit of the Companys
consolidated financial statements, reviews nonaudit services provided to the Company by the Companys independent accountants and monitors transactions among the Company and its affiliates, if any. The Audit Committee currently consists of Mr.
Kirven, who is the Chairman, Mr. Devine and Mr. Crane. The Audit Committee met on March 10, 2003 and in connection with such meeting:



42



---



| |  |  | Reviewed and discussed the registrants audited financial statements with management;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | Discussed with the registrants auditor the matters required to be discussed by Statement on Auditing Standards (SAS) No. 61
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | Received the written disclosures and the letter from the registrants auditor required by Independence Standards Board Standard No. 1 and discussed with the
auditor its independence; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Based on the foregoing review, recommended to the Board of Directors that the audited financial statements be included in the registrants Form 10-KSB.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



The Compensation Committee is
responsible for supervising the Companys compensation policies, administering the employee incentive plans, reviewing officers salaries and bonuses, approving significant changes in employee benefits and recommending to the Board such
other forms of remuneration as it deems appropriate. The Compensation Committee currently consists of Mr. Kirven, who is the Chairman, Mr. Devine and Dr. Frank, who is independent.



Section 16(A) Beneficial Ownership Reporting



Section 16(a) of the Securities Exchange Act of 1934 requires the Companys directors and executive
officers, and persons who own more than 10% of the Companys common stock, to file with the Securities and Exchange Commission initial reports of ownerships and reports of changes in ownership, and to furnish the Company with copies of all
Section 16(a) reports they file. To the Companys knowledge, based solely on review of the copies of such reports and written statements from officers and directors furnished to the Company, all Section 16(a) filing requirements applicable to
its officers, directors and beneficial owners of more than 10% of our common stock were complied with during the year.



Item 10.    Executive Compensation



The following table sets forth compensation paid by the Company to each person who served in the capacity of Chief Executive Officer during 2001 and 2002 and other officers of the Company whose total
annual salary and bonus for the fiscal years ended December 31, 2001 and December 31, 2002 exceeded $100,000 (collectively, the Named Executive Officers).



SUMMARY COMPENSATION TABLE



|                                    |  |           |  |                     |  |                           |            |                           |                  | Long Term Compensation Awards   
|----------------------------------- |  | --------- |  | ------------------- |  | ------------------------- | ---------- | ------------------------- | ---------------- | --------------------------------
|Name & Principal Position           |  | Year      |  | Annual Compensation |  | Awards                    |            |                           | Payouts         
|                                    |  | Salary($) |  | Bonus($)            |  | Other Annual Compensation |            | RestrictedStock Award(s)$ |                  | Securities Underlying Options(#)
|Rogers W. Kirven, Jr.,CEO (1)(3)(4) |  | 2002 2001 |  | $103,633 $178,365   |  | $ $                       | 80,208 -0- |                           | $  9,837 $14,111 |                                 
|                                   
|Daniel J. DevinePresident (2)(3)(4) |  | 2002 2001 |  | $  83,217 $142,692  |  | $ $                       | 64,167 -0- |                           | $  9,776 $14,111 |                                 
|                                   
|Anthony Ruben                       |  | 2002      |  | $  54,892           |  | $                         | -0-        |                           | $  2,036         |                                 



43



---

|CFO(5) |  | 2001 |  | $138,391 |  | $-0- |  | $12,865 |  | $-0- |  | 300,000 |  | $-0-
|------ |  | ---- |  | -------- |  | ---- |  | ------- |  | ---- |  | ------- |  | ----

---

|(1) |  | Rogers W. Kirven, Jr. has served as our Director and the Chief Executive Officer since our organization on February 9, 1999. Pursuant to an employment agreement
entered into in November 1999, Mr. Kirven receives annual salary payments equal to $175,000 and certain perquisites and other benefits. For the fiscal year ended December 31, 2002, the Company paid Mr. Kirven a car allowance of $4,750 and paid
health insurance premiums of $5,086.80. See Employment Agreements.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | Daniel J. Devine has served as a Director and President since our organization on February 9, 1999. Pursuant to an employment agreement entered into in November
1999, Mr. Devine receives annual salary payments equal to $140,000 and certain perquisites and other benefits. For the fiscal year ended December 31, 2002, the Company paid Mr. Devine a car allowance of $4,750 and paid health insurance premiums of
$5,025.84. See Employment Agreements.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) |  | Three hundred eighty one thousand one hundred eighteen (381,118) options were granted to Mr. Kirven and 275,982 options were granted to Mr. Devine on February 9,
1999 under the Companys 1999 Stock Option Plan. No options were granted in 2000 and no options have been exercised to date. Effective June 26, 2001, in order for the Company to have sufficient options to grant to its employees, Messrs. Kirven
and Devine forfeited 116,000 and 84,000 options, respectively.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) |  | Bonuses are actual amounts paid plus accruals. Rogers W. Kirven Jr. has been paid $31,250, while the difference $48,958 was accrued for. Daniel J. Devine has been
paid $25,000, while the difference $39,167 was accrued for.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) |  | Mr. Ruben resigned as CFO of the Company in May 2002. Mr. Ruben was entitled to keep 50,000 options to purchase the Companys common stock previously granted to
him with the understanding that such options would expire if not sooner exercised on April 30, 2003.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Equity Compensation Plans.



A summary of options granted to purchase common stock under the Companys 2002, 2000 and 1999 Stock Plans are presented below:



|2002 Plan                           |  | Shares  |  | Weighted Average Exercise Price
|----------------------------------- |  | ------- |  | -------------------------------
|Outstanding as of December 31, 2001 |  |        |  |                                
|Granted                             |  | 374,000 |  | $                              
|Exercised                           |  |        |  |                                
|Forfeited                           |  | 125,000 |  | $                              
|                                    |  |         |  |                                
|Outstanding as of December 31, 2002 |  | 249,000 |  | $                              
|                                    |  |         |  |                                
|Options exercisable at year end     |  | 219,167 |  | $                              
|                                    |  |         |  |                                
|                                   
|2000 Plan                           |  | Shares  |  | Weighted Average Exercise Price
|Outstanding as of December 31, 1999 |  |        |  |                                



44



---

|Granted                                                                  |  | 1,060,000 |  | $                               | 1.95
|------------------------------------------------------------------------ |  | --------- |  | ------------------------------- | ----
|Exercised                                                                |  |          |  |                                 |    
|Forfeited                                                                |  | 60,000    |  | $                               | 2.00
|                                                                         |  |           |  |                                 |     
|Outstanding as of December 31, 2000                                      |  | 1,000,000 |  | $                               | 1.95
|                                                                         |  |           |  |                                 |     
|Granted                                                                  |  | 440,000   |  | $                               | 0.38
|Exercised                                                                |  |          |  |                                 |    
|Forfeited                                                                |  | 455,000   |  | $                               | 2.00
|                                                                         |  |           |  |                                 |     
|Outstanding as of December 31, 2001                                      |  | 985,000   |  | $                               | 1.22
|                                                                         |  |           |  |                                 |     
|Granted                                                                  |  | 300,000   |  | $                               | 0.24
|Exercised                                                                |  |          |  |                                 |    
|Forfeited                                                                |  | 540,000   |  | $                               | 2.00
|                                                                         |  |           |  |                                 |     
|Outstanding as of December 31, 2002                                      |  | 745,000   |  | $                               | 0.26
|                                                                         |  |           |  |                                 |     
|Options exercisable at year end                                          |  | 745,000   |  | $                               | 0.26
|                                                                         |  |           |  |                                 |     
|Weighted average fair value of options granted during the year at market |  | 300,000   |  | $                               | 0.24
|                                                                         |  |           |  |                                 |     
|                                                                        
|1999 Plan                                                                |  | Shares    |  | Weighted Average Exercise Price
|Outstanding as of December 31, 1998                                      |  |          |  |                                 |    
|Granted                                                                  |  | 1,500,000 |  | $                               | 0.94
|Exercised                                                                |  |          |  |                                 |    
|Forfeited                                                                |  |          |  |                                 |    
|                                                                         |  |           |  |                                 |     
|Outstanding as of December 31, 1999                                      |  | 1,500,000 |  | $                               | 0.94
|Granted                                                                  |  | 90,000    |  | $                               | 1.50
|Exercised                                                                |  |          |  |                                 |    
|Forfeited                                                                |  | 90,000    |  | $                               | 3.02
|                                                                         |  |           |  |                                 |     
|Outstanding as of December 31, 2000                                      |  | 1,500,000 |  | $                               | 0.86
|                                                                         |  |           |  |                                 |     
|Granted                                                                  |  | 235,000   |  | $                               | 0.38
|Exercised                                                                |  |          |  |                                 |    
|Forfeited                                                                |  | 318,600   |  | $                               | 0.83
|                                                                         |  |           |  |                                 |     
|Outstanding as of December 31, 2001                                      |  | 1,416,400 |  | $                               | 0.78
|Granted                                                                  |  | 45,000    |  | $                               | 0.25
|Exercised                                                                |  |          |  |                                 |    
|Forfeited                                                                |  | 150,000   |  | $                               | 0.78
|                                                                         |  |           |  |                                 |     
|Outstanding as of December 31, 2002                                      |  | 1,311,400 |  | $                               | 0.76
|                                                                         |  |           |  |                                 |     
|Options exercisable at year end                                          |  | 1,262,608 |  | $                               | 0.76
|                                                                         |  |           |  |                                 |     
|Weighted average fair value of options granted during the year at market |  | 45,000    |  | $                               | 0.24
|                                                                         |  |           |  |                                 |     



The
following table summarizes information about the options outstanding at December 31, 2002:



|                |  | Options Outstanding                   |  | Options Exercisable                              
|--------------- |  | ------------------------------------- |  | -------------------------------------------------
|Exercise Prices |  | NumberOutstanding at December 31,2002 |  | WeightedAverageRemainingContractual Lives (years)



45



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|$.24  |  | 300,000   |  | 4.50 |  |       |  | 300,000   |  |      
|----- |  | --------- |  | ---- |  | ----- |  | --------- |  | -----
|$.25  |  | 294,000   |  | 4.50 |  |       |  | 230,834   |  |      
|$.35  |  | 16,000    |  | 3.13 |  |       |  | 12,666    |  |      
|$.375 |  | 600,000   |  | 3.00 |  |       |  | 593,500   |  |      
|$.45  |  | 34,000    |  | 1.17 |  |       |  | 34,000    |  |      
|$.55  |  | 25,000    |  | 1.24 |  |       |  | 25,000    |  |      
|$.75  |  | 911,400   |  | 1.11 |  |       |  | 911,400   |  |      
|$1.00 |  | 100,000   |  | 2.95 |  |       |  | 94,375    |  |      
|$2.00 |  | 15,000    |  | 2.91 |  |       |  | 15,000    |  |      
|$4.00 |  | 10,000    |  | 1.11 |  |       |  | 10,000    |  |      
|      |  |           |  |      |  |       |  |           |  |      
|      |  | 2,305,400 |  | 3.09 |  | $0.55 |  | 2,226,775 |  | $0.55
|      |  |           |  |      |  |       |  |           |  |      



Awards under the Plan
consist of stock options (both non-qualified options and options that qualify as Incentive Stock Options under Section 422 of the IRC of 1986, as amended), as described in the Plan.



For the years ended December 31, 2002 and 2001, compensation expense related
to stock options issued to non-employees of $0 and $46,717, respectively, was recognized in the accompanying consolidated statements of operations. The remaining unamortized unearned compensation at December 31, 2002 and 2001, was $0 and $327,
respectively.



For the years ended December 31, 2002 and 2001,
compensation expense related to warrants issued to non-employees of $33,473 and $39,000, respectively, was recognized in the accompanying consolidated statements of operations. There was no unearned compensation expense at December 31, 2002 or 2001.



Stock Option Grants



There were no grants of stock options to the Named Executive
Officers during fiscal year ending December 31, 2002.



Value
of Options Outstanding at Year End



As of
December 31, 2002 the Company had 457,100 issued and outstanding options to Named Executive Officers. Because the market price of the Companys stock was in excess of the exercise price of these options there has been no value assigned to these
options.



Employment Agreements.



Rogers W. Kirven, Jr.



The Company entered into an employment agreement with Rogers
W. Kirven, Jr., to serve as our Chief Executive Officer, in November 1999 for an initial term of four years. The principal terms of Mr. Kirvens employment agreement are as follows:



| |  |  | an annual salary of $175,000, which may be increased from time to time at the discretion of our Board of Directors;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | stock options which may be issued from time to time at the discretion of our Board of Directors and by the Trustees of the Compass Knowledge Group Management Trust;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a change of control provision which allows Mr. Kirven, upon a change of control of the Company, to terminate his employment agreement and receive 2.9
times his annual base salary;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



46



---



| |  |  | a provision for term life insurance;
| | - |  | ------------------------------------



| |  |  | automobile allowance;
| | - |  | ---------------------



| |  |  | discretionary bonuses as determined by the board; and
| | - |  | -----------------------------------------------------



| |  |  | standard benefits.
| | - |  | ------------------



Daniel J. Devine



The Company entered into an employment agreement with Daniel J. Devine, to serve as our President, in November 1999 for an initial term of four years. The
principal terms of Mr. Devines employment agreement are as follows:



| |  |  | an annual salary of $140,000, which may be increased from time to time at the discretion of our Board of Directors;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | stock options which may be issued from time to time at the discretion of our Board of Directors and by the Trustees of the Compass Knowledge Group Management Trust;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a change of control provision which allows Mr. Devine, upon a change of control of the Company, to terminate his employment agreement and receive 2.9
times his annual base salary;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provisions for a term life insurance;
| | - |  | -------------------------------------



| |  |  | automobile allowance;
| | - |  | ---------------------



| |  |  | discretionary bonuses as determined by the board; and
| | - |  | -----------------------------------------------------



| |  |  | standard benefits.
| | - |  | ------------------



Richard M. Flaherty



The Company entered into an employment agreement with Richard M. Flaherty, to serve as our Executive Vice President and Chief Operating Officer, on
January 6, 2003 for an initial term of three years. The principal terms of Mr. Flahertys employment agreement are as follows:



| |  |  | an annual salary of $180,000, which may be increased from time to time at the discretion of our Board of Directors;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | Mr. Flaherty was granted options to purchase 1,000,000 shares of common stock of the Company at an exercise price of $0.25 per share (the Option Shares)
which shall vest as follows:
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



(i)
500,000 of the Option Shares will vest prorata on a calendar quarterly basis at the end of each calendar quarter of each year (i.e., 41,667 Option Shares will vest at the end of each quarter saving the last quarter of this Agreement for which only
41,663 Option Shares will vest);



(ii) 166,667
of such Option Shares will vest if the Company recognizes at least $2,500,000 of net income from operations for the calendar year ending December 31, 2003;



47



---

(iii) 166,667 Option Shares will vest if the Company recognizes at least $3,750,000 of net
income from operations for the calendar year ending December 31, 2004; and



(iv) 166,666 Option Shares will vest if the Company recognizes at least $5,000,000 of net income from operations for the calendar year ending December 31, 2005.



(v) Notwithstanding the foregoing, if the Company recognizes
at least $5,000,000 of net income from operations for any annual period ending December 31, 2003, 2004 or 2005.



| |  |  | provisions for a term life insurance;
| | - |  | -------------------------------------



| |  |  | $650.00 monthly non-accountable expense reimbursement;
| | - |  | ------------------------------------------------------



| |  |  | discretionary bonuses; and
| | - |  | --------------------------



| |  |  | standard Benefits.
| | - |  | ------------------



Compensation of Directors



Our directors who are also officers receive no additional compensation for their service as directors. Saving Mr. Crane, each of our
outside directors were granted 5,000 options on December 1, 1999. These options have an exercise price of $4.00 and expire on February 9, 2004, unless otherwise extended. On December 12, 2000 Mr. Thomas Crane was elected as a director of the Company
and was granted 100,000 options to purchase the Companys common stock at an exercise price of $1.00 per share. Thirty thousand of these options vested immediately with the remaining 70,000 vesting ratably on a monthly basis over two (2) years.
In April of 2002, the Company granted Mr. Crane an additional 50,000 options to purchase the Companys common stock at an exercise price of $0.25 per share of which 25,00 such options vested immediately and the remainder vest at the rate of
2,085 per month. As of December 31, 2002, Mr. Crane has 136,042 options which have vested.



Our non-officer directors were paid $500.00 each in cash compensation to serve on our board in fiscal 2002. Cash and non-cash fees are expected to be paid our non-employee directors for service in the
future. All directors are entitled to reimbursement for reasonable expenses incurred in the performance of their duties as members of our Board of Directors.



Item 11.    Security Ownership of Management and Principal Stockholders



The following table sets forth data as of December 31, 2002 concerning the beneficial ownership of common shares by (i) the persons known
to the Company to beneficially own more than 5% of the outstanding common shares, (ii) all directors and nominees and each Named Executive Officer (as defined under Executive Compensation below) and (iii) all directors and executive
officers as a group. This table reflects options and warrants that have vested or will vest within the next 60 days and which are exercisable.



|Name and Address of    Beneficial Owner                                 |  | Shares of Common Stock Owned |  | Options/Warrants for Common Stock Owned (8) |  | Total Shares |  | Percentage Owned (9) |  
|----------------------------------------------------------------------- |  | ---------------------------- |  | ------------------------------------------- |  | ------------ |  | -------------------- | -
|Management                                                              |  |                              |  |                                             |  |              |  |                      |  
|Rogers W. Kirven, Jr. (1)(4) 2710 Rew Circle, Suite 100 Ocoee, FL 34761 |  | 4,546,289                    |  | 285,118                                     |  | 4,831,407    |  | 24.25                | %



48



---

|                                                                                                                 
|-----------------------------------------------------------------------------------------------------------------
|Daniel J. Devine (1)(5) 2710 Rew Circle, Suite 100 Ocoee, FL 34761                                               
|                                                                                                                 
|Thomas J. Crane (2)(6) 5780 Grande Reserve Way, #1410 Naples, FL 34110                                           
|                                                                                                                 
|Dr. Paul Lerman(2) Farleigh Dickenson University 1000 River Road H325A Teaneck, NJ 07666                         
|                                                                                                                 
|Dr. Robert G. Frank (2) College of Health Professions University of Florida P.O. Box 100185 Gainesville, FL 32610
|                                                                                                                 
|All officers and directors As a group (5 persons)                                                                
|                                                                                                                 
|Other Principal Stockholders                                                                                     
|                                                                                                                 
|Pioneer Ventures Ltd. Ptn. (7) 651 Day Hill Road Windsor, CT 06095-0040                                          

---

|* |  | INDICATES LESS THAN ONE PERCENT.
|- |  | --------------------------------



|(1) |  | Individuals who are both officers and directors.
|--- |  | ------------------------------------------------



|(2) |  | Individuals who are directors only.
|--- |  | -----------------------------------



|(3) |  | Individuals who are officers only.
|--- |  | ----------------------------------



|(4) |  | As a founder of the Company, Mr. Kirven received 4,809,289 (on a post-recapitalization basis) shares of the Companys common stock and 381,118 options to
purchase the Companys common stock at an exercise price of $0.75. On December 24, 1999 Mr. Kirven gifted 203,000 shares to the University of Florida Foundation. On May 11, 2001 pursuant to a private offering of the Companys securities,
Mr. Kirven purchased 40,000 common shares and a warrant to acquire an additional 20,000 common shares at $0.50 per share for $20,000. On June 21, 2001, Mr. Kirven gifted 100,000 common shares to his daughter and son-in-law. On June 26, 2001, Mr.
Kirven forfeited 116,000 of his options.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) |  | As a founder of the Company, Mr. Devine received 3,482,587 (on a post-recapitalization basis) shares of the Companys common stock at an exercise price of
$0.75. On December 24, 1999, Mr. Devine gifted 147,000 shares to the University of Florida Foundation. On March 31, 2001 pursuant to a private offering of the Companys securities, Mr. Devine purchased 37,500 shares and a warrant to acquire an
additional 18,750 shares at $0.50 per share for $18,750. On June 26, 2001, Mr. Devine forfeited 84,000 of his options. During 2001, Mr. Devine purchased 8,500 shares of the Companys common stock in the open market at an average price of $0.25
per share.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) |  | Mr. Crane was granted 100,000 options on December 12, 2000 (70,838 of which have vested or will vest in the 60 days following December 31, 2001) at an exercise price
of $1.00 per share expiring on the fifth anniversary
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



49



---

| | date of vesting. During 2000, Mr. Crane also purchased 70,000 shares of our common stock in the open market at an average price per share of
approximately $2.03. Pursuant to a private offering of the Companys common securities in accordance with an exemption from registration, Mr. Crane purchased 200,000 shares of the Companys common stock and a warrant to purchase 100,000
additional shares at $0.50 for $100,000. On April 1, 2002, the Company granted an additional 50,000 options having a five-year term, 25,000 of which vested on the date of grant with the remainder vesting at the rate of 2,083 per month.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) |  | Pioneer Ventures owns 2,000 shares of our convertible Series A Preferred Stock which may be converted by Pioneer at anytime into 875,000 shares of our common stock.
By virtue of our Certificate of Designation, Pioneer Ventures has the right to vote its Preferred Stock with our common shareholders as a group on the same basis as if the Preferred Stock was converted to common stock. In July of 2001 in exchange
for Pioneers consent to allow us to change accountants, the Company granted Pioneer warrants to purchase: 100,000 of our common shares at $0.55 per share expiring on December 31, 2002; 100,000 of our common shares at $0.75 per share expiring
on December 31, 2003; and, 100,000 of our common shares at $1.00 per shares expiring on June 30, 2004.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) |  | Reflects options granted under our option plans which may be exercised within the next 60 days.
|--- |  | -----------------------------------------------------------------------------------------------



|(9) |  | Based upon 15,861,250 issued and outstanding shares and 4,056,775 options, warrants and other convertible instruments (i.e., the Series A Convertible Preferred) that
may be either exercised or converted into common stock within the next 60 days.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Item 12.    Transactions with Management and Other Related Parties



Fiscal Year 1999



In December 1999, we issued 465,000 shares of our common stock at a fair value of $930,000, plus acquisition costs of $16,500, and
contributed $300,000 to the University of Florida Foundation, Inc., an affiliated party, in exchange for its 35.5% minority interest in Intelicus. Goodwill of $981,555 was recorded as a result of this acquisition. In addition, we issued 35,000
shares at a fair value of $70,000 to the University of Florida Foundation as consideration for the University of Florida to extend the term for the pharmacy agreements to five years.



During 1999, we issued 30,000 stock options to a minority stockholder for the retirement of a $45,040 note
payable.



Also during 1999, loans totaling
$204,648 from Mr. Kirven, our Chief Executive Officer, and Mr. Devine, our President and to others were forgiven. These amounts were reclassed to additional paid-in capital.



On November 15, 1999, one of our then wholly owned subsidiaries, Rehabilitation Training Institute, Inc.,
paid notes aggregating $800,000 due our officers, Rogers W. Kirven, Jr., our Chief Executive Officer, and Daniel J. Devine, our President. These notes originated from a redemption of 34,483 shares of their common stock in Rehabilitation Training
Institute, on January 1, 1999. The notes were payable upon demand and were repaid from the cash proceeds we received from the sale of our common stock in connection with our recapitalization on November 15, 1999.



From January 1, 1999 through October 31, 1999, and for the
year ended December 31, 1998, Intelicus, our operating subsidiary, paid management fees in the amounts of $382,628 and $228,280, respectively, to The Kirven Group, Inc., an entity controlled by our Chief Executive Officer, Rogers W. Kirven, Jr. In
turn, The Kirven Group, Inc. employed Rogers W. Kirven, Dan Devine, our President, and Steve Wells our chief marketing and information employee. Pursuant to such agreement, The Kirven Group, Inc., through these individuals and other subcontractors,
acted as executive advisors to Intelicus and were responsible for the day-to-day operation and management of our business as well as program



50



---

analysis, acquisitions, due diligence, accounting, financial and other administrative services. There is
no ongoing arrangement for these services as this relationship was terminated effective November 5, 1999.



Fiscal Year 2000



Net student fee revenue from the University of Florida was $2,239,039 for the year ended December 31, 2000, and accounts receivable from
this partner totaled $3,193, as of December 31, 2000.



We entered into a commercial lease agreement with our Chief Executive Officer, Rogers W. Kirven, Jr., on January 1, 2000 for approximately 2,450 square feet of office space located at 2710 Rew Circle, Suite 100, Ocoee, Florida. The
lease base rent is $2,588 per month which is computed at a base rental rate of $12.676 per square per annum. In addition to the base rent, we are responsible for the payment of all sales tax and other charges and impositions imposed upon the
premises as well as $620 per month as additional rent for our share of common area maintenance and operating expenses. The lease expires on September 30, 2002.



Fiscal Year 2001



Ramsey Hashem served as Vice President of the Company from May 2000 until his resignation on March 16, 2001. In connection with Mr. Hashem
resignation, the Company paid Mr. Hashem $37,000 in consulting fees from March, 2001 to June, 2001. For the Fiscal year ended December 31, 2001, the Company paid Mr. Hashem a car allowance of $1,184.62 and paid health insurances premiums of
$1,602.80.



Pursuant to an offering of the
Companys securities in accordance with an exemption from registration, certain officers and directors (which are identified in Part II, Item 11 above) and other accredited investors purchased between March 2001 and July 2001, 605,000 shares of
the Companys common stock and warrants to acquire 302,500 additional shares at an exercise price of $0.50 per share for an aggregate amount of $302,500.



In July of 2001 in exchange for Pioneer Ventures Ltd. Partnerships consent to allow us to change accountants, the Company granted
Pioneer warrants to purchase: 100,000 of our common shares at $0.55 per share expiring on December 31, 2002; 100,000 of our common shares at $0.75 per share expiring on December 31, 2003; and, 100,000 of our common shares at $1.00 per shares
expiring on June 30, 2004.



Net student fee
revenue from the University of Florida was $2,702,546 for the year ended December 31, 2001, and accounts receivable from this partner totaled $15,222 as of December 31, 2001.



Fiscal Year 2002



Effective May 24, 2002, the Company entered into a Termination and Settlement Agreement with Anthony Ruben
its Chief Financial Officer. The principal terms of the Settlement Agreement are as follows:



| |  |  | Mr. Ruben resigned effective as of May 24, 2002 (the Termination Date) as CFO of the Company.
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | The Company agreed to pay and did pay Mr. Ruben his base salary and benefits accrued through the Termination Date.
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | The Company agreed to pay and did pay the cost of COBRA insurance coverage for Mr. Ruben for the months of June and July 2002.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



51



---



| |  |  | The Company agreed to pay and did pay Mr. Ruben the sum of $15,000.00 for certain transition services.
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | Mr. Ruben was entitled to keep 50,000 options to purchase the Companys common stock with the understanding that such options would expire if not sooner
exercised on April 30, 2003.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The execution by Mr. Ruben of a release of the Company and its subsidiaries.
| | - |  | ----------------------------------------------------------------------------



Effective October 1, 2002, the Company executed an Addendum to its Professional Lease Agreement with its
landlords, one of which is the Companys CEO, increasing the base rental rate to $14.00 per square foot and extending the term until September 30, 2004.



Except as described above, we currently have no transactions nor are there any proposed with our officers, directors, 5% or greater
shareholders, and affiliates. Conflicts of interest could arise in the negotiation of the terms of any transaction between us and our shareholders, officers, directors or affiliates. We have no plans or arrangements, including the hiring of an
independent third party, for the resolution of disputes between us and such persons, if they arise. Our business and financial condition could be adversely affected should such individuals choose to place their own interests before ours. No
assurance can be given that conflicts of interest will not cause us to lose potential opportunities, profits, or management attention. Our Board of Directors has adopted a policy regarding transactions between us and any of our officers, directors,
or affiliates, including loan transactions, requiring that all such transactions be approved by a majority of the independent and disinterested members of our Board of Directors and that all such transactions be for a bona fide business purpose and
be entered into on terms at least as favorable to us as could be obtained from unaffiliated independent third parties. All ongoing relationships with any of our officers, directors or affiliates are in compliance with our policy.



Item 13.    Exhibits and Reports on Form 8-K



(a)    Documents filed as part of this Report.



1. Financial Statements (appearing at the end of this Report)



|Index to Financial Statements                                                                            |  | F-1
|-------------------------------------------------------------------------------------------------------- |  | ---
|                                                                                                        
|Report of Independent Certified Public Accountants Parks, Tschopp, Whitcomb & Orr, PA                    |  | F-2
|                                                                                                        
|Consolidated Balance SheetsAs of December 31, 2002 and 2001                                              |  | F-3
|                                                                                                        
|Consolidated Statements of OperationFor The Years Ended December 31, 2002 and 2001                       |  | F-4
|                                                                                                        
|Consolidated Statements of Changes in Stockholders Equity for the years endedDecember 31, 2002 and
2001 |  | F-5
|                                                                                                        
|Consolidated Statements of Cash FlowsFor The Years Ended December 31, 2002 and 2001                      |  | F-6
|                                                                                                        
|Notes To Consolidated Financial StatementsDecember 31, 2002 and 2001                                     |  | F-7



52



---

2. Exhibits



|         
|---------
|Exhibit 2
|         
|2.1      
|         
|2.2      
|         
|2.3      
|         
|2.4      
|         
|2.5      
|         
|2.6      
|         
|Exhibit 3
|         
|3.1      
|         
|3.2      
|         
|3.3      



53



---

|          
|----------
|3.4       
|          
|3.5       
|          
|Exhibit 4 
|          
|4.1       
|          
|4.2       
|          
|4.3       
|          
|4.4       
|          
|4.5       
|          
|4.6       
|          
|4.7       
|          
|Exhibit 10
|          
|10.1      
|          
|10.2      
|          
|10.3      
|          
|10.4      
|          
|10.5      
|          
|10.6      
|          
|10.7      
|          
|10.8      



54



---

|     
|-----
|10.9 
|     
|10.10
|     
|10.11
|     
|21.1 
|     
|99.1 
|     
|99.2 



All
Exhibits except as otherwise noted below are filed with this Form 10-KSB



|* |  | Incorporated by reference from the Registrants Form 10/SB (Commission File No. 0-29615)
|- |  | ----------------------------------------------------------------------------------------



|** |  | Incorporated by reference from the Registrants current Form 8-K/SB filed with the Commission on August 23, 2000.
|-- |  | -----------------------------------------------------------------------------------------------------------------



|*** |  | Incorporated by reference from the Registrants Form 10-KSB (Commission File N0-0-29615) filed with the Commission on March 15, 2001.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------



|**** |  | Incorporated by reference from the Registrants current Form 8-K/SB filed with the Commission on March 5, 2002.
|---- |  | ---------------------------------------------------------------------------------------------------------------



|***** |  | Enclosed with this filing.
|----- |  | --------------------------



|****** |  | Incorporated by reference from the Registrants current Form 8-K filed with the Commission on May 23, 2002.
|------ |  | -----------------------------------------------------------------------------------------------------------



(b) Reports on Form 8-K



Form 8-K filed with the Commission on January 6, 2003



ITEM 14.    Controls and Procedures



(a) Evaluation of disclosure controls and procedures





55



---

Under the supervision and with the participation of management, including its Chief Executive Officer,
evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule [13a-14(c)/15d-14(c)] under the Exchange Act) related to the Company as of a date (the Evaluation Date) within 90 days
prior to the filing date of this report. Based upon that evaluation, the Chief Executive Officer concluded that, as of the Evaluation Date, the disclosure controls and procedures are effective in timely alerting them to the material information
relating to the Company required to be included in periodic SEC filings.



(b) Changes in internal controls



There were no
significant changes made in the Companys internal controls during the period covered by this report or, to the Chief Executive Officers knowledge, in other factors that could significantly affect these controls subsequent to the date of
their evaluation.



56



---

SIGNATURES



Pursuant
to the requirements of Section 13 or 15(d) of the Securities and Exchange Act, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.



|                   |  |  |  | COMPASS KNOWLEDGE HOLDINGS, INC.
|------------------ |  |  |  | --------------------------------
|                  
|Date: May 14, 2003 |  |  |  | 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 and in the capacities and on the dates indicated.



|Signature               |  | Title    |  | Date        
|----------------------- |  | -------- |  | ------------
|/s/    DANIEL J. DEVINE |  | Director |  | May 14, 2003
|/s/    DR. PAUL LERMAN  |  | Director |  | May 14, 2003
|/s/    DR. ROBERT FRANK |  | Director |  | May 14, 2003
|/s/    THOMAS J. CRANE  |  | Director |  | May 14, 2003





57



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CERTIFICATION

PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY
ACT OF 2002



I, Rogers W. Kirven, Jr., CEO and CFO, certify
that:



1. I have reviewed this annual report on
Form 10-KSB of Compass Knowledge Holdings, Inc.;



2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual report;



3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this annual report;



4. The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report
(the Evaluation Date); and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



5. The registrants other
certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



6. The registrants other
certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



Date: May 14, 2003

/s/    Rogers W. Kirven, Jr.

Rogers W. Kirven, Jr., Chief Executive and

Financial Officer



58



---

COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES



CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2002 and 2001

TOGETHER WITH REPORT OF INDEPENDENT

CERTIFIED PUBLIC ACCOUNTANTS



---

PART F/S

COMPASS KNOWLEDGE HOLDINGS, INC.

CONTENTS



|Index to Financial Statements                                                                             |  | F-1
|--------------------------------------------------------------------------------------------------------- |  | ---
|                                                                                                         
|Report of Independent Certified Public Accountants Parks, Tschopp, Whitcomb & Orr, PA                     |  | F-2
|                                                                                                         
|Consolidated Balance Sheets As of December 31, 2002 and 2001                                              |  | F-3
|                                                                                                         
|Consolidated Statements of Operation For The Years Ended December 31, 2002 and 2001                       |  | F-4
|                                                                                                         
|Consolidated Statements of Changes in Stockholders Equity For the Years Ended December 31, 2002 and 2001 |  | F-5
|                                                                                                         
|Consolidated Statements of Cash Flows For The Years Ended December 31, 2002 and 2001                      |  | F-6
|                                                                                                         
|Notes To Consolidated Financial Statements December 31, 2002 and 2001                                     |  | F-7



F-1



---

Report of Independent Certified Public Accountants



To Compass Knowledge Holdings, Inc.:



We have audited the accompanying consolidated balance sheets of
Compass Knowledge Holdings, Inc. and subsidiaries (a Nevada corporation) as of December 31, 2002 and 2001, and the related consolidated statements of operations, changes in stockholders equity and cash flows for the years then ended. These
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 of America. 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
financial statements referred to above present fairly, in all material respects, the financial position of Compass Knowledge Holdings, Inc. and subsidiaries as of December 31, 2002 and 2001, and the results of their operations and their cash flows
for the years then ended in conformity with accounting principles generally accepted in the United States of America.



Parks, Tschopp, Whitcomb & Orr, PA

February 27, 2003 except as to Note 12,

which is as of May 14, 2003



Maitland, Florida



F-2



---

COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS

(in Thousands)

AS OF DECEMBER 31, 2002 AND DECEMBER 31, 2001



|                                                                                                                                                                              |  | December 31, 2002      |        |   | December 31, 2001 |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------ | - | ----------------- | -
|                                                                                                                                                                              |  | As Previously Reported |        |   | As Restated       |  
|ASSETS                                                                                                                                                                        |  |                        |        |   |                   |  
|CURRENT ASSETS:                                                                                                                                                               |  |                        |        |   |                   |  
|Cash                                                                                                                                                                          |  | $                      | 451    |   |                   | $
|Accounts receivable, net of allowance                                                                                                                                         |  |                        | 905    |   |                   |  
|for doubtful accounts of $6 & $0 at December 31, 2002 and December 31, 2001,
respectively                                                                                     |  |                        |        |   |                   |  
|Note receivable                                                                                                                                                               |  |                        |       |   |                   |  
|Prepaid expenses                                                                                                                                                              |  |                        | 72     |   |                   |  
|Other assets, net                                                                                                                                                             |  |                        | 729    |   |                   |  
|                                                                                                                                                                              |  |                        |        |   |                   |  
|Total current assets                                                                                                                                                          |  |                        | 2,157  |   |                   |  
|PROPERTY AND EQUIPMENT, net                                                                                                                                                   |  |                        | 245    |   |                   |  
|GOODWILL, net                                                                                                                                                                 |  |                        | 847    |   |                   |  
|OTHER ASSETS, net                                                                                                                                                             |  |                        | 562    |   |                   |  
|NET ASSETS OF DISCONTINUED OPERATIONS                                                                                                                                         |  |                        | 1,570  |   |                   |  
|                                                                                                                                                                              |  |                        |        |   |                   |  
|Total assets                                                                                                                                                                  |  | $                      | 5,381  |   |                   | $
|                                                                                                                                                                              |  |                        |        |   |                   |  
|LIABILITIES AND STOCKHOLDERS
EQUITY                                                                                                                                          |  |                        |        |   |                   |  
|CURRENT LIABILITIES:                                                                                                                                                          |  |                        |        |   |                   |  
|Accounts payable and accrued expenses                                                                                                                                         |  | $                      | 622    |   |                   | $
|Deferred student fees                                                                                                                                                         |  |                        | 1,279  |   |                   |  
|Note payable-current portion                                                                                                                                                  |  |                        | 75     |   |                   |  
|Provision for Loss from Disposal of Discontinued Operations                                                                                                                   |  |                        | 1,682  |   |                   |  
|                                                                                                                                                                              |  |                        |        |   |                   |  
|Total current liabilities                                                                                                                                                     |  |                        | 3,658  |   |                   |  
|                                                                                                                                                                              |  |                        |        |   |                   |  
|Total liabilities                                                                                                                                                             |  |                        | 3,658  |   |                   |  
|                                                                                                                                                                              |  |                        |        |   |                   |  
|STOCKHOLDERS EQUITY:                                                                                                                                                         |  |                        |        |   |                   |  
|Preferred stock, 5,000,000 shares authorized, 2,000 shares issued and
outstanding                                                                                             |  |                        | 1,667  |   |                   |  
|Common stock, $0.001 par value; 50,000,000 shares authorized, 15,861,250 and 15,861,250
shares issued and outstanding at December 31, 2002 and December 31, 2001 respectively |  |                        | 16     |   |                   |  
|Additional paid-in-capital                                                                                                                                                    |  |                        | 6,020  |   |                   |  
|Unearned compensation                                                                                                                                                         |  |                        |       |   |                   |  
|Accumulated deficit                                                                                                                                                           |  |                        | (5,979 | ) |                   |  
|                                                                                                                                                                              |  |                        |        |   |                   |  
|Total stockholders equity                                                                                                                                                    |  |                        | 1,723  |   |                   |  
|                                                                                                                                                                              |  |                        |        |   |                   |  
|Total liabilities and stockholders equity                                                                                                                                    |  | $                      | 5,381  |   |                   | $
|                                                                                                                                                                              |  |                        |        |   |                   |  



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



F-3



---



CONSOLIDATED
STATEMENTS OF OPERATIONS



(in thousands,
except share and per share amounts)

FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001



|                                                                                                 |  | 2002                   |            |   | 2001        |  
|------------------------------------------------------------------------------------------------ |  | ---------------------- | ---------- | - | ----------- | -
|                                                                                                 |  | As Previously Reported |            |   | As Restated |  
|TOTAL STUDENT FEE REVENUE                                                                        |  |                        |            |   |             |  
|Net student fee revenue from degree programs                                                     |  | $                      | 3,790      |   |             | $
|Gross student fee revenue from non-degree programs                                               |  |                        | 686        |   |             |  
|Gross revenue from subscriptions and consulting services                                         |  |                        | 384        |   |             |  
|Other revenue                                                                                    |  |                        | 8          |   |             |  
|                                                                                                 |  |                        |            |   |             |  
|Total revenue                                                                                    |  |                        | 4,868      |   |             |  
|INSTRUCTION COSTS AND SERVICES                                                                   |  |                        | 1,126      |   |             |  
|                                                                                                 |  |                        |            |   |             |  
|Gross profit                                                                                     |  |                        | 3,742      |   |             |  
|                                                                                                 |  |                        |            |   |             |  
|OPERATING EXPENSES                                                                               |  |                        |            |   |             |  
|Selling and promotional                                                                          |  |                        | 570        |   |             |  
|General and administrative                                                                       |  |                        | 2,713      |   |             |  
|                                                                                                 |  |                        |            |   |             |  
|Total operating expenses                                                                         |  |                        | 3,283      |   |             |  
|                                                                                                 |  |                        |            |   |             |  
|INCOME (LOSS) FROM OPERATIONS                                                                    |  |                        | 459        |   |             |  
|                                                                                                 |  |                        |            |   |             |  
|                                                                                                
|OTHER INCOME (EXPENSE)                                                                           |  |                        |            |   |             |  
|Interest income                                                                                  |  |                        | 11         |   |             |  
|Interest expense                                                                                 |  |                        | (5         | ) |             |  
|Other Income                                                                                     |  |                        | 5          |   |             |  
|                                                                                                 |  |                        |            |   |             |  
|Total other income                                                                               |  |                        | 11         |   |             |  
|                                                                                                 |  |                        |            |   |             |  
|INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE PREFERRED DIVIDENDS                              |  |                        | 470        |   |             |  
|DISCONTINUED OPERATIONS                                                                          |  |                        | (1,716     | ) |             |  
|                                                                                                 |  |                        |            |   |             |  
|INCOME (LOSS) BEFORE PREFERRED DIVIDENDS AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE |  |                        | (1,246     | ) |             |  
|CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                                              |  |                        | (2,000     | ) |             |  
|                                                                                                 |  |                        |            |   |             |  
|INCOME (LOSS) BEFORE PREFERRED DIVIDENDS                                                         |  |                        | (3,246     | ) |             |  
|LESS: PREFERRED STOCK DIVIDENDS                                                                  |  |                        | (140       | ) |             |  
|                                                                                                 |  |                        |            |   |             |  
|NET (LOSS) INCOME AVAILABLE TO COMMON STOCKHOLDERS                                               |  | $                      | (3,386     | ) |             | $
|                                                                                                 |  |                        |            |   |             |  
|BASIC EARNINGS (LOSS) PER SHARE                                                                  |  |                        |            |   |             |  
|Income (Loss) from Continuing Operations                                                         |  | $                      | 0.03       |   |             | $
|Loss from Discontinued Operations                                                                |  | $                      | (0.11      | ) |             | $
|Cumulative Effect of Change in Accounting Principle                                              |  | $                      | (0.13      | ) |             | $
|                                                                                                 |  |                        |            |   |             |  
|Net Income (Loss) Per Share                                                                      |  | $                      | (0.21      | ) |             | $
|                                                                                                 |  |                        |            |   |             |  
|Basic Weighted Average Shares Outstanding                                                        |  |                        | 15,861,250 |   |             |  
|                                                                                                 |  |                        |            |   |             |  
|DILUTED EARNINGS (LOSS) PER SHARE                                                                |  |                        |            |   |             |  
|Income (Loss) from Continuing Operations                                                         |  | $                      | 0.03       |   |             | $
|Loss from Discontinued Operations                                                                |  | $                      | (0.11      | ) |             | $
|Cumulative Effect of Change in Accounting Principle                                              |  | $                      | (0.13      | ) |             | $
|                                                                                                 |  |                        |            |   |             |  
|Net Income (Loss) Per Share                                                                      |  | $                      | (0.21      | ) |             | $
|                                                                                                 |  |                        |            |   |             |  
|Diluted Weighted Average Shares Outstanding                                                      |  |                        | 15,861,250 |   |             |  
|                                                                                                 |  |                        |            |   |             |  



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



F-4



---

COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001



|                                         |  | # of Shares |   |  | Amount |        |   | # of Shares |       | Preferred Stock |   | APIC      |  |   | Unearned Compensation |   |  | Retained Deficit (As Restated) |        |   | Stockholders Equity (As Restated) |  
|---------------------------------------- |  | ----------- | - |  | ------ | ------ | - | ----------- | ----- | --------------- | - | --------- |  | - | --------------------- | - |  | ------------------------------ | ------ | - | ---------------------------------- | -
|BALANCE, December 31, 2000               |  | 14,875,000  |   |  | $      | 14,875 |   |             | 2,000 |                 | $ | 1,667,026 |  | $ | 4,571,688             |   |  | $                              | (7,574 | ) |                                    | $
|                                         |  |             |   |  |        |        |   |             |       |                 |   |           |  |   |                       |   |  |                                |        |   |                                    |  
|Issuance of Common Stk in PPM            |  | 1,167,500   |   |  |        | 1,167  |   |             |      |                 |   |          |  |   | 1,426,333             |   |  |                                |       |   |                                    |  
|Repurchase of common stock               |  | (181,250    | ) |  |        | (181   | ) |             |      |                 |   |          |  |   | (90,444               | ) |  |                                |       |   |                                    |  
|Issuance of warrants                     |  |            |   |  |        |       |   |             |      |                 |   |          |  |   | 49,689                |   |  |                                |       |   |                                    |  
|Issurance of stock options               |  |            |   |  |        |       |   |             |      |                 |   |          |  |   | 28,781                |   |  |                                |       |   |                                    |  
|Amortization of unearned compensation    |  |            |   |  |        |       |   |             |      |                 |   |          |  |   |                      |   |  |                                | 7,247  |   |                                    |  
|Preferred Stock Dividend                 |  | 0           |   |  |        | 0      |   |             | 0     |                 |   | 0         |  |   | 0                     |   |  |                                | 0      |   |                                    |  
|Net income                               |  |            |   |  |        |       |   |             |      |                 |   |          |  |   |                      |   |  |                                |       |   |                                    |  
|                                         |  |             |   |  |        |        |   |             |       |                 |   |           |  |   |                       |   |  |                                |        |   |                                    |  
|BALANCE, December 31, 2001               |  | 15,861,250  |   |  | $      | 15,861 |   |             | 2,000 |                 | $ | 1,667,026 |  | $ | 5,986,047             |   |  | $                              | (327   | ) |                                    | $
|                                         |  |             |   |  |        |        |   |             |       |                 |   |           |  |   |                       |   |  |                                |        |   |                                    |  
|Issuance of Common Stk in PPM            |  |            |   |  |        |       |   |             |      |                 |   |          |  |   |                      |   |  |                                |       |   |                                    |  
|Non-Employee Warrants Issued             |  |            |   |  |        |       |   |             |      |                 |   |          |  |   | 33,473                |   |  |                                |       |   |                                    |  
|Amortization of unearned compensation    |  |            |   |  |        |       |   |             |      |                 |   |          |  |   |                      |   |  |                                | 327    |   |                                    |  
|Preferred Stock Dividend                 |  |            |   |  |        |       |   |             |      |                 |   |          |  |   |                      |   |  |                                |       |   |                                    |  
|Net income (As Restated)                 |  |            |   |  |        |       |   |             |      |                 |   |          |  |   |                      |   |  |                                |       |   |                                    |  
|                                         |  |             |   |  |        |        |   |             |       |                 |   |           |  |   |                       |   |  |                                |        |   |                                    |  
|BALANCE, December 31, 2002 (As Restated) |  | 15,861,250  |   |  | $      | 15,861 |   |             | 2,000 |                 | $ | 1,667,026 |  | $ | 6,019,520             |   |  | $                              | (0     | ) |                                    | $
|                                         |  |             |   |  |        |        |   |             |       |                 |   |           |  |   |                       |   |  |                                |        |   |                                    |  



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



F-5



---



COMPASS
KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS

(in Thousands)

FOR THE YEARS ENDED DECEMBER 31, 2002 and 2001



|                                                                                                    |  | 2002                   |        |   | 2001        |  
|--------------------------------------------------------------------------------------------------- |  | ---------------------- | ------ | - | ----------- | -
|                                                                                                    |  | As Previously Reported |        |   | As Restated |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                |  |                        |        |   |             |  
|Net (loss) income                                                                                   |  | $                      | (3,246 | ) |             | $
|Adjustments to reconcile net (loss) income to net cash provided by (used for) operating
activities- |  |                        |        |   |             |  
|Depreciation and amortization                                                                       |  |                        | 1,069  |   |             |  
|Transitional goodwill impairment loss                                                               |  |                        | 2,000  |   |             |  
|Provision for loss from disposal of discontinued operations                                         |  |                        | 1,674  |   |             |  
|Write-off Content Development                                                                       |  |                        | 114    |   |             |  
|Write-off Direct Marketing                                                                          |  |                        | 34     |   |             |  
|Amortization of unearned compensation                                                               |  |                        | 0      |   |             |  
|Stock-based compensation                                                                            |  |                        | 33     |   |             |  
|Decrease (increase) in operating assets and liabilities-                                            |  |                        |        |   |             |  
|Accounts receivable                                                                                 |  |                        | (973   | ) |             |  
|Provision for losses on accounts receivable                                                         |  |                        | 6      |   |             |  
|Prepaid expenses                                                                                    |  |                        |       |   |             |  
|Other current assets                                                                                |  |                        | 60     |   |             |  
|Other long-term assets                                                                              |  |                        |       |   |             |  
|Accounts payable and accrued expenses                                                               |  |                        | (109   | ) |             |  
|Due to related parties                                                                              |  |                        |       |   |             |  
|Deferred revenue                                                                                    |  |                        | 714    |   |             |  
|                                                                                                    |  |                        |        |   |             |  
|Net cash provided by (used in) operating activities                                                 |  |                        | 1,376  |   |             |  
|                                                                                                    |  |                        |        |   |             |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                               |  |                        |        |   |             |  
|Purchases of property and equipment                                                                 |  |                        | (139   | ) |             |  
|Cash payments for content development costs                                                         |  |                        | (527   | ) |             |  
|Cash payments for direct marketing costs                                                            |  |                        | (702   | ) |             |  
|Acquisitions, net of cash/divestiture                                                               |  |                        | 2      |   |             |  
|                                                                                                    |  |                        |        |   |             |  
|Net cash provided by (used in) investing activities                                                 |  |                        | (1,366 | ) |             |  
|                                                                                                    |  |                        |        |   |             |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                               |  |                        |        |   |             |  
|Proceeds from issuance of common stock and warrants                                                 |  |                        |       |   |             |  
|Proceeds from issuance of note payable                                                              |  |                        | 75     |   |             |  
|Proceeds from notes receivable                                                                      |  |                        | 75     |   |             |  
|Payment on notes payable                                                                            |  |                        | (50    | ) |             |  
|Payment of preferred dividend                                                                       |  |                        | (140   | ) |             |  
|                                                                                                    |  |                        |        |   |             |  
|Net cash provided by (used in) financing activities                                                 |  |                        | (40    | ) |             |  
|                                                                                                    |  |                        |        |   |             |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                |  |                        | (30    | ) |             |  
|CASH AND CASH EQUIVALENTS, beginning of period                                                      |  |                        | 481    |   |             |  
|                                                                                                    |  |                        |        |   |             |  
|CASH AND CASH EQUIVALENTS, end of period                                                            |  | $                      | 451    |   |             | $
|                                                                                                    |  |                        |        |   |             |  
|Supplemental disclosure of cash flow information:                                                   |  |                        |        |   |             |  
|Cash paid during the year for:                                                                      |  |                        |        |   |             |  
|Interest                                                                                            |  | $                      | 5      |   |             | $
|                                                                                                    |  |                        |        |   |             |  



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



F-6



---



1.    ORGANIZATION, REORGANIZATION AND NATURE OF BUSINESS



Compass Knowledge Holdings, Inc. (CKHI) began its business as Professional Educational Seminars, Inc. (PES), a Florida corporation which purchased the operating division and intellectual property of
Paul M. Deutsch Press, Inc. in November 1993. PES was formed for the purpose of developing, owning and operating seminars, developing and providing certificate programs and developing and publishing materials in life care planning for catastrophic
injuries and impairments. In November 1993, Rogers W. Kirven, Jr., Chief Executive Officer of CKHI, and several other individuals acquired all the issued and outstanding stock of PES, and, in 1994, the name of PES was changed to Rehabilitation
Training Institute, Inc. (RTI), one of CKHIs wholly-owned subsidiaries.



CKHI is an educational company that delivers education programs to working professionals, in the healthcare, education and criminal justice markets utilizing the Internet, expert video presentation and other traditional mediums by:



| |  |  | Delivering curricula and content over the Internet and through other traditional mediums,
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | Providing interaction between and among the students and their professors via the Internet through e-mail, lectures and chat rooms, and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Providing course content on video and hard copy materials to students.
| | - |  | ----------------------------------------------------------------------



CKHI presently operates its business through its wholly-owned subsidiaries which sell and deliver its programs.



In March of 1996, RTI, with the University of Florida Health Services, Inc., a
Florida corporation and affiliate of the University of Florida, formed Intelicus, LC (Intelicus), a Florida limited liability company organized for the purpose of developing, marketing and operating degree and certificate programs for healthcare
professionals. RTI was ultimately issued 64.5% of the ownership interest in Intelicus, and the University of Florida Health Services, Inc. was issued the remaining 35.5% ownership interest. Intelicus was managed by four managing members, two
appointed by RTI and two appointed by the University of Florida Health Services, Inc.



On February 9, 1999, Compass Knowledge Group, Inc. (CKGI) was incorporated under the laws of the State of Florida for the purpose of establishing a company to acquire companies and develop and operate businesses involved in
the distance learning business. CKGI had no operating history. Upon formation, the stockholders of CKGI were issued 9,188,257 shares of our common stock, $.001 par value. At the formation of CKGI, proxy relationships were in place that resulted in
CKGI and RTI having a common control group.



Effective October
31, 1999, CKGI consummated a tax-free stock exchange with the stockholders of RTI, whereby RTI stockholders exchanged, on a one-for-one basis (61,743 aggregate shares), all of their common stock in RTI for common stock in CKGI. No new shares of
common stock were issued to the stockholders of CKGI as part of the exchange. Upon consummation of the stock exchange, CKGI owned 100% of RTI, and RTI owned 64.5% of Intelicus. The University of Florida Health Services, Inc. owned the remaining
35.5% of Intelicus. The exchange has been accounted for as a business combination among control groups, similar to a pooling of interests. At the time of the exchange, CKGI did not have any operations. Accordingly, the financial information of CKGI
(and thus, as noted below, the Company) prior to the exchange represents the consolidated financial information of RTI. In conjunction with this transaction, RTI elected to change its tax status (see Note 5).



F-7



---



In October 1999, CKGI also
agreed to purchase the 35.5% equity interest in Intelicus, LC, which was then owned by the University of Florida Foundation, Inc. as a result of a gift from the University of Florida Health Services, Inc. In exchange for the 35.5% interest, CKGI
agreed to issue to the University of Florida Foundation 465,000 shares of its common stock and to contribute $300,000 to the University of Florida Foundation for the purpose of establishing an endowment fund for health professionals (the
Contribution). As a condition to the closing, the University of Florida, College of Pharmacy agreed to extend, for a period of five (5) years, the term of its professional service agreements with the Company for an additional 35,000 shares of CKGI
common stock. This transaction was valued at $2.00 per share, which was the fair market value of CKGIs stock at that time. These transactions were closed on December 1, 1999.



On November 15, 1999, CKGI was recapitalized in a tax-free acquisition of Winthrop Industries, Inc. (WII). In accordance with
the acquisition agreement, CKGI common stockholders received one share of WIIs common stock for each share of common stock owned by them (9,750,000 aggregate shares), and CKGIs preferred stockholders received a like kind and number with
identical preferences of Series A Preferred Stock in WII (2,000 aggregate shares) in exchange for CKGIs Series A Preferred Stock. WII also adopted CKGIs Stock Option Plan, thereby allowing CKGI option holders to exercise their options to
acquire common shares of WII in accordance with the adopted Stock Option Plan. No new shares of common stock were issued to the stockholders of WII as part of the exchange. Prior to the acquisition of CKGI, WII was a nonoperating public shell
company but, as noted below, WII had completed an offering of its common stock. For accounting purposes, the acquisition has been treated as a recapitalization of CKGI with CKGI as the acquirer. This accounting is identical to that resulting from a
reverse acquisition, except that no goodwill or other intangible asset has been recorded. The historical financial statements prior to November 15, 1999, are those of CKGI, which was formed on February 9, 1999.



Also, on November 15, 1999, the Board of Directors of the Company (the Board)
approved, and stockholders owning a majority of the Companys outstanding common stock consented to: (i) the authorization of 5,000,000 shares of preferred stock to be issued with such rights and preferences, as determined by the Board, (ii) a
reverse stock split of the issued and outstanding shares of the Companys common stock on a 3.33 to 1 basis, so that stockholders of the Company prior to the CKGI acquisition received one share of the Companys $.001 par value common stock
for every 3.33 shares of common stock held by them, and (iii) to reflect a name change to Compass Knowledge Holdings, Inc. The accompanying consolidated financial statements reflect the impact of the 3.33 to 1 stock split for all periods presented.
As an additional negotiated condition of the WII recapitalization, the management of WII completed an offering on November 15, 1999, of 2,000,000 shares of its common stock, at an offering price of $2.00 per share. The offering was made pursuant to
an exemption from registration under the Securities Act of 1933, provided by Regulation D, Rule 506, of said Act, raising proceeds of $3,936,025, net of offering costs of $63,975. Neither CKGI nor any of its officers, directors or stockholders
assisted or participated in this offering.



On August 15, 2000,
CKHI completed the acquisition of 90% of the outstanding capital stock of Jamita, Inc. (Jamita), a distance learning leadership development services company headquartered in Cincinnati, Ohio and Rutherford Learning Group, Inc. (RLG), a consulting
services company headquartered in Matthews, North Carolina. The acquisition, recorded under the purchase method of accounting, included the purchase of all the outstanding shares of common stock of RLG and 90% of the outstanding common stock of
Jamita for $2,175,000 (before contingent consideration) plus acquisition costs of $155,964, consisting of legal and accounting fees. In exchange, the Company received $281,035 of assets and assumed liabilities of $419,236 resulting in intangible
assets acquired of $2,469,165. The purchase price has been allocated to assets acquired that will be depreciated over three to five years and liabilities assumed based on estimated fair market values at the date of acquisition. Goodwill related to
Jamita and



F-8



---

RLG in the amount of $2,469,165 is being amortized over 10 years on a straight-line basis. The contingent
consideration consists of 562,500 shares of CKHI common stock valued at $2.00 per share (which was approximately the average closing price of the stock for the 20-day period ended August 14, 2000) was placed into an escrow account for distribution
to the Jamita stockholders subject to Jamita having net collections of approximately $1 million in the first year following the closing. This condition was satisfied and the escrowed shares were released in August 2001. Additionally, we made a
payment to the Jamita shareholders in 2001 based on the attainment of sales to new customers and expect to make another payment in 2002. CKHI may also make additional payments if certain net collection goals are achieved in the fiscal period August
1, 2001 through July 31, 2002.



The table below
reflects unaudited pro forma combined results of the Company, CKHI, Jamita and RLG as if the acquisitions had taken place at the beginning of the period ended December 31, 2000:



|                                         |  | 2000 |           
|---------------------------------------- |  | ---- | ----------
|Revenue                                  |  | $    | 4,190,856 
|                                         |  |      |           
|(Loss) income before extraordinary items |  | $    | (1,178,119
|                                         |  |      |           
|Net (loss) income                        |  | $    | (1,178,119
|                                         |  |      |           
|Weighted average shares outstanding:     |  |      |           
|Basic                                    |  |      | 14,802,055
|                                         |  |      |           
|Diluted                                  |  |      | 15,787,684
|                                         |  |      |           
|Earnings per share:                      |  |      |           
|Basic                                    |  | $    | (0.080    
|                                         |  |      |           
|Diluted                                  |  | $    | (0.080    
|                                         |  |      |           



Effective July 1, 2001,
the Company entered into a Settlement Agreement with Michael Rutherford whereby Mr. Rutherford resigned as an officer and director of two of the Companys subsidiaries, his employment agreement with such subsidiaries was terminated and
substantially all of the assets of the Companys subsidiary, Rutherford Learning Group (RLG), were conveyed to Mr. Rutherford. In connection with this transaction, Mr. Rutherford returned to the Company 181,250 common shares of the
Company and his 10 percent equity interest in the Companys subsidiary, Educators Learning Network, (formerly Jamita), which he acquired in connection with the Companys acquisition of RLG in August 2000. Parties interested in this
transaction are encouraged to review Item 5 of our Form 10-QSB filed with the SEC on August 8, 2001.



Effective July 31, 2002, the employment contract of Dr. Larry Rowedder, the founder and President of eLNet, expired and as a result of the parties inability to reach mutually agreeable renewal
terms, Dr. Rowedder decided to pursue other business opportunities.



The Company discontinued its K-12 subscription program operations in the fourth quarter of 2002 because of substantial decreases in its customer base, lack of contract backlog, declining revenues and uncertainty in the market. This
business operation had been operated within the Companys wholly owned subsidiary, eLNet, since its acquisition in 2000. eLNet had annual revenues of $1,359,037 for the fiscal year ending December 31, 2001 and $1,058,910 for the fiscal year
ending December 31, 2002, with a net loss of $356,908 in 2001 and $165,796 in 2002.



Effective February 28, 2003, the Company entered into and consummated the closing of a Stock Purchase



F-9



---

Agreement with R&B Holdings, Inc., a Virginia corporation whereby we sold all of the issued and
outstanding stock of eLNet for $326,704 in cash and the assignment to the Company of an eLNet receivable in the amount of $123,296. In connection with that transaction, eLNet maintained its right to collect and keep all of the remaining outstanding
receivables totaling approximately $29,000 and remained responsible for the payment of approximately $34,537 of accounts payable and other accrued expenses. Each of the parties was responsible for their legal, accounting and other expenses incurred
in connection with the transaction.



As a result of the sale of
eLNet, the Company recognized an additional loss on the disposal of discontinued operations of approximately $993,000 (as restated) as of December 31, 2002.



2.    SUMMARY OF CRITICAL ACCOUNTING POLICIES



Principles of Consolidation



The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany amounts and transactions have
been eliminated.



Use of Estimates



The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.



Cash and Cash Equivalents



The Company considers all highly liquid investments with an original maturity of six months or less at time of purchase to be cash and cash equivalents.



Fair Value of Financial Instruments



The carrying values of cash and cash equivalents, accounts receivable, due
from related parties, accounts payable and accrued expenses, deferred student fees, and due to related parties approximate fair value due to the short-term maturities of these financial instruments. The fair values of note receivable and note
payable are based on interest rates of similar instruments with similar terms and approximate carrying value.



Property and Equipment



Property and equipment are stated at cost. Depreciation is computed based on the estimated useful lives of the assets, three years for computer equipment and seven years for office furniture, using the straight-line method for
financial reporting purposes. Ongoing maintenance and repairs are expensed when incurred. Depreciation expense was $162,708 and $139,220 for the years ended December 31, 2002 and 2001, respectively.



F-10



---



Goodwill



Goodwill represents the excess of the cost over the net assets of the
acquired companies and is being amortized on a straight-line basis over 10 to 15 years. Goodwill of $981,555 and $981,555, net of accumulated amortization of $134,443 and $134,443 at December 31, 2002 and 2001, respectively, is included in the
accompanying consolidated balance sheets. Amortization expense was $0 and $65,176 for the years ended December 31, 2002 and 2001, respectively.



In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142 (SFAS 142). Under the new rules, the Company is no longer
required to amortize goodwill and other intangible assets with indefinite lives but will be subject to periodic testing for impairment. SFAS 142 supercedes APB Opinion No. 17, Intangible Assets. Effective January 1, 2002 the Company adopted SFAS 142
and effective as of the first quarter of 2002 wrote down the goodwill associated with the acquisition of eLNet in the amount of $2,000,000.



Other Assets



The Company enters into long-term contracts with certain universities (the University Partners) for the development and delivery of degree programs. Costs
incurred by the Company in entering into these contracts are deferred and amortized over the life of the contract, generally three to seven years. Long-term contracts at December 31, 2002 and 2001, were $27,840 and $41,779, net of accumulated
amortization of $42,160 and $28,221, respectively.



Under some of
the long-term contracts with the University Partners, the Company is responsible for developing and delivering a degree program for the duration of the contract period. Direct external and internal costs incurred in the design and development of
course content and the master copy of course materials are capitalized as content development costs. These costs are recognized as expense over the life of the contract, based on the expected revenue stream from course offerings during the contract
period. Content development costs at December 31, 2002 and 2001, were $981,437 and $950,140, net of accumulated amortization of $718,843 and $337,220, respectively.



The Company expenses the production costs of advertising the first time the advertising takes place, except for
direct-response advertising and other direct marketing costs, which are deferred and amortized over their expected period of future benefits. Direct-response advertising consists primarily of marketing materials mailed to potential students, which
include direct response cards. Other direct marketing costs consist primarily of brochures and mailing lists, which will be utilized over future periods. The deferred costs of the marketing and advertising are amortized over periods up to 12 months.
Direct response advertising costs at December 31, 2002 and 2001, were $504,628 and $359,839, net of accumulated amortization of $1,484,353 and $960,867, respectively.



Long-lived Assets



SFAS 143, issued by the FASB in July 2001, establishes accounting standards for the recognition and measurement of an asset retirement obligation and its
associated asset retirement cost. It also provides guidance for legal obligations associated with the retirement of tangible long-lived assets. The Company, expects the provisions of SFAS 143 will not have a material impact on its consolidated
results of operations and financial position upon adoption. The Company adopted SFAS 143 effective January 1, 2002.



F-11



---

Revenue Recognition



The Company offers consulting services and three types of educational programs: degree programs, non-degree
programs, and subscription-based programs. For degree programs, in which the Companys University Partners are responsible for course curricula and for conferring a degree, the Company receives a stated percentage of student fees. The Company
currently records as revenues only the stated percentage of the student fees paid to the Company by the University Partners.



The Company has based its revenue recognition policy on recent guidance by the Securities and Exchange Commission (SEC) and the Emerging
Issues Task Force (EITF), in EITF Issue No. 99-19, Reporting Revenue Gross versus Net, regarding the recognition of gross versus net revenues for Internet-based entities. While the Company employs distance delivery systems in its
operations, of which Internet applications is only one component, management believes that its current revenue recognition policy complies with the SECs and EITFs guidance.



For non-degree programs, in which the Company is responsible for course curricula, the Company records all
student fees as gross revenue.



The revenue
generated by subscription services is in the form of subscription contracts to the Companys leadership training programs which was discontinued in the fourth quarter of 2002 and sold in February of 2003. These contracts are generally for a
period of two to three years. Revenue is billed for a six- or twelve-month period and is recognized ratably over the billing and service period.



The revenue generated by consulting projects is recognized in conjunction with a report being delivered or a designated service being
completed.



For both degree and non-degree
programs, student fees must be paid prior to the students attendance of the seminar. The Company defers this revenue and recognizes it as income over the period of instruction. If a student withdraws from a course or program prior to the start
date or expiration of the drop date, the student fees may be refunded or applied to a later seminar.



Total revenue for courses offered by the Company for 2002 and 2001 were as follows:



|                                                        |  | 2002 |           | 2001
|------------------------------------------------------- |  | ---- | --------- | ----
|Net student fee revenue from degree programs            |  | $    | 3,789,763 |     
|Gross student fee revenue from non-degree programs      |  |      | 686,065   |     
|Gross revenue from subscription and consulting services |  |      | 383,700   |     
|Other revenue                                           |  |      | 8,773     |     
|                                                        |  |      |           |     
|Total revenue                                           |  | $    | 4,868,211 |     
|                                                        |  |      |           |     



Stock-based
Compensation



The Company accounts for
employee and non-employee director stock options in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25).



F-12



---

Under APB 25, the Company recognizes compensation expense related to employee and
non-employee director stock options for the excess, if any, of the fair value of the Companys stock at the date of grant over the option exercise price. The amount is charged to operations over the vesting period. See Note 9 for the pro forma
disclosures required by Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation (SFAS 123).



The Company accounts for non-employee stock options based on the fair value method in accordance with SFAS 123. Under SFAS 123, the
Company recognizes compensation expense related to non-employee stock options based on the fair value of the options at the date of the grant, as determined by the Black-Scholes pricing model. This amount is charged to operations over the vesting
period.



Income Taxes



The Company uses the liability method of accounting for income
taxes, as set forth in SFAS 109, Accounting for Income Taxes. Under the liability method, deferred taxes are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax
rates in effect, in the years in which the differences are expected to reverse.



Earnings Per Common Share



Basic earnings per common share are calculated after deducting dividends on preferred shares from net earnings or losses and are based on the weighted average number of shares outstanding during the period. Diluted earnings per
common share reflects adjustments to the weighted average number of shares outstanding for the assumed exercise of employee stock options, less the number of treasury shares assumed to be purchased from the proceeds, including applicable unearned
compensation expense and income tax benefits, and the assumed conversion of preferred stock. The diluted share base for the years ended December 31 2002 and December 31, 2001, excludes incremental shares of 57,854 and 985,629, respectively related
to employee stock options. These shares are excluded due to their antidilutive effect as a result of the Companys loss from continuing operations during fiscal 2001 and fiscal 2000.



3.    RELATED-PARTY TRANSACTIONS



Net student fee revenue from one University Partner which is also a shareholder, was $2,352,370 and
$2,239,039 for the years ended December 31, 2002 and 2001, respectively.



On January 1, 2000, the Company entered into a commercial lease agreement, with the Companys Chief Executive Officer (CEO) and principal stockholder, through September 30, 2002 (see Note 6).



As of December 31, 1999, amounts due to related parties
included a $12,510 note payable to a stockholder and $300,000 due to the University Partner in connection with the Contribution. Both of these amounts were paid in full during the year ended December 31, 2000.



Ramsey Hashem has served as Vice President of the Company from
May 2000 until his resignation on March 16, 2001. In connection with Mr. Hashems resignation, the Company paid Mr. Hashem $37,000 in consulting fees from March, 2001 to June, 2001.



Pursuant to an offering of the Companys securities in
accordance with an exemption from registration, certain officers and directors (which are identified in Part II, Item 11 above) and other accredited investors purchased between March 22, 2001 and December 3, 2001, 605,000 shares of the
Companys



F-13



---

common stock and warrants to acquire 302,500 additional shares at an exercise price of $0.50 per share for an aggregate amount of $302,500.



In July of 2001 in exchange for Pioneer Ventures
Ltd. Partnerships consent to allow us to change accountants, the Company granted Pioneer warrants to purchase: 100,000 of our common shares at $0.55 per share expiring on December 31, 2002; 100,000 of our common shares at $0.75 per share
expiring on December 31, 2003; and, 100,000 of our common shares at $1.00 per shares expiring on June 30, 2004.



Effective May 24, 2002, the Company entered into a Termination and Settlement Agreement with Anthony Ruben its Chief Financial Officer.
The principal terms of the Settlement Agreement are as follows:



| |  |  | Mr. Ruben resigned effective as of May 24, 2002 (the Termination Date) as CFO of the Company.
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | The Company agreed to pay and did pay Mr. Ruben his base salary and benefits accrued through the Termination Date.
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | The Company agreed to pay and did pay the cost of COBRA insurance coverage for Mr. Ruben for the months of June and July 2002.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company agreed to pay and did pay Mr. Ruben the sum of $15,000.00 for certain transition services.
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | Mr. Ruben was entitled to keep 50,000 options to purchase the Companys common stock with the understanding that such options would expire if not sooner
exercised on April 30, 2003.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The execution by Mr. Ruben of a release of the Company and its subsidiaries.
| | - |  | ----------------------------------------------------------------------------



Effective October 1, 2002, the Company executed an Addendum to its Professional Lease Agreement with its
landlords, one of which is the Companys CEO, increasing the base rental rate to $14.00 per square foot and extending the term until September 30, 2004.



See Note 10 for additional related-party transactions.



4.    PROPERTY AND EQUIPMENT



Property and equipment consisted of the following at December 31, 2002 and 2001:



|                              |  | 2002 |          |   | 2001 |  
|----------------------------- |  | ---- | -------- | - | ---- | -
|Computer equipment            |  | $    | 562,169  |   |      | $
|Office furniture              |  |      | 77,318   |   |      |  
|                              |  |      |          |   |      |  
|                              |  |      | 639,487  |   |      |  
|LessAccumulated depreciation |  |      | (376,582 | ) |      |  
|                              |  |      |          |   |      |  
|                              |  | $    | 262,905  |   |      | $
|                              |  |      |          |   |      |  



F-14



---



5.    INCOME TAXES



No provision for income taxes has been recorded for the year ended December 31, 2002 or 2001 as the benefit resulting from the operating loss has been entirely offset by a valuation allowance due to the uncertainty surrounding the
Companys ability to realize the deferred tax assets in the future.



Deferred income taxes at December 31, 2002 and 2001, consisted of the following:



|                                             |  | 2002 |            |   | 2001 |  
|-------------------------------------------- |  | ---- | ---------- | - | ---- | -
|Current deferred tax assets (liabilities);   |  |      |            |   |      |  
|Accrued professional fees                    |  | $    | 18,500     |   |      | $
|Other                                        |  |      |           |   |      |  
|                                             |  |      |            |   |      |  
|Net current deferred tax assets              |  |      | 18,500     |   |      |  
|Long-term deferred tax assets (liabilities): |  |      |            |   |      |  
|Net operating loss (NOL) carryforward        |  |      | 1,213,000  |   |      |  
|Depreciation and amortization                |  |      | (16,600    | ) |      |  
|Goodwill Impairment                          |  |      | 701,290    |   |      |  
|                                             |  |      |            |   |      |  
|Net long-term deferred tax assets            |  |      | 1,897,690  |   |      |  
|                                             |  |      |            |   |      |  
|Total deferred tax assets                    |  |      | 1,918,890  |   |      |  
|LessValuation allowance                     |  |      | (1,918,890 | ) |      |  
|                                             |  |      |            |   |      |  
|                                             |  | $    |           |   |      | $
|                                             |  |      |            |   |      |  



Deferred income taxes
reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Due to the uncertainty of the Companys ability to realize the benefit of the deferred tax assets, a valuation allowance has
been established. The net change in the valuation allowance for deferred tax assets at December 31, 2002, was an increase of $968,800. The Company had an NOL carryforward as of December 31, 2002, of approximately $3,567,000 available to offset
future taxable income, which expires in varying amounts through 2021. Realization of the deferred tax assets is dependent on generating sufficient future taxable income.



The reconciliation of the benefit (provision) for income taxes based on the U.S. statutory federal income tax rate (34%) to
the Companys benefit (provision) for income taxes is as follows for the years ended December 31, 2001 and 2000:



|                                                                             |  | 2002 |          |   | 2001 |  
|---------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | -
|U.S. statutory federal income tax benefit (provision)                        |  | $    | 914,200  |   |      | $
|State income tax benefit (provision), net of federal tax benefit (provision) |  |      | 45,000   |   |      |  
|Costs incurred but not deductible for tax purposes                           |  |      | 9,600    |   |      |  
|Total benefit for income taxes                                               |  |      | 968,800  |   |      |  
|LessChange in valuation allowance                                           |  |      | (968,800 | ) |      |  
|                                                                             |  |      |          |   |      |  
|                                                                             |  | $    |         |   |      | $
|                                                                             |  |      |          |   |      |  



F-15



---



6.    COMMITMENTS AND CONTINGENCIES



Leases



The Company leases office space
and equipment under leases that expire on various dates through December 31, 2005. As of December 31, 2002, future net minimum lease payments that have initial or remaining noncancellable lease terms in excess of one year are as follows:



|Year Ending December 31, |  | Amount
|------------------------ |  | ------
|2003                     |  | $     
|2004                     |  |       
|2005                     |  |       
|                         |  |       
|                         |  | $     
|                         |  |       



Total rent expense for
the years ended December 31, 2002 and 2001, was $125,931 and $124,266, respectively. Included in these amounts is rent expense of $41,219 and $40,359 for the years ended December 31, 2002 and 2001, paid to an entity controlled by the Companys
CEO and principal stockholder.



7.    CONVERTIBLE PREFERRED STOCK



On November 5, 1999, the Company issued 2,000 shares of preferred stock for proceeds of $1,667,026, net of offering expenses of $82,974. The preferred stock may be convertible by the holder, at its option, to common stock of the
Company at $2.00 per share at any time (see Note 8). The preferred stock is subject to an annual cash and/or preferred stock cumulative dividend of 8%. The holders of the preferred stock also have the following preferences: (i) in the case of
liquidation, bankruptcy, receivership or dissolution, a liquidation preference equal to $70 per share plus accrued interest at the rate of 18% per annum; (ii) full voting rights which shall be voted with the Companys common stock as one class,
as if the preferred stock was converted to 875,000 of common stock; (iii) appointment of one director of the Company for so long as the holders own 3% or more of the Companys common stock, on a fully diluted basis; (iv) a one time demand and
unlimited piggyback registration rights with respect to the common shares underlying the preferred stock; and (v) for so long as the holders own 3% or more of the Companys common stock, the holders shall have co-sale rights comparable to the
rights of the Companys principal stockholders.



8.    EARNINGS PER SHARE



The computation of basic earnings per share was based on the weighted average number of shares of common stock outstanding. The computation of diluted earnings per share was based on the weighted average number of shares of common
stock and common stock equivalents outstanding.



In accordance
with SFAS No. 128, Earnings per Share, the following table reconciles net (loss) income and weighted average shares outstanding to the amounts used to calculate basic and diluted earnings per share for the years ended December 31, 2002,
and 2001:



F-16



---

|                                                   |  | 2002 |            |   | 2001 |  
|-------------------------------------------------- |  | ---- | ---------- | - | ---- | -
|Net (loss) income available to common stockholders |  | $    | (2,829,000 | ) |      | $
|                                                   |  |      |            |   |      |  
|Weighted average shares outstanding                |  |      | 15,861,250 |   |      |  
|Effect of stock option plan                        |  |      |           |   |      |  
|                                                   |  |      |            |   |      |  
|Diluted weighted average shares outstanding        |  |      | 15,861,250 |   |      |  
|                                                   |  |      |            |   |      |  
|Basic earnings per share                           |  | $    | (0.18      | ) |      | $
|                                                   |  |      |            |   |      |  
|Diluted earnings per share                         |  | $    | (0.18      | ) |      | $
|                                                   |  |      |            |   |      |  



As of December 31, 2002
and 2001, there were 2,000 shares of preferred stock, convertible into 875,000 common shares. These shares were not included in the computation of diluted earnings per share for the years ended December 31, 2002 and 2001, because the effect of the
assumed conversion had an antidilutive effect.



9    STOCK OPTIONS AND WARRANTS



Contemporaneous with the formation of CKGI in February 1999, the Board adopted a Stock Option Plan (the Plan), pursuant to which it authorized and granted to the Compass Knowledge Group Management Trust (the Trust) options to
purchase up to 1,500,000 shares of CKHIs common stock. The exercise price shall not be less than 85% of the fair market value of the underlying common stock on the grant date and no option may be exercised beyond seven years from the grant
date. No stock option granted to a 10% stockholder may be exercised beyond five years from the grant date.



On December 15, 1999, the Board adopted a Year 2000 Stock Option Plan, which authorized 1,000,000 shares of common stock available for grants to CKHIs officers, directors, employees and
consultants. The exercise price shall be at least equal to the fair market value of the underlying common stock on the grant date and no option may be exercised beyond 10 years from the grant date.



Had total compensation expense been calculated using SFAS 123, the
Companys net loss and loss per common share for the years ended December 31, 2002 and 2001, would have been changed to the following pro forma amounts:



|                                         |  |             |  | 2002 |            |   | 2001 |  
|---------------------------------------- |  | ----------- |  | ---- | ---------- | - | ---- | -
|Net (loss) income:                       |  | As reported |  | $    | (2,829,000 | ) |      | $
|                                         |  | Pro forma   |  | $    | (2,915,000 | ) |      | $
|                                        
|diluted earnings (loss)per common share: |  | As reported |  | $    | (0.18      | ) |      | $
|                                         |  | Pro forma   |  | $    | (0.19      | ) |      | $



F-17



---

The weighted average fair value of options granted is estimated on the date of the grant using the
Black-Scholes option pricing model for employee and non-employee options with the following assumptions for the years ended December 31, 2002 and 2001:



|                        |  | 2002    |  | 2001     
|----------------------- |  | ------- |  | ---------
|Risk-free interest rate |  | 4.5%    |  | 4.5%     
|Expected life           |  | 5 years |  | 3-5 years
|Volatility              |  | 50%     |  | 50%      
|Dividend yield          |  | 0.00%   |  | 0.00%    



A summary of options
granted to purchase common stock under the Companys 2002, 2000 and 1999 Stock Plans are presented below:



|2002 Plan                                                                |  | Shares    |  | Weighted Average Exercise Price
|------------------------------------------------------------------------ |  | --------- |  | -------------------------------
|Outstanding as of December 31, 2001                                      |  |          |  |                                
|Granted                                                                  |  | 374,000   |  | $                              
|Exercised                                                                |  |          |  |                                
|Forfeited                                                                |  | 125,000   |  | $                              
|                                                                         |  |           |  |                                
|Outstanding as of December 31, 2002                                      |  | 249,000   |  | $                              
|                                                                         |  |           |  |                                
|Options exercisable at year end                                          |  | 219,167   |  | $                              
|                                                                         |  |           |  |                                
|                                                                        
|2000 Plan                                                                |  | Shares    |  | Weighted Average Exercise Price
|Outstanding as of December 31, 1999                                      |  |          |  |                                
|Granted                                                                  |  | 1,060,000 |  | $                              
|Exercised                                                                |  |          |  |                                
|Forfeited                                                                |  | 60,000    |  | $                              
|                                                                         |  |           |  |                                
|Outstanding as of December 31, 2000                                      |  | 1,000,000 |  | $                              
|                                                                         |  |           |  |                                
|Granted                                                                  |  | 440,000   |  | $                              
|Exercised                                                                |  |          |  |                                
|Forfeited                                                                |  | 455,000   |  | $                              
|                                                                         |  |           |  |                                
|Outstanding as of December 31, 2001                                      |  | 985,000   |  | $                              
|                                                                         |  |           |  |                                
|Granted                                                                  |  | 300,000   |  | $                              
|Exercised                                                                |  |          |  |                                
|Forfeited                                                                |  | 540,000   |  | $                              
|                                                                         |  |           |  |                                
|Outstanding as of December 31, 2002                                      |  | 745,000   |  | $                              
|                                                                         |  |           |  |                                
|Options exercisable at year end                                          |  | 745,000   |  | $                              
|                                                                         |  |           |  |                                
|Weighted average fair value of options granted during the year at market |  | 300,000   |  | $                              
|                                                                         |  |           |  |                                



F-18



---

granted during the year at market



|1999 Plan                                                                |  | Shares    |  | Weighted Average Exercise Price
|------------------------------------------------------------------------ |  | --------- |  | -------------------------------
|Outstanding as of December 31, 1998                                      |  |          |  |                                
|Granted                                                                  |  | 1,500,000 |  | $                              
|Exercised                                                                |  |          |  |                                
|Forfeited                                                                |  |          |  |                                
|                                                                         |  |           |  |                                
|Outstanding as of December 31, 1999                                      |  | 1,500,000 |  | $                              
|Granted                                                                  |  | 90,000    |  | $                              
|Exercised                                                                |  |          |  |                                
|Forfeited                                                                |  | 90,000    |  | $                              
|                                                                         |  |           |  |                                
|Outstanding as of December 31, 2000                                      |  | 1,500,000 |  | $                              
|                                                                         |  |           |  |                                
|Granted                                                                  |  | 235,000   |  | $                              
|Exercised                                                                |  |          |  |                                
|Forfeited                                                                |  | 318,600   |  | $                              
|                                                                         |  |           |  |                                
|Outstanding as of December 31, 2001                                      |  | 1,416,400 |  | $                              
|Granted                                                                  |  | 45,000    |  | $                              
|Exercised                                                                |  |          |  |                                
|Forfeited                                                                |  | 150,000   |  | $                              
|                                                                         |  |           |  |                                
|Outstanding as of December 31, 2002                                      |  | 1,311,400 |  | $                              
|                                                                         |  |           |  |                                
|Options exercisable at year end                                          |  | 1,262,608 |  | $                              
|                                                                         |  |           |  |                                
|Weighted average fair value of options granted during the year at market |  | 45,000    |  | $                              
|                                                                         |  |           |  |                                



The following table
summarizes information about the options outstanding at December 31, 2002:



|                |  | Options Outstanding                   |  | Options Exercisable                             
|--------------- |  | ------------------------------------- |  | ------------------------------------------------
|Exercise Prices |  | NumberOutstanding at December 31,2002 |  | WeightedAverageRemainingContractual Lives(years)
|$.24            |  | 300,000                               |  | 4.50                                            
|$.25            |  | 294,000                               |  | 4.50                                            
|$.35            |  | 16,000                                |  | 3.13                                            
|$.375           |  | 600,000                               |  | 3.00                                            
|$.45            |  | 34,000                                |  | 1.17                                            
|$.55            |  | 25,000                                |  | 1.24                                            
|$.75            |  | 911,400                               |  | 1.11                                            
|$1.00           |  | 100,000                               |  | 2.95                                            



F-19



---

|$2.00 |  | 15,000    |  | 2.91 |  |       |  | 15,000    |  |      
|----- |  | --------- |  | ---- |  | ----- |  | --------- |  | -----
|$4.00 |  | 10,000    |  | 1.11 |  |       |  | 10,000    |  |      
|      |  |           |  |      |  |       |  |           |  |      
|      |  | 2,305,400 |  | 3.09 |  | $0.55 |  | 2,226,775 |  | $0.55
|      |  |           |  |      |  |       |  |           |  |      



Awards under the Plan
consist of stock options (both non-qualified options and options that qualify as Incentive Stock Options under Section 422 of the IRC of 1986, as amended), as described in the Plan.



For the years ended December 31, 2002 and 2001, compensation expense related
to stock options issued to non-employees of $0 and $46,717, respectively, was recognized in the accompanying consolidated statements of operations. The remaining unamortized unearned compensation at December 31, 2002 and 2001, was $0 and $327,
respectively.



For the years ended December 31, 2002 and 2001,
compensation expense related to warrants issued to non-employees of $33,473 and $39,000, respectively, was recognized in the accompanying consolidated statements of operations. There was no unearned compensation expense at December 31, 2002 or 2001.



10    SUBSEQUENT EVENTS (UNAUDITED)



The Company entered into an employment agreement with
Richard M. Flaherty, to serve as our Executive Vice President and Chief Operating Officer, on January 6, 2003 for an initial term of three years. The principal terms of Mr. Flahertys employment agreement are as follows:



| |  |  | an annual salary of $180,000, which may be increased from time to time at the discretion of our Board of Directors;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | Mr. Flaherty was granted options to purchase 1,000,000 shares of common stock of the Company at an exercise price of $0.25 per share (the Option Shares)
which shall vest as follows:
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



(i)
500,000 of the Option Shares will vest prorata on a calendar quarterly basis at the end of each calendar quarter of each year (i.e., 41,667 Option Shares will vest at the end of each quarter saving the last quarter of this Agreement for which only
41,663 Option Shares will vest);



(ii) 166,667
of such Option Shares will vest if the Company recognizes at least $2,500,000 of net income from operations for the calendar year ending December 31, 2003;



(iii) 166,667 Option Shares will vest if the Company recognizes at least $3,750,000 of net income from operations for the calendar year
ending December 31, 2004; and



(iv) 166,666
Option Shares will vest if the Company recognizes at least $5,000,000 of net income from operations for the calendar year ending December 31, 2005.



(v) Notwithstanding the foregoing, if the Company recognizes at least $5,000,000 of net income from operations for any annual period
ending December 31, 2003, 2004 or 2005.



| |  |  | provisions for a term life insurance;
| | - |  | -------------------------------------



| |  |  | $650.00 monthly non-accountable expense reimbursement;
| | - |  | ------------------------------------------------------



F-20



---



| |  |  | discretionary bonuses; and
| | - |  | --------------------------



| |  |  | standard Benefits.
| | - |  | ------------------



The Company discontinued its K-12 subscription program operations in the fourth quarter of 2002 because of substantial decreases in its customer base,
lack of contract backlog, declining revenues and uncertainty in the market. This business operation had been operated within the Companys wholly owned subsidiary, eLNet, since its acquisition in 2000. eLNet had annual revenues of $1,359,037
for the fiscal year ending December 31, 2001 and $1,058,910 for the fiscal year ending December 31, 2002, with a net loss of $356,908 in 2001 and $165,796 in 2002.



Effective February 28, 2003, the Company entered into and consummated the closing of a Stock Purchase Agreement with R&B
Holdings, Inc., a Virginia corporation whereby we sold all of the issued and outstanding stock of eLNet for $326,704 in cash and the assignment to the Company of an eLNet receivable in the amount of $123,296. In connection with that transaction,
eLNet maintained its right to collect and keep all of the remaining outstanding receivables totaling approximately $29,000 and remained responsible for the payment of approximately $34,537 of accounts payable and other accrued expenses. Each of the
parties was responsible for their legal, accounting and other expenses incurred in connection with the transaction.



As a result of the sale of eLNet, the Company recognized an additional loss on the disposal of discontinued operations of approximately $1,159,000 (as
restated) as of December 31, 2002.



11    DISCONTINUED OPERATIONS AND ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS.



In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFASB 144 requires that those
long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable
value or include amounts for operating losses that have not yet occurred. SFASB 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, is to be applied prospectively.



As the result of the discontinuation of the operations of eLNet in the fourth
quarter of 2002 and the subsequent sale of this business in February 2003, this Statement has a material impact on our financial statements and is reflected as an impairment in the accompanying consolidated financial statements.



The summary of the results from discontinued operations is as follows:



The contractual net assets identified as part of the disposition
of ELNet are recorded as Net assets of discontinued operations and the net cash flow of this business are reported asNet cash provided by discontinued operations. Net assets of discontinued operations consisted of the
following:



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|Net assets of discontinued operations                           |  | 2002                   |        |   | 2002        |   |        | 2001                   |  |   | 2001        |  
|--------------------------------------------------------------- |  | ---------------------- | ------ | - | ----------- | - | ------ | ---------------------- |  | - | ----------- | -
|                                                               
|(thousands of dollars)                                          |  | As Previously Reported |        |   | As Restated |   |        | As Previously Reported |  |   | As Restated |  
|                                                               
|Net current assets                                              |  | $                      | 37     |   |             | $ | 37     |                        |  | $ | 72          |  
|Property, plant and equipment  net                             |  |                        | 18     |   |             |   | 18     |                        |  |   | 33          |  
|Other net noncurrent assets                                     |  |                        | 1,514  |   |             |   | 1,514  |                        |  |   | 3,360       |  
|Net assets of discontinued operations                           |  | $                      | 1,570  |   |             | $ | 1,570  |                        |  | $ | 3,465       |  
|                                                               
|                                                               
|Discontinued operations  net of tax were as follows:           |  | 2002                   |        |   | 2002        |   |        | 2001                   |  |   | 2001        |  
|(thousands of dollars)                                          |  | As Previously Reported |        |   | As Restated |   |        | As Previously Reported |  |   | As Restated |  
|                                                               
|Net Sales                                                       |  | $                      | 1,059  |   |             | $ | 1,059  |                        |  | $ | 1,359       |  
|Pre-tax income/(loss)                                           |  | $                      | (166   | ) |             | $ | (166   | )                      |  | $ | (357        | )
|Provision for taxes on income                                   |  |                        |       |   |             |   |       |                        |  |   |            |  
|Loss from operations of discontinued businesses  net of
tax    |  |                        | (166   | ) |             |   | (166   | )                      |  |   | (357        | )
|Pre-tax gain/(loss) on disposal of discontinued businesses      |  |                        | (1,550 | ) |             |   | (993   | )                      |  |   |            |  
|Provision/(benefit) for taxes on gain/(loss)                    |  |                        |       |   |             |   |       |                        |  |   |            |  
|Gain/(loss) on disposal of discontinued businesses  net of
tax |  |                        | (1,550 | ) |             |   | (993   | )                      |  |   |            |  
|Discontinued operations  net of tax                            |  | $                      | (1,716 | ) |             | $ | (1,159 | )                      |  | $ | (357        | )



12.    AMENDMENT AND RESTATEMENT OF FINANCIAL STATEMENTS



THIS FORM 10-KSB/A IS BEING FILED FOR THE PURPOSE OF AMENDING AND RESTATING PARTS OF 10-KSB/A TO REFLECT THE RESTATEMENT OF OUR CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE PERIODS ENDED
DECEMBER 31, 2002. THESE REVISIONS HAVE BEEN MADE AS A RESULT OF A CLERICAL ERROR IN CALCULATING THE COMPANYS LOSS FROM DISCONTINUED OPERATIONS. ALL PORTIONS OF THE 10-KSB/A THAT ARE AFFECTED BY THESE REVISIONS HAVE BEEN ADJUSTED ACCORDINGLY.
ALL INFORMATION IN THIS 10-KSB/A IS AS OF DECEMBER 31, 2002, AND DOES NOT REFLECT ANY SUBSEQUENT INFORMATION OR EVENTS OTHER THAN THE RESTATEMENT.



The restated financial statements in this report incorporate the proper entries for these expenses and all necessary adjustments have been made to the
balance sheet, statement of operations, stockholders equity and cash flows in the financial statements.



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