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                                UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C. 20549


                                 FORM 10-KSB


                                 (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, 2001
                                     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

                       COMPASS KNOWLEDGE HOLDINGS, INC.
           (Exact Name of Registrant as Specified in its Charter)

            Nevada                                      87-0471549
            ------                                      ----------
     (State or other jurisdiction of                 (I.R.S. Employer
      incorporation 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, 2001 were $5,364,160.

As of March 4, 2002, the aggregate market value of the voting and non-voting
common equity of the  Registrant based upon the last sale price of the Common
Stock as quoted by the NASDAQ Over-The-Counter Bulletin Board (symbol "CKNO")
held by non-affiliates of the Registrant was approximately $1,907,094.

As of March 4, 2002, there were 15,861,250 shares of the common stock of the
Registrant outstanding.
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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.

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                          TABLE OF CONTENTS

PART I
Item 1.  Description of Business............................................. 1
Item 2.  Description of Property............................................ 22
Item 3.  Legal Proceedings.................................................. 22
Item 4.  Submission of Matters To A Vote of Security Holders................ 22

PART II
Item 5.  Market for Common Equity and Related Stockholder Matters........... 23
Item 6.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations.............................................. 26
Item 7.  Financial Statements............................................... 38
Item 8.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure............................................... 39

PART III
Item 9.  Directors, Executive Officers, Promoters and Control Person........ 39
Item 10. Executive Compensation............................................. 42
Item 11. Security Ownership of Management and Principal Stockholders........ 46
Item 12. Transactions with Management and Others............................ 48
Item 13. Exhibits and Reports on Form 8-K................................... 49
SIGNATURES.................................................................. 53
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 becoming a
leading provider of accessible, high quality education for working
professionals, primarily focused in the healthcare and K-12 educational
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 proprietary course content and curriculum of
our university partners in a fully hosted e-technology environment.

     As of March 4, 2002 the Company has five operating subsidiaries, Compass
Knowledge Group, Inc. ("Compass"), Intelicus, L.C. ("Intelicus"), Educators'
Learning Network, Inc. ("eLNet"), Juris Alliance.com, Inc. ("Juris Alliance")
and Compass Direct, LLC ("Compass Direct"), which provide the Company's product
offerings.

     We began our business in 1993 through a predecessor corporation and were
reorganized in November of 1999 with the acquisition of Winthrop Industries,
Inc. ("WII"). 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.eLNetonline.com
                  -------------------
                  www.Intelicus.com
                  -----------------
                  www.KnowledgePharm.com
                  ----------------------
                  www.JurisAlliance.com
                  ---------------------
                  www.CJ-Direct.com
                  -----------------
                  www.workingprofessional.com
                  ---------------------------
                  www.Requisitesofaleader.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., one of our wholly-owned subsidiaries.

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

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     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 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.

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     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 53% 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 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. 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. The acquisition has been
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

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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.

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 program development, curriculum 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 healthcare educational programs, and the
healthcare educational 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.

     Through our subsidiary, Educators' Learning Network ("eLNet"), we offer a
menu of quality courses to superintendents, principals, assistant principals,
administrators and teachers in the K-12 education marketplace. eLNet provides
its programs via satellite and Internet exchanges to approximately 1,100
schools nationwide in approximately 182 independent school districts.

     We are also developing an initiative to market and support the delivery
of corporate training courses and other distance learning business solutions. We
anticipate creating e-learning solutions that will include any combination of
off-the-shelf courseware and fully customized content developed in

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conjunction with our corporate clients. These solutions may range from training
programs to end-user business solutions.

Our Business Model

Our business model is based on the following characteristics:

     .   Identification of specialized niche markets primarily in the healthcare
         and K-12 education marketplaces 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, bi-annual dispersed school
         board funds, foundations and grants.

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

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

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

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.

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     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

Presently we offer the following degree programs in conjunction with our
university partners:

     .   Doctor of Pharmacy
     .   Doctor of Audiology
     .   Masters in Criminal Justice Administration
     .   Bachelor of Science in Administration of Criminal Justice
     .   Bachelor of Science in Radiologic Science
     .   Masters of Science in Nursing
     .   Bachelors of Science in Nursing

Non-degree Programs

Presently we offer the following non-degree programs:

     .   Requisites of a Leader
     .   Creating the Learning Centered School
     .   Instructional Alignment
     .   ETS PATHWISE:  Introduction to a Framework for Teaching
     .   Carbo Reading Styles Program
     .   Life Care Planning
     .   Diabetes Management

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 504 students enrolled for
the Spring 2002 semester. Tuition currently ranges from $18,000 to $20,025 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 256 students enrolled in this 18-month program, each
paying $12,555 in tuition.

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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 Mountain State University, formerly the College
of West Virginia.

     There are presently 38 students enrolled in this program for the Spring
2002 semester, each paying $1,800 in tuition per semester.

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.

     There are presently 61 students enrolled in this program for the Spring
2002 semester, each paying $2,220 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 94 students enrolled in this program for the Spring
2002 semester, each paying $1,800 in tuition.

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 7 students enrolled in this program for the Spring
2002 semester. Each new student pays $1,998 in tuition.

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 19 students enrolled in this program. Each new student
pays approximately $2,622 in tuition.

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8.   Requisites of a Leader/TM/

     The Requisites of a Leader/TM/ is a professional development non-degree
program focused on leadership principles and targeted to practicing principals,
assistant principals, potential principals, superintendents and central office
staff in the K-12 education marketplace. Three graduate credit hours are
granted through Indiana University upon completion of the program.

     The Requisites of a Leader program is presently delivered via digital
satellite over the Echostar network. The program is broadcast on a
taped-delayed basis. There are approximately 700 schools subscribing to the
Requisites of a Leader program at a typical yearly cost of $2,000 per school.

9.   Creating the Learning Centered School

     Creating the Learning Centered School is a professional development non
degree program offered by our subsidiary ELNet in conjunction with Michael
Rutherford, which provides teaching and learning principles focusing on
providing practical strategies and scientific principles and targeted to
practicing teachers in the K-12 education marketplace. Two graduate credit
hours are granted through Indiana University upon completion of the program.

     There are currently 239 schools subscribing to the Learning Centered
Schools program at a typical yearly cost of approximately $2,300 per school.

10.  Instructional Alignment

     Instructional Alignment is a professional development non-degree program
offered by our subsidiary ELNet in conjunction with Lisa Carter, which is
focused on teaching and learning principles for the purpose of aligning the
grade levels with one another for maximum student achievement and targeted to
practicing teachers in the K-12 education marketplace. Two graduate credit
hours are granted through Indiana University upon completion of the program.

     There are currently 145 schools subscribing to the Instructional Alignment
program at a typical yearly cost of $1,500 per school.

11.  ETS PATHWISE: Introduction to a Framework for Teaching

     ETS PATHWISE(R): Introduction to a Framework for Teaching is a
professional development non-degree program offered by our subsidiary ELNet in
conjunction with Education Training Systems, Inc., which provides strategies
for improving all aspects of teaching and targeted to practicing teachers in
the K-12 education marketplace. Three graduate credit hours are granted through
Indiana University upon completion of the program.

     There are currently 17 schools who have subscribed to this program at a
typical yearly cost of $3,200 per school.

12.  Carbo Reading Styles Program

     The Carbo Reading Styles Program/TM/ is a professional development non
degree program which we expect to be offered by our subsidiary ELNet in
conjunction with Marie Carbo, which is focused on reading strategies and
methods to improve reading skills and targeted to practicing teachers in the
K-12 education marketplace.

     This program is expected to launch in the Fall of 2002 for a typical
yearly cost of $3,250 per school.

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13.  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 400-450 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 $720
per course; and an annual conference is held during the fourth quarter of each
year at a cost of $445-$495, depending on time of registration.

14.  Diabetes Management

     This non-degree program is designed to educate the pharmacist in the drug
treatment protocols of diabetes, provide necessary knowledge of the
non-pharmacological measures necessary for monitoring and health maintenance
issues of the patient with diabetes; and provide knowledge to allow pharmacists
to organize, promote, and launch a diabetes care center.

     In the current semester of our Diabetes program there are 10 students
enrolled each paying $995.

Our Marketing Model

  .  Our Market Model

     We believe marketplace development is one of the most critical components
of a successful program. We begin the marketplace development 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 model consists of a series of low cost direct response market tests
to prove or disprove market acceptance of a specific program. The 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.

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     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.

     In addition to the above described marketing methods and techniques,
eLNet, our subsidiary which focuses on the K-12 professional marketplace, uses
a direct sales force in order to market states and individual school districts.
Marketing is also conducted through advertising in industry publications,
attendance at major conferences, and partnering and aligning with prominent
professional development consultants, academies and organizations.

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").

     We operate primarily in the Higher Education, workplace and consumer
training segments focusing on the healthcare and K-12 professional 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:

                .   a high percentage of full-time tenured faculty with doctoral
                    degrees;
                .   a fully-conformed library facilities and related full-time
                    staff;
                .   dormitories, student unions, and other significant plant
                    assets to support the needs of younger students; and
                .   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.

                                      10
<PAGE>

     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.

   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 and K-12 educators marketplaces.
Approximately, 88.7% of our 2001 revenues are derived from this marketplace.
Currently, approximately 51.7% of our net revenues are derived from our degree
programs, approximately 13.3% is derived from our non-degree programs, and
approximately 35.0% is derived from subscription, consulting and other services.
We believe, based upon recent trends in the education and healthcare industries
and technology advancements, that this market will continue to increase. Our
opinion is also based on the following factors:

  .  generally healthcare and education professionals are required by their
     profession to take continuing education courses;
  .  healthcare and education professionals have a history of taking education
     courses; and
  .  healthcare and education 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.

     The K-12 educators market has over 100,000 public and private schools
and approximately 3,000,000 teachers in the United States. These schools are
faced with the challenge of providing high-quality educational services. One of
the many issues that these schools must address in providing such services is
adequately trained administrators and teachers. Throughout this marketplace
there are initiatives and budget allocations being made to provide professional
development programs to these

                                      11
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individuals. ELNet's strategy is to focus on this sector and currently has a
market penetration of about 0.6%. It is our goal to substantially increase our
market share. The largest school districts and several of our target markets
are in Florida, Texas, California and Ohio.

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., The Lightspan
Partnership, Convene.com 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.

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

                                      12
<PAGE>

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:

     .   the accrediting agencies recognized by the U.S. Department of
         Education;
     .   the federal government through the U.S. Department of Education; and
     .   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.

     During 2001 several universities who were audited by the Office of the
Inspector General were found to be in violation of the "Incentive Compensation"
provisions of Title IV for recruiting based on success in securing student
enrollments. These universities had entered into arrangements with third parties
similar to the arrangements that Compass has with some of its university
partners. However, on October 10, 2001, the House of Representatives passed H.R.
1992 which would, in effect, sanction agreements like ours. The Bill was sent to
the Senate where it remains. In January of 2002, the DOE began rulemaking to
modify the existing interpretation of Title IV dealing with the "Incentive
Compensation" issue and will likely be finished in April 2002.

     No assurance can be given that new or revised interpretations of
regulatory requirements would not have a material adverse effect on our
university partners and as a result, on us. In addition, changes in or new
interpretations of other applicable laws, rules, or regulations could have a
material adverse effect on the accreditation, authorization to operate in
various states, permissible activities, and costs of doing business. The failure
to maintain or renew any required regulatory approvals, accreditation or state
authorizations by our client institutions could have a material adverse effect
on us.

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

                                      13
<PAGE>

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.

No Child Left Behind Act

On January 8, 2002, President George W. Bush signed into law the No Child Left
Behind Act of 2001. The Act is the most sweeping reform of the Elementary and
Secondary Education Act (ESEA) since ESEA was enacted in 1965. It redefines the
federal role in K-12 education and will help close the achievement gap between
disadvantaged and minority students and their peers. It is based on four basic
principles: stronger accountability for results, increased flexibility and local
control, expanded options for parents, and an emphasis on teaching methods that
have been proven to work.

Increased Accountability. The Act will strengthen Title I accountability by
requiring States to implement statewide accountability systems covering all
public schools and students. These systems must be based on challenging State
standards in reading and mathematics, annual testing for all students in grades
3-8, and annual statewide progress objectives ensuring that all groups of
students reach proficiency within 12 years.

More Choices for Parents and Students. The Act significantly increases the
choices available to the parents of students attending Title I schools that fail
to meet State standards, including immediate relief-beginning with the 2002-03
school year-for students in schools that were previously identified for
improvement or corrective action under the 1994 ESEA reauthorization. To help
ensure that LEAs offer meaningful choices, the new law requires school districts
to spend up to 20 percent of their Title I allocations to provide school choice
and supplemental educational services to eligible students.

                                      14
<PAGE>

Greater Flexibility for States, School Districts, and Schools. One important
------------------------------------------------
goal of No Child Left Behind was to breathe new life into the "flexibility for
accountability" bargain with States first struck by President George H.W. Bush.
The Act moves beyond this limited approach to give States and school districts
unprecedented flexibility in the use of Federal education funds in exchange for
strong accountability for results. New flexibility provisions in the Act include
authority for States and LEAs to transfer up to 50 percent of the funding they
receive under four major State grant programs to any one of the programs, or to
Title I. The covered programs include Teacher Quality State Grants, Educational
Technology, Innovative Programs, and Safe and Drug-Free Schools.

The new competitive Local Flexibility Demonstration Program would allow up to 80
LEAs, in addition to the 70 LEAs under the State Flexibility Demonstration
Program, to consolidate funds received under Teacher Quality State Grants,
Educational Technology State Grants, Innovative Programs, and Safe and Drug-Free
Schools programs. Participating LEAs would enter into performance agreements
with the Secretary of Education, and would be able to use the consolidated funds
for any ESEA-authorized purpose.

Putting Reading First. The Act ensures that every child can read by the end of
---------------------
third grade. To accomplish this goal, the new Reading First initiative would
significantly increase the Federal investment in scientifically based reading
instruction programs in the early grades. The new Reading First State Grant
program will make six-year grants to States, which will make competitive
subgrants to local communities. Local recipients will administer screening and
diagnostic assessments to determine which students in grades K-3 are at risk of
reading failure, and provide professional development for K-3 teachers in the
essential components of reading instruction.

Other Major Program Changes. The Act also put the principles of accountability,
---------------------------
choice, and flexibility to work in its reauthorization of other major ESEA
programs. For example, the new law combines the Eisenhower Professional
Development and Class Size Reduction programs into a new Improving Teacher
Quality State Grants program that focuses on using practices grounded in
scientifically based research to prepare, train, and recruit high-quality
teachers. The new program gives States and LEAs flexibility to select the
strategies that best meet their particular needs for improved teaching that will
help them raise student achievement in the core academic subjects

Other changes will support State and local efforts to keep our schools safe and
drug-free, while at the same time ensuring that students-particularly those who
have been victims of violent crimes on school grounds-are not trapped in
persistently dangerous schools.

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 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 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

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         .   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 36 contracts with the University of Florida for two
ongoing degree and three ongoing non-degree programs. Our degree programs have
approximately three years left on their terms and we receive up to 50% of total
student fees received with respect to these programs depending on the level of
service we provide. 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.

                                      16
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     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
       . Assessment and status review of university and corporate partner
         instructional technology systems
   . Infrastructure Support Services
       . 24x7 student and instructor help desk
       . 24x7 high-bandwidth, redundant global network
       . 24x7 hosting and support services for software platforms
   . Instructional Development Services
       . Instructional Design Help Desk for Instructors
       . Resource Center
       . 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 are required to have a bachelors 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.

     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

                                      17
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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

     .   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.

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<PAGE>

     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:

   . 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.

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     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

     Recently, we have also begun using 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.

Employees

     On March 4, 2002, we employed 38 people comprised of six program
managers, nine marketing and sales personnel, two technology experts, 11
admission advisors, and 10 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 would have a material adverse
effect on our business and financial results.

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<PAGE>

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 would 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

     We also have applications pending for the following trade names and
trademarks:

     .   Compass Knowledge
     .   Educators' Learning Network
     .   CJDirect
     .   Global HealthEd
     .   eLNet

     We also filed a trade name and mark application with respect to "Compass
Knowledge," which has recently been suspended by the PTO pending processing of
several pending applications. While we believe that our application will
ultimately be successful, at this time no assurance can be given.

     Furthermore, no assurance can be given that our other applications will
result in registered names or marks. Failure to obtain registrations for certain
of these applications could have a material adverse effect our business.
Similarly, there can be no assurance that the steps we are taking will protect
our proprietary rights and will be adequate or that third parties will not
infringe or misappropriate our copyrights, trademarks, service marks, trade
dress and similar proprietary rights.

     We have approximately 36 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. If we were to breach these agreements, it would have a material
adverse effect on our business and financial results.

Software

     Our material component software is obtained from the following vendors:

     Microsoft Corporation                       Navison Financial Solutions
     Eshare Technology                           Goldmine
     WebCT                                       WebBoard
     Symantec

                                      21
<PAGE>

     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.

     In February of 2002, the Company retained an independent Information
Technology ("IT") consultant to evaluate the Company's IT infrastructure and
software requirements. While we believe we are substantially in compliance, as
of this date we have not received any report from the IT Consultant. Upon
receipt and investigation, the Company intends to take all reasonable corrective
measures needed, if any.

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, 2000 and 2001.

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, 2710 Rew Circle and Suites 105 and 200, 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 expires on September 30, 2002
and 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 and will be sufficient for our needs for the foreseeable future. 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.

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 2001.

                                      22
<PAGE>

                                    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 the fourth quarter of 1999 and each quarter of
2000 were as follows:


Period                          Per Share of Common Stock
------                               Closing Prices
                                     --------------
                                  High             Low
                                  ----             ---
1999
----
Fourth Quarter                    $8.00            $3.75

2000
----
First Quarter                     $7.25            $3.88
Second Quarter                    $5.13            $1.50
Third Quarter                     $2.31            $1.81
Fourth Quarter                    $1.94            $0.81

2001
----
First Quarter                     $0.94            $0.41
Second Quarter                    $0.63            $0.38
Third Quarter                     $0.50            $0.25
Fourth Quarter                    $0.45            $0.22


     The last sales price of our common stock on March 4, 2002 as reported on
the NASDAQ OTC:BB was $0.25 per share.

     (b)     Shareholders. As of March 4, 2002, 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.

     (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.

                                      23
<PAGE>

     (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 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

                                      24
<PAGE>

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 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

                                      25
<PAGE>

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.

     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 2001, Compass experienced a significant period of transition. In
early 2001, management undertook a strategic review of its business and
established the following objectives for the year: simplify the business,
reduce 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, the Company wrote-off investments in
unprofitable programs in the second quarter of 2001, exited its 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.

Outlook

     The Company intends to increase sales growth by investing in its core
products and services through the adoption of a more aggressive execution,
pricing and marketing strategy in 2002. At the same time, the Company intends
to continue to develop and refine its technology solutions and consulting
business as a complement to its core offerings. Likewise, the Company will
continue to pursue accretive and synergistic alliances and acquisitions. Based
on this strategy, the Company expects to be profitable in 2002. This prospect
is based on, management's expectation of increased revenues in our degree,
subscription and consulting businesses, combined with lower levels of general
and administrative spending compared to 2001 and the adoption of FASB 142,
which will eliminate the requirement to amortize our goodwill. Actual results
may vary depending on the Company's results of operations.

Significant 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

                                      26
<PAGE>

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 significant 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 significant accounting policies include:

..    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 by subscription services is in the form of
subscription contracts with the Company. 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. Compass maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
If the financial condition of our customers were to deteriorate, resulting in
an impairment of their ability to make payments, additional allowances may be
required.

     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.

                                      27
<PAGE>

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

..    Financial Accounting Standards. In July 2001, the FASB issued Statement of
Financial Accounting Standards No. 142 ("SFAS 142"), which establishes
accounting standards for the recognition and measurement of an asset retirement
obligation and its associated asset retirement cost. The changes in these rules
may have a significant impact on our reported financial results. In June 2001,
the FASB issued Statement of Financial Accounting Standard (SFAS) No. 141,
Business Combinations and SFAS No.142, Goodwill and Other Intangible Assets.
These statements would continue to require recognition of goodwill as an asset
but would not permit amortization of goodwill as is currently required by
Accounting Principles Board (APB) Opinion No. 17, Intangible Assets. Under the
SFAS 142, goodwill would be separately tested for impairment using a
fair-value-based approach when an event occurs indicating the potential for
impairment. Any required goodwill impairment charges would be presented as a
separate line item within the operating section of the income statement. The
change from an amortization approach to an impairment approach would apply to
previously recorded goodwill, as well as goodwill arising from acquisitions
completed after the application of the new standard. The Company will adopt
SFAS No. 142 for its fiscal year beginning January 1, 2002. Upon adoption of
SFAS No. 142, the Company will stop the amortization of goodwill acquired
prior to July 1, 2001. However, it is possible that in the future, we would
incur less frequent, but larger, impairment charges related to the goodwill
already recorded as well as any goodwill arising out of future acquisitions. As
these statements have just been issued, it is difficult to predict whether our
future earnings may be subject to significant volatility, particularly on a
period-to-period basis.

Analysis of Financial Condition and Results of Operations For The Twelve Months
Ended December 31, 2001 Compared To Twelve Months Ended December 31, 2000

     Total revenues increased by $1,982,801 to $5,364,160 for fiscal 2001, from
$3,381,359 in fiscal 2000, representing an increase of 58.6%. All areas of our
business grew, with significant increases coming from our eLNet subsidiary,
acquired in August 2000, degree programs and consulting contracts. eLNet
contributed $1,390,841 in revenues during fiscal 2001 compared with $441,118 in
fiscal 2000, an increase of 215%. The increase reflected a full year of revenue
recognition combined with a more robust product line and sales to new
customers. Degree program revenue also increased, growing by 22.3%, or
$505,252, in fiscal 2001 to $2,770,844 from $2,265,592 in fiscal 2000.
Consulting contracts, a new source of revenue for us, contributed $447,524
during fiscal 2001.

     Gross profit increased by $1,281,233, or 53.0%, to $3,699,814 for fiscal
2001 from $2,418,581 in fiscal 2000, primarily due to higher contributions from
eLNet, consulting contracts and degree programs. In fiscal 2001, our gross
profit margin declined to 69.0% from 71.5% in the comparable 2000 period. The
decline reflects a mix change in degree programs, as newer programs with
generally lower-then-average margins accounted for a higher percentage of
revenues, and lower eLNet margins, reflecting atypically low costs in the
year-ago period following the eLNet acquisition.

     Operating expenses increased by $997,685 to $4,786,491 for fiscal 2001
from $3,788,806 for fiscal 2000, representing an increase of approximately
26.3%. The increase is primarily due to an increase in the number and
qualifications of our personnel, whose numbers increased from an average of 33
employees in fiscal 2000 to an average of 37 employees in fiscal 2001. These
changes resulted in payroll

                                      28
<PAGE>

and benefits costs increasing by $544,459 in fiscal 2001 to $1,980,652. The
growth in headcount corresponds with our strategy, begun in fiscal 2000, of
growing the company internally and through acquisitions. Depreciation and
amortization expense classified as operating expenses increased by $482,118 to
$1,122,666 in fiscal 2001 from $640,548 in fiscal 2000 reflecting the
amortization of other assets, primarily marketing and content development
investments undertaken primarily in support of degree programs, as well as the
amortization of goodwill related to acquisitions.

     Net interest income decreased by $202,882 to $12,832 in fiscal 2001 from
$215,714 in fiscal 2000. The decrease reflects our allocation of cash reserves
to the investments we made in people, programs and marketing.

     There was no minority interest in net income of subsidiary, eLNet, in
fiscal 2001 or fiscal 2000. We acquired the 10% of eLNet which we did not own
during the third quarter of fiscal 2001.

     As a result of the increase in sales and gross margin, partially offset by
higher operating expenses and lower net interest income, net income before
dividends increased by $80,666, resulting in a net loss before dividends of
$1,073,845 for fiscal 2001 compared with a net loss before dividends of
$1,154,511 in fiscal 2000.

Liquidity And Capital Resources

     Our cash and cash equivalents equaled $480,981 at December 31, 2001,
compared to $840,785 at December 31, 2000. The net cash provided by our
operations was $857,791 for fiscal 2001 compared to a use of $131,677 in fiscal
2000. In the second quarter of 2001, we began accounting for capitalized direct
marketing and content development costs as investing activities. These costs
totaled $1,098,214 in fiscal 2001 and $1,316,256 in fiscal 2000. In the year
ago period, these costs were considered operating activities.

     We used $1,355,095 in investing activities during fiscal 2001 compared
with $3,646,247 in fiscal 2000. In the year ago period, $2,080,151 of the cash
used was related to two acquisitions completed during that period.

     We received $137,500 in investing activities in fiscal 2001 compared with
a use of $162,324 in fiscal 2000. The increase is primarily due to our raising
$302,500 through a board authorized private placement of our common stock and
warrants to purchase our common stock pursuant to an exemption from
registration under The Securities Act of 1933. We first offered these
securities for sale to certain accredited investors on February 26, 2001 and
sold 605,000 shares of restricted common stock at $0.50 per share and have sold
302,500 warrants at an exercise price of $0.50 per share. This private offering
was closed in July 2001.

     Considering our current cash position as well as our projected cash flows
for fiscal 2002 including the delay of certain compensation and service
payments, 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, expand our
infrastructure and acquire new companies and businesses 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 to such
termination or discontinuation of such programs, it is our intention to take
all appropriate and

                                      29
<PAGE>

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.

      Effective January 7, 2002, the Company and Anthony Ruben, the Company's
CFO, entered into an amendment to Mr. Ruben's employment agreement whereby the
option threshold with respect to Mr. Ruben's "Event Payment" was reduced to
$0.375 from $2.00. The net effect of this amendment reduces the upper price
range where Mr. Ruben would no longer be entitled to the Event Payment shares
from approximately $6.00 per share to approximately $4.375 per share.

     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 up to March 1, 2003, unless renewed by the parties.

     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, 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, if the Company draws down $100,000 on
the Loan, the Company will issue and deliver to Mr. Etchison a coverage warrant
to purchase 50,000 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.

     The proceeds from the Loan, after deduction of loan closing costs, shall
be used by the Company for working capital and marketing. All underlying
securities carry customary "piggyback" registration rights. Parties interested
in this transaction are encouraged to review Item 5 and the attached exhibits
of our Form 8-K filed with the SEC on March 5, 2002.

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

                                      30
<PAGE>

upgrade its technology platforms or the failure of the Company to successfully
complete that initiative; and to the general risks associated with the
Company's businesses.

FACTORS AFFECTING OPERATING RESULTS AND MARKET PRICE OF SECURITIES

     You should consider the risks described below before making an investment
decision. We believe that the risks and uncertainties described below are the
principal material risks facing our company as of the date of this Form 10-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 Limited Operating History and The New and Emerging E-Learning Market Makes
it Difficult To Evaluate 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, 2001,
we had revenues of $5.4 million and net losses before dividends of $1.1
million. We are still in the early stages of our development, which, when
combined with the new and emerging e-learning market, and general economic
factors affecting the education sector, make it difficult to evaluate our
business or our prospects. Because of our limited operating history, we have a
limited and unproven ability to predict the trends in the e-learning market and
in our business. The uncertainty of our future performance, in particular, and
the uncertainty regarding the acceptance of e-learning, in general, increases
the risk that 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 2001, our
largest content partner accounted for 51.5% 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.

                                      31
<PAGE>

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

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

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

     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 effect 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.

                                      32
<PAGE>

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

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

  .  third-party suppliers of instructor-led education and learning;

  .  internal education departments; and

  .  other suppliers of technology-based learning solutions.

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

                                      33
<PAGE>

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

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

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

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

     Our strategy is to grow aggressively, both internally and through
acquisitions. This strategy will place significant demands on our financial,
operational, and management resources and will expose us to a variety of risks.
Our growth has resulted in an increase in the level of responsibility for our
key personnel. Expenses arising from our efforts to integrate our recent
acquisitions, 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 integrate our acquisitions successfully or to
manage any addition products and services resulting from such acquisitions. We
might experience slower than expected integration efforts. 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 Have Restructured Our Operations in Order to Reduce Operating Expenses Which
Could Adversely Affect Our Ability to Grow.

     Last year, we restructured our operations to primarily concentrate on our
core competencies to provide, among other things, specialized expertise in
consulting, content repurposing and development, and marketing in our primary
market niches and by adding certain additional vertical markets and product
offerings. Management will continue to monitor these adjustments in fiscal 2002
and will make additional adjustments within our organization, if necessary. The
transition issues associated with this restructuring may recur, and our revenue
growth rates may decline and expenses may increase in future quarters.

We May Engage in Acquisitions, and We May Be Unable to Integrate any New
Operations, Technologies, Products or Personnel.

     As part of our business strategy, we expect to engage in joint ventures
and alliances as well as to continue to acquire businesses that offer
complementary products, services and technologies. Any ventures, alliances,
acquisitions 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 targeted
         businesses,
     .   potential disruption of our ongoing business,
     .   distraction of management from our core business,
     .   inability of management to maximize our financial and strategic
         position,

                                      34
<PAGE>

     .   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.

     Consideration paid for future acquisitions could be in the form of:
     .   cash,
     .   stock,
     .   rights to purchase stock
     .   convertible promissory notes, or
     .   a combination of the above types of consideration.

     While we intend to participate in only accretive transactions, dilution of
existing stockholders and to earnings per share may result in connection with
any such future acquisitions. Our integration processes may also not be
successful and the anticipated benefits of any past or future acquisition may
not be realized.

Some of Our Products Are Less Profitable Than Others.

     Some of our revenues are derived from products such as our non-degree
programs which, as a percentage of revenues, currently require a higher level
of development, distribution and support expenditures compared to some of our
degree programs. To the extent that revenues generated from these products
become a greater percentage of our total revenues, our operating margins will
decrease, unless the expenses associated with these products decline as a
percentage of revenues.

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.

                                      35
<PAGE>

     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.

The Failure Of The Market For Distance Learning In Higher Education To Develop
Would Have A Material Adverse Effect On Our Business And Financial Results.

     The market for distance learning continues to develop, but still remains
only a small portion of the overall higher education market. Our success will
depend upon colleges, universities, associations and companies continuing to
implement distance learning programs. We presently have entered into contracts
with only five universities. Any failure of online learning to gain continuing
market acceptance would have a material adverse effect on our business and
financial results.

Our Market Is Characterized By Rapid Technological Change.

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

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

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

         .   our ability to attract and retain colleges, universities,
             associations and companies;
         .   our ability to successfully implement our proposed distributed
             learning programs;
         .   the amount and timing of operating costs and capital expenditures
             relating to expansion of our business;
         .   our introduction of new or enhanced services and products, and
             similar introductions by our competitors;
         .   our ability to upgrade and develop our systems and infrastructure;
         .   our ability to attract, motivate and retain personnel;
         .   our lack of operating capital; and
         .   technical difficulties in delivering our services.

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

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 has been unable to generate revenue sufficient offset these additional
expenses and charges. Consequently, the Company sustained substantial losses in
2001. Net losses for the twelve (12) months ended December 31, 2001 were
approximately $1.1 million ($1.2 million after preferred dividends) or $(0.078)
per share. The loss is primarily due to personnel increases and development of
new programs. While no assurance can be given, we believe our

                                      36
<PAGE>

current team is largely adequate to support our planned growth. Therefore, we
expect that general and administrative costs will not materially increase this
year. In addition to personnel and infrastructure marketing and related
expenses, increased over the year ago period reflecting our aggressive efforts
to establish and grow new programs. There can be no assurance that the Company
will ever achieve the level of revenues needed to sustain profitability in the
future.

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 recently acquired 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 2002. To insure that we have sufficient cash for operations
certain of our officers and third party consultants have agreed to delay
compensation and service payments for up to six months. In addition, in order
to expand our business or make acquisitions we will 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 2002 including the delay of certain compensation and service
payments, 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, expand our
infrastructure and acquire new companies and businesses 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 to such
termination or discontinuation of such programs, 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.

We Have Limited Marketing and Sales Capability Which Limits Our Ability to
Increase Revenues.

     The Company has limited internal business development, marketing and sales
resources and personnel. In order to market its new offerings and any products
it may develop, the Company will have to expand its marketing and sales force
with technical expertise and distribution capability (or out source such duties
to independent contractors). There can be no assurance that the Company will be
able to expand its sales and distribution capabilities or that the Company will
be successful in gaining market acceptance for any new products or offerings it
may develop. There can be no assurance that the Company will be able to recruit
and retain skilled business development, sales, marketing, service or support
personnel, that agreements with distributors will be available on terms
commercially reasonable to the Company, or at all, or that the Company's
business development, marketing and sales efforts will be successful. Failure
to successfully establish a marketing and sales organization, whether directly
or through third parties, would have a material adverse effect on the Company's
business, financial condition, cash flows, and results of operations. To the
extent that the Company arranges with third parties to market its products, the
success of such products may depend on the efforts of such third parties. There
can be no assurance that any of the Company's proposed business development,
and marketing schedules or plans can or will be met.

                                      37
<PAGE>

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 6,900,000 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 including, without limitation, Larry Rowedder. 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 effected.

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 Sheets
As of December 31, 2001 and 2000                                       F-3

                                      38
<PAGE>

Consolidated Statements of Operation
For The Years Ended December 31, 2001 and 2000                         F-4

Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 2001 and 2000                         F-5

Consolidated Statements of Cash Flows
For The Years Ended December 31, 2001 and 2000                         F-6

Notes To Consolidated Financial Statements
December 31, 2001 and 2000                                             F-7

Item 8.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

     On July 13, 2001, the Company appointed the accounting firm of Parks,
Tschopp, Whitcomb and Orr, P.A. as independent accountants for fiscal year 2001
to replace Arthur Andersen LLP, which was dismissed effective with such
appointment. The Board of Directors approved the selection of Parks, Tschopp,
Whitcomb and Orr, P.A. as new independent accountants upon the recommendation
of the Company's Audit Committee. Management did not consult with Parks,
Tschopp, Whitcomb and Orr, P.A. on any accounting, auditing or reporting
matter, prior to their appointment as independent accountants.

     There have been no disagreements with Arthur Andersen LLP during the two
most recent fiscal years and any subsequent interim period preceding the
dismissal on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure or any reportable events
which disagreement(s), if not resolved to the satisfaction of the former
accountant, would have caused it to make reference to the subject matter or the
disagreement(s) in connection with its report.

     Arthur Andersen LLP's reports on the financial statements since 1999
contained no adverse opinion or disclaimer of opinion and was not qualified or
modified as to uncertainty, audit scope or accounting principles.

     In connection with its engagement, Parks, Tschopp, Whitcomb and Orr, P.A.
have audited the financial statements of the Company for the periods ending
December 31, 2001 and 2000 (which were previously audited by Arthur Andersen
LLP).

                                   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:

<TABLE>
<CAPTION>
                                          First Became A
Name Of Nominee                Age    Director Of The Company    Position
---------------                ---    -----------------------    --------
<S>                             <C>          <C>                 <C>
Rogers W. Kirven, Jr.(1)(2)     48           1999                Chairman of the Board/CEO
Daniel J. Devine(1)(2)          40           1999                President and Director
Dr. Robert Frank(2)             49           1999                Director
Dr. Paul Lerman                 60           1999                Director
Thomas J. Crane(1)              44           2000                Director
Anthony R. Ruben                36           N/A                 CFO/Treasurer
-------------
</TABLE>

(1)  Member of Audit Committee.
(2)  Member of Compensation Committee.

                                      39
<PAGE>

     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 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

                                      40
<PAGE>

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

     The principal occupations and other biographical information of the
Company's non-director executive officers are as follows:

     Anthony R. Ruben. In May 2000, Mr. Ruben became the Company's Chief
Financial Officer and Treasurer. Prior to joining Compass, Mr. Ruben was
the Vice President of Corporate Development and Treasurer for Industar
Digital PCS, a start-up wireless telecommunications company located in
Milwaukee, Wisconsin. From 1997 to 1999, Mr. Ruben served as Investment
Banker for Tucker Anthony Cleary Gull, located in Milwaukee, Wisconsin.
From 1994 to 1997, Mr. Ruben served as Corporate Development Manager for
Tenneco's packaging subsidiary, Tenneco Packaging, located in Evanston,
Illinois.  Mr. Ruben received his undergraduate degree from the University of
Illinois, his MBA from the University of Michigan and is a CPA.

Committees and Meetings.

     The Board of Directors held two meetings in 2001 and each director of the
Board attended 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 meet on February
22, 2002 and in connection with such meeting:

     .   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

                                      41
<PAGE>

     .   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 1999, 2000
and 2001 and other officers of the Company whose total annual salary and bonus
for the fiscal years ended December 31, 1999, December 31, 2000 and December 31,
2001 exceeded $100,000 (collectively, the "Named Executive Officers").

                                        SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                 Long Term Compensation Awards
                                               Annual Compensation                Awards                  Payouts
                                            ----------------------                ------                  -------

                                                                                               Securities
      Name & Principal                                       Other Annual     Restricted       Underlying      LTIP
          Position                                           ------------
          --------            Year     Salary($)  Bonus($)   Compensation    StockAward(s)$    Options (#)   Payouts ($)
                                       ---------  --------   ------------   --------------    -----------

<S>                            <C>     <C>         <C>            <C>             <C>           <C>             <C>
Rogers W. Kirven, Jr., CEO     2001    $178,365    $   -0-        $14,111         $-0-          (116,000)       $-0-
(1)(3)                         2000    $171,635    $   -0-        $13,158         $-0-             -0-          $-0-
                               1999    $126,600    $36,000        $9,725          $-0-           381,118        $-0-

Daniel J. Devine               2001    $142,692    $   -0-        $14,111         $-0-           (84,000)       $-0-
President (2)(3)               2000    $137,308    $   -0-        $13,158         $-0-             -0-          $-0-
                               1999    $123,930    $59,256        $ 9,725         $-0-           275,982        $-0-

Anthony Ruben                  2001    $138,391    $   -0-        $12,865         $-0-           300,000        $-0-
CFO(4)(5)                      2000    $ 85,000    $30,000        $ 8,594         $-0-           300,000        $-0-
                               1999    $   -0-     $   -0-        $-0-            $-0-             -0-          $-0-

Ramsey Hashem(6)               2001    $ 29,583    $   -0-        $ 5,338         $-0-          (400,000)       $-0-
                               2000    $ 85,000    $30,000        $ 7,292         $-0-           400,000        $-0-
                               1999        $-0-       $-0-          $-0-          $-0-             -0-          $-0-
</TABLE>

(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, 2001, the
    Company paid Mr. Kirven a car allowance of $6,230.77 and paid health
    insurance premiums of $7,880.40.  See "Employment Agreements."

------------------------------

                                      42
<PAGE>

(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, 2001, the Company paid Mr. Devine a car allowance of
    $6,230.77 and paid health insurance premiums of $7,880.40. 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) Anthony Ruben has served as Chief Financial Officer and Treasurer since May
    2000. Pursuant to an employment agreement entered into in May 2000 and
    amended effective January 7, 2002, Mr. Ruben receives annual salary
    payments equal to $130,000 and certain perquisites and other benefits. For
    the Fiscal year ended December 31, 2001, the Company paid Mr. Ruben a car
    allowance of $4,984.62 and paid health insurances premiums of $7,880.40.
    Mr. Ruben has a provision in his amended employment agreement which
    provides for the Company to pay him up to 200,000 shares of its common
    stock (the "Event Payment") if: (i) there is a merger or consolidation in
    which a change of control is effectuated or a sale of all or substantially
    all of the Company's assets; and (ii) if the fair market value of Mr.
    Ruben's initial options at the time of such event are $4.375 per share or
    less. The employment agreement was amended effective January 7, 2002 to
    reduce the option threshold to $0.375. See "Employment Agreements."

(5) Three hundred thousand (300,000) options were granted in May, 2001 under
    the Company's 2000 Stock Option Plan. On April 10, 2001, Mr. Ruben was
    granted pursuant to the Company's 1999 Stock Option Plan 35,000 options at
    an exercise price of $0.375. On April 10, 2001 Mr. Ruben was also granted
    pursuant to the Company's 2000 Stock Option Plan 115,000 shares at an
    exercise price of $0.375, and on July 6, 2001, Mr. Ruben was granted
    pursuant to the Company's 1999 Stock Option Plan an additional 150,000
    options at an exercise price of $0.375. Effective January 7, 2002 Mr. Ruben
    forfeited the 300,000 options that were granted to him in May, 2001 under
    the Company's 2000 Stock Option Plan.

(6) 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
    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. In accordance with the Company's Stock
    Option Plan, effective May 16, 2001, Mr. Hashem forfeited the 400,000
    options granted to him in 2000 by virtue of his failure to exercise same
    within 60 days of the effective date of his termination.

Stock Option Grants

    The following table sets forth information regarding grants of stock options
during fiscal year ending December 31, 2001 made to the Named Executive Officers
who have received Company option grants.

                         Stock Option Grants In 2001

<TABLE>
<CAPTION>
                   Number of Securities Underlying       Percent of Total Stock Options         Exercise or Base
Name                  Stock Options Granted (#)     Granted to Employees in Fiscal Year 2001    Price ($/Sh)     Expiration Date
-----------------------------------------------------------------------------------------------------------------------------------
<S>                            <C>                                 <C>                               <C>         <C>
Anthony Ruben(1)               300,000                             44.44%                            $0.375      April-July, 2006
</TABLE>

                                      43
<PAGE>

(1)  The stock options granted to Mr. Ruben during the last fiscal year were
     incentive stock options granted pursuant to the Company's 1999 and 2000
     Stock Option Plans. Of these options, 150,000 have vested. The remaining
     150,000 options vest at the rate of 50,000 each on May 11, 2002, May 11,
     2003, and May 11, 2004. The options expire five (5) years from the
     vesting date. None of these options have been exercised. Effective
     January 7, 2002, Mr. Ruben forfeited the initial 300,000 options having
     an exercise price of $2.00, which were granted to him in May 2000
     pursuant to his employment agreement and the Company's Stock option Plan.

Value of Options Outstanding at Year End

As of December 31, 2001 the Company had 1,057,100 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;

     .   a provision for term life insurance;

     .   automobile allowance;

     .   discretionary bonuses; 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;

                                      44
<PAGE>

     .   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; and

     .   standard benefits.


Anthony R. Ruben

The Company entered into an employment agreement with Anthony R. Ruben in May
2000 which was amended effective January 7, 2002, to serve as our Chief
Financial Officer and Treasurer, for an initial term of three years. The
principal terms of Mr. Ruben's employment agreement are as follows:

     .   an annual salary of $130,000, which may be increased from time to time
         at the discretion of our Board of Directors;

     .   Mr. Ruben was granted options to purchase 300,000 common shares
         of the Company at an exercise price of $2.00 per share. These options
         were forfeited effective January 7, 2002;

     .   a provision which provides for the Company to pay Mr. Ruben up to
         200,000 shares of its common stock (the "Event Payment") if (i) there
         is a merger or consolidation in which a change of control is
         effectuated or a sale of all or substantially all of the Company's
         assets; and (ii) if the fair market value of Mr. Ruben's options at the
         time of such event are $4.375 per share or less. The employment
         agreement was amended effective January 7, 2002 to reduce the option
         threshold to $0.375 from $2.00. The net effect of this amendment
         reduces the upper price range where he would no longer be entitled to
         the Event Payment shares from approximately $6.00 per share to
         approximately $4.375 per share.

     .   automobile allowance;

     .   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. As of December 31, 2001, 65,000 options have vested.

                                      45
<PAGE>

         None of our non-directors have been paid cash compensation to date.
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, 2001 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.

<TABLE>
<CAPTION>

                                                                 Options/Warrants        Total
        Name and Address of                 Shares of Common       for Common          ---------   Percentage
         Beneficial Owner                     Stock Owned         Stock Owned (9)       Shares     Owned (10)
---------------------------------         ------------------      ---------------      ---------  ----------

<S>                                           <C>                      <C>             <C>             <C>
Management
----------

Rogers W. Kirven, Jr. (1)(4)                  4,546,289                285,118         4,831,407       25.02%
2710 Rew Circle, Suite 100
Ocoee, FL  34761

Daniel J. Devine (1)(5)                       3,381,587                210,732         3,592,319       18.61%
2710 Rew Circle, Suite 100
Ocoee, FL  34761

Thomas J. Crane (2)(6)                          270,000                170,838           440,838        2.28%
5780 Grande Reserve Way, #1410
Naples, FL 34110

Dr. Paul Lerman(2)                                  -0-                  5,000             5,000          *
Farleigh Dickenson University
1000 River Road
H325A
Teaneck, NJ 07666

Dr. Robert G. Frank (2)                             -0-                  5,000             5,000          *
College of Health Professions
University of Florida
P.O. Box 100185
Gainesville, FL  32610

Anthony R. Ruben (3)(7)                          35,000                167,500           202,500        1.05%
2710 Rew Circle, Suite 100
Ocoee, FL 34761

All officers and directors                    8,232,876                844,188         9,077,064       46.96%
As a group (6 persons)

Other Principal Stockholders
----------------------------

Pioneer Ventures Ltd. Ptn. (8)                  875,000                300,000         1,175,000        6.09%
651 Day Hill Road
Windsor, CT  06095-0040
</TABLE>

                                      46
<PAGE>

-----------------
*     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
      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.

(7)   Pursuant to Mr. Ruben's employment agreement entered into with the Company
      in May 2000, the Company granted Mr. Ruben options to purchase 300,000
      shares of the Company's common stock at an exercise price of $2.00 per
      share. As of December 31, 2001, one hundred fifty thousand (150,000) of
      such option shares had vested, but effective January 7, 2002, Mr. Ruben
      forfeited the 300,000 option shares. On April 10, 2001, Mr. Ruben was
      granted an option pursuant to the Company's Stock Option Plans to purchase
      150,000 common shares of the Company at $0.375 per share, and on July 6,
      2001, Mr. Ruben was granted additional options pursuant to the Company's
      Stock Option Plans to purchase an additional 150,000 common shares at
      $0.375 per share. As of December 31, 2001, one hundred fifty thousand
      (150,000) of such options shares have vested. Pursuant to a private
      offering of the Company securities in accordance with an exemption from
      registration, Mr. Ruben acquired during fiscal 2001, 35,000 shares of the
      Company's common stock and a warrant to purchase 17,500 additional shares
      at $0.50 per share for $17,500.

(8)   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.

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

                                      47
<PAGE>

(10)   Based upon 15,861,250 issued and outstanding shares and all 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 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.

                                      48
<PAGE>

Fiscal Year 2001
----------------

     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
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.

     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)

<TABLE>
<S>                                                                                    <C>
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, 2001 and 2000                                                       F-3

Consolidated Statements of Operation
For The Years Ended December 31, 2001 and 2000                                         F-4

Consolidated Statements of Changes in Stockholders' Equity for the years ended
</TABLE>

                                      49
<PAGE>

<TABLE>
<S>                                                                                    <C>
December 31, 2001 and 2000                                                             F-5

Consolidated Statements of Cash Flows
For The Years Ended December 31, 2001 and 2000                                         F-6

Notes To Consolidated Financial Statements
December 31, 2001 and 2000                                                             F-7
</TABLE>

2.   Exhibits

     Exhibit 2       Plan of Acquisition, Reorganization, etc.

             2.1     Amended and Restated Stock Exchange Agreement dated
                     effective October 31, 1999 by and among Compass Knowledge
                     Group, Inc., Rehabilitation Training Institute, David
                     Colburn, Michael Borcheck, Daniel J. Devine and Rogers
                     W. Kirven, Jr.*

             2.2     Agreement and Plan of Merger dated November 15, 1999 among
                     Winthrop Industries, Inc., Media Capital Subsidiary,
                     Inc. and Compass Knowledge Group, Inc.*

             2.3     Stock Purchase Agreement by and between Compass Knowledge
                     Holdings, Inc. and the University of Florida Foundation,
                     Inc. effective December 1, 1999*

             2.4     Agreement and Plan of Stock Purchase entered into by and
                     among COMPASS KNOWLEDGE HOLDINGS, INC., a Nevada
                     corporation ("CKHI") and COMPASS ACQUISITION CORP., a
                     Florida corporation (the "Acquisition Corp"), a
                     wholly owned subsidiary of CKHI (CKHI and the
                     Acquisition Corp shall sometimes be hereinafter
                     collectively known as the "Buyer") and LARRY G.
                     ROWEDDER, NANCY ROWEDDER, TAMMY ANDERSON, MIKE
                     ROWEDDER, GINA ROWEDDER, JACQUELYN ROWEDDER, LARRY G.
                     ROWEDDER AS CUSTODIAN FOR JESSICA ANDERSON UNDER THE
                     OHIO TRANSFERS TO MINORS ACT and MICHAEL RUTHERFORD
                     (collectively the "Stockholders") and JAMITA, INC., a
                     Ohio corporation (hereinafter "Company" or
                     "Jamita").**

             2.5     Agreement and Plan of Stock Exchange (the
                     "'Agreement") entered into by and among COMPASS
                     KNOWLEDGE HOLDINGS, INC., a Nevada corporation
                     ("CKHI") and COMPASS ACQUISITION CORP., a Florida
                     corporation (the "Acquisition Corp"), a wholly owned
                     subsidiary of CKHI (CKHI and the Acquisition Corp
                     shall sometimes be hereinafter collectively known as
                     the "Buyer") and MICHAEL RUTHERFORD (the
                     "Stockholder") and RUTHERFORD LEARNING GROUP, INC., a
                     North Carolina corporation (hereinafter "Company" or
                     "RLG").**

             2.6     SETTLEMENT AND ASSET PURCHASE AGREEMENT made effective
                     as of July 1, 2001 (the "Effective Date") by and
                     among Compass Knowledge Holdings, Inc. ("Compass"),
                     Educators' Learning Network, Inc. f/k/a Jamita, Inc.
                     ("ELNet"), Rutherford Learning Group, Inc. ("RLG")
                     (Compass, ELNet, and RLG are hereinafter sometimes
                     collectively referred to as the "Companies") and Michael
                     Rutherford ("Rutherford").

                                      50
<PAGE>

     Exhibit 3       Articles and Bylaws

             3.1      Articles of Incorporation*

             3.2      Certificate of Amendment*

             3.3      Plan and Articles of Merger*

             3.4      Certificate of Designation*

             3.5      Bylaws*

     Exhibit 4        Instruments defining rights of security holders.

             4.1      Certain rights of security holders are set forth in the
                      Articles of Incorporation, as amended, and our Bylaws
                      as set forth in Exhibits 3.1, 3.2, 3.3 and 3.4*

             4.2      Investment Agreement by and between Pioneer Ventures
                      Associates Limited Partnership and Compass Knowledge
                      Group, Inc. dated November 5, 1999.*

             4.3      Voting and Shareholder's Agreement by and between
                      Pioneer Ventures Associates Limited Partnership and
                      Rogers W. Kirven, Jr. and Daniel Devine dated November 5,
                      1999.*

             4.4      Compass Knowledge Holdings, Inc. Year 1999 Stock Option
                      Plan.*

             4.5      Compass Knowledge Group, Inc. Stock Option Agreement*

             4.6      Compass Knowledge Holdings, Inc. Year 2000 Stock Option
                      Plan.*

             4.7      Stock Purchase Warrants issued to Pioneer Ventures
                      Associates Limited Partners on June 27, 2001.

     Exhibit 10       Material Contracts

             10.1     Amended and Restated Employment Agreement dated November
                      1, 1999 between Rogers W. Kirven, Jr. and Compass
                      Knowledge Holdings, Inc.*

             10.2     Amended and Restated Employment Agreement dated November
                      1, 1999 between Daniel J. Devine and Compass Knowledge
                      Holdings, Inc.*

             10.3     Registration Rights Agreement for the University of
                      Florida Foundation, Inc.*

             10.4     Standard Professional Services Agreement*

             10.5     Marketing and Sales Agreement by and between Compass
                      Knowledge Group, Inc., and GE Medical Systems. ***

             10.6     E-Learning Services Agreement by and between Eduprise,
                      Inc. and Compass Knowledge Group, Inc. effective January
                      1, 2001.***

             10.7     LOAN AND SECURITIES PURCHASE AGREEMENT entered into on
                      February 5, 2002 by and between Compass Knowledge
                      Holdings, Inc. ("Compass") and Michael Etchison. ****

                                      51
<PAGE>

             10.8     Amendment to Employment Agreement effective January 7,
                      2002 with respect to that certain Employment Agreement
                      entered into by and between Compass Knowledge Holdings,
                      Inc. (the "Company") and Anthony Ruben (hereinafter,
                      "Employee"), dated May 1, 2000.

             10.9     TERMINATION AND SETTLEMENT AGREEMENT (hereinafter referred
                      to as the "Agreement"), entered into effective March 16,
                      2001 (the "Effective Date"), by and between Compass
                      Knowledge Holdings, Inc. ("Compass") and Ramsey Hashem
                      ("Hashem") and the ADDENDUM TO THAT CERTAIN TERMINATION
                      AND SETTLEMENT AGREEMENT dated March 16, 2001 (the
                      "Addendum"), entered into effective June 1, 2001 (the
                      "Effective Date"), by and between Compass and Hashem .

             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.

     (b)     Reports on Form 8-K

             None

                                      52
<PAGE>

                                   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:    March 11, 2002                  By: /s/ ROGERS W. KIRVEN, JR.
                                         -----------------------------
                                         Chief Executive Officer and Director


Date:    March 11, 2002                  By: /s/ ANTHONY RUBEN
                                         ---------------------
                                          Chief Financial Officer and Treasurer

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          March 11, 2002
--------------------

/s/ DR. PAUL LERMAN                         Director          March 11, 2002
-------------------

/s/ DR. ROBERT FRANK                        Director          March 11, 2002
--------------------

/s/ THOMAS J. CRANE                         Director          March 11, 2002
-------------------

                                        53
<PAGE>

COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 and 2000
TOGETHER WITH REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>

                                    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, 2001 and 2000                                           F-3

Consolidated Statements of Operation
For The Years Ended December 31, 2001 and 2000                             F-4

Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 2001 and 2000                             F-5

Consolidated Statements of Cash Flows
For The Years Ended December 31, 2001 and 2000                             F-6

Notes To Consolidated Financial Statements
December 31, 2001 and 2000                                                 F-7

                                     F-1
<PAGE>

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, 2001 and 2000, 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, 2001 and 2000, 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 22, 2002
Maitland, Florida

                                     F-2
<PAGE>

              COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES

                         CONSOLIDATED BALANCE SHEETS

                AS OF DECEMBER 31, 2001 AND DECEMBER 31, 2000

<TABLE>
<CAPTION>
                                                              December 31, 2001    December 31, 2000
                                                              -----------------    -----------------
                           ASSETS
                           ------
<S>                                                          <C>                  <C>
CURRENT ASSETS:
    Cash                                                     $          480,981   $          840,785
    Accounts receivable, net of allowance                                91,376               45,074
    Note receivable                                                      75,000                  -
    Prepaid expenses                                                    132,424              108,737
    Other assets, net                                                   579,460              446,904
                                                             ------------------   ------------------
        Total current assets                                          1,359,241            1,441,500

PROPERTY AND EQUIPMENT, net                                             271,506              280,413

GOODWILL, net                                                         4,134,854            3,278,948

OTHER ASSETS, net                                                       779,875              704,616
                                                             ------------------   ------------------
        Total assets                                         $        6,545,476   $        5,705,477
                                                             ==================   ==================
      LIABILITIES AND STOCKHOLDERS' EQUITY
      ------------------------------------
CURRENT LIABILITIES:
    Accounts payable and accrued expenses                    $          731,060   $          371,518
    Deferred student fees                                               688,742              467,032
    Note payable-current portion                                         50,000                  -
                                                             ------------------   ------------------
        Total current liabilities                                     1,469,802              838,550
                                                             ------------------   ------------------
                                                             ------------------   ------------------
        Total liabilities                                             1,469,802              838,550

STOCKHOLDERS' EQUITY:
    Preferred stock, 5,000,000 shares authorized,                     1,667,026            1,667,026
        2,000 shares issued and outstanding
    Common stock, $0.001 par value; 50,000,000                           15,862               14,875
        shares authorized, 15,861,250 and 14,875,000 shares
        issued and outstanding at December 31, 2001 and
        December 31, 2000 respectively
    Additional paid-in-capital                                        5,986,047            4,571,688
    Unearned compensation                                                  (327)              (7,574)
    Accumulated deficit                                              (2,592,933)          (1,379,088)
                                                             ------------------   ------------------
        Total stockholders' equity                                    5,075,674            4,866,927
                                                             ------------------   ------------------
        Total liabilities and stockholders'equity            $        6,545,476   $        5,705,477
                                                             ------------------   ------------------
</TABLE>

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

                                     F-3
<PAGE>

              COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES

                    CONSOLIDATED STATEMENTS OF OPERATIONS

                FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                   2001            2000
                                                                   ----            ----
<S>                                                             <C>             <C>
TOTAL STUDENT FEE REVENUE
    Net student fee revenue from degree programs               $  2,770,844    $  2,265,592
    Gross student fee revenue from non-degree programs              711,746         659,972
    Gross revenue from subscriptions and consulting services      1,838,364         441,118
    Other revenue                                                    43,206          14,677
                                                               ------------    ------------
                 Total revenue                                    5,364,160       3,381,359

INSTRUCTION COSTS AND SERVICES                                    1,664,346         962,778
                                                               ------------    ------------
                 Gross profit                                     3,699,814       2,418,581
                                                               ------------    ------------
OPERATING EXPENSES
    Selling and promotional                                         740,798         415,661
    General and administrative                                    4,045,693       3,373,145
                                                               ------------    ------------
                 Total operating expenses                         4,786,491       3,788,806
                                                               ------------    ------------

LOSS FROM OPERATIONS                                             (1,086,677)     (1,370,225)
                                                               ------------    ------------
OTHER INCOME (EXPENSE)
    Interest income                                                  25,398         215,714
    Interest expense                                                (12,566)            -
                                                               ------------    ------------
                 Total other income                                  12,832         215,714
                                                               ------------    ------------

(LOSS) INCOME BEFORE PREFERRED DIVIDENDS                         (1,073,845)     (1,154,511)

LESS: PREFERRED STOCK DIVIDENDS                                    (140,000)       (144,824)
                                                               ------------    ------------

NET (LOSS) INCOME AVAILABLE TO COMMON STOCKHOLDERS             $ (1,213,845)   $ (1,299,335)
                                                               ============    ============
EARNINGS PER SHARE
    Basic                                                      $     (0.078)   $     (0.087)
                                                               ============    ============
    Diluted                                                    $     (0.078)   $     (0.087)
                                                               ============    ============
WEIGHTED AVERAGE SHARES OUTSTANDING
    Basic                                                        15,466,009      14,802,055
                                                               ============    ============
    Diluted                                                      15,466,009      15,787,684
                                                               ------------    ------------
</TABLE>

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

                                     F-4
<PAGE>

              COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES

         CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

               FOR THE YEARS ENDED DECEMBER 31, 2001, AND 2000

<TABLE>
<CAPTION>
                                                     Preferred                            Unearned                   Stockholders'
                                                     ---------                            --------                   -------------
                             Common Share   Amount    Shares       Amount       APIC   Compensation  Retained Deficit    Equity
                             ------------   ------    ------       ------       ----   ------------  ----------------    ------

<S>                           <C>           <C>          <C>    <C>         <C>           <C>        <C>                <C>
BALANCE, December 31, 1999    14,750,000   $ 14,750      2,000 $ 1,667,026 $ 4,283,509   $ (20,150) $    (79,753)      $ 5,865,382
                             ======================================================================================================
Amortization of unearned
   compensation                                                                 14,392      36,488                          50,880

Issuance of stock options                                                       23,912     (23,912)                              -

Preferred stock dividend                                                                                (144,824)         (144,824)

Issuance of common Stock for
   Acquisition                   125,000        125                            249,875                                     250,000

Net income                                                                                            (1,154,511)       (1,154,511)
                             ------------------------------------------------------------------------------------------------------
BALANCE, December 31, 2000    14,875,000   $ 14,875      2,000 $ 1,667,026 $ 4,571,688   $  (7,574) $ (1,379,088)      $ 4,866,927
                             ======================================================================================================
Issuance of common stock       1,167,500      1,168                          1,426,333                                   1,427,501

Repurchase of common stock      (181,250)      (182)                           (90,444)                                    (90,626)

Issuance of warrants                                                            49,689                                      49,689

Issuance of stock options                                                       28,781                                      28,781

Amortization of unearned
   compensation                                                                              7,247                           7,247

Preferred stock dividend                                                                                (140,000)         (140,000)

Net income                                                                                            (1,073,845)       (1,073,845)
                             ------------------------------------------------------------------------------------------------------
BALANCE, December 31, 2001    15,861,250   $ 15,861      2,000 $ 1,667,026 $ 5,986,047   $    (327) $ (2,592,933)      $ 5,075,674
                             ------------------------------------------------------------------------------------------------------
</TABLE>

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

                                     F-5
<PAGE>

              COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES

                    CONSOLIDATED STATEMENTS OF CASH FLOWS

               FOR THE YEARS ENDED DECEMBER 31, 2001 and  2000

<TABLE>
<CAPTION>
                                                                              2001           2000
                                                                              ----           ----
<S>                                                                  <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net (loss) income                                                $ (1,073,845)  $ (1,154,511)
    Adjustments to reconcile net (loss) income to net cash
      provided by (used for) operating activities-
          Depreciation and amortization                                 1,329,364        740,351
          Amortization of unearned compensation                             7,247         50,880
          Stock-based compensation                                         78,470            -

          Decrease (increase) in operating assets and liabilities-
               Accounts receivable                                        (46,302)       835,049
               Prepaid expenses                                           (50,000)           -
               Other current assets                                        26,313        (53,787)
               Other long-term assets                                       5,292        (26,330)
               Accounts payable and accrued expenses                      359,542        191,869
               Due to related parties                                         -         (313,730)
               Deferred revenue                                           221,710       (401,468)

                                                                     -------------  -------------
                  Net cash provided by (used in) operating
                     activities                                           857,791       (131,677)
                                                                     -------------  -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of property and equipment                                  (129,174)      (249,840)
    Cash payments for content development costs                          (531,935)      (645,936)
    Cash payments for direct marketing costs                             (566,279)      (670,320)
    Acquisitions, net of cash/divestiture                                (127,707)    (2,080,151)
                                                                     -------------  -------------
                Net cash (used in) investing activities                (1,355,095)    (3,646,247)
                                                                     -------------  -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from issuance of common stock and warrants                   302,500            -
    Proceeds from issuance of note payable                                 50,000            -
    Issuance of note receivable                                           (75,000)
    Payment of preferred dividend                                        (140,000)      (162,324)
                                                                     -------------  -------------
                Net cash provided by (used in) financing activities       137,500       (162,324)
                                                                     -------------  -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                     (359,804)    (3,940,248)

CASH AND CASH EQUIVALENTS, beginning of period                            840,785      4,781,033
                                                                     -------------  -------------
CASH AND CASH EQUIVALENTS, end of period                             $    480,981   $    840,785
                                                                     =============  =============
Supplemental disclosure of cash flow information:
    Cash paid during the year for:
      Interest                                                       $     12,566   $        -
                                                                     -------------  -------------
</TABLE>

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

                                     F-6
<PAGE>

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
<PAGE>

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 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

                                      F-8
<PAGE>

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.

2.   SUMMARY OF SIGNIFICANT 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.

                                     F-9
<PAGE>

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 $139,220 and $60,403 for the years ended December 31,
2001 and 2000, respectively.

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 $4,134,854 and $3,278,948, net of accumulated amortization of
$510,844 and $171,772 at December 31, 2001 and 2000, respectively, is included
in the accompanying consolidated balance sheets. Amortization expense was
$339,072 and $167,986 for the years ended December 31, 2001 and 2000,
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 will adopt SFAS
142.

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, 2001 and 2000, were $41,779 and $55,728, net
of accumulated amortization of $28,221 and $14,272, 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, 2001 and 2000, were $950,140 and $713,195, net of accumulated
amortization of $337,220 and $99,804, 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

                                     F-10
<PAGE>

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, 2001 and 2000, were $359,839 and
$359,894, net of accumulated amortization of $960,867 and $394,533,
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 plans to adopt SFAS 143 effective January 1, 2002.

There has been no impairment reflected in the accompanying consolidated
financial statements.

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. 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 revenues 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 2001 and 2000 were as
follows:

                                                   2001           2000
                                                   ----           ----
Net student fee revenue
    from degree programs                     $2,770,844     $2,265,592
Gross student fee revenue from

                                    F-11
<PAGE>

    non-degree programs                         711,746        659,972
Gross revenue from subscription
    and consulting services                   1,838,364        441,118
Other revenue                                    43,206         14,677
                                             ----------     ----------
            Total revenue                    $5,364,160     $3,381,359
                                             ==========     ==========

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). 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 2001 and December 31, 2000, 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 $2,239,039 and $2,702,546 for the years ended December 31,
2001 and 2000, 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.

                                    F-12
<PAGE>

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
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.

See Note 10 for additional related-party transactions.

4.     PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at December 31, 2001 and
2000:

                                                       2001         2000
                                                       ----------   ----------

Computer equipment                                     $421,577     $289,670
Office furniture                                         79,137       79,124
                                                       ----------   ----------
                                                        500,714      368,794
Less- Accumulated depreciation                         (229,207)     (88,381)
                                                       ----------   ----------
                                                       $271,507     $280,413
                                                       ==========   ==========

5.     INCOME TAXES

No provision for income taxes has been recorded for the year ended December 31,
2001 or 2000 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, 2001 and 2000, consisted of the
following:

<TABLE>
<CAPTION>
                                                              2001          2000
                                                             ------------   -----------
<S>                                                           <C>           <C>
Current deferred tax assets (liabilities);
    Income from subsidiaries                                 $       -      $ (76,860)
    Accrued professional fees                                   39,100         73,330
    Other                                                        8,490         19,250
                                                             ---------      ---------
            Net current deferred tax assets                     47,590         15,720
Long-term deferred tax assets (liabilities):
    Net operating loss (NOL) carryforward                      914,700        513,800
    Depreciation and amortization                              (14,900)       (18,630)
                                                             ---------      ---------
            Net long-term deferred tax assets                  889,800        495,170
                                                             ---------      ---------
            Total deferred tax assets                          947,390        510,890
Less- Valuation allowance                                     (947,390)      (510,890)
                                                             ---------      ---------
                                                             $       -      $       -
                                                             =========      =========
</TABLE>

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

                                    F-13
<PAGE>

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, 2001, was an increase of
$436,500. The Company had an NOL carryforward as of December 31, 2001, of
approximately $2,430,000 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:

<TABLE>
<CAPTION>
                                                               2001         2000
                                                              ---------    -----------
<S>                                                            <C>          <C>
U.S. statutory federal income tax benefit (provision)         $ 365,100    $ 392,530
State income tax benefit (provision), net of federal
tax benefit (provision)                                          39,000       41,910
Costs incurred but not deductible for tax purposes               32,400       72,980
              Total benefit for income taxes                    436,500      507,420
Less- Change in valuation allowance                            (436,500)    (507,420)
                                                              ---------    ---------
                                                              $       -    $       -
                                                              =========    =========
</TABLE>

6     COMMITMENTS AND CONTINGENCIES

Leases

The Company leases office space and equipment under leases that expire on
various dates through December 31, 2003. As of December 31, 2001, 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
-------------                                      -----------

   2002                                            $100,848
   2003                                              27,426
   2004                                               1,107
                                                   --------
                                                   $129,381
                                                   ========

Total rent expense for the years ended December 31, 2001 and 2000, was $132,557
and $116,223, respectively. Included in these amounts is rent expense of
$40,359 and $40,359 for the years ended December 31, 2001 and 2000, 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

                                    F-14
<PAGE>

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, 2001, and 2000:

<TABLE>
<CAPTION>
                                                              2001              2000
                                                           ------------     ------------
<S>                                                        <C>              <C>
Net (loss) income available to
    common stockholders                                    $(1,213,845)     $ (1,299,335)
                                                           ===========      ============
Weighted average shares
    outstanding                                             15,466,009        14,802,055
Effect of stock option plan                                     57,854           985,629
                                                           -----------      ------------
Diluted weighted average
    shares outstanding                                      15,523,863        15,787,684
                                                           ===========      ============

Basic earnings per share                                   $    (0.078)     $     (0.087)
                                                           ===========      ============

Diluted earnings per share                                 $    (0.078)     $     (0.087)
                                                           ===========      ============
</TABLE>

As of December 31, 2001 and 2000, 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, 2001
and 2000, 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.

                                    F-15
<PAGE>

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, 2001 and 2000,
would have been changed to the following pro forma amounts:

<TABLE>
<CAPTION>
                                                         2001              2000
                                                      --------------    --------------
<S>                                 <C>                <C>               <C>
Net (loss) income:                  As reported        $(1,213,845)      $(1,299,335)
                                    Pro forma          $(1,450,101)      $(1,988,833)
diluted earnings (loss)
      per common share:             As reported        $    (0.078)      $    (0.087)
                                    Pro forma          $    (0.094)      $    (0.134)
</TABLE>

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, 2001 and 2000:

                                                   2001             2000
                                               -------------    ---------------
Risk-free interest rate                         4.5%             5.0%
Expected life                                   3-5 years        5 - 6.2 years
Volatility                                      50%              50%
Dividend yield                                  0.00%            0.00%

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

<TABLE>
<CAPTION>
                                                                                      Weighted
                                                                                       Average
                  2000                                    Shares                   Exercise Price
----------------------------------------             ------------------       -----------------------
<S>                                                      <C>                          <C>
Outstanding as of December 31, 1999
   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
                                                     ==================       =======================
Options exercisable at year-end                            749,375                     $0.99
                                                        ============                =========
</TABLE>

<TABLE>
<CAPTION>
                                                                            Weighted
                                                                            Average
                                           Shares                           Fair Value
                                         --------------------               -----------------------
<S>                                          <C>                                <C>
Weighted average fair value of options       440,000                            $0.17
                                         ====================                 =================
    granted during the year at market
</TABLE>

                                    F-16
<PAGE>

<TABLE>
<CAPTION>
                                                                            Weighted
                                                                            Average
                      1999                                 Shares           Exercise Price
--------------------------------------------------        --------------    --------------------
<S>                                                        <C>              <C>
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
Options exercisable at year-end                            1,212,400            $  0.80
                                                          ==============       ===============
</TABLE>

<TABLE>
<CAPTION>
                                                                            Weighted Average
                                                          Shares            Fair Value
                                                          ------------      ----------------------
<S>                                                          <C>                <C>
Weighted average fair value of options granted               235,000            $  0.18
                                                          ==============       ===============
     during the year at market
</TABLE>

The following table summarizes information about the options outstanding at
December 31, 2001:

<TABLE>
<CAPTION>
                    Options Outstanding                                 Options Exercisable
                    ------------------------------------------------   ------------------------------------
                                      Weighted
                        Number         Average          Weighted            Number
                    Outstanding at    Remaining          Average          Exercisable at    Weighted
        Exercise      December 31,  Contractual Lives   Exercise           December 31,      Average
        Prices            2001          (years)          Price                2001         Exercise Price
-----------------------------------------------------  -------------   ------------------------------------
        <S>                  <C>         <C>           <C>                     <C>           <C>
         $.35                16,000      4.13                                   11,000
        $.375               600,000      4.00                                 450,000
         $.45                34,000      2.17                                  34,000
         $.55                25,000      2.24                                  25,000
        $ .75             1,061,400      2.11                                1,061,400
        $1.00               100,000      3.95                                   65,000
        $2.00               555,000      3.91                                  305,375
        $4.00                10,000      2.11                                   10,000
                      --------------   ---------      -----------        ---------------   ---------
                          2,401,400      3.09            $0.96               1,961,775       $0.87
                      ==============   =========      ===========        ===============   =========
</TABLE>

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, 2001 and 2000, compensation expense related to
stock options issued to non-employees of $46,717 and $50,880, respectively, was
recognized in the accompanying consolidated statements of operations. The
remaining unamortized unearned compensation at December 31, 2001 and 2000, was
$327 and $7,574, respectively.

                                    F-17
<PAGE>

For the years ended December 31, 2001 and 2000, compensation expense related to
warrants issued to non-employees of $39,000 and $0, respectively, was
recognized in the accompanying consolidated statements of operations. There was
no unearned compensation expense at December 31, 2001 or 2000.

10    SUPPLEMENTAL CASH FLOW DISCLOSURES

The Company's non-cash investing and financing activities were as follows as of
December 31, 2000:

                                                                  Amount
                                                                  -------------
Acquisitions:
   Fair value of assets acquired                                  $2,749,387
   Cash paid, net of cash received                                (2,080,151)
   Issuance of common stock                                         (250,000)
                                                                  -------------
Liabilities assumed                                               $  419,236
                                                                  ==============

11    SUBSEQUENT EVENTS (UNAUDITED)

        Effective January 7, 2002, the Company and Anthony Ruben, the Company's
CFO, entered into an amendment to Mr. Ruben's employment agreement whereby the
option threshold with respect to Mr. Ruben's "Event Payment" was reduced to
$0.375 from $2.00. The net effect of this amendment reduces the upper price
range where he would no longer be entitled to the Event Payment shares from
approximately $6.00 per share to approximately $4.375 per share.

        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 up to March 1, 2003, unless renewed by the parties.

        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, 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, if the Company draws down $100,000 on
the Loan, the Company will issue and deliver to Mr. Etchison a coverage warrant
to purchase 50,000 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.

        The proceeds from the Loan, after deduction of loan closing costs,
shall be used by the Company for working capital and marketing. All underlying
securities carry customary "piggyback" registration rights. Parties interested
in this transaction are encouraged to review Item 5 and the attached exhibits
of our Form 8-K filed with the SEC on March 5, 2002.

                                    F-18
<PAGE>

                                 EXHIBIT INDEX
                              -------------------

Exhibit No.                          Description
-----------                          -----------

    2.6     SETTLEMENT AND ASSET PURCHASE AGREEMENT made effective as of
            July 1, 2001 (the  "Effective Date") by and among Compass
            Knowledge Holdings, Inc. ("Compass"), Educators' Learning Network,
            Inc. f/k/a Jamita, Inc. ("ELNet"), Rutherford Learning Group, Inc.
            ("RLG") (Compass, ELNet, and RLG are hereinafter sometimes
            collectively referred to as the "Companies") and Michael Rutherford
            ("Rutherford").

    4.7     Stock Purchase Warrants issued to Pioneer Ventures Associates
            Limited Partners on June 27, 2001.

    10.8    Amendment to Employment Agreement effective January 7, 2002 with
            respect to that certain Employment Agreement entered into by and
            between Compass Knowledge Holdings, Inc. (the "Company") and
            Anthony Ruben (hereinafter, "Employee"), dated May 1, 2000.

    10.9    TERMINATION AND SETTLEMENT AGREEMENT (hereinafter referred to as
            the "Agreement"), entered into effective March 16, 2001 (the
            "Effective Date"), by and between Compass Knowledge Holdings, Inc.
            ("Compass") and Ramsey Hashem ("Hashem") and the ADDENDUM TO THAT
            CERTAIN TERMINATION AND SETTLEMENT AGREEMENT dated March 16, 2001
            (the "Addendum"), entered into effective June 1, 2001 (the
            "Effective Date"), by and between Compass and Hashem .