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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, 2002

                                       or

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

        For the transition period from                 to
                                       ---------------    ---------------

                         Commission file number: 0-29615

                                   ----------

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

                                   ----------

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

       2710 REW CIRCLE, SUITE 100
             OCOEE, FLORIDA                                              34761
(Address of principal executive offices)                              (Zip Code)

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

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

                          Common Stock, $.001 par value
                                (Title of Class)

Check whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]

Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B (Section 29.405 of this chapter) is not contained in this form,
and no disclosure will be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-KSB. [ ]

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

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

================================================================================

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

DOCUMENTS INCORPORATED BY REFERENCE

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

FORWARD-LOOKING STATEMENTS

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

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                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                                <C>
PART I

Item 1.    Description of Business...................................................................1

Item 2.    Description of Property..................................................................20

Item 3.    Legal Proceedings........................................................................21

Item 4.    Submission of Matters To A Vote of Security Holders......................................21

Item 5.    Market for Common Equity and Related Stockholder Matters.................................21

Item 6.    Management's Discussion and Analysis of Financial Condition and Results of Operations....25

Item 7.    Financial Statements.....................................................................39

Item 9.    Directors, Executive Officers, Promoters and Control Person..............................40

Item 10.   Executive Compensation...................................................................43

Item 11.   Security Ownership of Management and Principal Stockholders..............................48

Item 12.   Transactions with Management and Others..................................................50

Item 13.   Exhibits and Reports on Form 8-K.........................................................52

ITEM 14.   Controls and Procedures..................................................................55

SIGNATURES..........................................................................................56

PART F/S...........................................................................................F-1
</TABLE>

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                                     PART I

Item 1. Description of Business

Overview

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

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

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

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

                    www.CompassKnowledge.com
                    www.Intelicus.com
                    www.KnowledgePharm.com
                    www.JurisAlliance.com
                    www.CJ-Direct.com
                    www.GlobalHealthEd.com

Historical Background

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                       3

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

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

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

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

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

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

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

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

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

          As a result of the sale of eLNet, we recognized an additional loss on
the disposal of discontinued operations of approximately $1,550,000 as of
December 31, 2002. At this time, we do not expect to experience any material
additional losses or expenses associated with this business saving certain
pending claims the most significant of which is a claim made on or about January
13, 2003 by some of the former shareholders of eLNet. These shareholders filed
an objection to the amount of the incentive payments previously paid them
pursuant to the original acquisition agreement indicating that they are of the
belief that they are entitled to an unspecified additional amount. While we
believe that our accounting with respect to these incentive payments is accurate
and that no additional monies are due these shareholders, no assurance can be
given that we will not be required to make additional payments to these
shareholders either in settlement of this matter or as ordered by a court of
competent jurisdiction.

Our Business

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

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

Our Business Model

          Our business model is based on the following characteristics:

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

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

          .    Cash flow from steady tuition payments.

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

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

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

          .    Designed for easy accessibility and with multiple entry points.

Learning Solutions

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

          .    Conducting market research;

          .    Assisting with curriculum development;

          .    Developing and executing marketing strategies;

          .    Marketing and recruiting of students;

          .    Establishing operational and administrative infrastructures;

          .    Training of faculty;

          .    Developing and implementing financial, accounting and academic
               quality management systems;

          .    Assessing the future needs of adult students;

          .    Assisting in developing additional degree programs suitable for
               the adult higher education market; and

          .    Training of program staff.

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

Degree Programs

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

          .    Doctor of Pharmacy (University of Florida)
          .    Doctor of Audiology (University of Florida)
          .    Masters in Criminal Justice Administration (University of
               Cincinnati)
          .    Bachelor of Science in Administration of Criminal Justice
               (Mountain State University)
          .    Bachelor of Science in Radiologic Science (Florida Hospital,
               College of Health Sciences)
          .    Masters of Science in Nursing (Graceland University)
          .    Bachelors of Science in Nursing (Graceland University)
          .    Registered Nurse to Masters of Science in Nursing (Graceland
               University)

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

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

Non-degree Programs

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

          .    Life Care Planning
          .    Medical Coding
          .    Post Masters Family Nurse Practitioner Certificate

Current Programs

1.   The Working Professional Doctor of Pharmacy Program

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

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

2.   The Working Professional Doctor of Audiology Program

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

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

3.   Masters in Criminal Justice Administration

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

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

4.   Bachelor in Criminal Justice Administration

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

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

5.   Radiologic Science

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

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

6.   Bachelors of Science in Nursing

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

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

7.   Masters of Science in Nursing

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

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

8.   Life Care Planning

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

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

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9.   Medical Coding

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

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

Our Marketing Model

     .    Our Market Model

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

     .    Comprehensive Marketing Management

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

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

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

Market

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

          .    Kindergarten through twelfth grade schools ("K-12");
          .    Vocational and technical training;
          .    Workplace and consumer training; and

                                       9

<PAGE>

          .    Degree-granting ("Higher Education").

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

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

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

                    .    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.

          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

                                       10

<PAGE>

          .    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 marketplace. Approximately, 84% of our 2002
revenues are derived from this marketplace. Currently, approximately 78% of our
net revenues are derived from our degree programs, approximately 14% is derived
from our non-degree programs, and approximately 8% is derived from subscription,
consulting and other services. We believe, based upon recent trends in the
healthcare industries and technology advancements that this market will continue
to increase. Our opinion is also based on the following factors:

     .    generally healthcare professionals are required by their profession to
          take continuing education courses;
     .    healthcare professionals have a history of taking education courses;
          and
     .    healthcare professionals have historically been rewarded by increase
          in compensation for taking continuing education courses.

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

Competition

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

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

                                       11

<PAGE>

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 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

                                       12

<PAGE>

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.

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

Tax Reform Act of 1997 and Tax Relief Act of 2001

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

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

Employer Tuition Assistance

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

Strategic Alliances

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

                                       13

<PAGE>

          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

               .    Student Support

               .    Assistance in Curriculum Development

               .    Administration of Multimedia

               .    Administration of Hardcopy Materials

               .    Daily Management of Student Database

               .    Daily Financial Management

               .    Quality Control

               .    Facilities Management

               .    Approval and Maintenance of Program Content

               .    Creation of Video Content as well as editing and
                    enhancement.

               .    Creation of Audio Content as well as editing and enhancement

               .    Marketing of Programs

               .    Development of Market Strategies

               .    Execution of Market Strategy

               .    Development of Promotional Literature

               .    Development of Collateral Materials

               .    Development and Management of Mailing Lists

               .    Management of Telephone Database

               .    Providing Software and Technology Platforms

          We currently have approximately 40 contracts with the University of
Florida for two ongoing degree and three ongoing non-degree programs. The
contract with respect to one of our degree programs, Doctor of Audiology,
expires in September of 2003 and as of this date, there is no indication that
the University of Florida is willing to renew our contract or enter into a new
contract. With respect to this

                                       14

<PAGE>

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

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

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

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

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

     .    Solution Management Services
     .    Strategic Services
               .    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:

                                       15

<PAGE>

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 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

                                       16

<PAGE>

          .    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.
          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

                                       17

<PAGE>

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.

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

     .    Audio Streaming

          We also use 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.

                                       18

<PAGE>

     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

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

Major Suppliers

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

Dependence on Key Customers

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

Patents, Trademarks, Licenses

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

          .    Knowledge That Earns
          .    JurisAlliance
          .    KnowledgePharm
          .    Intelicus
          .    CJ-Direct
          .    Global HealthEd
          .    Compass Knowledge

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

Software

          Our material component software is obtained from the following
vendors:

                                       19

<PAGE>

<TABLE>
          <S>                                         <C>
          Microsoft Corporation                       FrontRange Software (Goldmine)
          Akiva Software (Webboard6)                  Respondus2.0
          Adobe (Acrobat 5, Photoshop 6, PageMaker)   Flowerfire (Sawmill6.4.1)
          eShare Communications (Expressions 4.3)     GlobalScape (CuteFTP)
          Nero (Ahead)                                Navision Financial Solutions
          WebCT                                       Symantec
          Macromedia (Flash, Fireworks4, Director8.5, Dreamweaver3, Dreamweaver UltraDev4)
</TABLE>

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

Research and Development

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

Costs and Effects of Compliance with Environment Laws

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

Item 2. Description of Property

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

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

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

                                       20

<PAGE>

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.

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

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

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

                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters

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

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

                                                       Per Share of Common Stock
    Period                                                   Closing Prices
--------------                                         -------------------------
                                                             High     Low
                                                             -----   -----
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

2002
First Quarter                                                $0.30   $0.21
Second Quarter                                               $0.30   $0.17
Third Quarter                                                $0.26   $0.14
Fourth Quarter                                               $0.26   $0.09

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

                                       21

<PAGE>

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

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

          (d) Recent Sales of Unregistered Securities.

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

Fiscal Year 1999

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

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

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

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

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

          With respect to the foregoing offers and sales of restricted and
unregistered securities, the Company relied on the provisions of Sections 3(b)
and 4(2) of the Securities Act and rules and regulations promulgated thereunder,
including, but not limited to Rules 505 and 506 of Regulation D, in that such
transactions did not involve any public offering of securities and were exempt
from registration under the Securities Act. The offer and sale of the securities
in each instance was not made by any means of general solicitation, the
securities were acquired by the investors without a view toward distribution,
and all purchasers represented to the Company that they were sophisticated and
experienced in such transactions and investments and able to bear the economic
risk of their investment. A legend was placed on the

                                       22

<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.

Fiscal Year 2000

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

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

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

Fiscal Year 2001

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

          In July of 2001 in exchange for Pioneer Ventures Ltd. Partnership's
consent to allow us to change accountants, the Company granted Pioneer warrants
to purchase: 100,000 of our common shares at $0.55

                                       23

<PAGE>

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 certificates and
instruments representing these securities stating that the securities evidenced
by such certificates or instruments, as the case may be, have not been
registered under the Securities Act and setting forth the restrictions on their
transfer and sale. Each investor also signed a written agreement that the
securities would not be sold without registration under the Securities act or
pursuant to an applicable exemption from such registration.

Fiscal Year 2002

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

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

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

                                       24

<PAGE>

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

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

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

Outlook

         We intend to continue our strategy of focusing on our core business and
accelerate our growth through the increase in sales by investing in our core
products and services through the adoption of a more aggressive execution,
pricing and marketing strategy in 2003. At the same time, we intend to continue
to develop and refine our program management, technology solutions and
consulting business as a complement to our core program offerings. Likewise, we
will continue to pursue synergistic knowledge partner alliances and develop new
programs on a highly selective basis. Based on this strategy, we expect to be
profitable in 2003. This prospect is based on, management's expectation of
increased student counts and the associated revenues in our degree and
consulting businesses, launching at least one new program to replace the loss of
our nursing programs with Graceland University and the reduction in revenues or
anticipated loss of our Audiology program with the University of Florida in
September 2003 combined with lower levels, on a percentage basis, of general and
administrative spending compared to 2002.

          Effective January 2003 the Company retained the services of Rich
Flaherty to oversee its operations with a concentration on sales and marketing
efforts. Beginning in early 2003, Mr. Flaherty has developed and implemented new
marketing and sales strategies and tactics and in connection with same,

                                       25

<PAGE>

the Company has committed a large portion of its available cash and human
resources to execute these plans.

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

Critical Accounting Policies and Estimates

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

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

          Our critical accounting policies include:

.. 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

                                       26

<PAGE>

recent guidance by the Securities and Exchange Commission (SEC) and the Emerging
Issues Task Force (EITF), in EITF Issue No. 99-19, "Reporting Revenue Gross
versus Net," regarding the recognition of gross versus net revenues for
Internet-based entities.

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

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

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

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

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

.. Financial Accounting Standards. In July 2001, the FASB issued Statement of
Financial Accounting Standards No. 142 ("SFAS 142"), which establishes
accounting standards for the recognition and measurement of an asset retirement
obligation and its associated asset retirement cost. The changes in these rules
may have a significant impact on our reported financial results. In June 2001,
the FASB issued Statement of Financial Accounting Standard (SFAS) No. 141,
Business Combinations and SFAS No.142, Goodwill and Other Intangible Assets.
These statements would continue to require recognition of goodwill as an asset
but would not permit amortization of goodwill as is currently required by
Accounting Principles Board (APB) Opinion No. 17, Intangible Assets. Under the
SFAS 142, goodwill would be separately tested for impairment using a
fair-value-based approach when an event occurs indicating the potential for
impairment. Any required goodwill impairment charges would be presented as a
separate line item within the operating section of the income statement. The
change from an amortization approach to an impairment approach would apply to
previously recorded goodwill, as well as goodwill arising from acquisitions
completed after the application of the new standard. The Company adopted SFAS
No. 142 for its fiscal year beginning January 1, 2002 and as a result, the
Company no longer amortized goodwill.

          In accordance with the provisions of SFAS 142, the Company completed
its initial assignment of previously recognized goodwill to its subsidiaries
during the second quarter of 2002. Based on this assignment, management
believed, at that time, that the carrying amount of the net assets (including
goodwill) of its subsidiary, eLNet, exceeded its fair value. Accordingly, the
Company wrote-off $2,000,000 of goodwill related to eLNet. As a result of the
discontinuation of eLNet's operations in the

                                       27

<PAGE>

fourth quarter of 2002 and the sale of eLNet effective February 28, 2003, we
recognized an additional loss from discontinued operations of approximately
$1,716,000 as of December 31, 2002. Net liabilities to be disposed of, at their
expected realizable values, have been separately classified in the accompanying
balance sheet at December 31, 2002.

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

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

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

          Gross profit increased by $936,572, or 33.4%, to $3,741,744 for fiscal
2002 from $2,805,172 in fiscal 2001, primarily due to increased margins in our
degree programs of 54.1% and partially offset by decreases of approximately
18.1% in our non-degree program margins (principally related to the write-off of
content with respect to certain discontinued certificate programs). In fiscal
2002, our gross profit margin increased to 76.9% from 70% in the comparable 2001
period. The increase is primarily attributed to increased margins in our
radiology program and bachelor's of criminal justice program, which collectively
account for a higher percentage of revenues than in the year ago period.

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

     .    A reduction of payroll and contract labor collectively aggregating
          $119,067 primarily resulting from the resignation of the Company's
          CFO in May of 2002.
     .    A reduction of $39,053, or 48.4%, in travel as the exploration for new
          programs and other initiatives was significantly curtailed.
     .    Recruiting expenses was down $28,257 as few new employees were brought
          on board in fiscal 2002.
     .    Depreciation and amortization expense classified as operating expenses
          decreased by $22,012 to $221,028 in fiscal 2002 from $243,040 in
          fiscal 2001 reflecting the continued and reduced

                                       28

<PAGE>

          amortization of other assets, primarily marketing and content
          development investments undertaken in support of degree programs.
     .    These decreases were partially offset by rising directors and
          officers' liability insurance and professional fees of $27,374 (25.6%)
          and $30,718 (37.3%), respectively

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

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

Discontinued Operations

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

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

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

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

Net assets of discontinued operations consisted of the following:

(thousands of dollars)                                          2002      2001
                                                               -------   ------
Net current assets                                             $    37   $   72
Property, plant and equipment - net                                 18       33
Other net noncurrent assets                                      1,514    3,360
Net assets of discontinued operations                          $ 1,570   $3,465
                                                               -------   ------

Discontinued operations - net of tax were as follows:
(thousands of dollars)                                          2002      2001
                                                               -------   ------
Net Sales                                                      $ 1,059   $1,359
                                                               -------   ------
Pre-tax income/(loss)                                          $  (166)  $ (357)
Provision for taxes on income                                       --       --

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<PAGE>

Loss from operations of discontinued
   businesses-net of tax                                          (166)    (357)
Pre-tax gain/(loss) on disposal of
   discontinued businesses                                      (1,550)      --
Provision/(benefit) for taxes on gain/(loss)                        --       --
Gain/(loss) on disposal of discontinued
   businesses-net of tax                                        (1,550)      --
Discontinued operations - net of tax                           $(1,716)  $ (357)

Liquidity and Capital Resources

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

          This slight decrease in cash was attributed to:

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

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

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

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

Subsequent Events.

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

                                       30

<PAGE>

University are uncertain as well as the financial impact that the loss of this
relationship will have on our overall financial performance for 2003 and beyond.

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

Special Note Regarding Forward-Looking Statements and Risk Factors

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

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

FACTORS AFFECTING OPERATING RESULTS AND MARKET PRICE OF SECURITIES

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

Our Business and Future Prospects.

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

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<PAGE>

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

          The Company discontinued its K-12 subscription program operations in
the fourth quarter of 2002 because of substantial decreases in its customer
base, customer budget cuts, lack of contract backlog, declining revenues and
uncertainty in the market. This business operation had been operated within the
Company's wholly owned subsidiary, eLNet, since its acquisition in 2000. eLNet
had annual revenues of $1,359,037 for the fiscal year ending December 31, 2001
and $1,058,910 for the fiscal year ending December 31, 2002, with a net loss of
$356,908 in 2001 and $165,796 in 2002. Effective February 28, 2003, we entered
into and consummated the closing of a Stock Purchase Agreement with R&B
Holdings, Inc., a Virginia corporation whereby we sold all of the issued and
outstanding stock of eLNet for $326,704 in cash and the assignment to the
Company of an eLNet receivable in the amount of $123,296. As a result of the
sale of eLNet which was effective as of February 28, 2003, we recognized an
additional loss from discontinued operations of approximately $1,716,000 as of
December 31, 2002 resulting in a net loss for the year ending December 31, 2002
of approximately $3.716 million.

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

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

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

                                       32

<PAGE>

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

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

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

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

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

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

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

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

          The market for e-learning solutions is new and rapidly evolving. A
number of factors could

                                       33

<PAGE>

impact the acceptance of our e-learning solutions, including:

          .    historic reliance on traditional education methods;

          .    limited allocation of our customers' and prospective customers'
               education budgets to e-learning; and

          .    ineffective use of distance learning solutions.

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

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

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

          .    our education of potential customers about the benefits of our
               distance learning solutions;

          .    our potential customers' assessment of the value of distance
               learning solutions compared to traditional educational solutions;

          .    our potential customers' evaluation of competitive distance
               learning solutions; and

          .    our potential customers' internal budget and approval processes.

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

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

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

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

     .    internal education departments; and

     .    other suppliers of technology-based learning solutions.

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<PAGE>

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

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

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

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

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

          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.

                                       35

<PAGE>

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

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

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

We Do Not Anticipate Any Acquisitions During 2003.

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

          .    expenditures of cash which may reduce our cash reserves to
               critical levels,
          .    difficulty of assimilating the operations and personnel of the
               venture,
          .    potential disruption of our ongoing business,
          .    distraction of management from our core business,
          .    inability of management to maximize our financial and strategic
               position,
          .    increase in general and administrative expenses,
          .    expansion of management information systems,
          .    need for greater facilities requirements,
          .    increase in overall headcount,
          .    maintenance of uniform standards, controls, procedures and
               policies, and
          .    impairment of relationships with employees and clients as a
               result of any integration of new management personnel

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

Some of Our Products Are Less Profitable Than Others.

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

Our Stock Price Will Likely Continue To Be Volatile.

          The market price of our common stock has experienced significant
decreases in value and fluctuations and may continue to fluctuate significantly.
The trading price of our common stock could be

                                       36

<PAGE>

subject to wide fluctuations in response to various factors, some of which are
beyond our control, including:

          .    unanticipated adverse market conditions,
          .    actual or anticipated variations in quarterly results of
               operations,
          .    changes in our intellectual property rights or our competitors,
          .    announcements of technological innovations,
          .    our introduction or elimination of new programs, products or
               services or changes in product pricing by our competitors,
          .    changes in financial estimates,
          .    announcement of significant acquisitions, strategic partnerships,
               joint ventures or capital commitments by us or our competitors,
          .    additions or departures of key personnel,
          .    increased needs for operating capital, and
          .    regulatory changes or interpretations.

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

Our Market Is Characterized By Rapid Technological Change.

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

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

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

               .    our ability to attract and retain colleges, universities,
                    associations and companies;
               .    our ability to successfully implement our proposed
                    distributed learning programs;
               .    the amount and timing of operating costs and capital
                    expenditures relating to expansion of our business;
               .    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.

                                       37

<PAGE>

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

          Prior to expanding our infrastructure and business in fiscal year
2000, the Company was profitable, but during the fiscal years 2000 and 2001 the
Company was unable to generate revenue sufficient offset these additional
expenses and in 2002, to offset losses resulting from discontinued operations.
Consequently, the Company again sustained substantial losses in 2002. Net losses
before preferred dividends for the twelve (12) months ended December 31, 2002
were approximately $3.246 million ($3.386 million after preferred dividends) or
$(0.21) per share. This loss results from charges incurred with respect to the
write off of goodwill and discontinued operations of eLNet in the aggregate
amount of $3.716 million. While no assurance can be given, we believe our
continuing business operations which were profitable in 2002 will continue to be
profitable in 2003 and that with the elimination of eLNet our resources, both
human and capital, is largely adequate to support our planned growth in 2003.

Our Future Capital Needs; Potential Need for Additional Financing.

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

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

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

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

                                       38

<PAGE>

To the extent that the Company and Mr. Flaherty are unsuccessful in their
efforts, the financial results of the Company will be materially adversely
affected.

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

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

You Should Not Invest If You Expect Dividends.

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

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

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

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

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

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

                                       39

<PAGE>

As of December 31, 2002 and 2001                                             F-3

Consolidated Statements of Operation
For The Years Ended December 31, 2002 and 2001                               F-4

Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 2002 and 2001                               F-5

Consolidated Statements of Cash Flows
For The Years Ended December 31, 2002 and 2001                               F-6

Notes To Consolidated Financial Statements
December 31, 2002 and 2001                                                   F-7

                                    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)   49              1999            Chairman of the Board/CEO
Daniel J. Devine (1)(2)        41              1999            President and Director
Dr. Robert Frank (2)           50              1999            Director
Dr. Paul Lerman                61              1999            Director
Thomas J. Crane (1)            45              2000            Director
Richard M. Flaherty            44              N/A             Executive Vice President/COO
</TABLE>

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

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

                                       40

<PAGE>

marketplace. Mr. Devine has a Bachelor of Science degree in Electrical
Engineering from the University of Florida and completed the Stanford University
Executive Program for Growing Companies in the Spring of 1999.

          Dr. Paul Lerman. Dr. Lerman became a Director of the Company in
November 1999. Since April 1990, Dr. Lerman has served as Dean and Professor of
the College of Business Administration for Fairleigh Dickinson University. Dr.
Lerman also provides consulting services to a number of major corporations
including, the BASF Corporation and the AT&T Corporation. Dr. Lerman received
his Ph.D. in Operations Research from New York University, a Master's degree in
Mechanical Engineering from New York University, a Bachelor of Arts degree in
Mathematics and Economics and a B.M.E. in Mechanical Engineering from the New
York University.

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

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

Non-Director Executive Officers

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

               .    Mr. Ruben resigned effective as of May 24, 2002 (the
                    "Termination Date") as CFO of the Company.

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

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

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

                                       41

<PAGE>

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

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

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

Committees and Meetings.

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

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

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

          .    Reviewed and discussed the registrant's audited financial
               statements with management;

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

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

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

                                       42

<PAGE>

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

Section 16(A) Beneficial Ownership Reporting

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

Item 10.  Executive Compensation

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

                           SUMMARY COMPENSATION TABLE

<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   2002    $103,633   $ 80,208      $ 9,837          $-0-              -0-        $-0-
(1)(3)(4)                    2001    $178,365   $    -0-      $14,111          $-0-         (116,000)       $-0-

Daniel J. Devine             2002    $ 83,217   $ 64,167      $ 9,776          $-0-              -0-        $-0-
President (2)(3)(4)          2001    $142,692   $    -0-      $14,111          $-0-         (84,000)        $-0-

Anthony Ruben                2002    $ 54,892   $    -0-      $ 2,036          $-0-              -0-        $-0-
CFO(5)                       2001    $138,391   $    -0-      $12,865          $-0-          300,000        $-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, 2002, the Company paid Mr.
     Kirven a car allowance of $4,750 and paid health insurance premiums of
     $5,086.80. See "Employment Agreements."

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

                                       43

<PAGE>

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

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

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

Equity Compensation Plans.

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

                                                                  Weighted
                                                                  Average
               2002 Plan                             Shares    Exercise Price
------------------------------------------------   ---------   --------------
Outstanding as of December 31, 2001                       --          --
   Granted                                           374,000       $0.25
   Exercised                                              --          --
   Forfeited                                         125,000       $0.25
                                                     -------       -----
Outstanding as of December 31, 2002                  249,000       $0.25
                                                     =======       =====
Options exercisable at year end                      219,167       $0.25
                                                     =======       =====

                                                                  Weighted
                                                                  Average
               2000 Plan                             Shares    Exercise Price
------------------------------------------------   ---------   --------------
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
                                                   =========        =====
   Granted                                           300,000        $0.24
   Exercised                                              --           --
   Forfeited                                         540,000        $2.00
                                                   ---------        -----
Outstanding as of December 31, 2002                  745,000        $0.26
                                                   =========        =====
Options exercisable at year end                      745,000        $0.26
                                                   =========        =====

                                       44

<PAGE>

Weighted  average fair value of options  granted
    during the year at market                        300,000       $0.24
                                                   =========       =====

                                                                  Weighted
                                                                  Average
                 1999 Plan                           Shares    Exercise Price
------------------------------------------------   ---------   --------------
Outstanding as of December 31, 1998                       --           --
   Granted                                         1,500,000        $0.94
   Exercised                                              --           --
   Forfeited                                              --           --
                                                   ---------        -----
Outstanding as of December 31, 1999                1,500,000        $0.94
   Granted                                            90,000         1.50
   Exercised                                              --           --
   Forfeited                                          90,000         3.02
                                                   ---------        -----
Outstanding as of December 31, 2000                1,500,000        $0.86
                                                   =========        =====
   Granted                                           235,000        $0.38
   Exercised                                              --           --
   Forfeited                                         318,600         0.83
                                                   ---------        -----
Outstanding as of December 31, 2001                1,416,400        $0.78
   Granted                                            45,000        $0.25
   Exercised                                              --           --
   Forfeited                                         150,000         0.78
                                                   ---------        -----
Outstanding as of December 31, 2002                1,311,400        $0.76
                                                   =========        =====
Options exercisable at year end                    1,262,608         0.76
                                                   =========        =====

Weighted  average fair value of options  granted
   during the year at market                          45,000        $0.24
                                                   =========        =====

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

<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         2002             (years)          Price        2002         Exercise Price
--------   --------------   -----------------   --------   --------------   --------------
<S>          <C>                   <C>           <C>          <C>               <C>
  $ .24        300,000             4.50                         300,000
  $  25        294,000             4.50                         230,834
  $ .35         16,000             3.13                          12,666
  $.375        600,000             3.00                         593,500
  $ .45         34,000             1.17                          34,000
  $ .55         25,000             1.24                          25,000
  $ .75        911,400             1.11                         911,400
  $1.00        100,000             2.95                          94,375
  $2.00         15,000             2.91                          15,000
  $4.00         10,000             1.11                          10,000
             ---------             ----          -----        ---------         -----
             2,305,400             3.09          $0.55        2,226,775         $0.55
             =========             ====          =====        =========         =====
</TABLE>

                                       45

<PAGE>

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

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

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

Stock Option Grants

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

Value of Options Outstanding at Year End

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

Employment Agreements.

Rogers W. Kirven, Jr.

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

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

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

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

          .    a provision for term life insurance;

          .    automobile allowance;

          .    discretionary bonuses as determined by the board; and

          .    standard benefits.

                                       46

<PAGE>

Daniel J. Devine

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

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

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

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

     .    provisions for a term life insurance;

     .    automobile allowance;

     .    discretionary bonuses as determined by the board; and

     .    standard benefits.

Richard M. Flaherty

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

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

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

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

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

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

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

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

     .    provisions for a term life insurance;

     .    $650.00 monthly non-accountable expense reimbursement;

                                       47

<PAGE>

     .    discretionary bonuses; and

     .    standard Benefits.

Compensation of Directors

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

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

Item 11. Security Ownership of Management and Principal Stockholders

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

<TABLE>
<CAPTION>
                                                    Options/Warrants
      Name and Address of        Shares of Common      for  Common       Total      Percentage
       Beneficial Owner             Stock Owned     Stock Owned (8)      Shares     Owned (9)
------------------------------   ----------------   ----------------   ---------    ----------
<S>                                 <C>                 <C>            <C>            <C>
Management

Rogers W. Kirven, Jr. (1)(4)         4,546,289          285,118        4,831,407      24.25%
2710 Rew Circle, Suite 100
Ocoee, FL  34761

Daniel J. Devine (1)(5)             3,391,587           210,732        3,602,319      18.08%
2710 Rew Circle, Suite 100
Ocoee, FL  34761

Thomas J. Crane (2)(6)                 270,000          236,042          506,042       2.54%
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
</TABLE>

                                       48

<PAGE>

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

All officers and directors           8,197,876          741,892        8,949,768      44.92%
As a group (5 persons)

Other Principal Stockholders

Pioneer Ventures Ltd. Ptn. (7)         875,000          300,000        1,175,000       5.90%
651 Day Hill Road
Windsor, CT  06095-0040
</TABLE>

----------
*    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.
     During 2002, Mr. Devine purchased 10,000 shares of the Company's common
     stock in the open market at an average price of $0.10 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. On April 1, 2002, the Company
     granted an additional 50,000 options having a five-year term, 25,000 of
     which vested on the date of grant with the remainder vesting at the rate of
     2,083 per month.

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

                                       49

<PAGE>

     share expiring on December 31, 2003; and, 100,000 of our common shares at
     $1.00 per shares expiring on June 30, 2004.

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

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

Item 12. Transactions with Management and Other Related Parties

Fiscal Year 1999

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

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

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

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

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

                                       50

<PAGE>

month as additional rent for our share of common area maintenance and operating
expenses. The lease expires on September 30, 2002.

Fiscal Year 2001

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

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

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

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

Fiscal Year 2002

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

               .    Mr. Ruben resigned effective as of May 24, 2002 (the
                    "Termination Date") as CFO of the Company.

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

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

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

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

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

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

          Except as described above, we currently have no transactions nor are
there any proposed with our officers, directors, 5% or greater shareholders, and
affiliates. Conflicts of interest could arise in the negotiation of the terms of
any transaction between us and our shareholders, officers, directors or

                                       51

<PAGE>

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, 2002 and 2001                                              F-3

          Consolidated Statements of Operation
             For The Years Ended December 31, 2002 and 2001                                F-4

          Consolidated Statements of Changes in Stockholders' Equity for the years ended
             December 31, 2002 and 2001                                                    F-5

          Consolidated Statements of Cash Flows
             For The Years Ended December 31, 2002 and 2001                                F-6

          Notes To Consolidated Financial Statements
             December 31, 2002 and 2001                                                    F-7
</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*

                                       52

<PAGE>

               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").***

          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.*

                                       53

<PAGE>

               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. ****

               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.***

               10.10 TERMINATION AND SETTLEMENT AGREEMENT (hereinafter referred
                    to as the "Agreement"), entered into effective May 22, 2002
                    (the "Effective Date", by and between Compass Knowledge
                    Holdings, Inc. ("Compass") and Anthony Ruben
                    ("Ruben").******

               10.11 Employment Agreement executed on January 6, 2003 to be
                    effective as of January 6, 2003 (the "Commencement Date") by
                    and between Compass Knowledge Holdings, Inc., (the
                    "Company") and Richard M. Flaherty ("Employee").*****

               21.1 Subsidiaries of the Company*****

                                       54

<PAGE>

               99.1 Certification Pursuant to 18 U.S.C. (S) 1350, pursuant to
                    Section 906 of the Sarbanes-Oxley Act of 2002.*****

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

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

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

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

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

               ***** Enclosed with this filing.

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

          (b)  Reports on Form 8-K

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

ITEM 14. Controls and Procedures

(a) Evaluation of disclosure controls and procedures

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

(b) Changes in internal controls

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

                                       55

<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 31, 2003                 By: /s/ ROGERS W. KIRVEN, JR.
                                            ------------------------------------
                                            Chief Executive Officer and CFO

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 31, 2003
-------------------------


/s/ DR. PAUL LERMAN         Director   March 31, 2003
-------------------------


/s/ DR. ROBERT FRANK        Director   March 31, 2003
-------------------------


/s/ THOMAS J. CRANE         Director   March 31, 2003
-------------------------

                                       56

<PAGE>


                                  CERTIFICATION
                           PURSUANT TO SECTION 302 OF
                         THE SARBANES-OXLEY ACT OF 2002

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

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

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

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

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

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

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

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

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

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

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

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

          Date: March 31, 2003


          /s/ Rogers W. Kirven, Jr.
          ------------------------------------------
          Rogers W. Kirven, Jr., Chief Executive and
          Financial Officer

<PAGE>

COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2002 and 2001
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, 2002 and 2001                                             F-3

Consolidated Statements of Operation
For The Years Ended December 31, 2002 and 2001                               F-4

Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 2002 and 2001                               F-5

Consolidated Statements of Cash Flows
For The Years Ended December 31, 2002 and 2001                               F-6

Notes To Consolidated Financial Statements
December 31, 2002 and 2001                                                   F-7

                                      F-1

<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, 2002 and 2001, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Compass Knowledge Holdings,
Inc. and subsidiaries as of December 31, 2002 and 2001, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.

Parks, Tschopp, Whitcomb & Orr, PA
February 27, 2003
Maitland, Florida

                                      F-2

<PAGE>

                COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                                 (in Thousands)
                  AS OF DECEMBER 31, 2002 AND DECEMBER 31, 2001

<TABLE>
<CAPTION>
                                                                   December 31, 2002   December 31, 2001
                                                                   -----------------   -----------------
<S>                                                                     <C>                 <C>
                                     ASSETS
CURRENT ASSETS:
   Cash                                                                 $   451             $   482
   Accounts receivable, net of allowance for doubtful accounts
      of $6 & $0 at December 31, 2002 and December 31, 2001,
      respectively                                                          905                  80
   Note receivable                                                           --                  75
   Prepaid expenses                                                          72                 123
   Other assets, net                                                        729                 527
                                                                        -------             -------
      Total current assets                                                2,157               1,287

PROPERTY AND EQUIPMENT, net                                                 245                 239

GOODWILL, net                                                               847                 847

OTHER ASSETS, net                                                           562                 707

NET ASSETS OF DISCONTINUED OPERATIONS                                     1,570               3,465
                                                                        -------             -------
      Total assets                                                      $ 5,381               6,545
                                                                        =======             =======

                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
   Accounts payable and accrued expenses                                $   622             $   731
   Deferred student fees                                                  1,279                 689
   Note payable-current portion                                              75                  50
   Provision for Loss from Disposal of Discontinued Operations            1,682                  --
                                                                        -------             -------
      Total current liabilities                                           3,658               1,470
                                                                        -------             -------

                                                                        -------             -------
      Total liabilities                                                   3,658               1,470

STOCKHOLDERS' EQUITY:
   Preferred stock, 5,000,000 shares authorized,
      2,000 shares issued and outstanding                                 1,667               1,667
   Common stock, $0.001 par value; 50,000,000
      shares authorized, 15,861,250 and 15,861,250 shares issued
      and outstanding at December 31, 2002 and December 31, 2001
      respectively                                                           16                  16
   Additional paid-in-capital                                             6,020               5,986
   Unearned compensation                                                     --                  (0)
   Accumulated deficit                                                   (5,979)             (2,593)

                                                                        -------             -------
      Total stockholders' equity                                          1,723               5,076
                                                                        -------             -------
      Total liabilities and stockholders'equity                         $ 5,381             $ 6,545
                                                                        -------             -------
</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
               (in thousands, except share and per share amounts)
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>
                                                                     2002          2001
                                                                 -----------   -----------
<S>                                                              <C>           <C>
TOTAL STUDENT FEE REVENUE
      Net student fee revenue from degree programs               $     3,790   $     2,768
      Gross student fee revenue from non-degree programs                 686           712
      Gross revenue from subscriptions and consulting services           384           482
      Other revenue                                                        8            43
                                                                 -----------   -----------
         Total revenue                                                 4,868         4,005

INSTRUCTION COSTS AND SERVICES                                         1,126         1,200
                                                                 -----------   -----------
         Gross profit                                                  3,742         2,805
                                                                 -----------   -----------

OPERATING EXPENSES
      Selling and promotional                                            570           593
      General and administrative                                       2,713         2,942
                                                                 -----------   -----------
         Total operating expenses                                      3,283         3,535
                                                                 -----------   -----------
INCOME (LOSS) FROM OPERATIONS                                            459          (730)
                                                                 -----------   -----------

OTHER INCOME (EXPENSE)
      Interest income                                                     11            26
      Interest expense                                                    (5)          (13)
      Other Income                                                         5            --
                                                                 -----------   -----------
         Total other income                                               11            13
                                                                 -----------   -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
   BEFORE PREFERRED DIVIDENDS                                            470          (717)

DISCONTINUED OPERATIONS                                               (1,716)         (357)
                                                                 -----------   -----------
INCOME (LOSS) BEFORE PREFERRED DIVIDENDS AND
   CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                (1,246)       (1,074)

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                   (2,000)           --
                                                                 -----------   -----------
INCOME (LOSS) BEFORE PREFERRED DIVIDENDS                              (3,246)       (1,074)

LESS: PREFERRED STOCK DIVIDENDS                                         (140)         (140)
                                                                 -----------   -----------
NET (LOSS) INCOME AVAILABLE TO COMMON STOCKHOLDERS               $    (3,386)  $    (1,214)
                                                                 ===========   ===========
BASIC EARNINGS (LOSS) PER SHARE
      Income (Loss) from Continuing Operations                   $      0.03   $     (0.05)
      Loss from Discontinued Operations                          $     (0.11)  $     (0.03)
      Cumulative Effect of Change in Accounting Principle        $     (0.13)  $        --
                                                                 -----------   -----------
      Net Income (Loss) Per Share                                $     (0.21)  $     (0.08)
                                                                 ===========   ===========
      Basic Weighted Average Shares Outstanding                   15,861,250    15,466,009
                                                                 ===========   ===========
DILUTED EARNINGS (LOSS) PER SHARE
      Income (Loss) from Continuing Operations                   $      0.03   $     (0.05)
      Loss from Discontinued Operations                          $     (0.11)  $     (0.03)
      Cumulative Effect of Change in Accounting Principle        $     (0.13)  $        --
                                                                 -----------   -----------
      Net Income (Loss) Per Share                                $     (0.21)  $     (0.08)
                                                                 ===========   ===========
      Diluted Weighted Average Shares Outstanding                 15,861,250    15,466,009
                                                                 -----------   -----------
</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, 2002 AND 2001

<TABLE>
<CAPTION>
                                                                 # of
                                            # of               Preferred  Preferred
                                       Common Shares    Amount   Shares    Stock
                                       -------------   ------- --------- ----------
<S>                                      <C>          <C>        <C>     <C>
BALANCE, December 31, 2000               14,875,000   $14,875    2,000   $1,667,026
                                         ==========   =======    =====   ==========

Issuance of Common Stk in PPM             1,167,500     1,167       --           --

Repurchase of common stock                 (181,250)     (181)      --           --

Issuance of warrants                             --        --       --           --

Issurance of stock options                       --        --       --           --

Amortization of unearned compensation            --        --       --           --

Preferred Stock Dividend                          0         0        0            0

Net income                                       --        --       --           --

                                         ----------   -------    -----   ----------
BALANCE, December 31, 2001               15,861,250   $15,861    2,000   $1,667,026
                                         ==========   =======    =====   ==========

Issuance of Common Stk in PPM                    --        --       --           --

Non-Employee Warrants Issued                     --        --       --           --

Amortization of unearned compensation            --        --       --           --

Preferred Stock Dividend                         --        --       --           --

Net income                                       --        --       --           --

                                         ----------   -------    -----   ----------
BALANCE, December 31, 2002               15,861,250   $15,861    2,000   $1,667,026
                                         ----------   -------    -----   ----------

<CAPTION>
                                                       Unearned                        Stockholders'
                                           APIC      Compensation   Retained Deficit       Equity
                                        ----------   ------------   ----------------   -------------
<S>                                     <C>            <C>            <C>               <C>
BALANCE, December 31, 2000              $4,571,688     $(7,574)       $(1,379,088)      $ 4,866,927
                                        ==========     =======        ===========       ===========

Issuance of Common Stk in PPM            1,426,333          --                 --         1,427,500

Repurchase of common stock                 (90,444)         --                 --           (90,625)

Issuance of warrants                        49,689          --                 --            49,689

Issurance of stock options                  28,781          --                 --            28,781

Amortization of unearned compensation           --       7,247                 --             7,247

Preferred Stock Dividend                         0           0           (140,000)         (140,000)

Net income                                      --          --         (1,073,845)       (1,073,845)

                                        ----------     -------        -----------       -----------
BALANCE, December 31, 2001              $5,986,047     $  (327)       $(2,592,933)      $ 5,075,674
                                        ==========     =======        ===========       ===========

Issuance of Common Stk in PPM                   --          --                 --                --

Non-Employee Warrants Issued                33,473          --                 --            33,473

Amortization of unearned compensation           --         327                 --               327

Preferred Stock Dividend                        --          --           (140,000)         (140,000)

Net income                                      --          --         (3,246,275)       (3,246,275)

                                        ----------     -------        -----------       -----------
BALANCE, December 31, 2002              $6,019,520     $    (0)       $(5,979,208)      $ 1,723,199
                                        ----------     -------        -----------       -----------
</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
                                 (in Thousands)
                 FOR THE YEARS ENDED DECEMBER 31, 2002 and 2001

<TABLE>
<CAPTION>
                                                                         2002      2001
                                                                       -------   -------
<S>                                                                    <C>       <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net (loss) income                                                   $(3,246)  $(1,074)
   Adjustments to reconcile net (loss) income to net cash
      provided by (used for) operating activities-
         Depreciation and amortization                                   1,069     1,329
         Transitional goodwill impairment loss                           2,000        --
         Provision for loss from disposal of discontinued operations     1,674        --
         Write-off Content Development                                     114        --
         Write-off Direct Marketing                                         34        --
         Amortization of unearned compensation                               0         7
         Stock-based compensation                                           33        78

         Decrease (increase) in operating assets and liabilities-
            Accounts receivable                                           (849)      (46)
            Provision for losses on accounts receivable                      6        --
            Prepaid expenses                                                --       (50)
            Other current assets                                            60        26
            Other long-term assets                                          --         5
            Accounts payable and accrued expenses                         (109)      360
            Due to related parties                                          --        --
            Deferred revenue                                               590       222
                                                                       -------   -------
               Net cash provided by (used in) operating activities       1,376       857
                                                                       -------   -------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property and equipment                                    (139)     (129)
   Cash payments for content development costs                            (527)     (532)
   Cash payments for direct marketing costs                               (702)     (566)
   Acquisitions, net of cash/divestiture                                     2      (128)
                                                                       -------   -------
               Net cash provided by (used in) investing activities      (1,366)   (1,355)
                                                                       -------   -------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of common stock and warrants                      --       303
   Proceeds from issuance of note payable                                   75        50
   Proceeds from notes receivable                                           75       (75)
   Payment on notes payable                                                (50)       --
   Payment of preferred dividend                                          (140)     (140)

                                                                       -------   -------
               Net cash provided by (used in) financing activities         (40)      138
                                                                       -------   -------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                       (30)     (360)

CASH AND CASH EQUIVALENTS, beginning of period                             481       841
                                                                       -------   -------
CASH AND CASH EQUIVALENTS, end of period                               $   451   $   481
                                                                       =======   =======

Supplemental disclosure of cash flow information:
   Cash paid during the year for:
      Interest                                                         $     5   $    13
                                                                       -------   -------
</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)

                                       F-7

<PAGE>

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).

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

                                       F-8

<PAGE>

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 August 14, 2000) was
placed into an escrow account for distribution to the Jamita stockholders
subject to Jamita having net collections of approximately $1 million in the
first year following the closing. This condition was satisfied and the escrowed
shares were released in August 2001. Additionally, we made a payment to the
Jamita shareholders in 2001 based on the attainment of sales to new customers
and expect to make another payment in 2002. CKHI may also make additional
payments if certain net collection goals are achieved in the fiscal period
August 1, 2001 through July 31, 2002.

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

                                              2000
                                           -----------
Revenue                                    $ 4,190,856
                                           ===========
(Loss) income before extraordinary items   $(1,178,119)
                                           ===========
Net (loss) income                          $(1,178,119)
                                           ===========

Weighted average shares outstanding:
   Basic                                    14,802,055
                                           ===========
   Diluted                                  15,787,684
                                           ===========

Earnings per share:
   Basic                                   $    (0.080)
                                           ===========
   Diluted                                 $    (0.080)
                                           ===========

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

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

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

                                       F-9

<PAGE>

a net loss of $356,908 in 2001 and $165,796 in 2002.

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

As a result of the sale of eLNet, the Company recognized an additional loss on
the disposal of discontinued operations of approximately $1,550,000 as of
December 31, 2002.

2.   SUMMARY OF CRITICAL ACCOUNTING POLICIES

Principles of Consolidation

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

Use of Estimates

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

Cash and Cash Equivalents

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

Fair Value of Financial Instruments

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

Property and Equipment

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

                                      F-10

<PAGE>

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 $2,644,096 and $4,134,854, net of accumulated amortization of
$510,844 and $510,844 at December 31, 2002 and 2001, respectively, is included
in the accompanying consolidated balance sheets. Amortization expense was $0 and
$339,072 for the years ended December 31, 2002 and 2001, respectively.

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

Other Assets

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

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

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

Long-lived Assets

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

                                      F-11

<PAGE>

Revenue Recognition

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

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

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

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

The 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 2002 and 2001 were as
follows:

                                     2002         2001
                                  ----------   ----------
Net student fee revenue
   from degree programs           $3,789,763   $2,767,641
Gross student fee revenue from
   non-degree programs               686,065      711,746
Gross revenue from subscription
   and consulting services           383,700      482,575
Other revenue                          8,773       43,195
                                  ----------   ----------
      Total revenue               $4,868,211   $4,005,158
                                  ==========   ==========

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

                                      F-12

<PAGE>

over the option exercise price. The amount is charged to operations over the
vesting period. See Note 9 for the pro forma disclosures required by Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123).

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

Income Taxes

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

Earnings Per Common Share

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

3.   RELATED-PARTY TRANSACTIONS

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

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

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

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

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

                                      F-13

<PAGE>

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

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

..    Mr. Ruben resigned effective as of May 24, 2002 (the "Termination Date") as
     CFO of the Company.

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

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

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

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

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

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

See Note 10 for additional related-party transactions.

4.   PROPERTY AND EQUIPMENT

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

                                    2002        2001
                                 ---------   ---------

Computer equipment               $ 562,169   $ 421,577
Office furniture                    77,318      79,137
                                 ---------   ---------
                                   639,487     500,174
Less- Accumulated depreciation    (376,582)   (229,207)
                                 ---------   ---------
                                 $ 262,905   $ 271,507
                                 =========   =========

5.   INCOME TAXES

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

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

                                      F-14

<PAGE>

                                                   2002         2001
                                               -----------   ---------

Current deferred tax assets (liabilities);
   Accrued professional fees                   $    18,500   $  39,100
   Other                                                --       8,490
                                               -----------   ---------
      Net current deferred tax assets               18,500      47,590
Long-term deferred tax assets (liabilities):
   Net operating loss (NOL) carryforward         1,334,000     914,700
   Depreciation and amortization                   (16,600)    (14,900)
                                               -----------   ---------
      Net long-term deferred tax assets          1,317,400     889,800
                                               -----------   ---------
      Total deferred tax assets                  1,335,900     947,390
Less- Valuation allowance                       (1,335,900)   (947,390)
                                               -----------   ---------
                                               $        --   $      --
                                               ===========   =========

Deferred income taxes reflect the net tax effects of temporary differences
between carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Due to the uncertainty of the Company's ability to realize the benefit
of the deferred tax assets, a valuation allowance has been established. The net
change in the valuation allowance for deferred tax assets at December 31, 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:

                                                           2002        2001
                                                        ---------   ---------

U.S. statutory federal income tax benefit (provision)   $ 423,600   $ 365,100
State income tax benefit (provision), net of federal
   tax benefit (provision)                                 45,000      39,000
Costs incurred but not deductible for tax purposes          9,600      32,400
   Total benefit for income taxes                         478,200     436,500
Less- Change in valuation allowance                      (478,200)   (436,500)
                                                        ---------   ---------
                                                        $      --   $      --
                                                        =========   =========

6.   COMMITMENTS AND CONTINGENCIES

Leases

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

                                      F-15

<PAGE>

Year Ending December 31,    Amount
------------------------   --------

          2003             $113,054
          2004               66,440
          2005                4,447
                           --------
                           $183,941
                           ========

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

7    CONVERTIBLE PREFERRED STOCK

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

8    EARNINGS PER SHARE

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

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

                                     2002          2001
                                 -----------   -----------

Net (loss) income available to
   common stockholders           $(3,386,000)  $(1,213,845)
                                 ===========   ===========

Weighted average shares
   outstanding                    15,861,250    15,466,009

Effect of stock option plan               --        57,854
                                 -----------   -----------
Diluted weighted average
   shares outstanding             15,861,250    15,523,863
                                 ===========   ===========

                                      F-16

<PAGE>

                                    2002           2001
                                   ------        -------

Basic earnings per share           $(0.21)       $(0.078)
                                   ======        =======

Diluted earnings per share         $(0.21)       $(0.078)
                                   ======        =======

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.

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

                                           2002          2001
                                        -----------   -----------

Net (loss) income:        As reported   $(3,386,000)  $(1,213,845)
                          Pro forma     $(3,472,000)  $(1,450,101)
diluted earnings (loss)
   per common share:      As reported   $     (0.21)  $    (0.078)
                          Pro forma     $     (0.22)  $    (0.094)


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

                            2002       2001
                          -------   ---------

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

                                      F-17

<PAGE>

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

                                                         Weighted
                                                          Average
              2002 Plan                     Shares    Exercise Price
---------------------------------------   ---------   --------------

Outstanding as of December 31, 2001             --           --
   Granted                                 374,000        $0.25
   Exercised                                    --           --
   Forfeited                               125,000        $0.25
                                           -------        -----
Outstanding as of December 31, 2002        249,000        $0.25
                                           =======        =====
Options exercisable at year end            219,167        $0.25
                                           =======        =====

                                                         Weighted
                                                          Average
              2000 Plan                     Shares    Exercise Price
---------------------------------------   ---------   --------------

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
                                          =========       =====
   Granted                                  300,000       $0.24
   Exercised                                     --          --
   Forfeited                                540,000       $2.00
                                          ---------       -----
Outstanding as of December 31, 2002         745,000       $0.26
                                          =========       =====
Options exercisable at year end             745,000       $0.26
                                          =========       =====

Weighted  average fair value of options
   granted during the year at market        300,000       $0.24
                                          =========       =====

                                                         Weighted
                                                          Average
              1999 Plan                     Shares    Exercise Price
---------------------------------------   ---------   --------------

Outstanding as of December 31, 1998              --          --
   Granted                                1,500,000       $0.94
   Exercised                                     --          --
   Forfeited                                     --          --
                                          ---------       -----
Outstanding as of December 31, 1999       1,500,000       $0.94
   Granted                                   90,000        1.50
   Exercised                                     --          --

                                      F-18

<PAGE>

   Forfeited                                 90,000        3.02
                                          ---------       -----
Outstanding as of December 31, 2000       1,500,000       $0.86
                                          =========       =====
   Granted                                  235,000       $0.38
   Exercised                                     --          --
   Forfeited                                318,600        0.83
                                          ---------       -----
Outstanding as of December 31, 2001       1,416,400       $0.78
   Granted                                   45,000       $0.25
   Exercised                                     --          --
   Forfeited                                150,000        0.78
                                          ---------       -----
Outstanding as of December 31, 2002       1,311,400       $0.76
                                          =========       =====
Options exercisable at year end           1,262,608        0.76
                                          =========       =====

Weighted  average fair value of options
   granted during the year at market         45,000       $0.24
                                          =========       =====

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

<TABLE>
<CAPTION>
                        Options Outstanding                       Options Exercisable
           ---------------------------------------------   --------------------------------
               Number       Weighted Average    Weighted      Number
           Outstanding at      Remaining         Average   Exercisable at      Weighted
Exercise    December 31,    Contractual Lives   Exercise    December 31,        Average
 Prices         2002             (years)          Price         2002         Exercise Price
--------   --------------   -----------------   --------   --------------   ---------------
<S>           <C>                 <C>             <C>         <C>                <C>
$ .24           300,000           4.50                          300,000
$  25           294,000           4.50                          230,834
$ .35            16,000           3.13                           12,666
$.375           600,000           3.00                          593,500
$ .45            34,000           1.17                           34,000
$ .55            25,000           1.24                           25,000
$ .75           911,400           1.11                          911,400
$1.00           100,000           2.95                           94,375
$2.00            15,000           2.91                           15,000
$4.00            10,000           1.11                           10,000
              ---------           ----            -----       ---------          -----
              2,305,400           3.09            $0.55       2,226,775          $0.55
              =========           ====            =====       =========          =====
</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, 2002 and 2001, compensation expense related to
stock options issued to non-employees of $0 and $46,717, respectively, was
recognized in the accompanying consolidated statements of operations. The
remaining unamortized unearned compensation at December 31, 2002 and 2001, was
$0 and $327, respectively.

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

                                      F-19

<PAGE>

10   SUBSEQUENT EVENTS (UNAUDITED)

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

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

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

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

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

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

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

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

     .    provisions for a term life insurance;

     .    $650.00 monthly non-accountable expense reimbursement;

     .    discretionary bonuses; and

     .    standard Benefits.

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

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

                                      F-20

<PAGE>

expenses. Each of the parties was responsible for their legal, accounting and
other expenses incurred in connection with the transaction.

As a result of the sale of eLNet, the Company recognized an additional loss on
the disposal of discontinued operations of approximately $1,550,000 as of
December 31, 2002.

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

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

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

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

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

(thousands of dollars)                                          2002      2001
                                                               -------   ------
Net current assets                                              $   37   $   72
Property, plant and equipment - net                                 18       33
Other net noncurrent assets                                      1,514    3,360
Net assets of discontinued operations                           $1,570   $3,465
                                                                ------   ------

Discontinued operations - net of tax were as follows:
(thousands of dollars)                                           2002     2001
                                                               -------   ------
Net Sales                                                      $ 1,059   $1,359
                                                               -------   ------
Pre-tax income/(loss)                                          $  (166)  $ (357)
Provision for taxes on income                                       --       --
Loss from operations of discontinued
   Businesses-net of tax                                          (166)    (357)
Pre-tax gain/(loss) on disposal of
   discontinued businesses                                      (1,550)      --
Provision/(benefit) for taxes on gain/(loss)                        --       --
Gain/(loss) on disposal of discontinued
   Businesses-net of tax                                        (1,550)      --
Discontinued operations - net of tax                           $(1,716)  $ (357)

                                      F-21