LEARN2 CORP - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-K

(MARK ONE)

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
OR

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 0-27417

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LEARN2 CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE 76-0518568
(State of incorporation) (I.R.S. Employer Identification
No.)

111 HIGH RIDGE ROAD 06905
STAMFORD, CONNECTICUT (Zip Code)
(Address of principal executive offices)

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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 975-9602

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $0.001 PER SHARE
(TITLE OF CLASS)

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

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

As of March 20, 2002, there were approximately 75,576,764 shares of the
registrant's common stock outstanding. The aggregate market value of the common
stock held by non-affiliates of the registrant (based on the closing price of
the common stock on The Nasdaq National Market) on March 20, 2002 was
approximately $10,406,308 or $0.14 per share (calculated by excluding shares
actually owned by our current directors and officers).

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LEARN2 CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2001

TABLE OF CONTENTS

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PART I

ITEM 1. BUSINESS

HISTORY

On September 25, 2001, we acquired all of the outstanding stock of
Learn2.com, Inc., a publicly traded company, changed the name of our company
from E-Stamp Corporation to Learn2 Corporation and assumed the on-going business
of Learn2.com. Learn2.com's offerings included engaging online and physical
learning and training products and complementary services, commonly referred to
as e-learning services, marketed to corporate, government and individual clients
and customers and provided e-mail marketing services. Under the terms of the
merger agreement, we issued approximately 37.8 million shares of our common
stock. Each share of Learn2.com common stock outstanding immediately prior to
the completion of the merger automatically converted into the right to receive
0.4747 shares of our common stock resulting in our stockholders immediately
prior to the consummation of the merger owning approximately 50.1% of the
outstanding stock of the combined company. The former stockholders of Learn2.com
including Learn2.com's $10.0 million convertible debenture holder, received
approximately 49.9% of the combined company. The total value of the transaction
was approximately $19.2 million including approximately $6.6 million of assumed
liabilities, transaction costs totaling approximately $5.2 million and a
pre-closing payment of $1.0 million to Learn2.com's $10.0 million convertible
debenture holder. The transaction was accounted for using the purchase method of
accounting. The results of Learn2.com for the period from September 25, 2001
through December 31, 2001 are included in the consolidated statement of
operations for the year ended December 31, 2001.

E-Stamp Corporation, founded in 1994, originally provided an Internet
postage service that enabled users to purchase, download and print Internet
postage directly from their personal computers without the need to maintain a
persistent Internet connection. In May 2000, we acquired two companies, Infinity
Logistics and Automated Logistics for a total purchase price of $9.0 million.
These companies offered transportation management and warehouse management
products and services that allowed enterprise customers to review carrier rates
and shipping options, select a carrier, print shipping labels, track shipments
and create shipping reports.

During 2000, we undertook two corporate restructurings. In July 2000, we
restructured the organization to accelerate the development, marketing and sales
of our transportation management products and services in addition to our
Internet postage business. In November 2000, we restructured the organization to
phase out our Internet postage business. We incurred charges of approximately
$20.3 million related to these restructurings.

On April 19, 2001, in connection with our then planned merger with
Learn2.com, we discontinued our remaining transportation management business.

On November 8, 2001, in connection with the merger, we undertook a corporate
restructuring to outsource the packaging and shipping of our retail products to
an outside fulfillment house and eliminate redundant functions. We incurred
charges of approximately $89,000 related to these restructurings.

On March 4, 2002, we announced that we will phase out our remaining
production and distribution operations in Pryor, Oklahoma and consolidate our
e-learning business in Golden, Colorado, which is the current home of our
courseware and authoring tool development activities. We eliminated
approximately sixty positions, primarily in the Oklahoma facility and certain
field sales operations. Severance and related expenses attributable to the
elimination of these positions will be approximately $300,000 and will be
recorded in the quarter ending March 31, 2002. When fully implemented, we expect
that these steps will result in a reduction of operating expenses of
approximately $5.5 million on

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an annualized basis. As a result of this decision, we reduced the value of our
intangible assets through an impairment charge as of December 31, 2001 by
approximately $330,000.

From September 25, 2001 until February 28, 2002, we operated in two
segments: "e-learning" and "permission email marketing". As part of our
restructuring announced on March 4, 2002, effective March 1, 2002, we split our
e-learning segment into "corporate and government" and "retail".

E-LEARNING OVERVIEW

We develop and market open-standards multimedia courseware in four broad
categories: computer software applications for end-users: professional
Information Technology or IT software, business skills and compliance. In
addition, we develop and market tools for the creation of open-standards
multimedia courseware. We market our products to corporate, government and
individual clients and customers. Our corporate and government customers have
access to reporting and administration features when they purchase our hosted
Learn2University service. Our courseware is available to individual consumers
online and on CD-ROM and can be purchased from our Website and major retailers
nationwide. Our goal in this segment is to be business and governments'
preferred partner offering interactive open-standards multimedia courseware and
courseware creation tools.

PERMISSION E-MAIL MARKETING OVERVIEW

Through our subsidiary, Etracks.com, Inc., we provide permission e-mail
marketing and tracking software and services to customers that have "opt-in"
e-mail customer lists. Our goal in this segment is to be the leading provider of
full service and hosted, permission e-mail marketing campaigns.

MARKETPLACE

MARKETPLACE FOR E-LEARNING

Analysts are tracking closely the shift from classroom to technology-based
training, and are forecasting an acceleration of online adoption. According to
International Data Corporation or IDC, in the corporate training market
specifically, technology-based training is the highest growth segment, expecting
to grow from $3.8 billion in 1999 to $16 billion in 2003. IDC expects
non-IT-training to more than double each year and reach $5.3 billion by 2003;
and IDC expects Web-based training content revenues will surpass technology and
services revenues and reach $6.2 billion by 2003. They expect worldwide revenues
of corporate e-learning to exceed $23 billion by 2004.

According to iBiz Stats, businesses are making the transition to e-learning
not only for the cost savings but also for the round-the-clock availability and
flexibility it offers workers. A recent survey reports that 70% of Fortune 1000
companies stated that CEOs feel that finding and retaining qualified workers is
a major issue for growth. Furthermore, corporations are now measuring the
results of their training investment; for example, Motorola calculates that
every $1 it spends on corporate learning translates into $30 in productivity
gains within three years.

MARKETPLACE FOR PERMISSION E-MAIL

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

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According to e-Marketer 2001, total e-mail marketing spending in the U.S. in
2000 was just over $1 billion, including $496 million spent on e-mail ads.
e-Marketer expects by year-end 2003, U.S. businesses (and other organizations)
will spend almost $4.6 billion, including $2.2 billion on e-mail advertising
expenditures. The Winterberry Group expects mergers and acquisitions among
e-mail marketers and the development of customer relationship management or CRM,
services will spur 41 percent annual growth in the e-mail marketing industry to
$3.5 billion by 2005, up from $910 million in 2001. Winterberry noted that this
growth is being driven by direct marketers' increasing acceptance of e-mail as a
viable marketing channel. Permission-based commercial e-mail accounts for about
10 percent of the 300 billion messages sent today. By 2005, it is expected to
account for about 25 percent of 600 billion messages.

COMPETITIVE STRENGTHS

E-LEARNING

We believe we can help our customers more effectively educate and inform
their employees and customers because of our four key strengths: ownership of
courseware, technology, industry experience and consumer distribution network.

- - Courseware

- We own substantially all of the courseware relating to software
applications for end-users that we market. To date, this category of
courseware has accounted for more than 75% of our courseware licensing
revenue. Our courseware covers a wide range of topics in an engaging and
interactive manner. Developing and owning courseware provides us with a
strategic advantage by:

- Allowing for increased gross profit.

- Providing consistent appearance and quality.

- Limiting reliance on third-party content providers.

- Allowing us to market products for resale under our brand.

- We market open-standards courseware in four broad categories: Computer
software applications for end-users, professional IT software, business
skills and compliance. Our courseware development follows our
instructional design methodology that includes clear objectives, frequent
and appropriate interactivity, pre- and post-assessments, and appropriate
use of multimedia. We develop our courseware in conjunction with or
license it from leading subject matter experts.

- Our courseware complies with industry standards such as the Aviation
Industry Computer-Based Training Committee standard, commonly referred to
as AICC. We expect to comply with other standards such as the Shareable
Content Object Reference Model, commonly referred to as SCORM and
Section 508 of the Amended Rehabilitation Act of 1998. Courseware
developed to these standards will "plug and play" with other vendors'
learning management systems or LMS's.

- - Technology

- StreamMaker-TM-, our rapid development authoring tool utilizes patented
technologies to produce fully-synchronized, interactive, CD-ROM quality
multimedia streams that can be delivered through computer network
connections, including 28.8 modem connections, without download delays.

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- StreamMaker produces multimedia streams that can be viewed using both
Microsoft Windows and Macintosh operating systems. The following benefits
of StreamMaker provide us with a competitive strategic advantage:

- A proprietary method for graphics compression, enabling our screen
captures to appear clearly and realistically.

- A patented technology that ensures that the elements of a multimedia
production including audio, graphics, animation, video and text are
synchronized.

- The ability to develop interactive streams, which allow users to
assess their understanding of a concept during the learning
experience.

- A design that facilitates integration with other technologies.

- A platform that enables multiple courseware developers to collaborate
on the same project simultaneously.

- - Industry experience--Through our acquisition of Learn2.com, we acquired a
business whose experience as a pioneer in the development of e-learning
content and tools dates back to the early 1990's.

- - Learn2 Consumer Distribution Network--Our consumer products are available
from retailers, catalogs, on the Internet, and through resellers and
distributors. This multi-channel approach to product distribution creates a
broad market for our products, giving us a competitive advantage.

- Retailers--Our CD-ROM and videotape tutorials are available from
Staples, CompUSA, Office Depot, Best Buy, Frys and other major
merchants.

- Catalogs--Our CD-ROM and videotape tutorials are available in major
catalogs such as the Tiger Direct catalog.

- Internet--We market our CD-ROM, videotape and online tutorials at
www.Learn2.com, to America Online and other Websites.

PERMISSION E-MAIL MARKETING

As one of the first permission e-mail marketing and tracking companies, we
have managed thousands of permission e-mail campaigns. We are able to send over
30 million unique e-mail messages per day and expect to more than double
capacity this year. Our proprietary technology allows for extensive data mining,
broadcasting, tracking, and real-time reporting. We own substantially all of our
mail transfer agent and APTracking -TM-, or APT technologies. APT utilizes
noninvasive technology, provides tracking and logging information and analysis
that can cross application and server boundaries without requiring our clients
to modify their HTML code or place cookies on a user's hard drive.

PRODUCTS AND SERVICES

E-LEARNING

PRODUCTS AND SERVICES FOR CORPORATIONS AND GOVERNMENT AGENCIES

Learn2University-TM---Learn2University or L2U is an interactive,
asynchronous LMS that we provide to our customers as an Application Service
Provider or ASP. L2U includes courseware, administration, tracking, reporting
and e-commerce capabilities. We believe that our combination of content software
and services is more cost effective, and easier to implement than that which our
customers and prospective customers can deliver using their internal resources.
L2U can be personalized for corporate and government customers by incorporating
their logo and branding into the Web pages of their individual L2U.

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Our customers pay us based on the specific courseware, number of courses and
number of users. L2U enables users to practice and test skills as they learn,
utilizing simulation technologies that allow them to practice many of the
concepts introduced. Upon completion of each course, users can print a
completion certificate indicating that they have successfully met all the
requirements of the course. We also license our courseware to corporate and
government customers that have their own LMS. L2U and courseware have been
licensed to companies and organizations including U.S. Department of Labor, U.S.
Department of Veterans Affairs, U.S. Department of Justice, Microsoft--Great
Plains, Sanofi-Synthelabo and Anheuser-Busch.

We have organized our courseware into libraries of courses that cover the
following categories: computer software applications for end-users, professional
IT software and business skills. The Libraries are:

- Office Plus Library--Approximately 175 courses in Microsoft Windows
operating systems, end-user applications, communication, customer
management, database applications, finance, graphic design,
presentations, project management, spreadsheets, word processing and Web
design and development.

- Professional Development Library--Approximately 79 courses in business
skills courses including courses in customer service, general business
practices, human resources, management, leadership, sales, marketing, and
team building.

- Technology Plus Library--Approximately 263 courses for certification
preparation in Cisco's CCNA 2.0, Microsoft's MCSE 2000, Novell's CNE 4,
Oracle's 8i DBA and PL/SQL, and Sun's Java Programming. In addition,
there are courses in Linux, C, Visual C++, HTML 4, DHTML, Java,
JavaScript, and Visual Basic.

StreamMaker--StreamMaker, our rapid development authoring tool utilizes
patented technologies to produce fully-synchronized, interactive, CD-ROM quality
multimedia streams that can be delivered through computer network connections,
including 28.8 modem connections, without download delays. StreamMaker produces
multimedia streams that can be viewed using both Microsoft Windows and Macintosh
operating systems.

PRODUCTS AND SERVICES FOR CONSUMERS

Tutorials--Through our Website, retailers and catalogs, we market our
interactive multimedia courseware to consumers such as students, and
work-at-home professionals. Our courseware is packaged for individuals as single
titles and in suites or libraries of related content. Customers can purchase
these courses on physical digital media (CD-ROMs or videotapes); or they can
access the tutorials from our Website for a specified period of time.

PERMISSION E-MAIL MARKETING

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

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

- Tracking services--We offer APT services to customers who use our
broadcast e-mail services, and as a standalone service. We charge for
this service on a CPM basis.

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BUSINESS STRATEGY AND STRATEGIC DIRECTION

E-LEARNING

Our goal in this segment is to be business and governments' preferred
partner offering interactive open-standards multimedia courseware and courseware
creation tools. To achieve this goal, we expect to expand our content offerings,
improve and expand our technologies, and expand our consumer distribution.

EXPAND CONTENT OFFERINGS

- We intend to introduce new courseware by pursuing relationships with
subject matter experts and content providers to develop courseware
directed toward new markets. For example:

- We have recently entered into agreements with Carl Larson who is a
noted author and lecturer on a wide variety of management issues
including negotiation. Mr. Larson will provide subject matter
expertise in a course about negotiations.

- We have recently entered an agreement with McLure and Moynihan, Inc.
MMI's principals are healthcare compliance experts in electronic
commerce healthcare standards training, including the regulatory
requirements of the Health Insurance Portability and Accountability
Act of 1996, or HIPAA. Health plans and healthcare providers are
required to comply with HIPAA regulations which deal with claims
processing, privacy and security under government-mandated deadlines.

- We expect to enable our courseware to comply with evolving industry
standards such as the Shareable Content Object Reference Model, commonly
referred to as SCORM and Section 508 of the Rehabilitation Act as amended
in 1998. Courseware developed to these standards will "plug and play"
with other vendors' learning management systems or LMS's.

ENHANCE TECHNOLOGIES

- We expect to continue to invest in our technologies.

- We intend to enhance the capabilities of StreamMaker to enable it to
produce courseware in additional formats such as Flash and HTML.

- We intend to build tools to enable subject matter experts to more easily
develop their own courseware.

PERMISSION E-MAIL MARKETING

Our goal in this segment is to be the preferred provider of full service and
hosted, large-scale e-mail marketing campaigns. To achieve this goal we intend
to expand our technologies, expand our service offerings and expand our
distribution.

- Expand Technologies

- We intend to develop software that will enable our customers to manage
their e-mail campaigns on our servers. We believe this will create
new opportunities for attracting customers that do not need or
require full service e-mail broadcast campaigns.

- We intend to develop a complementary data management system that will
integrate with CRM and predictive modeling applications.

- We intend to develop a content management module to enable our clients
to self-manage their brand and creative assets.

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- Expand Service Offerings

- We intend to offer consulting services to assist our clients in their
implementation and deployment of our services within their
organization.

- We intend to resell campaign analysis services provided by third
parties.

- Expand Distribution

- We intend to develop business relationships with advertising agencies,
marketing agencies and e-mail list brokers that will represent and
resell our services.

- We expect to continue to expand our direct sales team

SUPPLIERS

We currently have relationships with several content providers and subject
matter experts. We are not reliant upon any single outside content provider. We
may increase the number of content providers in the future to broaden the scope
of our subject matter.

CUSTOMERS

The following customer individually accounted for more than 10% of our
$4.4 million in revenue in 2001: Traffix--Bulk email broadcast services
$1.0 million or 23.9% of revenue.

This customer was acquired as part of the acquisition of Learn2.com on
September 25, 2001. On a pro forma basis, assuming we had acquired Learn2.com on
January 1, 2001, this customer would have accounted for 12% of our pro forma
revenue.

The following is a list of certain of our customers and a brief description
of the products and services that we provide to that customer:

- America Online--We sell CD-ROM courseware to AOL that it resells to
its members. Also, AOL has licensed L2U for use by certain of its
employees.

- Canon USA--We use StreamMaker authoring tool to create streams of
Canon's proprietary tutorials, which it uses to train its employees.
We host the streams in the L2U infrastructure.

- Microsoft--Great Plains--We licensed StreamMaker to Microsoft--Great
Plains to enable it to produce its own courseware relating to the use
of its accounting software, which it licenses to its customers. We
host the courseware in the L2U infrastructure. Also, Microsoft--Great
Plains has licensed L2U for use by certain of its employees.

- Staples--We sell CD-ROM courseware to Staples that it resells to its
customers.

- Office Depot--We sell CD-ROM courseware to Office Depot that it
resells to its customers.

- U.S. Department of Labor--Through one of our resellers, the U.S.
Department of Labor has licensed L2U for use by certain employees.

COMPETITION

E-LEARNING

We provide e-learning products and services to corporate and government
markets as well as to consumers. The e-learning market is evolving. The market
is fragmented and competitive, with no dominant players. Our competitors vary in
size and in the scope and breadth of the products and

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services they offer. Many of our competitors have greater financial resources
than we have. We believe that new competitors will enter the market, increasing
the level of competition. We believe that the principal competitive factors in
our market include:

- Breadth, depth and quality of content.

- Technology

- Services

- Distribution

- Reputation, financial strength and brand recognition

- Our competition comes from a variety of sources, including:

- "Instructor-led" training companies including IBM, New Horizons and
Productivity Point International.

- Corporate training departments.

- Other e-learning companies including Click2Learn, Digital Think,
Element K, SmartForce, and SkillSoft.

- Vendors offering computer-based and videotape tutorials including
NETg, Microsoft Press, Keystone Learning Systems and Video Professor.

- Publishers including Thomson Learning, John Wiley & Sons, McGraw Hill
and Pearson.

MULTIMEDIA STREAMING AND AGENT TECHNOLOGIES

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

PERMISSION E-MAIL MARKETING SERVICES

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

INTELLECTUAL PROPERTY AND LICENSES

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

We generally require the execution of a license agreement that restricts
copying and use of our products. In addition, we have agreements with resellers
and customers that require the other party to pay us royalties based on sales or
use of our products. We may not be compensated properly if those sales or uses
are not reported to us. If unauthorized copying or misuse of our products were
to occur to any substantial degree, then our business could be affected
materially and adversely. It may be possible for a third-party to copy or
otherwise obtain and use our courseware or technologies without authorization,
or to develop similar courseware or technologies independently.

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We use employee and third-party confidentiality and non-disclosure
agreements to protect our trade secrets and unpatented know-how. We require our
employees to assign to us all rights in any proprietary information or
technology made or contributed by the employee during his or her employment with
us. In addition, we regularly enter into non-disclosure agreements with third
parties including consultants, potential strategic partners and customers.
Unfortunately, these agreements cannot guarantee the confidentiality of our
trade secrets or unpatented know-how, nor can they prevent third parties from
independently developing substantially equivalent proprietary information or
copying, developing, or otherwise obtaining and using our proprietary
information without authorization. We may resort to litigation to enforce our
intellectual property rights, determine the validity and scope of the
proprietary rights of others, or defend against claims of infringement or
invalidity by others. While we are not currently engaged in any intellectual
property litigation or proceedings, we may be in the future. An adverse outcome
in a litigation or similar proceeding could subject Learn2 to significant
liabilities to third parties, require disputed rights to be licensed from
others, or require us to cease marketing or using certain products or services.
The cost of addressing any intellectual property litigation, both in legal fees
and the diversion of management resources, regardless of whether the claim is
valid, could be significant.

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

EMPLOYEES

As of March 20, 2002, we had a total of eighty-five full-time employees, of
whom twenty-seven were engaged in research and product development, thirty-nine
in sales and marketing and nineteen in general and administrative functions.
Substantially all of the employees work in our offices in Belmont, California,
Golden, Colorado or Stamford, Connecticut. None of our employees are subject to
a collective bargaining agreement and we have not experienced any work
stoppages. We believe that our relationship with our employees is good. However,
our recent workforce reductions and poor financial performance will place
additional strain on our people and may harm the morale and performance of our
employees and our ability to hire new ones.

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RISK FACTORS

AN INVESTMENT IN OUR COMMON STOCK IS VERY RISKY. YOU SHOULD CONSIDER
CAREFULLY THE RISKS DESCRIBED BELOW TOGETHER WITH ALL OF THE OTHER INFORMATION
IN OUR 10-K AND OTHER SEC FILINGS. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR,
OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS COULD BE AFFECTED
MATERIALLY AND ADVERSELY; THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE,
AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.

WE HAVE A HISTORY OF LOSSES AND AN ACCUMULATED DEFICIT; WE MAY CONTINUE TO
EXPERIENCE LOSSES.

For the year ended December 31, 2000, we incurred a net loss of
$112.8 million and for the year ended December 31, 2001, we incurred a net loss
of $22.4 million. At December 31, 2001, we had an accumulated deficit of
approximately $211 million. We expect to continue to incur losses for the
foreseeable future. These losses will be substantial, and we may never become
profitable.

OUR AUDITORS HAVE EXPRESSED SUBSTANTIAL DOUBT AS TO OUR ABILITY TO CONTINUE AS A
GOING CONCERN AND WE MAY NEED TO RAISE ADDITIONAL CAPITAL

Our auditors have expressed substantial doubt as to our ability to continue
as a going concern. However, our audited financial statements for the year ended
December 31, 2001 and 2000 have been prepared on a going concern basis, which
contemplates the realization of assets and settlement of liabilities in the
normal course of business. Management believes that if we meet our revenue and
cash collection targets on a timely basis, we will have sufficient resources for
our operating requirements and sufficient resources to realize our business plan
at least for the next twelve months.

However, our ability to achieve our projected revenue and positive cash flow
depends upon a variety of factors, including the timely introduction and market
success of our products, the costs of developing, producing and marketing these
products, adoption of the Internet as a medium of commerce and delivery of
services, general economic conditions and various other factors, some of which
may be beyond our control. Many of our costs are fixed and are based on
anticipated revenue levels. We may be unable to adjust spending quickly enough
to offset any unexpected revenue shortfall. If we have a shortfall in cash
collections or in revenues in relation to expenses, or if our expenses continue
to exceed revenues, then our results of operations and financial condition would
be affected adversely and we would need to raise additional funds. If we need to
raise additional funds we cannot be certain that we will be successful nor can
we predict the terms under which such funds would be available if at all. If
additional funds are not available through debt or equity financings, we may not
be able to meet our on-going expenses unless we change our business plan, sell
assets, curtail expenditures, and/or employ other strategies as are required in
these circumstances. We believe that for us to raise additional funds without
selling assets will be very difficult.

GENERAL ECONOMIC CONDITION DOWNTURNS HAVE HARMED OUR ABILITY TO GENERATE
REVENUE.

The September 11, 2001 terrorist attacks and the United States' military
response may cause continued general economic weakness and, accordingly, further
reductions in sales. Additional terrorists acts against the United States, and
the Unites States response to such acts, may also exacerbate general slowdown in
the U.S. economy, which could cause our revenues to decrease or fail to grow.

OUR RECENT WORKFORCE REDUCTIONS AND POOR FINANCIAL PERFORMANCE WILL PLACE
ADDITIONAL STRAIN ON OUR RESOURCES AND MAY HARM THE MORALE AND PERFORMANCE OF
OUR EMPLOYEES AND OUR ABILITY TO HIRE NEW ONES.

In connection with our effort to streamline our operations, reduce costs and
bring our staffing and structure in line with our expected revenue base, in
November 2002 and March 2002, we restructured our organization and reduced our
workforce by more than 75 employees. There have been and may

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continue to be substantial costs associated with the workforce reduction related
to severance and other employee-related costs, as well as material charges for
reduction of excess facilities, and our restructuring plan may yield
unanticipated consequences, such as attrition beyond that which we planned. This
workforce reduction has placed significant strain on our administrative,
operational and financial resources and has resulted in increased
responsibilities for all of our managers. As a result, our ability to respond to
unexpected challenges may be impaired and we may be unable to take advantage of
new opportunities. In addition, many of the employees who were terminated
possessed specific knowledge or expertise, and that knowledge or expertise may
prove to have been important to our operations. In that case, their absence may
create significant difficulties. Further, the reduction in workforce may reduce
employee morale and may create concern among potential and existing employees
about their job security, which may lead to difficulty in hiring and increased
turnover in our current workforce, and divert management's attention. In
addition, this headcount reduction may subject us to the risk of litigation,
which could result in substantial costs to us and would divert our time and
attention away from business operations.

WE MAY EXPERIENCE SIGNIFICANT FLUCTUATIONS IN REVENUES AND OPERATING RESULTS,
WHICH COULD CAUSE OUR SHARE PRICE TO BE VOLATILE.

Due to the emerging nature of the e-learning and permission e-mail markets
and a sluggish economy, we may be unable to forecast our revenues and
profitability accurately. Because many of our costs are fixed and based on
anticipated revenue levels, variations in, and the timing of, revenue
recognition could cause significant variations in operating results from quarter
to quarter. If our future operating results are below the expectations of
investors, the trading price of our company's common stock is likely to fall.

OUR STOCK PRICE HAS HISTORICALLY BEEN VOLATILE, WHICH MAY MAKE IT MORE DIFFICULT
FOR YOU TO RESELL SHARES WHEN YOU WANT TO DO SO AND AT PRICES YOU FIND
ATTRACTIVE.

The trading price of our common stock can fluctuate significantly. For
example, during the 52 week period ended February 28, 2002, the market price of
our common stock ranged from $0.06 to $0.31 per share. Our stock price may
fluctuate in response to a number of events and factors, including:

- The seasonal variations in our operating results.

- Announcements of technological innovations or new products and services
by our competitors or us.

- The operating and stock price performance of other companies that
investors may deem comparable.

- News reports relating to trends in our markets.

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

WE MAY LOSE OUR LISTING ON THE NASDAQ NATIONAL MARKET THAT COULD RESULT IN YOUR
BEING UNABLE TO SELL OUR COMMON STOCK READILY OR AT ALL.

Shares of our common stock are currently listed on the Nasdaq National
Market. Under Marketplace Rule 4450(a)(5) of the Nasdaq National Market, in
order to maintain the listing of our common stock on the Nasdaq National Market
the bid price per share of our common stock must close at or above $1.00. Our
common stock has previously been delisted from the Nasdaq National Market

13

and traded on the OTC Bulletin Board and is currently trading below $1.00. If
our common stock is delisted from the Nasdaq National Market again, your ability
to trade in our common stock may be impacted adversely, not only in the number
of shares which could be bought or sold, but also through delays in the timing
of transactions and a reduction in media coverage. This may reduce the demand of
our common stock and thus the trading price. A delisting may impair our ability
to raise additional working capital.

Under certain conditions, we may be able to transfer the listing of our
common stock to the Nasdaq SmallCap Market. If we elect to transfer our common
stock to the Nasdaq SmallCap Market and our common stock is delisted from that
market, our common stock may be eligible to trade on the OTC Bulletin Board. In
that event, our common stock may become subject to regulation as a "penny
stock." The SEC has adopted regulations which generally define "penny stock" to
be any equity security that has a market price or exercise price of less than
$5.00 per share, subject to certain exceptions, including listing on the Nasdaq
National Market or the Nasdaq SmallCap Market. For transactions covered by these
rules, broker-dealers must make a special suitability determination for the
purchase of such securities and must have received the purchaser's written
consent to the transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the rules require the
delivery, prior to the transaction, of a risk disclosure document mandated by
the SEC relating to the penny stock market. The broker-dealer is also subject to
additional sales practice requirements. Consequently, the penny stock rules may
restrict the ability of broker-dealers to sell our securities and may affect the
ability of holders to sell these securities in the secondary market and the
price at which such holders can sell any such securities.

FUTURE SALES OF OUR COMMON STOCK BY OUR STOCKHOLDERS COULD HAVE AN ADVERSE
EFFECT ON THE MARKET PRICE OF OUR COMMON STOCK.

In connection our acquisition of Learn2.com, certain current and former
directors and officers of our company and Learn2.com's $10 million convertible
debenture holder were restricted from selling their shares of our common stock
until March 25, 2002. For the six months period beginning March 25, 2002 until
September 25, 2002, those parties are subject to certain trading limitations.
The market price of our common stock could decline as a result of sales by these
and other existing stockholders of a large number of shares of common stock in
the market on or after March 25, 2002, or the perception that these sales may
occur. These sales also might make it more difficult for us to sell equity
securities in the future on terms favorable to us, or at all.

WE OPERATE IN A RAPIDLY CHANGING, COMPETITIVE MARKET AND WE MAY NOT HAVE
ADEQUATE RESOURCES TO COMPETE SUCCESSFULLY.

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

The e-learning and permission e-mail markets are characterized by
significant price competition. We face increased price pressures from
competitors, as customers demand more value for their budgets. This has resulted
in reduced revenues, operating margins, and market share. Although these markets
are highly fragmented with no single competitor accounting for a dominant market
share, competition is intense. Our competitors vary in size and in the scope and
breadth of their offerings and services. Several of our competitors have longer
operating histories and most have significantly greater financial, technical and
marketing resources.

14

OUR BUSINESS WILL SUFFER IF E-LEARNING ADOPTION CONTINUES TO BE LESS THAN WE
EXPECTED.

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

- companies that have historically relied on, or invested in, traditional
training and educational methods may be reluctant or slow to adopt
Web-based e-learning products and services;

- many of our potential customers have allocated only a limited portion of
their budgets to e-learning; and

- end users may not use e-learning products effectively.

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

THE SUCCESSFUL OPERATION OF OUR BUSINESS DEPENDS UPON A CONTINUAL SUPPLY OF
CONTENT OTHER THAN RELATED TO OUR CURRENT LIBRARY.

Our business success is dependent upon our ability to develop internally or
obtain content from third party content providers because this content broadens
the variety of content subjects we offer. Our inability to develop our own
content or obtain it from third parties could result in delays in product
introductions or shipments. We will depend on the quality and reliability of the
content licensed and timely delivery of this content by our sources. Although we
will have agreements specifying the terms of the licenses, these agreements may
not be enforceable. We believe that we can arrange alternate sources for some or
all of our content, but our inability to provide content to our customers and
prospects on a timely basis could adversely affect the performance of our
business. The subject matter of our third party content can be important to
prospective customers that evaluate e-learning companies based on a variety of
courseware subjects.

WE MUST DELIVER COURSEWARE THAT MEETS THE NEEDS OF OUR CUSTOMERS OR OUR BUSINESS
WILL SUFFER.

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

WE PLAN TO EXPAND THE SCOPE OF OUR COURSEWARE AND MAY DEPEND ON OUR ABILITY TO
ATTRACT EXPERTS OR SPECIALISTS. IF WE ARE UNABLE TO ATTRACT THE NECESSARY
EXPERTISE, WE WILL NOT BE ABLE TO ENTER NEW FIELDS.

Our strategy involves broadening the fields presently covered by our
courseware. In particular, to date we have focused primarily on courseware in
the information technology area and we are planning to develop and introduce new
courseware offerings in other fields. These new offerings may encompass areas in
which we have little or no experience or expertise. Therefore, our ability to
expand our courseware into these areas will require us to locate and evaluate
third-party experts or specialists who would develop or assist us in developing
the courseware. If we are unable to locate and evaluate these experts, we may
fail to develop the courseware our customers require or be unable to pursue new
market opportunities. If we do not extend our courseware offerings into new
fields, our revenue growth could be constrained.

15

THE VARIABILITY AND LENGTH OF OUR SALES CYCLE FOR OUR PRODUCTS MAY MAKE OUR
OPERATING RESULTS UNPREDICTABLE AND VOLATILE

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

- The time required for potential customers to learn about the benefits of
our products and services.

- The time it takes our potential customers to evaluate competitive
products and services.

- Our potential customers' internal budget and approval processes.

- The extended periods most large corporations and government entities
require making purchasing decisions.

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

WE DEPEND ON MAJOR RETAILERS AND RETAIL DISTRIBUTORS TO MARKET OUR PRODUCTS.

The retail market is subject to the unpredictability of consumer demand. We
may not plan effectively for this market, which could result in adverse
operating results in future periods. Our retail customers also carry our
competitors' products. We pay retailers competitive rates to provide shelf space
for our products. If we are unable to pay competitive rates, retailers may not
continue to provide shelf space for our products, which could result in adverse
operating results. Retail distributors may have limited capital to invest in
inventory. Their decisions to purchase our products are partly a function of
pricing, terms and special promotions offered by our competitors and other
factors that we do not control nor can we predict. Our agreements with retailers
are generally nonexclusive and may be terminated by them or by us without cause.

Some retailers and distributors have experienced financial difficulties in
the past. Distributors that we currently use may experience financial
difficulties in the future. If these distributors do experience financial
difficulties and we are unable to move their inventories to other distributors,
we may experience reduced sales or increased write-offs, which would adversely
affect our operating results.

OUR E-LEARNING PRODUCTS ARE DESIGNED FOR MICROSOFT TECHNOLOGIES.

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

OUR FUTURE GROWTH DEPENDS ON OUR ABILITY TO RETAIN KEY PERSONNEL AND SUCCESSFUL
HIRING AND RETENTION, PARTICULARLY WITH RESPECT TO SALES, MARKETING AND
DEVELOPMENT PERSONNEL, AND WE MAY BE UNABLE TO HIRE AND RETAIN THE SKILLED
PERSONNEL WE NEED TO SUCCEED.

Our future growth and success depends to a significant extent on the
continued service of Robert H. Ewald, Executive Chairman of the Board of
Directors, and other key employees, the development of management personnel and
the hiring of new qualified employees. Competition for highly skilled personnel
is intense in the technology industry. We may not be successful in recruiting
new personnel

16

or in retaining existing personnel. The loss of one or more key or other
employees or our inability to attract additional qualified employees or retain
other employees could have a material adverse effect on our business, results of
operations or financial condition.

WE FACE A RISK OF SYSTEM FAILURE.

Our operations depend to a significant extent on our ability to maintain our
computer and telecommunications systems. We must also protect our systems
against damage from fire, natural disaster, power loss, telecommunications
failure or similar events. In addition, growth of our customer base may strain
the capacity of our computer operations center and telecommunications systems
and/or lead to degradations in performance or system failure. Any damage to or
loss of our computer and telecommunications networks including our operations
center could affect adversely the performance of our business. We do not have a
redundant off-site back-up location site for our web servers however we are in
the process of identifying a third party facility to host our servers. To date,
we have not experienced system failures that have adversely and materially
affected operations.

UNAUTHORIZED BREAK-INS TO OUR SERVICE COULD HARM OUR BUSINESS.

Our servers are vulnerable to computer viruses, physical or electronic
break-ins and similar disruptions, which could lead to interruptions, delays,
loss of data or the inability to complete customer transactions. In addition,
unauthorized persons may improperly access our data, which could harm us.
Actions like these may be very expensive to remedy and could damage our
reputation and discourage new and existing users from purchasing our products
and services. To date, we have not experienced an unauthorized break-in or
similar disruption that has adversely and materially affected operations.

WE MAY NOT BE ABLE TO IMPLEMENT OUR GROWTH STRATEGY.

Successfully achieving our growth plan depends on our ability to:

- Continue to develop and market our products and services.

- Maintain and increase our customer base.

- Effectively integrate businesses and technologies.

- Continue to identify, attract, retain and motivate qualified personnel

If we do not successfully implement our growth strategy, our results of
operations will be adversely affected.

WE MAY BE SUBJECT TO INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS, WHICH ARE COSTLY
TO DEFEND AND COULD LIMIT OUR ABILITY TO USE CERTAIN TECHNOLOGIES IN THE
FUTURE.

Many parties are developing and improving technologies that compete with our
proprietary technologies and patents. We believe that these parties will
continue to take steps to protect these technologies, including seeking patent
protection. As a result, disputes regarding the ownership of these technologies
could arise in the future. To date, claims against us alleging infringement of
certain proprietary rights have not been material. Third parties may assert
further claims against us alleging infringement of patents, copyrights,
trademark rights, trade secret rights or other proprietary rights or alleging
unfair competition. In the event that we determine that licensing patents or
other proprietary rights is appropriate, we may not be able to license
proprietary rights on reasonable terms or at all. As the number of products in
our target markets increase and the functionality of these products further
overlap, we have become subject to further infringement claims. We may incur
substantial expenses in defending against third-party infringement claims
regardless of the merit of those claims. In the event that there is a
determination that we have infringed third-party proprietary rights, we could
incur substantial monetary liability and be prevented from using the rights in
the future.

17

OUR INTELLECTUAL PROPERTY RIGHTS ARE COSTLY AND DIFFICULT TO PROTECT.

We have patents that cover our StreamMaker and LearningAgent technologies
and have a patent pending for our AdaptiveProxy Tracking technologies. At some
point in the future, these patents may be deemed to be invalid or unenforceable,
or otherwise not provide us with any meaningful protection. We also have rights
in the trademarks that we use to market our e-learning services and products.
These trademarks include, among others, Learn2-TM- and StreamMaker-TM-. Our
intellectual property allows us to develop engaging, multimedia,
technology-based courseware. Our success and ability to compete effectively will
depend, in part, on our ability to protect our intellectual property, which we
protect through a combination of patent, trade secret, copyright, trademark,
nondisclosure agreements and other contractual provisions and technical
measures. None of these protections may be adequate to prevent our competitors
from copying or reverse engineering our products, concepts, trade names and
trade dress. Furthermore, none of these protections prohibit our competitors
from independently developing technologies that are substantially equivalent or
superior to our technologies. We license certain products under licenses that
are not signed by our licensees. The licensee agrees to the license by either
(i) opening a package on which the license is written or (ii) on a computer,
"clicking" the "I accept" or "I agree" tab underneath the license. These types
of licenses may be unenforceable under the laws of certain jurisdictions. In
addition, the laws of certain countries in which our products are or may be
licensed do not protect us to the same extent as the laws of the United States.

WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND WE MAY BE
LIABLE FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.

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

CHANGES IN LAWS RELATING TO DATA COLLECTION AND USE PRACTICES AND THE PRIVACY OF
INTERNET USERS AND OTHER INDIVIDUALS COULD HARM OUR BUSINESS.

Websites usually place certain information called "cookies" on a user's hard
drive usually without the user's knowledge or consent. Websites use cookies for
a variety of reasons. We employ the use of cookies on our Websites. Certain
Internet browsers allow users to modify their browser settings to remove cookies
at any time or to prevent cookies from being stored on their hard drive. In
addition, some Internet commentators, privacy advocates and governmental bodies
have suggested limiting or eliminating the use of cookies. The effectiveness of
our technology and products could be limited by any reduction or limitation in
the use of cookies. Specifically, some of our products use information provided
by cookies to, among other things, (i) help track the progress of users through
a course, (ii) remember a user's login/password and (iii) track other session
information. The reduction or limitation in the use of cookies may result in the
loss of this session information, which could require the user to either
re-enter the information and/or increase the response time of a tutorial. This
could result in delays and a decrease in the effectiveness of our products. In
this regard, there are a large number of legislative proposals before the United
States Congress, foreign governments and other international regulatory agencies
regarding privacy issues and the regulation and use of cookies. It is not
possible to predict whether or when such legislation may be adopted, and certain
proposals, if

18

adopted, could adversely affect our business. This could be caused by, among
other possible provisions, the requirement that permission be obtained before we
use cookies.

WE FACE LEGAL UNCERTAINTIES RELATING TO THE INTERNET IN GENERAL AND TO OUR
INDUSTRY IN PARTICULAR AND MAY BECOME SUBJECT TO COSTLY GOVERNMENT REGULATION.

The applicability to the Internet of existing laws is uncertain and
developing with regard to many issues, including sales tax, intellectual
property ownership and infringement, copyright, trademark, trade secret,
obscenity, libel, export of encryption technology, solicited and unsolicited
e-mail and personal privacy. There are an increasing number of laws and
regulations pertaining to liability for information received from or transmitted
over the Internet, online content regulation, user privacy, taxation and quality
of products and services.

We are currently defending against a claim that Etracks has violated certain
statues in California relating to the distribution of unsolicited e-mail. We can
give no assurance that the defense of that action will be successful or that we
will not be subject to further similar actions.

In addition, it is possible that more laws and regulations may be adopted
with respect to the Internet, such as laws or regulations relating to user
privacy, taxation, e-mail, pricing, Internet access, content, copyrights,
distribution and characteristics and quality of products and services. Various
state statutes govern private post-secondary educational institutions. We are
uncertain whether states will attempt to apply these statutes to regulate the
offering of e-learning products distributed over the Internet. Changes in
existing laws and the adoption of additional laws or regulations may decrease
the popularity or limit expansion of the Internet. A decline in the growth of
the Internet could decrease demand for our tutorials and services and increase
our cost of doing business.

OUR BUSINESS COULD BE HARMED BY CONSUMERS' CONCERNS ABOUT THE SECURITY OF
TRANSACTIONS OVER THE INTERNET.

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

ITEM 2. PROPERTIES

We own or lease facilities and offices at the following locations:

We entered into an operating lease agreement on February 25, 2000 for office
space in Mountain View, California. As a result of the merger with Learn2.com,
we closed our corporate headquarters in Mountain View and negotiated a
settlement with the lessor of approximately $1.6 million. This amount is
recorded in the accompanying consolidated statement of operations for the year
ended December 31, 2001 as part of gain on disposal of discontinued operations.
In addition, we assumed the obligations of Learn2.com. Certain subsidiaries of
Learn2.com also have operating leases for facilities in Golden, Colorado and
Belmont, California. In March 2002, our subsidiary, Street Technologies, Inc.,
received

19

notice that it was in default under its lease agreement for office space located
in White Plains, New York. As result of the default, Street Technologies may be
liable to pay the remaining lease obligations net of security deposits totaling
approximately $660,000.

Our subsidiary, ViaGrafix has listed a building and land for sale in Pryor,
Oklahoma, that previously served as a production facility.

ITEM 3. LEGAL PROCEEDINGS

On March 16, 2001, one of our prior customers, Mr. Joseph Pavel, filed a
purported consumer class action suit against us in the Supreme Court of the
State of New York, County of Kings. The suit alleges that we breached our
contracts with the plaintiff and other customers. The plaintiff seeks
unspecified damages and disgorgement of monies received in connection with the
sale of Internet postage products. By agreement of the parties, the plaintiff
dismissed the New York action and refiled in Santa Clara County, California on
or about May 24, 2001. We filed our answer to the complaint on June 18, 2001. On
February 20, 2002, the Court granted Plaintiff's motion for class certification.
We are vigorously defending this action. Pendency of these legal proceedings can
be expected to result in expenses to Learn2 and the diversion of management time
and other resources.

On August 3, 2001, Sales and Marketing Technologies, Inc. filed suit against
us and certain of our officers in the Superior Court of California, San Mateo
County, California. The complaint was amended on September 19, 2001. The
plaintiff alleges breach of contract, breach of good faith and fair dealing,
fraud, misrepresentation alleging breach of contract, fraud and unfair
competition in connection with a consulting agreement between the plaintiff and
our company. The plaintiff seeks unspecified general and compensatory damages,
treble damages and equitable remedies. We are vigorously defending this action.
Pendency of these legal proceedings can be expected to result in expenses to
Learn2 and the diversion of management time and other resources.

On September 8, 2000, a former employee of ViaGrafix Corporation, which is
now a wholly owned subsidiary of our company, filed suit against
Learn2.com, Inc. and ViaGrafix Corporation in the District Court of Oklahoma,
Mayes County, Oklahoma. The plaintiff alleges breach of contract and conversion
in connection with a severance agreement between the plaintiff and ViaGrafix.
The plaintiff seeks unspecified general, compensatory and punitive damages and
equitable remedies. We are vigorously defending this action. Pendency of these
legal proceedings can be expected to result in expenses to ViaGrafix and Learn2
and the diversion of management time and other resources.

On February 6, 2002, Morrison & Foerester, a law firm, filed suit against
Etracks.com, Inc., a consolidated subsidiary of ViaGrafix Corporation our
wholly-owned subsidiary, in the Superior Court of California, San Francisco
County, California. The plaintiff alleges a violation of California Business &
Professional Code, Section 17538.45 and 17200 et. seq., in connection with
Etracks permission e-mail marketing and tracking services. The plaintiff seeks
statutory damages, to enjoin Etracks from further violations of the specified
statutes, costs and fees. Etracks is vigorously defending this action. Pendency
of these legal proceedings can be expected to result in expenses to Etracks and
our company and the diversion of management time and other resources.

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

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

No matters were submitted to a vote of the security holders during the
fourth quarter of the year ended December 31, 2001.

20

PART II

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

Our common stock is traded on The Nasdaq Stock Market's National Market
under the symbol "LTWC." The following table sets forth, for the periods
indicated, the range of the high and low sale prices for our common stock as
reported on The Nasdaq Stock Market's National Market:

The last reported sale price of our common stock on The Nasdaq Stock
Market's National Market on March 20, 2002, was $0.14 per share. As of
March 20, 2002, there were approximately 75,576,764 shares of our common stock
outstanding that were held of record by approximately 925 stockholders.

Shares of our common stock are currently listed on the Nasdaq National
Market. Under Marketplace Rule 4450(a)(5) of the Nasdaq National Market, in
order to maintain the listing of our common stock on the Nasdaq National Market
the bid price per share of our common stock must close at or above $1.00. Our
common stock has previously been delisted from the Nasdaq National Market and
traded on the OTC Bulletin Board and are currently trading below $1.00. If our
common stock are delisted from the Nasdaq National Market again, your ability to
trade in our common stock may be impacted adversely, not only in the number of
shares which could be bought or sold, but also through delays in the timing of
transactions and a reduction in media coverage. This may reduce the demand of
our common stock and thus the trading price. A delisting would greatly impair
our ability to raise additional working capital.

Under certain conditions, we may be able to transfer the listing of our
common stock to the Nasdaq SmallCap Market. If we elect to transfer our common
stock to the Nasdaq SmallCap Market and our common stock are delisted from that
market, our common stock may be eligible to trade on the OTC Bulletin Board. In
that event, our common stock may become subject to regulation as a "penny
stock." The SEC has adopted regulations which generally define "penny stock" to
be any equity security that has a market price or exercise price of less than
$5.00 per share, subject to certain exceptions, including listing on the Nasdaq
National Market or the Nasdaq SmallCap Market. For transactions covered by these
rules, broker-dealers must make a special suitability determination for the
purchase of such securities and must have received the purchaser's written
consent to the transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the rules require the
delivery, prior to the transaction, of a risk disclosure document mandated by
the SEC relating to the penny stock market. The broker-dealer is also subject to
additional sales practice requirements. Consequently, the penny stock rules may
restrict the ability of broker-dealers to sell our securities and may affect the
ability of holders to sell these securities in the secondary market and the
price at which such holders can sell any such securities.

21

DIVIDEND POLICY

We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future.

ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial data set forth below with respect to our
consolidated statements of operations for each of the years ended December 31,
2001, 2000 and 1999 and with respect to our consolidated balance sheets as of
December 31, 2001 and 2000 have been derived from our audited financial
statements. The selected consolidated financial data set forth with respect to
our consolidated statements of operations for each of the years ended
December 31, 1998 and 1997 and with respect to our consolidated balance sheets
as of December 31, 1999, 1998 and 1997 are derived from our audited financial
statements, which are not included herein.

The following selected financial data should be read in connection with the
Financial Statements and Notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

See Note 12 of Notes to Financial Statements for an explanation of the method
used to determine the number of shares used in computing per share amounts.

22

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

OVERVIEW

On September 25, 2001, we acquired all of the outstanding stock of
Learn2.com, a publicly traded company, changed the name of our company from
E-Stamp Corporation to Learn2 Corporation and assumed the on-going business of
Learn2.com. Learn2.com's offerings included engaging online and physical
learning and training products and complementary services, commonly referred to
as e-learning services, marketed to corporate, government and individual clients
and customers and provided e-mail marketing services. Under the terms of the
merger agreement, we issued approximately 37.8 million shares of our common
stock. Each share of Learn2.com common stock outstanding immediately prior to
the completion of the merger automatically converted into the right to receive
0.4747 shares of our common stock resulting in our stockholders immediately
prior to the consummation of the merger owning approximately 50.1% of the
outstanding stock of the combined company. The former stockholders of Learn2.com
including Learn2.com's $10.0 million convertible debenture holder, received
approximately 49.9% of the combined company. The total value of the transaction
was approximately $19.2 million including approximately $6.6 million of assumed
liabilities, transaction costs totaling approximately $5.2 million and a
pre-closing payment of $1.0 million to Learn2.com's $10.0 million convertible
debenture holder. The transaction was accounted for using the purchase method of
accounting. The results of Learn2.com for the period from September 25, 2001
through December 31 2001 are included in the consolidated statement of
operations for the year ended December 31, 2001.

E-Stamp Corporation, founded in 1994, originally provided an Internet
postage service that enabled users to purchase, download and print Internet
postage directly from their personal computers without the need to maintain a
persistent Internet connection. In May 2000, we acquired two companies, Infinity
Logistics and Automated Logistics for a total purchase price of $9.0 million.
These companies offered transportation management and warehouse management
products and services that allowed enterprise customers to review carrier rates
and shipping options, select a carrier, print shipping labels, track shipments
and create shipping reports.

During 2000, we undertook two corporate restructurings. In July 2000, we
restructured the organization to accelerate the development, marketing and sales
of our transportation management products and services in addition to our
emphasis on our Internet postage business. In November 2000, we restructured the
organization to phase out our Internet postage business. We incurred charges of
approximately $20.3 million related to these restructurings.

On November 8, 2001, in connection with the merger, we undertook a corporate
restructuring to outsource the packaging and shipping of our retail products to
an outside fulfillment house and eliminate redundant functions. We incurred
charges of approximately $89,000 related to these restructurings.

On March 4, 2002, we announced that we will phase out our remaining
production and distribution operations in Pryor, Oklahoma and consolidate our
e-learning business in Golden, Colorado, which is the current home of our
courseware and authoring tool development activities. We eliminated
approximately sixty positions, primarily in the Oklahoma facility and certain
field sales operations. Severance and related expenses attributable to the
elimination of these positions will be approximately $300,000 and will be
recorded in the quarter ending March 31, 2002. When fully implemented, we expect
that these steps will result in a reduction of operating expenses of
approximately $5.5 million on an annualized basis. As a result of this decision,
we reduced the value of our intangible assets through an impairment charge as of
December 31, 2001 by approximately $330,000.

23

From September 25, 2001 until February 28, 2002, we operated in two
segments: "e-learning" and "permission email marketing." As part of our
restructuring, effective, announced on March 4, 2002, March 1, 2002, we split
our e-learning segment into "corporate and government" and "retail."

On April 19, 2001, in connection with our then planned merger with
Learn2.com, we discontinued our remaining transportation management business.
Therefore, our consolidated financial statements and notes included herein
reflect our businesses as discontinued operations in accordance with APB
No. 30. as of December 31, 2001 and for all periods presented. The results of
discontinued operations do not include any interest income, interest expense or
allocation of corporate expenses. As a result of the merger, we adopted the
on-going business of Learn2.com.

We develop and market open-standards multimedia courseware in four broad
categories: computer software applications for end-users; professional
Information Technology, business skills and compliance. In addition we develop
and market tools for the creation of open multimedia courseware. We market our
products to corporate, government and individual clients and customers. Our
corporate and government customers have access to reporting and administration
features when they purchase our hosted Learn2University service. Our courseware
is available to consumers online and on CD-ROM and can be purchased from our
Website and major retailers nationwide.

Through our subsidiary, Etracks, we provide permission e-mail marketing and
tracking services to customers that have "opt-in" e-mail customer lists.
Etracks' services include e-mail creation, delivery, tracking and response
analysis for a high volume of client e-mail accounts in a short period of time.

Our goal is to be business and governments' preferred partner offering
interactive open multimedia courseware and courseware creation tools. Etracks'
goal is to be the preferred provider of full service and hosted, large-scale
email broadcast campaigns.

As set forth in Note 3 to our consolidated financial statements, our
reported results of operations for all periods prior to September 25, 2001 do
not reflect the results of Learn2.com. Consequently, the results prior to these
dates and our consolidated balance sheet at December 31, 2001 are not reflective
of our operations and financial position as presently constituted.

CRITICAL ACCOUNTING ESTIMATES

The preparation of consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates, including those
related to customer programs and incentives, product returns, bad debts,
inventories, intangible assets, and contingencies and litigation. We base our
estimates on historical experience and on various other assumptions 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.

The preparation of our financial statements in conformity with accounting
principles generally accepted in the U.S. requires management to make estimates
and assumptions that affect the amounts reported in our financial statements and
accompanying notes. Actual results could differ materially from those estimates.
The items in our financial statements requiring significant estimates and
judgments are as follows:

- BAD DEBTS AND PRODUCT RETURNS. We maintain allowances for doubtful
accounts and product returns for estimated losses resulting from either
the inability of our customers to make required payments or return of
merchandise. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.

24

- INTANGIBLES. The value of our intangibles was determined by an independent
third-party expert, based upon estimated information and projections
prepared by management.

- LITIGATION. We are currently involved in certain legal proceedings as
discussed in the "Commitments and Contingencies" note in the Notes to
Consolidated Financial Statements. We do not believe these legal
proceedings will have a material adverse effect on our consolidated
financial position, results of operations or cash flows. However, were an
unfavorable ruling to occur in any quarterly period, there exists the
possibility of a material impact on the operating results of that period.

The above listing is not intended to be a comprehensive list of all of our
accounting policies. In many cases, the accounting treatment of a particular
transaction is specifically dictated by accounting principles generally accepted
in the U.S., with no need for management's judgment in their application. There
are also areas in which management's judgment in selecting any available
alternative would not produce a materially different result. See our audited
consolidated financial statements and notes thereto which begin on page F-1 of
this Annual Report on Form 10-K which contain accounting policies and other
disclosures required by generally accepted accounting principles.

SOURCES OF REVENUE AND REVENUE RECOGNITION POLICY

We generate revenue primarily from the sales and licensing of courseware and
development tools, and permission e-mail marketing services.

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

Revenue from courseware licensing sales delivered online is recognized when
persuasive evidence of an arrangement exists, delivery has occurred, the sales
price is fixed or determinable and collectibility is probable. We defer a
portion, generally 3% of the selling price, of these sales for hosting and
recognize that hosting ratably over the contractual period. We recognize the two
components, the software, (or training course) and the service (or hosting)
based on their relative fair values.

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

Revenues from permission e-mail marketing services are recognized at the
time the broadcast is sent, as we have no further significant obligations.

25

RESULTS OF OPERATIONS

The following table sets forth industry segment information for the years
ended December 31, 2001, 2000 and 1999 (in thousands):

In 2000 and 1999, we operated in one segment. These operations have been
accounted for as a discontinued operations in all periods presented.

2001 COMPARED TO 2000

CONTINUING OPERATIONS

Following the acquisition of Learn2.com on September 25, 2001, we operate in
two segments: "e-learning" and "Permission e-mail marketing". Revenues and gross
profits for 2001 relate solely to the Learn2.com operations acquired on
September 25, 2001 through December 31, 2001. Operating expenses for 2001
comprise the operations of Learn2.com from September 25, 2001 through
December 31, 2001 as well as the on-going general and administrative expenses
that we incurred before and after the acquisition.

E-LEARNING

e-learning revenues consist primarily of learning products and services sold
or distributed through the Internet and of physical products sold through
traditional retail channels. Cost of revenues consists of the expenses
associated with the production and shipment of our physical products. In
addition, it includes costs to develop custom courseware and other fulfillment
costs. Net revenues for 2001 were approximately $2.7 million and composed of
approximately $1.3 million of courseware and services licensed to corporate and
government customers or 49% of revenues and approximately $1.4 million or 51% of
revenues of courseware sold online, to online merchants and through traditional
retail channels. For 2001, one customer accounted for 13.8% of the segment's
revenue. This customer was acquired as part of the acquisition of Learn2.com on
September 25, 2001. On a pro forma basis, assuming Learn2.com had been acquired
on January 1, 2001, this customer would have accounted for 6.0% of our pro forma
revenue for this segment.

PERMISSION E-MAIL MARKETING

Permission e-mail marketing revenues consist primarily of permission e-mail
marketing and tracking services. For 2001, one customer accounted for 61.7% of
the segment's revenue. This customer was acquired as part of the acquisition of
Learn2.com on September 25, 2001. On a pro forma basis, assuming Learn2.com had
been acquired on January 1, 2001, this customer would have accounted for 46.9%
of our pro forma revenue for this segment. Cost of revenues consists of the
expenses associated

26

with the delivery of permission e-mail and tracking services, including Internet
access and personnel related costs incurred to fulfill our marketing and
tracking services. Net revenues for 2001 were approximately $1.7 million.

OPERATING EXPENSES

RESEARCH AND PRODUCT DEVELOPMENT EXPENSES

Research and product development expenses were approximately $1.1 million
for 2001. Research and product development expenses relate to the development
and enhancement of our technologies, content, Website and product design.

SALES AND MARKETING

Sales and marketing expenses were approximately $2.9 million for 2001. Sales
and marketing expenses consist primarily of salaries, commissions, advertising,
trade show expenses and advertising costs of marketing materials.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses were approximately $7.5 million for 2001
compared to $8.2 million for 2000. These expenses consist of expenses associated
with the general responsibilities of a public company, and exclude those costs
associated with our transportation management and Internet postage businesses.
These expenses include salaries and related costs for certain administrative
functions, professional services, including legal and accounting services,
insurance and an allocation of facilities costs.

IMPAIRMENT OF LONG-LIVED ASSETS

On March 4, 2002, we announced that we will phase out our remaining
production and distribution operations in Pryor, Oklahoma and consolidate our
business in Golden, Colorado, which is the current home of our courseware and
authoring tool development activities. We eliminated approximately sixty
positions, primarily in the Oklahoma facility and certain field sales
operations. Severance and related expenses attributable to the elimination of
these positions will be approximately $300,000 and will be recorded in the
quarter ended March 31, 2002. As a result of this decision, we reduced the value
of our intangible assets as of December 31, 2001 by approximately $330,000.

27

NON-RECURRING COSTS

In 2001, non-recurring charges related and consequential to the merger
totaling approximately $2.6 million were incurred. These costs consisted
primarily of $1.4 million for severance and other related payroll charges,
$843,000 for Directors' & Officers' tail insurance for acts that occurred prior
to the Learn2.com acquisition, and $340,000 for other costs related to our
November 8, 2001 workforce reduction.

INTEREST INCOME

Interest income, net, consists primarily of earnings on our cash and cash
equivalents, net of interest expense. Interest income, net, was income of
$766,000 for 2001 compared to income of $4.0 million for 2000. The decrease in
interest income, net, was due to decreased interest earned as a result of lower
average cash balances resulting from our continued use of cash to fund our
operations and lower interest rates.

INTEREST EXPENSE AND OTHER, NET

Interest expense and other, net was an expense of $35,000 in 2001 compared
to an expense of $178,000 in 2000.

DISCONTINUED OPERATIONS

NET LOSS FROM DISCONTINUED OPERATIONS

For 2001, loss from discontinued operations reflects the operating expenses
related to our transportation management business through the measurement date
of April 19, 2001, net of revenues from that business of approximately $318,000.
For 2000, loss from discontinued operations reflects the operating expenses
related to our Internet postage and transportation management businesses net of
revenues of approximately $5.3 million. Operating expenses for 2001 were
significantly reduced from operating expenses for 2000 primarily due to reduced
headcount resulting from our restructuring efforts in 2000. In addition, we
significantly reduced our advertising and promotional activities in the first
half of 2001 compared to the first half of 2000. Amortization of deferred stock
compensation, which is recorded using the graded vesting method, was
$2.3 million in 2001.

These decreases in operating expenses were partially offset by charges
totaling $4.7 million related to the amortization and write off of goodwill and
other intangible assets related to our transportation management solutions
business. During the first quarter of 2001 we identified possible indicators of
impairment of these assets and determined that these assets had a fair value of
zero. In addition, we wrote off property and equipment held for disposal as a
result of reduced employee headcount totaling $1.4 million.

In addition, in 2001, loss from discontinued operations was partially offset
by the reversal of excess restructuring accruals related to Internet postage
refunds and to certain contract terminations. We also reversed an excess
allowance for doubtful accounts. These reversals totaled approximately
$1.0 million.

GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS

In April 2001, we sold all of our patent and patent applications and certain
trademarks and domain names related to our Internet postage business to
Stamps.com, Inc. for cash proceeds of $7.5 million. In June 2001, we sold our
maintenance contracts and trademarks related to our DigitalShipper and e-Receive
products to Data Track Technologies of California, Inc. for cash proceeds of
$55,000 and a promissory note of $110,000. We recorded gains totaling
approximately $7.7 million related to these transactions.

28

This income was offset by costs of discontinuing the transportation
management business, including costs related to shutting down the business's
operations after the April 19, 2001 measurement date, charges for fixed asset
impairment and an accrual for lease termination costs. For 2001, the gain on
disposal of discontinued operations, net was approximately $165,000.

The net loss available for common stockholders was $22.4 million for 2001
compared to $112.8 million for 2000 and was attributable to the factors
discussed above.

2000 COMPARED TO 1999

GENERAL AND ADMINISTRATIVE

General corporate expenses totaled $8.2 million in 2000 compared to
$9.2 million in 1999. The decrease in 2000 from 1999 was primarily due to lower
salary cost as a result of lower bonuses paid and lower amortization of deferred
stock compensation partially offset by higher facilities costs.

INTEREST INCOME

Interest income, net, was $4.0 million in 2000 compared to $2.0 million in
1999. The increase in interest income, net, was due to increased interest earned
as a result of higher average cash balances resulting from our initial public
offering in October 1999 and private placements of preferred stock in
August 1999 and July 1998.

INTEREST EXPENSE AND OTHER, NET

Interest expense and other, net was an expense of $178,000 in 2001 compared
to an expense of $37,000 in 1999.

NET LOSS FROM DISCONTINUED OPERATIONS.

In 2000, loss from discontinued operations reflects the operating expenses
related to the transportation management business and the Internet postage
business, net of revenues from those businesses of $5.3 million. Operating
expenses in 2000 were significantly higher than operating expenses in 1999,
primarily due to increased headcount related expenses, higher facilities costs
and increased spending on marketing programs, advertising and promotion. In
addition, loss on discontinued operations for 2000 included $20.3 million of
restructuring costs resulting from the phase-out of the Internet postage
business and $1.7 million of in-process research and development resulting from
the acquisition of Infinity Logistics Corporation and Automated Logistics Corp.

During 2000, we undertook two corporate restructurings. In July 2000, we
restructured our organization to accelerate development, marketing and sales of
our transportation management business and while continuing our Internet postage
business. In November 2000, we restructured the organization to phase out our
Internet postage business. We incurred charges of approximately $20.3 million
related to these restructurings. These charges included $2.3 million for
severance payments and benefits continuation for terminated employees,
$13.3 million for asset write-offs, $2.9 million for contract terminations, and
$1.8 for operations shutdown costs. Asset write-offs of $13.3 million included
$4.4 million of prepaid marketing costs that were being amortized over the terms
of the underlying contracts that had no future economic benefit due to the phase
out of the Internet postage business.

In May 2000, we acquired Infinity Logistics Corporation and Automated
Logistics Corp. These companies provided transportation management products and
services that allowed enterprise customers to review carrier rates and shipping
options, select a carrier, print shipping labels, track shipments and create
shipping reports. Based on an independent appraisal, approximately $1.7 million
of the purchase price was allocated to in-process research and development
related to Infinity Logistics Corporation products that had not yet reached
technological feasibility and had no alternative future

29

use. This amount was expensed immediately. As of the acquisition date,
in-process research and development of Infinity Logistics Corporation and
Automated Logistics Corp. consisted of the development of two products,
e-Warehouse, which was 80 percent complete, and DigitalShipper Enterprise, which
was 75 percent complete. Of the $1.7 million of in-process research and
development expensed, $143,000 related to e-Warehouse and approximately
$1.5 million related to DigitalShipper Enterprise.

The e-Warehouse product was completed and introduced in July 2000 and the
DigitalShipper Enterprise product was completed and introduced in late
June 2000. In March 2001, we discontinued offering the e-Warehouse product to
new customers in order to continue to develop the operability and functionality
of the product. In valuing the in-process technologies of Infinity Logistics
Corporation and Automated Logistics Corp. at the acquisition date, we used a
discounted cash flow analysis based on projected net product and services
revenues, cost of revenues, operating expenses and income taxes resulting from
these technologies over a 4-year period. The projected financial results, which
were discounted using a 25 percent rate, were based on expectations for Infinity
Logistics Corporation and Automated Logistics Corp. on a stand-alone basis and
excluded any special synergistic benefits that we expected to achieve after the
acquisition. The revenue projections for the developed technologies, which
considered the release dates of new products, assumed a gradual decline. The
revenue projections for the in-process research and development were based on
expected trends in technology and timing of new product introductions. In 1999,
loss from discontinued operations reflects the operating expenses related to the
Internet postage business, net of revenues from that business of $1.3 million.

The net loss available for common stockholders was $112.8 million for 2000
compared to $57.5 million for 1999 and was attributable to the factors discussed
above.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have financed our operations primarily through private
and public sales of equity securities. We have received net proceeds of
approximately $72.9 million in private placements of our equity securities and
net proceeds of $125.4 million from the initial public offering of our common
stock. As of December 31, 2001, we had cash and cash equivalents totaling
$6.3 million.

Net cash used in continuing operations totaled $12.6 million for the year
ended December 31, 2001 while cash used in continuing operations for the year
ended December 31, 2000 was $1.9 million and cash provided by operations was
$3.7 million in 1999. These amounts resulted primarily from net operating losses
during those periods offset by non-cash charges.

Net cash used in discontinued operations totaled $13.4 million,
$72.3 million, and $52.4 million for the years ended December 31, 2001, 2000,
and 1999, respectively. These amounts resulted primarily from net operating
losses during those periods offset by non-cash charges.

Net cash provided by investing activities totaled $7.1 million for the year
ended December 31, 2001. Net cash used in investing activities totaled
$19.9 million and $2.8 million for the years ended December 31, 2000 and 1999,
respectively. For the year ended December 31, 2001, cash provided resulted
mainly from the sale of discontinued operations and a decrease in restricted
cash and other assets offset by merger related expenses and the purchase of
assets.

Net cash provided by financing activities totaled $0 for the year ended
December 31, 2001. Net cash provided by financing activities was $630,000 and
$160.0 million for the years ended December 31, 2000 and 1999, respectively.

We have incurred significant net losses and negative cash flows from
operations since our inception. At December 31, 2001, we had an accumulated
deficit of approximately $211 million. On March 4, 2002, we announced that we
will phase out our production and distribution operations in Pryor, Oklahoma and
consolidate our e-learning business in Denver, Colorado, which is the current

30

home of our courseware and authoring tool development activities. We eliminated
approximately sixty positions, primarily in the Oklahoma facility and certain
field sales operations. Severance and related expenses attributable to the
elimination of these positions will be approximately $300,000 and will be
recorded in the quarter ended March 31, 2002. When fully implemented these steps
we expect that these steps will result in a reduction of operating expenses of
approximately $5.5 million on an annualized basis. As a result of this decision,
we reduced the value of our intangible assets as of December 31, 2001 by
approximately $330,000. The operating results for future periods are subject to
numerous uncertainties. Failure to generate sufficient revenue or to reduce
costs as necessary could have a material adverse effect on our ability to
continue as a going concern and achieve our business objectives.

Our auditors have expressed substantial doubt as to our ability to continue
as a going concern. However, our audited financial statements for the year ended
December 31, 2001 were prepared on a going concern basis, which contemplates the
realization of assets and settlement of liabilities in the normal course of
business. Management believes that if we meet our revenue and cash collection
targets, we will have sufficient resources for our operating requirements and
sufficient resources to realize our business plan at least for the next twelve
months.

However, our ability to achieve our projected revenue and positive cash flow
depends upon a variety of factors, including the timely introduction and market
success of our products, the costs of developing, producing and marketing these
products, adoption of the Internet as a medium of commerce and delivery of
services, general economic conditions and various other factors, some of which
may be beyond our control. Many of our costs are fixed and are based on
anticipated revenue levels. We may be unable to adjust spending quickly enough
to offset any unexpected revenue shortfall. If we have a shortfall in cash
collections or in revenues in relation to expenses, or if our expenses continue
to exceed revenues, then our results of operations and financial condition would
be affected adversely and we may need to raise additional funds. If we need to
raise additional funds we cannot be certain that we will be successful nor can
we predict the terms under which such funds would be available if at all. If
additional funds are not available through debt or equity financings, we may not
be able to meet our on-going expenses unless we change our business plan, sell
assets, curtail expenditures, and/or employ other strategies as are required in
these circumstances. We believe that for us to raise additional funds without
selling assets will be very difficult.

In January 2002, a complaint was filed against our Company alleging certain
common law claims. In connection with the settlement of the complaint, on
January 24, 2002 we issued a promissory note in the principal amount of $400,000
accruing interest at the rate of 10% per annum. The promissory note is due and
payable upon the earlier of (i) the completion of a Financing (as defined in the
promissory note) or (ii) any dissolution, extraordinary dividend,
recapitalization or similar transaction involving our company. At December 31,
2001, the principal amount of the promissory note is included in our other
liabilities in other liabilities in the consolidated financial statements.

RECENT ACCOUNTING PRONOUNCEMENTS

In October 2001, the Financial Accounting Standards Board (FASB)issued
Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS 144), which is effective for
fiscal years beginning after December 15, 2001. SFAS 144 supersedes certain
provisions of Accounting Principles Board (APB) Opinion No. 30, Reporting the
Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions and supersedes SFAS 121. We do not expect the adoption of SFAS 144
to have a material effect on our consolidated financial position or results of
operations.

31

ITEM 7A. QUANTATIVE AND QUALITATIVE DISCUSSIONS ABOUT MARKET RISK

INTEREST RATE RISK

The primary objective of our investment activities is to preserve principal
while at the same time maximizing yields without significantly increasing risk.
To achieve this objective, we maintain our portfolio of cash equivalents in a
variety of securities, including both government and corporate obligations and
money market funds.

We have never held derivative financial instruments.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements required pursuant to this item are included in Item
14 of this Annual Report on Form 10-K and are presented beginning on page F-1.

SUPPLEMENTARY DATA

The following tables set forth unaudited quarterly supplementary data for
each of the eight quarters in the two-year period ended December 31, 2001.

ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURES

On October 1, 2001, we terminated Ernst & Young LLP as our independent
auditors. We then engaged Arthur Andersen LLP as of October 1, 2001 to serve as
our independent auditors for the fiscal year ended December 31, 2001. This
change was executed in connection with our merger with Learn2.com. Learn2.com
had engaged Andersen as its independent public accountants since January 15,
1999.

Prior to the engagement of Andersen as our independent auditors on
October 1, 2001, we had not consulted with Andersen regarding any matter that
was either the subject of a disagreement, as that term is defined in Item
304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of
Regulation S-K, or a reportable event, as that term is defined in Item
304(a)(1)(v) of Regulation S-K.

32

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF LEARN2

The following table sets forth our directors' and executive officers' ages
and positions as of March 18, 2002:

- --------------------------
(1) Member of the Audit Committee

(2) Member of the Compensation Committee

Robert H. Ewald has served as the Executive Chairman of the Board of
Directors of our company since September 2001. Mr. Ewald served as our President
and Chief Executive Officer from February 1999 to September 2001 and has served
as a Director since January 1999. From July 1996 to July 1998, Mr. Ewald held
various executive positions at Silicon Graphics, Inc., a manufacturer of
computer workstations, servers and supercomputers, most recently as Executive
Vice President and Chief Operating Officer. From August 1984 to June 1996,
Mr. Ewald held various management and executive positions with Cray
Research, Inc., a manufacturer of high performance computers, including
President and Chief Operating Officer. Before joining Cray Research, Inc.,
Mr. Ewald led the Computing and Communications Division of the Los Alamos
National Laboratory and was responsible for providing computing and
communications services to government customers nationwide between 1980 and
1984. Mr. Ewald is currently a director of Ceridian, Inc., an information
technology services company, and a member of the President's Information
Technology Advisory Committee chartered by the White House. Mr. Ewald received
his B.S. in civil engineering from the University of Nevada and his M.S. in
civil engineering from the University of Colorado.

Marcelo A. Gumucio has served as a Director of our company since
November 1998. Mr. Gumucio was the Chairman of the Board of our company from
November 1998 to September 2001. Mr. Gumucio is Managing Partner of Gumucio,
Burke and Associates, a private investment firm that he co-founded in 1992. From
April 1996 to July 1997, Mr. Gumucio was Chief Executive Officer of Micro Focus
PLC, an enterprise software provider. He has also served as a member of the
Micro Focus' board of directors since January 1996. Before joining Micro Focus,
Mr. Gumucio was President and Chief Executive Officer of Memorex Telex NV
between 1992 and 1996. Mr. Gumucio currently serves on the board of directors of
BidCom, Inc., Digital Island and Burr Brown Corporation and serves as Chairman
of the boards of WebSentric and NetFreight. Mr. Gumucio received his B.S. in
mathematics from the University of San Francisco and M.S. in applied mathematics
and operations research from the University of Idaho. Mr. Gumucio is also a
graduate of the Harvard Business School Advanced Management Program.

John V. Balen has served as a Director of our company since July 1998.
Mr. Balen joined Canaan Partners, a national venture capital investment firm, in
September 1995 where he is currently a general partner. From June 1985 to
June 1995, Mr. Balen served as Managing Director of Horsley Bridge Partners, a
private equity investment management firm. Mr. Balen currently serves on the
board of directors of Commerce One and several private companies. Mr. Balen
received his B.S. in electrical engineering and M.B.A. from Cornell University.

Rebecca Saeger has served as a Director of our company since
September 1999. Since June 1997, Ms. Saeger has served as Executive Vice
President of Brand Marketing for VISA U.S.A., a provider of payment products and
services. From June 1991 to May 1997, Ms. Saeger served in various positions at

33

Foote, Cone & Belding San Francisco, an advertising agency, including Senior
Vice President, Group Management Supervisor and Director of Account Management.
From June 1980 to April 1991, Ms. Saeger worked at Ogilvy and Mather New York,
an advertising agency, where she held a variety of positions, including most
recently, Senior Vice President, Group Director. Ms. Saeger received her B.A.
from Muhlenberg College and M.B.A. from the Wharton School of Business,
University of Pennsylvania.

Robert J. Cresci has served as a Director of our company since
October 1999. Since 1990, Mr. Cresci has served as a Managing Director of Pecks
Management Partners Ltd., which specializes in managing portfolios of public and
private convertible securities for institutional clients. Mr. Cresci currently
serves on the board of directors of Sepracor, Inc., Aviva Petrolium Ltd., Film
Roman, Inc., Castle Dental Centers, Inc., j2 Global Communications, Inc.,
Candlewood Hotel Co. and SeraCare Life Sciences, Inc. and several private
companies. Mr. Cresci is a graduate of the United States Military Academy at
West Point and received an MBA from Columbia University.

Marc E. Landy has served as the Executive Vice President, Chief Financial
Officer, Secretary and Treasurer of our company since September 2001. From
February 1999 to September 2001, Mr. Landy served as the Executive Vice
President, Chief Financial Officer and Secretary of Learn2.com, Inc. From
November 1996 to February 1999, Mr. Landy served as the Vice President and Chief
Financial Officer of Street Technologies, Inc. Mr. Landy is a CPA and from 1990
to 1992 he was a Senior Audit Manager at Ernst & Young. Mr. Landy has a B.S. in
accounting from the University of Florida.

Laurie L. Lindsey has served as the Vice President of Product Development of
our company since October 2001 and from April 2000 to May 2001. From June 2001
to September 2001 Ms. Lindsey was a consultant. From August 1997 to
February 2000, Ms. Lindsey was Director of the EcoTOOLS Product Center for
Compuware. From February 1992 to June 1997, Ms. Lindsey was Director of
Engineering at Novell, Inc. Ms. Lindsey received her B.S. in Mathematics and
Computer Science from University of California, Riverside, and her M.S. in
Computer Science from California State University, Fullerton.

Kevin C. Riley has served as the President of the e-learning Division of our
company since September 2001. From January 1999 to September 2001, Mr. Riley
served as Executive Vice President of Sales and Marketing of Street Technologies
and President of the Learning Services Division of Learn2.com. From August 1996
to January 1999, Mr. Riley served as Executive Vice President of Sales and
Marketing of Ziff-Davis Education.

Jerry Sandoval is a co-founder of Etracks and has served as President of
Etracks since June 1998. During the period from October 1996 to June 1998, Mr.
Sandoval served as President, Vice President of Research & Development and
Director of Development at Make It So, Inc.

CLASSIFIED BOARD

Our certificate of incorporation provides for a classified board of
directors consisting of three classes of directors, each serving staggered
three-year terms. As a result, a portion of our board of directors will be
elected each year. Rebecca Saeger has been designated a Class III director whose
term expires at the 2002 annual meeting of stockholders. Robert J. Cresci and
John V. Balen have been designated as Class I directors whose terms expire at
the 2003 annual meeting of stockholders. Robert H. Ewald and Marcelo Gumucio
have been designated as Class II directors whose terms will expire at the 2004
annual meeting of stockholders. This classification of the board of directors
may delay or prevent a change in control of our company or in our management.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Section 16(a) of the Exchange Act requires our officers and directors, and
persons who own more than 10% of a registered class of our equity securities, to
file reports of ownership on Form 3 and changes in ownership on Form 4 or
Form 5 with the SEC. Such officers, directors and 10% stockholders are also
required by the Securities and Exchange Commission's rules to furnish us with
copies of all Section 16(a) forms they file. Based solely on our review of the
copies of such forms received by us, we believe that, during the fiscal year
ended December 31, 2001, all Section 16(a) filing requirements

34

applicable to its officers, directors and 10% stockholders were satisfied,
except that James A. Cannavino, Stephen P. Gott, S. Lee Kling, Marc E. Landy,
Laurie L. Lindsey, Kevin C. Riley and Donald Schupak each filed a Form 3 late.

ITEM 11. EXECUTIVE COMPENSATION

DIRECTOR COMPENSATION

Except as described in this Item 11, we do not currently compensate our
directors in cash for their service as members of the board of directors,
although we reimburse our directors for expenses in connection with attendance
at board of director, compensation committee and audit committee meetings. We
currently pay Mr. Ewald $24,166 per month for his services as Executive Chairman
of the Board of Directors. In addition, we provide Mr. Ewald with health
coverage and other employee benefits. We currently pay Mr. Gumucio $9,537 per
month for his service as a board member. In addition, we provide Mr. Gumucio
with health coverage and other employee benefits, and have agreed to provide
Mr. Gumucio and his dependents with continued health coverage until age of 65.
Under our stock option plan, directors are eligible to receive stock option
grants at the discretion of the board of directors or other administrator of the
plan.

EXECUTIVE COMPENSATION

The table below summarizes the compensation earned for services rendered to
us in all capacities for the fiscal year ended December 31, 2001, by each person
that (i) served as chief executive officer during the last fiscal year,
(ii) two highly compensated executive officers that were serving as executive
officers at the end of the fiscal year and (iii) any individual that would have
qualified under category (ii) but for the fact that such individual was not an
executive officer at the end of the fiscal year. These executives are referred
to herein as the named executive officers.

- --------------------------
(1) Mr. Gott served as Chief Executive Officer and President of our company from
September 2001 to October 2001.

(2) Mr. Malysz served as Vice President, General Counsel and Secretary of our
company from June 1999 to September 2001. In addition, he served as Chief
Financial Officer of our company from April 2000 to September 2001.

35

(3) Mr. Witmond served as Vice President, Business Development of our company
from August 1999 until May 2001.

(4) Includes $267,464 for the forgiveness of a portion of a loan and a
contribution to our 401(k) of plan in 2001 on behalf of Mr. Ewald.

(5) Includes $270,523 for the forgiveness of a portion of a loan and a
contribution to our 401(k) plan in 2000 on behalf of Mr. Ewald.

(6) Includes $860,000 for a stock bonus award and a contribution to our 401(k)
plan in 2001 on behalf of Mr. Ewald.

(7) Includes $300,000 of severance paid to Mr. Gott in connection with his
resignation from our company in October 2001.

(8) Includes $175,000 of severance paid to Mr. Malysz in connection with his
termination of employment from our company in September 2001, $70,313 for a
forgiveness of loan, and a contribution to our 401(k) plan in 2001 on behalf
of Mr. Malysz.

(9) Includes $58,008 for common stock repurchased at a price exceeding the fair
value of the common stock at the date of repurchase and a contribution to
our 401(k) plan in 2000 on behalf of Mr. Malysz.

(10) Represents a contribution to our 401(k) plan in behalf of the named
executive officer.

(11) Includes $63,408 for common stock repurchased at a price exceeding the fair
value of the common stock at the date of repurchase and a contribution to
our 401(k) plan in 2000 on behalf of Mr. Witmond.

(12) Includes $175,000 of severance paid to Mr. Witmond in connection with his
termination of employment from our company in May 2001, $200,000 for a
forgiveness of a loan, and a contribution to our 401(k) plan in 2001 on
behalf of Mr. Witmond.

(13) Includes $53,776 of severance paid to Ms. Lindsey in connection with her
termination of employment from our company in May 2001 and a contribution to
our 401(k) plan in 2001 on behalf of Ms. Lindsey. Ms. Lindsey was rehired by
the Company in October, 2001.

OPTION GRANTS IN LAST FISCAL YEAR

The following table provides certain information relating to stock options
granted to our named executives during the fiscal year ended December 31, 2001.
In addition, as required by rules promulgated by the Securities and Exchange
Commission, the table sets forth the hypothetical gains that would exist for the
shares subject to such options based on assumed annual compound rates of stock
price appreciation during the option term.

- --------------------------
(1) We granted stock options representing approximately 448,000 shares of our
common stock to employees during the fiscal year ended December 31, 2001.

(2) The potential realizable value illustrates value that might be realized upon
exercise of the options immediately prior to the expiration of their terms,
assuming the specified compounded rates of appreciation of the market price
per share from the date of grant to the end of the option term. Actual
gains, if any, on stock options exercises are dependent upon a number of
factors, including the future performance of our common stock and the timing
of option exercises, as well as the optionee's continued employment through
the vested period. There can be no assurance that the amounts reflected in
this table will be achieved.

36

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

The following table provides information about exercised stock options held
by our named executive officers. During fiscal year 2001, none of our named
executives exercised stock options.

- --------------------------
(1) Value based on the December 31, 2001 closing price of our common stock on
the Nasdaq National Market of $0.12 per share. Underlying options that are
not in the money are not valued in this table.

(2) In January 2002, Messrs. Ewald and Landy elected to participate in an offer
to exchange all of their outstanding stock options in exchange for new
options that will be granted by our company on or about August 1, 2002. The
offer to exchange was made available to certain eligible employees, officers
and directors of our company.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the fiscal year ended December 31, 2001, Thomas L. Rosch, Rebecca
Saeger, S. Lee Kling, James A. Cannavino and Marcelo A. Gumucio served as
members of our company's Compensation Committee.

Pursuant to a stock pledge agreement between our company and Marcelo Gumucio
and Carole Gumucio, as of April 9, 2001, we had the right to repurchase 15,000
shares of our common stock upon an event of default under the agreement. The
stock pledge agreement was entered into in connection with a loan of
approximately $150,000 to the Gumucio's. The purpose of the loans was to pay the
taxes incurred by the Gumucio's upon receipt of a 62,500 share stock bonus to
Mr. Gumucio. Mr. Gumucio issued to our company a promissory note in connection
with the loan. In September 2001, we forgave the promissory note issued by
Mr. Gumucio in its entirety together with a tax gross up on the forgiveness.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS.

In September 2001, we entered into a retention agreement with Robert H.
Ewald, which provides for the payment of one year base salary, continued health
coverage for a one year period, and the forgiveness of loans related to the
early exercise of stock options in the event that Mr. Ewald's employment is
terminated without "Cause" (as defined in the retention agreement) or if
Mr. Ewald resigns his employment for "Good Reason" (as defined in the retention
agreement) within the two-year period following the completion of the merger
with Learn2.com, Inc.

Learn2.com entered into an Employment Agreement, dated as of February 16,
1999, employing Marc E. Landy as its Chief Financial Officer. The parties
entered into amendments to the employment agreement dated as of February 16,
2001 and February 16, 2002. The term of Mr. Landy's employment agreement
continues until February 16, 2003, subject to earlier termination for death,
disability, resignation or removal. Mr. Landy's annual base salary is $175,000.
If Mr. Landy resigns his employment for "Good Reason" (as defined in the
employment agreement), if we terminate his employment without "Cause" (as
defined in the employment agreement), or if we elect not to extend the term of
Mr. Landy's employment, Mr. Landy will be entitled to (1) receive his base
salary, benefits and incentive bonuses to which he is entitled but not paid, up
to and including the effective date of his termination of employment,
(2) receive an amount equal to one year's base salary, (3) with respect to fully
vested options, the privilege of exercising the unexercised portion of such
options upon the later of (x) one year from the effective date of his
termination or (y) thirty days from the expiration of any restriction on the
sale, transfer or other disposition of the shares of common stock underlying the
options, and (4) receive an amount equal to the higher of (x) any bonus or
incentive compensation he earned or received with respect to the prior fiscal
year or (y) $40,000. Mr. Landy's employment agreement also contains
confidentiality, non-competition and indemnification provisions.

37

Street Technologies entered into an Employment Agreement, dated as of
January 12, 1999, employing Kevin C. Riley. The parties entered into an
Amendment to the employment agreement on April 18, 2001. Mr. Riley's base salary
is $190,000. If Mr. Riley resigns his employment for "Good Reason" (as defined
in the employment agreement), or if Learn2, Inc. terminate his employment
without "Cause" (as defined in the employment agreement), Mr. Riley will be
entitled to (1) receive his base salary, benefits and incentive bonuses to which
he is entitled but not paid, up to and including the effective date of his
termination of employment, (2) receive his base salary paid consistent with
Learn2, Inc.'s payroll practices for one (1) year from the effective date of his
termination of employment under the employment agreement, (3) with respect to
all fully vested options owned by him on the effective date of his termination
of employment under the employment agreement, the privilege of exercising the
unexercised portion of the options upon (1) year from the effective date of his
termination of employment, and (4) receive an amount equal to $60,000.

We entered into an Employment Agreement, dated as of October 1, 2001,
employing Laurie L. Lindsey as our Vice President, Product Development.
Ms. Lindsey's annual base salary is $175,000 and is eligible to receive a
performance bonus. Ms. Lindsey is being reimbursed for certain expenses related
to relocation.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The following table sets forth certain information that has been provided to
our company with respect to the beneficial ownership of shares of our common
stock as of March 20, 2002 by (i) each person known by us to be the beneficial
owner of more than 5% of the outstanding shares of our common stock, (ii) each
of our directors, (iii) each of our named executive officers listed in the
Summary Compensation Table and (iv) all directors and executive officers of our
company as a group. Unless otherwise noted, we believe that all persons named in
the table have sole voting and investment power with respect to all shares of
common stock beneficially owned by them. Unless otherwise indicated, the address
for each stockholder listed in the following table is c/o Learn2 Corporation,
111 High Ridge Road, Stamford, Connecticut 06905.

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

* Represents beneficial ownership of less than 1% of our outstanding common
stock.

38

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options or warrants held by that person
that are exercisable within 60 days of March 20, 2002 are deemed
outstanding. Such shares, however, are not deemed outstanding for purposes
of computing the ownership of any other person.

(2) As of March 20, 2002, there were 75,576,764 shares of our common stock
outstanding.

(3) Mr. Balen disclaims beneficial ownership of 1,497,877 shares of our common
stock beneficially owned by Canaan Equity, L.P. Mr. Balen is a principal of
Canaan Partners.

(4) Mr. Cresci disclaims beneficial ownership of (i) 96,968 shares of our common
stock held by the Declaration of Trust for Defined Benefit Plans of Zeneca
Holdings Inc., (ii) 145,490 shares of our common stock held by the
Declaration of Trust for Defined Benefit Plans of ICI American
Holdings Inc. and (iii) 484,990 shares of our common stock held by the
Delaware State Employees' Retirement Fund. The funds listed in this footnote
are managed by Pecks Management Partners Ltd., of which Mr. Cresci is a
Managing Director.

(5) Shares shown as beneficially owned include 474,700 shares of our common
stock issuable upon the exercise of options.

(6) Shares shown as beneficially owned include 31,250 shares of our common stock
issuable upon the exercise of stock options and 69,954 shares that are
unvested and subject to a right of repurchase of our Company which lapses
over time.

(7) Shares shown as beneficially owned include 37,500 shares of our common stock
issuable upon the exercise of options.

(8) Shares shown as beneficially owned include 68,750 shares of our common stock
issuable upon the exercise of options.

CHANGE IN CONTROL

We are not aware of any arrangement the operation of which may at a
subsequent date result in a change in control of our company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRASNACTIONS

In connection with the early exercise of stock options held by Robert H.
Ewald, Chairman of the Board of our company, Edward F. Malysz, former Vice
President, General Counsel, Secretary and Chief Financial Officer of our
company, and Roderick M. Witmond, former Vice President of Business Development
of our company, we extended secured loans to each of Messrs. Ewald, Malysz and
Witmond. The loans were secured pursuant to restricted stock purchase agreements
and related letter agreements between our company and each of Messrs. Ewald,
Malysz and Witmond. Messrs. Ewald, Malysz and Witmond issued to our company
promissory notes in connection with these loans. In October 2000, we repurchased
at the original purchase price certain of the shares held by Messrs. Ewald,
Malysz and Witmond, and reduced the principal amount remaining under the
promissory notes. In September 2001, we forgave the promissory notes issued by
Messrs. Malysz and Witmond in their entirety together with a tax gross up on the
forgiveness. The principal amount currently outstanding under the promissory
note issued by Mr. Ewald is approximately $469,688 and under the terms of
Mr. Ewald's retention agreement, the loan will be forgiven in the event that
Mr. Ewald's employment is terminated without "Cause" (as defined in the
retention agreement) or if Mr. Ewald resigns his employment for "Good Reason"
(as defined in the retention agreement) within the two-year period following the
completion of the merger with Learn2.com, Inc. We have fully reserved the loan.

Pursuant to a stock pledge agreement between our company and Marcelo Gumucio
and Carole Gumucio and a stock pledge agreement between our company and Robert
H. Ewald, as of April 9,

39

2001, we had the right to repurchase 15,000 and 4,374 shares of our common
stock, respectively, upon an event of default under such agreements. The stock
pledge agreements were entered into in connection with a loan of approximately
$410,000 to Mr. Ewald and a loan of $150,000 to the Gumucio's. The purpose of
the loans was to pay the taxes incurred by both parties upon receipt of a
125,000 share stock bonus to Mr. Ewald and a 62,500 share stock bonus to
Mr. Gumucio. Messrs. Ewald and Gumucio issued to our company promissory notes in
connection with these loans. In September 2001, we forgave the promissory notes
issued by Messrs. Ewald and Gumucio in their entirety together with a tax gross
up on the forgiveness.

In the second quarter of 2001, we entered into severance arrangements with
Edward F. Malysz, Roderick M. Witmond, Paul Goldman and Daniel P. Walsh, former
Vice President of Operations of our company. The severance arrangements provide
for the payment of one year of base salary, continued health coverage for a
one-year period, the forgiveness of certain loans related to the early exercise
of stock options and in the case of Mr. Witmond a loan on the purchase of a
home.

In May 2001, we entered into separation agreements with each Laurie L.
Lindsey pursuant to which each executive officer released any claims against our
company and our company agreed to provide each of them with one year of
severance benefits. In October 2001, Ms. Lindsey rejoined our company and we
amended her separation agreement to provide that in the event that she separates
from our company again she will be entitled to receive the remaining severance
benefits under her separation agreement.

In connection with the completion of our merger with Learn2.com, Inc., and
consequential to we made payments aggregating $1.1 million to Robert H. Ewald,
Marc E. Landy Edward F. Malysz, Stephen P. Gott, and an affiliate company of
Donald Schupak, former Director of our company.

On September 25, 2001, we acquired all of the outstanding stock of
Learn2.com. Under the terms of the merger agreement, we issued approximately
37.8 million shares of our common stock. Each share of Learn2.com common stock
outstanding immediately prior to the completion of the merger automatically
converted into the right to receive 0.4747 shares of our common stock resulting
in our stockholders immediately prior to the consummation of the merger owning
approximately 50.1% of the outstanding stock of the combined company. The former
stockholders of Learn2.com including Learn2.com's $10.0 million convertible
debenture holder, received approximately 49.9% of the combined company. In
connection with the merger, we made a pre-closing payment of $1.0 million to
Learn2.com's $10.0 million convertible debenture holder.

PART IV

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

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

40

INDEX TO FINANCIAL STATEMENTS

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

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

(b) Reports on Form 8-K. We filed a Current Report on Form 8-K dated
September 25, 2001 with the Securities and Exchange Commission on October 5,
2001 to report (i) under Items 4 and 7 the change in our certifying accountant
and (ii) under Item 5 the resignation of Stephen P. Gott as a director and
employee of our company and its affiliates.

We filed a Current Report on Form 8-K dated September 25, 2001 with the
Securities and Exchange Commission on October 10, 2001 to report (i) under Item
2 the closing of the merger withLearn2.com, Inc. and (ii) under Item 7 (a) the
consolidated financial statements of Learn2.com, Inc. as of December 31, 2000
and 1999 and (b) the unaudited consolidated financial statements of
Learn2.com, Inc. as of March 31, 2001 and June 30, 2001.

We filed a Current Report on Form 8-K/A dated September 25, 2001 with the
Securities and Exchange Commission on December 6, 2001 to report (i) under Item
2 (a) the closing of the merger with Learn2.com, Inc. and (b) the relisting of
our common stock on the Nasdaq National Market and (ii) under Item 7 pro forma
combined condensed statements of operations for the nine-month period ended
September 30, 2001 and the year ended December 31, 2000 reflecting the merger
with Learn2.com, Inc.

(c) Exhibits The following exhibits are filed with this report:

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

(1) Incorporated by reference from the Registration Statement on Form S-1/A-2
(Registration No. 333-85359) filed by E-Stamp Corporation with the
Securities and Exchange Commission on September 13, 1999.

42

(2) Incorporated by reference from the Registration Statement on Form S-1
(Registration No. 333-85359) filed by E-Stamp Corporation with the
Securities and Exchange Commission on August 17, 1999.

(3) Incorporated by reference from the Registration Statement on Form S-1
(Registration No. 333-96013) filed by E-Stamp Corporation with the
Securities and Exchange Commission on February 2, 2000.

(4) Incorporated by reference from the Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2000 (SEC File No. 0-27417) filed by
E-Stamp Corporation with the Securities and Exchange Commission on
November 14, 2000.

(5) Incorporated by reference from the Annual Report on Form 10-K for the fiscal
ended December 31, 2000 (SEC File No. 0-27417) filed by E-Stamp Corporation
with the Securities and Exchange Commission on March 29, 2001.

(6) Incorporated by reference from the Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2001 (SEC File No. 0-27417) filed by
E-Stamp Corporation with the Securities and Exchange Commission on
November 14, 2001.

(7) Incorporated by reference from the Registration Statement on Form S-4/A-1
(Registration No. 333-60520) filed by E-Stamp Corporation with the
Securities and Exchange Commission on June 29, 2001.

(8) Incorporated by reference from the Registration Statement on Form S-3
(Registration No. 333-75232) filed by Learn2 Corporation with the Securities
and Exchange Commission on December 14, 2001.

43

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Stamford,
Connecticut, on March 28, 2002.

LEARN2 CORPORATION

By: /s/ MARC E. LANDY
-----------------------------------------
Marc E. Landy
Executive Vice President, Chief Financial
Officer Secretary and Treasurer

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

44

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
Learn2 Corporation:

We have audited the accompanying consolidated balance sheet of Learn2
Corporation (a Delaware corporation) as of December 31, 2001, and the related
statements of operations, redeemable convertible preferred stock and
stockholders' equity (deficit) and cash flows for the year 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 audit.

We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides 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 Learn2 Corporation as of
December 31, 2001, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from and
negative cash flow from operations that raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

Arthur Andersen LLP

New York, New York
March 13, 2002

F-1

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
E-Stamp Corporation

We have audited the accompanying balance sheets of Learn2 Corporation
(formerly E-Stamp Corporation) as of December 31, 2000, and the related
statements of operations, redeemable convertible preferred stock and
stockholders' equity (deficit), and cash flows for each of the two years in the
period ended December 31, 2000. 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. 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 Learn2 Corporation (formerly
E-Stamp Corporation) at December 31, 2000, and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 2000,
in conformity with accounting principles generally accepted in the United
States.

The accompanying financial statements have been prepared assuming that
Learn2 Corporation (formerly E-Stamp Corporation) will continue as a going
concern. As more fully described in Note 1, in April 2001, the Company announced
its intention to cease its current business operations prior to its proposed
merger with Learn2.com. This condition raises substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.

/s/ ERNST & YOUNG LLP

Palo Alto, California
February 20, 2001
except for the third paragraph of Note 1,
as to which the date is April 20, 2001.

F-2

LEARN2 CORPORATION
CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31,
(IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)

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

F-3

LEARN2 CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS

YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)

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

F-4

LEARN2 CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
(IN THOUSANDS)

F-5

LEARN2 CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
(IN THOUSANDS) (CONTINUED)

See notes 3, 4 and 7 for supplemental disclosures on acquisition information and
non-cash financing activities.
The accompanying notes are an integral part of these consolidated financial
statements.

F-6

LEARN2 CORPORATION
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)

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

F-7

LEARN2 CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001

NOTE 1. INCORPORATION, NATURE OF BUSINESS AND BASIS OF PRESENTATION

INCORPORATION AND NATURE OF BUSINESS

Learn2 Corporation (formerly known as E-Stamp Corporation), a Delaware
corporation (the "Company" or "Learn2"), was incorporated on August 23, 1996.
The Company originally provided an Internet postage service that enabled users
to purchase, download and print Internet postage directly from their personal
computers without the need to maintain a persistent Internet connection. On
September 25, 2001, the Company acquired all of the outstanding shares of
Learn2.com Inc., changed its name to Learn2 Corporation and assumed the on-going
operations of Learn2.com. Learn2.com's offerings included engaging online and
physical learning and training products and complementary services, commonly
referred to as e-learning services, marketed to corporate, government and
individual clients and customers and provided e-mail marketing services. As a
result of the merger, the Company will operate in two segments referred to as
"e-learning" and "permission e-mail marketing". In connection with its proposed
merger with Learn2.com the Company announced that it would discontinue its
existing transportation management business prior to completion of the merger.
Accordingly, the Company's consolidated financial statements and notes included
herein reflect its businesses as discontinued operations through September 25,
2001 in accordance with Accounting Principles Board Opinion ("APB") No. 30. The
results of discontinued operations do not include any interest income, interest
expense or allocation of corporate expenses.

BASIS OF PRESENTATION

FISCAL 2000

The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company has incurred significant
net losses and negative cash flows from operations since its inception. At
December 31, 2000, the Company had an accumulated deficit of approximately
$188.7 million. On April 20, 2001, the Company announced that it had signed a
merger agreement with Learn2.com. The merger agreement was subject to certain
closing conditions including maintaining a minimum net cash position at the
closing date and approvals from stockholders of both companies. Pursuant to the
terms of the merger agreement, upon completion of the merger, E-Stamp
stockholders were to own approximately 50.1% of the combined company. The
Company also announced that it would discontinue its existing transportation
management solution business prior to the closing of the merger. As a result of
these actions at the time in April 2001, there was no assurance that the Company
would be able to close the merger, and the Company's announcement that it would
discontinue its remaining operations raised substantial doubt about the
Company's ability to continue as a going concern if the Company failed to
complete the merger. Accordingly, Ernst & Young LLP's audit report with respect
to the financial statements for the year ended December 31, 2000, included an
explanatory paragraph highlighting the substantial doubt about the Company's
ability to continue as a going concern. The financial statements for the year
ended December 31, 2000, did not include any adjustments that might have
resulted from this uncertainty.

FISCAL 2001

The Company has incurred significant net losses and negative cash flows from
operations since its inception. At December 31, 2001, the Company had an
accumulated deficit of approximately $211 million. On March 4, 2002 (Note 14),
the Company announced that it will phase out its production and distribution
operations in Pryor, Oklahoma and consolidate its e-learning business in

F-8

LEARN2 CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 (CONTINUED)

NOTE 1. INCORPORATION, NATURE OF BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
Golden, Colorado, which is the current home of its courseware and authoring tool
development activities. The Company eliminated approximately sixty positions,
primarily in the Oklahoma facility and certain field sales operations. Severance
and related expenses attributable to the elimination of these positions will be
approximately $300,000 and will be recorded as part of a restructuring charge in
the quarter ending March 31, 2002. As a result of this decision, the Company
reduced the value of its intangible assets through an impairment charge as of
December 31, 2001 by approximately $330,000. The operating results for future
periods are subject to numerous uncertainties. Failure to generate sufficient
revenue or to reduce costs as necessary could have a material adverse effect on
the Company's ability to continue as a going concern and achieve its business
objectives.

Management believes that if the Company meets its revenue and cash
collection targets on a timely basis, the Company will have sufficient resources
for its operating requirements and sufficient resources to realize its business
plan at least for the next twelve months.

The Company's consolidated financial statements for the year ended
December 31, 2001 were prepared on a going concern basis, which contemplates the
realization of assets and settlement of liabilities in the normal course of
business. However, the Company's ability to achieve positive cash flow depends
upon a variety of factors, including the timely introduction and market success
of its products, the costs of developing, producing and marketing these
products, adoption of the Internet as a medium of commerce and delivery of
services, general economic conditions and various other factors, some of which
may be beyond the Company's control. Many of the Company's costs are fixed and
are based on anticipated revenue levels. The Company may be unable to adjust its
spending quickly enough to offset any unexpected revenue shortfall or cash
collections. If the Company has a shortfall in cash collections or in revenues
in relation to expenses, or if expenses continue to exceed revenues, then its
results of operations and financial condition would be affected adversely and it
may need to raise additional funds. If the Company needs to raise additional
funds it cannot be certain that it will be successful nor can it predict the
terms under which such funds would be available if at all. If additional funds
are not available it may not be able to meet its on-going expenses unless it
changes its business plan, sell assets, curtail expenditures, and/or employ
other strategies as are required in these circumstances.

Because of the Company's announcement on April 20, 2001, that it was
discontinuing the remaining business operations, the statements of operations
for the years ended December 31, 2001, 2000, and 1999 have been restated to
reflect the results of the Company's Internet postage and transportation
management solutions as discontinued operations, in accordance with Accounting
Principles Board Opinion No. 30 ("APB 30").

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

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

F-9

LEARN2 CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 (CONTINUED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS

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

CRITICAL ACCOUNTING ESTIMATES.

The preparation of consolidated financial statements requires Learn2 to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, Learn2 evaluates its estimates, including
those related to customer programs and incentives, product returns, bad debts,
inventories, intangible assets, and contingencies and litigation. Learn2 bases
its estimates on historical experience and on various other assumptions 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.

REVENUE RECOGNITION

Learn2 generates revenue primarily from the sales and licensing of
courseware and development tools and permission email marketing services.

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

Revenue from courseware licensing sales delivered online is recognized when
persuasive evidence of an arrangement exists, delivery has occurred, the sales
price is fixed or determinable and collectibility is probable. Learn2 defers a
portion, generally 3% of the selling price of these sales for hosting and
recognizes that hosting ratably over the contractual period. Learn2 recognizes
the two components, the software, (or training course) and the service (or
hosting) based on their relative fair values.

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

Revenues from permission email marketing services are recognized at the time
the broadcast is sent, as Learn2 has no further significant obligations and
collectibility is probable.

F-10

LEARN2 CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 (CONTINUED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND PRODUCT DEVELOPMENT EXPENDITURES

Costs incurred in research and development are expensed as incurred.
Software development costs are required to be capitalized when a product's
technological feasibility has been established through the date the product is
available for general release to customers. Learn2 has not capitalized any
software development costs as technological feasibility is generally not
established until a working model is completed at which time substantially all
development is complete.

ADVERTISING EXPENSES

Except for cooperative advertising, which is a reduction of gross revenue,
the Company expenses the cost of advertising and promoting its services as
incurred. Such costs are included in sales and marketing in the consolidated
statements of operations.

INTERNAL-USE SOFTWARE

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

Learn2's financial instruments consist of cash and cash equivalents,
investments in marketable securities, accounts receivable, accounts payable,
notes payable and accrued expenses. At December 31, 2001 and 2000, the carrying
amounts of these instruments approximated their fair value.

INCOME TAXES

Learn2 accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109") using the
asset and liability method. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using currently
enacted tax rates. The effect of a change in tax rates on deferred tax assets
and liabilities is recognized in the results of operations in the period that
includes the enactment date.

STOCK-BASED COMPENSATION

Learn2 accounts for its employee stock option plans in accordance with the
provisions of Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees" and related interpretations. APB No. 25 provides
that the compensation expense related to Learn2's employee stock options is
measured based on the intrinsic value of the stock option. SFAS No. 123
"Accounting for Stock-Based Compensation" requires companies that continue to
follow APB No. 25 to

F-11

LEARN2 CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 (CONTINUED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
provide a pro forma disclosure of the impact of applying the fair value method
of SFAS No. 123 (Note 11). Learn2 accounts for stock issued to non-employees in
accordance with the provisions of SFAS No. 123 and the Emerging Issues Task
Force consensus in Issue No. 96-18,

"Accounting for Equity Instruments That Are Issued to Other Than Employees
for Acquiring, or in Conjunction with Selling, Goods or Services." Deferred
stock compensation is amortized over the vesting period of the individual
options, generally four years, using the graded vesting method. The graded
vesting method provides for the amortization of the deferred stock compensation
on an accelerated basis which results in higher amortization in earlier years
than the straight-line method.

CASH AND CASH EQUIVALENTS

Learn2 considers all highly liquid investments with a remaining maturity of
three months or less when purchased to be cash equivalents Cash equivalents
include highly liquid, temporary cash investments having original maturity dates
of three months or less. For reporting Learn2's cash and cash equivalents are
carried at cost, which approximates market.

INVENTORIES

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

FIXED ASSETS

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

IMPAIRMENT OF LONG-LIVED ASSETS

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

OTHER INTANGIBLE ASSETS

Other intangibles include identifiable intangible assets purchased by the
Company, in connection with its business acquisition on September 25, 2001, (See
Note 4.) Other intangibles are presented net of related accumulated amortization
and impairment charges.

Learn2 records impairment losses other intangible assets when events and
circumstances indicate that such assets might be impaired and the estimated fair
value of the asset is less than its recorded amount. Conditions that would
necessitate an impairment assessment include material adverse changes in
operations, significant adverse differences in actual results in comparison with
initial valuation forecasts prepared at the time of acquisition, a decision to
abandon acquired products, services or

F-12

LEARN2 CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 (CONTINUED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
technologies, or other significant adverse changes that would indicate the
carrying amount of the recorded asset might not be recoverable.

RECLASSIFICATIONS

Certain prior-year amounts have been reclassified to conform the current
year's presentation.

RECENT ACCOUNTING PRONOUNCEMENTS

In October 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS 144), which is effective for
fiscal years beginning after December 15, 2001. SFAS 144 supersedes certain
provisions of Accounting Principles Board (APB) Opinion No. 30, Reporting the
Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions and supersedes SFAS 121. The Company does not expect the adoption
of SFAS 144 to have a material effect on its consolidated financial position or
results of operations.

NOTE 3. ACQUISITIONS

On September 25, 2001, the Company acquired all of the outstanding stock of
Learn2.com, and changed its name to Learn2 Corporation. Under the terms of the
merger agreement, the Company issued approximately 37.7 million shares of its
common stock. Each share of Learn2.com common stock outstanding immediately
prior to the completion of the merger automatically converted into the right to
receive 0.4747 shares of common stock of the Company, resulting in the
stockholders of the Company immediately prior to the consummation of the merger
owning approximately 50.1% of the outstanding stock of the combined company. The
former stockholders of Learn2.com, including Learn2.com's $10.0 million
convertible debenture holder, received approximately 49.9% of the combined
company. The total value of the transaction was approximately $19.2 million
including approximately $6.6 million of assumed liabilities, transaction costs
totaling approximately $5.2 million and a pre-closing payment of $1.0 million to
Learn2.com's $10.0 million convertible debenture holder. The transaction was
accounted for using the purchase method of accounting pursuant to SFAS 141. The
results of Learn2.com for the period from September 25, 2001 through
December 31, 2001 are included in the consolidated statement of operations for
the year ended December 31, 2001.

In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS 141, "Business Combinations" which supersedes APB Opinion No. 16, "Business
Combinations." SFAS 141 requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. In addition, SFAS 141 establishes specific criteria
for the recognition of intangible assets separately from goodwill and requires
unallocated negative goodwill to be written off immediately as an extraordinary
gain. The Company adopted SFAS 141 in connection with its acquisition of
Learn2.com.

In July 2001, the FASB also issued SFAS 142, "Goodwill and Other Intangible
Assets," which is effective for fiscal years beginning after December 15, 2001.
Certain provisions shall also be applied to acquisitions initiated subsequent to
June 30, 2001. SFAS 142 supercedes APB Opinion No. 17 "Intangible Assets" and
requires, among other things, the discontinuance of amortization related to

F-13

LEARN2 CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 (CONTINUED)

NOTE 3. ACQUISITIONS (CONTINUED)
goodwill and indefinite lived intangible assets. These assets will then be
subject to an impairment test at least annually. In addition, the standard
includes provisions upon adoption for the reclassification of certain existing
recognized intangibles as goodwill, reassessment of the useful lives of existing
recognized intangibles and reclassification of certain intangibles out of
previously reported goodwill. The Company also adopted the provisions of SFAS
No. 142 in connection with its acquisition of Learn2.com, As a result of the
restructuring announced on March 4, 2002, the Company recorded an impairment
charge of approximately $330,000 in the fourth quarter of 2001.

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

Total Learn2 Corporation shares outstanding prior to the
merger.................................................... 37,842
Learn2 Corporation common stock per share market value at
date the merger was announced............................. $ 0.17
-------
$ 6,433
Ownership factor from the merger agreement.................. 99.5%
Value of Learn2 Corporation common stock issued in
connection with the merger................................ 6,400
Pre-closing payment......................................... 1,000
Liabilities assumed......................................... 6,596
Transaction costs........................................... 5,159
-------
Total....................................................... $19,155
=======

Under the purchase method of accounting, the net purchase price under this
transaction has been allocated to the assets and liabilities of Learn2.com based
on their estimated values at the date of the transaction. However, the estimated
fair values of the net assets acquired of Learn2.com at the date of the
transaction totaled $23.3 million, which exceeded the purchase price of
$19.2 million resulting, in a deficiency of approximately $4.1 million. The
deficiency has been allocated to reduce proportionately the long-lived tangible
and intangible assets on the basis of relative fair values based on an
independent third-party valuation. The following table sets forth the allocation
(in thousands):

F-14

LEARN2 CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 (CONTINUED)

NOTE 3. ACQUISITIONS (CONTINUED)
The following table sets forth the cash utilized and acquired in the
acquisition (in thousands):

Cash acquired............................................... $ 998
Less: acquisition costs..................................... (5,159)
-------
Net cash utilized in acquisition, net of cash acquired...... $(4,161)
=======

In addition, the Company made a pre-closing payment of $1.0 million to
Learn2.com's $10.0 million convertible debenture holder.

The following unaudited pro forma information has been prepared assuming
that the acquisition of Learn2.com had taken place at the beginning of the
respective periods presented. The unaudited pro forma information presented in
the table below represents the combined loss from discontinued operations, net
loss and loss per share. The pro forma financial information is not necessarily
indicative of the combined results that may occur in the future (in thousands):

F-15

LEARN2 CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 (CONTINUED)

NOTE 4. DISCONTINUED OPERATIONS

Historically, the Company operated under a single reportable segment
consisting of two product lines, Internet postage and transportation management
solutions. In November 2000, the Company phased out its Internet postage
business. On April 19, 2001, the Company entered into a merger agreement under
which it will merge with Learn2.com. The Company also announced it would
phase-out its existing transportation management solutions business prior to the
completion of the merger. Accordingly, the Company's financial statements and
notes included herein reflect its businesses as discontinued operations in
accordance with APB 30. The results of discontinued operations do not include
any interest income, interest expense or allocation of general corporate
expenses. General corporate expenses consist of general and administrative
overhead expenses, including expenses associated with the general
responsibilities of a public company, and exclude those costs associated with
the Company's transportation management solutions and Internet postage
businesses.

In May 2000, the Company acquired all of the issued and outstanding shares
of Infinity Logistics Corporation and Automated Logistics Corp. These companies
provided transportation management and warehouse management solutions that
allowed customers to review carrier rates and shipping options, select a
carrier, print shipping labels, track shipments and create shipping reports. The
total purchase price was approximately $9.0 million and consisted of a cash
payment of $2.5 million, 1,164,000 shares of common stock with a fair market
value of $4.4 million, $0.9 million related to the value of assumed options,
$0.7 million of assumed liabilities and $0.5 million of acquisition related
costs.

Summary operating results of discontinued operations are as follows:

F-16

LEARN2 CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 (CONTINUED)

NOTE 4. DISCONTINUED OPERATIONS (CONTINUED)
The assets and liabilities of discontinued operations, which are included in
the corresponding line item on the balance sheet at December 31, 2001 and 2000,
are as follows (in thousands):

NOTE 5. RESTRUCTURING COSTS AND NON-RECURRING COSTS

During 2000, the Company undertook two corporate restructurings. In
July 2000, the Company restructured its organization to focus on the
development, marketing and sales of its transportation management solutions and
reduce emphasis on its Internet postage business. In November 2000, the Company
restructured the organization to phase out its Internet postage business. The
Company incurred charges of approximately $20.3 million related to these
restructurings, which is included in the net loss from discontinued operations.

In connection with the phase-out of the Internet postage business, the
Company allowed customers to return certain items purchased since September 1,
2000 for a full refund. As a result, the Company did not recognize revenue on
Internet postage products in the fourth quarter of 2000 and recorded a reserve
for sales returns to cover the refund of Internet postage products that occurred
after September 1, 2000. Sales of Internet postage products totaled
$0.6 million from September 1, 2000 through November 2000.

The restructuring charge included $2.3 million related to severance and
other employee costs associated with the elimination of 52 positions. Costs
associated with employee termination included severance pay and medical and
other benefits. All of the affected employees had been notified as of
December 31, 2000. Of the 52 terminated employees, 32 had left the Company by
December 31, 2000 and the remaining 20 employees left at various dates through
April 30, 2001.

Asset write-offs as a result of the abandonment of the Internet postage
business totaled $13.3 million. This amount included $6.9 million related to
property and equipment, $4.6 million related to prepaid marketing and warranty
agreements, $1.4 million for inventory and $.4 million for accounts receivable.

F-17

LEARN2 CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 (CONTINUED)

NOTE 5. RESTRUCTURING COSTS AND NON-RECURRING COSTS (CONTINUED)
The Company also recorded charges totaling $2.9 million related to costs to
terminate various agreements with suppliers, partners and lessors arising from
the decision to phase out the Internet postage business. The following table
sets forth the restructuring activity during 2001 (in thousands):

Amounts reversed are included in the net loss from discontinued operations.

On February 22, 2001, the Company announced a further reduction in force and
the elimination of forty-five employees and contractors from its workforce. In
connection with this action, the Company incurred severance expense of $392,000.
This expense is included in loss from discontinued operations for the year ended
December 31, 2001. All costs were paid as of December 31, 2001.

In 2001, the Company incurred non-recurring charges primarily related and
consequential to the merger totaling approximately $2.6 million. These costs
consisted of $1.4 million for severance and other related payroll charges,
$843,000 for Directors' & Officers' tail insurance for acts that occurred prior
to the Learn2.com acquisition and $340,000 for other costs related to its
November 8, 2001 workforce reduction. There are no accruals as of December 31,
2001 with respect to these non-recurring charges. All costs were paid as of
December 31, 2001.

F-18

LEARN2 CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 (CONTINUED)

NOTE 6. CERTAIN CONSOLIDATED BALANCE SHEET COMPONENTS

Inventories consisted of the following:

Fixed assets, at cost consisted of the following:

Depreciation expense related to fixed assets was approximately $485,000,
$2.4 million and $348,000 in 2001, 2000 and 1999, respectively. In March 2002,
the Company announced that it was putting up for sale is building and land in
Pryor, Oklahoma. The net book value of the building and land at December 31,
2001 was approximately $858.000.

F-19

LEARN2 CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 (CONTINUED)

NOTE 6. CERTAIN CONSOLIDATED BALANCE SHEET COMPONENTS (CONTINUED)
Intangible assets consisted of the following:

Amortization expense related to intangible assets was approximately
$386,000, $1.1 million and $154,000 in 2001, 2000 and 1999, respectively.

Accrued expenses and other current liabilities consisted of the following:

NOTE 7. STOCKHOLDERS' EQUITY

SALES OF COMMON STOCK

On September 10, 1999, the Company issued 726,745 shares of its common stock
and warrants to purchase an additional 83,855 shares of common stock at an
exercise price of $0.01 per share to investors for cash proceeds of
$5.0 million. The fair value of the common stock and warrants was deemed by
management to be $7.8 million and $1.0 million, respectively. The fair value of
the warrants

F-20

LEARN2 CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 (CONTINUED)

NOTE 7. STOCKHOLDERS' EQUITY (CONTINUED)
was computed using the Black-Scholes method using the following assumptions:
expected volatility of 100%, expected life of 3 years, risk free interest rate
of 6.0% and expected dividend yield of 0.0%. The warrants were exercised in
1999.

In connection with the issuance of common stock and warrants, the Company
and the investors signed non-binding letters of intent to negotiate for a period
of up to one year to enter into definitive joint venture, joint marketing,
cooperation, or technology development agreements. The Company recorded the
$3.8 million excess of the fair value of the common stock and warrants over the
consideration received as deferred distribution costs (as a contra equity
account). The balance was amortized to expense over the one-year period covered
by the letter of intent. Amortization of deferred distribution costs amounted to
$2.9 million in 2000 and $0.9 million in 1999. At December 31, 2000, the balance
had been fully amortized.

1999 EMPLOYEE STOCK PURCHASE PLAN

In September 1999, the board of directors and stockholders adopted the 1999
Employee Stock Purchase Plan. A total of 850,000 shares of common stock has been
reserved for issuance under the 1999 Purchase Plan. The 1999 Purchase Plan
permits eligible employees to acquire shares of the Company's common stock
through periodic payroll deductions of up to 15% of total compensation. No more
than 5,000 shares may be purchased on any purchase date per employee. Each
offering period will have a maximum duration of 24 months. The price at which
the common stock may be purchased is 85% of the lesser of the fair market value
of the Company's common stock on the first day of the applicable offering period
or on the last day of the respective purchase period. No shares were purchased
in fiscal 1999 and 2001. In 2000, 151,627 shares were purchased at a weighted
average price of $3.01. At December 31, 2001, 1,048,373 shares remain available
for future issuance.

STOCK OPTION PLANS

Pursuant to the Company's 1996 Stock Option and Restricted Stock Plan, the
1999 Stock Plan, the 1996 Non-Employee Stock Option Plan and the 1999 Director
Option Plan (together, the "Plans"), the board of directors or one of its
designated committees are authorized to grant incentive stock options or
nonstatutory stock options to employees, officers and directors of the Company.
During the year ended December 31, 1999, the board of directors terminated the
1996 Stock Option and Restricted Stock Plan and the 1996 Non-Employee Director
Stock Option Plan with respect to future grants. As of December 31, 2001, a
total of 13.7 million shares remain available for future grants under the Plans.

Stock options are limited to ten-year terms, and options generally vest at
the rate of 25% upon the first anniversary of the grant and 6.25% each quarter
thereafter. The exercise price for stock options may not be less than the fair
value of the shares on the date of grant for incentive stock options and is
subject to the discretion of the committee for nonstatutory stock options.
Restricted stock may be granted at no cost to recipients. Compensation expense,
if any, equal to the fair value of the restricted stock or stock options granted
in excess of the purchase or exercise price, is recognized over the related
vesting period using the graded vesting method.

F-21

LEARN2 CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 (CONTINUED)

NOTE 7. STOCKHOLDERS' EQUITY (CONTINUED)

In May 2000, in connection with the acquisitions of Infinity Logistics
Corporation and Automated Logistics Corp., the Company assumed the option plans
of these companies and converted all outstanding options to purchase the common
stock of these companies to options to purchase the Company's common stock. The
assumed options have a maximum term of ten years and generally vest ratably over
two to four years on a monthly basis. No further options can be granted under
the Infinity and Automated Logistics plans.

In September 2001, in connection with the merger with Learn2.com, Inc., the
Company assumed the option plans of Learn2.com and converted all outstanding
options to purchase 5.1 million shares of common stock of Learn2.com into
options to purchase the Company's common stock. The options have a maximum term
of ten years. Of these, options to purchase 3.4 million shares vested as a
result of the merger. Options to purchase 1.2 million shares vest in April 2002
and the remainder vest over the next four years. No further options can be
granted under the Learn2.com, Inc. plans.

A summary of activity under the Company's Plans is as follows:

F-22

LEARN2 CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 (CONTINUED)

NOTE 7. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options at
December 31, 2001:

STOCK-BASED COMPENSATION

During 1995, the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"), which became effective for the Company's 1996 fiscal
year. FAS 123 requires the Company to disclose the pro forma effect of the
method of accounting prescribed in FAS 123, which would generally require the
Company to record compensation expense equal to the fair value of a stock option
or employee stock purchase plan right on the grant date.

The fair value of the Company's stock-based awards to employees prior to the
Company's initial public offering in October 1999 was estimated using the
minimum value method. Options and employee stock purchase plan rights granted
subsequent to the initial public offering have been valued using the
Black-Scholes pricing model using the following weighted average assumptions.

* Prior to the Company's initial public offering in October 1999, expected
volatility was 0%

For pro forma purposes, the estimated fair value of the Company's
stock-based awards to employees is amortized ratably over the award's vesting
period. If the Company had elected to recognize compensation cost based on the
fair value of the options granted at grant date as prescribed

F-23

LEARN2 CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 (CONTINUED)

NOTE 7. STOCKHOLDERS' EQUITY (CONTINUED)
by FAS 123, net loss and net loss per share would have increased to the pro
forma amounts indicated in the table below (in thousands except per share
amounts):

The weighted-average fair value of options granted during 2000, 1999 and
1998 was $3.79, $7.89 and $4.42, respectively. The weighted average fair value
of employee stock purchase plan rights granted in 2000 was $0.56.

On December 4, 2001, the Company's board of directors approved a stock
option exchange program. Under the terms of the exchange program, the Company
offered to exchange all outstanding unexercised options with an exercise price
greater than $0.12 per share (the closing price of the Company's common stock on
December 20, 2001, the date the Offer to Exchange commenced) to purchase shares
of the Company's common stock held by eligible employees, officers and directors
for new options the Company will grant under the Plan. Employees, officers and
directors were "eligible" to participate in the offer if they (i) were
employees, officers and/or directors of the Company or its subsidiaries
(including Learn2.com, Inc. and ViaGrafix Corporation) on September 25, 2001,
and (ii) are employees, officers and/or directors of Learn2 or its subsidiaries
on both the date (A) the offer commences and (B) the Company grants the new
options under the Plan, which will be on or about August 1, 2002.

The number of shares subject to the new options will be granted to each
eligible employee, officer and director will be equal to the number of shares
subject to the options tendered by the eligible employee, officer and director
and accepted for exchange. Subject to the terms and conditions of this offer,
the grant date for the new options will be on or about August 1, 2002. The offer
expired on January 28, 2002. The Company accepted for cancellation options to
purchase 4,391,140 shares of the Company's common stock. The Company will issue
new options to purchase up to a total of 4,391,140 shares of the Company's
common stock in exchange for the options surrendered in the offer on or about
August 1, 2002 and priced at its closing market price as reported in the Nasdaq
National Market (or any other securities quotation system or any stock exchange
on which are shares are then quoted or listed) on that date.

DEFERRED STOCK COMPENSATION

The Company recorded deferred stock compensation of approximately
$23.2 million and $3.6 million in 1999 and 1998, respectively, representing the
difference between the exercise price and the deemed fair value, for financial
reporting purposes, of the Company's common stock on the grant

F-24

LEARN2 CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 (CONTINUED)

NOTE 7. STOCKHOLDERS' EQUITY (CONTINUED)
date for certain of the Company's stock options granted to officers and
employees. In the absence of a public market for the Company's common stock, the
deemed fair value was determined by the Company's board of directors and was
based on the price per share of sales of equity securities to third parties.

During 2000, the Company reversed approximately $3.9 million of deferred
stock compensation related to unvested stock options that were forfeited upon
the employee's termination of employment.

During 2001, the Company reversed approximately $1.9 million of deferred
stock compensation related to unvested stock options that were forfeited upon
the employee's termination of employment.

In 2000, the Company recorded deferred stock compensation of $1.2 million
related to the acquisitions of Infinity Logistics Corporation and Automated
Logistics Corp. Approximately $0.9 million of this amount related to an
agreement with a stockholder of Infinity Logistics Corporation and Automated
Logistics Corp. to remain an employee of the Company for a two-year period. The
remainder related to stock options that were assumed by the Company. The amounts
related to stock options were being amortized by charges to operations over the
vesting periods of the individual stock options using the graded vesting method.
The amount related to the agreement with the stockholder of Infinity Logistics
Corporation and Automated Logistics Corp. was being amortized on a straight-line
basis over the two-year vesting period. In 2001, in connection with the
Company's decision to discontinue its digital shipper business, the umamortized
deferred stock compensation relating to Infinity Logistics and Automated
Logistics Corp. acquisitions was written-off and is included in the net loss
from discontinued operations.

The amounts amortized were approximately $2.3 million, $8.0 million and
$10.6 million in 2001, 2000 and 1999, respectively and are included in net loss
from discontinued operations.

In August 1999, the Company granted 187,500 shares of common stock to two
Company executives. On the date of grant, the Company recorded approximately
$1.8 million of compensation expense.

STOCK SUBJECT TO RESCISSION

Shares issued under the Company's 1996 Employee Plan, 1996 Director Plan and
1999 Stock Plan (the "Plans") prior to October 14, 1999 may not have qualified
for exemption from registration or qualification under federal and state
securities laws and therefore may be subject to rescission. On February 2, 2000,
the Company filed a rescission offer for 5,682,341 shares of common stock
pursuant to a registration statement filed under the Securities Act of 1933, as
amended, covering shares of common stock issued under the Plans. The Company may
file a request to withdraw the registration statement. Because the Act does not
provide that a rescission offer will terminate a purchaser's right to rescind a
sale of stock and a significant portion of the shares have been resold for a
price in excess of the original purchase price paid by the optionees, the
Company does not intend to extend the rescission offer to the optionees.
Management believes that the Company does not have a contingent liability
resulting from the issuance of stock to these optionees that would materially
and adversely impact the results of operations or financial position of the
Company.

Shares subject to rescission have been included in stockholders' equity in
the accompanying balance sheets.

F-25

LEARN2 CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 (CONTINUED)

NOTE 7. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK SUBJECT TO REPURCHASE

As of December 31, 2001 and 2000, the Company had 96,086 and 425,882 shares
of common stock outstanding, respectively, that were subject to repurchase. All
of the shares subject to repurchase at December 31, 2001 and 193,262 shares at
December 31, 2000 are the result of the exercise of unvested stock options by
employees in exchange for notes and cash. These shares vest over the four-year
vesting period of the underlying exercised stock options. At December 31, 2000,
the remaining 232,620 shares subject to repurchase related to the earn-out
agreement entered into in connection with the acquisition of Infinity Logistics
Corporation and Automated Logistics Corp. The right to repurchase these shares
was at the sole discretion of the Company.

In September 2000, the Company repurchased unvested shares as part of the
severance arrangement from two terminated employees at a price exceeding the
fair value of the stock at the date of repurchase. The Company recorded expense
of $0.6 million in connection with the repurchase, which is included in
restructuring costs.

NOTES RECEIVABLE FROM STOCKHOLDERS

In 1999 and 1998, the Company received $3.1 million and $0.7 million,
respectively, of full recourse notes receivable from employees that bear
interest at 6% per annum in consideration for the exercise of stock options.
Interest on the notes was payable annually on the anniversary date of the note
and principle is due on the earlier of the fifth anniversary of the note or
90 days after termination of employment. In 2000 and 1999, the Company received
payments on the notes of $247,000 and $168,000, respectively. In 2000 and 1999,
the Company canceled notes totaling $2.7 million and $27,000, respectively, in
connection with the repurchase of shares or rescission of option exercises upon
termination of certain note holders.

In October 2000, the Company allowed four officers to rescind their exercise
of stock options with respect to the unvested portion of the shares exercised. A
total of 1,304,687 shares were returned to the Company in exchange for the
cancellation of promissory notes totaling $1.1 million. In connection with the
rescission, the Company recognized compensation expense of $121,000. The Company
granted to two of the officers replacement options for a total of 1,035,156
shares at an exercise price of $0.75 per share, the fair market value on the
date of the grant. In accordance with APB Opinion No. 25 and Financial
Accounting Standards Board Interpretation No. 44, no compensation expense was
recognized in connection with the replacement option because the exercise price
was equal to the fair market value on the date of grant and also was in excess
of the exercise price for the options that were rescinded.

In September 2001, the Company forgave the promissory notes issued by three
of the officers in their entirety together with a tax gross up on the
forgiveness. The principal amount currently outstanding under the remaining
promissory note issued to an officer is approximately $469,688 and under the
terms of the officer's retention agreement, the loan will be forgiven in the
event that the officer's employment is terminated without cause or as result of
constructive termination within the two year period following the completion of
the merger with Learn2.com, Inc. As a result, the Company has fully reserved the
promissory note.

F-26

LEARN2 CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 (CONTINUED)

NOTE 7. STOCKHOLDERS' EQUITY (CONTINUED)
SHARES RESERVED

As of December 31, 2001, the common shares reserved for future issuance were
as follows (in thousands):

NOTE 8. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK

SFAS No. 105, "Disclosure of Information About Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk", requires disclosure of any significant off balance sheet and credit risk
concentration. Learn2 has no significant off-balance-sheet concentration of
credit risk such as foreign currency exchange contracts or other hedging
arrangements. Financial instruments that subject Learn2 to credit risk are
accounts receivable. Learn2 places its temporary cash and cash equivalents in
financial institutions. One customer accounted for 23.9% of the Company's 2001
revenue and 21.1% of its accounts receivable balance at December 31, 2001. All
amounts due from the customer as of December 31, 2001 were collected subsequent
to year-end. No customer represented greater than 10% of the Company's total net
revenues in 2000 or 1999. Credit is extended based on an evaluation of a
customer's financial condition. The Company generally does not require
collateral. Learn2 performs on-going credit evaluations of its customers and
maintains an allowance for doubtful accounts.

NOTE 9. EMPLOYEE BENEFIT PLANS

Learn2 sponsors 401(k) plans for its employees allowing employees that
qualify for participation under the plans to contribute up to 15% of their
salary, before taxes, subject to a maximum contribution limit determined by the
Internal Revenue Service. Learn2 matches 50% of participant contributions up to
a maximum of 6% of a participant's salary. For the years ended December 31,
2001, 2000 and 1999, Learn2 made contributions to the plans of approximately
$38,000, $218,000 and $101,000 respectively. Learn2 does not provide any
post-retirement benefits other than the 401(k) plans.

NOTE 10. INCOME TAXES

Due to operating losses, no income tax provision has been recorded for the
three years ended December 31, 2001, 2000 and 1999.

F-27

LEARN2 CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 (CONTINUED)

NOTE 10. INCOME TAXES (CONTINUED)

The Company's deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Based upon
the weight of available evidence, which includes the Company's historical
operating performance and the reported cumulative net losses in prior years, the
Company has provided a full valuation allowance against its net deferred tax
assets.

As of December 31, 2001, the Company had accumulated federal and state net
operating loss carryforwards of approximately $149.4 million. The net operating
loss carryforwards will expire at various dates through 2021, if not utilized.

While a formal study has not been completed, the Company believes that as a
result of cumulative ownership changes, including the issuance of common stock
in the Learn2.com acquisition, it may only have available approximately
$20.0 million of these NOL's.

The Company also had federal and state research and development tax credit
carryforwards of approximately $1.9 million and $1.5 million, respectively. The
federal and state tax credit carryforwards will expire at various dates
beginning in 2012 through 2021, if not utilized

The Company is currently evaluating the impact of its acquisition with
Learn2.com in regards to this limitation.

NOTE 11. COMMITMENTS AND CONTINGENCIES

(A) LEASES--

The Company entered into an operating lease agreement on February 25, 2000
for office space in Mountain View, California. As a result of the merger with
Learn2.com, the Company closed its corporate headquarters in Mountain View and
negotiated a settlement with the lessor of approximately $1.6 million. This
amount is recorded in the accompanying consolidated statement of operations for
the year ended December 31, 2001 as part of the gain on disposal of discontinued
operations. In addition, the Company assumed the obligations of Learn2.com.
Certain subsidiaries of Learn2.com also have operating leases for facilities in
Golden, Colorado and Belmont, California. In March 2002, the Company's
subsidiary, Street Technologies, Inc., received notice that it had defaulted on
a lease for office space located in White Plains, New York. As result of the
default, Street Technologies may be liable to pay the remaining lease
obligations net of security deposits totaling approximately$660,000. In
March 2002, the Company entered into a one-year lease for new office space for
its corporate headquarters in Stamford, Connecticut.

The Company also leases certain office equipment. Operating leases expire at
various dates through 2004. Prior to December 31, 2000, Learn2 also had various
leases and subleases for facilities in California and Texas. Rental expense for
operating leases amounted to approximately $3.7 million, $4.2 million and
$853,000 for 2001, 2000 and 1999, respectively. Learn2's minimum payments under
leases at December 31, 2001 are approximately $525,000 in 2002, $418,000 in
2003, and $315,000 in 2004. There are no rental commitments beyond 2004.

F-28

LEARN2 CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 (CONTINUED)

NOTE 11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
(B) LITIGATION

On March 16, 2001, a prior customer of E-Stamp, Mr. Joseph Pavel, filed a
purported consumer class action suit against the Company in the Supreme Court of
the State of New York, County of Kings. The suit alleges that the Company
breached its contracts with the plaintiff and other customers. The plaintiff
seeks unspecified damages and disgorgement of monies received in connection with
the sale of Internet postage products. By agreement of the parties, the
plaintiff dismissed the New York action and refiled in Santa Clara County,
California on or about May 24, 2001. The Company filed its answer to the
complaint on June 18, 2001. On February 20, 2002, the Court granted Plaintiff's
motion for class certification. The Company is vigorously defending this action.
Pendency of these legal proceedings can be expected to result in expenses to the
Company and the diversion of management time and other resources.

On August 3, 2001, Sales and Marketing Technologies, Inc. filed suit against
the Company and certain of its officers in the Superior Court of California, San
Mateo County, California. The complaint was amended on September 19, 2001. The
plaintiff alleges breach of contract, breach of good faith and fair dealing,
fraud, misrepresentation alleging breach of contract, fraud and unfair
competition in connection with a consulting agreement between the plaintiff and
the Company. The plaintiff seeks unspecified general and compensatory damages,
treble damages and equitable remedies. The Company is vigorously defending this
action. Pendency of these legal proceedings can be expected to result in
expenses to the Company and the diversion of management time and other
resources.

On September 8, 2000, a former employee of ViaGrafix Corporation, which is
now a wholly-owned subsidiary of the Company, filed suit against
Learn2.com, Inc. and ViaGrafix Corporation in the District Court of Oklahoma,
Mayes County, Oklahoma. The plaintiff alleges breach of contract and conversion
in connection with a severance agreement between the plaintiff and ViaGrafix.
The plaintiff seeks unspecified general, compensatory and punitive damages and
equitable remedies. The Company and ViaGrafix are vigorously defending this
action. Pendency of these legal proceedings can be expected to result in
expenses to ViaGrafix and the Company and the diversion of management time and
other resources.

On February 6, 2002, Morrison & Foerster, a law firm, filed suit against
Etracks.com, Inc., a consolidated subsidiary of ViaGrafix Corporation, in the
Superior Court of California, San Francisco County, California. The plaintiff
alleges a violation of California Business & Professional Code,
Section 17538.45 and 17200 et. seq., in connection with Etracks permission
e-mail marketing and tracking services. The plaintiff seeks statutory damages,
to enjoin Etracks from further violations of the specified statutes, costs and
fees. Etracks is vigorously defending this action. Pendency of these legal
proceedings can be expected to result in expenses to Etracks and the Company and
the diversion of management time and other resources.

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

F-29

LEARN2 CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 (CONTINUED)

NOTE 12. LOSS PER SHARE

Loss per share has been computed in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"), which requires
disclosure of basic and diluted earnings per share. Basic loss per share
excludes any dilutive effects of options, shares subject to repurchase, warrants
and convertible securities. The Company's potentially dilutive securities were
antidilutive and therefore were not included in the computation of
weighted-average shares used in computing diluted loss per share. Therefore, the
Company's basic and diluted loss per share are the same.

The following table presents the calculation of basic and diluted loss per
share (in thousands, except per share data):

The total number of shares excluded from the calculations of diluted net
loss per share were 13,410,000, 3,683,000 and 5,667,000 for the years ended
December 31, 2001, 2000, and 1999, respectively. Such securities, had they been
dilutive, would have been included in the computations of diluted net loss per
share using the treasury stock method.

NOTE 13. SEGMENT REPORTING

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

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Intersegment revenues, which
relate primarily to intercompany sales are valued at substantially the same
rates and prices charged to external customers. The following tables set

F-30

LEARN2 CORPORATION
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 (CONTINUED)

NOTE 13. SEGMENT REPORTING (CONTINUED)
forth industry segment information for the years ended December 31, 2001, 2000,
and 1999 (in thousands).

Revenues from international sales represent 4.0% for the year ended
December 31, 2001.

NOTE 14. SUBSEQUENT EVENTS

In January 2002, a complaint was filed against the Company alleging certain
common law claims. In connection with the settlement of the complaint, on
January 24, 2002 the Company issued a promissory note in the principal amount of
$400,000 accruing interest at the rate of 10% per annum. The promissory note is
due and payable upon the earlier of (i) the completion of a Financing (as
defined in the promissory note) or (ii) any dissolution, extraordinary dividend,
recapitalization or similar transaction involving our Company. At December 31,
2001, the principal amount of the promissory note was included in other
liabilities in the consolidated balance sheet.

On March 4, 2002, the Company announced that it will phase out its remaining
production and distribution operations in Pryor, Oklahoma and consolidate its
e-learning business in Golden, Colorado, which is the current home of our
courseware and authoring tool development activities. The Company eliminated
approximately sixty positions, primarily in the Oklahoma facility and certain
field sales operations. Severance and related expenses attributable to the
elimination of these positions will be approximately $300,000 and will be
recorded in the quarter ended March 31, 2002. As a result of this decision, the
Company reduced the value of its intangible assets as of December 31, 2001 by
approximately $330,000 (see Note 4).

F-31