UOL PUBLISHING INC, S-1, 1999-07-28

UOL PUBLISHING INC
S-1, 1999-07-28
SERVICES, NEC

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 1999
REGISTRATION STATEMENT NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

UOL PUBLISHING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 8299 54-1290319
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</TABLE>

8251 GREENSBORO DRIVE, SUITE 500
MCLEAN, VIRGINIA 22102
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

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

MICHAEL A. SCHWIEN
CONTROLLER
UOL PUBLISHING, INC.
8251 GREENSBORO DRIVE, SUITE 500
MCLEAN, VIRGINIA 22102
(703) 893-7800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

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

Copies to:
DONALD R. REYNOLDS, ESQ.
WYRICK ROBBINS YATES & PONTON LLP
4101 LAKE BOONE TRAIL, SUITE 300
RALEIGH, NORTH CAROLINA 27607
(919) 781-4000
FAX (919) 781-4865

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

APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]

CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<TABLE>

<S> <C> <C> <C> <C>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par
value per share....................... 5,494,466 shares $5.98 $32,880,945 $9,140.90
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee, based
upon the average of the high and low prices of the Common Stock on the
Nasdaq SmallCap Market on July 26, 1999, in accordance with Rule 457.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE. IT MIGHT CHANGE. WE CANNOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT THAT WE HAVE FILED WITH
THE SEC IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL, NOR DOES IT
SOLICIT OFFERS TO BUY, THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS
NOT PERMITTED.

SUBJECT TO COMPLETION, DATED JULY 27, 1999

5,494,466 SHARES

[LOGO]

UOL PUBLISHING, INC.
COMMON STOCK

This prospectus may be used only in connection with the following resales of
common stock of UOL Publishing, Inc.:

- 2,381,866 shares may be offered and sold, from time to time, by the
stockholders listed below

- 1,800,000 shares may be offered and sold, from time to time, by Hambrecht
& Quist Guaranty Finance, LLC, who will originally receive these shares by
converting shares of preferred stock that we may issue and sell to them
under our equity line of credit agreement with H&QGF

- an additional 100,000 shares may be offered and sold, from time to time,
by H&QGF, who will originally receive these shares by converting shares of
preferred stock issuable to H&QGF upon exercise of a warrant

- 1,100,000 shares may be offered and sold, from time to time, by BH Capital
Investments, L.P. and Excalibur Limited Partnership, who will originally
receive all or a portion of these shares upon conversion of the $2.5
million principal amount of our 9% Secured Subordinated Convertible
Debentures due December 15, 2000 that we issued to BH Capital and
Excalibur in June 1999, or as payment of principal and accrued interest on
these debentures

- an additional 112,600 shares may be offered and sold, from time to time,
by BH Capital and Excalibur, who will originally receive these shares upon
exercise of warrants

We refer to H&QGF, BH Capital, Excalibur and the other stockholders who may
offer and sell shares of our common stock under this prospectus as "Selling
Stockholders."

We will not receive any proceeds from the sale of shares by the Selling
Stockholders.

Our common stock is traded on the Nasdaq SmallCap Market under the symbol
"UOLP." On July 26, 1999, the last sale price of our common stock on the Nasdaq
SmallCap Market was $5.87 per share.

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

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 9.

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

NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
OUR SECURITIES OR DETERMINED THAT THIS PROSEPCTUS IS TRUTHFUL OR COMPLETE. IT IS
ILLEGAL FOR ANYONE TO TELL YOU OTHERWISE.

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

THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE> 3

You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. We are not making an offer of these securities in any jurisdiction where it
is not permitted. You should not assume that the information contained in this
prospectus is accurate as of any date other than the date on the front of the
prospectus. Our business, financial condition, results of operations and
prospects may have changed since that date.

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
It is not complete and may not contain all the information that you should
consider before investing in the common stock. You should read the entire
prospectus carefully, including the "Risk Factors" section, the financial
statements and the notes to the financial statements.

This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ significantly from the results we
discuss in the forward-looking statements. See "Special Note Regarding
Forward-Looking Statements." We discuss some of the factors that might cause
differences in actual results in the "Risk Factors" section of this prospectus.

OUR COMPANY

UOL develops, manages and hosts Internet-based training and education for
corporations, government agencies and academic institutions. We offer online
courseware primarily through our proprietary virtual campus product,
VCampus(TM), a full-service, centrally-hosted, scalable distance education
platform. It allows for the registration, enrollment, teaching, testing, grading
and certification of distance learners. A VCampus(TM) is accessible by virtually
any Internet-ready PC. Enrolled students can then access the courseware online,
typically via a PC connected to the Internet or a corporate intranet. Once a
student has completed a course, he or she receives credit or certification, as
appropriate. As of June 30, 1999, the Company had over 60 VCampuses(TM) in
operation with its corporate and academic institution partners.

We also offer courseware through more traditional media, including on-site
and classroom training, diskette, CD-ROM and printed formats, through our HTR
and Teletutor subsidiaries. In December 1998, we announced plans to sell our
non-online "legacy" businesses (with the exception of Teletutor) in order to
focus on our core online business. We believe this move is consistent with our
strategy of moving content and customers to an online training platform from the
traditional classroom and computer-based training methods used in our non-online
businesses. Thus, in September 1998 we sold our Ivy Software, Inc. subsidiary,
while retaining the rights to sell and distribute online versions of Ivy
courseware, and in December 1998, we sold our HTR subsidiary's consulting
division. In addition, in June 1999 we completed the sale of our HTR
subsidiary's Knowledgeworks business for $1.5 million. We have retained
investment-banking services to assist in the divestiture of our HTR subsidiary's
instructor-led training business, which we expect to complete in the third
quarter of 1999. We have also taken the following actions to provide future
funding for operations:

- We are in the process of negotiating a $1.0 million line of credit
facility with a new lender.

- We have retained advisory services to identify a strategic partner to
provide both global marketing leverage and additional capital.
2
<PAGE> 4

- We entered into an equity line of credit agreement with H&QGF to provide
private equity financing through December 31, 1999.

- We raised $2.5 million in June 1999 through the issuance of our 9%
Secured Subordinated Convertible Debentures due December 15, 2000, most
of which was used to repay short-term indebtedness.

- We raised approximately $1.3 million in May 1999 through a private
placement of 448,297 shares of common stock at a price of $2.9375 per
share.

Our objectives are (1) to be the leading publisher of online courseware for
the corporate training and education market and (2) to make VCampus(TM) the
global standard for online delivery of corporate training and education
courseware. Our strategy to achieve these objectives includes:

- publishing high-quality courseware (including courseware certified by
independent academic institutions);

- expanding our customer base, especially to include those who might
benefit most from the Company's Web-based solution for delivering
corporate training and education courseware;

- upgrading our existing technologies to maintain our position as a leader
in technology-based corporate training; and

- developing brand recognition for our products and services.

We target customers in the telecommunications, healthcare, utilities,
information technology and financial services industries, as well as academic
institutions, all of which we believe have relatively large training and
education budgets, significant training needs and receptiveness to new
technology. Our existing courseware library includes over 1,100 online courses,
of which approximately 160 are available for general distribution and consumer
access. These courses are in what we believe to be high-demand subject matter
areas such as information technology, telecommunications, compliance/ OSHA,
business, management and finance. We convert to our interactive online format
courses that we believe are proven and popular in diverse subject matter areas.
Through July 22, 1999, we had delivered over 280,000 course enrollments through
our corporate and academic partnerships.

RECENT DEVELOPMENTS

On July 23, 1999, we announced the following results for the quarter ended
June 30, 1999:

During the second quarter of 1999, we incurred a net loss (including
accrued dividends to preferred stockholders) of $1,852,802 or $0.40 per share,
as compared to a net loss of $4,731,266 or $1.24 per share, for the second
quarter of 1998. For the six months ended June 30, 1999, we incurred a net loss
(including accrued dividends to preferred stockholders) of $3,493,292 or $0.79
per share, as compared to a net loss of $11,191,652 or $2.93 per share, for the
six months ended June 30, 1998. Excluding certain non-recurring costs related to
a reorganization plan initiated at the end of the first and second quarters of
1998, our total loss was $3,802,396, or $0.99 per share for the second quarter
of 1998, and $9,795,142 or $2.56 per share, for the 1998 six month period.

Total revenues for the second quarter 1999 were $2,928,987 as compared to
$3,427,471 for the second quarter of 1998. For the six month period ended June
30, 1999, total revenues were $5,964,070 compared to $7,028,331 for the
comparable 1998 period. The decrease in revenue, for both the three and six
month periods, reflects an increase in online related revenues, which was more
than offset by a decline in revenues generated from our non-online businesses.
The decline in the non-online revenues reflects the exclusion of revenues
related to Ivy Software and HTR's consulting business, which were sold at the
end of the third and fourth quarters of 1998, respectively. Revenues from the
instructor-led training and Knowledgeworks legacy businesses also declined
during the first quarter of
3
<PAGE> 5

1999 when compared to the same period in 1998. In addition, Teletutor product
sales declined as the CBT-based sales transitioned to online sales.

Sales of online courses offered on our VCampus(TM) online courseware
delivery platform increased 515% to reach approximately 97,000 courses delivered
during the second quarter, up from second quarter 1998 course deliveries of
approximately 16,000, and increasing 54% from first quarter 1999 when
approximately 63,000 online courses were sold. As a result, online tuition
revenue for the second quarter of 1999 reached $967,491, up 275% from second
quarter 1998 online tuition revenue of $258,177, and 10% from first quarter 1999
online tuition revenue of $881,248. In addition, course deliveries in the second
quarter included the delivery of approximately 45,000 UOL library courses to one
of our largest customers. Online development and other revenues increased 44% in
the second quarter of 1999 as compared to the first quarter of 1999.

Second quarter 1999 revenues for our non-online businesses were $1,546,245,
down 47% from 1998's second quarter legacy revenues of $2,900,688. When compared
to the prior quarter, second quarter 1999 non-online revenues decreased 18% from
1999's first quarter non-online revenues of $1,820,120.

Total costs and expenses for the second quarter and six month period of
1999 were $4,544,458 and $9,018,853 compared to $7,064,849 and $16,528,603
incurred during the respective periods in 1998, after excluding the
non-recurring costs described above. The decreases for both periods primarily
reflect the effect of cost-cutting measures initiated at the end of the first
and second quarters of 1998 and, to a lesser extent, the divestitures of Ivy
Software and the HTR consulting business. Total expenses for the second quarter
of 1999 were relatively unchanged when compared to the first quarter of 1999,
with the exception of increased spending in sales and marketing as we continue
our VCampus(TM) branding campaign through advertisements, direct mail and trade
shows.

Cash used in operating activities for the second quarter of 1999 was
approximately $1.3 million which was funded primarily by the private placement
of our common stock which raised approximately $1.3 million during the second
quarter of 1999.

UOL was incorporated in Virginia in July 1984 and reincorporated in
Delaware in March 1985. Our principal executive offices are located at 8251
Greensboro Drive, Suite 500, McLean, Virginia 22102, our telephone number at
that address is (703) 893-7800, and our web-site is located at
http://www.uol.com.

THE OFFERING

H&QGF, BH Capital and Excalibur and the other Selling Stockholders may
offer and sell shares of our common stock under this prospectus.

H&QGF

We entered into an equity line of credit agreement with H&QGF effective May
4, 1999. This agreement entitles us to sell, from time to time through December
31, 1999, up to $3.0 million of our Series E Convertible Preferred Stock at a
price equal to 85% of the lower of (1) the closing market price of our common
stock on the date of issuance and (2) the average of the lowest intra-day prices
of our common stock over the five-day period ending on the date of issuance. We
may sell as much as $500,000 in preferred stock at any time, subject to certain
conditions, with the total amount sold not to exceed $3.0 million; except that
the number of shares of preferred stock we can sell to H&QGF is further limited
by the requirement that H&QGF hold no more than 9.9% of our outstanding stock at
any given time.
4
<PAGE> 6

Pursuant to the equity line of credit agreement, we have:

- filed a registration statement that includes the 1,800,000 shares of
common stock issuable upon conversion of the preferred stock that we may
sell to H&QGF, which shares of common stock H&QGF may then offer and sell
to the public through this prospectus; and

- issued to H&QGF a warrant to purchase 100,000 shares of Series E
Convertible Preferred Stock at an exercise price of $3.6675 per share
(which equals 120% of the 5-day average closing bid price per share for
our common stock), convertible into 100,000 shares of common stock that
H&QGF may also offer and sell to the public through this prospectus.

BH CAPITAL AND EXCALIBUR

We issued $2.5 million principal amount of our 9% Secured Subordinated
Convertible Debentures due December 15, 2000 to BH Capital and Excalibur in June
1999. The debentures are convertible, at the option of the holder, into shares
of our common stock at a price per share of $5.55, based on the 5-day average
closing price of our common stock prior to the closing of the issuance of the
debentures, subject to adjustment for stock splits, stock dividends and reverse
stock splits. Principal and accrued interest on the debentures are payable in
either cash or common stock, depending on the price of our common stock at the
time of payment. Interest is payable quarterly and after September 15, 1999, BH
Capital and Excalibur can demand monthly repayments of up to 15% of the
principal amount of debentures outstanding, on a cumulative basis. For any
repayment of principal or payment of interest:

- If the 5-day average closing price at the time of payment is higher than
the fixed conversion price per share of $5.55, payment must be made in
stock at the fixed price.

- If the 5-day average closing price is lower than $5.55, payment must be
made in cash as follows: (1) prior to January 15, 2000, at 110% of the
amount requested, plus accrued interest, and we must issue warrants to BH
Capital and Excalibur to purchase an additional 22,520 shares of common
stock; or (2) after January 15, 2000, at 115% of the amount requested,
plus accrued interest.

If we are unable or unwilling to make any payment in cash as required, we
can pay in common stock valued at 85% of the average of the two lowest
consecutive closing bid prices for the stock during the 20 trading days prior to
the repayment demand. However, to the extent available, we intend to use funds
available under the H&QGF equity line of credit to make repayments in cash
rather than permit any conversions at less than $5.55 per share.

Pursuant to the agreement with BH Capital and Excalibur providing for the
issuance of the debentures, we have:

- filed a registration statement that includes an estimated up to 1,100,000
shares of common stock available for issuance upon conversion of the
debentures, which shares BH Capital and Excalibur may then offer and sell
to the public through this prospectus; and

- issued warrants to BH Capital and Excalibur to purchase 112,600 shares of
common stock at an exercise price of $6.38 per share (which equals 115%
of the 5-day average closing bid price for our common stock prior to the
funding date of June 15, 1999), which shares BH Capital and Excalibur may
also offer and sell to the public through this prospectus.

OTHER SELLING STOCKHOLDERS

We have filed a registration statement that also includes 2,381,866 shares
of common stock held by other stockholders listed on pages 64 and 65 under
"Selling Stockholders."

<TABLE>
<S> <C>
Offered by the Selling Stockholders
(including H&QGF, BH Capital and
Excalibur).............................. 5,494,466 shares of common stock of UOL Publishing,
Inc., $0.01 par value.
Offering Price............................ Determined at the time of sale by the Selling
Stockholders.
Common Stock outstanding as of June 30,
1999.................................... 4,799,310 shares*
Use of Proceeds........................... We will not receive any of the proceeds of the
offering of shares by the Selling Stockholders under
this prospectus. Any proceeds we receive from the
sale of preferred stock pursuant to the equity line
of credit agreement with Hambrecht & Quist and the
exercise of the H&QGF warrant will be used for
general corporate purposes. See "The Equity Line of
Credit Agreement."
Dividend Policy........................... We currently intend to retain any future earnings to
fund the development and growth of our business.
Therefore, we do not currently anticipate paying cash
dividends on our common stock. See "Dividend Policy."
Nasdaq SmallCap Market Symbol............. UOLP
</TABLE>

- ---------------
*Does not include:

- 1,988,337 shares of common stock issuable upon exercise of warrants
outstanding as of June 30, 1999 (including 100,000 shares issuable on an
as-converted basis upon exercise of the H&QGF preferred stock warrant and
112,600 shares of common stock issuable upon exercise of the BH Capital
and Excalibur warrants);

- 1,412,200 shares of common stock issuable upon exercise of stock options
outstanding as of June 30, 1999;

- 1,800,000 shares of common stock issuable upon conversion of preferred
stock we may issue under the equity line of credit agreement with H&QGF;
and

- 1,100,000 shares of common stock issuable upon conversion of the 9%
Secured Subordinated Convertible Debentures due December 15, 2000.
6
<PAGE> 8

SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following summary consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
thereto appearing elsewhere in the prospectus. The statement of operations data
set forth below with respect to the years ended December 31, 1996, 1997 and 1998
is derived from, and is referenced to, the audited consolidated financial
statements included elsewhere in this prospectus. The summary consolidated
financial data presented below as of March 31, 1999 and for the three months
ended March 31, 1998 and 1999 has been derived from the Company's unaudited
consolidated financial statements included elsewhere in this prospectus. The pro
forma data reflects (i) the private placement in May, 1999 of 448,297 shares of
Common Stock for net proceeds of approximately $1.3 million, (ii) the issuance
in June, 1999 of an aggregate of $2.5 million in 9% Secured Subordinated
Convertible Debentures and (iii) the repayment of approximately $1.9 million on
the Company's debt facilities with proceeds from the Secured Subordinated
Convertible Debentures, as if such transactions had occurred on March 31, 1999.
The pro forma, as adjusted data further reflects the issuance of $3.0 million in
Series E Convertible Preferred Stock and the assumed conversion to 882,353
shares of Common Stock.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------- -------------------
1996 1997 1998 1998 1999
------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenues.............................. $ 942 $ 10,145 $ 14,683 $ 3,601 $ 3,035
Loss from operations...................... (4,949) (16,599) (18,307) (6,331) (1,439)
Net loss.................................. (4,641) (16,145) (19,811) (6,460) (1,567)
Dividends to preferred stockholders....... (331) -- (358) -- (73)
Net loss attributable to common
stockholders............................ (4,972) (16,145) (20,169) (6,460) (1,640)
Net loss per share........................ $ (4.98) $ (4.91) $ (5.27) $ (1.70) $ (0.39)
Net loss per share -- assuming dilution... $ (4.98) $ (4.91) $ (5.27) $ (1.70) $ (0.39)
</TABLE>

<TABLE>
<CAPTION>
AT MARCH 31, 1999 (UNAUDITED)
-------------------------------
PRO FORMA
PRO AS
ACTUAL FORMA ADJUSTED
-------- -------- ---------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................. $ (4,549) $ (932) $ 2,068
Total assets.............................................. 13,717 15,712 18,712
Total liabilities......................................... 8,497 8,687 8,687
Accumulated deficit....................................... (49,337) (49,337) (49,867)
Total stockholders' equity................................ 5,221 7,025 10,025
</TABLE>

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<PAGE> 9

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements contained in this prospectus discuss our plans and
strategies for our business and are "forward-looking statements" as that term is
defined in the Private Securities Litigation Reform Act. The words
"anticipates," "believes," "estimates," "expects," "plans," "intends" and
similar expressions are meant to identify these statements as forward-looking
statements, but they are not the exclusive means of identifying them. The
forward-looking statements in this prospectus reflect the current views of our
management; however, various risks, uncertainties and contingencies could cause
our actual results, performance or achievements to differ materially from those
expressed in or implied by these statements, including:

- our limited operating history in targeted markets

- our history of losses and negative operating cash flows

- our future capital needs and the uncertainty of additional funding

- difficulties in managing rapid growth

- competition

- a developing market, rapid technological changes and new products

- our dependence on online distribution

- our substantial dependence on courseware and third-party courseware
providers

- our substantial dependence on third-party technology

- our limited marketing experience and substantial dependence on
third-party distribution

We assume no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. For a
discussion of important risks of an investment in our common stock, including
factors that could cause actual results to differ materially from results
referred to in the forward-looking statements, see the "Risk Factors" section of
this prospectus. In light of the risks and uncertainties discussed in "Risk
Factors" and elsewhere in this prospectus, events referred to in forward-looking
statements in this prospectus might not occur.

AVAILABLE INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered hereby. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits and
schedules filed with it. For further information with respect to our company and
the common stock offered hereby, reference is made to the registration statement
and the exhibits and schedules filed with it. Statements contained in this
prospectus as to the contents of any contract or any other document referred to
are not necessarily complete, and in each instance reference is made to the copy
of that contract or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference. A copy of the registration statement may be inspected without charge
at the offices of the SEC in Washington, D.C. 20549, and copies of all or any
part of the registration statement may be obtained from the Public Reference
Section of the SEC, Washington, D.C. 20549 upon the payment of the fees
prescribed by the SEC. The SEC maintains a Web site (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants, such as our company, that file electronically with the
SEC. We also maintain a Web site (http://www.uol.com).

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<PAGE> 10

RISK FACTORS

You should be aware that there are various risks to an investment in our
common stock, including those described below. You should carefully consider
these risk factors, together with all of the other information included in this
prospectus, before you decide to invest in shares of our common stock.

If any of the following risks, or other risks not presently known to us or
that we currently believe to not be significant, develop into actual events,
then our business, financial condition, results of operations or prospects could
be materially adversely affected. If that happens, the market price of our
common stock could decline, and you may lose all or part of your investment.

This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those discussed
in this prospectus. Factors that could cause or contribute to these differences
include, but are not limited to, those discussed below and elsewhere in this
prospectus, and in any documents incorporated in this prospectus by reference.

WE HAVE INCURRED LOSSES AND ANTICIPATE FUTURE LOSSES. We have incurred
significant losses since our inception in 1984, including net losses of $4.6
million, $16.1 million and $19.8 million for the years ended December 31, 1996,
1997 and 1998. We expect losses from operations to continue at least through the
third quarter of 1999 until our non-online business have been sold and as our
online revenue stream matures. For these and other reasons, we cannot assure you
that we will ever operate profitably.

WE HAVE A LIMITED OPERATING HISTORY. Although the Company was founded in
1984, we changed our business focus in 1993 to take advantage of, among other
things, the market opportunities we saw for online education that resulted from
technological developments relating to the Internet. We introduced our first
revenue-generating Web-based course in Spring 1996. Given our limited operating
history in the online education and training business, we cannot assure you that
our online revenues will grow.

WE MAY NOT BE ABLE TO MEET OUR ONLINE BUSINESS OBJECTIVE. Our key
objective is to be the leading publisher of online courseware for the corporate
training and education market. Pursuing this objective may significantly strain
our administrative, operational and financial resources. We cannot assure you
that we will be able to find, train and retain qualified administrative
personnel, or do so on a timely basis, or that we will have the operational,
financial and other resources to the extent required to meet our online business
objective.

WE MAY BE UNABLE TO EXECUTE OUR DIVESTITURE STRATEGY. In December 1998 we
announced plans to sell our remaining non-online businesses in order to better
focus on our core online business. Our ability to implement this divestiture
strategy will depend on our ability to identify potential acquirors and to
negotiate favorable agreements for the sale of our non-online businesses. We
cannot assure you that we will be successful in identifying potential acquirors,
or that we will be able to sell our remaining non-online businesses on favorable
terms, if at all. Even if we succeed in executing our divestiture strategy, we
cannot assure you that we will successfully overcome the risks associated with
such a strategy, such as the potential disruption of our ongoing business, the
additional expense associated with the divestiture, the impairment of
relationships with employees and customers and any other problems we may
encounter. Any of these factors could adversely affect our financial condition
and the market price of our common stock may decline.

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WE WILL NEED TO RAISE ADDITIONAL CAPITAL. In the near future, we will need
to raise additional funds through public or private sale of our equity or debt
securities or from other sources for the following purposes:

- to build our core online business;

- to divest our non-online businesses; and

- to maintain compliance with Nasdaq listing requirements.

As of the date of this filing, we have initiated efforts to raise
additional capital. We cannot assure you, however, that additional funds will be
available when we need them, or that if funds are available, they will be on
terms favorable to us and our stockholders. If we are unable to obtain
sufficient funds or if adequate funds are not available on terms acceptable to
us, we may be unable to meet our business objectives. A lack of sufficient funds
could also prevent us from taking advantage of important opportunities or being
able to respond to competitive conditions. Any of these results could have a
material adverse effect on our business, financial condition and results of
operations.

Our need to raise additional funds could also directly and adversely affect
your investment in our common stock in another way. When a company raises funds
by issuing shares of stock, the percentage ownership of the existing
stockholders of that company is reduced or diluted. If we raise funds in the
future by issuing additional shares of stock, you may experience significant
dilution in the value of your shares. Additionally, certain types of equity
securities that we may issue in the future could have rights, preferences or
privileges senior to your rights as a holder of our common stock.

WE FACE UNCERTAINTIES AND RISKS RELATING TO OUR NASDAQ SMALLCAP MARKET
LISTING. Our common stock is currently listed on the Nasdaq SmallCap Market.
Nasdaq has certain requirements that a company must meet in order to remain
listed on the Nasdaq SmallCap Market. If we continue to experience losses from
our operations or if we are unable to raise additional funds, we may not be able
to maintain the standards for continued quotation on the Nasdaq SmallCap Market.

The Nasdaq SmallCap Market is a significantly less active market than the
Nasdaq National Market. You could find it more difficult to dispose of your
shares of our common stock than if our common stock were listed on the Nasdaq
National Market.

Furthermore, Nasdaq recently adopted new rules that make continued listing
of companies on either the Nasdaq National Market or the Nasdaq SmallCap Market
more difficult. If as a result of the application of these new rules, our common
stock were delisted from the Nasdaq SmallCap Market, we would not have the right
to obtain funds by issuing preferred stock under our equity line of credit
agreement with H&QGF, BH Capital and Excalibur would have the right to demand
prepayment of their convertible debentures and it could be more difficult for us
to obtain other sources of financing in the future. Moreover, if our common
stock were delisted from the Nasdaq SmallCap Market, our stock could be subject
to what are known as the "penny stock" rules. The "penny stock" rules place
additional requirements on broker-dealers who sell or make a market in such
securities. Consequently, if we were removed from the Nasdaq SmallCap Market,
the ability or willingness of broker-dealers to sell or make a market in our
common stock could decline. As a result, your ability to resell your shares of
our common stock could be adversely affected.

THE LARGE NUMBER OF OUR SHARES ELIGIBLE FOR FUTURE SALE COULD HAVE AN
ADVERSE IMPACT ON THE MARKET PRICE OF OUR COMMON STOCK. A large number of shares
of common stock already outstanding, or issuable upon exercise of options or
warrants, is eligible for resale, which may adversely affect the market price of
our common stock. As of June 30, 1999, we had 4,799,310 shares of common stock
outstanding, an additional 1,838,174 shares were issuable upon conversion of
outstanding preferred stock and another 3,400,617 shares upon exercise of
outstanding warrants and options. In addition, in

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May 1999 we entered into an equity line of credit agreement with H&QGF under
which we may issue up to 1,800,000 shares of preferred stock that will be
convertible into an equal number of shares of common stock. We have also granted
a warrant to H&QGF to purchase 100,000 shares of preferred stock that will be
convertible into an equal number of shares of common stock. Substantially all of
the shares subject to outstanding warrants and options will, when issued upon
exercise, be available for immediate resale in the public market pursuant to
currently effective registration statements under the Securities Act of 1933, as
amended, or pursuant to Rule 701 promulgated thereunder. The shares of stock
acquired, or to be acquired, by H&QGF and the other Selling Stockholders will be
available for immediate resale in the public market pursuant to this prospectus.
Some of the shares that are or will be eligible for future sale, including the
H&QGF shares, have been or will be issued at discounts on the market price of
our common stock on the date of issuance. Resales or the prospect of resales of
these shares may have an adverse effect on the market price of our common stock.

WE SUBSTANTIALLY DEPEND ON THIRD-PARTY RELATIONSHIPS. We rely on
maintaining and developing relationships with academic institutions and
businesses that provide content for our products and services and with companies
that provide the Internet and related telecommunications services used to
distribute our products and services to customers.

We have relationships with a number of academic institutions and businesses
that provide us with course content for our online products and services. Many
of the agreements we have entered into with these content providers limit our
use of their course content, some do not cover use of any future course content
and most may be terminated by either party upon breach or bankruptcy. Given our
plans to introduce additional online courses in the future, we will need to
license new course content from existing and prospective content providers.
However we might not be able to maintain and modify, if necessary, our existing
agreements with content providers, or successfully negotiate agreements with
prospective content providers. If the fees we pay to acquire content increase,
it could have an adverse effect on our results of operations. We might not be
able to license course content at commercially reasonable rates or at all.

We depend heavily on third-party providers of Internet and related
telecommunications services. In order to reach customers, our products and
services have to be compatible with the web browsers they typically use. We have
access to customers via online networks through our arrangements with Internet
service providers such as Intermedia Communications, Inc. and UUNET
Technologies, Inc. Most of our arrangements with Internet service providers do
not require future commitments to provide access or links to our products or
services, are not exclusive and may be terminated by either party at will. We
also depend on web-site operators that provide links to our web-sites, but we do
not have any agreement with these web-site operators and the links to our
web-sites could be deactivated at any time without notice.

For the academic institutions and businesses that provide content for our
products and services, the companies that provide the Internet and related
telecommunications services used to distribute our products and services to
customers, and the web-site operators that provide links to our company
web-sites, we cannot assure you that:

- they regard their relationships with us as important to their own
businesses and operations;

- they will not reassess their commitment to our products or services at
any time in the future;

- they will not develop their own competitive products or services;

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- the products or services by which they provide access or links to our
products or services will achieve market acceptance or commercial
success; or

- our relationships with them will result in successful product or service
offerings or generate significant revenues.

If one or more of these entities fail to achieve or maintain market
acceptance or commercial success, or if one or more of the entities that do
succeed decide to end their relationship with us, it could have a material
adverse effect on our company. Likewise, if our position on a web browser is
terminated, or if one of our competitors secures an exclusive arrangement with
respect to positioning on a web browser, traffic on our web-sites would be
significantly reduced, which could have a material adverse effect on our results
of operations.

We sell a significant amount of products and services through resellers and
strategic partners. We might not be able to attract resellers and partners that
can market our products effectively and provide timely and cost-effective
customer support and service. Some of our resellers and partners compete with
one another and with prospective resellers of our products. Conflicts among
resellers and partners can potentially have an adverse effect on our operations,
such as when a reseller requires us to refrain from linking our products with
competing products. We may be adversely affected by pricing pressure or other
adverse consequences of competition or conflict among or with our resellers and
partners, or should any reseller or partner fail to adequately penetrate its
market segment. The inability to recruit, manage or retain important resellers
or partners, or their inability to penetrate their respective market segments,
would materially adversely affect our company.

WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY AND MAY NOT BE ABLE TO COMPETE
EFFECTIVELY. The market for educational and training products and services is
highly competitive and we expect that competition will continue to intensify.
There are no substantial barriers to entry into our business, and we expect that
established and new entities will enter the market for online educational and
training products and services in the near future.

A number of our existing competitors, as well as a number of potential new
competitors (including some of our strategic partners), have longer operating
histories, greater name recognition, larger customer bases, more diversified
lines of products and services and significantly greater resources than we do.
Such competitors may be able to undertake more extensive marketing campaigns,
adopt more aggressive pricing policies and make more attractive offers to
potential customers. In competing againsts us, our strategic partners could use
information obtained from us to gain an additional competitive advantage over
us. Our current and potential competitors might develop products and services
that are superior to ours or that achieve greater market acceptance than ours.
We might not compete effectively and competitive pressures might have a material
adverse effect on our business, financial condition and results of operations.

WE DEPEND ON KEY PERSONNEL. Our future success depends on the continued
contributions of our key senior management personnel, some of whom have worked
together for only a short period of time. Certain of our executive officers,
including Narasimhan P. Kannan, Chairman of the Board and Chief Executive
Officer, have employment agreements and we maintain "key man" life insurance in
the amount of $1 million on Mr. Kannan. Neither the insurance nor the employment
agreements will necessarily fully compensate us for, or preclude, the loss of
services of these executive officers. The loss of services of any of our key
management personnel, whether through resignation or other causes, or the
inability to attract qualified personnel as needed, could have a material
adverse effect on our financial condition and results of operation.

WE ANTICIPATE SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY RESULTS. Our
expense levels are based in part on our expectations as to future revenues.
Quarterly sales and operating results generally depend on the licensing and
support revenues, online revenues and development and other revenues, which

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are difficult to forecast. We may not be able to adjust spending in a timely
manner to compensate for any unexpected revenue shortfall. Accordingly, any
significant revenue shortfall would have an immediate adverse impact on our
business and financial condition.

Our operating results may fluctuate significantly in the future as a result
of a variety of factors, some of which are outside of our control. These factors
include:

- demand for online education;

- acceptance and usage of the Internet;

- the budgeting cycles of customers;

- seasonality of revenues corresponding to academic calendars;

- capital expenditures and other costs relating to the expansion of
operations;

- the introduction of new products or services by us or our competitors;

- the mix of the products and services sold and the channels through which
those products and services are sold;

- pricing changes; and

- general economic conditions.

As a strategic response to a changing competitive environment, we may elect
from time to time to make certain pricing, service or marketing decisions that
could have a material adverse effect on us. We believe that period-to-period
comparisons of our operating results should not be relied upon as an indication
of future performance. Due to all of the foregoing factors, it is possible that
in some future quarter, our operating results will be below the expectations of
public market analysts and investors. In such event, the price of our common
stock would likely be materially and adversely affected.

WE RELY ON SIGNIFICANT CUSTOMERS. A significant portion of our revenues
are generated by a limited number of customers. We expect that we will continue
to depend on large contracts with a limited number of significant customers
through the near future. This situation can cause our revenue and earnings to
fluctuate between quarters based on the timing of contracts. Most of our
customers have no obligation to purchase additional products or services from
us. Consequently, if we fail to develop relationships with significant new
customers, our business, financial condition and results of operations will be
materially and adversely affected.

WE DEPEND ON THE INCREASED USAGE AND STABILITY OF THE INTERNET. The future
of the Internet as a center of commerce and information exchange will depend in
significant part on the following factors:

- continued rapid growth in the number of households and commercial,
educational and government institutions with access to the Internet;

- the level of Internet usage by individuals;

- the number and quality of products and services designed for use on the
Internet; and

- expansion of the Internet infrastructure.

Because usage of the Internet as a medium for online exchange of
information, advertising, merchandising and entertainment is a recent
phenomenon, it is difficult to predict whether the number of users will continue
to increase and whether any significant market for our online products and
services, or any substantial commercial use of the Internet, will develop. It is
also uncertain whether the cost of Internet access will decrease. If Internet
communication fails to achieve increased

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acceptance and does not become accessible to a broad audience at moderate costs,
the viability of Internet commerce and the market for our products and services
will be jeopardized.

The success of our business also depends on a significant expansion of the
Internet infrastructure to provide adequate Internet access and proper
management of Internet traffic. It also needs to be expanded to provide a
substantial amount of public education to increase confidence in the integrity
and security of Internet commerce and communication. If the Internet
infrastructure is not adequately expanded or managed, or if our products and
services do not achieve sufficient market acceptance, then our business,
financial condition and results of operations will be materially and adversely
affected.

WE FACE THE RISK OF SYSTEM FAILURES AND CAPACITY CONSTRAINTS. A key
element of our strategy is to generate a high volume of online traffic to our
products and services. Accordingly, the performance of our products and services
is critical to our reputation, our ability to attract customers and market
acceptance of our products and services. Any system failure that causes
interruptions in the availability or increases response time of our products and
services would result in less traffic to our web-sites and, if sustained or
repeated, would reduce the attractiveness of our products and services. An
increase in the volume of use of our products and services could strain the
capacity of the software or hardware we use or the capacity of our network
infrastructure, which could lead to slower response time. We experienced
capacity constraints in early 1999 and might again. Any failure to expand the
capacity of our hardware or network infrastructure on a timely basis or on
commercially reasonably terms would have a material adverse effect on our
business. We also depend on web browsers and Internet service providers for
access to their products and services, and users may experience difficulties due
to system failures unrelated to our systems, products and services.

WE FACE SECURITY RISKS. We include in our products certain security
protocols that operate in conjunction with encryption and authentication
technology. Despite these technologies, our products may be vulnerable to
break-ins and similar disruptive problems caused by online users. Such computer
break-ins and other disruptions would jeopardize the security of information
stored in and transmitted through our computer systems and the computer systems
of end-users, which may result in significant liability for us and may also
deter potential customers. For example, computer "hackers" could remove or alter
portions of our online courseware. Persistent security problems continue to
plague the Internet, the Web and other public and private data networks.
Alleviating problems caused by third parties may require us to make significant
expenditures of capital and other resources and may cause interruptions, delays
or cessation of service to our customers and to us. Moreover, our security and
privacy concerns and those of existing and potential customers, as well as
concerns related to computer viruses, may inhibit the growth of the online
marketplace generally, and our customer base and revenues in particular. We
attempt to limit our liability to customers, including liability arising from a
failure of the security features contained in our products, through contractual
provisions limiting warranties and disallowing damages in excess of the price
paid for the products and services purchased. However, these limitations might
not be enforceable. We currently do not have product liability insurance to
protect against these risks and insurance might not be available to us on
commercially reasonable terms or at all.

WE FACE AN UNDEVELOPED AND RAPIDLY CHANGING MARKET FOR OUR PRODUCTS AND
SERVICES. The market for our products and services is rapidly evolving in
response to recent developments relating to online technology. The market is
characterized by evolving industry standards and customer demands, and an
increasing number of market entrants who have introduced or developed online
products and services. It is difficult to predict the size and growth rate, if
any, of this market. As is typical in the case of a rapidly evolving industry,
demand and market acceptance for recently introduced products and services are
subject to a high level of uncertainty. Moreover, critical issues concerning the
commercial use of online networks (including reliability, cost, ease of use and
access, quality of

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service and market acceptance) remain unresolved and may impact potential future
growth. Although costs have been decreasing while ease of use, market acceptance
and access have been increasing, we cannot assure that these trends will
continue. Our future success will depend in significant part on our ability to
continue to improve the performance, features and reliability of our products
and services in response to both evolving demands of the marketplace and
competitive product offerings, and we cannot assure that we will be successful
in developing, integrating or marketing such products or services. In addition,
our new product releases may contain undetected errors that require significant
design modifications, resulting in a loss of customer confidence and adversely
affecting our business.

THERE ARE RISKS RELATING TO OUR INTELLECTUAL PROPERTY RIGHTS. We regard
our copyrights, trademarks, trade dress, trade secrets and similar intellectual
property as critical to our success, and we rely upon trademark and copyright
law, trade secret protection and confidentiality and/or license agreements with
our employees, customers, partners and others to protect our proprietary rights.

We have had certain trademark applications denied, and may have more denied
in the future. We will continue to evaluate the need for registration of
additional marks as appropriate. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy aspects of our products or
services or to obtain and use information that we regard as proprietary. In
addition, the laws of some foreign countries do not protect proprietary rights
to as great an extent as do the laws of the United States. Litigation may be
necessary to protect our proprietary technology. Any such litigation may be
time-consuming and costly, cause product release delays, require us to redesign
our products or services or require us to enter into royalty or licensing
agreements, any of which could have a material adverse effect upon us. These
royalty or licensing agreements, if required, may not be available on terms
acceptable to us or at all. Our means of protecting our proprietary rights might
not be adequate and our competitors might independently develop similar
technology, duplicate our products or services or design around patents or other
intellectual property rights we have. In addition, distributing our products
through online networks makes our software more susceptible than other software
to unauthorized copying and use. For example, online delivery of our courseware
makes it difficult to ensure that others comply with contractual restrictions,
if any, as to the parties who may access such courseware. We allow users to
download electronically certain of our courseware content, which could adversely
affect our ability to collect payment from users that obtain copies from our
existing or past customers. If, as a result of changing legal interpretations of
liability for unauthorized use of our software or otherwise, users were to
become less sensitive to avoiding copyright infringement, we would be materially
adversely affected.

WE FACE GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES. There are currently
few laws or regulations that directly apply to activities on the Internet. We
believe that we are not currently subject to direct regulation by any government
agency in the United States, other than regulations that are generally
applicable to all businesses. A number of legislative and regulatory proposals
are under consideration by federal and state lawmakers and regulatory bodies and
may be adopted with respect to the Internet. Some of the issues that these laws
and regulations may cover include user privacy, pricing and characteristics and
quality of products and services. The adoption of any such laws or regulations
may decrease the growth of the Internet, which could in turn decrease the
projected demand for our products and services or increase our cost of doing
business. The applicability to the Internet of existing U.S. and international
laws governing issues such as property ownership, copyright, trade secret,
libel, taxation and personal privacy is uncertain and developing. Any new
legislation or regulation, or application or interpretation of existing laws,
could have a material adverse effect on our business, results of operations,
financial condition and prospects.

POTENTIAL YEAR 2000 PROBLEMS MAY ADVERSELY AFFECT OUR BUSINESS. We use
computer software and related technologies throughout our business that are
likely to be affected by the date change in the year 2000. We may not discover
and remediate all potential problems with our systems in a timely

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manner. In addition, computer software and related technologies used by our
customers, service providers, vendors and suppliers are likely to be affected.
Failure of any of these parties to properly process dates for the year 2000 and
thereafter could result in unanticipated expenses and delays to us, including
delays in payments by customers for our products and services.

Year 2000 problems could also undermine the general Internet infrastructure
necessary to support our operations. For instance, we depend on third-party
Internet service providers (known as "ISPs") to provide connections to the
Internet and to our customers. Any interruption in service from our ISPs could
result in a temporary interruption in the distribution of our services on the
Internet. If businesses and consumers are not able to reliably access the
Internet, the demand for our services could decline, resulting in an adverse
impact to our business, financial condition and results of operations.

Our operations could also be adversely affected if our customers fail to
ensure that their software systems are Year 2000 compliant. We cannot assess or
control the degree of Year 2000 compliance in our customers' information
systems. Disruption in the information systems of significant customers could
temporarily prevent those customers from accessing and using our products and
services, which could materially affect our operating results. Certain customers
may elect to discontinue use of our products and services until their internal
information technology problems have been alleviated, which would adversely
affect our business and results of operations. The spending pattern of current
or potential customers may be affected by Year 2000 issues as companies expend
significant resources to correct or update their systems for Year 2000
compliance. Because of these expenditures, our customers may have less money
available to pay for our products and services, which could have a material
adverse effect on our business, financial condition and results of operations.

WE COULD ISSUE PREFERRED STOCK AND TAKE OTHER ACTIONS THAT MIGHT DISCOURAGE
THIRD PARTIES FROM ACQUIRING OUR COMPANY. Our board of directors has the
authority, without further action by the stockholders, to issue up to 10,000,000
shares of preferred stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of such shares. We currently have
outstanding two classes of preferred stock. The rights of the holders of the
common stock are subject to the rights of the holders of our outstanding
preferred stock, and will be subject to, and may be adversely affected by, the
rights of the holders of any preferred stock that may be issued in the future.
Issuing preferred stock could have the effect of making it more difficult for a
third party to acquire a majority of our outstanding voting stock, thereby
delaying, deferring or preventing a change in control of our company.
Furthermore, the preferred stock may have other rights, including economic
rights, senior to our common stock, and as a result, issuing preferred stock
could have a material adverse effect on the market value of our common stock.

Certain provisions of our certificate of incorporation and our bylaws could
make it more difficult for a third party to acquire, and could discourage a
third party from attempting to acquire, control of our company. Some of them
eliminate the right of stockholders to act by written consent and impose various
procedural and other requirements which could make it more difficult for
stockholders to undertake certain corporate actions. These provisions could
limit the price that certain investors might be willing to pay in the future for
shares of our common stock and may have the effect of delaying or preventing a
change in control of our company. We may in the future adopt other measures that
may have the effect of delaying, deferring or preventing a change in control of
our Company. Certain of these measures may be adopted without any further vote
or action by the stockholders, although we have no present plans to adopt any
such measures. We are also afforded the protections of Section 203 of the
Delaware General Corporation Law, which could delay or prevent a change in
control of our company, impede a merger, consolidation or other business
combination involving our company or discourage a potential acquiror from making
a tender offer or otherwise attempting to obtain control of our Company.

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WE MIGHT NOT BE ABLE TO USE NET OPERATING LOSS CARRYFORWARDS. As of
December 31, 1998, we had net operating loss carryforwards for federal income
tax purposes of approximately $30.7 million, which will expire at various dates
through 2018. Our ability to use these net operating loss and credit
carryforwards to offset future tax obligations, if any, may be limited by
changes in ownership. Any limitation on the use of net operating loss
carryforwards, to the extent it increases the amount of federal income tax that
we must actually pay, may have an adverse impact on our financial condition.

THERE ARE DILUTIVE EFFECTS OF THE EQUITY LINE OF CREDIT AGREEMENT WITH
H&QGF AND POTENTIAL DILUTIVE EFFECTS OF THE DEBENTURES THAT WE ISSUED TO BH
CAPITAL AND EXCALIBUR. The sale of stock pursuant to the equity line of credit
agreement with H&QGF will have, and payments of interest on and principal
repayments of the debentures we issued to BH Capital and Excalibur could have, a
dilutive impact on our stockholders. As a result, our net income per share could
be materially decreased, or net loss per share materially increased, in future
periods and the market price of our common stock could be materially and
adversely affected. The shares of preferred stock to be issued under the equity
line of credit agreement, which will be convertible into a like number of shares
of common stock, will be issued at a discount to the then-prevailing market
price of the common stock. These discounted sales could have an immediate
adverse effect on the market price of the common stock. We also issued to H&QGF
a warrant to purchase 100,000 shares of preferred stock convertible, initially,
into an equal number of shares of common stock, at an exercise price of $3.6675
per share (which equals 120% of the average bid closing price per share for our
common stock for the five trading days prior to the date of grant). The issuance
of shares of preferred stock under the equity line of credit agreement or upon
exercise of the H&QGF warrant, and the subsequent conversion of those shares
into common stock and resale of the common stock would have a further dilutive
effect on our common stock and could adversely affect its market price.

The debentures are convertible at a fixed conversion price per share of
$5.55. If our stock price is below $5.55 per share at any time when an interest
payment is due or when either BH Capital or Excalibur or both have demanded a
principal repayment, and we elect to make payment in stock, the stock used for
payment will be valued at 85% of the average of the two lowest consecutive
closing bid prices for the stock during the 20 trading days prior to the
repayment demand. Issuing stock at these discounted values could have an
immediate adverse effect on the market price of the common stock. Moreover, the
resale of this stock could have further dilutive effects.

WE DO NOT PRESENTLY ANTICIPATE PAYING CASH DIVIDENDS ON OUR COMMON
STOCK. We intend to retain all earnings for the foreseeable future for funding
our business operations. In addition, our outstanding preferred stock and credit
facilities contain restrictions on our ability to declare and pay dividends on
our common stock. Consequently, we do not anticipate paying any cash dividends
on our common stock for the foreseeable future.

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THE EQUITY LINE OF CREDIT AGREEMENT

On May 4, 1999, we entered into an equity line of credit agreement with
H&QGF, pursuant to which, subject to the satisfaction of certain conditions, we
may issue and sell, from time to time, up to an aggregate of $3.0 million,
subject to certain limitations, of our Series E Convertible Preferred Stock.

Beginning on the date the registration statement, of which this prospectus
forms a part, is declared effective by the Securities and Exchange Commission
(the "SEC"), and continuing from that date through December 31, 1999, we may
from time to time, in our sole discretion, sell ("put") shares of our preferred
stock to H&QGF at a price per share equal to 85% of the lower of (1) the closing
market price of our common stock on the date of issuance and (2) the average of
the lowest intra-day prices of our common stock over the five-day period ending
on the date of issuance.

Our ability to put shares of our preferred stock to H&QGF is subject to
certain conditions and limitations, including, but not limited to, the
following:

- the registration statement, of which this prospectus is a part, must have
previously become effective and shall remain effective on the date of
each put;

- our representations and warranties to H&QGF set forth in the equity line
of credit agreement must be true and correct in all material respects as
of the date of each put;

- no statute, rule, regulation, executive order, decree, ruling or
injunction shall be in effect that prohibits, nor any action, suit or
proceeding shall be in progress, pending or threatened that seeks to
enjoin or prohibit, the transactions contemplated under the equity line
of credit agreement, or otherwise has a material adverse effect on our
business, operations, properties or financial condition;

- at the time of a put, there shall have been no material adverse change in
our business, operations, properties, prospects or financial condition,
except as disclosed in our reports filed with the SEC pursuant to the
Securities Exchange Act of 1934, as amended;

- our common stock shall not have been delisted from its principal market
(currently the Nasdaq SmallCap Market) nor suspended from trading;

- the issuance of shares to H&QGF shall not violate the Nasdaq SmallCap
Market (or other principal market) shareholder approval requirements;

- the total of all H&QGF's purchases of preferred stock under the equity
line of credit agreement shall not exceed $3.0 million;

- no more than the lesser of two times the average daily trading volume for
the 30 days preceding the put and $500,000 of preferred stock can be put
to H&QGF at a time and at least 15 trading days must elapse between puts;
and

- the number of shares of preferred stock already held by H&QGF, together
with those shares we propose to put to H&QGF, shall not exceed 9.9% of
the total amount of our common stock that would be outstanding after
completion of the put, including the preferred stock on an as-converted
basis.

H&QGF, or other underwriters of the securities, have the right to review
this registration statement and our records and properties to obtain information
about us and the accuracy of this registration statement and prospectus. H&QGF
has the opportunity to comment on the registration statement and prospectus, but
is not entitled to reject a put by us based on their review. H&QGF may be
entitled to indemnification by us for any lawsuits based on language in this
prospectus with which it does not agree.

18
<PAGE> 20

We cannot assure you that we will satisfy all conditions required under the
equity line agreement with H&QGF, or that we will be able to sell any shares to
H&QGF thereunder. If, for example, we fail to maintain the quotation of our
common stock on the Nasdaq SmallCap Market, we will not be able to sell
preferred stock to H&QGF under the equity line of credit agreement.

We have filed a registration statement, of which this prospectus forms a
part, in order to permit H&QGF to resell to the public any common stock it may
hold by converting shares of preferred stock issued under the equity line of
credit agreement.

In conjunction with the equity line of credit agreement, on May 4, 1999, we
issued to H&QGF a warrant to purchase 100,000 shares of our preferred stock,
initially convertible into a like number of shares of common stock, at an
exercise price of $3.6675 per share. The H&QGF warrant is exercisable through
May 2006. The warrant contains provisions that protect H&QGF against dilution by
adjustment of the exercise price and the number of shares issuable thereunder
upon the occurrence of certain events, such as a merger, stock split or reverse
stock split, stock dividend or recapitalization. The exercise price of the H&QGF
warrant is payable either in cash or by cashless exercise, in which that number
of shares of preferred stock issuable pursuant to the warrant having a fair
market value at the time of exercise equal to the aggregate exercise price are
cancelled as payment of the exercise price. The fair market value of the
preferred stock shall be determined using the then-current market price of our
common stock and the ratio for converting preferred stock into common stock then
in effect.

Under the equity line of credit agreement with H&QGF, we agreed to register
for resale the common stock issuable upon conversion of any preferred stock
issued to H&QGF under the agreement. Registration will permit H&QGF to resell
this common stock from time to time in the market or in privately-negotiated
transactions. We will prepare and file amendments and supplements to the
registration statement as may be necessary in order to keep the registration
statement effective as long as H&QGF holds shares of our stock. We have agreed
to bear certain expenses (other than broker discounts and commissions, if any),
including H&QGF's legal fees not to exceed $5,000, in connection with the
registration statement.

THE 9% SECURED SUBORDINATED CONVERTIBLE DEBENTURES
DUE DECEMBER 15, 2000

In June 1999 we issued $2.5 million principal amount of our 9% Secured
Subordinated Convertible Debentures due December 15, 2000 to BH Capital and
Excalibur. The debentures are convertible, at the option of the holder, into
shares of our common stock at a price per share of $5.55, based on the 5-day
average closing price of our common stock prior to the closing of the issuance
of the debentures, subject to adjustment for stock splits, stock dividends and
reverse stock splits. Principal and accrued interest on the debentures are
payable in either cash or common stock, depending on the price of our common
stock at the time of payment. Interest is payable quarterly and after September
15, 1999, BH Capital and Excalibur can demand monthly repayments of up to 15% of
the principal amount of debentures outstanding, on a cumulative basis. For any
repayment of principal or payment of interest:

- If the 5-day average closing price at the time of payment is higher than
the fixed conversion price per share of $5.55, payment must be made in
stock at the fixed price.

19
<PAGE> 21

If we are unable or unwilling to make any payment in cash as required, we can
pay in common stock valued at 85% of the average of the two lowest consecutive
closing bid prices for the stock during the 20 trading days prior to the
repayment demand. However, to the extent available, we intend to use funds
available under the H&QGF equity line of credit to make repayments in cash
rather than permit any conversions at less than $5.55 per share.

We have filed a registration statement, of which this prospectus forms a
part, in order to permit BH Capital and Excalibur to resell to the public any
common stock (up to 1,100,000 shares) they may hold either through conversion of
the debentures into common stock or payments of interest on and repayments of
principal of the debentures in common stock.

Pursuant to the agreement providing for the issuance of the debentures, we
have issued warrants to BH Capital and Excalibur to purchase 112,600 shares of
common stock at an exercise price of $6.38 per share (which equals 115% of the
5-day average closing bid price for our common stock prior to the issuance of
the debentures). The warrants contain provisions to protect against dilution by
adjustment of the exercise price and the number of shares issuable under them
upon the occurrence of certain events, including a merger, consolidation,
disposition of assets, stock split or reverse stock split, stock dividend or
recapitalization. The exercise price of the warrants is payable either in cash
or by cashless exercise, in which that number of shares of common stock issuable
pursuant to the warrant having a market value (as determined using the
then-current market price of the common stock) at the time of exercise equal to
the aggregate exercise price are cancelled as payment of the exercise price.

The effective interest rate of the Secured Subordinated Convertible
Debentures is approximately 20% after valuation of the warrants issued to BH
Capital and Excalibur and the conversion feature. We agreed to register for
resale the common stock issuable upon conversion of the debentures and exercise
of the warrants issued to BH Capital and Excalibur. Registration will permit
them to resell this common stock from time to time in the market or in
privately-negotiated transactions. We will prepare and file amendments and
supplements to the registration statement as necessary in order to keep the
registration statement effective as long as BH Capital and Excalibur hold shares
of our stock. We have agreed to bear certain expenses (other than broker
discounts and commissions, if any) in connection with the registration
statement.

DETERMINATION OF OFFERING PRICE

The Selling Stockholders may offer, pursuant to this prospectus, shares of
common stock to purchasers from time to time in public or private transactions,
on or off on the Nasdaq SmallCap Market, at prevailing market prices or at
privately negotiated prices. As such, the offering price is indeterminate as of
the date of this prospectus. See "Plan of Distribution."

20
<PAGE> 22

PRICE RANGE OF OUR COMMON STOCK

Our common stock is currently listed on the Nasdaq SmallCap Market under
the symbol "UOLP." For each quarter since the beginning of 1997, the high and
low bid quotations for our common stock, as reported by Nasdaq, were as follows:

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1997
First quarter............................................. $15.25 $12.00
Second quarter............................................ $13.25 $10.00
Third quarter............................................. $26.25 $12.13
Fourth quarter............................................ $26.50 $12.50
1998
First quarter............................................. $16.50 $ 7.75
Second quarter............................................ $13.25 $ 3.88
Third quarter............................................. $ 8.00 $ 4.00
Fourth quarter............................................ $ 9.13 $ 1.94
1999
First quarter............................................. $ 5.87 $ 2.62
Second quarter............................................ $ 8.31 $ 2.62
</TABLE>

The foregoing bid quotations reflect inter-dealer prices, without retail
mark-ups, mark-downs or commissions, and may not represent actual transactions.

DIVIDEND POLICY

We have never paid or declared any cash dividends on our common stock. We
currently intend to retain any future earnings for our business and, therefore,
do not anticipate paying cash dividends in the foreseeable future. Future
dividends, if any, will depend on, among other things, our results of
operations, capital requirements, restrictions in loan agreements and on such
other factors as our Board of Directors, in its discretion, may consider
relevant.

USE OF PROCEEDS

The proceeds from the sale of the common stock will be received directly by
the Selling Stockholders. No proceeds will be received by the Company from the
sale of the common stock offered hereby. However, the Company will receive the
put price pursuant to the equity line of credit agreement with H&QGF if and to
the extent we issue and sell preferred stock (convertible into common stock
offered by this prospectus) to H&QGF pursuant to the agreement. As determined
under the agreement, the put price equals 85% of the lower of (1) the closing
market price of our common stock on the date of issuance and (2) the average of
the lowest intra-day prices of our common stock over the five-day period ending
on the date of issuance. The Company will also receive the proceeds, if any,
relating to the exercise of the warrant granted to H&QGF in connection with the
equity line of credit agreement and the warrants granted to BH Capital and
Excalibur in connection with the issuance of our 9% Secured Subordinated
Convertible Debentures due December 15, 2000. All proceeds from the sale of
preferred stock under the Equity Line Agreement and from the exercise of the
H&QGF, BH Capital and Excalibur warrants will be used for general corporate
purposes.

21
<PAGE> 23

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
March 31, 1999: (i) on an actual basis; (ii) on a pro forma basis after giving
effect to the private placement in May, 1999 of 448,297 shares of Common Stock
for net proceeds of approximately $1.3 million, the issuance in June, 1999 of an
aggregate of $2.5 million in 9% Secured Subordinated Convertible Debentures, and
the repayment of approximately $1.9 million on the Company's debt facilities
with proceeds from the Secured Subordinated Convertible Debentures; and (iii) on
a pro forma basis, as adjusted to reflect the issuance of $3.0 million in Series
E Convertible Preferred Stock and the immediate conversion to 882,353 shares of
Common Stock. This table should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto appearing elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long-term debt:
Convertible Subordinated Debentures (1)(2)............. -- $ 2,088 $ 2,088
Line of credit with Bank (current)..................... $ 1,477 -- --
Note payable to Bank (current)......................... 500 80 80
Other notes payable (including current portion of
$496)................................................ 849 849 849
-------- -------- --------
Total Long-Term Debt.............................. 2,826 3,017 3,017
Stockholders' Equity:
Series C Convertible Preferred Stock, $0.01 par value
per share; 1,000,000 shares authorized; 626,293
shares issued and outstanding........................ 6 6 6
Series D Convertible Preferred Stock, $0.01 par value
per share; 1,200,000 shares authorized; 1,082,625
shares issued and outstanding........................ 11 11 11
Common Stock, $0.01 par value per share; 36,000,000
shares authorized; 4,276,668, 4,724,965 and 5,607,318
shares issued and outstanding for Actual, Pro Forma
and Pro Forma, As Adjusted, respectively (4)......... 43 47 56
Additional paid-in capital (1)(2)(3)................... 54,498 56,298 59,819
Accumulated deficit (3)................................ (49,337) (49,337) (49,867)
-------- -------- --------
Total Stockholder's Equity........................ 5,221 7,025 10,025
-------- -------- --------
Total Capitalization......................... $ 8,047 $ 10,042 $ 13,042
======== ======== ========
</TABLE>

- ---------------
(1) The Secured Subordinated Convertible Debentures may convert to common stock
at a 15% discount from the fair market value of the common stock. The
intrinsic value of this feature is reflected as debt discount and an
increase to additional paid-in capital and will be recognized as additional
interest expense over the term of the Secured Subordinated Convertible
Debentures.

(2) The Secured Subordinated Convertible Debentures were issued together with
warrants to purchase 112,600 shares of Common Stock at an exercise price of
$6.38 per share. The fair value of these warrants is reflected as debt
discount and an increase to additional paid-in capital and will be
recognized as additional interest expense over the term of the Secured
Subordinated Convertible Debentures. In addition, warrants to purchase
112,600 shares of common stock at an exercise price of $6.38 per share were
issued as consideration for the arrangement of the Secured Subordinated
Convertible Debenture transaction. The fair value of these warrants has been
reflected as deferred debt issuance costs and an increase to additional
paid-in capital.

(3) The purchase price of the Series E Convertible Preferred Stock is at a 15%
discount from the market price of the Common Stock and converts to Common
Stock on a one-for-one basis. The intrinsic value of this feature is
reflected as a deduction from retained earnings and an increase to
additional paid-in capital based on the assumed conversion to Common Stock.

(4) Excludes 1,774,876 shares of Common Stock reserved for issuance under the
1996 Stock Option Plan. See "Executive Compensation -- 1996 Stock Plan."

22
<PAGE> 24

SELECTED CONSOLIDATED FINANCIAL DATA

The following table presents selected consolidated financial data for the
five years ended December 31, 1998, the three-month periods ended March 31, 1998
and 1999 and certain pro forma data as of March 31, 1999. The statement of
operations data set forth below with respect to the years ended December 31,
1996, 1997 and 1998 and the balance sheet data as of December 31, 1997 and 1998
are derived from, and are referenced to, the audited consolidated financial
statements included elsewhere in this prospectus. The statement of operations
data set forth below with respect to the years ended December 31, 1994 and 1995
and the balance sheet data as of December 31, 1994, 1995 and 1996 are derived
from audited consolidated financial statements not included in this prospectus.
The selected consolidated financial data presented below as of March 31, 1999
and for the three months ended March 31, 1998 and 1999 has been derived from the
Company's unaudited consolidated financial statements included elsewhere in this
prospectus. The pro forma data reflects (i) the private placement in May, 1999
of 448,297 shares of Common Stock for net proceeds of approximately $1.3
million, (ii) the issuance in June, 1999 of an aggregate of $2.5 million in 9%
Secured Subordinated Convertible Debentures and (iii) the repayment of
approximately $1.9 million on the Company's debt facilities with proceeds from
the Secured Subordinated Convertible Debentures, as if such transactions had
occurred on March 31, 1999. The pro forma, as adjusted data further reflects the
issuance of $3.0 million in Series E Convertible Preferred Stock and the assumed
conversion to 882,353 shares of Common Stock.

<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Online tuition revenues....................... $ 14 $ 56 $ 119 $ 1,662 $ 1,549 $ 1,674 $ 1,394
Virtual campus software revenues.............. 2,718 112 272 881
Product sales revenues........................ 2,330 3,348 950 400
Development and other revenues................ 82 76 399 1,631 926 96 236
Instructor-led training revenues.............. 1,086 6,303 566 82
Other service revenues........................ 710 416 424 718 2,445 43 42
------- ------- ------- -------- -------- ------- -------
Total net revenues.............................. 806 548 942 10,145 14,683 3,601 3,035
Costs and expenses:
Cost of revenues.............................. 146 94 195 2,391 10,073 2,583 1,883
Sales and marketing........................... 296 933 1,593 4,439 5,304 1,630 1,043
Product development........................... 206 576 1,482 4,465 5,782 2,717 357
General and administrative.................... 890 927 2,477 2,388 3,783 1,900 688
Depreciation and amortization................. 298 309 144 931 2,463 633 503
Acquired in-process research, development and
content..................................... -- -- -- 11,100 -- -- --
Compensation expense in connection with the
acquisition of HTR, Inc..................... -- -- -- 690 -- -- --
Reorganization and other non-recurring
charges..................................... -- -- -- 340 5,585 468 --
------- ------- ------- -------- -------- ------- -------
Total costs and expenses........................ 1,836 2,839 5,891 26,743 32,990 9,931 4,474

Loss from operations............................ (1,030) (2,291) (4,949) (16,599) (18,307) (6,330) (1,439)

Other income (expense):
Loss on sale of subsidiaries.................. -- -- -- -- (907) -- --
Other income (expense)........................ (6) 126 304 125 -- -- --
Interest income (expense)..................... (260) (75) 4 329 (597) (130) (128)
------- ------- ------- -------- -------- ------- -------
Loss before extraordinary gain on debt
forgiveness................................... (1,296) (2,240) (4,641) (16,145) (19,811) (6,460) (1,567)
Extraordinary gain on debt forgiveness.......... 609 -- -- -- -- -- --
------- ------- ------- -------- -------- ------- -------
Net loss........................................ $ (687) $(2,240) $(4,641) $(16,145) $(19,811) $(6,460) $(1,567)
======= ======= ======= ======== ======== ======= =======
Dividends to preferred stockholders............. -- (175) (331) -- (358) -- (73)
------- ------- ------- -------- -------- ------- -------
Net loss attributable to common stockholders.... $ (687) $(2,415) $(4,972) $(16,145) $(20,169) $(6,460) $(1,640)
======= ======= ======= ======== ======== ======= =======
Net loss per share.............................. $ (1.65) $ (3.13) $ (4.98) $ (4.91) $ (5.27) $ (1.70) $ (0.39)
======= ======= ======= ======== ======== ======= =======
Net loss per share -- assuming dilution......... $ (1.65) $ (3.13) $ (4.98) $ (4.91) $ (5.27) $ (1.70) $ (0.39)
======= ======= ======= ======== ======== ======= =======
</TABLE>

23
<PAGE> 25

<TABLE>
<CAPTION>
MARCH 31, 1999
(UNAUDITED)
DECEMBER 31, ----------------------------------
-------------------------------------------------- PRO FORMA,
1994 1995 1996 1997 1998 ACTUAL PRO FORMA AS ADJUSTED
------- ------- -------- -------- -------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficit)............. $(2,587) $(1,402) $ 14,833 $ (3,789) $ (4,631) $ (4,549) $ (932) $ 2,068
Total assets............ 879 613 17,489 26,465 14,871 13,717 15,712 18,712
Total liabilities....... 3,158 1,887 1,287 13,054 9,051 8,497 8,687 8,687
Accumulated deficit..... (4,503) (6,742) (11,383) (27,528) (47,697) (49,337) (49,337) (49,867)
Total stockholders'
equity................ (2,279) (1,274) 16,202 13,411 5,820 5,221 7,025 10,025
</TABLE>

24
<PAGE> 26

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

From time to time, as used herein, the term "Company" shall mean UOL
Publishing, Inc. and its subsidiaries: Cognitive Training Associates, Inc., a
Texas corporation; Cooper & Associates, Inc., an Illinois corporation, d/b/a
Teletutor; HTR, Inc., a Delaware corporation; and UOL Leasing, Inc., a Delaware
corporation.

The following presentation of management's discussion and analysis of the
Company's consolidated financial condition and results of operation should be
read in conjunction with the Company's consolidated financial statements,
accompanying notes thereto and other financial information appearing elsewhere
in this prospectus.

OVERVIEW

The Company develops, manages and hosts Internet-based training and
education for corporations, government agencies and academic institutions. The
Company offers its online courseware primarily through its proprietary virtual
campus product, or VCampus(TM), a full-service, centrally-hosted, scalable
distance education platform. It allows for the registration, enrollment,
teaching, testing, grading and certification of distance learners. Through its
HTR and Teletutor subsidiaries, the Company also offers courseware through more
traditional media, including on-site and classroom training, diskette, CD-ROM
and printed formats. In December 1998, the Company announced plans to divest its
non-online businesses with the exception of Teletutor in order to focus its
efforts on managing its core online customers and content.

The Company was formed in 1984 as IMSATT Corporation, a multimedia research
and development company. In 1991, the Company acquired from Control Data certain
rights to resell the CYBIS online courseware, which consisted primarily of
courses in language arts, mathematics, social studies, science, business and a
variety of technical subjects. In 1993, the Company modified its business focus
to capitalize on market opportunities for online education resulting from
technological advances relating to the Internet. Subsequently, the Company
raised additional financing and focused its development efforts on migrating its
technology to the Web in preparation for the launch of its first Web-based
course in November 1995. Under the current business model, UOL's revenues are
derived from five primary sources:

- online tuition revenues;

- product sales revenues;

- development revenues;

- other service revenues; and

- instructor-led training revenues.

Online tuition revenues are generated primarily from online tuition derived
from corporate and academic customers. Product sales revenues are derived from
the sale of computer-based training ("CBT") courses that are delivered through
traditional CBT format (e.g. CD-ROM). Development revenues consist primarily of
fees paid to the Company for developing and converting courseware. Other service
revenues consist primarily of monthly fees generated by the licensing and
maintenance of the CYBIS courseware under the Control Data subcontracts.
Instructor-led training revenues are generated from on-site and classroom
training fees. During 1998 the Company announced a new strategy to move away
from licensing the VCampus(TM) software towards the sales of online courseware
subscriptions. While prior to 1997 licensing and support revenues have
represented a substantial majority of the Company's revenues, the Company
believes that online revenues and product sales will become the primary sources
of its revenues in the future.

25
<PAGE> 27

ACQUISITIONS AND DIVESTITURES

Since 1994, the Company has completed five acquisitions -- HTR Inc., Cooper
& Associates, Inc. (d/b/a Teletutor), Ivy Software, Inc., Cognitive Training
Associates, Inc. and the CYBIS Division of Control Data Corporation. Each of
these acquisitions was accounted for as a purchase, and accordingly, the
operating results of each acquired company are included in the Company's
financial statements from the effective date of each respective acquisition.
These acquisitions provided the Company with customers and courseware content in
non-online format. The Company does not currently have an agreement, commitment
or understanding with any other potential acquisition candidates. The Company
has followed a strategy of moving content and customers to an online training
platform from the traditional classroom and CBT based training sold through its
non-online business. In December 1998, the Company announced plans to divest its
non-online businesses with the exception of Teletutor in order to focus its
efforts on managing its core online customers and content. The Company does not
currently have an agreement, commitment or understanding with any potential
acquirors for the instructor-led training business, but has signed a letter of
intent to sell HTR's Knowledgeworks business (see below).

In October 1997, the Company acquired HTR, Inc. ("HTR") a corporation
primarily engaged in the business of providing traditional and on-site technical
training, publishing and consulting services for the information technology
("IT") industry. The Company acquired HTR for common stock, warrants and options
totaling 620,000 shares, and the assumption of approximately $3,500,000 of debt
and cash and notes payable aggregating approximately $600,000. The executive
officers of HTR were to receive bonuses no later than December 31, 1998 in the
total amount of $690,000 granted in conjunction with the signing of three-year
employment agreements. As of June 29, 1998, the executive officers of HTR agreed
to convert approximately $420,000 of their sign-on bonuses and $320,000 of
acquisition-related indebtedness into 134,447 shares of UOL Series D convertible
Preferred Stock. In addition, UOL created a stock option pool of 180,000 shares
of Common Stock and an incentive bonus pool with a potential payout not to
exceed approximately $3,300,000 for three years, contingent upon the financial
performance of HTR. In December 1998, the Company sold HTR's consulting division
for $750,000 in cash and notes receivable. The note bears interest at 5% and is
payable in eight equal quarterly installments beginning March 31, 1999 through
December 31, 2000. As a result of the sale, the Company recorded a loss on the
sale of subsidiary of $525,472 (or $0.14 per share) for the year ended December
31, 1998. In December 1998, as a result of the Company's plans to divest the
remaining non-online businesses, the Company revalued the remaining assets of
HTR's non-online businesses. As a result, the Company wrote off $3,669,598 (or
$0.96 per share) of goodwill related to these businesses for the year ended
December 31, 1998. In June 1999, the Company sold the HTR Knowledgeworks legacy
business for $1,500,000.

In April 1997, the Company acquired Cooper & Associates, Inc., d/b/a
Teletutor ("Teletutor") Teletutor, which develops, distributes and supports
computer-based training courses for the data and telecommunications industry.
This acquisition provided the Company with additional content that has been
converted into the Company's online format, as well as access to Teletutor's
existing customer base. The Company paid $3,000,000 in cash and $2,000,000 in
promissory notes to be paid ratably on the first, second and third anniversary
dates of the acquisition. In December 1997, the Company's management, in
accordance with its impairment policy for long-lived assets, determined that the
employee workforce asset had been impaired as of December 31, 1997 due to
planned workforce reductions, and as such, wrote off approximately $250,000 of
the carrying amount of the asset. During 1998, goodwill was reduced to zero and
the remaining intangible assets were reduced ratably by approximately $329,000
due to a purchase price adjustment related to the acquisition. During 1998, the
Company paid the first installment of $666,667 in cash on the note balance. In
December 1998, the Company and the former stockholders of Teletutor restructured
the terms of the note as follows: the Company issued 105,000 shares of Common
Stock and three-year warrants to purchase 55,000

26
<PAGE> 28

shares of its Common Stock at an exercise price of $6.00 per share; the Company
executed a new non-interest bearing promissory note for $826,666, payable in
installments between March 15, 1999 and April 15, 2000. As a result, the Company
recorded $145,208 as loss on debt restructuring for the excess of the fair
market value of the Common Stock, warrants and new promissory note over the
carrying amount of the original promissory note. The loss in debt restructuring
is included in reorganization and non-recurring expenses in the 1998 statement
of operations.

In March 1997, the Company acquired Ivy Software, Inc. ("Ivy") which
develops and distributes business and accounting textbook and software for the
academic education market. This acquisition provided the Company with additional
content as well as access to Ivy's existing customers in the academic
marketplace, ranging from community colleges to large universities. The Company
acquired Ivy in exchange for $314,000 in cash and potential future payments not
to exceed approximately $862,000. In September 1998 the Company sold Ivy back to
its original owner for $250,000 in cash and a note receivable for $196,000. The
note bears interest at 6% and is payable in quarterly installments through
September 2005. As a result of the sale, the Company recorded a loss on the sale
of subsidiary of $381,954, or $0.10 per share, during the third quarter of 1998.
The Company's obligation to make the remaining potential future payments of
approximately $300,000 related to the acquisition was terminated upon the sale.
The Company retains the right to distribute the online versions of Ivy Software.

In August 1996, the Company acquired Cognitive Training Associates, Inc.
("CTA") which develops and distributes technology-based applications online via
distributed networks for educational institutions, corporations and government
agencies. CTA customers can access these applications from remote locations
using the Internet or their organization's intranets. This acquisition provided
the Company with an established customer base and additional content,
particularly in the electrical, medical and scientific equipment subject areas.
The Company acquired CTA in exchange for 42,487 shares of the Company's Common
Stock.

In 1994, the Company acquired the CYBIS division of Control Data, together
with a perpetual nonexclusive license for the CYBIS courseware, which consisted
primarily of courses in language arts, mathematics, social studies, science,
business and a variety of technical subjects. The Company's ability to
distribute a portion of the CYBIS courseware is limited by the terms of its
license. The Company is responsible for the CYBIS computer-based education and
training portion of certain CYBIS contracts to which Control Data is a party, as
well as support and other services under such contracts. The Company believes
that Web-based courseware developed from the CYBIS courseware, to the extent not
restricted by the terms of its license, may contribute to revenues in the
future. The Company acquired CYBIS in exchange for $150,000 in cash and $544,000
in notes.

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<PAGE> 29

RESULTS OF OPERATIONS

The following table sets forth certain statement of operations data as a
percentage of total net revenues for the periods indicated:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- ---------------
1996 1997 1998 1998 1999
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Online tuition revenues.......... 12.6% 16.4% 10.6% 7.6% 29.0%
Virtual campus software
revenues...................... -- 26.8 0.8 1.2 1.4
Product sales revenues........... -- 22.9 22.8 26.4 13.2
Development and other revenues... 42.4 16.1 6.3 2.6 7.8
Instructor-led training
revenues...................... -- 10.7 42.9 46.5 45.9
Other service revenues........... 45.0 7.1 16.6 15.7 2.7
------ ------ ------ ------ -----
Total net revenues....... 100.0 100.0 100.0 100.0 100.0
Costs and expenses:
Cost of revenues................. 20.7 23.6 68.6 71.7 62.0
Sales and marketing.............. 169.0 43.7 36.1 45.3 34.4
Product development.............. 157.3 44.0 39.4 75.4 11.8
General and administrative....... 262.8 23.5 25.8 52.8 22.7
Depreciation and amortization.... 15.3 9.2 16.8 17.6 16.6
Reorganization and other
non-recurring charges......... -- 119.6 38.0 13.0 --
------ ------ ------ ------ -----
Total costs and
expenses.............. 625.1 263.6 224.7 275.8 147.5
------ ------ ------ ------ -----
Loss from operations............... (525.1) (163.6) (124.7) (175.8) (47.5)
Other income (expense):
Other income (expense)........... 32.3 1.2 (6.2) -- --
Interest income (expense)........ 0.4 3.2 (4.1) (3.6) (4.2)
------ ------ ------ ------ -----
Net loss........................... (492.4)% (159.2)% (135.0)% (179.4)% (51.7)%
====== ====== ====== ====== =====
</TABLE>

THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998

Summary

For the three months ended March 31, 1999, the Company incurred a net loss
of $1,640,490 (or $0.39 per share after accrual of dividends for preferred
stockholders) as compared to a net loss of $6,460,386 (or $1.70 per share) for
the three months ended March 31, 1998. The improvement in first quarter results
as compared to the three months ended March 31, 1998 was due primarily to cost
controls initiated at the end of the first quarter of 1998 as a result of
management reorganization plans, and certain non-recurring charges in the same
period.

Total revenues for the first quarter of 1999 were $3,035,083 as compared to
$3,600,860 for the three months ended March 31, 1998. The decrease in revenues
reflects an increase in online tuition revenue and development and other
revenues, which was more than offset by a decrease in revenues generated by the
Company's non-online businesses ("the legacy businesses").

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<PAGE> 30

Net Revenues

Instructor-led training revenues decreased 16.7% to $1,394,444 in the first
quarter of 1999, compared to $1,673,817 for the same period in 1998. The
decrease was due primarily to the closing of two instructor-led training
facilities located in Baltimore and Los Angeles at the end of the second quarter
of 1998 as a result of management reorganization plans.

Online tuition revenues increased 223.7% to $881,248 in the first quarter
of 1999, compared to $272,205 for the same period in 1998. For the three months
ended March 31, 1999, sales of online courses increased 236.9% to approximately
63,000 courses delivered during the quarter, up from first quarter 1998
deliveries of approximately 18,700 online courses. The Company believes that
online tuition revenues will continue to increase in absolute dollars and as a
percentage of total revenue as the Company completes the previously announced
divestitures of its non-online businesses, with the exception of Teletutor.

Product sales revenues decreased 57.9% to $399,635 in the first quarter of
1999, compared to $950,206 for the same period in 1998. The decrease was due to
the sale of Ivy at the end of the third quarter of 1998, a decrease in Teletutor
product sales due to the downsizing of its operations at the end of the first
quarter of 1998, and a decrease in product sales to a major Knowledgeworks
customer.

Development and other revenues increased 144.5% to $235,874 in the first
quarter of 1999, compared to $96,481 for the first quarter of 1998. The increase
was due primarily to an increase in courseware development orders from existing
customers.

Other service revenues decreased 85.6% to $81,716 in the first quarter of
1999, compared to $565,651 for the same period in 1998. The decrease was due to
the sale of HTR's consulting business at the end of the fourth quarter of 1998.

Virtual campus software revenues remained unchanged in the first quarter of
1999, compared to the first quarter of 1998 as a result of a new marketing
strategy implemented by the Company during the first quarter of 1998 to move
away from licensing the VCampus(TM) software towards sales of online
subscriptions. As such, virtual campus software revenues will be negligible in
the future.

Cost of Revenues

Cost of revenues decreased 27.1% to $1,882,848 in the first quarter of 1999
as compared to $2,582,899 for the first quarter of 1998. The decrease was due
primarily to the closing of two instructor-led training facilities at the end of
the second quarter of 1998, the sale of HTR's consulting business at the end of
the fourth quarter of 1998, and to a lesser extent, the sale of Ivy at the end
of the third quarter of 1998.

Operating Expenses

Sales and Marketing. Sales and marketing expenses decreased 36.1% to
$1,042,556 in the first quarter of 1998 as compared to $1,630,558 for the first
quarter in 1998. The decrease was due primarily to cost controls initiated at
the end of the first quarter of 1998 as a result of management reorganization
plans.

Product Development. Product development expenses decreased 86.8% to
$357,454 in the first quarter of 1999 as compared to $2,716,619 for the first
quarter of 1998. The decrease was due primarily to cost controls initiated at
the end of the first quarter of 1998 as a result of management reorganization
plans, and the write-off during the first quarter of 1998 of approximately
$750,000 related to previously capitalized content acquisition and development
costs.

29
<PAGE> 31

General and Administrative. General and administrative expenses decreased
63.8% to $688,161 in the first quarter of 1999 as compared to $1,900,513 for the
first quarter of 1998. The decrease was due primarily to approximately
$1,075,000 of bad debt expense in the first quarter of 1998, and to a lesser
extent, cost controls initiated at the end of the first quarter of 1998 as a
result of management reorganization plans.

Depreciation and Amortization. Depreciation and amortization expense
decreased 20.5% to $503,376 in the first quarter of 1999 as compared to $633,165
for the first quarter of 1998. The decrease was due primarily to the sale of Ivy
at the end of the third quarter of 1998, the sale of HTR's consulting business
at the end of the fourth quarter of 1998, and the write-down of goodwill related
to the legacy businesses at the end of the fourth quarter of 1998 as a result of
the Company's plan to divest these assets in 1999.

Reorganization Costs. Reorganization costs of $467,640 incurred during the
three months ended March 31, 1998, primarily relate to the Company's workforce
reduction plan, which included a reduction in Teletutor's workforce in order to
consolidate its sales, marketing, finance and administrative functions with
those of UOL. The Company also eliminated and/or re-defined certain positions
within UOL and HTR to reduce costs and improve functionality.

Interest Expense. Interest expense remained relatively unchanged in the
first quarter of 1999 as compared to the first quarter of 1998. Interest expense
was primarily incurred in connection with the Company's borrowings on its line
of credit facility and term loan. See "Liquidity and Capital Resources".

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

Summary

The Company incurred a net loss of $20,169,155 (or $5.27 per share) in 1998
as compared to a net loss of $16,144,763 (or $4.91 per share) in 1997. Excluding
certain non-recurring items in both years, the Company incurred a net loss of
$13,676,515 (or $3.57 per share) in 1998 as compared to a net loss of $4,014,419
(or $1.22 per share) in 1997. Non-recurring items for 1998 amounted to
$6,492,640 (or $1.70 per share) and included $1,770,408 of costs incurred
pursuant to a management reorganization plan, $3,669,598 goodwill impairment
related to the planned divestiture of certain non-online businesses, losses of
$907,426 related to the sale of Ivy and HTR's consulting division, and a loss on
debt restructuring of $145,208. Non-recurring items for 1997 totaled $12,130,344
(or $3.69 per share) and included acquired in-process research and development
costs of $2,700,000 and $8,400,000 related to the acquisition of Teletutor and
HTR, respectively, $690,000 of compensation expense related to the acquisition
of HTR and $340,344 pursuant to a management reorganization plan. Total revenues
in 1998 were $14,683,112 in 1998 as compared to $10,144,500 for 1997. The
increase in revenues was due primarily to the acquisitions of Ivy, Teletutor and
HTR and was partially offset by decreases in VCampus(TM) software revenues and
development and other revenue. Online tuition revenues decreased from $1,662,058
in 1997 to $1,548,950 in 1998 primarily due to the Company's change in method
for recognizing revenue for its VCampus(TM) software systems and prepaid online
tuition fees upon adoption of the AICPA Statement of Position 97-2, "Software
Revenue Recognition, ("SOP 97-2"). VCampus(TM) software revenues decreased from
$2,718,000 in 1997 to $112,253 primarily due to the Company's new marketing
strategy of moving away from licensing the VCampus(TM) software towards sales of
online courseware subscriptions. Development and other revenues decreased in
1998 as compared to 1997 primarily due to an agreement with one customer in 1997
that provided funding for the development of a custom VCampus(TM) in exchange
for a share of future net revenues derived from the operation of such campus and
warrants to purchase Common Stock of the Company. Excluding this one customer
from 1997, development and other revenues decreased slightly from 1997 to 1998.
Excluding the non-recurring items described above,

30
<PAGE> 32

total costs and expenses were $27,404,598 in 1998 as compared to costs of
$14,612,719 for 1997. The increase was due primarily to the addition of Ivy,
Teletutor and HTR costs and expenses as well as increased operating costs
related to the expansion of operations prior to workforce reductions and the
closing of certain office facilities implemented during 1998 as a result of
certain management reorganization plans.

Net Revenues

Total net revenues increased 45% from $10,144,500 in 1997 to $14,683,112 in
1998. Online tuition revenues decreased from $1,662,058 (16.4% of net revenues)
in 1997 to $1,548,950 (10.6% of net revenues) in 1998. While the Company
delivered approximately 95,000 courses online, a six-fold increase over 1997's
approximately 15,000, online tuition revenues decreased due to the Company's
adoption of SOP 97-2 as of January 1, 1998, which requires the Company to
recognize revenue ratably over the length of the service period. Virtual campus
software revenues decreased from $2,718,000 (26.8% of net revenues) for 1997 to
$112,253 (0.8% of net revenues) for 1998. The decrease is primarily due to the
Company's new marketing strategy of moving away from licensing the VCampus(TM)
software towards sales of online courseware subscriptions. Product sales
revenues increased in absolute terms from $2,330,029 (22.9% of net revenues) in
1997 to $3,347,777 (22.8% of net revenues) in 1998. The increase was due
primarily to the acquisition of the Ivy, Teletutor and HTR product lines.
Development and other revenues decreased from $1,631,233 (16.1% of net revenues)
in 1997 to $925,751 (6.3% of net revenues) in 1998 primarily due to an agreement
with one customer in 1997 that provided funding for the development of a custom
VCampus(TM) in exchange for a share of future net revenues derived from the
operation of such campus and warrants to purchase Common Stock of the Company.
Excluding this one customer from 1997, development and other revenues decreased
slightly from 1997 to 1998. Development revenues were primarily related to
courseware conversion between the Company and its customers in both years. Other
service revenues increased from $717,546 (7.1% of net revenues) in 1997 to
$2,444,719 (16.6% of net revenues) in 1998. The increase was due primarily to
the acquisition of HTR in October 1997. Instructor-led training revenues
increased from $1,085,634 (10.7% of net revenues) in 1997 to $6,303,662 (42.9%
of net revenues) in 1998. The increase was due primarily to the acquisition of
HTR in October 1997.

Cost of Revenues

Total cost of revenues increased from $2,390,711 (23.6% of net revenues) in
1997 to $10,072,558 (68.6% of net revenues) in 1998. Total cost of revenues
increased in absolute dollars due primarily to the acquisitions of Ivy,
Teletutor and HTR. As a percentage of net revenues, cost of revenues increased,
due primarily to the addition of instructor-led training revenues, which have
higher direct costs than the Company's other sources of revenues. The Company
believes that in the future, once the remaining non-online businesses are sold,
cost of revenues will decrease in absolute dollars, and will decrease as a
percentage of total net revenues.

Operating Expenses

Sales and Marketing. Sales and marketing expenses increased in absolute
terms from $4,438,717 (43.7% of net revenues) in 1997 to $5,304,394 (36.1% of
net revenues) in 1998. Sales and marketing expenses consist primarily of costs
related to personnel, sales commissions, travel, market research, advertising
and marketing materials. Sales and marketing expenses increased in absolute
dollars due primarily to the addition of Ivy, Teletutor and HTR, but decreased
as a percentage of revenues because of the greater increase in revenues. The
Company expects sales and marketing expense to increase substantially in the
future as the Company expands its sales and marketing efforts.

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<PAGE> 33

Product Development. Product development expenses increased in absolute
terms from $4,464,976 (44.0% of net revenues) in 1997 to $5,781,880 (39.4% of
net revenues) in 1998. Product development expenses consist primarily of certain
costs associated with the design, programming, testing, documenting and support
of the Company's new and existing courseware and software. Product development
expenses increased in absolute dollars due primarily to the acquisition of
Teletutor and HTR. In addition, the Company wrote-off approximately $694,000
related to certain content acquisition and development costs. As a percentage of
net revenues, product development expenses decreased in 1998 as compared to 1997
due primarily to increased revenues and workforce reductions implemented during
1998 as a result of management reorganization plans and because of 1997 efforts
to build the Company's courseware library.

General and Administrative. Excluding $1,300,000 of bad debt expense
recognized in the first quarter of 1998 for certain uncollectible accounts
receivable, general and administrative expenses increased from $2,387,172 (23.5%
of net revenues) in 1997 to $2,482,844 (17.0% of net revenues) in 1998. General
and administrative expenses consist primarily of personnel costs, facilities and
related costs, as well as legal, accounting and other costs. General and
administrative expenses increased in absolute dollars due primarily to the
acquisition of Ivy, Teletutor and HTR. As a percentage of revenues, general and
administrative costs decreased in 1998 as compared to 1997 due primarily to
increased revenues and workforce reductions during 1998 as a result of
management reorganization plans.

Depreciation and Amortization. Depreciation and amortization expense
increased from $931,143 (9.2% of net revenues) in 1997 to $2,462,922 (16.8% of
net revenues) in 1998. Depreciation expense increased due primarily to
additional purchases of computer equipment and other assets in 1997 to support
product development, technical operations and personnel needs as well as the
acquisitions of Ivy, Teletutor and HTR. Amortization expense increased due
primarily to the acquisitions of Ivy, Teletutor and HTR.

Reorganization Costs. During 1998, the Company implemented a plan to
reduce its workforce and close certain office facilities. The plan resulted in
(i) the termination of approximately 85 employees primarily from the product
development and administrative areas and (ii) the closure of the Company's
training facilities located in Los Angeles, and Baltimore, and an executive
office in McLean, Virginia. As a result, the Company recorded a restructuring
charge of approximately $1,770,000. The restructuring charge included
approximately $1,494,000 for employee severance and termination costs and
approximately $276,000 primarily for expenses related to facilities lease
cancellations and write down of assets no longer in use. During 1998, the
Company paid approximately $1,224,000 in costs under the restructuring accrual.
Included in accounts payable and accrued expenses at December 31, 1998 is
approximately $546,000 primarily representing future severance payments.

Interest and Other Income (Expense). Net interest income was $328,800 in
1997 and net interest expense was $597,139 in 1998. Interest income was derived
primarily from investing funds raised in the Company's private and public
securities offerings during 1996. Other income of $125,000 in 1997 was derived
from the sale of an investment in a joint venture (an asset acquired in
connection with the acquisition of HTR).

Loss on Sale of Subsidiaries. During 1998 the Company announced plans to
divest its non-online businesses in order to focus its efforts on its core
online training business. The Company believes this move is consistent with its
strategy of moving content and customers to an online training platform from the
traditional classroom training sold through its non-online businesses. As such,
in September 1998, the Company sold Ivy back to its original owner. As a result
of this sale, the Company recorded a loss on the sale of subsidiary of $381,954
(or $0.10 per share) during the third quarter of 1998. In December 1998, the
Company sold HTR's consulting division. As a result of

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<PAGE> 34

this sale, the Company recorded a loss on the sale of subsidiary of $525,472 (or
$0.14 per share) for the year ended December 31, 1998.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

Net Revenues

Net revenues increased from $942,426 in 1996 to $10,144,500 in 1997,
primarily due to an increase in virtual campus licensing and tuition revenues
and revenues generated by the Company's 1997 acquisitions. Consolidated net
revenues for 1997 included $566,751 and $1,568,956 of product sales revenues
from Ivy and Teletutor, respectively. Consolidated revenues also included
$167,322 in product sales revenues, $1,085,634 in instructor-led training
revenues, and $367,548 in consulting revenues from HTR.

Cost of Revenues

Cost of revenues increased from $194,730, or 20.7% of total net revenues,
in 1996 to $2,390,711, or 23.6% of total net revenues, in 1997. The increase was
primarily due to the inclusion of the results of operations of CTA, Ivy,
Teletutor and HTR in the 1997 period, and certain royalties to content providers
incurred under contracts entered into during the last two quarters of 1997. Cost
of revenues primarily consisted of instructor fees, course packages and other
costs directly associated with training and consulting revenues, certain
personnel costs directly related to certain CTA development contracts and
mainframe-based courseware support, third party royalties, and amortization of
capitalized software and courseware development costs, as well as communication
and personnel costs related to online revenues.

Operating Expenses

Sales and Marketing. Sales and marketing expenses increased from
$1,592,668 in 1996 to $4,438,717 in 1997 and decreased as a percentage of total
net revenues from 169.0% in 1996 to 43.7% in the comparable period in 1997.
Sales and marketing expenses consisted primarily of costs related to personnel,
sales commissions, travel, market research, advertising and marketing materials.
The increase in absolute dollars was primarily due to increased staffing and
marketing campaigns to secure contracts and strategic partnerships, and the
inclusion of the results of operations of Ivy, Teletutor, and HTR. Specifically,
during the latter part of 1996 and throughout 1997, the Company significantly
expanded its sales and marketing organization in order to build an
infrastructure to support the anticipated revenue opportunities for online
courseware.

Product Development. Product development expenses increased from
$1,482,179 in 1996 to $4,464,976 in 1997. Product and development expenses
decreased as a percentage of total net revenues from 157.3% in 1996 to 44.0% in
1997. The increase in absolute dollars was primarily attributable to the overall
staffing and other cost increases aimed at maintaining and enhancing the
Company's courseware library and VCampus(TM) software. During 1996 and 1997 the
Company incurred significant expenses to convert traditional educational and
training content to online courseware. Contributing to the increase in product
development costs in 1997 was the inclusion of the results of the operations of
CTA and Teletutor. Product development costs for 1997 are net of $1,990,000 of
costs capitalized in accordance with the Company's software capitalization and
content development policy. No product development costs were capitalized during
1996.

General and Administrative. General and administrative expenses decreased
from $2,477,144 in 1996 to $2,387,172 in 1997 and decreased as a percentage of
total net revenues from 262.8% in 1996 to 23.5% in 1997. General and
administrative costs during 1996 included certain stock option compensation
expense of $1,022,052, which was the amount by which the fair market value of
the Common Stock exceeded the exercise price of certain options as of the date
the Board of Directors granted such options or extended their exercise period.
Also included in 1996 expenses were certain one-time relocation, recruiting and
acquisition costs. General and administrative expenses generally

33
<PAGE> 35

consisted of personnel costs, facilities and related costs, as well as legal,
accounting and other costs. Excluding the 1996 compensation expense and one-time
relocation, recruiting and acquisition costs, general and administrative
expenses increased in 1997 primarily due to increases related to the Company's
growth and additional operations due to acquisitions, and generally to cover
increased expenses associated with operating as a public company.

Depreciation and Amortization. Depreciation and amortization expenses
increased from $144,284 in 1996 to $931,143 in 1997, and decreased as a
percentage of total net revenues from 15.3% in 1996 to 9.2% in 1997. In August
1996, the Company recorded goodwill and other intangibles in connection with its
acquisition of CTA in the amount of approximately $780,000, which amount is
being amortized over a three- to ten-year period. In 1997, the Company recorded
goodwill and other intangibles of approximately $12 million in connection with
its acquisitions of Ivy, Teletutor and HTR. These amounts are being amortized
over periods ranging from four to twelve years. The increase in depreciation is
attributable to additional purchases of computer equipment and other assets to
support its product development, technical operations and personnel needs.

Reorganization and Other Non-Recurring Charges. During 1997, the Company
incurred certain non-recurring charges totaling $12,130,344, primarily related
to in-process research, development and content expense in connection with the
Teletutor and HTR acquisitions. Also included in non-recurring charges are
accrued compensation expense related to the HTR acquisition and certain other
non-recurring costs.

Interest and Other Income (Expense). Interest income was $3,893 in 1996
and $328,800 in 1997. Interest income is derived primarily from investing funds
raised in the Company's private and public securities offerings during 1996.
Other income of $303,983 in 1996 was primarily due to the settlement of a note
payable to Control Data and certain trade obligations with a former vendor.
Other income of $125,000 in 1997 was derived from the sale of an investment in a
joint venture (an asset acquired in connection with the acquisition of HTR).

YEAR 2000

Computers, software and microprocessors that use only two digits to
identify a year in a date field may be unable to process accurately certain
date-based information at or after the year 2000. This is commonly referred to
as the "Year 2000" issue. The Company is addressing the issue in several ways.
First, the Company has established a team to monitor product compliance and
believes that all Company products are Year 2000 compliant. Secondly, the
Company is in the process of seeking Year 2000 compliance certification from its
major suppliers and vendors related to their products and internal business
applications. Finally, the Company has established a team to coordinate Year
2000 compliance related to internal systems.

Many of the Company's systems use vendor-provided software, and Year 2000
compliance is expected to be achieved through vendor specific upgrades. For
other internal systems, testing will be completed internally to ensure Year 2000
compliance. As of December 31, 1998, the Company had completed its assessments
of Year 2000 compliance with respect to all of its own products, 90% of its own
internal systems and approximately 80% of its vendor-provided systems and
applications. The Company anticipates all of its systems will have been
addressed and updated through vendor provided upgrades or through completion of
internal testing prior to the end of the third quarter of 1999. The Company does
not believe that the cost of its Year 2000 compliance program will be material
to its financial condition or results of operations. The Company does not
believe that the Year 2000 issue will materially adversely affect its business.
However, the Company continues to bear risk related to Year 2000 and could be
materially adversely affected if significant customers or suppliers fail to
address the issue or if vendor upgrades are not provided to the Company as
required. The Company could be forced to spend significant resources and funds
to find alternative providers of systems and applications used by the Company.
The Company's contingency plan for any vendor-provided product

34
<PAGE> 36

found to be non-Year 2000 compliant upon completion of the Company's assessment
is to insist upon vendor compliance within a reasonable time in advance of Year
2000 and to pursue alternative products with other Year 2000 compliant vendors.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1998, the Company had $336,194 in cash and cash
equivalents. Since its inception, the Company has financed its operating cash
flow needs primarily through offerings of equity securities and, to a lesser
extent, borrowings. Cash utilized in operating activities was $9,500,483 for the
year ended December 31, 1998 and $5,775,809 for the year ended December 31,
1997. Use of cash was primarily attributable to the net loss recorded.

As of March 31, 1999, the Company had $125,147 in cash and cash
equivalents. Cash utilized in operating activities was $599,322 for the three
months ended March 31, 1999, all of which was funded by a private placement of
common stock totaling approximately $1,050,000. Net cash used in operating
activities for the same period in 1998 was $3,053,937. The improvement primarily
reflects cost controls initiated at the end of the first quarter of 1998 as a
result of management reorganization plans.

Net cash utilized in investing activities was $66,741 for the three months
ended March 31, 1999 and $1,065,449 for the three months ended March 31, 1998.
The use of cash for investing activities was primarily attributable to purchases
of equipment, software development costs that were capitalized, and in 1998,
approximately $356,000 paid to the former shareholder of Ivy pursuant to the
acquisition agreement.

Cash utilized in investing activities was $1,398,793 for the year ended
December 31, 1998 as compared to $6,932,195 for the year ended December 31,
1997. The use of cash for investing activities during 1998 primarily represented
purchases of equipment and investments in software and courseware development.
The use of cash for investing activities during 1997 primarily represented
purchases of businesses, and to a lesser extent the purchase of equipment and
investments in software and courseware development.

Net cash provided by financing activities was $455,016 for the three months
ended March 31, 1999 and $6,643,700 for the three months ended March 31, 1998.
During the three months ended March 31, 1999 the Company raised approximately
$1,050,000 through a private placement of 282,500 shares of its common stock at
$4.00 per share. In connection with this transaction, the Company also issued
warrants, exercisable over 3 years at $3.00 per share, for the purchase of
70,625 shares of common stock. For the three months ended March 31, 1998 the
Company raised $5,300,000 through a private placement of 626,300 shares of its
Series C Convertible Preferred Stock and borrowed on its then-existing line of
credit facility.

Cash provided by financing activities was $8,529,979 for the year ended
December 31, 1998 as compared to $60,536 used by financing activities for the
year ended December 31, 1997. In March 1998, the Company raised approximately
$5,300,000 in its Series C private placement. In this transaction, the Company
issued 626,293 shares of its Series C Preferred Stock, which are convertible
into approximately 759,100 shares of Common Stock. In connection with this
transaction, the Company also issued five-year warrants to purchase 626,293
shares of Common Stock at an exercise price of $8.46 per share. The Series C
Preferred Stock has a liquidation preference of $12.69 per share upon sale or
liquidation of the Company. The Common Stock underlying both the Series C
Preferred Stock and the warrants has certain registration rights.

In June 1998, the Company raised approximately $5,200,000 through its
Series D private placement. In this transaction, the Company issued 1,082,625
shares of its Series D Preferred Stock, convertible into an equal number of
common shares. The holders of Series D Preferred Stock are entitled to receive a
5% annual dividend compounded and paid semi-annually beginning

35
<PAGE> 37

December 31, 1998. Such dividends are payable, at the option of the Company,
either in cash or in Common Stock. The first of such dividends was paid in
shares of Common Stock in December 1998. In June 1998 and September 1998,
137,174 of Series D shares and 17,569 shares of UOL Common Stock were issued in
connection with the conversion of approximately $867,000 of indebtedness to
certain former shareholders of HTR. The non-cash portion of this transaction has
been excluded from the consolidated statements of cash flows.

During the year ended December 31, 1998, the Company borrowed an additional
$1,500,000 on its line of credit from its then existing bank lender, and
subsequently repaid approximately $5,000,000, satisfying all its obligations to
that lender.

In August 1998, the Company obtained a secured lending facility through a
new lending institution that provided up to $2,000,000 in a revolving line of
credit ("Line of Credit") and a $500,000 senior term loan ("Senior Term Loan").
Borrowings under the Line of Credit originally matured on February 15, 1999,
while the Senior Term Loan was set to mature on July 15, 2001. In addition, in
August 1998, the Company obtained a secured term loan for $500,000 with another
lending institution, that is subordinated to the two facilities described above
(the "Subordinated Term Loan"). In connection with these transactions, the
Company issued warrants for the purchase of an aggregate of 90,000 shares of
Series D Preferred Stock at an aggregate exercise price of $495,000.

As of March 31, 1999, the Company was in violation of certain covenants
related to the Line of Credit, the outstanding borrowings under which were
$1,477,222 as of that date. In February 1999, the Company repaid the $500,000
Senior Term Loan to the lender (originally due July 15, 2001) in exchange for
which the maturity date of the Line of Credit was extended from February 15,
1999 to April 15, 1999. Effective May 6, 1999, the lender agreed to extend the
maturity date of the Line of Credit to May 31, 1999 and agreed to continue to
forbear from exercising any remedies against the Company until May 31, 1999.
Effective April 23, 1999, the maturity date for the Company's $500,000
Subordinated Term Loan was extended from February 15, 1999 to July 15, 1999. The
Company is also required to issue this lender 1,000 warrants per day based on
amounts outstanding from May 14, 1999 through June 15, 1999. In addition, the
Company issued warrants to its lenders for the purchase of up to 95,000 shares
of Series D Preferred and/or common stock at an aggregate exercise price of up
to $387,500 in exchange for these extensions. Following the closing of the
Company's $2.5 million convertible debenture financing in June 1999, the Company
repaid the full amounts outstanding under and terminated the Line of Credit and
the Subordinated Term Loan of approximately $1.9 million.

In January 1999, the Company raised approximately $1,050,000 through a
private placement of 282,500 shares of its Common Stock at $4.00 per share. In
connection with this transaction, the Company also issued warrants, exercisable
over 3 years at $3.00 per share, for the purchase of 70,625 shares of Common
Stock.

The Company raised approximately $1.3 million in May 1999 through a private
placement of 448,297 shares of common stock at a price of $2.9375 per share.

The Company expects negative cash flow from operations to continue through
at least the end of the third quarter until the remaining legacy businesses are
sold and as the online revenue stream matures. During 1998, the Company reduced
its workforce by over 50% and closed four office facilities. This reorganization
is expected to provide annual savings of approximately $6,000,000. In addition,
the Company has implemented measures to curtail the rate of discretionary
spending. The Company recognizes that it will need to raise additional funding
to meet its working capital requirements, retire existing debt and fund
anticipated ongoing operating losses. In addition to the steps taken during the
first quarter of 1999 as described above, the Company has recently taken the
following actions to provide future funding for operations:

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- The Company is in the process of negotiating a $1.0 million line of
credit facility with a new lender.

- The Company has retained investment-banking services to assist in the
divestiture of the HTR instructor-led training business, and expects to
complete this transaction during the third quarter of 1999.

- In June 1999, the Company sold the HTR Knowledgeworks legacy business for
$1.5 million in a combination of cash and notes receivable.

- The Company has retained advisory services to identify a strategic
partner to provide both global marketing leverage and additional capital.

- The Company has entered into an equity line of credit agreement with
H&QGF to provide private equity financing through December 31, 1999. See
"The Equity Line of Credit Agreement."

- The Company raised $2.5 million in June 1999 through the issuance of our
9% Secured Subordinated Convertible Debentures due December 15, 2000.

If the Company does not address its funding needs, it will be materially
adversely affected. The Company's future capital requirements will depend on
many factors, including, but not limited to, acceptance of and demand for its
products and services, the types of arrangements that the Company may enter into
with customers and resellers, and the extent to which the Company invests in new
technology and research and development projects.

As of December 31, 1998, the Company had net operating loss carryforwards
of approximately $30,661,000 for federal income tax purposes, which will expire
at various dates through 2018. The Company's ability to utilize all of its net
operating loss and credit carryforwards may be limited by changes in ownership.

RECENT ENACTED ACCOUNTING PRONOUNCEMENTS

In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AcSEC") issued AICPA Statement of
Position 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use ("SOP 98-1"). SOP 98-1 is effective for fiscal years
beginning after December 15, 1998. SOP 98-1 requires the capitalization of
certain costs incurred in connection with developing or obtaining software for
internal use. The adoption of SOP 98-1 did not have a material impact on the
Company's financial statements.

In April 1998, AcSEC issued AICPA Statement of Position 98-5 Reporting on
the Costs of Start Up Activities ("SOP 98-5"). SOP 98-5 is effective for fiscal
years beginning after December 15, 1998, and requires certain start-up and
organizational costs to be expensed as incurred. The adoption of SOP 98-5 did
not have a material impact on the Company's financial statements.

In December 1998, AcSEC issued AIPCA Statement of Position 98-9,
Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions ("SOP 98-9"). SOP 98-9 amends certain provisions of SOP 97-2 to
require revenue recognition using the "residual method" when there is
vendor-specific objective evidence ("VSOE") of the fair value of all undelivered
elements in a multiple-element arrangement, but VSOE does not exist for one or
more individual elements. These provisions of SOP 98-9 are effective for
transactions entered into in fiscal years beginning after March 15, 1999. SOP
98-9 also extends the deferral of the application of certain provisions of SOP
97-2 provided by SOP 98-4 through fiscal years beginning on or before March 15,
1999. The adoption of SOP 98-9 is not expected to have a material impact on the
Company's financial statements.

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BUSINESS OF THE COMPANY

UOL Publishing, Inc. develops, manages and hosts Internet-based training
and education for corporations, government agencies and academic institutions.
The Company offers its online courseware primarily through its proprietary
virtual campus product, or VCampus(TM), a full-service, centrally-hosted,
scalable distance education platform. It allows for the registration,
enrollment, teaching, testing, grading and certification of distance learners.
Through its Teletutor and HTR subsidiaries, the Company also offers courseware
through more traditional media, including on-site and classroom training, and
diskette, CD-ROM and printed formats. The Company introduced its first World
Wide Web (the "Web") demonstration course in November 1995, and its first
revenue-generating Web-based course in Spring 1996. The Company intends to
leverage the courseware and the customer base of its subsidiaries, as well as
the courseware and customers provided by future partnerships, to facilitate the
development of its online training and education business. The Company has
submitted a proposal for approval by its stockholders at its 1999 annual meeting
to change its corporate name to VCampus, Inc.

The corporate training marketplace is rapidly evolving to meet the
increasing demand for worker training and retraining in a cost-effective and
convenient manner. Online delivery technology significantly reduces training
costs, including those associated with students' time away from work, and
permits resources to be concentrated directly on the educational process. The
Company is initially targeting customers in the telecommunications, healthcare,
utilities, information technology and financial services industries, as well as
academic institutions, all of which the Company believes have relatively large
training and education budgets, significant training needs and receptiveness to
new technology. The Company's existing courseware library includes over 1,100
online courses, of which approximately 160 are available for general
distribution and consumer access. These courses are in what the Company believes
to be high-demand subject matter areas such as information technology,
telecommunications, compliance/OSHA, business, management, and finance. The
Company converts courseware that it believes are proven and popular in diverse
subject matter areas to the Company's interactive online format. Through July
22, 1999, the Company had delivered over 280,000 course enrollments through its
corporate and academic partnerships.

The Company's objectives are to be the leading publisher of online
courseware for the corporate training and education market, and to make its
VCampus(TM) the global standard for online delivery of corporate training and
education courseware. See "-- Products and Services -- VCampus(TM)." The
Company's strategy to achieve these objectives includes publishing high-quality
courseware (including courseware certified by independent academic
institutions), expanding its customer base, especially those which benefit from
the Company's Web-based solution, upgrading its existing technologies to
maintain its position as a leader in technology-based corporate training, and
developing brand recognition for its products and services. Although the Company
continues to provide products and services through delivery methods other than
online delivery, in December 1998 the Company announced plans to divest its
non-online businesses in order to focus its efforts on its core online training
business. The Company believes this move is consistent with its strategy of
moving content and customers to an online training platform from the traditional
classroom and Computer Based Training ("CBT") sold through its non-online
businesses. In furtherance of this divestiture strategy, in September 1998 the
Company sold Ivy Software, Inc. ("Ivy") while retaining the rights to sell and
distribute the online versions of the Ivy courseware. In December 1998, the
Company sold HTR's consulting division. The Company has retained
investment-banking services to assist in the divestiture of HTR's instructor-led
training business, which it expects to complete in the third quarter of 1999,
and in June 1999 the Company sold HTR's Knowledgeworks business for $1.5 million
in a

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combination of cash and notes receivable. The Company has also taken the
following actions to provide future funding for operations:

- The Company is in the process of negotiating a $1.0 million line of
credit facility with a new lender.

- The Company has retained advisory services to identify a strategic
partner to provide both global marketing leverage and additional capital.

- The Company entered into an equity line of credit agreement with
Hambrecht & Quist Guaranty Finance, LLC to provide private equity
financing through December 31, 1999.

- The Company raised $2.5 million in June 1999 through the issuance of our
9% Secured Subordinated Convertible Debentures due December 15, 2000.

- The Company raised approximately $1.3 million in May 1999 through a
private placement of 448,297 shares of common stock at a price of $2.9375
per share.

INDUSTRY BACKGROUND

Corporate training is a rapidly growing segment of the training and
education market, primarily as a result of the demand for increasing skills
required by employers. As the United States economy continues to shift from a
focus on industry to one focused on information and knowledge, employers seeking
to compete successfully in the marketplace find it necessary to invest more in
the training and education of their employees. According to a survey completed
in 1998 by Lakewood Research of Minneapolis, organizations in the United States
with more than 100 employees spent approximately $60.7 billion to provide some
type of formal training and education to approximately 54 million of their
employees.

Use of Technology in Training and Education

Historically, corporations, training organizations and academic
institutions have provided education through traditional classroom training.
Companies choosing to provide this type of training in-house must devote
managerial and financial resources towards training facilities, instructors,
materials and curriculum management. Companies often choose to use third parties
to provide training services to avoid some of the management and facility issues
but must pay tuition and materials fees. Both in-house and outsourced
traditional classroom approaches result in lost productivity and travel-related
costs while the employee attends and travels to and from the training. Distance
learning methods (satellite-based delivery, mail exchanges, voice mail, CD-ROMs,
diskettes) address space limitations by allowing students to take courses at
remote locations. Web-based delivery, due to its scalability, enables
corporations, training organizations and academic institutions to extend their
reach more cost-effectively than other distance learning methods. In addition,
Web-based delivery offers the ability to rapidly and cost-effectively update
course materials and can provide students a significant degree of time and place
independence.

With the advent of the Web, the Company has benefited from the way its
courseware can be managed, delivered and consumed. The use of such technologies
can lower publishing costs and could significantly increase demand. Online
technology makes it possible to combine the best elements of online connectivity
between students and teachers and the interactivity of a CD-ROM. The Company
believes that its online delivery of courseware combines convenience,
affordability, self-pacing, standardized curricula, individualized tailoring of
courses, immediate performance measurement and a high degree of student-teacher
interaction.

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Online Technologies and The Web

Since the advent of the Web portion of the Internet and graphical Web
browsers in the early 1990's, the popularity of the Internet has increased
dramatically. Growth in the number of Internet users has been fueled by a number
of factors, including:

- the existing and increasing number of personal computers ("PC's") in the
workplace and at home;

- improvements in the performance and speed of PC's and modems;

- improvements in network infrastructure;

- enhanced ease of access to the Internet provided by Internet service
providers;

- consumer-oriented online services and long distance telephone companies;

- emergence of standards for Internet navigation and information access;

- declining costs of Internet service due to increased competition among
access providers; and

- increased awareness of the Internet among businesses and consumers.

The Company believes that the emergence of online technologies, such as those
embodied in the Internet and the Web, are economical and effective methods for
distribution of digital information and that such methods present a significant
opportunity to publishers of educational and training content. The Company
believes that over the next several years, the speed and commercial use of the
Internet will increase with the development of higher bandwidth communication
and online access through affordable devices in addition to PC's, such as online
access terminals, cable modems, televisions, video phones and personal digital
assistants. The Company expects that it will offer its courseware through these
online technologies to the extent that they evolve and gain popular acceptance
for the delivery of education and training to working adults and other part-time
students.

The use of the Company's products and services will depend in large part
upon the development of an infrastructure for providing online access and
services. Because global commerce and online exchange of information on the
Internet and other similar open wide area networks are new and evolving, it is
difficult to predict with any assurance whether such networks will prove to be
viable commercial marketplaces. In particular, such networks are an unproven
medium for education. In the event such networks fail to become a viable
education medium, the Company may not be able to overcome the costs and
difficulties associated with adapting to alternative media, if and when they
become available. If such networks do not become viable commercial marketplaces
or do not develop as a viable medium for education, the Company would be
materially adversely affected. Additionally, such networks have experienced, and
are expected to continue to experience, significant growth in the number of
users and amount of traffic. The infrastructures of such networks may not be
able to support the demands placed on them by this continued growth. In
addition, such networks could lose their viability due to delays in the
development or adoption of new standards and protocols (for example, the
next-generation Internet Protocol) to handle increased levels of activity,
increased governmental regulation or other factors. The infrastructure or
complementary services necessary to make such networks viable commercial
marketplaces may not be developed. Even if developed, such networks may not
become viable commercial marketplaces for products and services such as those
offered by the Company.

COMPANY STRATEGY

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includes publishing high-quality courseware (including courseware certified by
independent academic institutions), expanding its customer base, particularly
those who benefit from the Company's Web-based solution, upgrading its existing
technologies to maintain its position as a leader in technology-based corporate
training and developing brand recognition for its products and services.

- Publish High Quality, High Demand Courseware. The Company intends to
continue to expand its courseware library primarily through relationships
with content providers. The Company seeks high quality courseware in
subject areas that the Company expects will be in high demand by
customers in the corporate training and education market including
business, management, finance, accounting, technology, and basic
technical and developmental skills. The Company intends to continue to
provide courseware certified by independent academic institutions. See
"-- Products and Services."

- Expand Customer Base. The Company intends to continue to develop
relationships with its existing and new business and academic institution
customers to increase the number of enrollments and accelerate awareness
and acceptance of its online content. The Company believes that
development of a VCampus(TM) for customers provides it with
cross-marketing opportunities. A VCampus(TM) can promote courses from,
and/or contain "hot links" to, other VCampuses(TM). See "-- Customers"
and "-- Sales and Marketing."

- Develop Proprietary Technology. The Company intends to maintain its
position as a leader in online courseware delivery technology by
continuing to develop and enhance the features and functionality of its
proprietary technology. See "-- Products and Services -- VCampus(TM)."

- Develop Brand Recognition. The Company believes that establishing and
maintaining brand recognition is critical to its strategy of becoming the
leading publisher for online training and education. The Company plans to
achieve brand recognition through marketing efforts and the creation of a
standards-based user interface, incorporating audio, animation, graphics
and text as appropriate to create a stimulating learning experience. The
Company also intends to enter into arrangements with content providers to
adopt the Company's VCampus(TM) as their standard for online courseware
delivery. See "-- Products and Services -- VCampus(TM)."

ACQUISITIONS AND DIVESTITURES

Since 1994, the Company has completed five acquisitions -- HTR, Inc.,
Cooper & Associates, Inc., (d/b/a Teletutor), Ivy Software, Inc., Cognitive
Training Associates, Inc. and the CYBIS Division of Control Data Corporation.
These acquisitions provided the Company with customers and courseware content in
non-online format. The Company does not currently have an agreement, commitment
or understanding with any other potential acquisition candidates. The Company
has followed a strategy of moving content and customers to an online training
platform from the traditional classroom and computer based training. In December
1998, the Company announced plans to divest its non-online businesses in order
to focus its efforts on managing its core online customers and content.

HTR, Inc. ("HTR") In October 1997, the Company acquired HTR, a corporation
primarily engaged in the business of providing traditional and on-site technical
training, publishing and consulting services for the information technology
("IT") industry. In December 1998, the Company sold the consulting division of
HTR for $750,000 in cash and notes receivable. The Company sold the HTR
Knowledgeworks legacy business for $1,500,000 in June 1999.

Cooper & Associates, Inc., d/b/a Teletutor ("Teletutor") In April 1997, the
Company acquired Teletutor, which develops, distributes and supports
computer-based training courses for the data and telecommunications industry.
This acquisition provided the Company with additional content that has

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been converted into the Company's online format, as well as access to
Teletutor's existing customer base.

Ivy Software, Inc. ("Ivy") In March 1997, the Company acquired Ivy, which
develops and distributes business and accounting textbooks and software for the
academic education market. This acquisition provided the Company with additional
content as well as access to Ivy's existing customers in the academic
marketplace, ranging from community colleges to large universities. In September
1998 the Company sold Ivy back to its original owner. The Company retained the
right to distribute the online versions of Ivy Software.

Cognitive Training Associates, Inc. ("CTA") In August 1996, the Company
acquired CTA, which develops and distributes technology-based applications
online via distributed networks for educational institutions, corporations and
government agencies. CTA customers can access these applications from remote
locations using the Internet or their organization's intranets. This acquisition
provided the Company with an established customer base and additional content,
particularly in the electrical, medical and scientific equipment subject areas.

CYBIS. In 1994, the Company acquired the CYBIS division of Control Data,
together with a perpetual nonexclusive license for the CYBIS courseware, which
consisted primarily of courses in language arts, mathematics, social studies,
science, business and a variety of technical subjects. The Company's ability to
distribute a portion of the CYBIS courseware is limited by the terms of its
license. The Company is responsible for the CYBIS computer-based education and
training portion of certain CYBIS contracts to which Control Data is a party, as
well as support and other services under such contracts. The Company believes
that Web-based courseware developed from the CYBIS courseware, to the extent not
restricted by the terms of its license, may contribute to revenues in the
future.

PRODUCTS AND SERVICES

The Company offers its online courseware primarily through its proprietary
virtual campus product, or VCampus(TM), an online courseware delivery system and
environment that facilitates development, management and administration of
training and education over the Internet and corporate intranets. Through its
HTR and Teletutor subsidiaries, the Company also offers courseware through more
traditional media, including on-site and classroom training, diskette, CD-ROM
and printed formats, although the Company plans to divest these non-online
businesses during 1999.

VCampus(TM)

The Company's VCampus(TM) is a centrally served delivery and tracking
system accessible by virtually any Internet-ready PC. Generally, students enroll
in the Company's courses online through a VCampus(TM), but have the option to
enroll in person, by telephone or through the mail. Enrolled students can then
access the courseware online, typically through a PC connected to the Internet
or a corporate intranet. Once a student has completed the course, he or she will
receive credit or certification, if appropriate. As of June 30, 1999, the
Company has over 60 VCampuses(TM) in operation with its corporate and academic
institution partners.

The VCampus(TM) environment is customizable and designed for ease of
administration and access to students, instructors and training administrators.
In addition, by using any combination of courses from the Company's courseware
library and the customer's own internal training libraries, customers can offer
a variety of distance learning options. The VCampus(TM) includes the following
components:

Registrar: In the "Registrar" function students can sign up for
courses and modify their student profile. Administrators can add new course
offerings, admit students, enroll students into

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course offerings, modify the course offerings, search student records and
administer much of the VCampus(TM) functionality.

Classrooms: In the "Classrooms" function students can enter their
registered courses or check their grades for any course for which they are
registered. Administrators and instructors may also access courses and have
the capability to view student grades.

Faculty: Students can use the "Faculty" function to contact
VCampus(TM) instructors.

Information: Using the "Information" function administrators can post
news, announcements and answers to frequently asked questions to keep
students informed about their training options.

Commons: In the optional "Commons" function students can access games
and socialize with other students.

The VCampus(TM) supports a wide variety of tools and utilities supplied by
third parties, such as Netscape Navigator/Communicator, Microsoft Internet
Explorer, Macromedia Shockwave, Geo Emblaze, etc. In addition, the Company has
developed the following proprietary software tools that facilitate the
functionality of the VCampus(TM):

VCampus(TM) Courseware Delivery Engine. This product was designed and
built to serve as an integrated, Web-based courseware construction and
courseware delivery tool. First delivered in August 1997, the product is
currently at the release level 2.16 and has been used to build and deliver
the Company's courseware library of over 1,100 online courses as of July
22, 1999. By incorporating features developed for the Company's earlier
version of the tool, the VCampus(TM) Courseware Delivery Engine provides a
simple, easy-to-use environment for instructors and students that is
capable of assessing, recommending, tracking and testing students as they
complete a course. The product also enables courseware developers to easily
construct, deliver and track a highly interactive and media-rich online
course.

For the instructor, the VCampus(TM) Courseware Delivery Engine
provides real-time editing of the course introduction, the syllabus, help
items and reference items. Students can visit the "Gradebook" functionality
of the product to get a real-time view of how they are doing in a course.
The courseware developer has access to a complete suite of Web-based tools
necessary to construct and deliver a highly interactive, online course. The
"PointPage" functionality of the product provides a choice of methods for
displaying content. To make PointPage even more powerful, the "Activity
Studio" enables non-programmers to construct and include into their
PointPage, multimedia-rich (animation, sound and student interactivity)
activities by answering a few simple questions. Courseware developers can
also take advantage of the testing system, which includes many advanced
features such as question randomization and pooling. Additionally,
courseware developers can choose to link selected test questions and
PointPages to learning objectives, which allows a courseware developer to
group content and assess a student's progress based on performance.

VCampus(TM) Curriculum/Group Manager. This product facilitates the
grouping of students with similar education needs and abilities to
appropriate groups of courses within a VCampus(TM). This can improve
overall system efficiency and facilitate interaction among students. The
result of this intersection of student groups and course groups is a
specific student "Training Plan". The Training Plan is designed to guide
students to courses that match the student's ability. Additionally, the
Training Plan can evaluate a student's performance in each course against
minimum standards established by the VCampus(TM) administrator for test
scores and attendance. The Curriculum/Group Manager was released during the
first quarter of 1998.

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VCampus(TM) Batch/Mass Enrollment Tools. This series of tools
facilitates the enrollment of large groups into the VCampus(TM) and/or
courses without student involvement. Companies with a large population of
students can use this tool to import demographic data from legacy
enterprise resource planning or human resources systems, thus streamlining
the implementation process. This functionality was first made available in
July 1998 and was substantially enhanced in January 1999.

Existing Courseware Library

The Company's existing courseware library includes over 1,100 online
courses, of which approximately 160 are available for general distribution.
These courses are in what the Company believes to be high-demand subject matter
areas such as information technology, telecommunications, compliance/OSHA,
business, management and finance. Although the Company does not provide
accreditation or certification itself, a number of its current courses provide
either accreditation or certification through its content providers. The current
library was built from a combination of acquisitions, the Company's own
development efforts and relationships with leading content providers such as
NETg, Infosource, Vital Learning, Crisp Publications Inc. and American Media
Inc. Conversion of courseware into the Company's online format typically takes
approximately 45 days, although conversion time varies depending on any number
of factors, including the size and format of the original courseware content.

Traditional Delivery

The Company provides products and services through delivery methods other
than online delivery in order to expand its customer base and courseware library
for online delivery. For example, through its HTR and Teletutor subsidiaries,
the Company offers courseware through more traditional media, including on-site
and classroom training, as well as CD-ROM and printed formats. In December 1998,
the Company announced plans to divest its non-online businesses with the
exception of Teletutor in order to focus its efforts on managing its core online
customers and content.

HTR's strategy is to deliver a total solution for corporate IT training
through its suite of products and services, which includes traditional and
on-site training, and courseware. HTR seeks to provide a "Knowledge Transfer" to
its customers through flexible and customizable courseware titles for
client/server systems. IT training is delivered by instructors at HTR's five
offices located in the U.S., as well as at customer locations, and is provided
through both pre-scheduled, open enrollment classes and on-demand corporate
training sessions. HTR also provides customized training to meet a customer's
specific needs by tailoring existing titles for developing an entirely new
course. Furthermore, HTR converts certain content into other products (e.g.,
end-user books, videos, etc.) to extend its product line and to reach additional
market segments with minimum additional investment in content development.

Teletutor's strategy is to focus its products and services primarily on the
data and telecommunications industry. Teletutor develops, distributes and
supports courseware, primarily in CBT formats, to the telecommunications
industry. As of June 30, 1999, the Company had converted 23 Teletutor courses
into its online format.

CUSTOMERS

The Company's primary target market is the corporate training and education
market. The Company focuses its sales and marketing efforts on Fortune 1,000
companies and is initially targeting customers in the telecommunications,
healthcare, utilities, IT and financial services industries, as well as academic
institutions, all of which the Company believes have relatively large training
and education budgets, significant training needs and receptiveness to new
technology. In 1998 no

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customer accounted for more than 10% of the Company's revenues. The Company
currently anticipates that future revenues may be derived from sales to a
limited number of customers. Accordingly, the cancellation or deferral of a
small number of contracts could have a material adverse effect on the Company.

Business Customers

As of June 30, 1999, the Company had approximately 50 online corporate
business customers, including: All-Phase Electrical Supply Company; A.T.
Kearney, Inc; Baan Company; Bell South Telecommunications, Inc.; Cable and
Wireless, Inc.; Dearborn Financial Publishing, Inc.; Graybar Electric Co. Inc.;
Global One Communications, Inc.; Kelly Scientific Resources; Lucent
Technologies, Inc.; Payback Training Systems, Inc.; Sheet Metal and Air
Conditioning National Contractors' Association; and SpectraComm, LLC. The
Company plans to establish relationships with additional business customers, in
particular those that offer access to large numbers of users (including the
prospective customer's employees or end-users), vendors and resellers, as well
as significant amounts of courseware content. The Company's business customers
generally agree to market and promote the Company's products and services, and
to share with the Company the net revenues generated from access and other fees
charged to such customer's end-users.

Academic Institution Customers

As of June 30, 1999, the Company had 11 online academic institution
customers, including: AIMS Community College; Clemson University; Duquesne
University; Eastern Michigan University; George Mason University; Northeastern
University; Park College; Regent University; Swindon College, England;
University of Texas System; and Wichita State University. The Company plans to
establish relationships with additional academic institution customers, in
particular those that have significant enrollments, offer broad curricula and
provide the Company with the opportunity to publish online courseware developed
by such institutions. The Company's agreements with these academic institutions
generally provide the Company with exclusive rights, or limit the institution's
right to develop and/or distribute the online courseware subject to the
agreements. The academic institutions market these courses in the same manner as
their existing, traditional course offerings, including through direct mail,
course catalogs, print advertising and through the Web.

SALES AND MARKETING

The Company's primary marketing goals are to create a strong brand identity
as a leading training and educational courseware publisher for corporations and
academic institutions, and to establish its core technology, the VCampus(TM), as
the global standard for corporate training and education needs.

In addition to its direct sales efforts, the Company markets its products
and services through a variety of means, including the Web, public relations,
trade shows, direct mail, trade publications, customers, resellers and other
arrangements. The Company cross-markets through customers' VCampuses(TM) to
promote its products and services and to attract students. The Company believes
that forming strategic marketing alliances with partners who will sell, promote
and market the Company's products and services will be important for rapid
market penetration.

COMPETITION

The market for educational and training products and services is highly
competitive and the Company expects that competition will continue to intensify.
Although the Company believes that it was the first to offer Web-based,
interactive, on-demand courseware, there are no substantial barriers to entry in
the online education and training market. A number of companies, including
Microsoft

45
<PAGE> 47

Corporation, CBT Systems Ltd., Gartner Group, Inc., Oracle Corporation, Centra
Software, Inc. and Real Education, have recently entered this market and the
Company expects this trend to continue to accelerate. The Company's competition
also includes many institutions and businesses that provide training or
education that are taught on a part-time basis. In addition to traditional
classroom and distance learning providers, other institutions such as Apollo
Group, Inc. (through University of Phoenix) and Jones Intercable Inc. (through
Mind Extension University) offer their own accredited courses online or in an
email-based format. They, and many other education providers, use some of the
Company's methods, including email, bulletin boards, electronic conferencing and
CD-ROMs, as well as satellite communications, and audio and video tapes. The
Company also expects to encounter significant competition in connection with its
efforts to establish its VCampus(TM) as the standard learning environment and
format in the industry.

The Company believes that competition in the developing market for online
training and education will be based upon various factors, including: quality,
breadth and depth of courseware; marketing and third party relationships;
quality, flexibility and reliability of delivery system; and, to a lesser
degree, pricing. In addition, the Company believes that its products and tools
make the Company's courseware affordable, convenient, easy to use and
administer, and provide the Company with a competitive edge in attracting
additional customers. Most of the Company's competitors, as well as a number of
potential new competitors (including the Company's customers and partners), have
significantly greater financial, technical and marketing resources than the
Company. The Company will require financing to compete effectively in this
rapidly evolving market. In addition, any of these competitors may be able to
respond more quickly than the Company to new or emerging technologies, and to
devote greater resources to the development, promotion and sale of their
services. A number of the Company's current customers and partners have also
established relationships with certain of the Company's competitors, and future
customers and partners may establish similar relationships. In addition, the
Company's partners could use information obtained from the Company to gain an
additional competitive advantage over the Company. The Company's competitors may
develop products and services that are superior to those of the Company or that
achieve greater market acceptance than the Company's products and services.
Moreover, the Company may be unable to compete successfully against its current
or future competitors, and competition may have a material adverse effect on the
Company.

GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES

The Company is not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally, and there are
currently few laws or regulations directly applicable to access to or commerce
on online networks. Due to the increasing popularity and use of online networks,
it is possible that a number of laws and regulations may be adopted with respect
to online networks, covering issues such as user privacy, pricing, taxation
and/or the characteristics and quality of products and services. The adoption of
any such laws or regulations may decrease the growth of online networks, which
could in turn decrease the demand for the Company's products and increase the
Company's cost of doing business or otherwise have an adverse effect on the
Company. Moreover, the applicability to online networks of existing laws
governing issues such as property ownership, sales taxes, libel and personal
privacy is uncertain. Furthermore, as a publisher of educational materials, the
Company could be subject to accreditation or other governmental regulations. Any
new legislation or regulation applicable to online networks, the Company or its
products or services could have a material adverse effect on the Company.

Because materials may be downloaded by the online or Internet services
operated or facilitated by the Company or the Internet access providers with
which it has a relationship and be subsequently distributed to others, there is
a potential that claims will be made against the Company for copyright or
trademark infringement or based on other legal theories. Such claims have been
brought against

46
<PAGE> 48

online services in the past. Although the Company carries general liability
insurance, the Company's insurance may not cover claims of this type, or may not
be adequate to cover all liability that may be imposed. Any imposition of
liability that is not covered by insurance or is in excess of insurance coverage
could have a material adverse effect on the Company.

TRADEMARKS AND PROPRIETARY RIGHTS

The Company regards its copyrights, trademarks, trade dress, trade secrets
and similar intellectual property as critical to its success, and the Company
relies upon federal statutory, as well as common law copyright and trademark
law, trade secret protection and confidentiality and/or license agreements with
its employees, customers, partners and others to protect its proprietary rights.
The Company owns registered trademarks in the United States for UOL, the UOL
logo, HTR, the HTR logo, Teletutor, The Chalkboard, Virtual Workforce,
Experience and "What you think ... is our business." Additionally, the Company
has applied for registration in the United States for certain of its other
trademarks, including UOL Publishing, VCampus(TM), VCampus(TM).com, Virtual
Campus, Test Wizard, Web Course Builder, PointPage, Courseware Construction Set,
Course Architect, Registrar Architect, Test Architect, Thought Leaders, and
"Take It Online".

The Company has had certain trademark applications denied, and may have
more denied in the future. The Company will continue to evaluate the
registration of additional marks as appropriate. Despite the Company's efforts
to protect its proprietary rights, unauthorized parties may attempt to copy
aspects of the Company's products or services or to obtain and use information
that the Company regards as proprietary. In addition, the laws of some foreign
countries do not protect proprietary rights to as great an extent as do the laws
of the United States. Litigation may be necessary to protect the Company's
proprietary rights. Any such litigation may be time-consuming and costly (even
if successful), cause product release delays, require the Company to redesign
its products or services, or require the Company to enter into royalty or
licensing agreements, any of which could have a material adverse effect on the
Company. Such royalty or licensing agreements, if required, may not be available
on terms acceptable to the Company or at all. The Company's means of protecting
its proprietary rights may prove inadequate and the Company's competitors may
independently develop similar technology or duplicate the Company's products or
services or design around intellectual property rights of the Company. In
addition, distributing the Company's products through online networks makes the
Company's software more susceptible than other software to unauthorized copying
and use. For example, online delivery of the Company's courseware makes it
difficult to ensure compliance by the Company with contractual restrictions, if
any, as to the parties who may access such courseware. The Company cannot
prevent users from downloading electronically certain of its courseware content,
which could adversely affect the Company's ability to collect payment from users
that obtain copies from the Company's existing or past customers. If, as a
result of changing legal interpretations of liability for unauthorized use of
the Company's software or otherwise, users were to become less sensitive to
avoiding copyright infringement, the Company would be materially adversely
affected.

EMPLOYEES

As of June 30, 1999, the Company had 104 employees, including 98 full-time
employees and 6 part-time employees, consisting of 43 full-time employees in
general business operations, 32 full-time employees in sales and marketing, 10
full-time and 6 part-time employees in product development, and 13 employees in
general and administrative.

In 1998 the Company reduced its workforce significantly pursuant to a
management reorganization plan. The workforce reductions occurred primarily in
the product development and administrative areas. In addition, the Company
relocated certain sales and administrative staff to

47
<PAGE> 49

smaller facilities, and moved the production of certain products to its Texas
and McLean facilities. The Company believes that its employee relations are
good.

The Company's performance is substantially dependent on the performance of
its executive officers and key employees. The loss of the services of any of its
executive officers or other key employees could have a material adverse effect
on the Company. The Company maintains key man life insurance in the amount of
$1,000,000 on Narasimhan P. Kannan, Chairman of the Board of Directors and Chief
Executive Officer, and has employment agreements with certain of its executive
officers. However, neither such insurance nor such agreements necessarily fully
compensate the Company for, or preclude the loss of the services of the relevant
personnel. The Company anticipates that future growth, if any, will require it
to identify, recruit, hire, compensate train and retain a substantial number of
new, technical, managerial, sales and marketing personnel. Competition for
qualified personnel is intense, and the Company may be unable to attract,
assimilate and retain such personnel. The loss of the services of key personnel,
or the inability to attract and retain additional qualified personnel, could
have a material adverse effect on the Company.

PROPERTIES

A current summary showing the operating properties of the Company, all of
which are leased, is shown below:

<TABLE>
<CAPTION>
LEASE
AREA EXPIRATION MONTHLY
LOCATION PRINCIPAL USE (SQUARE FEET) DATE RENT
-------- ------------- ------------- ---------- -------
<S> <C> <C> <C> <C>
McLean, VA.................. Executive offices and 7,150 March 2000 $13,100
principal administration, 1,000 February 2000 1,792
technical marketing and
sales operations
Waxahachie, TX.............. CTA offices 5,000 July 2001 2,000
Rockville, MD............... HTR executive offices 5,215 November 1999 10,000
Rockville, MD............... HTR Branch office 6,222 January 2006 11,936
Atlanta, GA................. HTR Branch office 7,800 February 2001 16,500
Waltham, MA................. HTR Branch office 3,124 May 2003 5,467
Washington, DC.............. HTR Branch office 2,253 July 2002 5,539
</TABLE>

During the second half of 1998 and the first quarter of 1999, as a result
of reorganization plans, the Company closed one of its McLean executive office
facilities and moved primarily all of Teletutor's product fulfillment operations
to its remaining McLean office facility. Also, the Company closed its training
facilities in Los Angeles, CA and Baltimore, MD. As of December 31, 1998 the
Company has accrued an estimate of the costs it will incur to terminate its
remaining lease obligations.

The Company believes that its existing office space is sufficient to
accommodate its current needs and that suitable additional space will be
available on commercially reasonable terms to accommodate any expansion needs in
1999 should it become necessary.

LEGAL PROCEEDINGS

Although the Company is not currently involved in any material pending
legal proceedings, the Company could be subject to legal proceedings and claims
in the ordinary course of its business or otherwise, including claims relating
to license agreements, royalties or claims of alleged infringement of the
trademarks and other intellectual property rights of third parties by the
Company and its licensees.

48
<PAGE> 50

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

As of July 20, 1999, the directors and executive officers of the Company
were as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- ----------------------------------------
<S> <C> <C>
Narasimhan P. Kannan................... 50 Chairman of the Board of Directors and
Chief Executive Officer
Edson D. deCastro...................... 60 Director
Barry K. Fingerhut..................... 53 Director
Kamyar Kaviani......................... 37 Director and Executive Vice President
William E. Kimberly.................... 66 Director
John D. Sears.......................... 44 Director
Steven M.H. Wallman.................... 45 Director
Michael W. Anderson.................... 45 Chief Operating Officer
Farzin Arsanjani....................... 35 Executive Vice President
Michael A. Schwien..................... 43 Controller
</TABLE>

Narasimhan P. "Nat" Kannan has served as Chief Executive Officer and
Chairman of the Board of Directors of the Company since he founded the Company
in 1984. Prior to founding the Company, he co-founded Ganesa Group, Inc., a
developer of interactive graphics and modeling software, in 1981. Prior thereto,
he served as a consultant to Booz Allen and Hamilton, Inc., the MITRE
Corporation, The Ministry of Industry of the French Government, the Brookhaven
and Lawrence Livermore National Laboratories, the White House Domestic Policy
Committee on Energy, and Control Data Corporation. He serves on the board of
directors of TV on the Web, Inc. He holds a B.S. in Engineering from the Indian
Institute of Technology in Madras, India, and he performed advanced graduate
work in business and engineering at Dartmouth College.

Edson D. deCastro has been a director of the Company since 1994. From June
1995 to January 1997 Mr. deCastro served as Chief Executive Officer of
Xenometrix, Inc. and served as its Chairman from 1992 until November 1997. Mr.
deCastro was the founder of Data General Corporation and served as its Chief
Executive Officer from 1968 to 1990. From January 1990 to June 1995, Mr.
deCastro was an independent contractor. Mr. deCastro now works as a consultant.
Mr. deCastro also serves on the boards of directors of Boston Life Sciences,
Inc. and Avax Technologies, Inc., both public companies, and of several private
early-stage technology companies. He holds a B.S. in Electrical Engineering from
the University of Lowell.

Barry K. Fingerhut has been a director of the Company since August 1996.
Since 1981 he has been employed by GeoCapital, a registered investment advisor,
and has served as its Portfolio Manager and President since 1991. Mr. Fingerhut
is an officer of the General Partner of each of Wheatley Partners, L.P. and
Wheatley Foreign Partners L.P., both investment partnerships. In addition, he is
co-founder and General Partner of Applewood Associates, L.P. and an officer of a
General Partner of 21st Century Communications Partners, L.P., also an
investment partnership. Mr. Fingerhut serves as a director of Millbrook Press,
Inc., Carriage Services, Inc. and several private companies. Mr. Fingerhut holds
a B.S. from the University of Maryland and an M.B.A. with a concentration in
Finance/Investments from New York University.

Kamyar Kaviani has been a director since November 1997. Mr. Kaviani joined
the Company as Executive Vice President upon the Company's acquisition of HTR in
October 1997. Prior to such acquisition, Mr. Kaviani co-founded HTR in 1987 and
has served as its Chairman and Chief Executive Officer since that time. Mr.
Kaviani holds a B.A. in Economics from the University of Maryland.

49
<PAGE> 51

William E. Kimberly has been a director of the Company since October 1995.
Mr. Kimberly served as the President of the Manchester Group, Ltd., an
investment banking firm, from 1990 to 1994, and as Chairman of NAZTEC
International Group, Inc., its successor, since 1994. Prior thereto, Mr.
Kimberly served in various senior executive capacities for 23 years for Kimberly
Clark Corporation. Mr. Kimberly also serves as a director of Sytel Corporation.
He is a member of the Board of Trustees of The Asheville School and the Pan
American Development Foundation.

John D. Sears has been employed in various executive capacities by the
University of Phoenix since 1987, currently serving as Vice President of the
Office of Institutional Development, and prior thereto as the Vice President of
the Center for Distance Education. Mr. Sears holds a B.A. from the University of
Notre Dame and a Masters in Business Administration from the University of
Denver.

Steven M. H. Wallman has been a director of the Company since November
1997. From July 1994 to October 1997, Mr. Wallman served as a Commissioner of
the U.S. Securities and Exchange Commission. From 1986 to 1994, he was a partner
with the law firm of Covington & Burling. Mr. Wallman now serves as a
Non-Resident Senior Fellow at The Brookings Institution, Washington D.C. Mr.
Wallman is currently employed as a consultant and since July 1998 has served as
the Chief Executive Officer and a director of FolioTrade LLC, a private company.
He holds an S.B. from the Massachusetts Institute of Technology, an S.M. from
the Massachusetts Institute of Technology, Sloan School of Management, and a
J.D. from Columbia University School of Law.

Michael W. Anderson was appointed the Company's Chief Operating Officer in
November 1998 after serving as the Company's Vice President of Technology and
Operations since March 1996. From 1994 to 1996, Mr. Anderson was a marketing
research consultant at O'Donnell & Associates, Inc. From 1990 to 1994 he served
as Vice President and Director of Marketing Operations at HarperCollins College
Publishers. From 1977 to 1990 he was employed by Scott, Foresman & Company, most
recently as Vice President of Marketing Operations. Mr. Anderson holds a B.A. in
English and Mathematics from the University of Texas.

Farzin Arsanjani joined the Company as an Executive Vice President upon the
Company's acquisition of HTR in October 1997. Prior to such acquisition, Mr.
Arsanjani co-founded HTR in 1987 and served as its Vice-Chairman and President
since that time. Mr. Arsanjani holds a B.S. in Electrical Engineering from the
University of Maryland.

Michael Schwien joined the Company as Controller in May 1998 and was named
acting Chief Financial Officer in June 1999. From 1993 to May 1998, Mr. Schwien
worked for BDM Technologies, Inc. most recently as Director of Business
Operations. From 1988 to 1993, he worked for ICF Kaiser International as
Supervisor of Corporate Accounting. Prior to working for ICF Kaiser
International he was a staff auditor with Deloitte & Touche. Mr. Schwien holds a
B.S. in Business Administration from the University of Colorado and is a
Certified Public Accountant.

EXECUTIVE COMPENSATION

Summary Compensation

The following table sets forth all compensation paid by the Company for
services rendered to it in all capacities for the fiscal years ended December
31, 1996, 1997 and 1998 to the Company's Chief Executive Officer, the Company's
four other highest-paid executive officers who earned at least $100,000 in the
respective fiscal year and two additional executive officers who otherwise would
have been includable in such table on the basis of their 1998 compensation but
for the fact that they were no longer executive officers of the Company at the
end of 1998 (collectively, the "Named Officers").

50
<PAGE> 52

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------- -------------
FISCAL STOCK OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (SHARES) COMPENSATION
--------------------------- ------ -------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Narasimhan P. Kannan......... 1998 $195,000(1) $ -- 189,013 $46,077(2)
Chairman and 1997 $164,123 $ 32,500 -- $ 1,080(3)
Chief Executive Officer 1996 $156,556 $ 2,500 -- $ 1,586(3)
Kamyar Kaviani............... 1998 $154,583 $310,500 -- $ 9,600(4)
Executive Vice President 1997 $113,595 $ -- 70,900 $ --
Farzin Arsanjani............. 1998 $154,583 $310,500 20,000 $ 9,600(4)
Executive Vice President 1997 $112,732 $ -- 70,900 $ --
Carl N. Tyson(5)............. 1998 $245,700(6) $ -- 50,000(7) $12,416(4)
President and 1997 $199,500 $ 8,750 -- $ 6,304(8)
Chief Operating Officer 1996 $227,500 $107,500 132,487(7) $50,093(9)
Daniel J. Callahan, IV(10)... 1998 $114,958 $ 69,000 -- $15,442(11)
Vice President 1997 $ 89,182 $ -- 15,700 $ --
Michael W. Anderson.......... 1998 $144,848 $ -- 70,300 $ --
Chief Operating Officer 1997 $138,337 $ 25,833 -- $12,155(12)
Joanne O'Rourke
Hindman(13)................ 1998 $146,674 $ -- 91,000 $ --
Chief Financial Officer
</TABLE>

- ---------------
(1) Includes $15,000 of salary for Mr. Kannan from December 1997 that was paid
in 1998.

(2) Consists of $1,566 of taxable premiums paid for life insurance and $44,511
of accrued vacation paid in the form of Common Stock.

(3) Consists of taxable premiums paid for life insurance.

(4) Consists of expenses for automobile allowance.

(5) Mr. Tyson's employment with the Company terminated in October 1998.

(6) Includes $18,900 of salary for Mr. Tyson from December 1997 that was paid
in 1998.

(7) These options terminated following Mr. Tyson's termination of employment in
October 1998.

(8) Consists of $5,920 for automobile allowance and $384 of taxable premiums
paid for life insurance.

(9) Consists of $50,000 of moving expenses and $93 of taxable premiums paid for
life insurance.

(10) Mr. Callahan's employment with the Company terminated in June 1998.

(11) Consists of $4,402 of accrued vacation paid upon Mr. Callahan's termination
of employment, $2,040 of taxable premiums paid for life insurance and
$9,000 for automobile allowance.

(12) Consists of moving expenses.

(13) Ms. Hindman left the Company effective on July 9, 1999.

51
<PAGE> 53

Option Grants, Exercises and Holdings and Fiscal Year-End Option Values.

The following table summarizes all option grants during the year ended
December 31, 1998 to the Named Officers:

OPTION GRANTS DURING THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
% OF TOTAL OPTIONS PRICE APPRECIATION
NUMBER OF SHARES GRANTED TO EXERCISE OR FOR OPTION TERM(1)
UNDERLYING OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED 1998 PER SHARE DATE 5% 10%
---- ------------------ ------------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Narasimhan P. Kannan...... 160,000 14.6% $13.00 5/26/08 $1,308,101 $3,314,984
27,500 2.5% $ 7.00 12/09/08 121,062 306,795
1,513 0.1% $ 7.07 12/03/00 1,095 2,243

Carl N. Tyson(2).......... 50,000 4.6% $13.00 5/26/08 408,782 1,035,933

Farzin Arsanjani.......... 20,000 1.8% $ 7.00 12/09/08 88,045 223,124

Michael Anderson.......... 25,000 2.3% $13.00 5/26/08 204,391 517,966
45,000 4.1% $ 7.00 12/09/08 198,102 502,029
300 -- $ 7.07 12/03/00 217 445

Joanne O'Rourke Hindman... 55,000 5.0% $ 9.63 5/26/08 332,921 843,687
35,000 3.2% $ 7.00 12/09/08 154,079 390,467
1,000 0.1% $ 7.07 12/03/00 724 1,483
</TABLE>

- ---------------
(1) The compounding assumes a 10-year exercise period for all option grants.
These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent on the future
performance of the Common Stock and overall stock market conditions. The
amounts reflected in this table may not be necessarily achieved.

(2) These options expired pursuant to their terms following the termination of
Mr. Tyson's employment with the Company in October 1998.

No stock options were exercised by the Named Officers during 1998. The
following table sets forth certain information concerning the number and value
of unexercised options held by the Named Officers as of December 31, 1998:

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

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1998 AT DECEMBER 31, 1998(1)
--------------------------------- ---------------------------------
NAME EXERCISABLE(2) UNEXERCISABLE(2) EXERCISABLE(2) UNEXERCISABLE(2)
---- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Narasimhan P. Kannan.................... 69,493 187,500 $0 $0
Kamyar Kaviani.......................... 13,500 57,400 $0 $0
Farzin Arsanjani........................ 13,500 77,400 $0 $0
Carl N. Tyson........................... 31,865 0 $0 $0
Michael W. Anderson..................... 20,439 101,373 $0 $0
Joanne O'Rourke Hindman................. 1,000 90,000 $0 $0
</TABLE>

- ---------------
(1) Options are considered in-the-money if the market value of the shares
covered thereby is greater than the option exercise price. Value is
calculated based on the difference between the fair market value of the
shares of common stock at December 31, 1998 ($5.94), as quoted on the Nasdaq
Stock Market, and the exercise price of the options.

52
<PAGE> 54

(2) The first number represents the number or value (as called for by the
appropriate column) of exercisable options; the second number represents the
number or value (as appropriate) of unexercisable options.

1996 STOCK PLAN

The Company's 1996 Stock Plan (the "1996 Plan") was adopted and approved by
the Board of Directors in August 1996 and by the stockholders of the Company in
September 1996. A total of 2,524,893 shares of Common Stock have been reserved
for issuance under the 1996 Plan, 1,000,000 of which are subject to stockholder
approval. As of June 30, 1999, 6,437 shares of Common Stock had been issued upon
exercise of options granted under the 1996 Plan, and options for 1,271,227
shares were outstanding thereunder at a weighted average exercise price of
$10.86 per share. The 1996 Plan also allows for the grant of purchase rights,
under which 27,619 shares have been purchased to date.

The 1996 Plan provides for the grant of "incentive stock options" within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), solely to employees (including officers and employee directors), and
nonstatutory stock options to employees, directors and consultants. As of June
30, 1999, approximately 110 persons were eligible to receive grants under the
1996 Plan. The 1996 Plan is administered by the Compensation Committee of the
Board of Directors. Subject to the restrictions of the 1996 Plan, the
Compensation Committee determines who is granted options, the terms of options
granted, including exercise price, the number of shares subject to the option
and the option's exercisability. The current members of the Compensation
Committee are Messrs. deCastro and Fingerhut.

The exercise price of options granted under the 1996 Plan is determined on
the date of grant, and in the case of incentive stock options must be at least
100% of the fair market value per share at the time of grant. The exercise price
of any option granted to an optionee who owns stock possessing more than 10% of
the voting power of the Company's outstanding capital stock must equal at least
110% of the fair market value of the Common Stock on the date of grant. The
aggregate fair market value of Common Stock (determined as of the date of the
option grant) for which incentive stock options may for the first time become
exercisable by any individual in any calendar year may not exceed $100,000.
Payment of the exercise price may be made by delivery of cash or a check to the
order of the Company, or by any other means determined by the Board of
Directors.

Options granted to employees under the 1996 Plan generally become
exercisable in increments, based on the optionee's continued employment with the
Company, over a period of up to five years. The term of an incentive stock
option may not exceed 10 years. The form of option agreement generally provides
that options granted under the 1996 Plan, whether incentive stock options or
nonstatutory options, expire 10 years from the date of grant. Incentive stock
options granted pursuant to the 1996 Plan are not transferable by the optionee,
other than by will or the laws of descent and distribution, and are exercisable
during the optionee's lifetime only by the optionee. Generally, in the event of
a merger of the Company with or into another corporation or a sale of all or
substantially all of the Company's assets, all outstanding options under the
1996 Plan shall accelerate and become fully exercisable upon consummation of
such merger or sale of assets.

The Board may amend the 1996 Plan at any time or from time to time or may
terminate the 1996 Plan without the approval of the stockholders, provided that
stockholder approval is required for any amendment to the 1996 Plan requiring
stockholder approval under applicable law as in effect at the time. However, no
action by the Board of Directors or stockholders may alter or impair any option
previously granted under the 1996 Plan. The Board may accelerate the
exercisability of any option or waive any condition or restriction pertaining to
such option at any time. The 1996 Plan will terminate in August 2006, unless
terminated sooner by the Board.

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<PAGE> 55

EMPLOYMENT AGREEMENTS

Under the terms of the Company's form of employment agreement for executive
officers, such officers are entitled to annual incentive-based bonus
compensation of up to 50% of their base salary. The exact amount of such
compensation is determined by the Company's Board of Directors, generally based
upon the achievement of specified performance goals established by the Board.
Under such agreements, executive officers are also eligible to participate in
all employee benefit plans and programs that the Company offers to its executive
employees and are entitled to reimbursement for all documented reasonable
business expenses they incur. Generally, consistent with Company policies, in
the event that an executive officer is terminated without cause or resigns for
good cause, the Company is required under its form of employment agreement to
continue paying salary to such officer for six to nine months as severance.

Mr. Kannan's employment agreement with the Company provides for an annual
base salary of $180,000. The term of the agreement expired in June 1999, but the
agreement is subject to automatic one-year renewal terms. In the event of a
material change in Mr. Kannan's duties, titles, authority or position with the
Company, he may elect, in lieu of receiving his severance pay, to enter into a
consulting arrangement with the Company, whereby Mr. Kannan would provide
consulting services to the Company for a period of one year and be paid $750 per
day for providing such services.

Following termination of Mr. Tyson's employment with the Company in October
1998, the Company began paying Mr. Tyson a severance equal to nine months of his
base salary, or $170,100, pursuant to the terms of his employment agreement.

COMPENSATION OF DIRECTORS

All directors are reimbursed for expenses incurred in connection with each
board committee meeting attended.

The 1996 Plan provides for the grant of nonstatutory options to
non-employee directors of the Company. The 1996 Plan provides for automatic
grants on January 1 of each year to directors who are not employees of the
Company of an option to purchase 10,000 shares. In addition, in the case of a
new director, automatic grants shall be effective upon such director's initial
election or appointment to the Board with the number of underlying shares equal
to the product of 2,500 multiplied by the number of regularly scheduled meetings
remaining in that year. Subject to continued status as a director, options
granted pursuant to the New Automatic Grant Program shall vest 25% per year on
each of the fifth, sixth, seventh and eighth anniversaries of the date of grant;
provided, however, that 2,500 shares shall vest on each date the director
attends a Board meeting in person during that year. In addition, each such
director will automatically be granted a fully-vested option to purchase an
additional 2,500 shares on each date the director attends a meeting of a
committee of the Board other than on the same day or within one day of a Board
meeting.

Under the New Automatic Grant Program, during 1998 the non-employee
directors received options as follows: Mr. Fingerhut -- 10,000; Mr.
Wallman -- 17,500; Mr. Kimberly -- 17,500; Mr. Sears -- 7,500; and Mr.
deCastro -- 10,000.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Board of Directors consists of Messrs.
deCastro and Fingerhut, none of whom was at any time during the fiscal year
ended December 31, 1998 or at any other time an officer or employee of the
Company. No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Board of Directors or the
Compensation Committee of the Company.

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<PAGE> 56

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the ownership
of shares of the Company's Common Stock, Series C Preferred Stock and Series D
Preferred Stock as of March 31, 1999 by (i) each person known by the Company to
beneficially own more than 5% of the outstanding shares of Common Stock, (ii)
each director and director nominee of the Company, (iii) each of the Named
Officers, as listed under "-- Executive Compensation -- Summary Compensation"
above, and (iv) all directors and executive officers of the Company as a group.
Except as indicated in the footnotes to this table, the persons named in this
table have sole voting and investment power with respect to all shares of Common
Stock and Preferred Stock indicated below.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
------------------------------------------------------------------
SERIES C SERIES D
COMMON STOCK PREFERRED STOCK PREFERRED STOCK
-------------------- -------------------- -------------------- PERCENTAGE
NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT TOTAL VOTING
NAME OF SHARES OF CLASS OF SHARES OF CLASS OF SHARES OF CLASS POWER(2)
---- --------- -------- --------- -------- --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Irwin Lieber(3)(11).................. 1,148,349 24.4% 207,387 33.1% 381,817 35.2% 15.0%
80 Cuttermill Road, Suite 311
Great Neck, NY 11021

Barry K. Fingerhut(4)(11)............ 1,256,060 24.1% 229,839 36.7% 409,090 37.8% 16.1%

Seth Lieber(5)(11)................... 1,082,199 23.3% 192,025 30.7% 363,636 33.6% 14.2%
80 Cuttermill Road, Suite 311
Great Neck, NY 11021

Jonathan Lieber(6)(11)............... 1,079,387 23.2% 192,025 30.7% 363,636 33.6% 14.1%
80 Cuttermill Road, Suite 311
Great Neck, NY 11021

Barry Rubenstein(7)(11).............. 1,173,179 22.8% 218,612 34.9% 381,817 35.2% 15.2%
68 Wheatley Road
Brookville, NY 11545

Wheatley Partners, L.P.(8)(11)....... 1,072,853 21.2% 189,071 30.2% 363,636 33.6% 14.1%
80 Cuttermill Road, Suite 311
Great Neck, NY 11021

Wheatley Foreign Partners,
L.P.(9)(11)........................ 1,072,853 21.2% 189,071 30.2% 363,636 33.6% 14.1%
Third Floor, One Capital Place
George Town, Grand Cayman
Cayman Islands, B.W.I.

Wheatley Partners, LLC(10)(11)....... 1,072,853 21.2% 189,071 30.2% 363,636 33.6% 14.1%
80 Cuttermill Road, Suite 311
Great Neck, NY 11021

Austin O. Furst, Jr.(12)............. 353,846 7.9% -- -- -- -- 2.9%
138 Frogtown Road
New Canaan, CT 06840

Kamyar Kaviani(13)................... 311,021 7.1% -- -- 68,358 6.3% 5.0%

Errol M. Rudman(14).................. 264,936 6.2% 1,600 * -- -- 4.4%
Rudman Management, Inc.
1114 Avenue of the Americas
New York, NY 10036

Narasimhan P. Kannan(15)............. 256,000 5.9% -- -- -- -- 3.1%

Farzin Arsanjani (16)................ 222,125 5.1% -- -- 56,834 5.2% 3.5%

William E. Kimberly(17).............. 80,660 1.9% -- -- -- -- *
</TABLE>

55
<PAGE> 57

<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
------------------------------------------------------------------
SERIES C SERIES D
COMMON STOCK PREFERRED STOCK PREFERRED STOCK
-------------------- -------------------- -------------------- PERCENTAGE
NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT TOTAL VOTING
NAME OF SHARES OF CLASS OF SHARES OF CLASS OF SHARES OF CLASS POWER(2)
---- --------- -------- --------- -------- --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Steven M. H. Wallman(18)............. 56,923 1.3% -- -- -- -- *

Daniel J. Callahan, IV (19).......... 38,399 * -- -- 9,255 * *

Michael W. Anderson (20)............. 20,739 * -- -- -- -- *

Joanne O'Rourke Hindman(21).......... 15,750 * -- -- -- -- *

Edson D. deCastro(22)................ 19,298 * -- -- -- -- --

John D. Sears(22).................... 10,000 * -- -- -- -- --
All directors and executive officers
as a group (7 directors and 5
executive officers)(23)............ 2,248,582 40.5% 229,839 36.7% 534,282 49.4% 28.9%
</TABLE>

- ---------------
* Less than one percent.

(1) As of March 31, 1999 the Company had outstanding (i) 4,276,668 shares of
Common Stock, (ii) 626,293 shares of Series C Preferred Stock (convertible
into 757,814 shares of Common Stock based on a conversion ratio of
1.21-for-1), and (iii) 1,082,625 shares of Series D Preferred Stock
convertible into Common Stock on a one-for-one basis. Share ownership in
the case of Common Stock includes shares issuable upon (i) conversion of
Series C Preferred Stock and Series D Preferred Stock into Common Stock,
and (ii) exercise of warrants and options that may be exercised in each
case within 60 days after March 31, 1999 for purposes of computing the
percentage of Common Stock owned by such person but not for purposes of
computing the percentage owned by any other person.

(2) Percentage voting power is calculated assuming the Common Stock, the Series
C Preferred Stock and the Series D Preferred Stock vote together as one
class with each share of Common Stock, Series C Preferred Stock and Series
D Preferred Stock entitled to one vote.

(3) Consists of: (i) 1,072,853 shares beneficially owned by Wheatley Partners,
L.P. and Wheatley Foreign Partners, L.P., with respect to each of which Mr.
Leiber may be deemed to share voting and dispositive power; (ii) 4,297
shares of Common Stock issuable upon conversion of Series C Preferred Stock
and 3,545 shares of Common Stock issuable upon exercise of a warrant, both
held by Mr. Leiber's child; and (iii) 14,771 shares of Common Stock
issuable upon exercise of a warrant, 17,904 shares of Common Stock issuable
upon exercise of Series C Preferred Stock, 18,181 shares of Common Stock
issuable upon exercise of Series D Preferred Stock and 16,798 shares of
Common Stock, all held by Wheatley Partners, LLC, of which Mr. Leiber is
the President and a member.

(4) Consists of: (i) 35,076 shares of Common Stock, 45,835 shares of Common
Stock issuable upon conversion of Series C Preferred Stock, 45,454 shares
of Common Stock issuable upon conversion of Series D Preferred Stock,
37,814 shares of Common Stock issuable upon exercise of warrants which are
currently exercisable and 12,500 shares of Common Stock issuable upon
exercise of options which are currently exercisable, all held by Mr.
Fingerhut; (ii) 273,528 and 17,442 shares of Common Stock, 211,231 and
17,945 shares of Common Stock issuable upon conversion of Series C
Preferred Stock, 335,162 and 28,474 shares of Common Stock issuable upon
conversion of Series D Preferred Stock and 174,266 and 14,805 shares of
Common Stock issuable upon exercise of warrants which are currently
exercisable, all held by Wheatley Partners, L.P. and Wheatley Foreign
Partners, L.P., respectively, two investment partnerships of which Mr.
Fingerhut serves as an officer of the General Partner; and (iii) 3,580
shares of Common Stock issuable upon conversion of Series C Preferred Stock
and 2,954 shares of Common Stock issuable upon exercise of warrants which
are currently exercisable held in a

56
<PAGE> 58

joint account with respect to which Mr. Fingerhut has investment and voting
power. Mr. Fingerhut disclaims beneficial ownership of the shares held by
Wheatley Partners, L.P. and Wheatley Foreign Partners, L.P., except to the
extent of his pecuniary interest therein.

(5) Consists of: (i) 1,072,853 shares beneficially owned by Wheatley Partners,
L.P. and Wheatley Foreign Partners, L.P., with respect to which Mr. Leiber
may be deemed to share voting and dispositive power; and (ii) 2,954 shares
of Common Stock issuable upon exercise of a warrant, 3,580 shares of Common
Stock issuable upon conversion of Series C Preferred Stock and 2,812 shares
of Common Stock, all held by Wheatley Partners, LLC, of which Mr. Leiber is
a Vice President and a member.

(6) Consists of: (i) 1,072,853 shares beneficially owned by Wheatley Partners,
L.P. and Wheatley Foreign Partners, L.P., with respect to which Mr. Leiber
may be deemed to share voting and dispositive power; and (ii) 2,812 shares
of Common Stock, 3,580 shares of Common Stock issuable upon conversion of
Series C Preferred Stock and 2,954 shares of Common Stock issuable upon
exercise of a warrant, all held by Mr. Leiber.

(7) Consists of 1,072,853 shares beneficially owned by Wheatley Partners, L.P.
and Wheatley Foreign Partners, L.P., with respect to each of which Mr.
Rubenstein is the CEO of the general partner, and 35,806 shares of Common
Stock issuable upon conversion of Series C Preferred Stock, 18,181 shares
of Common Stock issuable upon conversion of Series D Preferred Stock,
29,541 shares of Common Stock issuable upon exercise of warrants and 16,798
shares of Common Stock, held by three investment partnerships with respect
to which Mr. Rubenstein is a general partner.

(8) Includes: (i) 211,231 shares of Common Stock issuable upon conversion of
Series C Preferred Stock; (ii) 174,266 shares of Common Stock issuable upon
exercise of warrants which are currently exercisable; (iii) 335,162 shares
of Common Stock issuable upon conversion of Series D Preferred Stock; and
(iv) 17,442 shares of Common Stock, 14,805 shares of Common Stock issuable
upon exercise of a warrant, 17,945 shares of Common Stock issuable upon
conversion of Series C Preferred Stock and 28,474 shares of Common Stock
issuable upon conversion of Series D Preferred Stock, all held by Wheatley
Foreign Partners, L.P. Wheatley Partners, L.P. disclaims beneficial
ownership of the shares held by Wheatley Foreign Partners, L.P., except to
the extent of its pecuniary interest therein.

(9) Includes 994,187 shares beneficially held by Wheatley Partners, L.P.
Wheatley Foreign Partners, L.P. disclaims beneficial ownership of such
securities, except to the extent of its pecuniary interest therein.

(10) Consists of 1,072,853 shares beneficially owned by Wheatley Partners, L.P.
and Wheatley Foreign Partners, L.P., with respect to each of which Wheatley
Partners, LLC is a general partner.

(11) As reported in the Schedule 13D filed as of September 9, 1998 with the SEC
by this stockholder and a group of affiliated investors. These share
numbers also include the annual 5% dividend on the Series D Preferred Stock
paid in shares of Common Stock in December 1998.

(12) Includes 179,848 shares of Common Stock issuable upon exercise of warrants
held by trusts for which Mr. Furst is the trustee and which are currently
exercisable.

(13) Includes 13,500 shares of Common Stock issuable upon exercise of options
which are currently exercisable and 68,358 shares of Common Stock issuable
upon conversion of Series D Preferred Stock.

(14) Includes 261,400 shares of Common Stock as reported in the Schedule 13G
dated March 26, 1998 filed with the SEC by Errol D. Rudman. Also includes
1,600 shares of Series C Preferred Stock (convertible into 1,936 shares of
Common Stock) and 1,600 shares of Common Stock issuable upon exercise of
warrants acquired by Mr. Rudman effective on March 31, 1998.

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<PAGE> 59

(15) Includes 67,980 shares of Common Stock issuable upon exercise of a warrant
held by Mr. Kannan that is currently exercisable, 169,092 shares of Common
Stock held by two trusts of which Mr. Kannan and his wife are co-trustees;
8,513 shares of Common Stock held by a limited partnership as to which Mr.
Kannan and his wife are the general partners, and 1,513 shares of Common
Stock issuable upon exercise of options which are currently exercisable.

(16) Includes 56,834 shares of Common Stock issuable upon conversion of Series D
Preferred Stock and 13,500 shares of Common Stock issuable upon exercise of
options which are currently exercisable.

(17) Includes 10,197 shares of Common Stock issuable upon exercise of a warrant
held by Mr. Kimberly that is currently exercisable, 29,298 shares of Common
Stock issuable upon exercise of options which are currently exercisable, as
well as 5,344 outstanding shares of Common Stock and 2,549 shares of Common
Stock issuable upon exercise of a warrant which is currently exercisable,
both held by Elena Kimberly, Mr. Kimberly's wife.

(18) Includes 22,500 shares of Common Stock issuable upon exercise of options
which are currently exercisable.

(19) Includes 9,255 shares of Common Stock issuable upon conversion of Series D
Preferred Stock.

(20) Includes 20,439 shares of Common Stock issuable upon exercise of options
which are currently exercisable.

(21) Includes 14,750 shares of Common Stock issuable upon exercise of options
which are currently exercisable. Ms. Hindman left the Company effective in
July 1999.

(22) Consists of shares of Common Stock issuable upon exercise of options which
are currently exercisable.

(23) Includes the shares (including shares underlying options and warrants)
discussed in footnotes (4),(13),(15)-(18) and (20)-(22).

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In March 1997, the Company acquired Ivy Software, Inc., a Virginia
corporation that develops and distributes business and accounting software for
the academic education market, for $314,000 in cash and potential future
payments not to exceed approximately $862,000. In connection with this
transaction, the President and sole shareholder of Ivy, Robert N. Holt, entered
into a three-year consulting agreement with the Company. In September 1998, the
Company sold Ivy back to Mr. Holt for $250,000 in cash and a note receivable for
approximately $200,000. In connection therewith, all other payment obligations
of the Company to Mr. Holt were terminated (other than $35,000 already earned
and paid under the consulting agreement). The Company agreed to pay Mr. Holt his
standard consulting fee of $2,500 per day for any future services the Company
might request from him.

In April 1997, the Company acquired Teletutor, an Illinois corporation that
develops, distributes and supports computer-based training courses for the data
and telecommunications industry. The terms of the transaction included a $3.0
million cash payment at closing and $2.0 million in the form of a promissory
note to be paid in cash ratably on the first, second and third anniversary dates
of the acquisition. In connection with this transaction, James R. Cooper,
formerly the President of Teletutor, entered into an employment agreement to
become an Executive Vice President of the Company, from which position he
resigned effective in March 1998. During the second quarter of 1998, the Company
made the first installment payment of $666,667 to the former Teletutor
shareholders. In December 1998, the Company and the former Teletutor
stockholders restructured the terms of the note as follows: the Company issued
to such stockholders an aggregate of 105,000 shares of Common Stock and
three-year warrants to purchase 55,000 shares of its Common Stock at an exercise
price of

58
<PAGE> 60

$6.00 per share and executed a new non-interest bearing promissory note for
$826,666, payable in installments between March 15, 1999 and April 15, 2000.

In October 1997, the Company acquired HTR Inc., a Delaware corporation
whose strategy is to deliver a total solution for corporate information
technology requirements through its suite of products and services which
includes traditional and on-site training, courseware and consulting, in
exchange for 585,940 shares of Common Stock, options and warrants to purchase an
additional 34,020 shares, the assumption of an aggregate of approximately $3.5
million of HTR debt and a combination of cash and notes payable in the aggregate
amount of approximately $600,000. In addition, the executive officers of HTR,
Messrs. Kaviani (who became a director and executive officer of the Company upon
closing of the acquisition), Arsanjani (who became an executive officer of the
Company upon closing of the acquisition) and Callahan (who became an executive
officer of the Company upon closing of the acquisition) became entitled to
receive bonuses in the aggregate amount of $690,000 in connection with their
execution of employment agreements to become Executive Vice Presidents of the
Company, payable no later than December 31, 1998. In June 1998, the executive
officers of HTR were paid approximately $270,000 of their sign-on bonuses in
cash to satisfy tax obligations and they agreed to convert the remaining
approximately $420,000 of such sign-on bonuses and $320,000 of
acquisition-related indebtedness into 134,447 shares of the Company's Series D
convertible Preferred Stock. In connection with the acquisition, the Company
also created a stock option pool of 180,000 shares of Common Stock and an
incentive bonus pool with a potential payout of up to approximately $3,300,000
over three years to such officers (and one other executive officer of HTR),
contingent upon the financial performance of HTR. During 1998, none of this
payout was made and none of these option shares were granted to such executive
officers. Mr. Callahan's employment as an executive officer of the Company was
terminated in June 1998.

In March 1998, the Company raised approximately $5.3 million in gross
proceeds through a private placement (the "Series C Private Placement") of
626,293 shares of the Company's Series C Preferred Stock (which shares are
convertible into approximately 757,800 shares of Common Stock), together with
five-year warrants to purchase 626,293 shares of Common Stock at an exercise
price of $8.46 per share (the five-day average of the closing bid prices
calculated prior to closing of the Private Placement). Barry K. Fingerhut, a
director and the largest beneficial stockholder of the Company, and other
investors affiliated with Mr. Fingerhut, purchased an aggregate of 283,604
shares of Series C Preferred Stock and warrants to purchase an aggregate of
283,604 shares of Common Stock in the Series C Private Placement. The Series C
Preferred Stock has a liquidation preference of $12.69 per share upon the sale
or liquidation of the Company. The Common Stock issuable upon conversion of the
Series C Preferred Stock and exercise of the related warrants has certain
registration rights.

In June 1998, the Company raised approximately $5.2 million in gross
proceeds through a private placement (the "Series D Private Placement") of
1,082,625 shares of the Company's Series D Preferred Stock (which shares are
convertible into common stock on a one-for-one basis). Barry K. Fingerhut, a
director and the largest beneficial stockholder of the Company, and other
investors affiliated with Mr. Fingerhut, purchased an aggregate of 445,452
shares of Series D Preferred Stock in the Series D Private Placement. 137,174
shares of the Series D Preferred Stock and 5,194 shares of UOL Common Stock were
issued in connection with the conversion of approximately $805,000 of
indebtedness, mainly to certain former shareholders of HTR. Pursuant to the
terms of the Series D Preferred Stock, the Company declared and issued a 5%
Common Stock dividend on the Series D Preferred Stock in December 1998 and June
1999.

In May 1999, the Company raised approximately $1.3 million through a
private placement of 448,297 shares of common stock at a price of $2.9375 per
share. Barry K. Fingerhut, a director and the largest beneficial stockholder of
the Company, purchased an aggregate of 102,127 of such shares

59
<PAGE> 61

for an aggregate consideration of $300,000. The holders of shares issued in this
financing are entitled to certain registration rights.

In December 1996, the Company loaned Nat Kannan, the Company's founder,
Chief Executive Officer and Chairman, $100,000 to help satisfy Mr. Kannan's
income tax withholding obligations relating to back wages paid to Mr. Kannan by
the Company in 1996. The largest outstanding principal amount under the loan,
together with interest accrued thereon, during 1998 was approximately $116,000.
The loan bears interest at the prime rate, as announced from time to time by
First Union National Bank, minus one percent with principal and accrued interest
payable in full upon demand.

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<PAGE> 62

DESCRIPTION OF CAPITAL STOCK

AUTHORIZED STOCK

As of the date of this prospectus, the Company's authorized capital stock
consists of 36,000,000 shares of common stock, $0.01 par value per share, and
10,000,000 shares of preferred stock, $0.01 par value per share. The description
below is a summary of all material provisions of the Company's common stock and
preferred stock.

COMMON STOCK

The holders of common stock are entitled to one vote per share on all
matters voted on by the stockholders, including elections of directors. Subject
to the preferential rights, if any, of holders of any then outstanding preferred
stock, the holders of common stock are entitled to receive dividends when, as
and if declared by the Board of Directors of the Company out of funds legally
available therefor. The terms of the common stock do not grant to the holders
thereof any preemptive, subscription, redemption, conversion or sinking fund
rights. Subject to the preferential rights of holders of any then outstanding
preferred stock, the holders of common stock are entitled to share ratably in
the assets of the Company legally available for distribution to stockholders in
the event of the liquidation, dissolution or winding up of the Company. As of
June 30, 1999, 4,799,310 shares of common stock were issued and outstanding,
1,988,337 shares of common stock were reserved for issuance upon the exercise of
certain outstanding warrants and approximately 2,524,893 shares were reserved
for issuance pursuant to the Company's stock plans.

The certificate of incorporation and bylaws of the Company contain certain
provisions which may have the effect of delaying, deferring, or preventing a
change of control of the Company. In addition, the Board generally has the
authority, without further action by stockholders, to fix the relative powers,
preferences, and rights of the unissued shares of preferred stock of the
Company. Provisions that could discourage an unsolicited tender offer or
takeover proposal, such as extraordinary voting, dividend, redemption, or
conversion rights, could be included in this preferred stock.

PREFERRED STOCK

Pursuant to the Certificate of Incorporation, the Company has the authority
to issue up to 10,000,000 shares of preferred stock, $0.01 par value per share,
in one or more series as determined by the Board of Directors of the Company.
The Board of Directors of the Company may, without further action by the
stockholders of the Company, issue one or more series of preferred stock and fix
the rights and preferences of such shares, including the dividend rights,
dividend rates, conversion rights, exchange rights, voting rights, terms of
redemption, redemption price or prices, liquidation preferences and the number
of shares constituting any series or the designation of such series. The rights
of the holders of common stock will be subject to, and may be adversely affected
by, the rights of holders of preferred stock issued by the Company in the
future. In addition, the issuance of preferred stock could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of the Company.

As of June 30, 1999, the Company had designated 1,000,000 shares of Series
C Convertible Preferred Stock, of which 623,339 shares were issued and
outstanding, and 1,200,000 shares of Series D Convertible Preferred Stock, of
which 1,082,625 shares were issued and outstanding. The Company is also
obligated to designate 3,000,000 shares of Series E Convertible Preferred Stock
that may be issued under the Company's equity line of credit agreement with
H&QGF.

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<PAGE> 63

The following is a summary of the terms, rights and privileges of the
Company's designated preferred stock.

Rank. Our Series C, Series D and Series E preferred stock all rank on an
equal basis with each other, senior to any future series of preferred stock, and
prior to the common stock as to dividends and distributions of assets.

Dividends. Holders of Series C preferred stock will be entitled to receive
cash dividends, if any, when, as and if declared by our Board out of funds
legally available for dividends.

Holders of Series D preferred stock are entitled to receive a 5% annual
dividend, compounded and paid semiannually each June 30 and December 31,
payable, at our option, either in cash or in our common stock at 90% of the
average closing bid price of the stock for the five trading days prior to the
dividend due date.

Holders of Series E preferred stock are entitled to receive a 6% annual
dividend, compounded and paid monthly in shares of Series E preferred stock
valued at 85% of the closing price of our common stock on the dividend payment
date.

Conversion Rate. At any time, holders of shares of any series of our
preferred stock may convert all or a portion of those shares into a number of
shares of common stock computed by multiplying the number of shares to be
converted by the purchase price of those shares, and dividing the result by the
conversion price then in effect.

The conversion price for the Series D and Series E preferred stock is
initially the purchase price paid for that stock (so that these series of
preferred stock initially converts into common stock on a 1-to-1 basis), as may
be adjusted from time to time to account for any stock splits, stock dividends,
recapitalizations, mergers, asset sales or similar events.

The conversion price for the Series C preferred stock is $6.9815625 (so
that one share of Series C preferred stock initially converts into 1.2121 shares
of common stock), as may be adjusted from time to time to account for any stock
splits, stock dividends, recapitalizations, mergers, asset sales or similar
events.

Liquidation. Upon a change in control, liquidation, dissolution or winding
up of our affairs, each holder of shares of any series of our preferred stock
will be entitled, on an equal basis with all other holders of our preferred
stock, to a liquidation preference prior in right to any holders of common
stock. The liquidation preference equals the amount paid for the preferred
stock.

Redemption. Within 60 days after June 29, 2005, the seventh anniversary of
the issuance of the Series D preferred stock, we may, at our sole option, redeem
all outstanding shares of Series D preferred stock not previously converted into
common stock. The redemption price is initially $6.875 per share, as adjust to
reflect any subdivisions (by stock split, stock dividend or otherwise) or
combinations or consolidations of the Series D preferred stock since its
issuance, plus all declared but unpaid dividends. The redemption price is
payable in cash in equal quarterly installments over a one-year period.

Voting. Holders of shares of any series of our preferred stock are
entitled to vote on all matters submitted to stockholders for a vote, voting
together with the holders of our common stock as a single class. Holders of
Series C or Series D preferred stock are entitled to one vote per share of
preferred stock held. Holders of Series E preferred stock are entitled to one
vote for each share of common stock into which the preferred stock they hold is
convertible.

Each series of preferred stock is entitled to vote as a separate class on
the creation of any new series of preferred stock or the issuance of additional
shares of capital stock ranking senior or equal to that series of preferred
stock.

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<PAGE> 64

WARRANTS

As of the date of this prospectus, we had issued warrants to purchase an
aggregate of 1,988,337 shares of common stock (including 875,832 warrant shares
registered under this prospectus) at a weighted average exercise price of $7.24
per share, all of which are currently exercisable. These warrants expire at
various times between August 1999 and December 2006.

OPTIONS

See "Management -- Stock Plans" for a discussion of our outstanding
options.

TRANSFER AGENT AND REGISTRAR

Boston EquiServe is the transfer agent and registrar for the common stock.

SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Under Section 203, certain "business
combinations" between a Delaware corporation whose stock generally is publicly
traded or held of record by more than 2,000 stockholders and an "interested
stockholder" are prohibited for a three-year period following the date that such
a stockholder became an interested stockholder, unless (i) the corporation has
elected in its original certificate of incorporation not to be governed by
Section 203; (ii) the business combination was approved by the Board of
Directors of the corporation before the other party to the business combination
became an interested stockholder, (iii) upon consummation of the transaction
that made it an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the commencement
of the transaction (excluding voting stock owned by directors who are also
officers or held in employee benefit plans in which the employees do not have a
confidential right to tender or vote stock held by the plan); or (iv) the
business combination was approved by the Board of Directors of the corporation
and ratified by two-thirds of the voting stock which the interested stockholder
did not own. The three-year prohibition also does not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of certain extraordinary transactions involving the corporation and
a person who had not been an interested stockholder during the previous three
years or who became an interested stockholder with the approval of the majority
of the corporation's directors. The term "business combination" is defined
generally to include mergers or consolidations between a Delaware corporation
and an interested stockholder, transactions with an interested stockholder
involving the assets or stock of the corporation or its majority-owned
subsidiaries and transactions which increase an interested stockholder's
percentage ownership of stock. The term "interested stockholder" is defined
generally as a stockholder who, together with affiliates and associates, owns
(or, within three years prior, did own) 15% or more of a Delaware corporation's
voting stock. Section 203 could prohibit or delay a merger, takeover or other
change in control of the Company and therefore could discourage attempts to
acquire the Company.

63
<PAGE> 65

SELLING STOCKHOLDERS

The shares offered under this prospectus are being sold for the account of
the Selling Stockholders named in the following table. The table also contains
information regarding the Selling Stockholder's beneficial ownership of shares
of our common stock as of July 12, 1999, and as adjusted to give effect to the
sale of the shares.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
----------------------- NUMBER -----------------------
NUMBER PERCENT OF SHARES NUMBER PERCENT
NAME OF SHARES OF CLASS TO BE SOLD OF SHARES OF CLASS
- ---- --------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Hambrecht & Quist Guaranty Finance
LLC................................. 100,000(1) (2) 1,900,000(3) -- --
BH Capital Investments, L.P. ......... 56,300(4) (5) 606,300(6) -- --
Excalibur............................. 56,300(4) (5) 606,300(6) -- --
OTHER SELLING STOCKHOLDERS:
Farzin Arsanjani (7).................. 222,125 5.1% 209,823 12,302 *
Lee Backus............................ 17,000 * 17,000 -- --
Bridgewater Partners.................. 33,534 * 33,534 -- --
The Buckingham Research Group......... 51,000 1.0% 51,000 -- --
Cannmont Investments.................. 13,412 * 13,412 -- --
Cardinal Capital...................... 78,820 1.6% 78,820 -- --
James Cooper (8)...................... 84,000 1.7% 84,000 -- --
CSL Associates........................ 33,534 * 33,534 -- --
William Dioguardi..................... 13,796 * 13,796 -- --
EDN Equities.......................... 100,603 2.1% 100,603 -- --
Robert Keith Fetter................... 25,000 * 25,000 -- --
Friedman Billings Ramsey (9).......... 36,500 * 36,500 -- --
Austin Furst.......................... 353,846 7.1% 179,848 173,998 3.6%
David M. Goldsmith.................... 85,106 1.8% 85,106 -- --
Terry Hambel.......................... 33,000 * 33,000 -- --
Thomas Johnson........................ 33,000 * 33,000 -- --
Kamyar Kaviani (10)................... 311,021 6.4% 298,962 12,059 *
David B. Keidan....................... 51,000 1.0% 51,000 -- --
Georgia Keidan........................ 26,000 * 26,000 -- --
Donald Kendall........................ 16,766 * 16,766 -- --
Manny Korman.......................... 51,063 1.0% 51,063 -- --
Steven Kroll.......................... 10,000 * 10,000 -- --
Laurence C. Leeds..................... 17,000 * 17,000 -- --
Gregg Levin........................... 5,000 * 5,000 -- --
Eli Levitin........................... 9,346 * 9,346 -- --
Dana Lieber........................... 7,841 * 3,545 4,296 *
Irwin Lieber.......................... 1,148,349 24.4% 31,951 1,116,398 23.7%
Jonathan Lieber....................... 1,079,387 23.2% 2,954 1,076,433 23.2%
Seth Lieber........................... 1,082,199 23.3% 2,954 1,079,245 23.3%
Stephen Maguire....................... 14,000 * 14,000 -- --
Martin Maliska........................ 34,000 * 34,000 -- --
Mark McGowan.......................... 5,000 * 5,000 -- --
John P. Moniff........................ 33,534 * 33,534 -- --
P.A.W. Offshore Fund, Ltd............. 33,534 * 33,534 -- --
Errol Rudman.......................... 3,539 * 1,600 1,939 *
</TABLE>

64
<PAGE> 66

- ---------------
(1) Consists entirely of shares of common stock issuable upon exercise of the
warrant issued to H&QGF in connection with the equity line of credit
agreement and conversion of the Series E Preferred Stock issuable pursuant
thereto.

(2) Consists entirely of 100,000 shares of common stock issuable upon exercise
of the warrant issued to H&QGF in connection with the equity line of credit
agreement and conversion of the Series E Preferred Stock issuable pursuant
thereto. If all of the shares offered hereby were purchased and held by
H&QGF, it would hold 28.3% of our outstanding common stock.

(3) Assumes that all shares acquired pursuant to the equity line of credit
agreement and the warrant issued to H&QGF in connection with the agreement
are sold pursuant to this prospectus. The actual number of shares to be
issued to H&QGF in connection with the equity line agreement will depend
upon the market price of our common stock each time we draw down on such
line.

(4) Consists entirely of shares of common stock issuable upon exercise of the
warrant issued to the stockholder in connection with the stockholder's
purchase of $1.25 million principal amount of our 9% Secured Subordinated
Convertible Debentures due December 2000.

(5) Consists entirely of shares of common stock issuable upon exercise of the
warrant issued to the stockholder in connection with the stockholder's
purchase of $1.25 million principal amount of our 9% Secured Subordinated
Convertible Debentures due December 2000. If all of the shares offered
hereby were held by the stockholder, it would hold approximately 11% of our
outstanding common stock.

(6) Assumes all debentures held by the stockholder are converted into common
stock, and that all shares of common stock acquired upon conversion of the
debentures and upon exercise of the warrant issued in connection with the
debentures are sold pursuant to this prospectus. The actual number of
shares to be issued to the holders of the convertible debentures will
depend on the market price of our common stock at the time of a conversion
and whether we decide to repay in cash or stock if the market price is
below $5.55 per share.

(7) Mr. Arsanjani, a UOL employee, was an affiliate of HTR, Inc., a company we
acquired in October 1997. See "Certain Transactions."

(8) Mr. Cooper, a former UOL employee, was an affiliate of Cooper & Associates,
Inc., a company we acquired in April 1997. See "Certain Transactions."

65
<PAGE> 67

(9) Friedman Billings & Ramsey was the lead underwriter in our November 1996
initial public offering.

(10) Mr. Kaviani, a UOL executive officer and member of our Board of Directors,
was an affiliate of HTR, Inc., a company we acquired in October 1997. See
"Certain Transactions."

(11) Includes 875,832 shares issuable upon exercise of warrants and 268,393
shares issuable upon conversion of preferred stock.

Except as set forth above, no selling stockholder has had any material
relationship with UOL during the last three years.

PLAN OF DISTRIBUTION

The Selling Stockholders may offer the shares at various times in one or
more of the following transactions:

- on the Nasdaq SmallCap Market;

- in the over-the-counter market;

- in transactions other than market transactions;

- in connection with short sales of UOL shares;

- by pledge to secure debts or other obligations;

- in connection with the writing of non-traded and exchange-traded call
options, in hedge transactions and in settlement of other transactions in
standardized or over-the-counter options; or

- in a combination of any of the above.

The Selling Stockholders may sell shares at market prices then prevailing,
at prices related to prevailing market prices, at negotiated prices or at fixed
prices.

The Selling Stockholders may use broker-dealers to sell shares. If this
happens, broker-dealers will either receive discounts or commissions from the
Selling Stockholders, or they will receive commissions from purchasers of shares
for whom they have acted as agents. Selling Stockholders (other than H&QGF) may
be deemed to be underwriters with respect to the shares sold by them, and H&QGF
is an underwriter with respect to any shares sold by it.

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed
upon for the Company by Wyrick Robbins Yates & Ponton LLP, Raleigh, North
Carolina. As of the date hereof, partners of that firm beneficially owned
approximately 2,839 shares of the Company's Series D Convertible Preferred
Stock.

EXPERTS

The consolidated financial statements of UOL Publishing, Inc. as of
December 31, 1998 and 1997, and for the years ended December 31, 1998, 1997 and
1996, appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent accountants, as set forth in their report
thereon appearing elsewhere herein and in the Registration Statement and have
been so included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.

66
<PAGE> 68

UOL PUBLISHING, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets as of December 31, 1997 and
1998 ..................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1997 and 1998.......................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 1996, 1997 and 1998...... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
Consolidated Statements of Operations for the Three Months
Ended March 31, 1998 and 1999............................. F-30
Consolidated Balance Sheets as of December 31, 1998 and
March 31, 1999 ........................................... F-31
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1998 and 1999............................. F-32
Notes to Consolidated Financial Statements.................. F-33
</TABLE>

F-1
<PAGE> 69

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Board of Directors
UOL Publishing, Inc.

We have audited the accompanying consolidated balance sheets of UOL
Publishing, Inc. as of December 31, 1997 and 1998 and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the three years in the period ended December 31, 1998. 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 generally accepted auditing
standards. 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 consolidated financial position of UOL Publishing,
Inc. at December 31, 1997 and 1998, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

Vienna, Virginia
February 26, 1999, except for Note 10
as to which the date is March 22, 1999

F-2
<PAGE> 70

UOL PUBLISHING, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,705,490 $ 336,194
Accounts receivable, less allowance of $739,000 and
$567,000 at December 31, 1997 and 1998, respectively... 4,413,170 3,087,268
Loans receivable from related parties..................... 133,516 143,515
Loans receivable -- current............................... -- 232,375
Prepaid expenses and other current assets................. 481,516 172,926
------------ ------------
Total current assets........................................ 7,733,692 3,972,278
Property and equipment, net................................. 2,809,619 2,436,534
Capitalized software costs and courseware development costs,
net....................................................... 2,354,159 2,130,665
Acquired online publishing rights, net...................... 845,000 407,552
Loans receivable -- less current portion.................... -- 380,234
Other assets................................................ 358,208 194,644
Other intangible assets, net................................ 3,531,514 2,508,664
Goodwill, net............................................... 8,833,040 2,840,460
------------ ------------
Total assets...................................... $ 26,465,232 $ 14,871,031
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 6,398,488 $ 4,617,418
Notes payable -- current portion.......................... 4,551,950 3,075,139
Deferred revenues......................................... 572,390 911,072
------------ ------------
Total current liabilities......................... 11,522,828 8,603,629

Long-term liabilities:
Deferred revenues -- less current portion................. -- 109,834
Notes payable -- less current portion..................... 1,531,121 337,235
------------ ------------
Total liabilities................................. 13,053,949 9,050,698
------------ ------------

Stockholders' equity:
Series C convertible Preferred Stock, $0.01 par value per
share; aggregate liquidation preference of $7,947,658;
1,000,000 shares authorized; no shares issued and
outstanding at December 31, 1997; 626,293 shares issued
and outstanding at December 31, 1998................... -- 6,263
Series D convertible Preferred Stock, $0.01 par value per
share; aggregate liquidation preference of $8,931,656;
1,200,000 shares authorized; no shares issued and
outstanding at December 31, 1997; 1,082,625 shares
issued and outstanding at December 31, 1998............ -- 10,826
Common Stock, $0.01 par value per share; 36,000,000 shares
Authorized; 3,785,210 and 3,990,046 shares issued and
outstanding at December 31, 1997 and 1998,
respectively........................................... 37,852 39,900
Additional paid-in capital................................ 40,901,196 53,460,264
Accumulated deficit....................................... (27,527,765) (47,696,920)
------------ ------------
Total stockholders' equity........................ 13,411,283 5,820,333
============ ============
Total liabilities and stockholders' equity........ $ 26,465,232 $ 14,871,031
============ ============
</TABLE>

The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 71

UOL PUBLISHING, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1996 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Online tuition revenues.................... $ 118,685 $ 1,662,058 $ 1,548,950
Virtual campus software revenues........... -- 2,718,000 112,253
Product sales revenues..................... -- 2,330,029 3,347,777
Development and other revenues............. 399,497 1,631,233 925,751
Instructor-led training revenues........... -- 1,085,634 6,303,662
Other service revenues..................... 424,244 717,546 2,444,719
----------- ------------ ------------
Net revenues................................. 942,426 10,144,500 14,683,112
Costs and expenses:
Cost of revenues........................... 194,730 2,390,711 10,072,558
Sales and marketing........................ 1,592,668 4,438,717 5,304,394
Product development........................ 1,482,179 4,464,976 5,781,880
General and administrative................. 2,477,144 2,387,172 3,782,844
Depreciation and amortization.............. 144,284 931,143 2,462,922
Acquired in-process research, development
and content............................. -- 11,100,000 --
Compensation expense in connection with the
acquisition of HTR, Inc................. -- 690,000 --
Reorganization and other non-recurring
charges................................. -- 340,344 5,585,214
----------- ------------ ------------
Total costs and expenses..................... 5,891,005 26,743,063 32,989,812
----------- ------------ ------------
Loss from operations......................... (4,948,579) (16,598,563) (18,306,700)
Other income (expense):
Loss on sale of subsidiaries............... -- -- (907,426)
Other income (expense)..................... 303,983 125,000 --
Interest income (expense).................. 3,893 328,800 (597,139)
----------- ------------ ------------
Net loss..................................... $(4,640,703) $(16,144,763) $(19,811,265)
=========== ============ ============
Dividends to preferred stockholders.......... (330,706) -- (357,890)
----------- ------------ ------------
Net loss attributable to common
stockholders............................... $(4,971,409) $(16,144,763) $(20,169,155)
=========== ============ ============
Net loss per share........................... $ (4.98) $ (4.91) $ (5.27)
=========== ============ ============
Net loss per share -- assuming dilution...... $ (4.98) $ (4.91) $ (5.27)
=========== ============ ============
</TABLE>

The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 72

UOL PUBLISHING, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES A SERIES C SERIES D
CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK
------------------ ---------------- ------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ------- ------- ------ --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995....... 381,335 $ 3,813 -- -- -- -- 783,246 $ 7,832
Issuance of Common Stock primarily
in connection with the CTA
acquisition..................... -- -- -- -- -- -- 47,584 476
Issuance of Series A convertible
Preferred Stock................. 21,625 217 -- -- -- -- -- --
Issuance of compensatory stock
options and warrants............ -- -- -- -- -- -- -- --
Transactions in connection with
Company's initial public
offering:
Issuance of Common Stock in
connection with initial public
offering...................... -- -- -- -- -- -- 1,430,000 14,300
Conversion of Series A
Convertible Preferred Stock... (402,960) (4,030) -- -- -- -- 402,960 4,030
Conversion of Series B
Redeemable convertible
Preferred Stock............... -- -- -- -- -- -- 383,786 3,837
Conversion of Preferred Stock
dividends payable to shares of
Common Stock.................. -- -- -- -- -- -- 55,623 556
Issuance of Common Stock in
connection with exercise of
warrants...................... -- -- -- -- -- -- 67,980 680
Conversion of debt to equity.... -- -- -- -- -- -- 14,988 150
Net loss.......................... -- -- -- -- -- -- -- --
-------- ------- ------- ------ --------- ------- --------- -------
Balance at December 31, 1996....... -- -- -- -- -- -- 3,186,167 31,861
Issuance of Common Stock in
connection with the HTR
acquisition..................... -- -- -- -- -- -- 585,940 5,860
Issuance of stock options and
warrants in connection with the
HTR acquisition................. -- -- -- -- -- -- -- --
Issuance of Common Stock in
connection with exercise of
options and exercise of
warrants........................ -- -- -- -- -- -- 13,103 131
Issuance of compensatory stock
options and warrants............ -- -- -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- -- -- --
-------- ------- ------- ------ --------- ------- --------- -------
Balance at December 31, 1997....... -- -- -- -- -- -- 3,785,210 37,852
Issuance of Series C convertible
Preferred Stock................. -- -- 626,293 $6,263 -- -- -- --
Issuance of Series D convertible
Preferred Stock................. -- -- -- -- 1,082,625 $10,826 -- --
Issuance of Common Stock primarily
in connection with conversion of
debt to equity.................. -- -- -- -- -- -- 138,039 1,380
Issuance of Common Stock for
payment of Series D convertible
Preferred Stock dividends....... -- -- -- -- -- -- 28,902 289
Issuance of Common Stock in
connection with exercise of
options and exercise of
warrants........................ -- -- -- -- -- -- 37,895 379
Compensatory stock options and
warrants........................ -- -- -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- -- -- --
Dividends on convertible Preferred
Stock........................... -- -- -- -- -- -- -- --
-------- ------- ------- ------ --------- ------- --------- -------
Balance at December 31, 1998....... -- $ -- 626,293 $6,263 1,082,625 $10,826 3,990,046 $39,900
======== ======= ======= ====== ========= ======= ========= =======

TOTAL
ADDITIONAL STOCKHOLDERS'
PAID-IN ACCUMULATED EQUITY
CAPITAL DEFICIT (DEFICIT)
----------- ------------ -------------
<S> <C> <C> <C>
Balance at December 31, 1995....... $ 5,456,325 $ (6,742,299) $ (1,274,329)
Issuance of Common Stock primarily
in connection with the CTA
acquisition..................... 741,524 -- 742,000
Issuance of Series A convertible
Preferred Stock................. 412,583 -- 412,800
Issuance of compensatory stock
options and warrants............ 1,046,232 -- 1,046,232
Transactions in connection with
Company's initial public
offering:
Issuance of Common Stock in
connection with initial public
offering...................... 15,822,328 -- 15,836,628
Conversion of Series A
Convertible Preferred Stock... -- -- --
Conversion of Series B
Redeemable convertible
Preferred Stock............... 3,338,834 -- 3,342,671
Conversion of Preferred Stock
dividends payable to shares of
Common Stock.................. (556) -- --
Issuance of Common Stock in
connection with exercise of
warrants...................... 599,312 -- 599,992
Conversion of debt to equity.... 136,546 -- 136,696
Net loss.......................... -- (4,640,703) (4,640,703)
----------- ------------ ------------
Balance at December 31, 1996....... 27,553,128 (11,383,002) 16,201,987
Issuance of Common Stock in
connection with the HTR
acquisition..................... 12,591,850 -- 12,597,710
Issuance of stock options and
warrants in connection with the
HTR acquisition................. 591,118 -- 591,118
Issuance of Common Stock in
connection with exercise of
options and exercise of
warrants........................ 15,250 -- 15,381
Issuance of compensatory stock
options and warrants............ 149,850 -- 149,850
Net loss.......................... -- (16,144,763) (16,144,763)
----------- ------------ ------------
Balance at December 31, 1997....... 40,901,196 (27,527,765) 13,411,283
Issuance of Series C convertible
Preferred Stock................. 5,445,553 -- 5,451,816
Issuance of Series D convertible
Preferred Stock................. 5,859,185 -- 5,870,011
Issuance of Common Stock primarily
in connection with conversion of
debt to equity.................. 806,166 -- 807,546
Issuance of Common Stock for
payment of Series D convertible
Preferred Stock dividends....... 150,585 -- 150,874
Issuance of Common Stock in
connection with exercise of
options and exercise of
warrants........................ 88,279 -- 88,658
Compensatory stock options and
warrants........................ 209,300 -- 209,300
Net loss.......................... -- (19,811,265) (19,811,265)
Dividends on convertible Preferred
Stock........................... -- (357,890) (357,890)
----------- ------------ ------------
Balance at December 31, 1998....... $53,460,264 $(47,696,920) $ 5,820,333
=========== ============ ============
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-5
<PAGE> 73

UOL PUBLISHING, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(4,640,703) $(16,144,763) $(19,811,265)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.............................................. 95,451 442,151 1,058,950
Amortization.............................................. 48,833 663,663 2,287,796
Loss on sale of subsidiaries.............................. -- -- 907,426
Loss (gain) on debt restructuring......................... (100,000) -- 145,208
Net write-off of acquired online publishing rights........ -- -- 266,000
Net write-off of capitalized software and courseware
development costs....................................... -- -- 428,284
Revenues in connection with non-monetary transactions..... -- (795,000) --
Acquired in-process research, development and content..... -- 11,100,000 --
Stock option and stock warrant compensation expense....... 1,046,232 149,850 --
Write-off of intangible assets............................ -- 237,344 3,669,598
Interest expense related to notes payable................. -- 66,130 --
Increase in allowance for doubtful accounts............... -- -- (162,693)
Changes in operating assets and liabilities:
Accounts receivable..................................... (216,020) (2,345,382) 1,425,813
Prepaid expenses and other current assets............... (124,089) (103,894) 307,112
Other assets............................................ -- (168,042) 49,814
Accounts payable and accrued expenses................... (139,087) 926,450 (596,041)
Deferred revenues....................................... (74,250) 195,684 523,516
----------- ------------ ------------
Net cash used in operating activities....................... (4,103,633) (5,775,809) (9,500,482)
INVESTING ACTIVITIES
Purchases of property and equipment......................... (463,773) (1,412,537) (700,383)
Acquired online publishing rights........................... -- (60,000) --
Capitalized courseware development costs.................... -- (1,990,494) (992,163)
Acquisitions of businesses, net of cash acquired............ -- (3,106,294) --
Additions to intangible assets.............................. -- (330,798) (355,809)
Proceeds from loans receivable from related parties......... 286,948 -- --
Advances under loans receivable from related parties........ (101,444) (32,072) (9,999)
Proceeds from sale of subsidiaries.......................... -- -- 337,500
Proceeds from loans receivable.............................. -- -- 325,000
Advances under loans receivable............................. -- -- (2,939)
----------- ------------ ------------
Net cash used in investing activities....................... (278,269) (6,932,195) (1,398,793)
FINANCING ACTIVITIES
Proceeds from issuance of Common Stock...................... 16,437,738 15,381 123,466
Proceeds from issuance of Series A convertible Preferred
Stock..................................................... 412,800 -- --
Proceeds from the issuance of Series B redeemable
convertible Preferred Stock............................... 3,042,671 -- --
Proceeds from the issuance of Series C convertible Preferred
Stock..................................................... -- -- 5,244,824
Proceeds from the issuance of Series D convertible Preferred
Stock..................................................... -- -- 5,115,545
Proceeds from loans payable to related parties.............. 430,000 -- --
Proceeds from notes payable................................. 300,000 3,700,000 4,047,931
Repayments of loans payable to related parties.............. (585,300) -- --
Repayments of notes payable................................. (286,155) (3,775,917) (6,001,787)
----------- ------------ ------------
Net cash provided by (used in) financing activities......... 19,751,754 (60,536) 8,529,979
Net increase (decrease) in cash and cash equivalents........ 15,369,852 (12,768,540) (2,369,296)
Cash and cash equivalents at the beginning of the year...... 104,178 15,474,030 2,705,490
----------- ------------ ------------
Cash and cash equivalents at the end of the year............ $15,474,030 $ 2,705,490 $ 336,194
=========== ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................... $ 200,197 $ 125,000 $ 377,516
=========== ============ ============
</TABLE>

The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 74

UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND NATURE OF OPERATIONS

UOL Publishing, Inc. (the "Company") was incorporated in Virginia in 1984
and reincorporated in Delaware in 1985. The Company is a publisher of high
quality, interactive and on-demand courseware for the corporate training and
education market. Through certain of its subsidiaries, the Company also offers
courseware through more traditional media, including on-site and classroom
training, and diskette, CD-ROM and printed formats.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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

Use of Estimates

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

Cash Equivalents

Cash equivalents, which are stated at cost, consist of highly liquid
investments with original maturities of three months or less.

Capitalized Software Costs

During 1997 and 1998, the Company capitalized certain software development
costs. Capitalization of software costs began upon the establishment of
technological feasibility, which management deemed to have occurred upon the
completion of a working model of the Company's virtual campus product
("VCampus(TM)"). The establishment of technological feasibility and the ongoing
assessment of recoverability of capitalized software costs requires considerable
judgment by management with respect to certain external factors, including, but
not limited to, technological feasibility, anticipated future gross revenues,
estimated economic life and changes in software and hardware technology.
Amortization of such costs is based on the greater of (1) the ratio of current
gross revenues to the sum of current and anticipated gross revenues, or (2) the
straight-line method over the remaining economic life of the VCampus. During
1998, the Company changed its estimate of the economic life of the VCampus(TM)
from five years to three years. This change in estimate was not material to the
net loss or net loss per share recorded by the Company for 1998. As with
estimates of this nature, it is possible that estimates of future gross
revenues, the remaining economic life of the products or both may be revised
again as a result of future events. During 1998, the Company wrote off
approximately $280,000 of software development costs for courses within certain
industry segments that the Company does not anticipate pursuing in the
short-term. The write off has been included in product development costs in the
1998 statement of operations.

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UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Capitalized Courseware Development Costs

During 1997, the Company capitalized certain courseware development costs.
Capitalization of courseware development costs began upon the establishment of
technological feasibility, which management deemed to have occurred upon the
completion of a working model of the relevant courseware. The establishment of
technological feasibility and the ongoing assessment of recoverability of
capitalized courseware development costs requires considerable judgment by
management with respect to certain external factors, including, but not limited
to, technological feasibility, anticipated future gross revenues, estimated
economic life and changes in software and hardware technology. Amortization of
such costs is based on the greater of (1) the ratio of current gross revenues to
the sum of current and anticipated gross revenues, or (2) the straight-line
method over the remaining economic life of the product, typically two to three
years. It is possible that those estimates of future gross revenues, the
remaining economic life of the products or both may be reduced as a result of
future events. During 1998, the Company wrote off approximately $150,000 of
courseware development costs for courses within certain industry segments that
the Company does not anticipate pursuing in the short-term or courses that have
not shown meaningful activity. The write-off has been included in product
development costs in the 1998 statement of operations.

Acquired Online Publishing Rights

During 1997, the Company acquired online publishing rights to certain
courseware. Generally, the Company's acquisition of online publishing rights has
occurred in connection with non-monetary exchanges; see Note 2, "Non-Monetary
Transactions". At the time of licensing to the Company, this courseware was
generally established in CD-ROM, diskette or printed formats. The Company
capitalized the costs associated with acquiring this content and amortizes them
based on the greater of (1) the ratio of current gross revenues to the sum of
current and anticipated gross revenues, or (2) the straight-line method over the
remaining economic life of the product, typically two to three years.
Amortization begins when the course becomes available for sale online. It is
possible that those estimates of future gross revenues, the remaining economic
life of the products or both may be reduced as a result of future events. During
1998, the Company wrote off approximately $270,000 of acquired online publishing
rights to courses belonging to certain industry segments that the Company does
not anticipate pursuing in the short-term. The write-off has been included in
product development costs in the 1998 statement of operations.

Goodwill and Other Intangible Assets

Goodwill and other intangibles represent the unamortized excess of the cost
of acquiring subsidiary companies over the fair values of such companies' net
tangible assets at the dates of acquisition. Goodwill related to the Company's
acquisitions as described in Notes 6 and 7 are being amortized on a
straight-line basis over periods ranging from ten to twelve years. Other
intangibles, including contracts, content, trademarks, workforce, customer base
and others, are being amortized on a straight-line basis over periods ranging
from three to twelve years.

Impairment of Long-Lived Assets

At each balance sheet date, management determines whether any property and
equipment or any other assets have been impaired based on the criteria
established in Statement of Financial Accounting Standards ("SFAS") No. 121,
Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of. The Company made no adjustments to the carrying values of the
assets during the years ended December 31, 1996. During 1997, the Company wrote
off

F-8
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UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

approximately $250,000 of the workforce asset, which resulted from the Teletutor
acquisition (see Note 6). During 1998, the Company wrote off approximately
$280,000 in capitalized software development costs, $150,0000 in capitalized
courseware development costs and approximately $270,000 in acquired online
publishing rights. Also, during 1998, the Company wrote off approximately
$3,670,000 of goodwill recorded in connection with the acquisition of HTR, Inc.
("HTR") as a result of its decision to dispose of HTR's non online businesses as
described in Note 7.

Revenue Recognition

The Company derives its revenues from the following
sources -- instructor-led training revenues, product sales revenues, other
service revenues, online tuition revenues, virtual campus software revenues, and
development and other revenues.

Revenues for instructor-led training and other services are recognized as
the services are delivered.

The Company recognizes product sales revenues, online tuition revenues and
virtual campus software revenues in accordance with Statement of Position 97-2,
Software Revenue Recognition ("SOP 97-2"), as amended by Statement of Position
98-4, Deferral of the Effective Date of a Provision of SOP 97-2. The Company
recognizes revenues from product sales upon delivery of the product to the
customer, provided no significant obligations remain. The costs of remaining
Company obligations (which are insignificant) are accrued when the related
revenues are recognized. For online tuition fees, revenue is recognized at the
time the student has accessed the selected course and is contractually obligated
to pay for the course or the drop/add period (for academic partners) has
expired. For prepaid online tuition fees and VCampus(TM) software revenues, the
Company recognizes revenue ratably over the period during which customers are
entitled to use the courseware and the duration of the VCampus(TM) licenses,
respectively.

During 1996 and 1997, the Company recognized revenues from the sale of
prepaid online tuition fees and VCampus(TM) software systems at the time the
courses or systems were delivered to the customer or reseller, in accordance
with Statement of Position 91-1, Software Revenue Recognition.

Development and other revenues earned under courseware conversion contracts
are recognized using the percentage-of-completion method. For these contracts,
revenues are recognized based on the ratio that total costs incurred to date
bear to the total estimated costs of the contract. Provisions for losses on
contracts are made in the period in which they are determined.

In 1996, two customers individually represented 29% and 27% of net
revenues. In 1997 and 1998, no individual customer represented more than 10% of
net revenues.

Stock-Based Compensation

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based Compensation, ("SFAS No. 123"). SFAS No. 123
allows companies to account for stock-based compensation either under the new
provisions of SFAS No. 123 or under the provisions of Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, ("APB No. 25"),
but requires pro forma disclosures in the footnotes to the consolidated
financial statements as if the measurement provisions of SFAS No. 123 had been
adopted. The Company accounts for its stock-based compensation in accordance
with the intrinsic value method of APB No. 25. As such, the

F-9
<PAGE> 77
UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

adoption of SFAS No. 123 did not impact the Company's consolidated financial
condition or results of operations.

Concentration of Credit Risk

The Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. The Company maintains
reserves for credit losses, and such losses have been within management's
expectations. During 1998, the Company increased its allowance for doubtful
accounts to approximately $2,030,000 in order to reserve for certain receivables
for which collection had become doubtful. The Company subsequently wrote off
approximately $1,460,000 of the amount reserved. As such, the allowance for
doubtful accounts totaled approximately $570,000 as of December 31, 1998.

Non-Monetary Transactions

During 1997, the Company entered into several transactions with third
parties whereby the third party exchanged a non-monetary asset (such as the
online publishing rights with respect to certain courseware content) as payment
(or partial payment) for the purchase of a VCampus(TM) software product as well
as courseware development services.

Royalties

The Company has a royalty arrangement with an entity that has provided
product development funding, which royalties become due and payable by the
Company upon the completion and sale of these products.

Royalties are also due and payable by the Company upon the sale of certain
courses for which the Company has acquired the online publishing rights. In
addition, the Company may be obligated to pay certain royalties related to
courses which a VCampus(TM) customer may have converted to an online format and
elected to distribute to all the Company's VCampus(TM)customers. Royalties
accrue at a rate of 15% to 60% of the tuition fees related to certain courses.

Royalties are classified as a cost of revenues and amounted to
approximately $315,000 and $368,000 during the year ended December 31, 1997 and
1998, respectively, the only years in which royalty costs were incurred.

Advertising Costs

The Company expenses advertising costs as incurred. Advertising costs
amounted to approximately $64,000, $149,000 and $153,000 for the years ended
December 31, 1996, 1997, and 1998 respectively.

Income Taxes

The Company provides for income taxes in accordance with the liability
method.

Net Loss Per Share

In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share ("SFAS No. 128").
SFAS No. 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants

F-10
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UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

and convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All net loss per share
amounts for all periods have been presented, and where appropriate, restated to
conform to the SFAS No. 128 requirements.

Comprehensive Income

Effective January 1, 1998, the company adopted SFAS No. 130, Reporting of
Comprehensive Income ("SFAS No. 130"). SFAS No. 130 establishes standards for
the display of comprehensive income and its components in a full set of
financial statements. Comprehensive income includes all changes in equity during
a period except those resulting from the issuance of shares or stock and
distributions to shareholders. There were no differences between net loss and
comprehensive loss.

Segment Information

In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information ("SFAS No.
131"). SFAS No. 131 changes the way public companies report segment information
in annual financial reports to stockholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. Management believes the Company's operations compromise only one
segment and as such adoption of SFAS No. 131 has not impacted the disclosures
made in the Company's financial statements.

Supplemental Information of Non-Cash Investing and Financing Activities

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
Fair value of assets acquired & acquired in-process
research & development................................. $27,232,695
Less: Cash paid.......................................... 3,393,390
Notes payable issued..................................... 2,308,590
Stock issued............................................. 13,184,870
-----------
Liabilities assumed...................................... $ 8,345,845
===========
</TABLE>

Recent Pronouncements

In March, 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants ("AcSEC") issued AICPA
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1 is effective for
fiscal years beginning after December 15, 1998. SOP 98-1 requires the
capitalization of certain costs incurred in connection with developing or
obtaining software for internal use. The adoption of SOP 98-1 is not expected to
have a material impact on the Company's financial statements.

In April 1998, AcSEC issued AICPA Statement of Position 98-5, Reporting on
the Costs of Start Up Activities ("SOP 98-5"). SOP 98-5 is effective for fiscal
years beginning after December 15, 1998. SOP 98-5 requires certain start-up and
organizational costs to be expensed as incurred. The adoption of SOP 98-5 is not
expected to have a material impact on the Company's financial statements.

F-11
<PAGE> 79
UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In December 1998, AcSEC issued AIPCA Statement of Position 98-9,
Modification of SOP 97-2, "Software Revenue Recognition" With Respect to Certain
Transactions ("SOP 98-9"). SOP 98-9 amends certain provisions of SOP 97-2 to
require revenue recognition using the "residual method" when there is
Vendor-Specific Objective Evidence ("VSOE") of the fair value of all undelivered
elements in a multiple-element arrangement, but VSOE does not exist for one or
more individual elements. These provisions of SOP 98-9 are effective for
transactions entered into in fiscal years beginning after March 15, 1999. SOP
98-9 also extends the deferral of the application of certain provisions of SOP
97-2 provided by SOP 98-9 through fiscal years beginning on or before March 15,
1999. The adoption of SOP 98-9 is not expected to have a material impact on the
Company's financial statements.

3. PROPERTY AND EQUIPMENT

Property and equipment, including leasehold improvements, are stated at
cost. Depreciation is calculated using the straight-line method over an
estimated useful life of three to seven years. Leasehold improvements are
amortized over the lesser of the related lease term or the useful life. Property
and equipment consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1998
---------- -----------
<S> <C> <C>
Equipment....................................... $2,284,640 $ 2,634,111
Computer software............................... 787,588 1,068,049
Leasehold improvements.......................... 64,682 88,357
Furniture and fixtures.......................... 388,932 396,708
---------- -----------
3,525,842 4,187,225
Less accumulated depreciation................... (716,223) (1,750,691)
---------- -----------
Total........................................... $2,809,619 $ 2,436,534
========== ===========
</TABLE>

4. CAPITALIZED SOFTWARE AND COURSEWARE DEVELOPMENT COSTS

Capitalized software and courseware development costs consisted of the
following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Capitalized software costs....................... $1,617,584 $2,195,160
Capitalized courseware development costs......... 865,768 806,425
---------- ----------
2,483,352 3,001,585
Less accumulated amortization.................... (129,193) (870,920)
---------- ----------
Total............................................ $2,354,159 $2,130,665
========== ==========
</TABLE>

During 1998, the Company wrote off approximately $280,000 of software
development costs and $150,000 of courseware development costs (see Note 2).

F-12
<PAGE> 80
UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. ACQUIRED ONLINE PUBLISHING RIGHTS

Acquired online rights consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
Acquired online publishing rights................... $855,000 $505,000
Less accumulated amortization....................... (10,000) (97,448)
-------- --------
Total............................................... $845,000 $407,552
======== ========
</TABLE>

In 1997, the Company acquired approximately $795,000 of the acquired online
publishing rights through non-monetary transactions (See Note 2).

During 1998, the Company wrote off approximately $270,000 of acquired
online publishing rights (see Note 2).

6. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets were comprised of:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
Goodwill....................................... $ 9,057,863 $ 3,234,499
Contracts...................................... 200,000 200,000
Developed content.............................. 1,529,574 1,369,836
Work force..................................... 500,000 407,080
Trademarks and names........................... 1,056,875 969,444
Customer base.................................. 456,875 369,444
Other.......................................... 100,000 100,000
----------- -----------
12,901,187 6,650,303
Less accumulated amortization.................. (536,633) (1,301,179)
----------- -----------
$12,364,554 $ 5,349,124
=========== ===========
</TABLE>

In December 1997, the Company's management, in accordance with its
impairment policy for long-lived assets, determined that the Teletutor employee
workforce asset had been impaired as of December 31, 1997 due to planned
workforce reductions, and as such, wrote off approximately $250,000 of the
carrying amount of the asset. This amount is included in reorganization and non-
recurring expenses in the 1997 statement of operations. In 1998, as a result of
the sale of Ivy Software, Inc. ("Ivy"), the Company wrote off approximately
$775,000 which was the remaining net unamortized goodwill balance that had
resulted from the acquisition of Ivy . In addition, during 1998, goodwill that
had resulted from the acquisition of Teletutor was reduced to zero and the
remaining intangible assets were reduced ratably by approximately $329,000 due
to purchase price adjustments. In December 1998, upon the sale of its consulting
line of business, the Company wrote off approximately $1,238,000 in goodwill and
workforce assets. In addition, in accordance with its impairment policy for
long-lived assets, the Company determined that goodwill that resulted from the
HTR acquisition which related to HTR's non-online businesses had been impaired
as of December 31, 1998. As a result, the Company wrote off approximately
$3,670,000 of goodwill (see Note 7).

F-13
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UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. ACQUISITIONS AND DISPOSITIONS

During the three years ended December 31, 1998, the Company made the
following acquisitions, all of which were accounted for using the purchase
method. Accordingly, the purchase price of each company acquired was allocated
first to the fair market value of the acquired tangible and identifiable
intangible assets.

Cognitive Training Associates, Inc.

On August 1, 1996, the Company acquired by merger substantially all of the
assets and liabilities (with the exception of the building, vehicle, certain
equipment, and certain notes payable) of Cognitive Training Associates, Inc., a
Texas corporation ("CTA"), for 42,487 shares of the Company's Common Stock. In
conjunction with the acquisition, the Company recorded goodwill in the amount of
$505,336, which was subsequently adjusted to $579,312 in 1997, and other
intangible assets in the amount of $200,000.

The Company also issued fully vested options to purchase 5,096 shares of
the Company's Common Stock, at an exercise price of $0.12 per share, to four
employees of CTA. Additionally, the Company granted an option to purchase 16,995
shares of the Company's Common Stock, at an exercise price of $21.18 per share,
to the former stockholder of CTA in conjunction with a two-year employment
agreement. In December 1996, management repriced the option to $12.75 per share.
Management believes that this new grant price approximated the fair market value
on the date of repricing. The option vested over a two-year period beginning in
August 1996. Additionally, pursuant to the employment agreement, the former
stockholder of CTA was paid $150,000 by the Company upon successful integration
of CTA into the Company. The Company expensed this $150,000 during 1996. The
Company also agreed to lease the building owned by the former stockholder of CTA
for $5,000 per month or $60,000 annually (see Note 11).

Ivy Software, Inc.

In March 1997, the Company acquired Ivy Software, Inc. ("Ivy"), a Virginia
corporation that develops and distributes business and accounting software for
the academic education market, for $314,000 in cash and potential future
payments not to exceed approximately $862,000, which were based upon integration
of operations, conversion of software and operating results. In connection with
this transaction, the President and sole shareholder of Ivy entered into a
three-year consulting agreement with the Company. As a result of this
acquisition, the Company recorded goodwill in the amount of $300,000, which was
subsequently adjusted to $869,643 upon scheduled payments to the former
shareholder of Ivy. In September 1998, the Company sold Ivy for approximately
$250,000 in cash and $196,000 in a note receivable. The note bears interest at
6% and is payable in quarterly installments through September 2005. The Company
retained the rights to sell and distribute the online versions of Ivy software.
As a result of the sale, the Company wrote off the unamortized goodwill balance
and recorded a loss on the sale of subsidiary of $381,954. The Company's
potential future obligations of approximately $300,000 related to the
acquisition were terminated upon the sale. The operating results of Ivy are
included in the Company's financial statements from the effective date of the
acquisition through the effective date of the sale.

Cooper & Associates, Inc. (d/b/a. Teletutor)

In April 1997, the Company acquired Cooper & Associates, Inc., d/b/a
Teletutor ("Teletutor"), an Illinois corporation that develops, distributes and
supports computer-based training courses for the

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UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

data and telecommunications industry. The terms of the transaction included a
$3,000,000 cash payment at closing and a $2,000,000 non-interest bearing note to
be paid ratably on the first, second and third anniversary dates of the
acquisition. The operating results of Teletutor are included in the Company's
financial statements since the effective date of the acquisition. In conjunction
with this acquisition, the Company allocated the excess of the purchase price
over the fair market value of the acquired net assets as follows: (i) $829,575
to developed content, $273,858 to work force, $456,875 to trademarks and names,
$456,875 to customer base and contracts and $5,138 to goodwill and (ii)
$2,700,000 to acquired in-process research, development and content.

In December 1997, the Company's management, in accordance with its
impairment policy for long-lived assets, determined that the employee workforce
asset had been impaired as of December 31, 1997 due to planned workforce
reductions, and wrote off approximately $250,000 of the carrying amount of the
asset. This amount was included in reorganization and non-recurring expenses in
the statement of operations for the year ended December 31, 1997. In addition,
during 1998, goodwill was reduced to zero and the remaining intangible assets
were reduced ratably by approximately $329,000 due to purchase price
adjustments.

HTR, Inc.

In October 1997, the Company acquired HTR, Inc. ("HTR"), a Delaware
corporation primarily engaged in the business of providing technical training,
publishing and consulting services for the information technology industry. UOL
acquired HTR for common stock, warrants and options totaling 620,000 shares in
exchange for all of the outstanding equity securities of HTR. In addition, UOL
paid the former HTR stockholders $600,000 in a combination of cash and
short-term notes and assumed approximately $3,500,000 of HTR debt. The executive
officers of HTR were to receive bonuses in the total amount of $690,000 granted
in conjunction with the signing of three-year employment agreements no later
than December 31, 1998. In addition, the Company created a stock option pool of
180,000 shares of Common Stock and an incentive bonus pool with a potential
payout not to exceed approximately $3,300,000 for three years, contingent upon
the financial performance of HTR. In conjunction with this acquisition, the
Company allocated the excess of the purchase price over the fair market value of
the acquired net assets as follows (i) $8,010,590 to goodwill, $700,000 to
developed content, $500,000 to workforce, $600,000 to trademarks and names, and
(ii) $8,400,000 to acquired in-process research, development and content. On
June 29, 1998, the executive officers of HTR agreed to convert approximately
$420,000 of their sign-on bonuses and $320,000 of acquisition related
indebtedness into 134,447 shares of the Company's Series D convertible Preferred
Stock (see Note 13).

In December 1998, the Company sold HTR's consulting business for $750,000
in cash and a note receivable. The note bears interest at 5% and is payable in
quarterly installments through December 2000. As a result of the sale, the
Company wrote off the intangible assets related to the consulting business and
recorded a loss on the sale of $525,472.

In December 1998, the Company announced its intention to dispose of HTR's
non-online businesses. In accordance with SFAS 121, the Company has reported
assets related to such businesses at the lower of carrying amount or fair value
less estimated selling costs. This resulted in a write off of approximately
$3,670,000 of goodwill related to the non-online businesses.

F-15
<PAGE> 83
UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. RESTRUCTURING OF OPERATIONS

During 1998, the Company implemented a plan to reduce workforce and close
certain office facilities. The plan resulted in (i) the termination of
approximately 85 employees primarily from the product development and
administrative areas and (ii) closure of the Company's training facilities
located in Los Angeles and Baltimore and an executive office in McLean,
Virginia. As a result, the Company recorded a restructuring charge of
approximately $1,770,000 in 1998 included in reorganization and other
non-recurring charges in the 1998 statement of operations. The restructuring
charge included approximately $ 1,494,000 for employee severance and termination
costs and approximately $276,000 primarily for expenses related to facilities
lease cancellations and write-down of assets no longer in use. During 1998, the
Company paid approximately $1,224,000 in costs under the restructuring accrual.
Included in accounts payable and accrued expenses at December 31, 1998 is
approximately $546,000 primarily representing future severance payments. The
Company expects these actions to be completed by the end of calendar year 1999.

9. LOANS PAYABLE TO (RECEIVABLE FROM) RELATED PARTIES

In March 1996, the Company issued a convertible promissory note for
$300,000 to an entity controlled by a stockholder. The note bore interest at
10.5% per annum. In connection with an agreement executed by the Company and the
stockholder in September 1996, the stockholder exercised warrants to purchase
67,980 shares of Common Stock, resulting in proceeds to the Company of
approximately $600,000 and the Company repaid the balance of the $300,000
convertible note payable plus accrued interest of $23,560 to the entity
controlled by the stockholder. Additionally, the Company issued to the
stockholder warrants to purchase 15,687 shares of Common Stock at an exercise
price equal to the initial public offering ("IPO") price of $13.00 per share.

In May 1996, the Company issued a convertible subordinated unsecured
promissory note for $130,000 to an officer of the Company. The note bore
interest at a rate of 10% per annum. In addition, the officer was issued
warrants to purchase 6,904 shares of the Company's Common Stock at an exercise
price of $18.83 per share. These warrants are exercisable for eight years. The
Company believes that any value associated with the warrants is immaterial. In
December 1996, the officer converted his outstanding note payable balance plus
accrued interest of $136,696 to 14,988 shares of Common Stock. In addition, the
number of shares of Common Stock underlying such officer's warrant, was
increased by 7,349 shares and the exercise price thereof reduced to $9.12 per
share, pursuant to certain anti-dilution rights previously granted. In 1998, the
number of shares underlying the warrant and the warrant exercise prices were
further adjusted to 15,771 shares and $8.24 per share, respectively, due to the
anti-dilution provisions pursuant to the agreement.

Loans receivable from the Company's officers and employees amounted to
$125,000 as of December 31, 1997 and 1998. The Company accrues interest on the
loans receivable at a rate of prime less 1%. Interest income related to loans
receivable amounted to $10,152, $8,516 and $10,000 during the years ended
December 31, 1996, 1997 and 1998, respectively.

10. NOTES PAYABLE

At December 31, 1995, the Company owed $293,366 in a non-interest bearing
note payable. The note was discounted at a rate of 12% per annum. As of December
31, 1995, accrued interest on note payable totaled $106,217. During 1996, the
Company repaid $299,583 as settlement of the note and accrued interest. The
remaining $100,000 was forgiven pursuant to a settlement agreement executed

F-16
<PAGE> 84
UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

by the Company and the issuer of the note. The Company included the gain of
$100,000 as other income in the statements of operations.

In June 1996, the Company borrowed $300,000 from an investor in exchange
for a convertible promissory note. The note bore interest at a rate of 10% per
annum, and any unpaid principal and interest was convertible into shares of the
Company's Series B redeemable convertible Preferred Stock at a conversion rate
of $18.83 per share, subject to adjustments for certain events, such as the sale
of the Company's Common or Preferred Stock at a price less than the conversion
price. In July 1996, principal and accrued interest were converted into shares
of Series B redeemable convertible Preferred Stock (see Note 13).

In connection with the Teletutor acquisition (see Note 7), the Company
entered into a non-interest bearing promissory note with the stockholders of
Teletutor whereby the Company agreed to pay $2,000,000 due in three annual
installments of $666,667 beginning on May 1, 1998. The Company has used a 5.5%
discount rate in recording this note. During 1998, the Company paid $666,667 in
cash on the note balance. In December 1998, the Company and the former
stockholders of Teletutor restructured the terms of the note as follows: the
Company issued 105,000 shares of Common Stock and three-year warrants to
purchase 55,000 shares of its Common Stock at an exercise price of $6.00 per
share; and the Company executed a new non-interest bearing promissory note for
$826,666, payable in installments through April 2000. As a result, the Company
recorded $145,208 as loss on debt restructuring for the excess of the fair
market value of the Common Stock, warrants and new promissory note over the
carrying amount of the original promissory note. The loss on debt restructuring
is included in reorganization and non-recurring expenses in the 1998 statement
of operations.

In connection with the HTR acquisition, the Company assumed approximately
$3,633,000 of notes payable and accrued interest. In December 1997, the Company
repaid the principal and accrued interest on the notes payable. The Company also
issued notes payable to former stockholders of HTR totaling $509,968 and bearing
simple interest at an annual rate of 6%. The principal amounts of these notes
were due in two annual installments payable on October 31, 1998 and October 31,
1999. During 1998, the Company repaid approximately $100,000 and converted
approximately $352,000 into 9,191 and 58,194 of the Company's Common and Series
D convertible Preferred Stock, respectively (see Note 13).

In December 1997, the Company and its then existing bank lender entered
into a secured lending facility agreement, which provided for a line of credit
in the amount of $3,000,000 bearing interest at the LIBOR Market Index Rate plus
275 basis points. Interest was payable monthly with the principal originally due
on April 30, 1999. Also in December 1997, the Company and its bank entered into
a secured lending facility agreement which provided for a term loan in the
amount of $3,000,000 bearing interest at the LIBOR Market Index Rate plus 350
basis points. Interest was payable monthly with the principal originally due on
April 1, 1999. As of December 31, 1997, the Company was in violation with
certain of its covenants related to this line of credit facility and during
August 1998, the Company repaid approximately $5,000,000 under the line of
credit and term loan, satisfying all of its obligations to that lender.

In August 1998, the Company obtained a secured lending facility through a
new lending institution that provided up to $2,000,000 in a revolving line of
credit ("Line of Credit")and a $500,000 senior term loan ("Senior Term Loan").
Under the terms of the agreement, the Company may borrow the lesser of (i)
$2,000,000 or (ii) a percentage of its accounts receivable in accordance with an
agreed upon schedule. The Line of Credit bears interest at the bank prime rate
plus 2.00%,

F-17
<PAGE> 85
UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

while the interest rate for the Senior Term Loan is at the bank prime rate plus
2.50%. Borrowings under the Line of Credit originally matured on February 15,
1999 while the Senior Term Loan was set to mature on July 15, 2001. As of
December 31, 1998 the Company had borrowed $1,547,931 against the Line of Credit
and $500,000 under the Senior Term Loan. The proceeds were used primarily to
satisfy the Company's obligations to its prior lending institution. In addition,
in August 1998, the Company obtained a secured term loan for $500,000 with
another lending institution, that is subordinated to the $2,500,000 facility
described above (the "Subordinated Term Loan"). Amounts borrowed under this
Subordinated Term Loan bear interest at 12% annually and were due on February
15, 1999. In connection with these transactions, the Company issued warrants for
the purchase of an aggregate of 90,000 shares of Series D Preferred Stock at an
aggregate exercise price of $495,000.

As of December 31, 1998, the Company was in violation of certain covenants
related to these secured lending facilities. In February 1999, the Company
repaid the $500,000 Senior Term Loan to its primary lender in exchange for which
the maturity date of the Line of Credit was extended (effective March 22, 1999)
to April 15, 1999. In addition, the interest rate for the Line of Credit was
increased to the bank prime rate plus 3.00%. The Company is also negotiating to
extend the maturity date for the Subordinated Term Loan to May 15, 1999. In
exchange for these extensions, the Company will issue warrants to its lenders
for the purchase of up to 95,000 additional shares of Series D Preferred and/or
common stock at an aggregate price of up to $387,500.

Notes payable at December 31, 1998 consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Line of credit to a bank......................... $ 500,000 $1,547,931
Notes payable to banks........................... 3,000,000 985,000
Notes payable to former stockholders of
Teletutor...................................... 1,864,752 769,346
Notes payable to former stockholders of HTR...... 509,968 60,078
Other............................................ 208,351 50,019
---------- ----------
$6,083,071 $3,412,374
---------- ----------
Current portion of notes payable................. $4,551,950 $3,075,139
---------- ----------
Notes payable, less current portion.............. $1,531,121 $ 337,235
========== ==========
</TABLE>

Annual maturities of notes payable at December 31, 1998 were as follows:

11. COMMITMENTS

Network Services Agreement

During 1993, the Company entered into a three-year agreement with
CompuServe, Inc. ("CompuServe") whereby CompuServe was to provide network
services to the Company. The Company ceased making payments under the agreement
in 1993 due to dissatisfaction with the services provided by CompuServe.

F-18
<PAGE> 86
UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

As a result, CompuServe asserted that the Company was liable for unpaid
fees and lost profits totaling $300,000 due to breach of contract. In October
1994, the Company reached a conditional settlement with CompuServe whereby the
Company was required to purchase approximately $98,000 of advertising services
from CompuServe. During 1996, the Company fully satisfied its commitment to
purchase such advertising services from CompuServe. In 1996, the Company
recognized a gain of $119,274 relating to the settlement of amounts owed by the
Company to CompuServe, which was included in other income in the 1996 statement
of operations.

Leases

The Company leases office space under non-cancelable operating lease
agreements with various renewal options. Future minimum lease payments may be
periodically adjusted based on changes in the lessors' operating charges.
Additionally, the Company leases various office equipment under non-cancelable
operating leases. Rent expense for the years ended December 31, 1996, 1997 and
1998 was $137,519, $437,756 and $1,022,693, respectively.

As of December 31, 1998, payments due under non-cancelable operating leases
were as follows:

Employment Agreements

During 1996 and 1997, the Company entered into employment agreements with
certain key executives under which the Company is required to pay the following
base salaries annually over the next three years:

In addition, the Company is required to pay certain performance incentives
limited to 50% of such base salaries.

F-19
<PAGE> 87
UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Accounts payable and accrued expenses............ $5,435,498 $3,690,090
Accrued payroll and payroll taxes................ 602,323 164,957
Accrued reorganization costs..................... -- 545,669
Accrued vacation................................. 360,667 216,702
---------- ----------
$6,398,488 $4,617,418
========== ==========
</TABLE>

In 1996, the Company accrued interest on the accrued payroll in arrears to
the Chief Executive Officer and three other officers of the Company at a rate of
5% per annum. Interest expense related to the accrued payroll in arrears
amounted to $36,182 during the year ended December 31, 1996. Accrued payroll as
of December 31, 1998 consists of earned but unpaid commissions.

In 1998, the Company implemented a reorganization plan to reduce workforce
and close certain office facilities (see Note 8). Amounts accrued at December
31, 1998 primarily represent payments to be made under employee severance
agreements.

13. STOCKHOLDERS' EQUITY

Equity Transactions

During 1996, the Company issued 5,097 shares of Common Stock as payment for
certain accounts payable amounting to $42,000. The shares were issued at a price
per share of $8.83. The non-cash portion of this transaction has been excluded
from the statements of cash flows. In addition, the Company issued 42,487 shares
of Common Stock in connection with the purchase of CTA, which the Company valued
at the estimated fair market value of the Company's Common Stock on the
acquisition date (see Note 7).

During 1996, the Company issued an aggregate of 20,534 shares of Series A
convertible Preferred Stock for net proceeds of approximately $413,000 at a
price of $21.18 per share. Additionally, the Company issued 1,091 shares of
Series A convertible Preferred Stock to holders of the Series A convertible
Preferred Stock to satisfy contractual anti-dilution provisions pursuant to
certain 1996 stock transactions.

On July 19, 1996, the Company issued 185,877 shares of Series B redeemable
convertible Preferred Stock for total proceeds of $3,500,000, including
conversion of a $300,000 convertible promissory note (see Note 10).

During 1996, the Board of Directors approved a 1-for-11.76812037 reverse
stock split of the Company's $0.01 par value Series A, Series B and Series B-1
Preferred Stock and Common Stock, which became effective on November 20, 1996.
All references in the accompanying financial statements to the number of shares
of Preferred Stock and Common Stock and per share amounts have been restated to
reflect the split.

On December 2, 1996, the Company sold 1,430,000 shares of Common Stock in
its IPO for net proceeds of approximately $15,800,000. Simultaneously with the
IPO, the Company converted all outstanding shares of Series B redeemable
convertible Preferred Stock into shares of Common Stock on a 1-for-2.06 basis.
The Company also declared accrued dividends in arrears of 4,852 shares of

F-20
<PAGE> 88
UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Series B redeemable convertible Preferred Stock to holders of Series B
redeemable convertible Preferred Stock, which were then converted to Common
Stock on a 1-for-2.06 basis. The Company also converted all outstanding shares
of Series A convertible Preferred Stock into shares of Common Stock on a
one-for-one basis, and the Company declared accrued dividends in arrears of
45,628 shares of Series A convertible Preferred Stock to holders of Series A
convertible Preferred Stock, which were then converted to Common Stock on the
same basis as the Series A conversion. The conversion of Preferred Stock to
Common Stock is a non-cash transaction and accordingly, has been excluded from
the statements of cash flows. Also, one of the Company's stockholders exercised
warrants to purchase 67,980 shares of Common Stock and the Company subsequently
repaid the $300,000 convertible note payable balance with the proceeds
therefrom. Also, an officer of the Company converted his $130,000 note payable
into 14,988 shares of Common Stock.

On October 31, 1997, the Company issued 585,940 shares of Common Stock in
connection with the purchase of HTR (see Note 7). In addition, the Company
issued 34,020 of options and warrants in connection with the HTR acquisition,
which options and warrants were valued at fair value ($591,118) using the
Black-Scholes pricing model and were accounted for as purchase price.

In March 1998, the Company raised net proceeds of approximately $5,300,000
in a private placement of Series C Preferred Stock and warrants (the "Series C
Preferred Stock"). In this transaction, the Company issued approximately 626,300
shares of the Series C Preferred Stock, which are convertible into approximately
759,100 shares of Common Stock. The Company also issued five-year warrants to
purchase approximately 626,300 shares of Common Stock at an exercise price of
$8.46 per share. The Series C Preferred Stock has a liquidation preference of
$12.69 per share upon sale or liquidation of the Company. The Common Stock
underlying both the Preferred Stock and the warrants has certain registration
rights. The Company has recorded a deemed dividend of approximately $207,000 due
to the Series C Preferred Stock being convertible to Common Stock at a discount
from fair value on the date of issuance.

In June 1998, the Company raised approximately $5,200,000 in net proceeds
through its private placement of Series D Preferred Stock (the "Series D
Preferred Stock"). In this transaction, the Company issued 1,082,625 shares of
the Series D Preferred Stock, which are convertible to an equal number of common
shares. The holders of Series D Preferred Stock are entitled to receive a 5%
annual dividend compounded and paid semi-annually beginning December 31, 1998.
Such dividends are payable, at the option of the Company, either in cash or in
Common Stock. The Series D Preferred Stock has a liquidation preference of $8.25
per share upon sale or liquidation of the Company. In June and September 1998,
respectively, 137,174 of Series D shares and 17,569 shares of the Company's
Common Stock were issued in connection with the conversion of approximately
$867,000 of indebtedness primarily to certain former shareholders of HTR. The
non-cash portion of this transaction has been excluded from the 1998
consolidated statement of cash flows.

In October 1998, the Company issued 9,191 shares of Common Stock at $3.75
per share, the closing price of the Company's Common Stock on the date of
issuance, to two former HTR shareholders in exchange for cancellation of the
Company's indebtedness to such shareholders.

In December 1998, the Company issued 6,279 shares at $7.06 per share though
an employee stock purchase program. For each share purchased, employees also
received a fully vested option to purchase one share of the Company's Common
Stock at an exercise price of $7.06, the closing price of the Common Stock at
the date of issuance.

F-21
<PAGE> 89
UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In December 1998, the Company issued 105,000 shares at $5.875 per share,
the closing price of the Company's Common Stock on the date of issuance,
primarily to former Teletutor shareholders pursuant to a restructuring of the
Company's indebtedness to such shareholders. Pursuant to that restructuring, the
Company also issued three-year warrants to purchase 55,000 shares of its Common
Stock with an exercise price of $6.00 per share.

In December 1998, the Company also issued 28,902 shares of Common Stock to
its Series D Preferred Stockholders as payment for accrued dividends. The number
of shares to be issued as payment of the dividend was determined based on the
fair market value of the Company's Common Stock on the date of issuance.

Stock Option Plans

The Company adopted a stock option plan (the "Original Plan") which
permitted the Company to grant options to purchase up to 288,916 shares of
Common Stock to employees, board members and others who contribute materially to
the success of the Company. In November 1996, the Company's Board of Directors
decided not to grant any further options under the Original Plan.

During 1996, the Company's Board of Directors approved a new stock plan
(the "1996 Plan"), which reserved 135,960 shares of Common Stock for issuance,
pursuant to options or otherwise, to employees, directors and consultants. The
number of shares reserved was subsequently increased to 524,893 options. During
1997, the Company's Board of Directors approved an additional increase of
1,000,000 shares, which was approved by the stockholders at the annual
stockholder meeting in 1998. Stock options under the Original Plan and 1996 Plan
are generally granted at prices which the Company's Board of Directors believes
approximates the fair market value of its Common Stock at the date of grant.
Individual grants generally become exercisable ratably over a period of four to
five years from the date of grant. The contractual terms of the options range
from three to ten years from the date of grant.

During 1996, the Company's Board of Directors extended the exercise period
of 88,032 fully vested options to August 31, 1999. This extension of the
exercise period created a new measurement date for these options. As such, the
Company recognized compensation expense of $877,782 during 1996 for the
difference between the deemed fair value of the Company's Common Stock on the
new measurement date and the grant price of such options. Additionally, the
Company recognized an expense of $144,270 during 1996 for options whose grant
price at the grant date was below fair market value. During 1997, the Company
granted certain options contingent on stockholder approval. Because these
options are considered variable, the Company measured the difference between the
grant price and fair market value of the Company's Common Stock at December 31,
1997 and accordingly recorded compensation expense of $75,000.

F-22
<PAGE> 90
UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Common stock option activity was as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1996 1997 1998
------------------ -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at the beginning of the
year............................. 100,438 $ 2.71 595,233 $10.23 1,236,481 $11.69
Granted.......................... 515,189 11.50 766,460 12.64 1,096,877 9.08
Exercised........................ -- -- (12,604) 1.29 (33,265) 3.25
Canceled or expired.............. (20,394) 5.30 (112,608) 11.61 (844,047) 12.61
------- ------ --------- ------ --------- ------
Outstanding at the end of the
year............................. 595,233 $10.23 1,236,481 11.69 1,456,046 10.62
======= ====== ========= ====== ========= ======
Options exercisable at year-end.... 185,408 $ 7.05 303,638 $ 8.76 364,824 $ 9.79
======= ====== ========= ====== ========= ======
</TABLE>

As of December 31, 1998, 218,833 shares were available for issuance under
the 1996 Plan.

The following table summarizes information about fixed-price stock options
outstanding at December 31, 1998:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- --------------------------
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1998 LIFE PRICE 1998 PRICE
--------------- -------------- ----------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Less than $1.00...... 26,001 0.9 $ 0.86 26,001 $ 0.86
$1.01 - $3.00........ 29,090 5.5 1.81 29,090 1.81
$3.01 - $6.00........ 202,944 8.9 4.67 23,694 4.95
$6.01 - $9.00........ 398,363 7.6 7.56 122,999 8.60
$9.01 - $12.00....... 244,325 9.3 10.17 50,500 11.38
$12.01 - $15.00...... 376,198 8.8 13.07 81,740 12.99
$15.01 - $18.00...... 14,825 8.7 16.90 3,800 16.87
Greater than
$18.00............. 164,300 8.8 23.00 27,000 23.00
--------- --- ------ ------- ------
1,456,046 8.4 $10.62 364,824 $ 9.79
========= === ====== ======= ======
</TABLE>

Had compensation expense related to the stock option plans been determined
based on the fair value at the grant date for options granted during the years
ended December 31, 1996, 1997 and 1998 consistent with the provisions of SFAS
No. 123, the Company's net loss and net loss per share would have been as
follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
Net loss -- pro-forma............ $(4,617,938) $(17,885,671) $(22,672,194)
----------- ------------ ------------
Net loss per share --pro-forma... $ (3.86) $ (5.44) $ ($5.92)
=========== ============ ============
</TABLE>

The effect of applying SFAS No. 123 on the years ended December 31, 1996,
1997, and 1998 pro forma net loss as stated above is not necessarily
representative of the effects on reported net loss for future years due to,
among other things, the vesting period of the stock options and the fair value
of additional stock options in future years.

F-23
<PAGE> 91
UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing fair value model with the following
weighted-average assumptions used for grants in 1996: dividend yield of 0%;
expected volatility of 43%; risk-free interest rate of 6.125%; and expected life
of the option term of 3.5 years. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing fair value
model with the following weighted-average assumptions used for grants in 1997:
dividend yield of 0%; expected volatility of 69%; risk-free interest rate of
6.5%; and expected life of the option term of 7 years. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes option
pricing fair value model with the following weighted average assumptions used
for grants in 1998: dividend yield of 0%; expected volatility of 100%; risk free
interest rate of 5.0%; and expected life of the option term of 7 years. The
weighted average fair value of the options granted in 1995 with a stock price
greater than the exercise price is $5.37. The weighted average fair values of
the options granted in 1996 with a stock price equal to the exercise price and
with a stock price greater than the exercise price are $4.65 and $12.42,
respectively. The weighted average fair values of the options granted in 1997
with a stock price equal to the exercise price, and with a stock price greater
than the exercise price, and with a stock price less than the exercise price are
$9.85, $10.81 and $11.57, respectively. The weighted average fair values of the
options granted in 1998 with a stock price equal to the exercise price, and with
a stock price greater than the exercise price, and with a stock price less than
the exercise price are $6.07, $7.98 and $6.27, respectively.

Warrants

The Company has also granted warrants to purchase Common Stock to various
investors, employees and outside vendors. Warrant activity was as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- ---------
<S> <C> <C> <C>
Outstanding at the beginning of the year.... 500,484 476,367 535,368
Granted................................... 43,863 60,199 862,294
Exercised................................. (67,980) (1,198) (42,150)
Canceled or expired....................... -- -- --
------- ------- ---------
Outstanding at the end of the year.......... 476,367 535,368 1,355,512
======= ======= =========
</TABLE>

Exercise prices on the outstanding warrants range from $2.94 to $20.50 per
share.

Of the total warrants outstanding at December 31, 1998, warrants to
purchase 1,000,360 shares of Common Stock were issued in connection with equity
transactions and a research and development agreement and warrants to purchase
355,152 Common Stock were issued in connection with convertible related party
debt and short-term debt. There are certain anti-dilution rights associated with
these warrants, which are effective upon the occurrence of certain events.

In connection with the Company's IPO, the exercise prices of warrants to
purchase 35,167 shares of Common Stock were reduced from $17.65 or $18.83 per
share to the IPO price, $13.00 per share, to satisfy certain anti-dilution
rights previously granted. The holders of these warrants have agreed to waive
further price-based anti-dilution rights, except with respect to issuances of
Common Stock below $8.83 per share. During 1998, the number of shares and
exercise prices of certain warrants were adjusted to satisfy certain
anti-dilution rights previously granted.

F-24
<PAGE> 92
UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In connection with the Company's new borrowing arrangements (see Note 10),
the Company issued warrants for the purchase of an aggregate of 90,000 shares of
Series D Preferred Stock at an exercise price of $5.50 per share, the issuance
price of the Series D Preferred Stock.

Reserve for Issuance

As of December 31, 1998, the Company had reserved 3,030,391 shares of
Common Stock for issuance upon the exercise of outstanding options and warrants.

13. RESEARCH AND DEVELOPMENT AGREEMENT

On April 15, 1996, the Company entered into an agreement with Autodesk,
Inc. ("Autodesk") to develop and maintain a campus-like graphical user interface
located on the Internet. The Company will be entitled to certain revenues
generated by the project and will pay 20% in royalties to Autodesk for the use
of certain trademark rights. Additionally, the Company will pay royalties to the
authors of the projects. During September 1996 and as later amended, the Company
contracted with InternetU, Inc., ("InternetU"), a stockholder, to provide the
funding for the project. In exchange for $1,550,000, to be provided in
installments through September 30, 1997, corresponding to the achievement of
certain milestones, the Company agreed to grant InternetU Common Stock warrants
to purchase 73,172 shares of Common Stock at an exercise price of $13.00 per
share. In addition, InternetU will receive royalties on certain future revenues
generated by the project. The Company determined that the fair value of the
warrants was approximately $150,000 and will recognize this amount as research
and development expense in line with the payments it receives from InternetU.
This agreement is cancelable and should either party to the agreement fail to
perform no additional cash or warrants are required to be paid or issued, or
revenues shared. The Company recognized $250,000 as revenue during 1996 as the
related work to achieve the milestone was completed during 1996. Accordingly,
the Company recorded $24,180 as expense for the warrants to be issued to
InternetU. In 1997, the Company recognized an additional $560,000 of revenue
related to the work performed to achieve the milestones set as of March 31, 1997
and June 30, 1997. The Company recognized $54,350 as expense for the warrants
issued to InternetU pursuant to the terms of the agreement in 1997.

14. RETIREMENT PLANS

Teletutor had a 401(k) Retirement Savings Plan covering all employees who
met defined eligibility requirements. Employee contributions to Teletutor's plan
were made at predetermined rates elected by the employees. Additionally, the
employer had the option to match a portion of the employee contributions and
make a discretionary contribution to the plan. The Company did not make
discretionary contributions in 1997 or 1998. The Company did automatically vest
all employees separated from Teletutor in 1998 due to a partial plan termination
which was approved on November 30, 1998.

HTR, Inc. maintained a tax deferred savings and retirement plan to provide
retirement benefits for all eligible employees. HTR's 401(k) plan assets were
frozen in July 1998 and all participants were eligible to begin deferrals into
the UOL Publishing, Inc. 401(k) plan at that time. All assets were merged into
the UOL Publishing, Inc. 401(k) plan on December 31, 1998.

The UOL Publishing, Inc. 401(k) plan (adopted in 1997) allows employees to
elect an amount between 1% and 15% of their total compensation to contribute to
the plan. All full-time employees are eligible to make participation elections
in January and July of each year. There is a graduated vesting schedule for
employee contributions in which contributions fully vest over a period of four

F-25
<PAGE> 93
UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

years. The plan allows discretionary Company contributions. In 1997 and 1998,
there were no discretionary Company contributions made to the plan.

15. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and income tax purposes. Significant components of the Company's net deferred
tax assets were as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1998
------------ ------------
<S> <C> <C>
Net operating loss carryforwards............. $ 10,411,000 $ 12,266,000
Accrued payroll.............................. 358,000 131,000
Reserves..................................... -- 708,000
Other assets and liabilities, net............ 28,000 199,000
------------ ------------
Total deferred tax assets.................... 10,797,000 13,304,000
Valuation allowance.......................... (10,797,000) (13,304,000)
------------ ------------
Net deferred tax assets...................... $ -- $ --
============ ============
</TABLE>

As of December 31, 1997 and 1998, the Company had net operating loss
carryforwards for federal income tax purposes of approximately $25,757,000 and
$30,661,000, respectively, which will expire at various dates through 2018. The
Company may have had changes in ownership, which may impose limitations on its
ability to utilize net operating loss carryforwards under Section 382 of the
Internal Revenue Code.

16. NET LOSS PER SHARE

The following table sets forth the computation of basic and diluted net
loss per share:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
Numerator:
Net loss....................... $(4,640,703) $(16,144,763) $(19,811,265)
Accrued dividends to preferred
stockholders................ (330,706) -- (357,890)
----------- ------------ ------------
Net loss available to common
stockholders................ $(4,971,409) (16,144,763) (20,169,155)
=========== ============ ============
Denominator:
Denominator for basic earnings
per share -- weighted-average
shares...................... 997,958 3,286,281 3,827,216
=========== ============ ============
Denominator for diluted
earnings per share --
adjusted weighted-average
shares...................... 997,958 3,286,281 3,827,216
=========== ============ ============
Basic net loss per share......... $ (4.98) $ (4.91) $ (5.27)
=========== ============ ============
Diluted net loss per share....... $ (4.98) $ (4.91) $ (5.27)
=========== ============ ============
</TABLE>

F-26
<PAGE> 94
UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The net loss per share amounts exclude the dilutive effect of stock
purchase warrants, options and convertible securities because the net losses
recorded by the Company for 1998, 1997 and 1996 make such common stock
equivalents anti-dilutive.

17. MANAGEMENT'S PLANS

During the fourth quarter of 1998 the Company announced plans to divest its
non-online businesses ("the legacy businesses") and, as such, engaged the
services of Friedman, Billings, Ramsey & Co. to provide investment-banking
services related to the divestiture of the HTR instructor-led training business.
The Company expects to complete this divestiture sometime in the second quarter
of 1999. Also related to the planned divestitures of the legacy businesses,
during the first quarter of 1999, the Company signed a letter of intent to sell
the HTR Knowledgeworks legacy business for $1,500,000. The Company expects this
transaction to be completed during the second quarter of 1999.

The Company is currently negotiating for a $3,000,000 line of credit from a
new lender, which facility if approved is expected to be in place in the second
quarter of 1999.

The Company expects negative cash flow from operations to continue for at
least the next six months until the legacy businesses are sold and as the online
revenue stream matures. During 1998, the Company reduced its workforce by over
50% and closed four office facilities. This reorganization is expected to
provide significant cost savings to the Company. In addition, the Company has
implemented measures to curtail the rate of discretionary spending. The Company
recognizes that it will need to raise additional funding to meet its working
capital requirements and in addition to the steps taken during the first quarter
of 1999 as described above, is considering all of its alternatives, including
continuing its efforts to obtain financing through additional equity or debt
financing, which may not be available on favorable terms, or at all.

18. SUBSEQUENT EVENTS

In February 1999, the Company completed a private placement of its Common
Stock. The Company issued 282,500 shares of Common Stock to certain accredited
investors at $4.00 per share, the closing price of the Common Stock on the date
of issuance, with net proceeds of approximately $1,050,000. The Company also
issued warrants to purchase 70,625 shares of its Common Stock at an exercise
price of $3.00 per share, the closing price of the Common Stock on the date of
issuance. The Company used the proceeds from this private placement for
retirement of bank debt and for working capital. The Common Stock issued and the
Common Stock underlying the warrants have certain registration rights.

In February 1999, the Company signed a letter of intent to sell the HTR
Knowledgeworks legacy business for $1,500,000. The Company expects this
transaction to be completed during the second quarter of 1999.

In February 1999, the Company repaid a $500,000 note to its primary bank
lender.

F-27
<PAGE> 95

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Board of Directors
UOL Publishing, Inc.

We have audited the consolidated balance sheets of UOL Publishing, Inc. as
of December 31, 1997 and 1998 and for each of the three years in the period
ended December 31, 1998 and have issued our report thereon dated February 26,
1999, except for Note 10, as to which the date is March 22, 1999. Our audits
also included the financial statement schedule listed in Item 14(d) of this Form
10-K. The schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.

/s/ Ernst & Young LLP
Vienna, Virginia
February 26, 1999, except for Note 10,
as to which the date is March 22, 1999

F-28
<PAGE> 96

SCHEDULE I -- VALUATION AND QUALIFYING ACCOUNT AND RESERVE
(IN THOUSANDS)

UOL PUBLISHING, INC.

<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF BALANCE AT
CLASSIFICATION PERIOD ADDITIONS DEDUCTIONS END OF PERIOD
-------------- ------------ --------- ---------- -------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996................... $ 20 $ 16 $ -- $ 36
Year ended December 31, 1997................... 36 703* -- 739
Year ended December 31, 1998................... 739 1,293 1,465 567
</TABLE>

- ---------------
* Includes additions of $253,500 from purchase price adjustments resulting from
the acquisitions of Ivy Software, Inc., Cooper & Associates, Inc. (d/b/a
Teletutor), and HTR, Inc.

F-29
<PAGE> 97

UOL PUBLISHING, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Revenues:
Instructor-led training revenues.......................... $ 1,673,817 $ 1,394,444
Online tuition revenues................................... 272,205 881,248
Product sales revenues.................................... 950,206 399,635
Development and other revenues............................ 96,481 235,874
Other service revenues.................................... 565,651 81,716
Virtual campus software revenues.......................... 42,500 42,166
----------- -----------
Net revenues................................................ 3,600,860 3,035,083
Costs and expenses:
Cost of revenues.......................................... 2,582,899 1,882,848
Sales and marketing....................................... 1,630,558 1,042,556
Product development....................................... 2,716,619 357,454
General and administrative................................ 1,900,513 688,161
Depreciation and amortization............................. 633,165 503,376
Reorganization costs...................................... 467,640 --
----------- -----------
Total costs and expenses.................................... 9,931,394 4,474,395
----------- -----------
Loss from operations........................................ (6,330,534) (1,439,312)
Interest expense............................................ (129,852) (127,767)
----------- -----------
Net loss.................................................... $(6,460,386) $(1,567,079)
=========== ===========
Dividends to preferred stockholders......................... -- (73,411)
----------- -----------
Net loss attributable to common stockholders................ $(6,460,386) $(1,640,490)
=========== ===========
Net loss per share.......................................... $ (1.70) $ (0.39)
=========== ===========
Net loss per share -- assuming dilution..................... $ (1.70) $ (0.39)
=========== ===========
</TABLE>

See accompanying notes.
F-30
<PAGE> 98

UOL PUBLISHING, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 336,194 $ 125,147
Accounts receivable, less allowance of approximately
$567,000 and $481,000 at December 31, 1998 and March
31, 1999, respectively................................. 3,087,268 2,679,291
Loans receivable from related parties..................... 143,515 133,752
Loans receivable -- current............................... 232,375 199,818
Prepaid expenses and other current assets................. 172,926 353,741
------------ ------------
Total current assets........................................ 3,972,278 3,491,749
Property and equipment, net................................. 2,436,534 2,175,825
Capitalized software costs and courseware development costs,
net....................................................... 2,130,665 2,018,327
Acquired online publishing rights, net...................... 407,552 364,831
Loans receivable -- less current portion.................... 380,234 380,234
Other assets................................................ 194,644 182,893
Other intangible assets, net................................ 2,508,664 2,339,230
Goodwill, net............................................... 2,840,460 2,764,294
------------ ------------
Total assets...................................... $ 14,871,031 $ 13,717,383
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 4,617,418 $ 4,292,171
Notes payable -- current portion.......................... 3,075,139 2,473,474
Deferred revenues -- current portion...................... 911,072 1,201,985
Accrued dividends payable................................. -- 73,411
------------ ------------
Total current liabilities......................... 8,603,629 8,041,041
Deferred revenues -- less current portion................. 109,834 102,583
Notes payable -- less current portion..................... 337,235 353,199
------------ ------------
Total liabilities................................. 9,050,698 8,496,823
------------ ------------

Stockholders' equity:
Series C convertible Preferred Stock, $0.01 par value per
share; aggregate liquidation preference of $7,947,658;
1,000,000 shares authorized; 626,293 shares issued and
outstanding at December 31, 1998 and March 31, 1999,
respectively........................................... 6,263 6,263
Series D convertible Preferred Stock, $0.01 par value per
share; aggregate liquidation preference of $8,931,656;
1,200,000 shares authorized; 1,082,625 shares issued
and outstanding at December 31, 1998 and March 31,
1999, respectively..................................... 10,826 10,826
Common Stock, $0.01 par value per share; 36,000,000 shares
authorized; 3,990,046 and 4,276,668 shares issued and
outstanding at December 31, 1998 and March 31, 1999,
respectively........................................... 39,900 42,766
Additional paid-in capital................................ 53,460,264 54,498,115
Accumulated deficit....................................... (47,696,920) (49,337,410)
------------ ------------
Total stockholders' equity........................ 5,820,333 5,220,560
============ ============
Total liabilities and stockholders' equity........ $ 14,871,031 $ 13,717,383
============ ============
</TABLE>

See accompanying notes.
F-31
<PAGE> 99

UOL PUBLISHING, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1998 1999
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(6,460,386) $(1,567,079)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 801,507 770,429
Net write-off of acquired online publishing rights........ 241,000 --
Net write-off of capitalized courseware development
costs.................................................. 502,669 --
Increase (decrease) in allowance for doubtful accounts.... 1,074,669 (85,955)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable............. (190,086) 493,932
Increase in prepaid expenses and other current
assets............................................... (245,502) (180,815)
Decrease in other assets............................... 29,658 11,751
Increase (decrease) in accounts payable and accrued
expenses............................................. 932,008 (325,247)
Increase in deferred revenues.......................... 260,526 283,662
----------- -----------
Net cash used in operating activities....................... (3,053,937) (599,322)
INVESTING ACTIVITIES
Purchases of property and equipment......................... (367,096) (132)
Capitalized software and courseware development costs....... (314,549) (111,995)
Additions to intangible assets.............................. (355,810) --
Proceeds from sale of property and equipment................ -- 3,066
Proceeds from loans receivable.............................. -- 42,320
Advances under loans receivable from related parties........ (27,994) --
----------- -----------
Net cash used in investing activities....................... (1,065,449) (66,741)
FINANCING ACTIVITIES
Proceeds from issuance of common stock...................... 75,620 1,040,717
Proceeds from Series C redeemable convertible Preferred
Stock..................................................... 5,240,008 --
Proceeds from notes payable and short-term debt............. 1,500,000 --
Repayments of notes payable and short-term debt............. (171,928) (585,701)
----------- -----------
Net cash provided by financing activities................... 6,643,700 455,016
----------- -----------
Net increase (decrease) in cash and cash equivalents........ 2,524,314 (211,047)
Cash and cash equivalents at the beginning of the period.... 2,705,490 336,194
----------- -----------
Cash and cash equivalents at the end of the period.......... $ 5,229,804 $ 125,147
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................... $ 109,581 $ 80,000
=========== ===========
</TABLE>

See accompanying notes.
F-32
<PAGE> 100

UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A -- BASIS OF PRESENTATION

The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the interim periods are not necessarily indicative of the
results that may be expected for any future period, including the year ending
December 31, 1999. For further information, refer to the audited financial
statements and footnotes thereto included in the UOL Publishing, Inc. ("UOL" or
the "Company") Annual Report on Form 10-K for the year ended December 31, 1998.

NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

Through December 31, 1998 the Company recognized online tuition fees from
academic institutions once the drop/add period had expired. Beginning January 1,
1999 the Company changed its revenue recognition policy for academic
institutions to recognize revenue ratably over the semester period the services
are delivered.

NOTE D -- EQUITY TRANSACTIONS

For the three months ended March 31, 1999 the Company raised approximately
$1,050,000 through a private placement of 282,500 shares of its common stock at
$4.00 per share. In connection with this transaction, the Company also issued
warrants, exercisable over 3 years at $3.00 per share, for the purchase of
70,625 shares of common stock.

NOTE E -- NET LOSS PER SHARE

The following table sets forth the computation of basic and diluted net
loss per share:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1998 1999
----------- -----------
<S> <C> <C>
Numerator:
Net loss............................................ $(6,460,386) $(1,567,079)
Accrued dividends to preferred stockholders......... -- (73,411)
----------- -----------
Net loss available to common stockholder............ $(6,460,386) $(1,640,490)
=========== ===========
Denominator:
Denominator for basic earnings per share --
weighted-average shares.......................... 3,811,428 4,169,225
=========== ===========
Denominator for diluted earnings per share --
adjusted weighted-average shares................. 3,811,428 4,169,225
=========== ===========
Basic net loss per share.............................. $ (1.70) $ (0.39)
=========== ===========
Diluted net loss per share............................ $ (1.70) $ (0.39)
=========== ===========
</TABLE>

F-33
<PAGE> 101

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

NO ONE (INCLUDING ANY SALESMAN OR BROKER) IS AUTHORIZED TO PROVIDE ORAL OR
WRITTEN INFORMATION ABOUT THIS OFFERING THAT IS NOT INCLUDED IN THIS PROSPECTUS.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 2
Special Note Regarding Forward-Looking
Statements.......................... 8
Available Information................. 8
Risk Factors.......................... 9
The Equity Line of Credit Agreement... 18
The 9% Secured Subordinated
Convertible Debentures Due December
15, 2000............................ 19
Determination of Offering Price....... 20
Price Range of Our Common Stock....... 21
Dividend Policy....................... 21
Use of Proceeds....................... 21
Capitalization........................ 22
Selected Consolidated Financial
Data................................ 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
Business of the Company............... 38
Management............................ 49
Executive Compensation................ 50
Security Ownership of Certain
Beneficial Owners and Management.... 55
Certain Relationships and Related
Transactions........................ 58
Description of Capital Stock.......... 61
Selling Stockholders.................. 64
Plan of Distribution.................. 66
Legal Matters......................... 66
Experts............................... 66
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

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

5,494,466 SHARES

[LOGO]

UOL PUBLISHING, INC.

COMMON STOCK
------------------------

PROSPECTUS
------------------------

, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 102

UOL PUBLISHING, INC.
REGISTRATION STATEMENT ON FORM S-1

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, incurred in connection with the sale of
Common Stock being registered (all amounts are estimated except the SEC
registration fee, the NASD filing fee and the Nasdaq listing fee). The Company
will bear all expenses incurred in connection with the sale of the Common Stock
being registered hereby.

<TABLE>
<S> <C>
SEC registration fee........................................ $ 9,140
Printing fees and expenses.................................. 10,000
Legal fees and expenses..................................... 100,000
Accounting fees and expenses................................ 10,000
Miscellaneous............................................... --
--------
Total.................................................. $129,140
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 ("Section 145") of the Delaware General Corporation Law, as
amended, generally provides that a director or officer of a corporation (i)
shall be indemnified by the corporation for all expense of such legal
proceedings when he is successful on the merits, (ii) may be indemnified by the
corporation for the expenses, judgments, fines and amounts paid in settlement of
such proceedings (other than a derivative suit), even if he is not successful on
the merits, if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceedings, had no reasonable cause to believe his
conduct was unlawful, and (iii) may be indemnified by the corporation for the
expenses of a derivative suit (a suit by a stockholder alleging a breach by a
director or officer of a duty owed to the corporation), even if he is not
successful on the merits, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the
corporation. No indemnification may be made under clause (iii) above, however,
if the director or officer is adjudged liable for negligence or misconduct in
the performance of his duties to the corporation, unless a corporation
determines that, despite such adjudication, but in view of all the
circumstances, he is entitled to indemnification. The indemnification described
in clauses (ii) and (iii) above may be made only upon a determination that
indemnification is proper because the applicable standard of conduct has been
met. Such a determination may be made by a majority of a quorum of disinterested
directors, independent legal counsel, the stockholders or a court of competent
jurisdiction.

Article VI of the Company's Bylaws provides in substance that, to the
fullest extent permitted by Delaware law as it now exists or as amended, each
director and officer shall be indemnified against reasonable costs and expenses,
including attorneys' fees and any liabilities which he may incur in connection
with any action to which he may be made a party by reason of his being or having
been a director or officer of the Registrant. The indemnification provided by
the Company's Bylaws is not deemed exclusive of or intended in any way to limit
any other rights to which any person seeking indemnification may be entitled.

Section 102(b)(7) of the Delaware General Corporation Law, as amended,
permits a corporation to provide in its Certificate of Incorporation that a
director of the corporation shall not be

II-1
<PAGE> 103

personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit.

Article VII of the Company's Certificate of Incorporation provides for the
elimination of personal liability of a director for breach of fiduciary duty, as
permitted by Section 102(b)(7) of the Delaware General Corporation Law.

The Registrant maintains liability insurance insuring the Registrant's
officers and directors against liabilities than they may incur in such
capacities.

Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or persons controlling the registrant pursuant
to the foregoing provisions, the Registrant has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The Company has issued the following unregistered securities during the
past three years:

1. From July 1994 to July 1996, the Company issued and sold shares of
convertible preferred stock (since redesignated Series A Preferred Stock) to
approximately 70 accredited investors for aggregate consideration of $3,800,889,
which shares converted into a total of 447,733 shares of Common Stock upon
consummation of the Company's initial public offering in November 1996. Spencer
Trask Securities Incorporated ("Spencer Trask Securities") served as placement
agent for this financing and received for itself and its designees warrants to
purchase 37,506 shares of Common Stock.

2. From July 1994 to August 1996, the Company issued warrants to purchase
an aggregate of 206,490 shares of Common Stock to a total of eleven investors
(including two directors of the Company, the spouse of one such director, the
parent company of Spencer Trask Securities, its Chairman and six new investors).

3. During 1996, the Company issued an aggregate of 5,097 shares of Common
Stock to three service providers for services rendered in 1995.

4. In July 1996, the Company issued and sold 185,877 shares of Series B
Preferred Stock, which converted into 392,934 shares of Common Stock upon
consummation of the Company's initial public offering in November 1996, to 11
accredited investors for an aggregate investment of $3,500,000.

5. In August 1996, the Company issued an aggregate of 42,487 shares of
Common Stock in connection with the acquisition of CTA, all of which shares were
issued to CTA's sole stockholder, Michael Brown, and issued a warrant to
purchase an aggregate of 12,746 shares of Common Stock to Oppenheimer & Co.,
Inc. as consideration for certain investment banking services.

6. In connection with the Company's initial public offering in November
1996, the Company issued a warrant to Austin Furst to purchase 15,687 shares of
Common Stock in consideration of Mr. Furst's waiver of certain anti-dilution
rights and agreement to exercise certain warrants to purchase Common Stock.

7. From December 31, 1996 to March 31, 1997, the Company issued options to
purchase an aggregate of 70,000 shares of Common Stock to employees of the
Company.

II-2
<PAGE> 104

8. During the first quarter of 1997, the Company issued unregistered
warrants to purchase an aggregate of 22,896 shares of Common Stock to InternetU,
Inc. ("InternetU") pursuant to the terms of the Project Development and
Financing Agreement between the Company and InternetU.

9. From March 31, 1997 to June 30, 1997, the Company issued the following
unregistered securities: (a) options to purchase an aggregate of 351,000 shares
of Common Stock to employees of the Company; and (b) warrants to purchase an
aggregate of 15,342 shares of Common Stock to InternetU, Inc. ("InternetU")
pursuant to the terms of the Project Development and Financing Agreement between
the Company and InternetU.

10. From June 30, 1997 to September 30, 1997, the Company issued
unregistered options to purchase an aggregate of 122,000 shares of Common Stock
to employees of the Company.

11. In connection with the Company's acquisition of HTR in October 1997,
the Company issued 585,940 shares of Common Stock and options and warrants to
purchase an additional 34,020 shares.

12. From January 1, 1998 to March 31, 1998, the Company issued 626,293
shares of Series C redeemable convertible Preferred Stock and warrants to
purchase 626,293 shares of Common Stock to certain accredited investors.

13. From April 1, 1998 to June 30, 1998, the Company issued the following
unregistered securities: (a) 1,082,625 shares of Series D redeemable convertible
Preferred Stock to certain accredited investors; and (b) 5,194 shares of Common
Stock to one accredited investor.

14. In October 1998, the Company issued an aggregate of 9,191 shares of
Common Stock to two former HTR shareholders in exchange for cancellation of the
Company's indebtedness to such shareholders, at a conversion price of $3.75 per
share, the closing price of the Company's Common Stock on the date of issuance.

15. In December 1998, the Company issued an aggregate of 105,000 shares of
Common Stock to the three former stockholders of Teletutor and their attorney,
pursuant to a restructuring of the Company's indebtedness to such shareholders.
Pursuant to this restructuring, the Company also issued to such persons
three-year warrants to purchase an aggregate of 55,000 shares of Common Stock.

16. In December 1998 and June 1999, the Company issued an aggregate of
28,902 and 22,819 shares of Common Stock, respectively, to the Company's Series
D Preferred Stockholders in payment of accrued dividends.

17. In December 1998, the Company issued an aggregate of 1,480 shares of
Common Stock to one former security holder of HTR upon net exercise of a
warrant.

18. In January 1999, the Company issued 282,500 shares of Common Stock and
warrants to purchase 70,625 of Common Stock to nine accredited investors.

19. In May 1999, the Company issued 448,297 shares of Common Stock to
certain accredited investors.

20. In June 1999, the Company issued warrants to purchase an aggregate of
5,000 shares of Common Stock to each of two former employees in connection with
the sale of the Knowledgeworks division of HTR.

21. In June 1999, the Company issued a $2.5 million convertible debenture
to two accredited investors. The debenture is convertible into shares of Common
Stock at an initial conversion ratio of $5.50 per share.

The sales of the above securities were deemed to be exempt from
registration under the Act in reliance upon Section 4(2) of the Act or
Regulation D or Rule 701 promulgated thereunder as
II-3
<PAGE> 105

transactions by an issuer not involving a public offering. Recipients of the
securities in each such transaction represented their intentions to acquire such
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the
instruments issued in such transactions. All recipients had adequate access to
information about the Company.

ITEM 16. EXHIBITS

(a) Exhibits.

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
4.1 (a) Form of Common Stock Certificate.
5.1 Opinion of Wyrick, Robbins, Yates & Ponton LLP
10.12(a) Employment Agreement, dated July 31, 1996, with Michael L.
Brown.
10.13(a) Employment Agreement, dated August 15, 1996, with Leonard P.
Kurtzman.
10.14(a)* Agreement, dated August 14, 1995, as amended, with
Educational Services Institute.
10.15(a) Form of Online Educational Services Distribution Agreement.
10.16(a) Form of University Master Agreement for Online Education
Services.
10.17(a) Form of Online Educational Services Agreement.
10.18(a) Form of Inner Circle Online Educational Services Development
and Distribution Agreement.
10.19(a)* Agreement, dated April 15, 1996, with Autodesk, Inc.
10.20(a)* Project Financing and Development Agreement with InternetU,
Inc., as amended.
10.21(a) Employment letter agreement, dated October 29, 1996, with W.
Braun Jones, Jr.
10.23(e) Employment Agreement, dated April 30, 1997, with James R.
Cooper.
10.24(e) Employment Agreement, dated January 1, 1997, with Michael W.
Anderson.
10.25(e) Employment Agreement, dated October 31, 1997, with Kamyar
Kaviani.
10.26(e) Employment Agreement, dated October 31, 1997, with Farzin
Arsanjani.
10.27(e) Employment Agreement, dated October 31, 1997, with Daniel J.
Callahan, IV.
10.28(e) Letter agreement, dated December 18, 1997, with Leonard P.
Kurtzman.
10.29(f) First Union loan amendment documents dated March 31, 1998.
10.30(f) Series C Preferred Stock and Warrant Purchase Agreement.
10.31(f) Registration Rights Agreement, dated March 31, 1998.
10.32(g) Series D Preferred Stock Purchase Agreement, dated June 29,
1998.
10.33(g) Amended and Restated Registration Rights Agreement, dated
June 29, 1998.
10.34(g) Certificate of Designations, Preferences and Rights of
Series D Convertible Preferred Stock dated June 26, 1998.
10.35(g) Certificate of Designations, Preferences and Rights of
Series C Convertible Preferred Stock dated June 25, 1998.
10.36(h) Loan and Security Agreement dated August 14, 1998 with
Imperial Bank.
10.37(h) Warrant to Purchase Stock dated August 14, 1998 issued to
Imperial Bank.
10.38(h) Loan Agreement dated August 14, 1998 with Sand Hill Capital,
LLC.
10.39(h) Warrant to Purchase Stock dated August 14, 1998 issued to
Sand Hill Capital, LLC.
10.40(i) Form of Subscription Agreement for the $1.05 million Spencer
Trask Financing.
10.41(j) Private Equity Line of Credit Agreement dated May 4, 1999
with Hambrecht & Quist Guaranty Finance, LLC.
10.42(j) Certificate of Designations, Preferences and Rights of
Series E Convertible Preferred Stock.
</TABLE>

II-4
<PAGE> 106

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.43(j) Convertible Debenture and Warrants Purchase Agreement dated
June 4, 1999 with Excalibur Limited Partnership and BH
Capital Investments, L.P. relating to the $2.5 million
convertible debenture financing.
10.44(j) Form of Convertible Debenture for the $2.5 million
convertible debenture financing in June 1999.
10.45 Asset Purchase Agreement relating to the sale of the
Knowledgeworks division of HTR effective on June 30, 1999.
21.1 List of Subsidiaries.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Wyrick Robbins Yates & Ponton LLP (contained in
Exhibit 5.1).
24.1 Power of Attorney (see page II-7).
</TABLE>

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

<TABLE>
<C> <S>
* Confidential treatment requested.
(a) Incorporated by reference to the similarly numbered Exhibit
to the Registrant's Registration Statement on Form S-1 (File
No. 333-12135).
(b) Incorporated by reference to Exhibit No. 2.1 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996.
(c) Incorporated by reference to the similarly numbered Exhibit
to the Registrant's Current Report on Form 8-K dated May 14,
1997.
(d) Incorporated by reference to Exhibit No. 2.3 to the
Registrant's Current Report on Form 8-K dated November 17,
1997.
(e) Incorporated by reference to the similarly numbered Exhibit
to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997.
(f) Incorporated by reference to the identically numbered
Exhibit to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998.
(g) Incorporated by reference to the identically numbered
Exhibit to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998.
(h) Incorporated by reference to the identically numbered
Exhibit to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998.
(i) Incorporated by reference to the identically numbered
Exhibit to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1998.
(j) Incorporated by reference to the corresponding appendix
filed with the Registrant's preliminary proxy materials on
Schedule 14A dated July 16, 1999 for its 1999 annual meeting
of stockholders.
</TABLE>

ITEM 17. UNDERTAKINGS

(a) The undersigned registrant hereby undertakes as follows:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of

II-5
<PAGE> 107

securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement;

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;

provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) above do not
apply if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in this Registration Statement.

(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.

(4) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person or the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

II-6
<PAGE> 108

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of McLean, State of Virginia, on this 27th day of July
1999.

UOL PUBLISHING, INC.

/s/ NARASIMHAN P. KANNAN
--------------------------------------
NARASIMHAN P. KANNAN, CHIEF EXECUTIVE
OFFICER

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

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints
Narasimhan P. Kannan and Michael A. Schwien, and each of them, his true and
lawful attorney-in-fact and agent, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and any related Registration Statements filed
pursuant to Rule 462(b) promulgated under the Securities Act of 1933, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ NARASIMHAN P. KANNAN Director and Chief July 27, 1999
- ------------------------------------------------ Executive Officer (Principal
NARASIMHAN P. KANNAN Executive Officer)

/s/ MICHAEL A. SCHWIEN Controller July 27, 1999
- ------------------------------------------------ (Principal Financial
MICHAEL A. SCHWIEN and Accounting Officer)

/s/ EDSON D. DECASTRO Director July 27, 1999
- ------------------------------------------------
EDSON D. DECASTRO

/s/ BARRY K. FINGERHUT Director July 27, 1999
- ------------------------------------------------
BARRY K. FINGERHUT

/s/ KAMYAR KAVIANI Director July 27, 1999
- ------------------------------------------------
KAMYAR KAVIANI
</TABLE>

II-7
<PAGE> 109

<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ WILLIAM E. KIMBERLY Director July 21, 1999
- ------------------------------------------------
WILLIAM E. KIMBERLY

/s/ JOHN D. SEARS Director July 21, 1999
- ------------------------------------------------
JOHN D. SEARS

Director
- ------------------------------------------------
STEVEN M. H. WALLMAN
</TABLE>

II-8

<PAGE> 1

Exhibit 5.1

July 27, 1999

UOL Publishing, Inc.
8251 Greensboro Drive, Suite 500
McLean, Virginia 22102

RE: Registration Statement on Form S-1

Ladies and Gentlemen:

We have examined the Registration Statement on Form S-1 to be filed by
UOL Publishing, Inc., a Delaware corporation (the "Company"), with the
Securities and Exchange Commission on or about the date hereof (the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933 of up to 5,494,466 shares of the Company's Common
Stock, $0.01 par value per share (the "Shares"). In our examination, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals and the conformity with the original of all
documents submitted to us as copies thereof.

As your legal counsel, we have examined the proceedings taken, and are
familiar with the proceedings proposed to be taken, in connection with the
sale and issuance of the Shares.

It is our opinion that, upon completion of the proceedings being taken
or contemplated by us, as your counsel, to be taken prior to the issuance of
the Shares, including the proceedings being taken in order to permit such
transaction to be carried out in accordance with applicable state securities
laws, the Shares when issued and sold in the manner referred to in the
Registration Statement and in accordance with the resolutions adopted by the
Board of Directors of the Company, will be legally and validly issued, fully
paid and nonassessable.

We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in
the Registration Statement, including the Prospectus constituting a part
thereof, and any amendments thereto.

Very truly yours,

/s/ Wyrick Robbins Yates & Ponton LLP

<PAGE> 1

EXHIBIT 10.45

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (the "Agreement"), is dated as of the 16th
day of April 1999, by and among HTR, Inc. a Delaware corporation ("HTR"), UOL
Publishing, Inc., a Delaware corporation ("UOL" and, together with HTR, jointly
and severally hereinafter collectively referred to as "Sellers") and
CourseFactory.com, LLC, a Maryland limited liability company ("Buyer").

W I T N E S S E T H:

WHEREAS, Sellers own, among other assets, the KnowledgeWorks Division
of Sellers (the "Business"); and

WHEREAS, HTR is the wholly-owned subsidiary of UOL;

WHEREAS, Sellers desire to sell all the assets used in the Business and
Buyer desires to purchase such assets.

NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants and agreements set forth below, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

SECTION 1

TRANSFER OF ASSETS AND PURCHASE PRICE

1.1 ASSETS.

(a) Subject to the terms and conditions of this Agreement and in
consideration of the obligations of Buyer herein, Sellers agree to sell, convey,
transfer and deliver to Buyer at the Closing (as defined in Section 2), free and
clear of any claims, liens or encumbrances, all rights title and interest of
Sellers in and to all assets of Sellers used in connection with the Business,
including but not limited to those described on Schedule 1.1(a) (collectively,
the "Assets").

(b) In addition to the Assets to be transferred, and in consideration of
the obligations of Buyer herein, Buyer shall be granted an option exercisable
for a period of eighteen (18) months subsequent to the execution of this
Agreement to be assigned any or all of four Virtual Campus licenses on terms
substantially the same as the form license attached hereto as Exhibit 1.1(b)
with an exercise price of $100 per license (the "Option Licenses"). Such option
may be exercised by Buyer by giving 30 days prior written notice to Sellers.
Upon receipt of such notice, Sellers shall take all necessary actions to assign
all rights to Buyer to the Option Licenses. Each license shall have a term of
one year beginning on the date that Buyer is assigned the rights to such
license. At the end of such one year term Buyer shall have the right to extend
the term of the license for successive one-year terms on terms consistent with
terms offered to other customers of UOL or HTR, as the case may be. Sellers will
waive the $15,000 license maintenance fee for the first year for all licenses
assigned to Buyer pursuant to this Agreement.
<PAGE> 2

(c) Sellers will retain and not transfer and the Buyer will
not purchase or acquire, the assets listed on Schedule 1.1(c) (collectively, the
"Excluded Assets"). Buyer hereby agrees to use reasonable efforts to cooperate
with Sellers in the collection of any of the accounts receivable listed on
Schedule 1.1(c).

(d) With the exception of the ordinary course liabilities and
obligations specifically identified on Schedule 1.1(a), all of which Buyer
agrees to assume and become responsible from and after the Closing Date (as
defined in Section 2) (the "Assumed Liabilities"), Buyer shall not, by the
execution, delivery and performance of this Agreement, or otherwise, assume or
otherwise be responsible for any liability or obligation of any nature, or
claims of such liability or obligation, matured or unmatured, liquidated or
unliquidated, fixed or contingent, or known or unknown, whether arising out of
acts or occurrences prior to, at or after the date hereof. Without limiting the
generality of the foregoing, Sellers shall remain liable for (i) all liabilities
and obligations to Sellers' personnel with respect to payroll, overtime, accrued
vacation time, holiday time, severance arrangements or workers' compensation of
any nature which are accrued but unpaid as of the Closing Date, (ii) any
liability or obligation of Sellers for federal, state, or local income,
franchise, property, sales, or use, or recapture taxes, assessments and
penalties, whether arising out of the transactions contemplated by this
Agreement or otherwise, (iii) any liability or obligation resulting from
violations of any applicable laws or regulations by Sellers prior to the Closing
Date or infringement of third-party rights or interests or (iv) any trade
payables incurred prior to the Closing Date (the "Retained Liabilities").

1.2 WARRANTS. In addition to the Assets and the Option Licenses, in
exchange for the non-competition covenant set forth in Section 5.2 hereof,
Sellers shall issue to each of Gregg Levin and Mark McGowan at the Closing (as
defined below), warrants or options to purchase an aggregate of 5,000 shares of
Common Stock of UOL Publishing, Inc. ("UOL"). Such warrants or options shall (i)
be exercisable for a period of two years, (ii) have an exercise price equal to
the closing price of UOL's Common Stock as reported by The Nasdaq Stock Market
on the Closing Date (as defined below) of this Agreement and (iii) be
substantially in the form of Exhibit A attached hereto and made a part hereof
(the "Warrants").

1.3 PURCHASE PRICE. In consideration of the sale and transfer of the
Assets and the Option Licenses, Buyer will pay the following purchase price (the
"Purchase Price"):

(a) One Hundred Thousand Dollars ($100,000) by wire transfer
to UOL's account at the execution of this Agreement in the form of a deposit
(the "Deposit") to be refunded in accordance with Section 1.7 of this Agreement
upon termination of this Agreement pursuant to Section 8 of this Agreement.
UOL's account information for purposes of the wire transfer is as follows:

Account Number: UOL Publishing, Inc.
Bank Name: First Union National Bank of Virginia
ABA #: 0541400549
Account #: 2050000112713

2
<PAGE> 3

(b) One Million Four Hundred Thousand Dollars ($1,400,000)
pursuant to a subordinated promissory note to be executed at Closing bearing
simple interest at the rate of seven percent (7%) per annum, with such note to
be in the form of Exhibit B attached hereto and made a part hereof (the "Note").
The term of the Note shall be no longer than 18 months and will be payable in
quarterly installments of interest and amounts of principal as agreed to by
Buyer and Sellers at or prior to the Closing Date.

1.4 SECURITY. The amounts due under the Note including principal,
interest, penalties and expenses if any and all renewals, modifications and
extensions thereof (collectively, the "Obligations"), are and shall continue to
be secured as follows: Buyer hereby grants, assigns and pledges to Sellers a
purchase money security interest in all Assets, together with proceeds thereof
(the "Collateral"). As of the Closing Date, Buyer will have all necessary right,
power and authority to grant to Sellers a valid and enforceable purchase money
security interest in the Collateral. Except as provided in the penultimate
sentence of this Section 1.4, without the prior written consent of Sellers,
which consent shall not unreasonably be withheld, Buyer will not, and will not
permit any subsidiary to, create or incur, or suffer to be incurred or to exist
any mortgage, pledge, security interest, encumbrance, lien or charge of any kind
("Lien") on the Collateral. Until the Note is paid in full, (i) upon 10 days
prior written notice, Buyer shall grant to the Sellers access to all pertinent
and relevant corporate records, financial statements, agreements and contracts
and any additional information as Sellers may reasonably request concerning the
Buyer in order to enable Sellers to determine the Buyers financial capacity to
repay the Note and (ii) without the prior written consent of Sellers, which
consent shall not unreasonably be withheld, Buyer will not merge or consolidate
with any other person or sell, exchange, lease, negotiate, pledge, assign or
otherwise dispose of the Collateral outside of the ordinary course of business.
In the event that Buyer fails to meet a payment on the Note, Sellers shall have
all the rights and remedies of a secured party under the Uniform Commercial Code
and shall be entitled to immediately exercise all remedies possessed by Sellers
hereunder. Notwithstanding any other provision of this Section 1.4, the security
interest in the Collateral granted by Buyer to Sellers shall be subordinate to
any Lien on the Collateral granted by Buyer to a commercial or institutional
lender in connection with loans made by any such lender to Buyer. Upon the
request of Buyer, Sellers shall take such action as may be required to confirm
its subordinate Lien as to the Collateral, including the filing of releases,
amended financing statements or any other documents reasonably required in
connection with any such commercial subordination.

1.5 FURTHER COOPERATION. From time to time after the Closing Date, without
further consideration, the parties will execute and deliver such other
instruments of conveyance and transfer and take such other action as the other
reasonably may request to give effect to the acquisition contemplated by this
Agreement. Each of the parties will furnish the other with such information and
documents in its possession or under its control or which it can execute or
cause to be executed as will enable the other to prosecute any and all pending
claims, applications and the like hereunder.

1.6 ALLOCATION OF CONSIDERATION. Buyer and Sellers hereby agree to
allocate the Purchase Price in accordance with an allocation schedule to be
mutually agreed to by Buyer and Sellers as of the Closing Date. Such allocation
schedule shall be prepared in accordance with section 1060 of the Internal
Revenue Code of 1986, as amended (the "Code"). The parties will each

3
<PAGE> 4

report the federal, state and local and other tax consequences of the purchase
and sale contemplated hereby in a manner consistent with the allocation
schedule.

1.7 REFUND OF DEPOSIT. In the event of termination pursuant to Section
8(a),(b) or (c) hereof, Sellers shall refund the Deposit within 10 calendar days
after termination by issuing to Gregg Levin, or his designees, in the sole
discretion of Buyer, (i) an aggregate of $100,000 of the Common Stock of
Guarantor based upon the closing price of the Common Stock as reported by The
Nasdaq Stock Market on the date of termination or (ii) if Buyer introduces
Sellers to a purchaser willing to purchase the Business at a purchase price
equal to or more than the Purchase Price hereunder, the right to receive an
aggregate of 6.7% of the proceeds of any subsequent sale of the Business to such
purchaser. If Buyer elects to receive the Common Stock, such Common Stock will
have full piggyback registration rights on commercially reasonable terms. In the
event of termination pursuant to Section 8.1(d) hereof, Sellers shall refund the
Deposit within 10 calendar days after termination by wire transfer of
immediately available funds to an account designated by Buyer.

SECTION 2
CLOSING

The transfer of Assets and payment of the Purchase Price referred to in
Section 1 hereof (the "Closing") will take place at 10:00 a.m. at the offices of
Buyer's counsel at 1201 New York Avenue, Suite 1000, Washington, DC, on June 30,
1999 or at such other time and date as Sellers and Buyer may in writing
designate or such exchange actually occurs (the "Closing Date"). Buyer shall
deliver to Sellers on or prior to June 15, 1999 a notice indicating that Buyer
has received commitments for sufficient financing in order to proceed with the
Closing of this Agreement. If Buyer does not deliver such notice, Seller shall
have the right to terminate this Agreement in accordance with Section 8 hereof.

SECTION 3
SELLERS'S REPRESENTATIONS AND WARRANTIES

Sellers, jointly and severally, represent and warrant to Buyer that the
statements contained in this Section 3 are correct as of the date of this
Agreement, except as otherwise set forth in the schedules attached hereto, each
of which shall survive closing for a period of two (2) years and may be relied
upon by prospective investors and lenders of Buyer.

3.1 AUTHORIZATION, ETC. Each of the Sellers has the corporate power and
authority to execute and deliver this Agreement, to perform fully its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery by Sellers of this Agreement, and the consummation of
the transactions contemplated hereby, have been, duly authorized by all
requisite corporate action of Sellers. Each of the Sellers has duly executed and
delivered this Agreement. This Agreement is the legal, valid and binding
obligation of Sellers, enforceable against them in accordance with its terms.

4
<PAGE> 5

3.2 CORPORATE STATUS.

(a) Each of the Sellers is a corporation duly organized,
validly existing and in good standing under the laws of Delaware with full
corporate power and authority to carry on its business (including the Business)
and to own or lease and to operate its properties as and in the places where
such business is conducted and such properties are owned, leased or operated.

(b) Each of the Sellers is duly qualified or licensed to do
business and is in good standing in each of the jurisdictions specified in
Schedule 3.2(b), which are the only jurisdictions in which the operation of the
Business or the character of the properties owned, leased or operated by it in
connection with the Business makes such qualification or licensing necessary.

(c) Each of the Sellers has delivered to the Buyer complete
and correct copies of its certificate of incorporation and bylaws or other
organizational documents, in each case, as amended and in effect on the date
hereof. Each of the Sellers is not in violation of any of the provisions of its
certificate of incorporation or bylaws or other organizational documents.

3.3 NO CONFLICTS, ETC. The execution, delivery and performance by Sellers
of this Agreement, and the consummation of the transactions contemplated hereby,
do not and will not conflict with or result in a violation of or a default under
(with or without the giving of notice or the lapse of time or both) (i) any
applicable provisions of all constitutions, treaties, statutes, laws (including
the common law), rules, regulations, ordinances, codes or orders of any
governmental authority ("Applicable Law") applicable to Sellers or any affiliate
of Sellers hereof or any of the properties or assets of Sellers (including but
not limited to the Assets), (ii) the certificate of incorporation or bylaws or
other organizational documents of Sellers or (iii) any Contract (as defined in
Section 3.10) or other contract, agreement or other instrument to which Sellers
or any affiliate thereof is a party or by which Sellers or any of their
properties or assets, including but not limited to the Assets, may be bound or
affected. No consent, approval, authorization, waiver, permit, grant, franchise,
concession, agreement, license, exemption or order of, registration,
certificate, declaration or filing with, or report or notice to, any natural
person, firm, partnership, association, corporation, company, trust, business
trust, governmental authority or other entity ("Consent") is required to be
obtained or made by Sellers in connection with the execution and delivery of the
Agreement or the consummation of the transactions contemplated hereby.

3.4 STATEMENT OF ASSETS AND LIABILITIES. Schedule 3.4 sets forth Sellers'
statement of assets and liabilities with respect to the Business and the Assets.

3.5 ABSENCE OF UNDISCLOSED LIABILITIES. To the Sellers' knowledge, Sellers
do not have any liabilities or obligations of any nature, whether known or
unknown, absolute, accrued, contingent or otherwise and whether due or to become
due, arising out of or relating to the Business, except as set forth in Schedule
3.4.

3.6 TAXES. All taxes, including without limitation, income, property,
sales, use, franchise, added value, withholding, and social security taxes,
imposed by the United States, any state, municipality, other local government or
other subdivision or instrumentality of the United

5
<PAGE> 6

States, or any foreign country or any state or other government thereof, or any
other taxing authority, that are due or payable by Sellers with respect to the
Business, and all interest and penalties thereon, whether disputed or not, and
which would result in the imposition of a lien, claim or encumbrance on the
Assets or against Buyer, other than taxes which are not yet due and payable,
have been paid in full, or are being contested in good faith, and all tax
returns required to be filed in connection therewith have been accurately
prepared and duly and timely filed and all deposits required by law to be made
by Sellers with respect to employees' withholding taxes have been duly made.
None of the Sellers is delinquent in the payment of any foreign or domestic tax,
assessment or governmental charge or deposits which would result in the
imposition of a lien, claim or encumbrance on the Assets or against Buyer, and
none of the Sellers have a tax deficiency or claim outstanding or assessed or,
to Seller's knowledge proposed against them, and there is no basis for any such
deficiency or claim, which would result in the imposition of any lien, claim or
encumbrances on the Assets or against Buyer.

3.7 ABSENCE OF CHANGES. Except as set forth in Schedule 3.7, since
________, 1999, each of the Sellers have conducted the Business only in the
ordinary course consistent with prior practice and has not, on behalf of, in
connection with or relating to the Business or the Assets:

(a) incurred any obligation or liability, except current
liabilities for trade or business obligations incurred in the ordinary course
of business consistent with prior practice, none of which liabilities, in any
case or in the aggregate, could have a material adverse effect on the
operations or liabilities of the Business;

(b) pledged or subjected to pledge, security interest,
encumbrance, lease, license, or other restrictions or limitations of any nature
whatsoever ("Liens"), any property, business or assets, tangible or intangible,
held in connection with the Business;

(c) sold, transferred, leased to others or otherwise disposed
of any of the Assets, except for inventory sold in the ordinary course of
business, or cancelled or compromised any debt or claim, or waived or released
any right of substantial value;

(d) received any notice of termination of any contract, or
other agreement which, in any case or in the aggregate, would have a material
adverse effect on the Business; or

(e) transferred or granted any rights under, or entered into
any settlement regarding the breach or infringement of, any Owned Intellectual
Property (as defined in Section 3.15), or modified any existing rights with
respect thereto.

3.8 LITIGATION. There is no action, claim, demand, suit, proceeding,
arbitration, grievance, citation, summons, subpoena, inquiry or investigation of
any nature, civil, criminal, regulatory or otherwise, in law or in equity,
pending or, to the knowledge of Sellers, threatened against or relating to
Sellers in connection with the Assets or the Business or against or relating to
the transactions contemplated by this Agreement, and Sellers do not know or have
reason to be aware of any basis for the same.

6
<PAGE> 7

3.9 COMPLIANCE WITH LAWS. Each of the Sellers has complied in all material
respects with all applicable provisions of all constitutions, treaties,
statutes, laws (including the common law), rules, regulations, ordinances, codes
or orders of any governmental authority ("Applicable Laws") applicable to the
Business or the Assets, and none of the Sellers has received any notice alleging
any such conflict, violation, breach or default. To the knowledge of Sellers,
there are no proposed laws, rules, regulations, ordinances, orders, judgments,
decrees, governmental takings, condemnations or other proceedings which would be
applicable to the business, operations or properties of the Business and which
might adversely affect the properties, assets, liabilities, operations or
prospects of the Business, either before or after the Closing Date.

3.10 ASSETS. Sellers have good title to all the Assets free and clear of
any Lien. To the Sellers' knowledge, The Assets comprise all assets and services
required for the continued conduct of the Business by the Buyer as now being
conducted. The Assets, taken as a whole, constitute all the properties and
assets relating to or used or held for use in connection with the Business
during the past twelve months. Except for the Excluded Assets, there are no
assets or properties used in the operation of the Business and owned by any
natural person, firm, partnership, association, corporation, company, trust,
business trust, government authority or other entity ("Person") other than
Sellers that will not be leased or licensed to Buyer under valid, current leases
or license arrangements. The Assets are in all material respects adequate for
the purposes for which the Assets are currently used or are held for use, and
are in reasonably good operating condition and, to the knowledge of Sellers,
there are no facts or conditions affecting the Assets which could, individually
or in the aggregate, interfere in any material respect with the use, occupancy
or operation thereof as currently used, occupied or operated, or their adequacy
for such use.

3.11 CONTRACTS. Schedule 3.11. contains a complete and correct list of all
material agreements, contracts, commitments and other instruments and
arrangements (whether written or oral) (x) by which any of the Assets are bound
or affected or (y) to which Sellers are a party or by which they are bound in
connection with the Business or the Assets (the "Contracts"). Sellers have
delivered to the Buyer complete and correct copies of all written Contracts,
together with all amendments thereto, and accurate descriptions of all material
terms of all oral Contracts, set forth or required to be set forth in Schedule
3.11. All Contracts are in full force and effect and enforceable against each
party thereto. There does not exist under any Contract any event of default or
event or condition that, after notice or lapse of time or both, would constitute
a violation, breach or event of default hereunder on the part of Sellers or, to
the best knowledge of Sellers, any other party thereto. Except as set forth in
Schedule 3.11, no consent of any third party is required under any Contract as a
result of or in connection with, and the enforceability of any Contract will not
be affected in any manner by, the execution, delivery and performance of this
Agreement.

3.12 INVENTORIES. All inventories are of good, usable and merchantable
quality in all material respects.

3.13 CUSTOMERS. To Sellers' best knowledge, Sellers have not received any
notice that any significant customer of Sellers (i) has ceased, or will cease,
to use the products, goods or services of the Business, (ii) has substantially
reduced or will substantially reduce, the use of

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products, goods or services of the Business or (iii) has sought, or is seeking,
to reduce the price it will pay for products, goods or services of the Business,
including in each case after the consummation of the transactions contemplated
hereby. To the best knowledge of Sellers, no customer of the Business has
otherwise threatened to take any action described in the preceding sentence as a
result of the consummation of the transactions contemplated by the Agreement.

3.14 INTELLECTUAL PROPERTY.

(a) Title. Schedule 3.14(a) contains a complete and correct
list of all Intellectual Property (as defined below) that is owned by Sellers
and primarily related to, used in, held for use in connection with, or
necessary for the conduct of, or otherwise material to the Business (the "Owned
Intellectual Property"). Sellers own or have the exclusive right to use
pursuant to license, sublicense, agreement or permission all Owned Intellectual
Property, free from any Liens and free from any requirement of any past,
present or future royalty payments, license fees, charges or other payments, or
conditions or restrictions whatsoever. To the Sellers' knowledge, the Owned
Intellectual Property comprise all of the Intellectual Property necessary for
the Buyer to conduct and operate the Business as now being conducted by
Sellers.

(b) Transfer. Immediately after the Closing, Buyer will own
all of the Owned Intellectual Property and, except with respect to the Note,
will have a right to use the Owned Intellectual Property, free from any Liens
and on the same terms and conditions as in effect prior to the Closing.

(c) No Infringement. The conduct of the Business does not
infringe or otherwise conflict with any rights of any Person in respect of any
Owned Intellectual Property. To the knowledge of Sellers after due inquiry, none
of the Owned Intellectual Property is being infringed or otherwise used or
available for use, by any other Person.

(d) Licensing Arrangements. Schedule 3.14(d) sets forth all
material agreements, arrangements or laws (i) pursuant to which Sellers have
licensed Owned Intellectual Property to, or the use of Owned Intellectual
Property is otherwise permitted (through non-assertion, settlement or similar
agreements or otherwise) by, any other Person and (ii) pursuant to which Sellers
have had Intellectual Property licensed to it, or has otherwise been permitted
to use Intellectual Property (through non-assertion, settlement or similar
agreements or otherwise). All of the agreements or arrangements set forth on
Schedule 3.14(d) (x) are in full force and effect in accordance with their terms
and no default exists thereunder by Sellers, or to the knowledge of Sellers
after due inquiry, by any other party thereto, (y) are free and clear of all
Liens, and (z) do not contain any change in control or other terms or conditions
that will become applicable or inapplicable as a result of the consummation of
the transactions contemplated by this Agreement. Each of the Sellers has
delivered to Buyer true and complete copies of all licenses and arrangements
(including amendments) set forth on Schedule 3.14(d).

(e) No Intellectual Property Litigation. No claim or demand of
any Person has been made nor is there any proceeding that is pending, or to the
knowledge of Sellers after due inquiry, threatened, nor is there a reasonable
basis therefor, which (i) challenges the rights of Sellers in respect of any
Owned Intellectual Property, (ii) asserts that any of the Sellers

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is infringing or otherwise in conflict with, or is, except as set forth in
Schedule 3.14(d), required to pay any royalty, license fee, charge or other
amount with regard to, any Owned Intellectual Property, or (iii) claims that any
default exists under any agreement or arrangement listed on Schedule 3.14(d).
None of the Owned Intellectual Property is subject to any outstanding order,
ruling, decree, judgment or stipulation by or with any court, arbitrator, or
administrative agency, or has been the subject of any litigation within the last
five years, whether or not resolved in favor of Sellers.

(f) Due Registration, Etc. The Owned Intellectual Property has
been duly registered with, filed in or issued by, as the case may be, the
United States Patent and Trademark Office, United States Copyright Office or
such other filing offices, domestic or foreign, and Sellers have taken such
other actions, to ensure full protection under any applicable laws or
regulations, and such registrations, filings, issuances and other actions
remain in full force and effect, in each case to the extent material to the
Business.

(g) Use of Name and Mark. To the Sellers' knowledge, there
are, and immediately after the Closing will be, no contractual restriction or
limitations pursuant to any orders, decisions, injunctions, judgments, awards
or decrees of any governmental authority on the Buyer's right to use the name
and mark "KnowledgeWorks" and "CourseFactory" in the conduct of the Business as
presently carried on by Sellers.

For purposes of this Agreement "Intellectual Property" shall
mean any and all United States and foreign: (a) patents (including design
patents, industrial designs and utility models) and patent applications
(including docketed patent disclosures awaiting filing, reissues, divisions,
continuations-in-part and extensions), patent disclosures awaiting filing a
determination, inventions and improvements thereto; (b) trademarks, service
marks, trade names, trade dress, logos, business and product names, slogans, and
registrations and applications for registration there-of; (c) copyrights
(including software) and registrations thereof; (d) inventions, processes,
designs, formulae, trade secrets, know-how, industrial models, confidential and
technical information, manufacturing, engineering and technical drawings,
product specifications and confidential business information; (e) mask work and
other semiconductor chip rights and registrations thereof; (f) intellectual
property rights similar to any of the foregoing; and (g) copies and tangible
embodiments thereof (in whatever form or medium, including electronic media).

3.15 INSURANCE. Schedule 3.15 contains a complete and correct list and
summary description of all insurance policies maintained by Sellers for the
benefit of or in connection with the Assets or the Business. Sellers have
delivered to the Buyer complete and correct copies of all such policies together
with all riders and amendments thereto. Such policies are in full force and
effect, and all premiums due hereon have been paid. Sellers have complied in all
material respects with the terms and provisions of such policies. The insurance
coverage provided by such policies is adequate and customary for the Business.
Schedule 3.15 sets out all claims made by Sellers under any policy of insurance
during the past two years with respect to the Business and in the opinion of
Sellers reasonably formed and held, there is no basis on which a claim should or
could be made under any such policy with respect to it.

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3.16 ENVIRONMENTAL MATTERS. Sellers and their respective affiliates have
complied and are in compliance in all material respects with all Applicable Laws
relating to the protection of the environment, to human health and safety, or to
any emission, discharge, generation, processing, storage, holding, abatement,
existence, release, threatened release or transportation of any hazardous
substances pertaining to the Business. None of the Sellers nor any of their
affiliates has caused or taken any action that has resulted or may result in, or
has been or is subject to, any liability or obligation relating to (i) the
environmental conditions on, under, or about any real property, the Assets or
other properties or assets owned, leased or used by Sellers held for use in
connection with, necessary for the conduct of, or otherwise material to, the
Business, or (ii) the past or present use, management, handling, transport,
treatment, generation, storage or release of any hazardous substances, except
for any such liabilities and obligations that, individually and in the
aggregate, are not material to the Business and have not had or resulted in, and
will not have or result in, a Material Adverse Effect.

3.17 EMPLOYEES, LABOR MATTERS, ETC. None of the Sellers is a party to or
bound by any collective bargaining agreement and there are no labor unions or
other organizations representing, purporting to represent or attempting to
represent any employees employed in the operation of the Business. There has not
occurred or, to the best knowledge of Sellers after due inquiry, been threatened
any material strike, slowdown, picketing, work stoppage, concerted refusal to
work overtime or other similar labor activity with respect to any employees
employed in the operation of the Business. There are no labor disputes currently
subject to any grievance procedure, arbitration or litigation and there is no
representation petition pending or, to the best knowledge of Sellers after due
inquiry, threatened with respect to any employee employed in the operation of
the Business. Sellers have complied with all provisions of Applicable Law
pertaining to the employment of employees, including, without limitation, all
Applicable Laws relating to labor relations, equal employment, fair employment
practices, entitlements, prohibited discrimination or other similar employment
practices or acts, except for any failure so to comply that, individually or
together with all such other failures, has not and will not result in a material
liability or obligation on the part of Buyer or the Business, and has not had or
resulted in, and will not have or result in, a Material Adverse Effect.

3.18 EMPLOYEE BENEFIT PLANS AND RELATED MATTERS. The Sellers do not have
any employee benefit plan, as such term is defined in section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), whether
or not subject to ERISA, and each bonus, incentive or deferred compensation,
severance, termination, retention, change of control, stock option, stock
appreciation, stock purchase, phantom stock or other equity-based, performance
or other employee or retiree benefit or compensation plan, program, arrangement,
agreement, policy or understanding, whether written or unwritten, that provides
or may provide benefits or compensation in respect of any employee or former
employee employed or formerly employed in the operation of the Business or the
beneficiaries or dependents of any such employee or former employee (such
employees, former employees, beneficiaries and dependents collectively, the
"Employees") or under which any Employee is or may become eligible to
participate or derive a benefit and that is or has been maintained or
established by Sellers or any other trade or business, whether or not
incorporated, which, together with Sellers is or would have been at any date of
determination occurring within the preceding six years treated as a single
employer under section 414 of the Code (such other trades and businesses
collectively, the

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"Related Persons"), or to which Sellers or any Related Person contributes or is
or has been obligated or required to contribute or with respect to which Sellers
or the Business may have any liability or obligation.

3.19 BROKERS, FINDERS, ETC. All negotiations relating to this
Agreement, and the transactions contemplated hereby, have been carried on
without the participation of any Person acting on behalf of Sellers or their
respective Affiliates in such manner as to give rise to any valid claim against
Buyer or any of its subsidiaries for any brokerage or finder's commission, fee
or similar compensation, or for any bonus payable to any officer, director,
employee, agent or sales representative of or consultant to Sellers or their
respective affiliates upon consummation of the transactions contemplated hereby
or thereby.

3.20 YEAR 2000.

(a) Sellers hereby represent and warrant to Buyer that no
action by the Sellers have caused the hardware, software, and embedded
microcontrollers in non-computer equipment (the "Computer Systems") used by
Sellers in the Business not to be Year 2000 compliant. Sellers further
represents and warrants that it has received absolute certification from the
critical service providers it relies upon that their delivery of services and
products to Sellers with respect to the Business will not be disrupted by Year
2000 issues.

(b) For purposes of this provision, Year 2000 compliant shall
mean that the Computer Systems meet each of the following criteria:

(1) the functions, calculations, and other computing processes
of the Computer Systems (collectively, "Processes") perform in a consistent
manner regardless of the date in time on which the Processes are actually
performed and regardless of the date data input to the Computer Systems, whether
before, on, during or after January 1, 2000 and whether or not the date data is
affected by leap years;

(2) the Computer Systems accept, calculate, compare, sort,
extract, sequence, and otherwise process date data, and return and display date
data, in a consistent manner regardless of the dates used in such date data,
whether before, on, during or after January 1, 2000;

(3) the Computer Systems will function without interruptions
caused by the date in time on which the Processes are actually performed or by
the date data input to the Computer Systems, whether before, on, during or after
January 1, 2000;

(4) the Computer Systems accept and respond to two-digit
year-date input in a manner that resolves any ambiguities as to the century in a
defined, predetermined, and appropriate manner;

(5) the Computer Systems store and display date data in ways
that are unambiguous as to the determination of the century, and

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(6) no date data will cause the Computer Systems to perform an
abnormally ending routine or function within the Processes or generate incorrect
values or invalid results.

3.21 DISCLOSURE. No representation or warranty by Sellers contained in
this Agreement nor any statement or certificate furnished or to be furnished by
or on behalf of Sellers to Buyer or its representatives in connection herewith
or pursuant hereto contains or will contain any untrue statement of a material
fact, or omits or will omit to state any material fact required to make the
statements contained herein or therein not misleading.

SECTION 4
BUYER'S REPRESENTATIONS AND WARRANTIES

Buyer represents and warrants to Sellers that the statements
contained in this Section 4 are correct as of the date of this Agreement, except
as otherwise set forth in the schedules attached hereto.

4.1 CORPORATE STATUS; AUTHORIZATION, ETC. Buyer is a limited liability
company duly organized, validly existing and in good standing, under the laws of
the jurisdiction of its incorporation with full corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery by
Buyer of this Agreement, and the consummation of the transactions contemplated
hereby, have been, duly authorized by all requisite corporate action of Buyer.
Buyer has duly executed and delivered this Agreement. This Agreement is a valid
and legally binding obligation of Buyer, enforceable against Buyer in accordance
with its respective terms.

4.2 NO CONFLICTS, ETC. The execution, delivery and performance by Buyer of
this Agreement, and the consummation of the transactions contemplated hereby, do
not and will not conflict with or result in a violation of or under (with or
without the giving of notice or the lapse of time, or both) (i) the Articles of
Organization or Operating Agreement or other organizational documents of Buyer,
(ii) any Applicable Law applicable to Buyer or any of its properties or assets
or (iii) any contract, agreement or other instrument applicable to Buyer or any
of its properties or assets, except, in the case of clause (iii), for violations
and defaults that, individually and in the aggregate, have not and will not
materially impair the ability of Buyer to perform its obligations under this
Agreement. No Consent is required to be obtained or made by Buyer in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.

4.3 LITIGATION. There is no action, claim, suit or proceeding pending, or
to Buyer's knowledge threatened, by or against or affecting Buyer in connection
with or relating to the transactions contemplated by this Agreement or of any
action taken or to be taken in connection herewith or the consummation of the
transactions contemplated hereby.

4.4 BROKERS, FINDERS, ETC. All negotiations relating to this Agreement and
the transactions contemplated hereby have been carried on without the
participation of any Person

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acting on behalf of Buyer in such manner as to give rise to any valid claim
against Sellers for any brokerage or finder's commission, fee or similar
compensation.

SECTION 5
ADDITIONAL AGREEMENTS

5.1 SELLERS NON-COMPETITION.

(a) Until the end of the four (4) year period following the
Closing Date, Sellers shall not, and to the extent it is within Sellers' control
shall cause their affiliates not to, for any reason whatsoever, directly or
indirectly, for itself or on behalf of or in conjunction with any other person,
persons, company, partnership, corporation, business or other entity of whatever
nature:

(i) engage, as a shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an independent contractor,
consultant or advisor, or as a sales representative, in any business selling any
products or services in competition with the selling of downloadable, print
based course and related print-based training materials for use by individuals
or entities as either self-paced or instructor led course or related print-based
training material (the "Sellers Restricted Business");

(ii) call upon any person who is, at that time, an
employee of Buyer for the purpose or with the intent of enticing such
employee away from or out of the employ of Buyer or the Company; or

(iii) market, promote or sell to any of the Sellers'
past, current or potential customers any of the business services described in
or which are consistent with Sellers Restricted Business.

(b) Damages. Because of the difficulty of measuring economic
losses to Buyer as a result of a breach of the foregoing covenant, and because
of the immediate and irreparable damage that could be caused to Buyer for which
it would have no other adequate remedy, Sellers agrees that the foregoing
covenant may be enforced by Buyer in the event of breach by Sellers, by
injunctions and restraining orders.

(c) Reasonable Restraint. Buyer and Sellers agree that the
foregoing covenants in this Section 5.1 impose a reasonable restraint on Sellers
in light of the activities and business of Buyer on the date of the execution of
this Agreement and the current plans of Buyer; but it is also the intent of
Buyer and Sellers that such covenants be construed and enforced in accordance
with the changing activities and business of Buyer throughout the term of this
covenant.

(d) Severability; Reformation. The covenants in this Section
5.1 are severable and separate, and the unenforceability of any specific
covenant shall not affect the provisions of any other covenant. Moreover, in the
event any court of competent jurisdiction

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shall determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the Buyer and Sellers that such
restrictions be enforced to the fullest extent which the court deems reasonable,
and the Agreement shall thereby be reformed.

(e) Independent Covenant. All of the covenants in this Section
5.1 shall be construed as an agreement independent of any other provision in
this Agreement, and the existence of any claim or cause of action of Sellers
against Buyer, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by Buyer of such covenants. It is
specifically agreed that the period of noncompetition stated at Section 5.1(a),
during which the agreements and covenants of Sellers made in this Section 5.1
shall be effective, shall be computed by excluding from such computation any
time during which any Seller is found by a court of competent jurisdiction to
have been in violation of any provision of this Section 5.1. The covenants
contained in Section 5.1 shall not be affected by any breach of any other
provision hereof by either party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.

(f) Materiality. Sellers hereby agree that the covenants set
forth in this Section 5.1 are a material and substantial part of the
transactions contemplated by this Agreement.

5.2 BUYERS NON-COMPETITION.

(a) Provided that Seller shall be actively involved in selling
online training and education, until the end of the two (2) year period
following the Closing Date, without the prior written consent of the Sellers,
Buyer shall not, and shall cause its affiliates not to, for any reason
whatsoever, directly or indirectly, for itself or on behalf of or in conjunction
with any other person, persons, company, partnership, corporation, business or
other entity of whatever nature engage, as a shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an independent contractor,
consultant or advisor, or as a sales representative, in any business selling
online training and education in competition with Sellers' business as currently
marketed and conducted as of the date of this agreement, other than the Sellers
Restricted Business;

(b) Damages. Because of the difficulty of measuring economic
losses to Sellers as a result of a breach of the foregoing covenant, and because
of the immediate and irreparable damage that could be caused to Sellers for
which it would have no other adequate remedy, Buyer agrees that the foregoing
covenant may be enforced by Sellers in the event of breach by Buyer , by
injunctions and restraining orders.

(c) Reasonable Restraint. Buyer and Sellers agree that the
foregoing covenants in this Section 5.2 impose a reasonable restraint on Buyer
in light of the activities and business of Sellers on the date of the execution
of this Agreement and the current plans of Sellers; but it is also the intent of
Buyer and Sellers that such covenants be construed and enforced in accordance
with the changing activities and business of Sellers throughout the term of this
covenant.

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(d) Severability; Reformation. The covenants in this Section
5.2 are severable and separate, and the unenforceability of any specific
covenant shall not affect the provisions of any other covenant. Moreover, in the
event any court of competent jurisdiction shall determine that the scope, time
or territorial restrictions set forth are unreasonable, then it is the intention
of the Buyer and Sellers that such restrictions be enforced to the fullest
extent which the court deems reasonable, and the Agreement shall thereby be
reformed.

(e) Independent Covenant. All of the covenants in this Section
5.2 shall be construed as an agreement independent of any other provision in
this Agreement, and the existence of any claim or cause of action of Sellers
against Buyer, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by Sellers of such covenants. It is
specifically agreed that the period of noncompetition stated at Section 5.2(a),
during which the agreements and covenants of Sellers made in this Section 5.2
shall be effective, shall be computed by excluding from such computation any
time during which such Sellers is found by a court of competent jurisdiction to
have been in violation of any provision of this Section 5.2. The covenants
contained in Section 5.2 shall not be affected by any breach of any other
provision hereof by either party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.

(f) Materiality. Buyer hereby agrees that the covenants set
forth in this Section 5.2 are a material and substantial part of the
transactions contemplated by this Agreement.

5.3 NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Sellers will not disclose
the customer names, addresses and/or any other confidential information relating
to the Business to any person, firm, corporation, association or other entity
for any purpose or reason whatsoever for five years after the Closing Date,
except to authorized representatives of Buyer; provided, however, that Sellers
may disclose the information in response to any legally enforceable summons or
subpoena or in order to comply with any order, law, ruling or regulation
applicable to Sellers. If Sellers become legally compelled to disclose such
confidential information, Sellers will provide Buyer with prompt notice of such
requirement so that Buyer may seek a protective order or other appropriate
remedy.

5.4 NO SOLICITATION. In consideration of the substantial expenses which
Buyer will incur in pursuing the due diligence process, provided that this
Agreement has not been terminated pursuant to Section 7, until closing, Sellers,
their officers, directors, employees, agents and representatives shall not sell,
offer or agree to sell or conduct any negotiation to sell any or all of the
Assets to any other person or entity other than Buyer, other than sales in the
normal course of the Business, or provide any information to any other person or
entity for any purpose inconsistent with this Agreement, or fail to negotiate in
good faith.

5.5 FEES AND EXPENSES. Whether or not the transactions herein contemplated
are consummated, (i) Sellers will pay the fees, expenses and disbursements of
Sellers and their agents, representatives, accountants and counsel incurred in
connection with the subject matter of this Agreement and any amendments hereto,
and (ii) Buyer will pay the fees, expenses and

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disbursements of Buyer and its agents, representatives, accountants and counsel
incurred in connection with the subject matter of this Agreement and any
amendments hereto.

5.6 PRESS RELEASES. Neither party will disclose to any third party or
issue any press release or otherwise publicize the terms of the Agreement
without the consent or approval of the other party; however, each party may make
such public disclosure that it believes in good faith to be required by any law.

5.7 CUSTOMER LETTERS. Immediately after the Closing, Buyer and Sellers
will jointly prepare a letter to be sent by Buyer, at Buyer's expense, informing
the customers whose contracts have been sold and transferred pursuant to this
Agreement, of such sale under this Agreement. Buyer agrees not to disclose the
transactions contemplated by this Agreement to any customers without the consent
of the Sellers.

5.8 SALES, TRANSFER AND DOCUMENTARY TAXES, ETC. All federal, state and
local sales, documentary and other transfer taxes, if any, due as a result of
the purchase, sale or transfer of the Assets in accordance herewith will be paid
by the party against whom they are imposed by law. All real and personal
property taxes shall be prorated through the Closing Date, with Sellers
responsible for the portion of such taxes through Closing Date and Buyer
responsible for the share of such taxes for the period after the Closing Date.

5.9 ACCOUNTS RECEIVABLE. Sellers shall be responsible for all trade
payables related to the Contracts including those related to the Business for
periods prior to Closing. Sellers shall be entitled to all accounts receivable
for all work or work in progress performed prior to Closing and the parties
shall cooperate to report to each other relating to any such payments or
obligations. Following the Closing Date, Buyer shall forward to Sellers any
payments received by Buyer that Sellers are entitled to pursuant to the terms of
this Agreement (including in respect of accounts receivable existing as of the
Closing) and Sellers shall forward to Buyer any payments received by Sellers
that Buyer is entitled to pursuant to the terms of this Agreement, in each case
within one week of receipt of any such payment by Buyer or Sellers, as the case
may be. Buyer shall promptly deliver to Sellers any mail or other communications
received by Buyer relating to assets not sold to Buyer and to retained
liabilities and Sellers shall promptly deliver to Buyer any mail or other
communications received by Sellers relating to the Assets or the Assumed
Liabilities.

5.10 CORPORATE NAME. At Closing, Sellers shall assign to Buyer all of its
right, title and interest to the corporate and trade names associated with
"KnowledgeWorks" and any variations thereof and trade or service marks relating
thereto and will promptly discontinue use of such names and marks after the
Closing Date and cause all public records to be amended to reflect the proper
ownership of such names and marks. In addition, Sellers hereby agree to forego
any rights, title and interest to the corporate and trade names associated with
"CourseFactory" and any variations thereof and trade or service marks relating
thereto.

5.11 ACCESS AND INFORMATION. So long as this Agreement remains in effect,
Sellers will give Buyer, the Buyer's prospective lenders and investors, and
their respective accountants, counsel, consultants, employees and agents, full
access during normal business hours to, and furnish them with all documents,
records, work papers and information with respect to, all of

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such person's properties, assets, books, contracts, commitments, reports and
records relating to the Business, as Buyer shall from time to time reasonably
request. In addition, Sellers will permit Buyer, Buyer's prospective lenders and
investors, and their respective accountants, counsel, consultants, employees and
agents, reasonable access to such personnel of Sellers during normal business
hours as may be necessary or useful to Buyer in its review of the properties,
assets and business affairs of the Business and the above-mentioned documents,
records and information.

5.12 TRANSFERRED EMPLOYEES. Effective as of the Closing Date, Buyer shall
offer employment to certain employees of Sellers to be named prior to the
Closing Date on terms acceptable to Buyer. Those employees who accept such
offers of employment effective as of the Closing Date shall be referred to
herein as the "Transferred Employees." The Sellers shall remain liable in
respect of the Transferred Employees for any liabilities, accrued but unpaid
salaries, wages, vacation and sick pay and incentive compensation accruing
prior to the Closing Date. Sellers shall also remain responsible for payment of
any and all retention, change in control or other similar compensation or
benefits which are or may become payable in connection with the consummation of
the transactions contemplated by this Agreement.

5.13 ACCESS TO E-COMMERCE APPLICATION. Buyer shall have the right, at
Buyer's expense, prior to the Closing Date, to access the e-commerce application
purchased pursuant to this Agreement.

SECTION 6
TRANSITION PERIOD

For a period beginning on the Closing Date of this Agreement and ending no
more than ninety (90) days subsequent to the Closing Date (the "Transition
Period"), Sellers shall assist Buyer in the transition of the Business,
including accounting and administrative and other support of a nature as
previously rendered by Sellers to the Business as reasonably requested by Buyer
and at Seller's sole expense. Sellers shall also provide a reasonable amount of
technical support services during the Transition Period to ensure that the
Netscape Merchant System operates in a manner consistent with its operation
prior to the Closing Date. During the Transition Period, Sellers will also
provide all necessary equipment to Buyer at no cost to operate the Business
consistent with past practice. Subsequent to the Transition Period, Sellers will
make such equipment available upon mutually acceptable terms.

SECTION 7
CONDITIONS PRECEDENT TO OBLIGATIONS

7.1 CONDITIONS TO OBLIGATIONS OF BUYER. Each and every obligation of Buyer
to be performed at or after the Closing shall be subject to the satisfaction as
of or before the Closing Date of the following conditions (unless waived in
writing by Buyer):

(a) Representations and Warranties. Seller's representations
and warranties set forth in Section 3.1 of this Agreement shall have been true
and correct in all material respects as of the date hereof and shall be true and
correct in all material respects at and

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<PAGE> 18

as of the Closing Date as if such representations and warranties were made as of
such date and time.

(b) Performance of Agreement. All covenants, conditions and
other obligations under this Agreement which are to be performed or complied
with by Sellers at or prior to the Closing Date shall have been performed and
complied with in all material respects at or prior to the Closing Date.

(c) No Material Adverse Change. There shall have been no
material adverse change in the financial condition, business or properties of
Sellers which materially adversely affects the conduct of the Business as
presently being conducted or the condition or business prospects, financial or
otherwise, of the Business.

(d) Absence of Governmental or Other Objection. There shall be
no pending or overtly threatened lawsuit challenging the transaction by any body
or agency of the federal, state or local government or by any third party, and
the consummation of the transaction shall not have been enjoined by a court of
competent jurisdiction as of the Closing Date.

(e) Due Diligence Review. Buyer shall be fully satisfied in
its sole and absolute discretion with the results of its final due diligence
review of the Business.

(f) Employment Agreements. The Transferred Employees shall
have executed and delivered employment agreements in the form acceptable to the
Buyer and such employees.

(g) Certificate of President. Sellers shall have delivered to
Buyer at the Closing a certificate executed by its President, dated the date of
the Closing, to the effect that the conditions set forth in subsections (a)-(c)
of this Section 7.1, have been satisfied.

(h) Approval of Documentation. The form and substance of all
certificates, instruments and other documents delivered or to be delivered to
Buyer under this Agreement shall be reasonably satisfactory to Buyer and its
counsel in all reasonable respects.

(i) Financing. Buyer shall have received adequate financing on
terms satisfactory to Buyer in its sole discretion.

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<PAGE> 19

7.2 CONDITIONS TO OBLIGATIONS OF SELLERS. Each and every obligation of
Sellers to be performed at or after the Closing Date shall be subject to the
satisfaction as of or before such time of the following conditions (unless
waived in writing by Sellers):

(a) Representations and Warranties. Buyer's representations
and warranties set forth in Section 4 of this Agreement shall have been true and
correct in all material respects as of the date hereof and shall be true and
correct in all material respects at and as of the Closing Date as if such
representations and warranties were made as of such time and date.

(b) Performance of Agreement. All covenants, conditions and
other obligations under this Agreement which are to be performed or complied
with by Buyer at or prior to the Closing Date shall have been performed and
complied with in all material respects at or prior to the Closing Date.

(c) Absence of Governmental or Other Objection. There shall be
no pending or overtly threatened lawsuit challenging the transaction by any body
or agency of the federal, state or local government or by any third party, and
the consummation of the transaction shall not have been enjoined by a court of
competent jurisdiction as of the Closing Date.

(d) Certificates. Buyer shall have delivered to Sellers at the
Closing a certificate, dated the date of the Closing, executed by its President,
to the effect that the conditions set forth in subsections (a) and (b) of this
Section 7.2 have been satisfied.

(e) Approval of Documentation. The form and substance of all
certificates, instruments and other documents delivered or to be delivered to
Sellers under this Agreement shall be reasonably satisfactory to Sellers and
Seller's general counsel in all reasonable respects.

(f) Absence of Governmental or Other Objection. There shall be
no pending or overtly threatened lawsuit challenging the transaction by any body
or agency of the federal, state or local government or by any third party, and
the consummation of the transaction shall not have been enjoined by a court of
competent jurisdiction as of the Closing Date.

SECTION 8
TERMINATION

8.1. TERMINATION. This Agreement may be terminated at any time prior
to the Closing Date:

(a) by the written agreement of the Buyer and Sellers;

(b) by Seller in accordance with Section 2 hereof;

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<PAGE> 20

(c) by either Sellers or the Buyer by written notice to the
other party if the transactions contemplated hereby shall not have been
consummated pursuant hereto by 5:00 p.m. on June 30, 1999, unless such date
shall be extended by the mutual written consent of Sellers and Buyer;

(d) by Buyer by written notice to Sellers if (i) the
representations and warranties of Sellers shall not have been true and correct
in all respects (in the case of any representation or warranty containing any
materiality qualification) or in all material respects (in the case of any
representation or warranty without any materiality qualification) as of the date
when made or (ii) if any of the conditions set forth in Section 7.1 shall not
have been, or if it becomes apparent that any of such conditions will not be,
fulfilled by 5:00 p.m. on June 30, 1999, unless such failure shall be due to the
failure of the Buyer to perform or comply with any of the covenants, agreements
or conditions hereof to be performed or complied with by it prior to the
Closing; or

(e) by Sellers by written notice to the Buyer if (i) the
representations and warranties of the Buyer shall not have been true and correct
in all respects (in the case of any representation or warranty containing any
materiality qualification) or in all material respects (in the case of any
representation or warranty without any materiality qualification) as of the date
when made or (ii) if any of the conditions set forth in Section 7.2 shall not
have been, or if becomes apparent that any of such conditions will not be,
fulfilled by 5:00 p.m. on June 30, 1999, unless such failure shall be due to the
failure of Sellers to perform or comply with any of the covenants, agreements or
conditions hereof to be performed or complied with by it prior to the Closing.

8.2. EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to the provisions of Section 8.1, this Agreement shall become
void and have no effect, without any liability to Buyer and Sellers in respect
hereof or of the transactions contemplated hereby on the part of any party
hereto, or any of its directors, officers, employees, agents, consultants,
representatives, advisers, stockholders or affiliates, except (i) with respect
to the refund of the deposit set forth in Section 1.7, (ii) as specified in
Section 5.2, Section 5.3 and Section 5.4 and (iii) for any liability resulting
from such party's breach of this Agreement.

SECTION 9
INDEMNIFICATION;DEFAULT

9.1 INDEMNITY BY SELLERS. Sellers will indemnify, defend and hold harmless
Buyer, its successors and assigns and their respective officers, directors,
employees, stockholders and agents (collectively, the "Buyer Indemnified
Persons") against all material claims, losses, liabilities, damages,
deficiencies, costs and expenses, including without limitation, reasonable
attorneys', accountants' and expert witness' fees, costs and expenses of
investigation, and the costs and expenses of enforcing this indemnification
(hereinafter individually a "Loss" and collectively "Losses") incurred by any
such Buyer Indemnified Person arising out of or related to (i) any Retained
Liability, (ii) any and all taxes of Sellers and affiliates of Sellers not
relating to the Business or (iii) any breach by Sellers of a representation or
warranty set forth in Section 3, or nonfulfillment of any agreement or covenant
to be performed by Sellers under this Agreement or in

20
<PAGE> 21

any writing delivered pursuant to the provisions of this Agreement or out of or
relating to the obligations of Sellers, arising prior to the Closing Date. The
obligations of indemnity of Sellers under this Section 9.1 will not exceed the
amount of the Purchase Price, excluding interest thereon, actually received by
Sellers.

9.2 INDEMNITY BY BUYER. Buyer covenants and agrees that it will indemnify
and hold harmless Sellers, its successors and assigns and their respective
officers, directors, employees, stockholders and agents (collectively the
"Sellers Indemnified Persons"), after the Closing, against any and all Losses
arising out of or related to any breach by Buyer of a representation or warranty
set forth in Section 4, or nonfulfillment of any agreement or covenant to be
performed by Buyer under this Agreement or in any writing delivered pursuant to
the provisions of this Agreement and out of or relating to the obligations and
Contracts assumed hereunder.

9.3 DEFAULT. In the event that any party (the "Defaulting Party") defaults
in his or its obligations under this Agreement and, as a result thereof, the
other party (the "Non-Defaulting Party") is successful in legally enforcing its
rights hereunder against the Defaulting Party, then, in addition to all damages
and other remedies to which the Non-Defaulting Party is entitled by reason of
such default, including specific performance, the Defaulting Party shall
promptly pay to the Non-Defaulting Party an amount equal to all costs and
expenses (including reasonable attorneys' fees) paid or incurred by the
Non-Defaulting Party in connection with such enforcement.

SECTION 10
GENERAL

10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the parties contained in this Agreement or other attachments
hereto delivered pursuant to the provisions of this Agreement will survive the
consummation of the transactions contemplated hereby and any examination on
behalf of the parties in accordance with the terms of this Agreement and shall
continue in full force and effect thereafter for a period of two (2) years
following the Closing Date.

10.2 ASSIGNMENT. This Agreement may not be assigned (including by
operation of law) without the prior written consent of the other parties, which
consent will not be unreasonably withheld; provided, however, any party may
assign its rights, but may not delegate its duties or obligations hereunder, to
its affiliates or a purchaser by merger or otherwise of all of substantially all
of its business.

10.3 ARBITRATION. Any controversy or claim arising out of or related to
this Agreement, or any transactions contemplated herein, that cannot be amicably
resolved, including, without limitation, whether such controversy or claim is
subject to arbitration, will be resolved by binding arbitration held in McLean,
Virginia, in accordance with the commercial arbitration rules of the American
Arbitration Association, subject to this Section. Arbitration proceedings will
be conducted by a panel of three persons selected as follows. The party
initiating arbitration will select one arbitrator listed and qualified with the
American Arbitration Association ("Qualified

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<PAGE> 22

Arbitrator") and the other party will select a second Qualified Arbitrator, both
within 10 days of any written notice to arbitrate. The two arbitrators will
select a third Qualified Arbitrator within 20 days of the appointment of the
first two arbitrators. No arbitrator will have or previously have had any
significant relationship with any of the parties. The decision of any two of the
arbitrators on any submitted matter will be final and nonappealable.
Notwithstanding the foregoing, if the controversy or claim in question is not
resolved by the arbitrators as provided herein within 150 days after selection
of the first arbitrator, either party may pursue any remedy with respect hereto
provided by law.

10.4 NOTICES. Any notice or communication required or permitted hereunder
will be sufficiently given if sent by first class mail, postage prepaid:

(a) If to Sellers, addressed to:
UOL Publishing, Inc.
8251 Greensboro Drive, Suite 500
McLean, Virginia 22101

With a copy to its counsel, addressed to:

Wyrick Robbins Yates & Ponton LLP
4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27607
Attention: Larry E. Robbins, Esq.

(b) If to Buyer, addressed to:

3140 Wisconsin Avenue, N.W.
Apartment 204
Washington D.C. 20016
Attention: Gregg Levin

With a copy to its counsel, addressed to:

Venable, Baetjer & Howard
1800 Mercantile Bank & Trust Bldg.
2 Hopkins Plaza
Baltimore, MD 21201
Attention: Jan K. Guben, Esq.

10.5 APPLICABLE LAW. This Agreement will be construed in accordance with
the laws of the Commonwealth of Virginia, regardless of conflict of law
principles.

10.6 HEADINGS. The section and article headings in this Agreement are for
convenience only and will not be considered a part hereof or affect the
construction or interpretation of any provisions of this Agreement.

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<PAGE> 23

10.7 THIRD PARTY CONSENTS. To the extent that the rights of Sellers under
any Asset to be assigned to Buyer hereunder may not be assigned without the
consent of another person which has not been obtained, this Agreement will not
constitute an agreement to assign the same if an attempted assignment would
constitute a breach thereof or be unlawful, and Sellers will use their
reasonable efforts to obtain any such required consent(s) as promptly as
possible. If any such consent is not obtained or if any attempted assignment
would be ineffective or would impair Buyer's rights under the Asset in question
so that Buyer would not in effect acquire the benefit of all such rights,
Sellers, to the maximum extent permitted by law and the Asset, will act after
the Closing as Buyer's agent in order to obtain for it the benefits thereunder
and will cooperate, to the maximum extent permitted by law and the Asset, with
Buyer in any other reasonable arrangement satisfactory to all parties designed
to provide such benefits to Buyer, and Buyer will be responsible for the
reasonable costs and expenses of obtaining such benefits.

10.8 NO BENEFIT TO OTHERS. The representations, warranties, covenants and
agreements contained in this Agreement are for the sole benefit of the parties
hereto and, in the case of Section 8 hereof, the Indemnified Buyer Parties and
the Indemnified Sellers Parties, and their successors and assigns, and they will
not be construed as conferring any rights on any other persons.

10.9 ENTIRE AGREEMENT. This Agreement (including the exhibits and
schedules hereto) and the documents delivered pursuant hereto constitute the
entire agreement and understanding among Sellers and Buyer and supersede any
prior agreement and understanding relating to the subject matter of this
Agreement. This Agreement may be modified or amended only by a written
instrument executed by Sellers and Buyer acting through their duly elected
officers.

10.10 COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which will be deemed an original and all of which
together will constitute but one and the same instrument.

10.11 SEVERABILITY. The provisions of this Agreement are severable, so
that the invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other term or provision of this
Agreement, which shall remain in full force and effect.

10.12 SPECIFIC PERFORMANCE. In addition to any and all other remedies that
may be available at law in the event of any breach of this Agreement, Sellers
shall be entitled to specific performance of the agreements and obligations of
Buyer hereunder and to such other injunctive or other equitable relief as may be
granted by a court of competent jurisdiction.

[THE NEXT PAGE IS THE SIGNATURE PAGE.]

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<PAGE> 24

IN WITNESS WHEREOF, the parties have executed this Asset
Purchase Agreement as of the day and year first above written.

SELLERS:

HTR, INC.

ATTEST:

By: By:
-------------------------- --------------------------

Name: Name:
------------------------ --------------------------

Title: Title:
----------------------- --------------------------

UOL PUBLISHING, INC.

ATTEST:

By: By:
-------------------------- --------------------------

Name: Name:
------------------------ --------------------------

Title: Title:
----------------------- --------------------------

BUYER:

CourseFactory.com, LLC

ATTEST:

By: By:
-------------------------- --------------------------

Name: Name:
------------------------ --------------------------

Title: Title:
----------------------- --------------------------

<PAGE> 1

EXHIBIT 21.1

LIST OF SUBSIDIARIES

<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of Incorporation
- ------------------ -----------------------------
<S> <C>
Cognitive Training Associates, Inc. Texas
Cooper & Associates, Inc. Illinois
HTR, Inc. Delaware
UOL Leasing, Inc. Delaware
</TABLE>

<PAGE> 1

EXHIBIT 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 26, 1999, except for Note 10, as to which the
date is March 22, 1999, in the Registration Statement (Form S-1 No. __-_____)
and related Prospectus of UOL Publishing, Inc. for the registration of
5,494,466 shares of its common stock.

/s/ Ernst & Young LLP

Vienna, Virginia
July 26, 1999