PROSOFTTRAINING COM - 10-K Annual Report

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

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than historical or current facts, including, without limitation, statements about our business strategy, plans and objectives of management and our future prospects, are forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from these expectations. These risks and uncertainties are beyond our control and, in many cases, we cannot predict the risks and uncertainties that could cause our actual results to differ materially from those indicated by the forward-looking statements.

ProsoftTraining (the “Company” or “Prosoft” or “we” or “our”) is incorporated under the laws of the State of Nevada. From its incorporation in May 1985 until March 1996, the Company had no significant operations. Beginning in February 1995, the Company’s business was operated as a sole proprietorship (the “Proprietorship”). In December 1995, Pro-Soft Development Corp., a California corporation (“Old ProSoft”), was incorporated and acquired the business from the Proprietorship effective January 1, 1996. In March 1996, the Company entered into an Agreement and Plan of Reorganization (the “Reorganization Agreement”) with Old ProSoft and the Old ProSoft shareholders. Under the terms of the Reorganization Agreement, Old ProSoft shareholders received one share of Common Stock of the Company in exchange for each of their shares of Old ProSoft, and Old ProSoft became a wholly owned subsidiary of the Company (the “Reorganization”). As part of the Reorganization, all of the executive officers and directors of the Company resigned and the executive officers and directors of Old ProSoft became the executive officers and directors of the Company and the Company changed its name from Tel-Fed, Inc. to ProSoft Development, Inc. The Company changed its name to Prosoft I-Net Solutions, Inc. in October 1996, changed its name to ProsoftTraining.com in December 1998 and changed its name to ProsoftTraining in December 2001.

The Company’s Board of Directors engaged an investment banker in July 2002 to explore strategic options for the Company, including a sale of some or all of its assets and operations. We have been involved in discussions as the result of this engagement that could result in the sale of some or all of our assets or operations. As a step in this process, an interested party has submitted an indication of interest such that we have agreed to negotiate exclusively with that party for a three-week period through November 29, 2002 in an effort to determine if an acceptable offer for the sale of some or all of the Company’s assets or operations will be received from that party. There can be no assurance than an acceptable offer will be received from that party or any other party, and if an offer is received there can be no assurance that the offer will be made on terms acceptable to the Board of Directors. For additional information, see the “Risk to Continued Operation” on page 14.

Prosoft develops content for and distributes one of the largest libraries of Information and Communications Technology (“ICT”) curriculum in the world. Content revenue is derived from the sale of course materials in the form of books, CD-ROMs, self-study kits, assessment products, Internet-based course books, royalties and content licenses. The Company derives the majority of its content revenue from the sales of course books and related materials. Content licenses represent a minor portion of the Company’s revenue and are either purchased on a fee-per-use basis or for a one-time fee.

The Company’s content is focused on training and education for job-role and vendor-specific certifications. Recent trends in the market suggest that the combination of both job-role and vendor-specific curriculum is essential to serving the market’s skilled ICT labor needs today and in the future. Other products offered by Prosoft assist in developing proficiency in specific computer programs, programming languages or operating systems. As of July 2002, the Company’s library consisted of approximately 1,000 unique course titles covering software and hardware products, programming, and certification programs such as Microsoft, Oracle, Linux, A+, Network+, Cisco, Sun and the Company’s proprietary certification programs including CIW, CCNT, and CTP. Many of these titles are produced in multiple learning modalities such as instructor-led training (“ILT”), web-based training (“WBT”), computer-based training (“CBT”), assessment, and self-study. These products have also been combined into a “blended learning” offering called Classroom-in-a-Box.

Through the Company’s ComputerPREP division, Prosoft has built a distribution network with a wide range of customers including academic institutions, commercial training centers, corporations, and individuals worldwide. The Company provides products to a diverse client list that includes educators such as the University of Phoenix, New Horizons, Productivity Point, CompUSA, Executrain, MicroCenter, IBM, Ford, Lockheed Martin, Knowledge Alliance, NETg, Drake, SBC Communications, Siemens, Avaya, Expanets, and a broad variety of 4-year, community, and technical colleges. The learning center channel represented approximately 49 percent of Prosoft’s fiscal year 2002 content revenues, followed by 30 percent for academic and 17 percent for corporate customers.

ComputerPREP also manages an authorized channel of approximately 800 Authorized Training Providers (“ATP”) and Authorized Academic Partners (“AAP”) worldwide. Commercial channel partners pay a small membership fee for the rights to sell and teach Official Curriculum while academic channel partners agree to place a minimum courseware order.

ComputerPREP seeks to establish a competitive advantage by distributing in-house developed education solutions for IT job certifications such as CIW, A+, MOS (formerly MOUS) and Network+. ComputerPREP proprietary curriculum provides a comprehensive instructor-led learning solution that includes innovative features, integrates classroom and Web-based learning, and appeals to the widest variety of learners. ComputerPREP classroom materials for A+, Network+ and Linux+ earned the new CompTIA Authorized Quality Curriculum stamp of approval. The third-party review, conducted by ProCert Labs, states that it “highly recommends” the curriculum to ICT educators and learners. Sales of education solutions for these certifications provide the majority of the Company’s content revenue.

In the last year, ComputerPREP has released academic versions of all its major products and has pursued a focused initiative to increase revenue from the academic channel. ComputerPREP has agreements with the states of Louisiana, Oklahoma, Michigan, Virginia and Georgia for endorsement and distribution of CIW in their education systems. ComputerPREP education solutions include a classroom-based assessment that allows teachers to control questions and monitor scores. Academic products also include syllabi, extra labs, WebCT cartridges, Blackboard e-packs and other teaching aids that this channel demands. All these features can be purchased in a single package called Classroom-in-a-Box.

Prosoft distributes its content and maintains a direct sales presence in the EMEA region through its ProsoftTraining Europe Ltd. wholly owned subsidiary, based in Limerick, Ireland. In 2001, the Company formed ProsoftTraining Asia, based in Hong Kong, to expand its reach, develop partnerships, combat piracy of its products, and seek endorsements in the rapidly growing Asia Pacific region. Prosoft also distributes content through formal partnerships in Japan and South Korea.

As a result of ProsoftTraining Asia’s active involvement in Australia, Hong Kong, Singapore, India, and China, numerous endorsements of CIW and CCNT have been received. For example, during the last year, the Master CIW Administrator track was endorsed by the Hong Kong Computer Society and certified by the IT Training Quality and Certification Institute of Hong Kong. In addition, the CIW certification was accredited by Singapore’s National Infocomm Competency Centre and endorsed under the Critical Infocomm Technology Resource Programme. In China, Beijing Telecom will deliver CCNT educational programs as part of its company wide employee-training program and will act as the master distributor of CCNT education and testing for all of China.

Development Staff. The Company has built a library of proprietary content through a disciplined internal development process. Prosoft has a content development team of 28 people responsible to execute new product development and regularly update existing titles in its library. The team, located in Santa Ana, California and Phoenix, Arizona, is comprised of course directors, project managers, editors, publishers, subject matter experts, XML developers, and database managers. This team publishes updates to over 400 titles two times per year using a controlled and automated process.

Content, Process and Structure. The Company believes its commitment to frequently update its content to reflect the most recent technology, industry standards and “best practices” provides a competitive advantage. The Company develops content using its Proprietary Content Architecture (“PCA”). All proprietary content has been developed using PCA. This modular architecture allows Prosoft to create comprehensive products for instructors and students in both the learning center and academic channels from a single set of underlying content. The Company has developed and owns content for its major product lines including CIW, A+, MOS, Network+, Linux+, CTP and CCNT.

The Company owns and manages two proprietary job-role certifications, CIW and CCNT, and has developed and manages the CTP program for the Telecommunications Industry Association (“TIA”). Prosoft develops certification exams and provides candidates access to these exams primarily through commercial testing sites in the Prometric and VUE networks, which have more than 5,200 and 2,000 testing affiliates worldwide, respectively. These are the same testing services used by other leading certification providers such as Novell, Microsoft and Cisco. As the owner of the certification programs, the Company also creates official preparatory courseware and manages an authorized channel of official training centers. Within these programs, the Company develops certification exams that validate a level of knowledge related to a set of skills or topics. The CIW program focuses on job-role certification for Web, networking and security technologies, while the CCNT program targets basic data communications, basic telecommunications and telephony. The exams, which are published electronically through the testing provider network, generally cost between $95 and $195 in the United States. Entry-level certifications may only require a single exam, while professional-level certifications typically require between three and seven exams. The certification programs have received the support and endorsement of non-profit, widely recognized organizations that have important visibility and credibility among policy makers, academic institutions and business. The Company also provides certification management services to organizations and associations that want to develop and promote their own ICT certifications.

The Company’s certification revenues primarily consist of student testing fees (approximately 78 percent of fiscal year 2002 certification revenues) and fees paid by learning institutions for participation in the Company’s authorized channel program (approximately 16 percent of fiscal year 2002 certification revenues). The certification segment represented $3.9 million, or 21 percent of Prosoft’s revenues during fiscal year 2002.

The Company believes it has certification revenue growth potential due to the shortage of ICT skills in today’s workforce and the increasing adoption of portable vendor-neutral job-role certifications. Even though many companies have reduced their ICT staff, research published in May 2002 by the Information Technology Association of America indicates an ICT skills shortage continues to exist.

Through its successful creation and development of the CIW and CCNT certification programs, the Company proved its ability to develop certifications, develop supporting content to provide education in support of those certifications, establish and develop proprietary distribution channels, implement testing delivery networks, build and implement certified faculty and instructor programs, and drive content demand through certification success. As a result of these successes, the Company was chosen by the TIA to develop, manage and serve as the official content provider for the CTP (Convergent Technologies Professional) certification program, which launched in July 2002.

With over 45,000 certifications earned by September 2002, the CIW program has become one of the largest certification programs among more than 350 ICT certifications. The certification covers job roles in network administration, security, application development, programming, Web design and e-commerce. Certification candidates have come from more than 100 countries. Prosoft owns both the CIW Certification and the Official CIW Curriculum.

The Company seeks to create more growth of CIW by promoting vendor-neutral job role standards in workforce development and academic communities. In the United States, CIW certification has received the support and endorsement of the National Workforce Center for Emerging Technology, and the states of Louisiana, Oklahoma, Michigan, Virginia and Georgia.

Internationally, CIW has also received recognition or endorsement from governmental and quasi-governmental organizations. As an example, the IT Training Quality and Certification Institute of Hong Kong and the Hong Kong Computer Society endorse the Master CIW Administrator curriculum along with the National Infocomm Competency Centre and Critical Infocomm Technology Resource Programme of Singapore.

In December 2000, Prosoft acquired Mastery Point Learning Systems. Mastery Point developed the CCNT certification program under the direction of the TIA to serve the needs of telephone companies and network service providers. CCNT is a vendor-neutral credential program for the convergence technology industry that validates an individual’s knowledge of basic data communications, basic telecommunications and telephony. Convergence technology (“CT”) is the merging of voice, video and data on a single network, integrating telecommunications and computer technologies. This six-test low-stakes program is supported by both classroom and Web-based e-learning courses. The Company’s CCNT exams and curriculum are sponsored and endorsed by the TIA. The Company believes that the CT industry is still emerging and presents future growth potential though current corporate customers for CCNT are experiencing significant economic difficulties.

Prosoft released the first industry-sponsored convergence technology certification in July 2002. Prosoft started working with the TIA in 2001 to fulfill its members’ need for a convergence certification for the customer-premise equipment side of the telecommunications industry. The CTP Certification Advisory Council was formed in January 2002 with representatives from Cisco, Avaya, IBM, Siemens, Nortel, Mitel and First Communications to provide assistance in creating the CTP certification exam. Prosoft also received the responsibility and right to create official courseware and an authorized training channel. In addition, Prosoft shares exam revenue with TIA for this program.

revenue includes fees received for (i) training the instructors of learning center providers and of companies that plan to conduct the Company’s courses internally, (ii) providing instructors to CIW ATPs or other companies to teach the Company’s courseware and (iii) consulting services in which the Company assists clients in the creation of or delivery of custom solutions. Prior to fiscal year 2002, services revenue included complete training programs provided under contract to companies such as IBM and Arthur Andersen.

Commercial Learning Centers. In fiscal year 2002 approximately 49 percent of the Company’s content revenue came from commercial learning centers. The commercial learning center channel is comprised of companies that provide individuals and corporations short-format courses in a commercial setting. Course length in this channel ranges from one day to two weeks. The primary customers of this channel are corporations looking for specialized training on technical topics. The commercial learning center channel is highly fragmented, with the largest companies responsible for less than 10 percent of the total market. Large chains in this channel are New Horizons, Learning Tree, CompUSA and Productivity Point. In fiscal year 2002 New Horizons and its franchisees accounted for approximately 14 percent of the Company’s content revenue. No other customer accounted for more than 5 percent of content revenue.

Academic Institutions. In fiscal year 2002 approximately 30 percent of the Company’s content revenue came from academic institutions. The academic channel is comprised of degree-granting institutions. Course length in this channel is tied to academic semesters. The primary customer of this channel is the individual who wants to earn a degree or certificate. This channel also provides “continuing education” in a format that competes directly with commercial learning centers. The academic channel is highly fragmented and no customer in this channel accounted for more than 5 percent of content revenue in fiscal year 2002.

Corporations. In fiscal year 2002 approximately 17 percent of the Company’s content revenue came from corporate customers. Internal training departments and corporate universities represent the majority of customers in this channel. These customers typically purchase the same products as commercial learning centers. Since this channel is the primary customer of the learning center channel, the Company’s sales force considers corporations a secondary channel and pursues it selectively. No customer in this channel accounted for more than 5 percent of content revenue in fiscal year 2002.

Each segment of our business is highly competitive, and there currently are only minor economic barriers to entry into any of them. We face competition from many other companies offering training and certification services and products, including the internal training department of corporations and publishing units of large corporations. Some of our competitors have access to greater resources and capital than are currently available to us. We compete in general ICT skills courseware with Element K, Thomson Learning and Pearson LLC, each of which has one or more subsidiaries that sells courseware. The trade association CompTIA offers i-Net+, a certification which competes with our CIW Associate certification. Trade associations such as Association of Web Professionals and World Organization of Webmasters also have either released or announced plans to offer certifications that compete with ours. Although individuals can and do earn multiple certifications, our certifications compete with certifications from Microsoft, Cisco and other large vendors. These vendors have more resources to attract candidates to their programs than does the Company.

Content Revenue. Content revenue includes fees received from the sale of course materials such as books, CD-ROMs, self-study kits, and Web-based course books and content licenses. We recognize content revenue from the sale of course books when they are shipped. We also recognize content revenue from content licenses of various types. Under a reproduction license, a customer purchases the right to print a textbook using that customer’s own cover page and introduction, while our content remains unchanged. Content licenses are either purchased on a fee-per-use basis or for a one-time fee. Revenue is recognized over the period in which we have a commitment for continuing involvement or obligation to provide services to the customer. In some cases, no such commitment exists, and revenue is recognized when content is shipped.

Certification Revenue. Certification revenue includes fees received from the administration of our certification tests and annual fees received from CIW ATPs. We recognize certification revenue when certification tests are administered, and from CIW ATPs over the period during which we have a commitment for continuing involvement or obligation to provide services to the CIW ATP.

Services Revenue. Services revenue includes fees received for training the instructors of our learning center providers and of companies that plan to conduct our courses internally. It also includes fees received for providing instructors to our CIW ATPs or other companies to teach our courseware. Finally, services revenue includes fees received for consulting services in which we assist our clients in creation or delivery of tailored solutions. Instructors are charged on a per day basis and consulting is charged on a time and materials or fixed-fee basis. We recognize services revenue when instruction or consulting services are provided.

We sell and market our courses to students mainly through a channel of learning centers and academic institutions. As of September 30, 2002, we had 43 people directly involved in sales, marketing and customer support in the United States, Hong Kong, and Ireland. Our customer service organization in Phoenix, Arizona accepts, enters and reviews courseware orders. Because many customers need to make last-minute adjustments or wait to order courseware until a few days before a class starts, our quick response capability is a competitive advantage.

Our revenue and income can vary from quarter to quarter due to seasonal and other factors. We generally experience greater revenue in the second half of our fiscal year (February through July) than in the first half of our fiscal year (August through January). In the European market, August is usually a poor month because many workers take their summer holiday at that time. In the United States, the period from Thanksgiving to New Year’s tends to be slow for the training industry. Other seasonality is due to customers’ spending patterns and corporate training budgets.

Most of the jurisdictions in which we operate regulate and license certain kinds of vocational, trade, technical or other post-secondary education. We believe that employer-funded or reimbursed information technology training is exempt from such requirements in most of the United States. To the extent that we want to participate in programs funded by government entities, we will apply for licensing in the regulatory jurisdiction. If we were found to be in violation of a state’s licensing or other regulatory requirements, we could be subject to civil or criminal sanctions, including monetary penalties. We are also subject to federal, state and local regulations concerning the environment, occupational safety and health standards. We have not experienced significant difficulty in complying with such regulations and compliance has not had a material effect on our business or our financial results.

Location	Square Footage	Monthly Cost		Lease Expiration
Santa Ana, CA	7,640	$	10,543	July 2003
Phoenix, AZ	13,301	$	26,877	April 2006
Austin, TX	18,280	$	34,473	December 2002
Eden Prairie, MN	7,040	$	5,690	February 2004
Limerick, Ireland	1,900	$	1,472	February 2005
Hong Kong, China	400	$	972	Month to Month

The Austin, Texas location is our headquarters which provides a location for executive offices. The Phoenix, Arizona location serves sales, courseware publishing, and customer service purposes. The facility in Santa Ana, California serves our content development activities. The Limerick and Hong Kong facilities serve sales and customer service purposes.

On April 22, 1998, we were sued by Frank J. DiSanto in state court in Jackson County, Michigan. Mr. DiSanto’s original complaint alleged misrepresentation in connection with a confidential offering memorandum, pursuant to which Mr. DiSanto purchased $600,000 of our common stock. Mr. DiSanto sought rescission of the stock purchase, interest, attorneys’ fees and other unspecified damages. We filed an answer and affirmative defenses denying liability. The plaintiff has had the opportunity to amend the complaint four times. The court has struck all claims for damages except the claim that Prosoft failed to use its best efforts under the terms of a registration rights agreement to which plaintiff was a party. The case went to court ordered non-binding mediation. The mediation panel ruled that the plaintiff had no basis for damages, and recommended that the plaintiff be ordered to pay costs to Prosoft in the amount of $20,000. The plaintiff rejected the mediation panel ruling. Subsequent to mediation, the court denied a summary judgment motion filed by Prosoft. In November 2001, the case was settled and dismissed.

The Free Methodist Foundation and other parties related to Mr. DiSanto filed an identical complaint to Mr. DiSanto’s amended complaint on March 11, 1999 in state court in Jackson County, Michigan. The lawsuit was removed to the U.S. District Court for the Eastern District of Michigan. In September 2000, the federal court found that there was no basis for the plaintiffs to seek damages, and entered summary judgment in favor of Prosoft for all claims. The plaintiffs filed a motion for reconsideration, which was rejected by the court in October 2000. A notice of Appeal was filed in the Circuit Court of Appeals. Oral arguments were heard in April 2002 and a final ruling is expected shortly.

The Company’s common stock currently trades on the NASDAQ SmallCap Market, under the trading symbol of “POSO”. During the period August 14, 2000 through October 8, 2002, the Company’s common stock traded on the NASDAQ National Market. Before August 14, 2000, the Company’s common stock was traded on the NASDAQ SmallCap Market. The following table sets forth for each quarter during fiscal years 2002 and 2001 the high and low bid quotations for the Common Stock as reported by NASDAQ.

Quarter	Low		High
May 1, 2002—July 31, 2002	$	.17	$	.74
February 1, 2002—April 30, 2002	$	.53	$	1.47
November 1, 2001—January 31, 2002	$	.37	$	1.80
August 1, 2001—October 31, 2001	$	.37	$	1.76
May 1, 2001—July 31, 2001	$	1.03	$	3.19
February 1, 2001—April 30, 2001	$	2.40	$	14.75
November 1, 2000—January 31, 2001	$	6.31	$	15.00
August 1, 2000—October 31, 2000	$	6.62	$	15.06

	Year Ended July 31,
	2002			2001			2000		1999			1998
	(In thousands, except per share data)
Consolidated Statement of Operations Data:
Revenue	$	17,922		$	31,425		$	19,572	$	8,716		$	8,837
Income (loss) from operations		(41,372	)		(4,932	)		1,427		(11,201	)		(16,771	)
Net income (loss)		(42,459	)		(4,167	)		1,631		(11,607	)		(16,525	)
Net income (loss) per share:
Basic		(1.77	)		(.18	)		.09		(.90	)		(1.48	)
Diluted		(1.77	)		(.18	)		.08		(.90	)		(1.48	)
Consolidated Balance Sheet Data at Year End:
Total assets	$	15,107		$	55,216		$	58,519	$	7,634		$	12,524
Short-term debt		59			121			85		919			1,465
Long-term debt		2,816			158			246		2,840			559
Stockholders’ equity		7,576			49,572			50,372		472			6,716

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes”, “anticipates”, “plans”, “expects” and similar expressions are intended to identify forward-looking

statements. In addition, forward-looking statements include, but are not limited to, statements regarding future financing needs, changes in business strategy, future profitability, and factors affecting liquidity. A number of important factors could cause the Company’s actual results to differ materially from those indicated by such forward-looking statements, including those factors discussed under “Additional Factors That May Affect Results Of Operations and Market Price Of Stock” on Page 14. These forward-looking statements represent the Company’s judgment as of the date of the filing of this Form 10-K. The Company disclaims any intent or obligation to update these forward-looking statements. For the purposes of this Form 10-K, “we” and “our” refers to the Company.

ProsoftTraining was founded in 1995 as a proprietorship that delivered training in vocational and advanced technical subjects. After completing a private placement of stock in March 1997, the Company embarked on a strategy to build a nationwide network of learning centers to teach technical skills for the emerging Internet market. Overhead costs associated with the “bricks-and-mortar” network significantly outpaced revenues. In fiscal year 1999, the Company closed the learning center network and focused exclusively on selling its content and instructional services to the technology training industry and building its proprietary certification programs. At the end of fiscal year 2002, the Company reduced its full-time instructor base to zero.

Total revenues for 2001 increased 61 percent to $31.43 million compared with 2000, due to a broader acceptance of the Company’s proprietary CIW internet certification program, an increase in CIW certified instructors teaching CIW courses with our proprietary courseware and additional courseware revenue related to the ComputerPREP acquisition.

Cost of revenues in 2002 decreased by $5.00 million, or 35 percent, compared with 2001. As a percentage of revenue, gross profit, defined as total revenue less costs of revenue, decreased to 47 percent in 2002, from 54 percent in 2001. This decrease was primarily a result of less revenue to cover the fixed portion of our cost of revenues and a decrease in content selling prices resulting from competitive pressures.

Cost of revenues in 2001 increased $4.57 million, or 46 percent, compared with 2000. As a percentage of revenue, gross profit increased to 54 percent in 2001, from 49 percent in 2000. This increase was primarily due to an increase in content revenue, which generally yields higher gross profits, and to a decrease in services revenue, which generally yields lower gross profits. This increase in gross profit percentage was partially offset by a shift in the mix of fees in certification revenue. CIW certification exam fees, which generally yield lower gross profits, increased, and CIW ATP fees, which generally yield higher gross profits, decreased.

Content development expenses in 2002 increased $0.08 million, or 4 percent when compared with 2001. Content development expenses in 2001 increased $0.88 million, or 73 percent when compared with 2000. The 2001 dollar increase was largely the result of higher personnel costs associated with updating an expanded library of courseware associated with the ComputerPREP acquisition and new e-learning products. Content development expenses as a percentage of revenue increased to 12 percent for 2002 from 7 percent for 2001 and 6 percent for 2000. The increase in 2002 was primarily due to lower revenues.

Sales and marketing expenses decreased $1.15 million, or 15 percent, in 2002 as compared with 2001 and increased $5.22 million, or 229 percent, in 2001 as compared with 2000. As a percent of revenue, sales and marketing expenses increased 11 percentage points in 2002 as compared with 2001 and increased 12 percentage points in 2001 as compared with 2000. The dollar decrease in 2002 is attributable to lower sales commissions and reduced marketing expenditures. The dollar increase in 2001 is attributable to higher sales volume and increases in the number of employees, related primarily to the ComputerPREP acquisition in July 2000, the acquisition of Mastery Point Learning Systems in fiscal year 2001, and our CIW market brand campaign.

General and administrative expenses decreased $2.40 million, or 29 percent, and increased 6 percentage points as a percentage of revenues in 2002 as compared with 2001 and increased $3.88 million, or 93 percent, and increased 4 percentage points as a percentage of revenues in 2001 as compared with 2000. The current year dollar decrease was primarily a result of a cost reduction program implemented in the quarter ended October 31, 2001 and other ongoing cost reductions. The dollar increases in 2001 were primarily attributable to the ComputerPREP acquisition, a larger executive management team and increased bad debt expense due to specific credit concerns, primarily in the commercial training market.

Depreciation expense was $0.79 million, $0.67 million and $0.18 million for the years ended July 31, 2002, 2001 and 2000, respectively. Amortization expense associated with goodwill and other acquired intangibles was $2.35 million, $2.94 million and $0.80 million for the years ended July 31, 2002, 2001 and 2000, respectively. The increases in 2002 and 2001 when compared to 2000 were primarily due to the acquisitions of ComputerPREP and Mastery Point Learning Systems.

As a result of the continuing difficult economic climate in corporate training, low revenues and operating losses, we recorded $30.30 million of asset impairment due to the write-down of goodwill during the fiscal year 2002. The carrying value of goodwill was not supported by estimated future cash flow and the write-down to fair value was determined utilizing the discounted cash flow method.

Nevada		87-0448639
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

		Page
	PART I

Item 1.	Business	1
	Organization History	1
	Recent Development	1
	Business Segments	1
	Customers	5
	Competition.	5
	Sources of Revenue	6
	Sales, Marketing and Customer Support	6
	Seasonality	6
	Trademarks and Copyrights	6
	Employees	6
	Regulations	7

Item 2.	Properties	8

Item 3.	Legal Proceedings	8

Item 4.	Submission of Matters to Vote of Security Holders	8

	PART II

Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	9

Item 6.	Selected Financial Data	9

tem 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	15

Item 8.	Financial Statements and Supplementary Data	16

Item 9.	Changes in and Disagreements with Accountants on Accounting & Financial Discosure	32

	PART III

Item 10.	Directors And Executive Officers Of The Registrant	33

Item 11.	Executive Compensation	33

Item 12.	Security Ownership Of Certain Beneficial Owners And Management	33

Item 13.	Certain Relationships And Related Transactions	33

Item 14.	Controls and Procedures	33

	PART IV

Item 15.	Exhibits And Financial Statement Schedules And Reports On Form 8-K	34

	Signatures	35

	Certification of Chief Executive Officer and Certification of Chief Financial Officer	36

	Exhibit Index	38

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents