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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-K

(Mark One)

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

                  For the fiscal year ended December 31, 1997.

                                       OR

[ ]             TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

              For the transition period from _________to _________.

                         Commission File Number 0-28004

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

                                 Mastering, Inc.
                    (Formerly Eagle River Interactive, Inc.)
             (Exact name of Registrant as specified in its charter)

          Delaware                                              84-1320277
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                            Identification Number)

                     9201 East Mountain View Rd., Suite 200
                              Scottsdale, AZ 85258
               (Address of principal executive offices) (zip code)

                                 (602) 657-4000
              (Registrant's telephone number, including area code)

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

           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.001 par value
                         Preferred Stock Purchase Rights

    Indicate  by check mark  whether  the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during the  preceding  12 months and (2) has been  subject to such  filing
requirements for the past 90 days. [X] Yes [ ] No
                                       1
<PAGE>
    Indicate by check mark if disclosure of delinquent  filers  pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K. [ ]

    The  aggregate  market  value of the voting  stock  (Common  Stock)  held by
non-affiliates  of the registrant as of February 19, 1998 was $66,761,801  based
upon the closing  price of $11 1/2 per share as reported on the Nasdaq  National
Market for that date.

    As of February 18, 1998,  there were 13,738,832  shares of the  registrant's
Common Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

    The  registrant  intends to file a definitive  Proxy  Statement  (the "Proxy
Statement")  pursuant to Regulation 14A within 120 days of the end of the fiscal
year ended  December  31, 1997 and to  distribute  such Proxy  Statement  to its
stockholders in conjunction with the  registrant's  annual meeting to be held in
1998. PART III of this report  incorporates by reference certain portions of the
Proxy Statement, as indicated herein.

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                                       2
<PAGE>
                                 MASTERING, INC.
                                    FORM 10-K
                   For the Fiscal Year Ended December 31, 1997

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                              Page
                                                                                              ----
<S>           <C>                                                                              <C>
PART I
  Item 1.     Business....................................................................      4
  Item 2.     Properties..................................................................      7
  Item 3.     Legal Proceedings...........................................................      7
  Item 4.     Submission of Matters to a Vote of Security Holders.........................      8
  Item 4a.    Executive Officers of the Registrant........................................      8
PART II
  Item 5.     Market for the Company's Common Stock and Related
              Stockholder Matters.........................................................      9
  Item 6.     Selected Financial Data.....................................................      9
  Item 7.     Management's Discussion and Analysis of Financial Condition
              and Results of Operations...................................................     10
  Item 8.     Financial Statements and Supplementary Data.................................     18
  Item 9.     Changes in and Disagreements with Independent Auditors on
              Accounting and Financial Disclosure.........................................     18
PART III
  Item 10.    Directors and Executive Officers............................................     18
  Item 11.    Executive Compensation......................................................     18
  Item 12.    Security Ownership of Certain Beneficial Owners and
              Management..................................................................     18
  Item 13.    Certain Relationships and Related Transactions..............................     19
PART IV
  Item 14.    Exhibits, Financial Statement Schedules and Reports on Form  8-K............     19

 Signatures   ............................................................................     21
</TABLE>
                                       3
<PAGE>
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                                     PART I

    Certain  statements  contained in this report regarding matters that are not
historical facts, such as anticipated financial performance, business prospects,
technological developments, new products, the sales and marketing program of the
Company, as  hereinafter defined,  and  similar  matters,  may be  deemed  to be
"forward-looking"  statements under the Private Securities Litigation Reform Act
of 1995.  A variety  of  factors  may cause the  Company's  actual  results  and
experience  to  differ   materially  from  the  anticipated   results  or  other
expectations  expressed  in  the  Company's  forward-looking  statements.  These
factors include,  but are not limited to, the risks and uncertainties  described
under the heading  "Management's  Discussion and Analysis of Financial Condition
and Results of Operations," and other areas of this report.

ITEM 1. BUSINESS

    Mastering, Inc. (referred to in this report as "Mastering") was incorporated
under the laws of the state of Delaware in May of 1994 and was formerly known as
Eagle  River  Interactive,   Inc.  Mastering,  together  with  its  subsidiaries
(including its operating subsidiary,  Mastering Computers, Inc.), is hereinafter
referred to as the "Company."

    The Company  develops  and markets  instructor-led  training  workshops  and
computer-based  training  ("CBT")  products for  information  technology  ("IT")
professionals.  These  training  products  and services  include  instructor-led
Windows NT(TM), Windows 95(TM), TCP/IP (TM), Internet Information Server(TM) and
Exchange(TM)  training  workshops  as well as Microsoft  Certified  Professional
preparation  courses and on-site  workshops held at customers'  facilities,  CBT
software  covering a broad range of information  technologies,  other  software,
videos and a newsletter. The Company's CBT products are delivered using CD-ROMs,
proprietary intranets, the Internet and the World Wide Web.

    The  Company  markets  and sells its  instructor-led  and CBT  products  and
services  throughout  the United  States and in Canada,  primarily  through  its
in-house telesales organization. Training products and services are also sold to
national  accounts  under  long-term  contracts,  which are sold  using  outside
salespeople.  At the end of 1997,  the  Company  began  marketing  its  training
products in Europe, with sales of instructor-led training workshops beginning in
the United Kingdom during the first quarter of 1998.

    On February 18, 1998, Mastering entered into an Agreement and Plan of Merger
(the "Merger  Agreement"),  among PLATINUM  technology,  inc.  ("Platinum"),  PT
Acquisition  Corporation I, a wholly owned subsidiary of Platinum  ("Sub"),  and
Mastering,  providing  for the  merger  (the  "Merger")  of Sub  with  and  into
Mastering,  with  Mastering  being  the  surviving  corporation  in the  Merger.
Pursuant  to the  Merger  Agreement,  and  subject  to the terms and  conditions
thereof,  each share of Mastering's common stock will be converted into 0.448 of
a share of common stock of  Platinum.  The Merger is expected to be completed in
the  second  quarter  of 1998  (although  there  can be no  assurance  that such
transaction will be completed) and accounted for as a pooling of interests.

Dispositions

    During  the year  ended  December  31,  1997,  the  Company  sold its custom
interactive  development and outdoor media business  segments.  As a result, the
operations  from the custom  interactive  development and outdoor media business
segments have been accounted for as discontinued operations.

    The Company approved a plan to dispose of its outdoor media business segment
on May 17, 1997, and has accounted for this segment as a discontinued operation.
On  September  16,  1997,  the Company  completed  the sale of the assets of its
outdoor media segment for  approximately  $4.0 million in cash and approximately
$0.6 million in notes receivable.

    The Company announced its intent to sell its interactive business segment on
July 29, 1997, and has accounted for this segment as a  discontinued  operation.
On  September  26,  1997,  the Company  completed  the sale of the assets of its
interactive  business  segment for $13.5 million in cash and the right to future
payments contingent on the segment's future earnings.
                                       4
<PAGE>
Services and Products

    The Company's principal revenues come from instructor-led training workshops
and CBT products for IT professionals working in corporate  environments.  These
training products and services include  instructor-led  Windows NT(TM),  Windows
95(TM), TCP/IP(TM),  Internet Information Server(TM) and Exchange(TM) workshops,
Microsoft Certified Professional  preparation courses, on-site workshops held at
customers'  facilities,  CBT  software  covering  a broad  range of  information
technologies,  other  software,  videos  and a  newsletter.  The  Company's  CBT
products are delivered using CD-ROMs,  proprietary  intranets,  the Internet and
the World Wide Web.

Instructor-Led Training

    The Company develops and markets  instructor-led  training  workshops for IT
professionals working in corporate environments.  The workshops provide training
primarily on  Microsoft(TM)  operating  systems.  The Company offers one-day and
two-day  training  workshops  as well as three-day  and  four-day  Microsoft(TM)
Certified Professional  preparation courses, which it hosts in cities across the
United  States and in Canada,  with an  expansion  into Europe  during the first
quarter  of 1998.  Depending  on the  city and the  course,  a  workshop  may be
attended by as many as 500 IT  professionals.  The workshops  are  standardized,
with the same courses being offered nationally and in Canada.

    Workshops are taught by instructors  who are employees of the Company.  When
not engaged in teaching a workshop,  instructors spend their time developing and
updating course curriculum.  The Company is a Microsoft Solutions Provider and a
member of Microsoft's Training Alliance, which gives the Company early access to
alpha and beta versions of selected new and updated Microsoft  software.  Course
content and the workshops themselves continue to evolve due to software upgrades
and  enhancements  and the  introduction  of new  software,  giving the  Company
continuing revenue opportunities as IT professionals continue to take courses to
stay updated on the technology they support.  As such, the Company's  revenue is
significantly  dependent  on the  introduction  of new  software  and updates to
existing software. A decrease in the rate of such introductions or updates could
have a material adverse effect on the Company's results of operations.

Computer-Based Training

    The Company,  under a licensing agreement with a third party, licenses a CBT
development  engine and more than 300 CBT titles,  as well as most of its future
releases, which cover a broad range of information  technologies.  The Company's
CBT  titles  are  sold  to  IT  professionals  and  to  end  users  of  desk-top
applications  such as  common  word-processing  and  spreadsheet  programs.  The
Company  adds  content  to and/or  enhances  the user  interface  of many of the
licensed titles. The titles are private-labeled  under the "Mastering Computers"
brand name. Sales of titles began in the first quarter of 1997. The initial term
of the licensing agreement is for an eighteen-month period ending June 30, 1998,
with two one-year  renewal  options  exercisable by the Company.  If the Company
exercises its two one-year renewal  options,  there can be no assurance that the
third  party  would  agree to  further  renewal  periods.  Failure  to renew the
contract or obtain CBT products from alternate  suppliers  could have a material
adverse effect on the Company's results of operations.

    At the end of 1997, the Company  introduced its Knowledge  Track(TM) line of
CBT titles  developed in house.  This  product line  converts the content of the
Company's  instructor-led training courses into interactive CBT titles in CD-ROM
format,  which are sold as a complement to the  instructor-led  training courses
and as a stand-alone  training product.  Because these CBT products are based on
the Company's  instructor-led  training  workshops,  the content is  continually
evolving as the related workshop content evolves.

Customers

    In 1997,  no  customer  accounted  for 10 percent  or more of the  Company's
revenue  from  continuing  operations.  The five  largest  customers,  in total,
accounted for 3 percent of the Company's 1997 revenue.
                                       5
<PAGE>
    The Company has provided  training products and services to numerous Fortune
500 companies,  other small and mid-size  businesses,  universities  and various
Federal,  state and local government agencies.  During 1997, the Company trained
approximately  95,000 customers through  instructor-led  training  workshops and
CBT. In 1997, the  organizations  with the most IT  professionals  attending the
Company's workshops were:

AT&T Corporation                        Intel Corporation
Allied Signal, Inc.                     Lockheed Martin Corporation
Blue Cross Blue Shield Association      Lucent Technologies, Inc.
The Boeing Company                      MCI Communications Corporation
Eastman Kodak Company                   Pacific Bell
Electronic Data Systems Corporation     Science Application International 
General Electric Company                  Corporation
GTE Corporation                         Sprint Corporation
Hewlett-Packard Company                 Unisys Corporation
Honeywell, Inc.                         Xerox Corporation

Sales and Marketing

    At the end of 1997,  the Company  employed  259 people  engaged in sales and
marketing  related  activities,  up from 152 at the  beginning of the year.  The
Company's  telesales  force sells all of the  Company's  training  products  and
services  and is also used to identify  sales leads for the  Company's  national
accounts  program  targeting  Fortune 1000  prospects.  The Company's  telesales
organization makes one-on-one contact with prospective customers, allowing sales
representatives  to develop a rapport with  customers to enhance  future  repeat
sales.

    The Company's sales effort is aided by a proprietary database of information
related  to more  than 4  million  IT  professionals.  In  1997,  the  telesales
organization called most of these IT professionals.

    At the end of 1997,  the Company  contracted  with a  third-party  vendor to
implement a sales force automation system to significantly enhance its telesales
infrastructure to assist in the gathering and  more-intuitive use of information
regarding IT  professionals,  businesses  and government  agencies.  The Company
expects this system to be fully  functional by the third quarter of 1998, and it
should  enhance the Company's  efforts to more  effectively  contact and develop
prospective customers and coordinate sales efforts.

    The Company generally begins selling its  instructor-led  training workshops
several months before the  commencement  of the workshops.  This advance selling
allows the Company to perform market research and allows the sales force to test
new products and to gauge customer demand prior to actual product  introduction.
The Company  also markets its  products  and  services by  distributing  product
information  through  direct mail in advance of a seminar and by  advertising in
technology-oriented publications.

    The Company also  generates  sales and sales leads  through its Internet web
site,  where  prospective  customers can obtain detailed  information  about the
Company's products and services and interactively  sample the Company's CBT. The
web site allows the Company to gather  important  demographic,  professional and
personal  information  about  prospective  customers  using  accepted  web-based
tracking  techniques and on-line  surveys.  This information is used to test new
products and to gauge customer demands prior to actual product  introduction and
to identify new sales leads.
                                       6
<PAGE>
Competition

    A  shortage  of IT  professionals  has  led to the  need  for  education  on
continually  evolving  technologies.  In response, a large number of IT training
programs  are now offered by  hardware/software  vendors,  systems  integrators,
internal  training  departments,  technology/vocational  schools and independent
trainers.  The training market is highly fragmented and competitive.  Because of
the lack of  significant  barriers  to entry into the IT  training  market,  the
Company expects this competition to continue in the future. In addition, many of
the Companies'  competitors have significantly  greater financial  resources and
are  competing  with  the  Company  through  the  acquisition  of the  Company's
competitors,  price  reductions  and  strategic  partnerships,  and the  Company
expects this trend to continue in the future.

    Many of the Companies'  competitors have  substantially  greater  technical,
sales,  marketing  and name  recognition  than the  Company.  In  addition,  the
training market is  experiencing  significant  pricing  pressure and the Company
expects  the  pricing  pressure  from  competitors  to  increase  in the future.
Accordingly, there can be no assurance that the Company will be able to continue
to provide  services  and  products  that  compare  favorably  with those of its
competitors or that pricing  pressure will not have a significant  impact on the
Company's results of operations.

Employees

    As of December 31, 1997,  the Company had 390  employees,  of which 259 were
engaged in sales and marketing related activities, 49 were engaged in operations
related activities, 11 were engaged in CBT-development related activities and 71
were engaged in support related activities.

    The  Company  expects  hiring in 1998 to  continue  in  connection  with the
continued  expansion of its  businesses.  The Company  believes  that its future
success will depend in large part upon its ability to attract and retain  highly
skilled strategic sales and marketing personnel and instructors. Competition for
such  personnel is intense.  The Company  provides  stock options to attract and
retain such personnel.

    The  Company  expects to  continue to hire  additional  sales and  marketing
personnel and  instructors.  There can be no assurance  that the Company will be
successful in attracting  and retaining such  personnel.  Failure to attract and
retain key  personnel  could have a material  adverse  effect upon the Company's
business, results of operations and financial condition.

ITEM 2. PROPERTIES

    The  Company  leases   approximately   53,500  square  feet  of  office  and
administrative space in Scottsdale,  Arizona in facilities housing its corporate
headquarters.  The lease  expires in December,  2008.  In addition,  the Company
leases  approximately  3,900 square feet in Chicago,  Illinois for its executive
and  investor-relations  activities and occupies approximately 1,200 square feet
in Portland, Oregon for its CBT research and development activities.

    Upon  completion  of tenant  improvements  currently  underway,  the Company
expects to occupy an additional 5,000 square feet at the corporate headquarters.
The Company  currently has an  obligation  to lease an additional  20,000 square
feet at the corporate office by December 1, 1998.

    The Company owns approximately 3.5 acres of undeveloped land located next to
the Company's corporate headquarters in Scottsdale, Arizona.

ITEM 3. LEGAL PROCEEDINGS

    The Company is a party to various claims and lawsuits  arising in the normal
course of business.  Management believes that the ultimate liability, if any, in
excess of amounts already  provided for is not likely to have a material adverse
effect on the Company's annual results of operations or financial condition.
                                       7
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    None.

ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT

The executive  officers of the Company,  their ages and current positions are as
follows:
<TABLE>
<CAPTION>
               Name                          Age                      Position
       ---------------------                 ---       --------------------------------------------
<S>                                          <C>       <C>
       Terence M. Graunke...............     38        Chairman of the Board, President and Chief
                                                       Executive Officer

       Thomas R. Graunke................     32        Executive Vice President

       Marc Pinto.......................     37        Executive Vice President and Chief Financial
                                                       Officer

       Marko A. Rukavina III ...........     31        Executive Vice President
</TABLE>

    Terence M. Graunke founded  Mastering,  Inc. (f/k/a Eagle River Interactive,
Inc.) in May 1994 and has served as Chairman of the Board,  President  and Chief
Executive  Officer since that time.  From December 1992 to May 1994, Mr. Graunke
was  President and Chief  Executive  Officer of Rapp Collins  Communications,  a
direct  response  advertising  agency,  and of  DDB  Needham  --  FOCUS  GTE,  a
full-service  agency  dedicated to GTE. From December 1990 to December 1992, Mr.
Graunke served as Chairman of the Board,  President and Chief Executive  Officer
of US Communications  Corporation,  a marketing  communications agency which was
sold to Omnicom Group,  Inc. in 1992.  Throughout the 1980s, Mr. Graunke managed
Unispond,  a direct marketing agency, where he served as Chief Executive Officer
from 1986 to 1989. In 1990, he acquired Unispond,  which later merged operations
with US Communications.  The combined entity was renamed US Communications.  Mr.
Graunke is the brother of Thomas R. Graunke.

    Thomas R. Graunke has been  Executive  Vice  President of the Company  since
August  1996.  Prior to  joining  the  Company  he was  President  of  Mastering
Computers, Inc., an instructor-led Microsoft Windows(TM) training company, since
its inception in 1988. In July 1996,  Mastering  Computers,  Inc.  merged with a
wholly  owned  subsidiary  of  Mastering,   Inc.  (then  known  as  Eagle  River
Interactive,  Inc.) to broaden  its  opportunities  in the  training  area.  Mr.
Graunke is the brother of Terence M. Graunke.

    Marc Pinto has been Executive Vice President and Chief Financial  Officer of
the Company since December 1995.  From July 1983 to December 1995, Mr. Pinto was
associated with Arthur Andersen LLP, where he served as a Partner from September
1995 until  December  1995,  as a Senior Tax Manager from  September  1991 until
September 1995 and as a Tax Manager from July 1987 until September 1991.

    Marko A. Rukavina III has been an Executive Vice President of the Company in
the  operations and  product-development  area since mid 1997, and before that a
Senior Vice president  with the Company since August 1996.  Prior to joining the
Company  he  was  Senior  Vice  President  of  Mastering  Computers,   Inc.,  an
instructor-led Microsoft Windows(TM) training company, since 1992.
                                       8
<PAGE>
                                     PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

    The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "MASC". The table below sets forth for the periods indicated the range of
high and low  sales  prices  for the  Common  Stock as  reported  by the  Nasdaq
National Market.
<TABLE>
<CAPTION>
                                                                                High         Low
                                                                             ----------   ---------
<S>                                                                          <C>          <C>  
Fiscal Year Ended December 31, 1996
  First Quarter (Initial Public Offering March 21, 1996)...............      $   14 3/4   $  13
  Second Quarter.......................................................      $   22 1/8   $  13 1/8
  Third Quarter........................................................      $   19 1/2   $   8 5/8
  Fourth Quarter.......................................................      $   10 3/4   $   5 1/2

  
                                                                                High        Low
                                                                             ----------   ---------
Fiscal Year Ended December 31, 1997
  First Quarter .......................................................      $   13 3/4 $   7 1/8
  Second Quarter.......................................................      $   11 1/2 $   6 3/4
  Third Quarter........................................................      $   11 1/4 $   7 1/4
  Fourth Quarter.......................................................      $   10 3/4 $   8
</TABLE>


    As of  February 6, 1998,  there were 221 holders of record of the  Company's
Common Stock.

    The Company has never paid a cash dividend on its Common Stock.  The Company
currently  intends to retain  available funds from earnings,  if any, for future
growth and,  therefore,  does not  anticipate  paying any cash  dividends in the
foreseeable future.

    Mastering  completed an initial public offering of its Common Stock in March
of 1996. The  registration  statement on Form S-1 (Commission  File No. 333-702)
relating to Mastering's  initial public offering  became  effective on March 21,
1996.  Mastering  has used the proceeds  from such initial  public  offering for
working  capital and general  corporate  purposes,  which is consistent with its
original stated intent.

ITEM 6. SELECTED FINANCIAL DATA (Dollars in thousands, except per-share data)

    The following  table sets forth selected  historical  financial data for the
Company for each of the five years in the period ended December 31, 1997,  which
data  has  been  derived  from  the  Company's  audited  consolidated  financial
statements.   Such  selected  historical   financial  data  should  be  read  in
conjunction with the audited consolidated  financial  statements,  including the
notes thereto.
<TABLE>
<CAPTION>
                                                                      Year Ended December 31, (b)
                                                 ---------------------------------------------------------------------
                                                    1997             1996              1995         1994        1993
                                                 -----------      ----------        ----------   ----------   --------
    Income Statement Data:
<S>                                               <C>               <C>              <C>          <C>         <C>     
    Revenue....................................   $   40,966        $ 21,018         $ 10,168     $  6,787    $  3,895
    Operating expenses.........................       37,149          21,574            9,720        6,567       4,156
    Income (loss) from continuing operations           3,606             520              518          203        (264)
    Income  from continuing operations per
      share - Basic (a)........................   $      .27        $    .04(c)
                                                  ==========        ========
    Weighted average shares outstanding at year 
      end (a)..................................       13,535          12,286(c)
                                                  ==========        ========
<CAPTION>
                                                                             As of December 31,(b)
                                                 ---------------------------------------------------------------------
                                                    1997             1996              1995         1994        1993
                                                  --------        --------           --------     ---------    --------
<S>                                               <C>               <C>              <C>          <C>         <C>     
    Balance Sheet Data:                                                                                        (unaudited)
    Total assets..............................    $   64,319        $ 54,348         $  5,481     $  1,669    $  2,338
    Total long-term liabilities...............    $      255        $    181         $   --       $    928    $   --  
    Mandatorily redeemable convertible                
     preferred stock..........................    $     --          $   --           $  6,898     $   --      $   --  
    Total stockholders' equity (deficit)......    $   55,231        $ 49,914         $ (3,542)    $   (705)   $     (4)
</TABLE>
----------
                                       9
<PAGE>
 (a) Historical income from continuing operations per share is not presented for
     periods prior to 1996 as it is not considered  relevant given the Company's
     initial public offering in 1996,  which resulted in significant  changes to
     the  Company's  capital  structure.  Share and per share  amounts  for 1996
     assume the conversion of the preferred stock on January 1, 1996 rather than
     the date of the initial public offering.
 (b) All  amounts  have  been  restated  to  reflect  the   disposition  of  the
     interactive and outdoor media business  segments which occurred in 1997 and
     to reflect  their  treatment  as  discontinued  operations  for  accounting
     purposes.
 (c) Income from continuing  operations  per share and weighted  average  shares
     outstanding at year end for 1996 are unaudited and pro forma.

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

    The  following   discussion  of  the  financial  condition  and  results  of
operations  should  be read  in  conjunction  with  the  Company's  consolidated
financial statements and notes thereto contained in this report.

Overview

    The Company develops and markets  instructor-led  training workshops and CBT
products  primarily for IT  professionals.  These training products and services
include  instructor-led  Windows NT(TM),  Windows 95(TM),  TCP/IP(TM),  Internet
Information  Server(TM) and Exchange(TM) training workshops as well as Microsoft
Certified Professional preparation courses, on-site workshops held at customers'
facilities,  CBT software  covering a broad range of  information  technologies,
other  software,  videos  and a  newsletter.  The  Company's  CBT  products  are
delivered using CD-ROMs,  proprietary intranets, the Internet and the World Wide
Web.

    The  Company  markets  and sells its  instructor-led  and CBT  products  and
services  throughout  the United  States and in Canada,  primarily  through  its
in-house telesales organization. Training products and services are also sold to
national  accounts  under  long-term  contracts,  which are sold  using  outside
salespeople.  At the end of 1997,  the  Company  began  marketing  its  training
products in Europe, with sales of instructor-led training workshops beginning in
the United Kingdom during the first quarter of 1998.

Dispositions

    The Company approved a plan to dispose of its outdoor media business segment
on May 17,  1997.  On  September  16,  1997,  the Company sold the assets of its
outdoor media segment for  approximately  $4.0 million in cash and approximately
$0.6 million in notes receivables.

    The Company  announced a plan to sell its  interactive  business  segment on
July 29,  1997.  On  September  26,  1997,  the  Company  sold the assets of its
interactive  business  segment for $13.5 million in cash and the right to future
payments contingent on the segment's future earnings.

Mergers

    On February 18, 1998, Mastering entered into an Agreement and Plan of Merger
(the "Merger  Agreement"),  among PLATINUM  technology,  inc.  ("Platinum"),  PT
Acquisition  Corporation I, a wholly owned subsidiary of Platinum  ("Sub"),  and
Mastering,  providing  for the  merger  (the  "Merger")  of Sub  with  and  into
Mastering,  with  Mastering  being  the  surviving  corporation  in the  Merger.
Pursuant  to the  Merger  Agreement,  and  subject  to the terms and  conditions
thereof,  each share of Mastering's common stock will be converted into 0.448 of
a share of common stock of  Platinum.  The Merger is expected to be completed in
the  second  quarter  of 1998  (although  there  can be no  assurance  that such
transaction will be completed) and accounted for as a pooling of interests.
                                       10
<PAGE>
General

    The Company  generates revenue from sales of training products and services,
which  consist  primarily of  instructor-led  seminars on Microsoft  Windows(TM)
operating  systems  and  other IT  topics,  instructor-led  Microsoft  Certified
Professional  preparation  courses,  on-site workshops,  CBT software covering a
broad  range  of  information   technologies,   other  software,  videos  and  a
newsletter. Revenue from seminars is generally collected in advance and deferred
and is recognized  upon  commencement  of a seminar or a series of seminars in a
given city.  In  connection  with certain  seminar  offerings,  the Company also
provides its customers with course  materials in advance of a seminar,  in which
case it  recognizes  revenue for the value of the  materials  upon  shipping the
materials  and the  remainder  of the revenue upon  commencement  of the related
seminar or series of seminars.  Other  product  revenue is generally  recognized
when the products are shipped to the customer. Failure to increase the Company's
existing  training  revenue in an efficient manner could have a material adverse
effect on the Company's business, results of operations and financial condition.

    Costs related to conducting  training  seminars consist  primarily of salary
and related  benefits  for  speakers  and seminar  personnel,  rental of seminar
facilities  and  materials  provided to seminar  participants,  some of which is
deferred  until  seminar  commencement.  Costs  related to CBT products  include
royalties paid to a third-party licensor and costs to duplicate and ship the CBT
product.  Failure to increase sales and related  infrastructure  in an efficient
manner could have a material adverse effect on the Company's  business,  results
of operations and financial  condition.  In addition,  there can be no assurance
that the  Company's  revenues  will continue to grow at a rate that will support
its increasing expense levels.

Annual Results of Operations

The following table sets forth, for the years indicated,  certain items from the
Company's  statements  of  operations  expressed as a percentage of revenues and
percentage change in the dollar amount of such items compared to the prior year.
All amounts have been restated to reflect the disposition of the interactive and
outdoor media business segments which occurred in 1997.
<TABLE>
<CAPTION>
                                                                                                Percentage Increase
                                                             Percentage of Revenues                 (Decrease)
                                                             Year Ended December 31,               Year to Year
                                                        --------------------------------      -----------------------
                                                         1997         1996        1995        1996:1997     1995:1996
                                                        -------      -------     -------      ---------     ---------
<S>                                                       <C>          <C>         <C>            <C>          <C>   
Revenue.....................................              100.0%       100.0%      100.0%         94.9%        106.7%
Cost of revenue.............................               29.3%        25.2%       32.5%        126.4%         60.3%
Marketing and selling expenses..............               43.4%        44.3%       42.6%         91.1%        115.0%
General and administrative expenses.........               15.5%        32.0%       19.8%         (5.6)%       233.2%
Depreciation and amortization...............                2.5%         1.2%        0.7%        307.9%        256.3%
                                                        -------      -------     -------
Net operating income (loss).................                9.3%        (2.7%)       4.4%
Interest income and other, net..............                4.6%         7.3%        0.7%
                                                        -------      -------     -------
Income  from continuing operations before 
  income taxes..............................               13.9%         4.6%        5.1%
Tax provision...............................               (5.1)%       (2.2%)       0.0%
                                                        --------     -------     -------
Income from continuing operations...........                8.8%         2.4%        5.1%
                                                      ==========   ==========  ==========
</TABLE>
Year Ended December 31, 1996 Compared to Year Ended December 31, 1997

Revenue

    Revenue for 1996 was  approximately  $21.0  million  compared to revenue for
1997 of  approximately  $41.0 million,  or a 94.9% increase over the prior year.
The  growth  from 1996 to 1997 was a result of the  increase  in the  number and
types of seminars hosted, the addition of higher-priced product offerings and an
increase  in  the  average  price  charged  for  the  seminars  along  with  the
introduction in 1997 of CBT products.

    During  1997 the  Company  launched  new  instructor-led  topics  as well as
certification  preparation  courses.  The Company's average prices increased for
all topics during 1997; however,  there can be no assurance that average selling
prices will continue to increase or that products will not experience  increased
pricing pressure in the future. An increase in pricing pressure or the inability
to continue  increasing  workshop  prices could  adversely  affect the Company's
results of operations.
                                       11
<PAGE>
    The number of customers  trained  through  seminars and CBT media  increased
approximately 40% from approximately  68,000 in 1996 to approximately  95,000 in
1997.  Seminars hosted increased from  approximately  300 in 1996 to over 800 in
1997.  There can be no  assurance  that the number of  customers  trained or the
number of seminars  held will  continue to increase.  A reduction in the rate of
growth of, or a decrease in, customers  trained,  seminars hosted or the average
price  paid per  customer  could  adversely  affect  the  Company's  results  of
operations.

    The Company's  results of operations are affected by a wide variety of other
factors that could adversely impact its revenue and profitability, many of which
are beyond the Company's control. These factors include, but are not limited to,
the  Company's  ability to design and  introduce new products on a timely basis,
market  acceptance of products,  customer order patterns,  the timing of product
releases  from  Microsoft,   changes  in  products  and  services  mix,  product
performance,  obsolescence,  returns,  technological  changes,  competition  and
competitive pressures on pricing.

Cost of Revenue

    Cost of Revenue expenses are primarily comprised of salaries, royalties, CBT
duplication  and  shipping,  room and  related  seminar-coordination  costs  and
travel.  Cost of Revenue for 1996 was  approximately  $5.3  million  compared to
approximately  $12.0  million  in 1997.  The  Company's  cost of  revenue,  as a
percentage  of  revenue,  for 1996 and 1997 was  approximately  25.2% and 29.3%,
respectively.  The increase reflects the significant investment the Company made
in  developing  its  infrastructure.  Employees  engaged in  operations  related
activities increased from 29 at the end of 1996 to 49 at the end of 1997.

Marketing and Selling Expenses

    Marketing  and  selling  expenses  are  primarily   comprised  of  salaries,
commissions  and benefits,  direct mail and travel costs.  Marketing and selling
expenses, as a percentage of revenue, for 1996 and 1997 were approximately 44.3%
and  43.4%,   respectively.   Marketing  and  selling  expenses  for  1996  were
approximately $9.3 million compared to approximately  $17.8 million in 1997. The
increase  from 1996 to 1997 was  primarily  due to the  continued  growth of the
Company's telesales organization and the corresponding increase in marketing and
selling personnel and costs associated with direct-mail campaigns. Marketing and
selling  headcount  increased  from  152 at the end of 1996 to 259 at the end of
1997.  The Company  expects to increase  marketing  and selling  expenses in the
future to support expansion of its marketing and sales efforts.

General and Administrative Expenses

    General  and  administrative  expenses  include  costs  for the  accounting,
registration,  legal,  information systems and human resource functions, as well
as costs  related to some  senior  executives  of the  Company.  These costs are
primarily  comprised  of salaries  and  benefits,  travel and  occupancy  costs.
General and  administrative  expenses for 1996 were  approximately  $6.7 million
compared to $6.3 million in 1997, representing a 5.6% decrease. The $6.7 million
in 1996  includes  approximately  $0.7 million of costs related to the Company's
acquisition of Mastering Computers, Inc. and related organizational realignment.
General and administrative  expenses,  as a percentage of revenue,  for 1996 and
1997 were approximately 32.0% and 15.5%, respectively. The Company believes that
the infrastructure in place at December 31, 1997 is substantially  sufficient to
support the level of operations  expected for 1998.  General and  administrative
headcount increased from 57 at the end of 1996 to 71 at the end of 1997.

Depreciation and Amortization

    Depreciation  and  amortization  expense  for  1996 was  approximately  $0.3
million  compared  to $1.0  million  for  1997.  Depreciation  and  amortization
expense,  as a percentage of revenue,  for 1996 and 1997 was approximately  1.2%
and 2.5%,  respectively.  The increase is primarily  related to the  significant
investment   the  Company  has  made  in  its  computer   equipment,   leasehold
improvements and office equipment during 1997.
                                       12
<PAGE>
Interest Income and Other, net

    Interest Income and Other of approximately $1.5 million and $1.9 million for
1996  and  1997,  respectively,  primarily  represents  interest  income  on the
investment of the Company's  proceeds from its 1996 initial public  offering and
proceeds  from the 1997  sale of its  outdoor  media  and  interactive  business
segments.

Income Taxes

    During  1996,  the Company  recorded an income tax benefit for the  deferred
income tax asset created by 1995 and 1996 operating losses. Such losses resulted
in a deferred tax asset at December 31, 1996 of approximately $2.3 million.

    During  1997,  the  Company  recorded  an  approximately  $2.1  million  tax
provision from continuing operations and an approximate $0.8 million tax benefit
from discontinued operations.  In addition,  during 1997, the Company recorded a
$1.2 million  deferred tax asset  resulting  from the exercise of  non-qualified
stock  options by  employees.  At December  31,  1997,  in  accordance  with the
provisions  of  Statement  of  Financial  Accounting  Standards  (SFAS) No. 109,
management has determined  that it is more likely than not that the net deferred
tax  asset of  approximately  $2.4  million  as of  December  31,  1997  will be
realized.

    The  Company  bases its  determination  on the  significant  growth that has
occurred in its IT training business during 1996 and 1997. The Company's revenue
increased  from $21  million  in 1996 to $41  million in 1997,  a 95%  increase.
Income from  continuing  operations for 1996 was $0.5 million which increased to
$3.6 million in 1997, a 620% increase.  Based on its projections,  the Company's
management  believes  that  profitable  operations  will be  sustained in future
periods. However, no assurance can be given that such profitable operations will
in fact be sustained.

    The Company's  deferred  income taxes result  primarily from a net operating
loss  carryforward  ("NOL"),  the use of  accelerated  depreciation  methods for
income tax purposes,  amortization  differences  relating to certain  intangible
assets,  and certain  accrued  expenses  which are not deductible for income tax
purposes  until paid.  As of  December  31,  1997,  the Company had a tax NOL of
approximately $6.0 million, which expires in 2011.

    Management  believes that taxable income during the carryforward period will
be sufficient to fully use the NOLs before they expire.  Management  anticipates
that taxable  income during the  carryforward  period will arise  primarily as a
result  of the  Company's  continued  growth  in its IT  training  business  and
operating   efficiencies  which  may  be  gained  under  the  Company's  current
strategies.

Discontinued Operations

    The Company approved a plan to dispose of its outdoor media business segment
on May 17,  1997.  On  September  16,  1997,  the Company sold the assets of its
outdoor  media  business  segment  for  approximately  $4.0  million in cash and
approximately  $0.6 million in notes receivable.  As a result, the operations of
the outdoor media  business  segment have been  accounted for as a  discontinued
operation  using a measurement  date of May 17, 1997. The outdoor media business
segment  offered  traditional  outdoor  media  advertising  at United States ski
resorts.  Revenue for the outdoor media  business  segment for 1996 and 1997 was
approximately $3.9 million and $2.1 million, respectively. Net income (loss) for
the outdoor media segment for 1997 and 1996 was approximately ($0.2) million and
$0.6 million,  respectively. The 1997 amount includes approximately $0.2 million
of costs related to the sale.

    The Company announced its intent to sell its interactive business segment on
July 29,  1997.  On  September  26,  1997,  the  Company  sold the assets of its
interactive  business  segment for $13.5 million in cash and the right to future
payments  contingent  on  the  segment's  future  earnings.  As  a  result,  the
operations of the interactive  segment have been accounted for as a discontinued
operation using a measurement  date of July 28, 1997. The  interactive  business
segment developed and created  interactive  solutions that assist companies with
corporate communications.  Revenue for the interactive business segment for 1996
and 1997 was approximately  $14.3 million and $13.0 million,  respectively.  Net
loss for the interactive  business  segment for 1996 and 1997 was  approximately
$4.1  million and $5.1  million,  respectively.  The net loss for 1996  includes
approximately  $0.5 million of costs related to the 1996  acquisition of Graphic
Media, Inc. 
                                       13
<PAGE>
The net loss for 1997  includes  approximately  $1.5 million of costs related to
organizational realignment and sale of the interactive business segment.

Year Ended December 31, 1995 Compared to Year Ended December 31, 1996

Revenue

    Revenue for 1995 was  approximately  $10.2  million  compared to revenue for
1996 of approximately  $21.0 million,  or a 106.7% increase over the prior year.
The  growth  from 1995 to 1996 was a result  of the  increase  in the  number of
seminars  hosted,  the average  number of attendees  per seminar and the average
price  charged  for the  seminars.  The number of  customers  trained  increased
approximately 55% from approximately  44,000 in 1995 to approximately  68,000 in
1996.  Seminars hosted increased from approximately 235 in 1995 to approximately
300 in 1996.

Cost of Revenue

    Cost of  revenue,  as a  percentage  of  revenue,  for  1995  and  1996  was
approximately 32.5% and 25.2%,  respectively.  Cost of revenue was approximately
$3.3 million in 1995 compared to $5.3 million in 1996. The increase in costs for
1996  is due to the  Company's  continued  development  of its  business  and is
consistent  with its revenue growth.  During 1996, the Company made  substantial
investments in its operating infrastructure,  particularly in salary and related
benefits.

Marketing and Selling Expenses

    Marketing and selling  expenses,  as a percentage  of revenue,  for 1995 and
1996 were  approximately  42.6% and 44.3%,  respectively.  Marketing and selling
expenses are primarily comprised of salaries,  commissions and benefits,  travel
and marketing program costs.  Marketing and selling expenses were  approximately
$4.3  million in 1995  compared to $9.3  million in 1996.  The increase in costs
from 1995 to 1996 was  primarily  due to the  continued  growth of the Company's
business and the corresponding increase in personnel.

General and Administrative Expenses

    General  and  administrative  expenses  include  costs  for the  accounting,
registration,  legal,  information systems and human resource functions, as well
as costs  related to some  senior  executives  of the  Company.  These costs are
primarily  comprised  of salaries  and  benefits,  travel and  occupancy  costs.
General and administrative  expenses,  as a percentage of revenue,  for 1995 and
1996  were   approximately   19.8%  and   32.0%,   respectively.   General   and
administrative  expenses for 1995 were  approximately  $2.0 million  compared to
$6.7  million in 1996.  For 1996  general and  administrative  expenses  include
approximately $0.7 million of costs related to Mastering,  Inc.'s acquisition of
Mastering Computers, Inc. and related organization realignment. In addition, the
increase  from 1995 to 1996 is due to the growth of the  Company's  business and
development of its infrastructure  and the corresponding  increase in the number
of executive and administrative personnel.

Depreciation and Amortization

    Depreciation and amortization  expense for 1995 was $0.1 million compared to
$0.3 million in 1996.  Depreciation and amortization expense, as a percentage of
revenue, for 1995 and 1996 was approximately 0.7% and 1.2%, respectively.

Interest Income and Other, net

    Interest Income and Other of approximately $0.1 million and $1.5 million for
1995 and 1996, respectively,  primarily represents interest income. The increase
from 1995 to 1996 represents additional interest income on the investment of the
Company's proceeds from its initial public offering in 1996.
                                       14
<PAGE>
Income Taxes

    During 1996 the Company recorded an income tax benefit of approximately $2.3
million.  In accordance  with the provisions of SFAS No. 109,  management of the
Company  determined  it was more  likely  than not  that  the $2.3  million  net
deferred  tax asset as of December 31, 1996,  would be realized  through  future
taxable income generated by the Company.

Discontinued Operations

    The Company  acquired  control of the assets and assumed the  liabilities of
Production  Masters,  Inc.  ("PMI") as of  January  1, 1995  under an  operating
agreement.   The  Company  acquired  PMI  with  the  expectation  of  profitable
operations and potential future shared facilities and products.  However, due to
management   difficulties,   equipment  in  need  of  substantial   repair,  and
significant marketing challenges, the Company determined to discontinue PMI. The
Company  was  required to pay the costs of  discontinuing  the  operations.  The
Company  recorded a loss of $0.6 million from  discontinued  operations  for the
year ended  December 31, 1995.  During 1996 the Company  recorded a gain of $0.2
million from  discontinued  operations  representing  the  settlement of certain
contingencies relating to the PMI business segment.

Quarterly Results (dollars in thousands) and Seasonality

The following  table sets forth certain  unaudited  statement of operations data
for each of the Company's  last eight quarters and, in the opinion of management
of the Company,  contains all  adjustments,  consisting only of normal recurring
adjustments,  necessary for a fair presentation  thereof.  All amounts have been
restated  to reflect  the  disposition  of the  interactive  and  outdoor  media
business  segments which occurred in 1997. The operating results for any quarter
are not necessarily indicative of results for any future periods.
<TABLE>
<CAPTION>
                                        1996-- Three Months Ended                     1997-- Three Months Ended
                              --------------------------------------------- ----------------------------------------------
                               March 31     June 30     Sept 30    Dec 31    March 31     June 30      Sept 30     Dec 31
                              ----------  ----------  ---------- ---------- ----------  ----------   ----------  ---------
<S>                             <C>         <C>         <C>        <C>        <C>       <C>          <C>          <C>     
Revenue....................     $2,755      $ 3,999     $ 5,747    $ 8,517    $8,862    $  9,842     $ 10,876     $ 11,386
                                ------      -------     -------    -------    ------    --------     --------     --------
Expenses:
  Cost of revenue..........        777          915       1,357      2,247     2,578       2,894        3,178        3,342
  Marketing    and   selling     1,859        2,129       2,567      2,749     3,384       4,295        4,944        5,155
expenses...................
  General and
    administrative expenses        289        1,564       2,322      2,546     1,884       1,560        1,391        1,512
  Depreciation and
    amortization...........         25           47          89         92       150         221          275          386
                                ------      -------     -------    -------    ------    --------     --------     --------
Total operating expenses...      2,950        4,655       6,335      7,634     7,996       8,970        9,788       10,395
                                ------      -------     -------    -------    ------    --------     --------     --------
    Net   operating   income      (195)        (656)       (588)       883       866         872        1,088          991
(loss) ....................
Interest  income  and other,   
net .......................         59          579         525        374       420         435          429          586
                                ------      -------     -------    -------    ------    --------     --------     --------
Income (loss) from continuing
  operations before income        
  taxes....................       (136)         (77)        (63)     1,257     1,286       1,307        1,517        1,577
Tax benefit (provision)....          -          (79)        102       (484)     (478)       (457)        (531)        (615)
                                ------      --------    -------    --------   -------   ---------    ---------    --------
Income (loss) from
  continuing operations....       (136)        (156)         39        773       808         850          986          962
Discontinued operations, net        35         (475)     (2,875)       (97)      199       (1477)         253            -
                                ------      --------    --------   --------   ------    ---------    --------     --------
Net income (loss)..........     $ (101)     $  (631)    $(2,836)   $   676    $1,007    $   (627)    $  1,239     $    962
                                =======     ========    =======    =======    ======    =========    ========     ========
</TABLE>
    The Company's  quarterly operating results may fluctuate due to a variety of
factors, including but not limited to, the addition or loss of a major customer,
the relative mix of higher- and lower-margin  products and services,  changes in
pricing strategies,  costs relating to the expansion of operations, the costs of
acquisitions, capital expenditures, the hiring or loss of personnel, the opening
or closing of offices,  fluctuations  in the number of seminars or the number of
persons  attending  seminars and other  factors  that are outside the  Company's
control.

    The Company is subject to seasonal revenue fluctuations due to the impact of
holidays on the Company's  ability to sell its products and services and conduct
its  workshops.  The Company  experiences  two to three  weeks of reduced  sales
productivity  in its fourth quarter  surrounding  Thanksgiving  and the December
holiday season,  when both Company employees and potential  customers often take
vacation.  Since at that time the Company is typically  selling  workshops to be
held in its first  quarter,  this  reduced  productivity  affects  first-quarter
revenue.  Similarly,  the Company  hosts few,  if any,  workshops  during  these
holiday  weeks,  which  affects   fourth-quarter   revenue.  The  reduced  sales
productivity also affects  fourth-quarter CBT sales, which are typically shipped
and recognized as revenue in the fourth  quarter.  These seasonal trends have in
the past caused, and in the future could cause, revenues in the first and fourth
quarters of a year to be less,  perhaps  substantially so, than revenues for the
second and third quarters or to grow less rapidly than in other quarters.  There
can be no assurance that these or other seasonal trends will not have a material
adverse effect on the Company's results of operations.

Liquidity and Capital Resources

    The following  discussion of liquidity  and capital  resources  includes the
impact of discontinued  operations in the cash flow amounts, which is consistent
with the  presentation in the Company's  consolidated  statements of cash flows.
Net cash used in operations for 1996 was approximately  $8.0 million and largely
reflects   the   investment   made  by  the   Company  to  grow  its   operating
infrastructure.  Net cash provided by operations for 1997 was 
                                       15
<PAGE>
approximately  $4.1 million and includes an increase in accounts payable largely
related  to the  sales  force  automation  system.  Net cash  used in  investing
activities  was  approximately  $31.2  million  for 1996  related  primarily  to
investments made from the proceeds of the Company's  initial public offering and
the  purchase  of  property  and  equipment.  Net  cash  provided  by  investing
activities  was  approximately  $4.2  million for 1997  related to the  proceeds
received from the sale of the  interactive  and outdoor media business  segments
offset by the  purchase  of  property  and  equipment  and  investments  made in
long-term U.S. government backed securities. Purchases of property and equipment
in 1996 and 1997 were due to the  Company's  rapid  staffing  growth and related
office  space  expansion.  Cash flows  provided  by  financing  activities  were
approximately $45.6 million and $1.1 million in 1996 and 1997, respectively. The
net cash inflow from financing activities in 1996 reflects the completion of the
initial public offering of the Company's  Common Stock. The net cash inflow from
financing activities for 1997 reflects the proceeds realized by the Company upon
the exercise of stock options by employees and the purchase of stock through the
employee stock purchase plan.

    As of December  31, 1997,  the Company had  approximately  $27.9  million of
cash, cash  equivalents and short-term  investments,  which the Company believes
will be  sufficient  to meet its  currently  anticipated  cash needs for working
capital,  capital expenditures and funds required to make acquisitions,  if any,
for the next twelve months and the foreseeable future.

Year 2000

    The Company has  assessed  and  continues to assess the impact the Year 2000
issue  will have on its  reporting  systems  and  operations.  The  Company  has
determined that its operating and financial  software systems (including its new
sales force automation  system) will be Year 2000 compliant  through the release
of updated  software  versions.  The Company  will test the new systems for Year
2000 compliance as they are released. In addition,  the Company does not believe
that it is  substantially  reliant on any one customer or supplier and therefore
does not believe that the Year 2000  compliance  of such  companies  will have a
significant impact on the Company. The Company does not anticipate that the Year
2000 issue will have a significant  impact on its financial  position or results
of operations.

New Accounting Pronouncements

     In June 1997,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement of Financial  Accounting  Standards No. 130 (SFAS No. 130),  Reporting
Comprehensive  Income.  SFAS No. 130  establishes  standards  for  reporting and
display of comprehensive income and its components (revenues,  gains and losses)
in a full set of  general-purpose  financial  statements.  SFAS No. 130 requires
that all items that are required to be recognized under accounting  standards as
components of comprehensive  income be reported in a financial statement that is
displayed with the same prominence as other financial statements. This statement
is   effective   for  fiscal   years   beginning   after   December   15,  1997.

     In June 1997, the FASB issued Statement of Financial  Accounting  Standards
No. 131 (SFAS No. 131),  Disclosure  About Segments of an Enterprise and Related
Information,  which supersedes  Statement of Financial  Accounting Standards No.
14,  Financial  Reporting  for Segments of a Business  Enterprise.  SFAS No. 131
establishes  standards  for the way  that  public  business  enterprises  report
information about operating segments in annual financial statements and requires
that those enterprises  report selected  information about operating segments in
interim financial reports issued to stockholders.  It also establishes standards
for related disclosures about products and services,  geographic areas and major
customers.  This  statement is effective  for financial  statements  for periods
beginning  after  December  15,  1997.  In  the  initial  year  of  application,
comparative  information  for earlier years is to be restated.
                                       16
<PAGE>
Future Results

    This report may be deemed to contain  forward-looking  statements  which are
subject to risks and  uncertainties  that could cause  actual  results to differ
materially  from  those  anticipated,  including,  but  not  limited  to,  risks
associated  with  the  Company's   limited  operating  history  and  substantial
operating losses,  the expansion of the Company's business and the management of
growth,  dependence  on  key  personnel,  potential  fluctuations  in  quarterly
operating results, changing economic conditions, absence of long-term contracts,
rapidly changing  technology and the competitive  environment.  Certain of these
risks and  uncertainties  are  described  more  fully  under the  heading  "Risk
Factors"  in the  Company's  Prospectus  dated March 21,  1996,  included in the
Company's Registration Statement on Form S-1 (File No. 333-702).

Additional Risk Factors That Could Affect Results of Operations

    The  Company's  instructor-led  and CBT products and services are subject to
certain  additional  risks and  uncertainties,  including the need to anticipate
changes in technology to create training products on a timely basis, competition
from other companies with substantially  greater financial,  technical and other
resources,  relatively low barriers to entry,  the growth in CBT courses offered
by others,  the need to restrict  unauthorized use of the Company's products and
protect the Company's  proprietary  rights, and the risk that states may seek to
regulate the Company's training products as educational programs.

    The Company's  results of operations are affected by a wide variety of other
factors that could adversely impact its revenue and profitability, many of which
are beyond the Company's control. These factors include, but are not limited to,
the  Company's  ability to design and  introduce new products on a timely basis,
market  acceptance of products,  customer order patterns,  the timing of product
releases  from  Microsoft,   changes  in  products  and  services  mix,  product
performance,  obsolescence,  returns,  technological  changes,  competition  and
competitive pressures on pricing.

    In addition to the other  factors  identified  in this Annual Report on Form
10-K,  the following  risk factors  could  materially  and adversely  affect the
Company's  future  results of operations and could cause actual events to differ
materially  from those  predicted in the  Company's  forward-looking  statements
relating to its business.

Fluctuations in Results of Operations

    The  Company  has in the  past  experienced  fluctuations  in its  quarterly
results of operations and anticipates  that such  fluctuations  will continue in
the future.  Although the Company's continuing opeations have been profitable in
certain prior quarters,  there can be no assurance that such  profitability will
continue  in the  future  or that  the  levels  of  profitability  will not vary
significantly  among quarterly periods.  The Company's results of operations may
fluctuate as a result of many factors, including the addition or loss of a major
customer,  the relative mix of higher- and  lower-margin  products and services,
changes in pricing strategies, costs related to the expansion of operations, the
cost of  acquisitions,  capital  expenditures,  the hiring or loss of personnel,
general  economic  conditions  and  the  timing  of  product  introduction,   by
Microsoft(TM).

    The  Company's   expense  levels  are  based  in  significant  part  on  its
expectations  regarding  future  revenues and are fixed to a large extent in the
short  term.  Accordingly,  the  Company  may be unable to adjust  spending in a
timely  manner  to  compensate  for  any  unexpected  revenue   shortfall.   Any
significant  revenue shortfall would therefore have a material adverse effect on
the Company's results of operations.

Developing Market

    The market for IT education and training is rapidly evolving. New methods of
delivering training products and services are being developed and offered in the
marketplace.  Many of these new training  products and services will involve new
and different  business models.  Accordingly,  the Company's future success will
depend  upon,  among other  factors,  the extent to which the Company is able to
develop and implement  products and services which address the Company's  market
requirements.  There can be no assurance  that the Company will be successful in
meeting changing market needs.
                                       17
<PAGE>
Seasonality

    The Company is subject to seasonal revenue fluctuations due to the impact of
holidays on the Company's  ability to sell its products and services and conduct
its  workshops.  The Company  experiences  two to three  weeks of reduced  sales
productivity  in its fourth quarter  surrounding  Thanksgiving  and the December
holiday season,  when both Company employees and potential  customers often take
vacation.  Since at that time the Company is typically  selling  workshops to be
held in its first  quarter,  this  reduced  productivity  affects  first-quarter
revenue.  Similarly,  the Company  hosts few,  if any,  workshops  during  these
holiday  weeks,  which  affects   fourth-quarter   revenue.  The  reduced  sales
productivity also affects  fourth-quarter CBT sales, which are typically shipped
and recognized as revenue in the fourth  quarter.  These seasonal trends have in
the past caused, and in the future could case,  revenues in the first and fourth
quarters of a year to be less,  perhaps  substantially so, than revenues for the
second and third quarters or to grow less rapidly than in other quarters.  There
can be no assurance that these or other seasonal trends will not have a material
adverse effect on the Company's results of operations.

Dependence on Key Personnel

    The  Company's  future  success  depends,  in large part,  on the  continued
service  of its  key  management,  telesales,  financial,  product  and  service
development  and operational  personnel and on its ability to attract,  motivate
and retain  highly  qualified  employees,  including  management  personnel.  In
particular,  the loss of  certain  senior  management  personnel  or  other  key
employees  could have a material  adverse  effect on the Company's  business and
results of  operations.  The  Company  expects to  continue  to hire  additional
product and  service  development,  sales and  marketing  and support  staff and
instructors.  However,  there  can be no  assurance  that  the  Company  will be
successful in attracting,  retaining or motivating key personnel.  The inability
to hire  and  retain  qualified  personnel  or the loss of the  services  of key
personnel  could have a  material  adverse  effect  upon the  Company's  current
business,  new  product  and service  development  efforts  and future  business
prospects.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    The Financial Statements of the Company are listed in the Index to Financial
Statements on page F-1 of this report and are incorporated herein by reference.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT AUDITORS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

    None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

    The information  under the captions  "Election of Directors to the Mastering
Board" and "Mastering Section 16(a) Beneficial  Ownership Reporting  Compliance"
in the Proxy  Statement  and the  information  set forth  under  Item 4a of this
report are incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

    Except for information  referred to in Item 402(a)(8) of Regulation S-K, the
information under the captions "Election of Directors" and "Mastering  Executive
Compensation" in the Proxy Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The  information  under the caption  "Security  Ownership  of and  Principal
Shareholders  of Mastering"  in the Proxy  Statement is  incorporated  herein by
reference.
                                       18
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The  information  under  the  caption  "Certain  Relationships  and  Related
Transactions  of Mastering"  in the Proxy  Statement is  incorporated  herein by
reference."

                                     PART IV

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

(a) (1) Financial Statements

    The following financial statements are filed as part of this report:

    Mastering, Inc. and Subsidiaries Consolidated Financial Statements

    Report of Independent Public Accountants

    Consolidated Balance Sheets As of December 31, 1997 and 1996

    Consolidated Statements of Operations For the Years Ended December 31, 1997,
    1996 and 1995

    Consolidated  Statements  of  Stockholders'  Equity  (Deficit) For the Years
    Ended December 31, 1997, 1996 and 1995

    Consolidated Statements of Cash Flows For the Years Ended December 31, 1997,
    1996 and 1995

    Notes to Consolidated Financial Statements

(a) (2) Financial Statement Schedules

    Financial  statement  schedules are omitted because they are not applicable,
not required or because the required  information  is included in the  Company's
Consolidated Financial Statements and Notes thereto.

(a) (3) Exhibits

(a) The following exhibits are filed with this report or incorporated  herein by
reference:
<TABLE>
<CAPTION>
         Exhibit                                        Exhibit
         Number                  ----------------------------------------------------------------
         ------
          <S>              <C>   <C>
           3.1             --    Certificate of Incorporation of the Registrant(1)
           3.2             --    Bylaws of the Registrant(1)
           3.3             --    Certificate of Designation, Preferences and Rights of Series B
                                 Preferred Stock(1)
           4.1             --    Specimen Certificate for Common Stock(1) 4.2 -- Rights
                                 Agreement between the Registrant and Harris
                                 Trust and Savings Bank, as Rights Agent(1)
           4.3             --    Amendment to Rights Agreement between the Registrants and Harris
                                 Trust and Savings Bank, as Rights Agent (7)
          10.1             --    Registrant's Amended and Restated 1995 Executive Stock Option
                                 Plan(2)(5)
          10.2             --    Registrant's Amended and Restated 1995 Employee Stock Option Plan(5)
          10.3             --    Amended and Restated Employment Agreement with Terence
                                 M. Graunke(1)(2)
          10.4             --    Employment Agreement with Marc Pinto(1)(2)
          10.5             --    Form of Directorship Agreement between the Registrant
                                 and each director(1)
          10.6             --    Registrant's 401(k) Plan(1)(2)
          10.7             --    Trust  Agreement  between the Registrant and
                                 the Charles  Schwab Trust  Company  relating to
                                 the Registrant's 401(k)
                                 Plan(1)(2)
          10.8             --    Registrant's Employee Stock Purchase Plan(1)(2)
          10.9             --    Registrant's Performance Bonus Plan(1)(2)
          10.10            --    Registration Rights Agreement between the Registrant
                                 and the holders of the Registrant's Series A Preferred
                                 Stock, as amended(1)
</TABLE>
                                       19
<PAGE>
<TABLE>
          <S>              <C>   <C>
          10.11            --    Asset Purchase Agreement by and among SkiView, Inc.,
                                 SkiView Acquisition Corp. and Allegheny Media(1)
          10.12            --    Secured Promissory Note of SkiView, Inc. in favor of
                                 Oldview, Inc.(1)
          10.13            --    Security Agreement between SkiView, Inc. and Oldview,
                                 Inc. and U.S. Communications Corporation(1)
          10.14            --    Agreement and Plan of Merger dated June 21, 1996 among
                                 Eagle River Interactive, Inc., Sushi Acquisition Corp.,
                                 Graphic Media, Inc. and Stockholders thereof(3)
          10.15            --    Stock Pledge Agreement dated June 21, 1996 by and among
                                 Lee Jacobson, Philip Meurer, E. Michael Loftus and Joseph
                                 Parker and Eagle River Interactive, Inc.(3)
          10.16            --    Registration Agreement dated June 21, 1996 between
                                 Eagle River Interactive, Inc., Philip Meurer, Joseph
                                 Parker, Lee J. Jacobson and E. Michael Loftus(3)
          10.17            --    Employment and Noncompetition Agreement dated June 21,
                                 1996 between Graphic Media, Inc. and Philip Meurer(3)(2)
          10.18            --    Agreement and Plan of Merger dated as of July 31, 1996
                                 by and among Eagle River Interactive, Inc., Ute Creek
                                 Acquisition Corp. and Mastering Computers, Inc.(4)
          10.19            --    Supplemental Agreement dated as of July 31, 1996 by and
                                 among Eagle River Interactive, Inc., Ute Creek
                                 Acquisition Corp., Mastering Computers, Inc. and Thomas R. Graunke(4)
          10.20            --    Stock Pledge  Agreement dated as of July 31,
                                 1996 between Eagle River Interactive,  Inc. and Thomas R.
                                 Graunke(4)
          10.21            --    Registration  Rights  Agreement dated as of
                                 July 31, 1996 between Eagle River  Interactive,
                                 Inc. and Thomas R. Graunke(4)
          10.22            --    Employment and Noncompetition Agreement dated as of
                                 July 31, 1996 between Eagle River Interactive, Inc. and
                                 Thomas R. Graunke(4)(2)
          10.23            --    Employment and Noncompetition Agreement dated as of December 9, 1996
                                 between Eagle River Interactive, Inc. and Kevin J. Rowe (2)
          10.24            --    Agreement and Plan of Merger dated as of February 18, 1998 among
                                 Platinum Technology, Inc., PT Acquisition Corporation I and the
                                 Registrant (6)
          21               --    Subsidiaries of Registrant
          23               --    Consent of Arthur Andersen LLP
          24               --    Power of Attorney (contained on signature pages hereto)
          27               --    Financial Data Schedule
</TABLE>


(1) Incorporated  by  reference to the  exhibits to the  Company's  Registration
    Statement on Form S-1 (File No. 333-702)

(2) Management contract or compensatory plan or arrangement.

(3) Incorporated by reference to the exhibits to the Company's Current Report on
    Form 8-K dated June 21, 1996.

(4) Incorporated by reference to the exhibits to the Company's Current Report on
    Form 8-K dated July 31, 1996.

(5) Incorporated by reference to the Company's  Registration  Statement on Forms
    S-8 (File No. 333-42949)

(6) Incorporated by reference to the exhibits to the company's Current Report on
    Form 8-K dated February 20, 1998

(7) Incorporated  by reference to the Company's  Registration  Statement on Form
    8-A/A (File No. 0-28004)

(b) Reports on Form 8-K

    None.
                                       20
<PAGE>
                                   SIGNATURES

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


                                        MASTERING, INC.
                                        (Registrant)



Date:    March 19, 1998                 By:      /s/   Marc Pinto
                                             -----------------------------------
                                                       Marc Pinto
                                                 Executive Vice President and
                                                 Chief Financial Officer

         Know  all men by these  presents,  that  each  person  whose  signature
appears below  constitutes and appoints  Terence M. Graunke and Marc Pinto,  and
each of them,  as his true and lawful  attorneys-in-fact  and agents,  with full
power of substitution  and  resubstitution,  for him and in his name,  place and
stead, in any and all capacities,  to sign any and all amendments to this report
and to file  the  same  with  all  exhibits  thereto,  and  other  documents  in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing  requisite and necessary to be done,
as fully to all intents and  purposes as he might or could do in person,  hereby
ratifying and confirming all that said  attorneys-in-fact  and agents, or any of
them or their or his substitute or  substitutes,  may lawfully do or cause to be
done by virtue hereof.

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on this 19th day of March, 1998.
<TABLE>
<CAPTION>
             Signature                                                          Title
------------------------------------                              ------------------------------------
<S>                                                               <C>
/s/ Terence M. Graunke
------------------------------------                              Chairman of the Board, President
Terence M. Graunke                                                and Chief Executive Officer
                                                                  (principal executive officer)
/s/ Marc Pinto
------------------------------------                              Executive Vice President and Chief
Marc Pinto                                                        Financial Officer (principal
                                                                  financial officer)
/s/ Stephen S. Krell
------------------------------------                              Vice President of Finance (principal
Steven S. Krell                                                   accounting officer)

/s/ Paul D. Carberry
------------------------------------                              Director
Paul D. Carbery

/s/ Casey G. Cowell
------------------------------------                              Director
Casey G. Cowell

/s/ Andrew J. Filipowski
------------------------------------                              Director
Andrew J. Filipowski

/s/ Jamie Cowie
------------------------------------                              Director
Jamie Cowie

------------------------------------                              Director
Peter I. Mason

/s/ Paul G. Yovovich
------------------------------------                              Director
Paul G. Yovovich
</TABLE>
                                       21
<PAGE>
                        MASTERING, INC. AND SUBSIDIARIES


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




Report of Independent Public Accountants                                F-2

Consolidated Balance Sheets as of
   December 31, 1997 and 1996                                           F-3

Consolidated Statements of Operations
   For the Years Ended December 31, 1997, 1996 and 1995                 F-4

Consolidated Statements of Stockholders' Equity
   (Deficit) for the Years Ended December 31, 1997, 1996 and 1995       F-5

Consolidated Statements of Cash Flows for the Years
   Ended December 31, 1997, 1996 and 1995                               F-6

Notes to Consolidated Financial Statements                              F-7
                                      F-1
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Mastering, Inc.:


We have audited the accompanying  consolidated balance sheets of Mastering, Inc.
(formerly  Eagle  River  Interactive,   Inc.),  a  Delaware   corporation,   and
subsidiaries  (collectively,  the Company) as of December 31, 1997 and 1996, 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, 1997.  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 consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of the Company as of
December 31, 1997 and 1996,  and the results of their  operations and their cash
flows for each of the three years in the period  ended  December  31,  1997,  in
conformity with generally accepted accounting principles.


                                        /s/ ARTHUR ANDERSEN LLP
                                        ----------------------------------------
                                        ARTHUR ANDERSEN LLP

Denver, Colorado,
   January 19, 1998.
                                      F-2
<PAGE>
                        MASTERING, INC. AND SUBSIDIARIES


                           CONSOLIDATED BALANCE SHEETS
                    (dollars in thousands, except share data)
<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                        -------------------------------
                                                                             1997              1996
                                                                        --------------    -------------
                                            ASSETS
<S>                                                                     <C>               <C>          
CURRENT ASSETS:
   Cash and cash equivalents                                            $       18,379    $       9,032
   Short-term investments                                                        9,479           24,963
   Accounts receivable, net of allowance for doubtful accounts of $288
     and $184, respectively                                                      1,987            1,130
   Deferred seminar expenses                                                     2,372            1,016
   Net current assets of discontinued operations (Note 2)                           -             4,268
   Deferred tax asset (Note 9)                                                   2,025            1,592
   Other current assets                                                            442               96
                                                                        --------------    -------------

                  Total current assets                                          34,684           42,097
                                                                        --------------    -------------

PROPERTY AND EQUIPMENT:
   Land                                                                          1,450               -
   Furniture, fixtures and computer equipment                                    7,794            1,652
   Leasehold improvements                                                          533               -
                                                                        --------------    -------------
                                                                                 9,777            1,652
   Less - accumulated depreciation                                              (1,334)            (255)
                                                                        --------------    -------------

                  Net property and equipment                                     8,443            1,397
                                                                        --------------    -------------

NON-CURRENT ASSETS:
   Long-term investments (Note 4)                                               20,363               -
   Net long-term assets of discontinued operations (Note 2)                         -             9,789
   Deferred tax asset (Note 9)                                                     352              704
   Other non-current assets                                                        477              361
                                                                        --------------    -------------

                  Total non-current assets                                      21,192           10,854
                                                                        --------------    -------------

                                                                        $       64,319    $      54,348
                                                                        ==============    =============

                             LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable                                                     $        4,616    $         898
   Accrued liabilities                                                           2,101            2,212
   Deferred revenue                                                              1,881            1,094
   Current portion capital lease obligations                                       135               36
   Other current liabilities                                                       100               13
                                                                        --------------    -------------

                  Total current liabilities                                      8,833            4,253

NON-CURRENT LIABILITIES:
   Capital lease obligations, net of current portion                               255              181
                                                                        --------------    -------------

                  Total liabilities                                              9,088            4,434
                                                                        --------------    -------------


COMMITMENTS AND CONTINGENCIES (Note 10)


STOCKHOLDERS'  EQUITY  (Notes 3, 4, 5, 7, 8 and 11):
   Common  stock $.001 par value; 30,000,000 shares authorized;
   13,703,828 and 13,356,990 shares issued and outstanding, respectively            14               13
   Unrealized gain on "Available for Sale" securities                              186               -
   Additional paid-in capital                                                   57,487           54,938
   Accumulated deficit                                                          (2,456)          (5,037)
                                                                        --------------    -------------

                  Total stockholders' equity                                    55,231           49,914
                                                                        --------------    -------------

                  Total liabilities and stockholders' equity            $       64,319    $      54,348
                                                                        ==============    =============
</TABLE>
                     The accompanying notes are an integral
                   part of these consolidated balance sheets.
                                      F-3
<PAGE>
                        MASTERING, INC. AND SUBSIDIARIES


                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (dollars in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                       For the Years Ended December 31,
                                                               ------------------------------------------------
                                                                    1997             1996              1995
                                                               -------------     -------------    -------------
<S>                                                            <C>               <C>              <C>          
REVENUE                                                        $      40,966     $      21,018    $      10,168
                                                               -------------     -------------    -------------

OPERATING EXPENSES:
   Cost of revenue                                                    11,992             5,296            3,304
   Marketing and selling expenses                                     17,778             9,304            4,328
   General and administrative expenses                                 6,347             6,721            2,017
   Depreciation and amortization                                       1,032               253               71
                                                               -------------     -------------    -------------

                  Total operating expenses                            37,149            21,574            9,720
                                                               -------------     -------------    -------------

NET OPERATING INCOME (LOSS)                                            3,817              (556)             448
   Interest income and other, net                                      1,870             1,537               70
                                                               -------------     -------------    -------------

INCOME FROM CONTINUING OPERATIONS
   BEFORE INCOME TAXES                                                 5,687               981              518
   Tax provision (Note 9)                                             (2,081)             (461)              -
                                                               -------------     -------------    ------------

INCOME FROM CONTINUING OPERATIONS                                      3,606               520              518
                                                               -------------     -------------    -------------

DISCONTINUED OPERATIONS (Note 2)
   Loss from discontinued operations, net of income tax benefit
     of $1,196 and $2,721 in 1997 and 1996, respectively              (1,858)           (3,610)          (3,441)
   Gain (loss) on disposal, net of income taxes of $394
     and $40 in 1997 and 1996, respectively                              833               198             (350)
                                                               -------------     -------------    -------------

                                                                      (1,025)           (3,412)          (3,791)
                                                               -------------     -------------    -------------

NET INCOME (LOSS)                                              $       2,581     $      (2,892)   $      (3,273)
                                                               =============     =============    =============

BASIC EARNINGS (LOSS) PER SHARE (Pro forma for 1996, Note 1):
   Income from continuing operations                           $        0.27     $        0.04
   Loss from discontinued operations, net                              (0.08)            (0.28)
                                                               -------------     -------------

   Net income (loss)                                           $        0.19     $       (0.24)
                                                               =============     ============= 

   Weighted average shares                                        13,535,105        12,285,782
                                                               =============     =============

DILUTED EARNINGS (LOSS) PER SHARE (Pro forma for 1996, Note 1):
   Income from continuing operations                           $        0.25     $        0.04
   Loss from discontinued operations, net                              (0.07)            (0.25)
                                                               -------------     -------------

   Net income (loss)                                           $        0.18     $       (0.21)
                                                               =============     =============

   Weighted average shares                                        14,534,596        13,714,600
                                                               =============     =============
</TABLE>
                          The accompanying notes are an
           integral part of these consolidated financial statements.
                                       F-4
<PAGE>
                        MASTERING, INC. AND SUBSIDIARIES


            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                             (dollars in thousands)

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
                                                                                  Series A
                                                                                 Mandatorily
                                                                                 Redeemable                                     
                                                                                 Convertible                                    
                                                                               Preferred Stock                Common Stock      
                                                                       --------------------------    ---------------------------
                                                                          Shares          Amount          Shares         Amount   
                                                                       -------------    ---------    --------------    ----------
<S>                                                                     <C>            <C>             <C>            <C>        
BALANCE, December 31, 1994                                                        -     $      -          1,599,744    $       1
   Issuance of shares upon conversion of debt                                     -            -                 30           - 
   Exchange ERC for ERI shares                                                    -            -          3,122,118            3
   Issuance of Series A Preferred Stock, net of issuance costs             1,342,000        6,710                -            - 
   Issuance of Common Stock                                                       -            -             15,000           - 
   Exercise of stock options                                                      -            -                 -            - 
   Amortization of deferred compensation                                          -            -                 -            - 
   Issuance of stock for technology                                               -            -            125,556            1
   Shareholder S corporation distribution                                         -            -                 -            - 
   Net loss                                                                       -            -                 -            - 
   Dividends accrued on Series A Preferred Stock                                  -           188                -            - 
                                                                       -------------    ---------    --------------    ---------

BALANCE, December 31, 1995                                                 1,342,000        6,898         4,862,448            5
   Undistributed losses reclassified to additional paid-in
     capital due to termination of S corporation status                           -            -                 -            - 
   Shareholder S corporation distributions                                        -            -                 -            - 
   Dividends accrued on Series A Preferred Stock                                  -           178                -            - 
   Conversion of Series A Preferred Stock                                 (1,342,000)      (7,076)        4,026,000            4
   Proceeds from initial public offering, net of underwriter
     commissions and $1,632 of offering costs                                     -            -          4,309,000            4
   Amortization of deferred compensation                                          -            -                 -            - 
   Acquisition and retirement of shares from GM shareholder                       -            -                 -            - 
   Issuance of Common Stock pursuant to employee stock
     purchase plan                                                                -            -             10,673           - 
   Exercise of stock options                                                      -            -            148,869           - 
   Issuance of stock options                                                      -            -                 -            - 
   Net loss                                                                       -            -                 -            - 
                                                                       -------------    ---------    --------------    ---------

BALANCE, December 31, 1996                                                        -            -         13,356,990           13
   Exercise of stock options                                                      -            -            300,503            1
   Issuance of Common Stock pursuant to employee stock
     purchase plan                                                                -            -             46,335           - 
   Unrealized gain on "Available for Sale" securities                             -            -                 -            - 
   Tax benefit related to exercise of non-qualified stock options                 -            -                 -            - 
   Net income                                                                     -            -                 -            - 
                                                                       -------------    ---------    --------------    ---------

BALANCE, December 31, 1997                                                        -     $      -         13,703,828    $      14
                                                                       =============    =========    ==============    =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                                                  Unrealized                     
                                                                                                    Gain on           Additional   
                                                                              Deferred           "Available for         Paid-in    
                                                                            Compensation         Sale" Securities       Capital    
                                                                       ----------------------    ----------------    ------------- 
<S>                                                                     <C>                     <C>                  <C>     
BALANCE, December 31, 1994                                                   $         -          $       -           $      17    
   Issuance of shares upon conversion of debt                                          -                  -                 566    
   Exchange ERC for ERI shares                                                         -                  -                  (3)   
   Issuance of Series A Preferred Stock, net of issuance costs                         -                  -                (114)   
   Issuance of Common Stock                                                            -                  -                  19    
   Exercise of stock options                                                          (49)                -                 297    
   Amortization of deferred compensation                                               31                 -                  -     
   Issuance of stock for technology                                                    -                  -                 142    
   Shareholder S corporation distribution                                              -                  -                  -     
   Net loss                                                                            -                  -                  -     
   Dividends accrued on Series A Preferred Stock                                       -                  -                (188)   
                                                                             ------------         ----------          ---------    
                                                                                                                                   
BALANCE, December 31, 1995                                                            (18)                -                 736    
   Undistributed losses reclassified to additional paid-in                                                                         
     capital due to termination of S corporation status                                -                  -              (3,126)   
   Shareholder S corporation distributions                                             -                  -                (138)   
   Dividends accrued on Series A Preferred Stock                                       -                  -                (178)   
   Conversion of Series A Preferred Stock                                              -                  -               7,072    
   Proceeds from initial public offering, net of underwriter                                                                       
     commissions and $1,632 of offering costs                                          -                  -              50,459    
   Amortization of deferred compensation                                               18                 -                  -     
   Acquisition and retirement of shares from GM shareholder                            -                  -                (352)   
   Issuance of Common Stock pursuant to employee stock                                                                             
     purchase plan                                                                     -                  -                  54    
   Exercise of stock options                                                           -                  -                 261    
   Issuance of stock options                                                           -                  -                 150    
   Net loss                                                                            -                  -                  -     
                                                                             ------------         ----------          ---------    
                                                                                                                                   
BALANCE, December 31, 1996                                                             -                  -              54,938    
   Exercise of stock options                                                           -                  -               1,080    
   Issuance of Common Stock pursuant to employee stock                                                                             
     purchase plan                                                                     -                  -                 276    
   Unrealized gain on "Available for Sale" securities                                  -                 186                 -     
   Tax benefit related to exercise of non-qualified stock options                      -                  -               1,193    
   Net income                                                                          -                  -                  -     
                                                                             ------------         ----------          ---------    
                                                                                                                                   
BALANCE, December 31, 1997                                                   $         -          $      186          $  57,487    
                                                                             ============         ==========          =========    
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                                               Total        
                                                                                            Stockholders'      
                                                                            Accumulated        Equity        
                                                                              Deficit         (Deficit)      
                                                                         ----------------   -------------      
<S>                                                                           <C>              <C>             
BALANCE, December 31, 1994                                                    $    (723)       $    (705)      
   Issuance of shares upon conversion of debt                                        -               566       
   Exchange ERC for ERI shares                                                       -                -        
   Issuance of Series A Preferred Stock, net of issuance costs                       -              (114)      
   Issuance of Common Stock                                                          -                19       
   Exercise of stock options                                                         -               248       
   Amortization of deferred compensation                                             -                31       
   Issuance of stock for technology                                                  -               143       
   Shareholder S corporation distribution                                          (269)            (269)      
   Net loss                                                                      (3,273)          (3,273)      
   Dividends accrued on Series A Preferred Stock                                     -              (188)      
                                                                              ---------        ---------       
                                                                                                               
BALANCE, December 31, 1995                                                       (4,265)          (3,542)      
   Undistributed losses reclassified to additional paid-in                                                     
     capital due to termination of S corporation status                           3,126               -        
   Shareholder S corporation distributions                                       (1,006)          (1,144)      
   Dividends accrued on Series A Preferred Stock                                     -              (178)      
   Conversion of Series A Preferred Stock                                            -             7,076       
   Proceeds from initial public offering, net of underwriter                                                   
     commissions and $1,632 of offering costs                                        -            50,463       
   Amortization of deferred compensation                                             -                18       
   Acquisition and retirement of shares from GM shareholder                          -              (352)      
   Issuance of Common Stock pursuant to employee stock                                                         
     purchase plan                                                                   -                54       
   Exercise of stock options                                                         -               261       
   Issuance of stock options                                                         -               150       
   Net loss                                                                      (2,892)          (2,892)      
                                                                              ---------        ---------       
                                                                                                               
BALANCE, December 31, 1996                                                       (5,037)          49,914       
   Exercise of stock options                                                         -             1,081       
   Issuance of Common Stock pursuant to employee stock                                                         
     purchase plan                                                                   -               276       
   Unrealized gain on "Available for Sale" securities                                -               186       
   Tax benefit related to exercise of non-qualified stock options                    -             1,193       
   Net income                                                                     2,581            2,581       
                                                                              ---------        ---------       
                                                                                                               
BALANCE, December 31, 1997                                                    $  (2,456)       $  55,231       
                                                                              =========        =========       
</TABLE>
                   The accompanying notes are an integral part
                   of these consolidated financial statements.
                                      F-5
<PAGE>
                        MASTERING, INC. AND SUBSIDIARIES


                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (dollars in thousands)

                     AS OF DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
                                                                                        For the Years Ended December 31,
                                                                                -------------------------------------------------
                                                                                     1997             1996              1995
                                                                                -------------     -------------    --------------
<S>                                                                             <C>               <C>              <C>            
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss)                                                            $       2,581     $      (2,892)   $       (3,273)
   Adjustments to reconcile net income (loss) to net cash provided by
     (used in) operating activities-
       Depreciation and amortization                                                    2,797             2,149             1,057
       Write-off product technology                                                        -                 -                241
       Deferred tax provision (benefit)                                                 1,270            (2,296)               -
       Loss on disposal of property and equipment                                          -                 66                23
       Gain on sale of discontinued operations                                         (6,709)               -                 -
       Compensation from issuance of stock options                                         -                150               200
       Amortization of deferred compensation                                               -                 18                31
       Reserve for bad debts                                                              150               165               150
       Reserve for uncollectable advances to affiliates                                    -               (262)              262
   Changes in assets and liabilities-
       Accounts receivable                                                                188            (2,801)           (1,530)
       Costs and estimated earnings in excess of billings                                 219            (2,095)              (28)
       Other current assets                                                            (2,695)             (320)             (107)
       Other assets                                                                     1,478              (623)              (44)
       Accounts payable and accrued liabilities                                         4,537             1,031             1,880
       Billings in excess of costs and estimated earnings                                 168               (63)              218
       Revenue billed in advance                                                          128              (212)              (61)
                                                                                -------------     -------------    --------------
                  Net cash provided by (used in) operating activities                   4,112            (7,985)             (981)
                                                                                -------------     -------------    --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                                                  (8,711)           (5,982)           (1,740)
   Proceeds from disposition of property and equipment                                     75                18                -
   Proceeds from sale of discontinued operations                                       17,500                -                 -
   Purchase of product rights                                                              -                 -                (50)
   Cash paid for acquisitions                                                              -               (242)           (1,230)
   Advances to affiliates                                                                  -                 -               (262)
   Purchase of investments                                                             (4,879)          (24,963)               -
   Unrealized gain on available for sale securities                                       186                -                 -
   Other                                                                                   -                 -                 (4)
                                                                                -------------     -------------    --------------
                  Net cash provided by (used in) investing activities                   4,171           (31,169)           (3,286)
                                                                                -------------     -------------    --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from line of credit                                                            -              1,905             2,850
   Repayment of line of credit                                                             -             (1,905)           (2,988)
   Proceeds from long-term debt                                                            -                350               250
   Repayment of long-term debt                                                             -             (3,737)             (360)
   Repayment of capital leases                                                           (293)             (208)              (47)
   Payment of noncompete obligation                                                        -                (96)              (96)
   Distributions to S corporation shareholders                                             -             (1,144)             (269)
   Acquisition of shares from GM shareholder                                               -               (352)               -
   Proceeds from issuance of Series A preferred stock                                      -                 -              6,710
   Series A preferred stock issuance costs                                                 -                 -               (114)
   Proceeds from IPO, net of offering costs                                                -             50,463                -
   Proceeds from exercise of common stock options and
     stock purchase plan                                                                1,357               315                19
                                                                                -------------     -------------    --------------
                  Net cash provided by financing activities                             1,064            45,591             5,955
                                                                                -------------     -------------    --------------

NET INCREASE IN CASH AND CASH EQUIVALENTS                                               9,347             6,437             1,688

CASH AND CASH EQUIVALENTS, beginning of period                                          9,032             2,595               907
                                                                                -------------     -------------    --------------
CASH AND CASH EQUIVALENTS, end of period                                        $      18,379     $       9,032    $        2,595
                                                                                =============     =============    ==============

SUPPLEMENTAL CASH FLOW INFORMATION:
   Cash paid for interest                                                       $          36     $         269    $          697
                                                                                =============     =============    ==============
   Cash paid for income taxes                                                   $         190     $          -     $           -
                                                                                =============     =============    =============
</TABLE>
                     The accompanying notes are an integral
                part of these consolidated financial statements.
                                      F-6
<PAGE>
                        MASTERING, INC. AND SUBSIDIARIES


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS






(1)   SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:

         Organization and Business

Mastering,   Inc.   (formerly  Eagle  River   Interactive,   Inc.),  a  Delaware
corporation,  was  incorporated  on September  28,  1995,  and became the parent
company of Eagle River Communications,  Inc. ("ERC"), SkiView, Inc. ("SkiView"),
and Eagle River Production, Inc. ("ERP"). During 1996, Mastering, Inc. completed
mergers  with  Graphic  Media,  Inc.  ("GM")  and  Mastering   Computers,   Inc.
("Mastering  Computers"),  which were accounted for as poolings of interests. In
addition,  during 1996 Mastering,  Inc. formed SRC Localisation  ("SRC"),  a 99%
owned subsidiary,  which is located in Paris,  France.  Collectively  Mastering,
Inc., and ERC,  SkiView,  ERP,  GM and  Mastering  Computers,  all of which  are
Mastering, Inc.'s wholly owned subsidiaries,  and SRC, are herein referred to as
the "Company".

The Company's operating  subsidiary,  Mastering Computers,  develops and markets
instructor-led  training workshops and computer-based  training ("CBT") products
for information  technology  ("IT")  professionals.  These training products and
services  include  instructor-led  Windows NT(TM),  Windows 95(TM),  TCP/IP(TM),
Internet Information  Server(TM) and Exchange(TM) training workshops,  Microsoft
Certified Professional preparation courses, on-site workshops held at customers'
facilities,  CBT software  covering a broad range of  information  technologies,
other  software,  videos  and a  newsletter.  The  Company's  CBT  products  are
delivered using CD-ROMs,  proprietary intranets, the Internet and the World Wide
Web.

The Company's operating subsidiary,  Mastering Computers,  markets and sells its
instructor-led and CBT products and services throughout the United States and in
Canada, primarily through its in-house telesales organization. Training products
and services are also sold to national accounts under long-term contracts, which
are sold  using  outside  salespeople.  At the end of 1997,  the  Company  began
marketing its training products in Europe, with sales of instructor-led training
workshops beginning in the United Kingdom during the first quarter of 1998.

The  Company  has  completed  two  acquisitions  accounted  for as  poolings  of
interests  since  its  inception.  Accordingly,  the  accompanying  consolidated
financial statements reflect the combined financial position,  operating results
and cash  flows of the  Company,  GM and  Mastering  Computers  for all  periods
presented.  In  addition,  the  consolidated  financial  statements  include the
accounts of businesses acquired under the purchase method of accounting from the
effective date of the purchase  transaction.  In 1995, the Company accounted for
ERC and SkiView as a  reorganization  of entities under common control and their
assets and liabilities are included in the consolidated  financial statements at
their historical cost.

During 1997, the Company sold two of its business segments,  the interactive and
outdoor  media  segments.  The  Company  has  accounted  for these two  business
segments  as  discontinued  operations  (see  Note  2).  As  a  result  of  this
determination,  the  operations of the  interactive  and outdoor media  business
segments have been  reflected as  discontinued  operations  in the  accompanying
consolidated  financial  statements for all periods  presented.  The interactive
business segment developed and created custom interactive  solutions that assist
United  States  and  international  companies  with  corporate   communications,
marketing and training.  The outdoor media business segment offered  traditional
outdoor media advertising at United States ski resorts. 
                                      F-7
<PAGE>
         Stock Split

Effective  January 24,  1996,  the Company  approved a three share for one share
common stock split. Common stock amounts, equivalent share amounts and per-share
amounts have been adjusted retroactively to give effect to the stock split.

         Basis of Presentation

The consolidated  financial  statements include the accounts of the Company, its
wholly-owned  subsidiaries  and SRC.  All  material  intercompany  accounts  and
transactions have been eliminated in consolidation.

         Use of Estimates

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

         Basis for Recording Purchase-Method Acquisitions

The purchase method of accounting was applied in the  accompanying  consolidated
financial  statements  on January 1, 1995 to reflect the purchase of SkiView and
Production  Masters,  Inc.  ("PMI"),  a company that operated an audio and video
post-production studio. The Company acquired and assumed certain  liabilities in
connection with the SkiView and PMI  acquisitions.  These assets and liabilities
have  been  accounted  for  as  discontinued   operations  in  the  accompanying
consolidated  financial statements.  PMI and SkiView were sold in 1995 and 1997,
respectively (see Note 2).

Effective November 1996, the Company acquired certain assets and assumed certain
liabilities of SRC. The Company incurred  approximately  $107,000 of acquisition
costs  and  paid  approximately  $242,000  in  cash  at the  closing  of the SRC
acquisition. SRC was a component of the interactive business segment.

         Earnings Per Share

In February  1997,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement of Financial  Accounting Standards (SFAS) No. 128, Earnings Per Share,
which supersedes Accounting Principles Board Opinion No. 15, the former existing
authoritative  guidance.  SFAS No. 128 modifies the  calculation  of primary and
fully diluted  earnings per share (EPS) and replaces them with basic and diluted
EPS.  SFAS No. 128 is effective for  financial  statements  for both interim and
annual  periods  presented  after  December  15,  1997,  and  as a  result,  all
prior-period EPS data presented has been restated.

EPS is not considered  relevant for the year ended December 31, 1995,  given the
changes in the capital  structure  of Company  which  occurred on March 21, 1996
(the date of the Company's initial public offering).  In addition,  EPS for 1996
is unaudited and pro forma assuming the
                                      F-8
<PAGE>
conversion  of  the  Company's  mandatorily   redeemable  convertible  Series  A
Preferred Stock ("Preferred  Stock") (which was converted to common stock on the
date of the Company's initial public offering) had occurred on January 1, 1996.

A reconciliation of the numerators and denominators of the basic and diluted EPS
computations for the years ended December 31, 1997 and 1996, is as follows:

<TABLE>
<CAPTION>
                                                                                          Unaudited
                                                    1997                               Pro Forma 1996
                                    -------------------------------------  -------------------------------------
                                                  Effect of                               Effect of
                                       Basic        Stock       Diluted        Basic        Stock       Diluted
                                        EPS        Options        EPS           EPS        Options        EPS
                                    -----------   ----------  -----------  -----------  -----------  -----------
<S>                                 <C>            <C>       <C>          <C>           <C>         <C>        
     Income from operations
       (numerator)                  $ 3,606,000          -    $ 3,606,000  $   520,000          -    $   520,000
                                    ===========               ===========  ===========               ===========
     Discontinued operations,
       net (numerator)              $(1,025,000)         -    $(1,025,000) $(3,412,000)         -    $(3,412,000)
                                    ===========               ===========  ===========               ===========
     Net income (loss)
       (numerator)                  $ 2,581,000          -    $ 2,581,000  $(2,892,000)         -    $(2,892,000)
                                    ===========               ===========  ===========               ===========
     Shares (denominator)            13,535,105     999,491    14,534,596   12,285,782   1,428,818    13,714,600
                                    ===========               ===========  ===========               ===========
     Per share amount - income
       from operations              $       .27               $       .25  $       .04               $       .04
     Per share amount -
       discontinued operations,
       net                                 (.08)                     (.07)        (.28)                     (.25)
                                    -----------               -----------  -----------               -----------
     Per share amount - net
       income (loss)                $       .19               $       .18  $      (.24)              $      (.21)
                                    ===========               ===========  ===========               ===========
</TABLE>

For purposes of applying the treasury stock method, the Company has assumed that
it could  fully use the  assumed  tax  deduction  arising  from the  exercise of
non-qualified stock options.

         Cash and Cash Equivalents

For purposes of the statements of cash flows, the Company considers all cash and
highly liquid  investments with an original  maturity of three months or less to
be cash equivalents.
                                      F-9
<PAGE>
         Supplemental Disclosure of Non-Cash Investing and Financing Activities

Effective January 1, 1995, the Company acquired the following assets and assumed
the following  liabilities  of SkiView,  which  conducted the Company's  outdoor
media business. The Company incurred approximately $35,000 of acquisition costs.

         Assets acquired:
           Cash                                          $      54,000
           Accounts receivable                               1,497,000
           Other current assets                                536,000
           Property and equipment                              700,000
           Goodwill                                          3,535,000
                                                         -------------

                                                             6,322,000

         Liabilities assumed:
           Accounts payable and accrued liabilities          1,062,000
           Revenue billed in advance                         1,203,000
           Related party debt assumed                          557,000
           Notes payable                                     3,000,000
                                                         -------------

                                                             5,822,000
                                                         -------------

                  Cash paid at closing                   $     500,000
                                                         =============

Effective  November 1996, the Company  acquired the following assets and assumed
the following liabilities of SRC. The Company incurred approximately $107,000 of
acquisition costs.

         Assets acquired:
           Accounts receivable                           $       6,000
           Property and equipment                               14,000
           Goodwill                                            448,000
                                                         -------------

                                                               468,000

         Liabilities assumed:
           Accounts payable                                    144,000
           Long-term debt                                       82,000
                                                         -------------

                                                               226,000
                                                         -------------

                  Cash paid at closing                   $     242,000
                                                         =============

In September 1995, the chief executive  officer ("CEO") of the Company converted
$512,000  of debt and  $54,000 of accrued  interest  payable to him into  common
stock of the Company.

During  1997,  1996,  and 1995,  the Company  acquired  approximately  $244,000,
$769,000, and $171,000, respectively, of equipment under capital leases.

On March 21, 1996, the effective date of the Company's  initial public offering,
holders of 1,342,000  shares of the Company's  Preferred  Stock  converted their
shares into 4,026,000 shares of the Company's common stock (see Notes 5 and 7).
                                      F-10
<PAGE>
In March  1996,  upon the  Company's  initial  public  offering,  $3,126,000  of
accumulated  deficit was  reclassified to additional  paid-in capital to reflect
the Company's  change in tax status from an S corporation to a C corporation for
tax purposes.

         Investments

As of  December  31,  1997 and 1996,  the  Company  had  invested  approximately
$29,407,000  and  $24,963,000,   respectively,   in  United  States   government
securities ("Government Securities").  In addition, as of December 31, 1997, the
Company had an equity  investment in Allin  Communications  Corporation  ("ACC")
recorded for $435,000 (see Note 4). Of the $29,407,000 of Government  Securities
investments at December 31, 1997,  approximately  $19,928,000  are classified as
long-term  investments in the  accompanying  consolidated  balance  sheets.  The
Company  has the  positive  intent  and  ability  to hold all of its  Government
Securities to maturity and not to engage in trading or selling  activities  with
respect to these securities.  These Government Securities are classified as held
to maturity in accordance with SFAS No. 115,  Accounting for Certain Investments
in Debt and Equity  Securities,  and are recorded at amortized cost. At December
31,  1997,  total  Government  Securities  had a  fair  value  of  approximately
$29,455,000,  and  reflect  unrealized  gains of  approximately  $48,000.  These
Government  Securities  contain  provisions  whereby  they may be  called at the
option of the issuer for amounts at least equal to their carrying amount.

         Concentration of Credit Risk

The Company has no significant  off-balance sheet  concentrations of credit risk
such  as  foreign  exchange  contracts,   options  contracts  or  other  hedging
arrangements.  The Company  maintains the majority of its cash balances with two
financial institutions in the form of demand deposits and money market accounts.

In management's  opinion,  the Company's accounts receivables do not represent a
significant credit risk to the Company.

         Fair Value of Financial Instruments

As of December 31, 1997 and 1996, the Company's financial instruments other than
investments  primarily  consisted  of cash,  short-term  trade  receivables  and
payables,   and  capital  leases.  The  carrying  values  of  these  instruments
approximate fair value because of their primarily short-term nature.

         Reclassifications

Certain  amounts in 1996 and 1995 have been  reclassified  to conform  with 1997
presentation.

         Property and Equipment

Property and  equipment  are  recorded at cost.  The Company  depreciates  these
assets using the straight-line method over the following estimated useful lives:

         Furniture, fixtures and computer equipment                 3 to 7 years
         Leasehold improvements                                Term of the lease
                                      F-11
<PAGE>
Assets  purchased under capital leases are depreciated  over the lesser of their
estimated useful lives or the term of the lease.

The land recorded in the accompanying consolidated balance sheet at December 31,
1997  represents  raw land that is owned by the Company and located  next to the
Company's headquarters in Scottsdale, Arizona.

         Accrued Liabilities

The components of accrued liabilities are as follows:

                                                          December 31,
                                                     1997              1996
                                                 -------------    -------------

 Accrued salaries, wages, benefits and bonuses   $     655,000    $     820,000
 Accrued sales taxes                                   285,000          566,000
 Accrued liabilities for discontinued operations       426,000               -
 Other accrued expenses                                735,000          826,000
                                                 -------------    -------------

                  Totals                         $   2,101,000    $   2,212,000
                                                 =============    =============

         Product License Costs

A contract  requires the Company to pay royalties on certain CBT product  sales.
Royalties  are  generally a fixed  amount per unit sold or a  percentage  of the
Company's net sales of certain  products and are  generally  accrued as products
are sold.

         Revenue Recognition

The Company  generates  revenue from sales of training  products  and  services,
which  consist  primarily of  instructor-led  seminars on Microsoft  Windows(TM)
operating  systems  and  other IT  topics,  instructor-led  Microsoft  Certified
Professional  preparation  courses,  on-site workshops,  computer based training
software  covering a broad range of information  technologies,  other  software,
videos and a newsletter. Revenue from seminars is generally collected in advance
and  deferred and is  recognized  upon  commencment  of a seminar or a series of
seminars in a given city.  In connection  with certain  seminar  offerings,  the
Company  also  provides  its  customers  with course  materials  in advance of a
seminar, in which case it recognizes revenue for the value of the materials upon
shipping the materials and the remainder of the revenue upon commencement of the
related  seminar or series of  seminars.  Other  product  revenue  is  generally
recognized when the products are shipped to the customer.

Costs  related to  training  seminars  consist  primarily  of labor and  related
benefits for speakers and seminar  personnel,  rental of seminar  facilities and
materials  provided to seminar  participants,  some of which is  deferred  until
seminar commencement.  Costs related to CBT products include royalties paid to a
third-party licensor and costs to duplicate and ship the CBT product.

         Income Taxes

The  Company  provides  for income  taxes using the asset and  liability  method
prescribed  by SFAS No. 109,  Accounting  for Income  Taxes.  Under this method,
deferred  income tax assets and  liabilities  are  recognized  for the  expected
future  income  tax  consequences,  based on  enacted  tax  laws,  of  temporary
differences  between the financial  statement carrying amounts and the tax bases
of assets and liabilities and carryforwards.
                                      F-12
<PAGE>
SFAS No. 109 requires recognition of deferred tax assets for the expected future
tax effects of all deductible temporary differences, sloss carryforwards and tax
credit carryforwards. Deferred tax assets are then reduced, if deemed necessary,
by a valuation  allowance for the amount of any tax benefits which,  more likely
than not based on current circumstances, are not expected to be realized.

         Recently Issued Accounting Standards

In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. SFAS
No. 130 establishes  standards for reporting and display of comprehensive income
and  its   components   (revenues,   gains,   and  losses)  in  a  full  set  of
general-purpose financial statements.  SFAS No. 130 requires that all items that
are  required to be  recognized  under  accounting  standards as  components  of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial  statements.  This statement is effective
for fiscal years beginning after December 15, 1997.

In June 1997,  the FASB issued SFAS No. 131,  Disclosures  About  Segments of an
Enterprise and Related  Information,  which  supersedes  SFAS No. 14,  Financial
Reporting  for  Segments  of a Business  Enterprise.  SFAS No.  131  establishes
standards for the way that public business  enterprises report information about
operating  segments  in annual  financial  statements  and  requires  that those
enterprises  report selected  information  about  operating  segments in interim
financial  reports issued to  stockholders.  It also  establishes  standards for
related  disclosures  about products and services,  geographic  areas, and major
customers.  This  statement is effective  for financial  statements  for periods
beginning  after  December  15,  1997.  In  the  initial  year  of  application,
comparative information for earlier years is to be restated.

(2)   DISCONTINUED OPERATIONS:

On July 29, 1997, the Company  announced its intention to dispose of its outdoor
media  business  segment.  On September 16, 1997, the Company sold the assets of
its outdoor media business  segment for  approximately  $4.0 million in cash and
approximately  $600,000  in notes  receivable  resulting  in a  pre-tax  gain of
approximately $1.1 million.  The Company approved the disposition of the outdoor
media business segment,  including a plan for the Company to identify  potential
buyers, on May 17, 1997. As a result,  the Company has accounted for the segment
as  a  discontinued   operation  in  the  accompanying   consolidated  financial
statements for all periods presented, with a measurement date of May 17, 1997.

The following table presents  approximate  revenue and net income (loss) for the
outdoor media business  segment for the period from January 1, 1997 to September
16, 1997, and the years ended December 31, 1996 and 1995:

                                                      For the Years Ended
                                                         December 31,
                           January 1, 1997      -------------------------------
                        to September 16, 1997       1996              1995
                     -------------------------- -------------    --------------

  Revenue                $     2,100,000        $   3,900,000    $   4,000,000
  Net income (loss)             (200,000)             500,000         (600,000)
                                      F-13
<PAGE>
Included in the net loss for the period from  January 1, 1997 to  September  16,
1997 is  approximately  $0.2 million of costs related to the sale.  The net loss
for the  period  from May 18,  1997 to  September  16,  1997  was  approximately
$800,000.

Also on July 29, 1997,  the Company  announced  its  intention to dispose of its
interactive business segment. On September 26, 1997, the Company sold the assets
of its interactive  business  segment for $13.5 million in cash and the right to
future  payments  contingent on the  segment's  future  earnings  resulting in a
pre-tax gain of approximately $5.6 million. As a result of this transaction, the
Company has accounted for the  interactive  business  segment as a  discontinued
operation in the accompanying  consolidated financial statements for all periods
presented with a measurement date of July 28, 1997.

The  following  table  presents   approximate  revenue  and  net  loss  for  the
interactive  business  segment for the period from  January 1, 1997 to September
26, 1997 and the years ended December 31, 1996 and 1995:

                                                    For the Years Ended
                                                       December 31,
                     January 1, 1997         -------------------------------
                  to September 26, 1997           1996              1995
               --------------------------    --------------   --------------

  Revenue         $    13,000,000            $   14,300,000   $    6,700,000
  Net loss              5,100,000                 4,100,000        2,600,000

Included in the net loss for the period from  January 1, 1997 to  September  26,
1997 is  approximately  $1.5  million  of costs  related  to the  organizational
realignment and sale of the interactive  business segment.  The net loss for the
period from July 29, 1997 to September 26, 1997 was approximately $2.6 million.

The  Company  sold  the  following  assets  and was  relieved  of the  following
liabilities  related to the outdoor media and interactive  business  segments at
their respective sale dates:

         Assets:
           Current assets
              Accounts receivable, net                   $       3,938
              Other current assets                               2,345
                                                         -------------

                           Total current assets                  6,283

           Property, plant and equipment, net                    5,711

           Goodwill and other assets, net                        3,389
                                                         -------------
                           Total assets                         15,383
                                                         -------------
                                      F-14
<PAGE>
         Liabilities:
           Current liabilities
              Accounts payable                                     778
              Accrued liabilities                                1,764
              Other current liabilities                          1,148
                                                         -------------

                           Total current liabilities             3,690

           Noncurrent liabilities                                  277
                                                         -------------
                           Total liabilities                     3,967
                                                         -------------
         Net Assets Sold                                 $      11,416
                                                         =============

Effective  June 30, 1995,  the Company  discontinued  the operations of PMI. The
assets were sold to a third party for  approximately  $700,000  and all proceeds
from the  liquidation  of the assets were paid to the previous  owner of the PMI
business in satisfaction of all  acquisition-related  liabilities.  As a result,
the  operations  of  PMI  through  its   disposition   have  been  reflected  as
discontinued  operations in the accompanying  consolidated  financial statements
for all periods  presented.  The Company recorded a loss on the disposal of this
segment of approximately  $350,000,  composed of approximately  $58,000 to write
down the  segment's  assets and  $292,000 of payroll and other  operating  costs
incurred from the  measurement  date through the date of final  disposition.  In
addition,  during 1995, the Company recorded  approximately  $294,000 for losses
from PMI  operations  prior to the  measurement  date.  During 1996, the Company
recorded a gain of $198,000,  net of income tax,  from  discontinued  operations
representing the settlement of certain contingencies related to the PMI business
segment.

(3) MERGERS AND BUSINESS COMBINATIONS ACCOUNTED FOR AS POOLINGS OF INTERESTS:

On June 21,  1996,  pursuant  to an  agreement  and plan of merger,  the Company
completed  the  merger  of  a  wholly  owned   subsidiary  with  GM,  an  Oregon
corporation.  As a result of the merger,  GM became a wholly owned subsidiary of
the  Company.  The  business  combination  was  accounted  for as a  pooling  of
interests. In connection with the GM merger, each outstanding share of GM common
stock was converted into 0.27 of a share of the Company's  common stock with all
the outstanding  shares of GM common stock being exchanged for 550,000 shares of
the Company's common stock. Prior to the conversion, a dissenting GM shareholder
was paid approximately $352,000 as consideration for her approximate 3% interest
in GM. In addition, the Company assumed and exchanged all options to purchase GM
common  stock for options to purchase  141,041  shares of the  Company's  common
stock.

On August 1, 1996,  pursuant  to an  agreement  and plan of merger,  the Company
completed the merger of a wholly owned subsidiary with Mastering  Computers,  an
Arizona  corporation.  As a result of the merger,  Mastering  Computers became a
wholly owned subsidiary of the Company.  This business combination was accounted
for as a pooling  of  interests.  In  connection  with the  Mastering  Computers
merger, all outstanding shares of Mastering
                                      F-15
<PAGE>
Computers  common stock were  exchanged  for  1,175,000  shares of the Company's
common  stock.  The Company also assumed and  exchanged  all options to purchase
Mastering  Computers  common stock for options to purchase 191,280 shares of the
Company's common stock.

(4)   SEAVISION AND CONTINGENT NOTE RECEIVABLE:

As of December  31, 1995 and 1996,  the Company  had  advanced  SeaVision,  Inc.
("SeaVision") approximately $262,000 and $302,000,  respectively. These advances
accrued interest at 15% per annum, compounded quarterly, and matured three years
from  the date of each  funding.  As of  December  31,  1995,  the  Company  had
established a reserve for $262,000 of this receivable.  During 1996, the Company
reversed the  reserve,  based on the initial  public  offering of ACC (which was
formed by the  combination of SeaVision and other  companies).  During 1997, ACC
repaid the advance with $161,000 of cash and 14,418 shares of ACC common stock.

In connection with the September 1995 Preferred  Stock offering,  the CEO of the
Company issued a contingent note (the  "Contingent  Note") to the Company.  This
note  transferred to the Company future gains arising from the sale of the CEO's
10.5% equity interest in SeaVision. The terms of the Contingent Note require the
CEO to pay the  Company  any net  proceeds  in excess of $500,000 if and when he
sells his holdings in  SeaVision.  This  Contingent  Note had an estimated  fair
value of zero at September 1995. At that time, SeaVision was a development stage
enterprise with significant liquidity issues.

In November 1996, ACC completed an initial public  offering of its common stock.
The SeaVision  stock owned by the CEO was converted  into 241,200  shares of ACC
Common Stock, all of which are subject to the terms of the Contingent Note.

During 1997, the Contingent Note was amended.  The amendment defines  procedures
by which  the  Company  can  require  the  sale of the ACC  shares  and  defines
procedures by which the CEO may segregate and retain a portion of the ACC shares
having a market value of  approximately  $500,000.  As of December 31, 1997, the
CEO  had  not  sold  any  of  his  shares  of  ACC.  The  Company  has  recorded
approximately  $435,000  of  available-for-sale  securities  related  to the ACC
shares  owned  and the ACC  shares  subject  to the  Contingent  Note,  which is
included in  long-term  investments  in the  accompanying  consolidated  balance
sheet.

(5)   INITIAL PUBLIC OFFERING:

In March 1996,  the Company  completed an initial  public  offering of 4,000,000
shares of its common  stock at a price of $13.00 per share.  After  underwriting
discounts,  commissions and other offering expenses, net proceeds to the Company
from the  offering  were  approximately  $46,727,000.  Upon the  closing  of the
offering,  all 1,342,000  shares of Preferred Stock  outstanding  were converted
into 4,026,000 shares of common stock (See Note 7).

In addition,  the terms of the Preferred  Stock provided that accrued  dividends
were not payable upon  conversion of the Preferred  Stock if the market price of
the common stock at the time of such conversion exceeded $5.00 per share. At the
conversion date,  $366,000 in Preferred Stock dividends had been accrued.  These
accrued  dividends were restored to additional  paid-in capital upon the closing
of the  initial  public  offering  at which time the market  price of the common
stock on the date of conversion was the initial public  offering price of $13.00
per share.
                                      F-16
<PAGE>
In April  1996,  the  underwriters  of the  Company's  initial  public  offering
exercised  their  over-allotment  option  and  purchased  from  the  Company  an
additional 309,000 shares of common stock at $13.00 per share, with net proceeds
to the Company aggregating $3,736,000.

(6)   OTHER RELATED PARTY TRANSACTIONS:

In addition to the related party  transactions  discussed above, the Company had
the following related party transactions:

     o   The Company uses an aircraft owned by an entity in which the CEO is the
         primary   owner.   Costs   incurred  to  rent  the   aircraft   totaled
         approximately  $313,000,  $280,000  and  $149,000  for the years  ended
         December 31, 1997, 1996 and 1995, respectively.  In 1996, the Company's
         policy  was  to  pay  rental  rates  which   approximated  first  class
         commercial rates for similar flights, taking into account the number of
         passengers on each flight. During 1997, the Company's policy was to pay
         $750 per flight hour,  regardless  of the number of  passengers on each
         flight. As of December 31, 1996, the Company had prepaid  approximately
         $186,000  to  this  entity,  which  is  recorded  in  the  accompanying
         consolidated  balance sheet. As of December 31, 1997, the Company had a
         payable due to this entity of approximately  $50,000, which is recorded
         in the accompanying consolidated balance sheet.

     o   The Company leased office space from an entity owned by several members
         of the board of directors. Related rental expense totaled approximately
         $31,000  and  $81,000  in 1997 and  1996,  respectively.  The lease was
         terminated in May 1997.

     o   The  Company  incurred  approximately   $43,000,   $800,000  (including
         $505,000 of initial public  offering  costs) and $280,000 to a law firm
         for legal  services  performed  for the  period  from  January  1, 1997
         through  April 30, 1997 and for the years ended  December  31, 1996 and
         1995,  respectively.  A director and  stockholder  in the Company was a
         partner of the law firm when the services  were  provided.  At December
         31, 1996, approximately $90,000 of these costs were included in accrued
         expenses in the accompanying consolidated balance sheets.

     o   Mastering  Computers'  ongoing  direct-mail  campaigns  and  newsletter
         printing and mailing involved  approximately  9,350,000,  4,345,000 and
         2,988,000 direct-mail pieces in 1997, 1996 and 1995, respectively. With
         respect to these direct-mail campaigns, Mastering Computers incurred to
         related-party companies approximately $466,000, $1,327,000 and $641,000
         in 1997,  1996 and 1995,  respectively  for printing,  film work,  data
         processing,  marketing  and mailing.  These  amounts  were  paid to two
         companies  owned by family  members of the Company's CEO and one of its
         Executive  Vice   Presidents.   During  1995,   services   provided  by
         related-party  companies were on an informal basis,  and amounts billed
         included a fee to manage all aspects of the  direct-mail  campaign  and
         newsletter  printing  and  mailing  and an  amount  to pay  third-party
         vendors to provide  the  related  services.  During 1996 and the period
         from  January  1,  1997  through  April 4,  1997,  Mastering  Computers
         arranged  with one of the  related-party  companies  to pay the related
         party a fee equal to 15% of all submitted  third-party  vendor invoices
         and to reimburse the related party for all such vendor invoices paid by
         the  related-party.  After April 4, 1997,  the Company began paying the
         vendors  directly  and paid only the 15% fee to the related  party.  At
         December 31, 
                                      F-17
<PAGE>
         1997 and 1996,  approximately  $22,253 and $233,000,  respectively,  of
         costs were  reflected  as prepaid  expenses  and are  included in other
         current  assets  in  the  accompanying   consolidated  balance  sheets.
         Management  believes  that  the  amounts  paid  to  the  related  party
         companies  are  comparable  to  those  that  would  have  been  paid to
         unaffiliated companies.

     o   During 1995, prior to the Company's merger with Mastering  Computers in
         August 1996,  Mastering  Computers  entered into an agreement to expand
         certain products available to seminar customers with a company owned by
         a family  member of the  Company's  CEO and one of its  Executive  Vice
         Presidents.  The  Company  had  approximately  $41,000  payable to this
         related  party  included  in accrued  expenses  at  December  31,  1995
         relating to the agreement. This agreement was terminated in 1996.

     o   During 1996,  the Company paid  approximately  $185,000 for  consulting
         services  to a  family  member  of the  Company's  CEO  and  one of its
         Executive Vice Presidents, primarily under an agreement entered into by
         Mastering  Computers  prior to  Mastering  Computers'  merger  with the
         Company. This agreement was terminated in 1996.

(7)   STOCKHOLDERS' EQUITY :

         Rights Agreement

The Board of Directors of the Company  declared a dividend  distribution  of one
purchase right (a "Right") for each outstanding  share of common stock. Upon the
occurrence of certain events, including events which could result in a change in
control of the Company,  each Right entitles the  registered  holder to purchase
from the Company one  one-hundredth  of a share of Preferred Stock at a price of
five  times  the  offering  price  per  share  of  the  Company's  common  stock
established by the initial public offering of such common stock.

         Preferred Stock

During 1995 the Company sold  1,342,000  shares of Preferred  Stock,  $0.001 par
value, at $5.00 per share for gross proceeds of $6,710,000. The Company used the
funds for  repayment of certain  outstanding  debt as well as for other  working
capital and investment purposes.

As of December 31, 1995,  dividends  of $188,000  were accrued on the  Preferred
Stock.  During  1996,  additional  dividends  of  $178,000  were  accrued on the
Preferred Stock. On March 21, 1996, the holders of 1,342,000 shares of Preferred
Stock  converted  their shares of Preferred  Stock into 4,026,000  shares of the
Company's common stock. However,  dividends were not paid upon conversion of the
Preferred Stock as the market price of the Company's common stock exceeded $5.00
on the  date of  conversion,  which  was the  maximum  conversion  rate at which
dividends were to be paid.

         S-Corporation Distribution

Prior  to their  merger  with  the  Company,  GM and  Mastering  Computers  were
S Corporations  for income tax purposes.  Accordingly,  distributions  from such
entities  to their shareholders  were made  relating  to the  shareholders'  tax
liabilities.
                                      F-18
<PAGE>
(8)   OPTION PLANS:

         1995 Executive Stock Option Plan

In 1995,  the  Company  adopted  the  1995  Executive  Stock  Option  Plan  (the
"Executive  Option Plan"),  whereby certain  eligible  executives may be granted
options.  The Executive  Option Plan allows  issuance of incentive stock options
and  nonqualified  options.  The Executive  Option Plan is  administered  by the
Compensation  Committee  of  the  Board  of  Directors  (the  "Committee").  The
Committee may grant  options to purchase up to an aggregate of 4,500,000  shares
under the Executive  Option Plan, of which  3,512,400  are  considered  Standard
Options and 987,600 are considered  Special  Options.  The Standard  Options are
generally  exercisable  in four equal  annual  installments  beginning 12 months
after the date of grant.  The terms of the Special  Options  provided  that such
Special  Options vest at the end of four years from the date of grant;  however,
vesting  could  be  accelerated   based  upon  the  Company   achieving  certain
performance  measures,  which primarily  related to the fair market value of the
Company's common stock. In 1996, the Company met such performance measures,  and
the Special Options vested in full.

         1995 Employee Option Plan

In 1995, the Company adopted the 1995 Employee Option Plan (the "Employee Option
Plan"),  whereby certain eligible employees may be granted options. The Employee
Option  Plan allows  issuance  of  incentive  stock  options  and  non-qualified
options,  and is administered by the Committee.  The Committee may grant options
to purchase up to an  aggregate of  1,500,000  shares under the Employee  Option
Plan. The options are generally  exercisable  in four equal annual  installments
beginning 12 months after the date of grant.

         Mastering Computers Stock Options

Mastering Computers had granted certain key employees options to purchase shares
of common  stock of  Mastering  Computers.  A portion  of those  options  vested
immediately at the grant date, and the remaining  options vested upon the change
of control  resulting from  Mastering  Computers'  merger with the Company.  All
outstanding  Mastering  Computers  options  were  exchanged  for  options of the
Company.  For certain  options,  the excess of the fair value of the  underlying
stock  on the date of  grant  over the  exercise  price  has  been  recorded  as
compensation   expense  and  additional  paid-in  capital  in  the  accompanying
consolidated balance sheets.

         Employee Stock Purchase Plan

In January 1996, the Board of Directors adopted, and the Company's  stockholders
approved,  the Employee Stock Purchase Plan,  which is intended to qualify under
Section 423 of the Internal  Revenue  Code.  Under the Employee  Stock  Purchase
Plan,  employees  meeting  certain  eligibility  requirements  are  entitled  to
purchase  common stock  through  payroll  deductions  or lump-sum  deposits made
during periods established by the plan's administrative committee.  Participants
generally may purchase common stock at a price equal to 85% of the fair market
                                      F-19
<PAGE>
value of the common stock on certain  specified  dates. The Company has reserved
150,000  shares of common stock for issuance  under the Employee  Stock Purchase
Plan. Under the plan, the Company issued  approximately 41,000 and 10,700 shares
during 1997 and 1996, respectively.

         Statement of Financial Accounting Standards No. 123 ("SFAS 123")

SFAS 123,  Accounting for Stock-Based  Compensation,  defines a fair-value-based
method of accounting for employee  stock options or similar equity  instruments.
However, SFAS 123 allows the continued measurement of compensation cost for such
plans using the  intrinsic-value-based  method prescribed by APB Opinion No. 25,
Accounting  for Stock Issued to Employees  ("APB 25"),  provided  that pro forma
disclosures are made of the impact of issuing  employee stock options or similar
equity  instruments  assuming the  fair-value-based  method of SFAS 123 had been
applied.  The Company has  elected to account for its  stock-based  compensation
plans  under APB 25;  accordingly,  for  purposes  of the pro forma  disclosures
presented  below, the Company has computed the fair value of all options granted
during  1997,  1996 and 1995  using  the  Black-Scholes  pricing  model  and the
following weighted average assumptions:

                                      1997             1996              1995
                                 -------------     -------------    ---------

   Risk-free interest rate            5.88%             6.02%            5.91%
   Expected dividend yield               0%                0%               0%
   Expected lives outstanding       4 years           4 years          4 years
   Expect volatility                 86.40%           104.14%          104.14%

To estimate lives of options for this valuation,  it was assumed options will be
exercised upon becoming fully vested. All options are initially assumed to vest.
Cumulative  compensation  cost  recognized  in pro forma income from  continuing
operations  with  respect  to  options  that are  forfeited  prior to vesting is
adjusted  as a  reduction  of pro forma  compensation  expense  in the period of
forfeiture.  As  discussed in Note 11, the Company has entered into an agreement
which, if consummated,  would result in the accelerated vesting of stock options
and would require the  recognition,  in pro forma  footnote  disclosure,  of the
unrecognized pro forma compensation expense under SFAS No. 123.

If  the  Company  had  accounted  for  its  stock-based  compensation  plans  in
accordance  with SFAS 123,  the  Company's  pro forma net income  (loss) and pro
forma net income  (loss) per diluted  common  share would have been  reported as
follows:

<TABLE>
<CAPTION>
                                                                     1997             1996              1995
                                                               --------------    --------------   ---------------
<S>                                                            <C>               <C>              <C>            
         Net income (loss):
           As reported                                         $    2,581,000    $   (2,892,000)  $   (3,273,000)
                                                               ==============    ==============   ===============

           Pro forma                                           $     (763,000)   $   (6,093,000)  $   (4,292,000)
                                                               ==============    ==============   ==============

         Unaudited net income (loss) per diluted common share:
              As reported                                      $         0.18    $        (0.21)
                                                               ==============    ============== 

              Pro forma                                        $        (0.05)   $        (0.45)
                                                               ==============    ============== 
</TABLE>
                                      F-20
<PAGE>
Weighted  average shares used to calculate pro forma loss per diluted share were
determined  as described in Note 1.  Historical  income per common share are not
presented for periods prior to 1996 as it is not  considered  relevant given the
Company's initial public offering in 1996, which resulted in significant changes
in the Company's capital structure (see Note 1).

A summary of stock  options as of December 31,  1997,  1996 and 1995 and changes
during the years then ended is presented below:
<TABLE>
<CAPTION>
                                              1997                      1996                     1995
                                    ----------------------      ----------------------    ---------------------
                                                 Weighted                    Weighted                  Weighted
                                                  Average                     Average                  Average
                                                  Exercise                    Exercise                 Exercise
                                     Shares        Price         Shares        Price        Shares      Price
                                    ---------     --------      ---------    ---------    -----------   -------
<S>                                 <C>           <C>           <C>          <C>          <C>           <C>
    Outstanding at
      beginning of year             4,087,669     $ 6.73        2,096,713    $ 2.74            -         $ -
        Granted                     1,538,641       8.33        2,536,925      9.87        2,096,713      2.74
        Canceled                     (785,644)     10.71         (397,100)     7.62            -           -
        Exercised                    (300,503)      3.65         (148,869)     1.70            -           -
                                    ---------                   ---------                  ---------


    Outstanding at end
      of year                       4,540,163     $ 6.78        4,087,669    $ 6.73        2,096,713     $2.74
                                    =========                   =========                  =========

    Options exercisable at
      end of year (see Note 11)     2,124,648     $ 5.62        1,344,949    $ 3.13          207,296     $1.23

    Weighted average fair
      value of options granted      $    5.44                   $    7.17                  $    2.11 
                                    =========                   =========                  =========
</TABLE>

The following  table  summarizes  information  about the options  outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
                                           Options Outstanding                      Options Exercisable
                          ------------------------------------------------      -----------------------------
                             Number             Weighted                          Number
                          Outstanding            Average          Weighted      Exercisable         Weighted
                               at               Remaining         Average          at                Average
       Range of           December 31,         Contractual        Exercise      December 31,        Exercise
    Exercise Prices           1997                Life             Price           1997               Price
 --------------------     ------------    ---------------------   --------      ------------        ---------
<S>                         <C>                <C>                <C>            <C>                <C> 
    $.01 -
    $1.46                      473,265          7.37 years         $ 1.26           275,911           $ 1.25
    $3.75 -
    $9.00                    3,476,135          8.79 years         $ 6.27         1,726,796           $ 5.64
    $9.38 -
    $22.13                     590,763          8.73 years         $14.19           121,941           $15.10
                             ---------                                            ---------
    $.01 -
    $22.13                   4,540,163          8.63 years         $ 6.78         2,124,648           $ 5.62
                             =========                                            =========
</TABLE>

 (9)   INCOME TAXES:

Mastering,  Inc. was an S corporation  for federal and state income tax purposes
until September 29, 1995. Accordingly, Mastering, Inc. was not subject to income
tax, as all of its taxable  income or loss was reported in the tax return of its
shareholders  for the period from  inception  through  September 29, 1995.  Upon
Mastering,  Inc.'s  conversion to a C  corporation,  a net deferred tax asset of
approximately $502,000 was recorded by the
                                      F-21
<PAGE>
Company which was fully reserved for by a valuation allowance as of December 31,
1995.

GM and Mastering  Computers were S corporations for federal and state income tax
purposes  prior to merging with  Mastering,  Inc. on June 21, 1996 and August 1,
1996, respectively.  Accordingly, GM and Mastering Computers were not subject to
income  tax  prior to  those  dates,  as all  taxable  income  or loss of GM and
Mastering  Computers was reported in the tax returns of their  shareholders  for
the period from inception  through their  respective  merger dates.  Upon merger
with the Company, net deferred tax assets of $30,000 and $125,000 relating to GM
and Mastering Computers, respectively, were recorded by the Company.

Through December 31, 1995, the Company  provided a valuation  allowance to fully
offset its net deferred tax asset,  which consisted  primarily of the benefit of
its net operating  loss. Such net operating loss was primarily the result of the
Company's  investment in infrastructure to significantly  expand its interactive
business and, to a much lesser  degree,  losses from its outdoor media  business
segment. During 1996, as required by Statement of Financial Accounting Standards
No. 109,  Accounting  for Income Taxes ("SFAS  109"),  the Company  reviewed the
realization of its deferred tax asset, and as a result of this review,  reversed
a portion of the valuation  allowance.  This reversal was based on  management's
determination  that it is more  likely than not that the  related  deferred  tax
asset would be realized as a result of taxable income generated by the Company's
future years' operations.

During 1996, the Company  recorded an income tax benefit for the deferred income
tax  asset  created  by 1995 and 1996  operating  losses,  which  resulted  in a
deferred tax asset at December 31, 1996 of approximately $2.3 million.

During 1997, the Company  recorded an  approximately  $2.1 million tax provision
from  continuing  operations  and an  approximate  $0.8 million tax benefit from
discontinued  operations.  In  addition,  during  1997 the  Company  recorded an
approximately  $1.2 million  deferred tax asset  resulting  from the exercise of
non-qualified  stock options by  employees.  At December 31, 1997, in accordance
with the provisions of SFAS No. 109,  management has determined  that it is more
likely than not that the tax asset of approximately  $2.4 million as of December
31, 1997 will be realized.

The Company bases its determination on the significant  growth that has occurred
in its IT  training  business  during  1996  and  1997.  The  Company's  revenue
increased  from $21 million for 1996 to $41  million for 1997,  a 95%  increase.
Income from  continuing  operations for 1996 was $0.5 million which increased to
$3.6 million in 1997, a 620% increase.  Based on its projections,  the Company's
management  believes  that  profitable  operations  will be  sustained in future
periods.

The Company's  deferred income taxes result  primarily from a net operating loss
carryforward ("NOL"), the use of accelerated depreciation methods for income tax
purposes, amortization
                                      F-22
<PAGE>
differences  relating to certain intangible assets, and certain accrued expenses
which are not  deductible for income tax purposes until paid. As of December 31,
1997, the Company had a tax NOL of approximately $6.0 million,  which expires in
2011.

Management  believes that taxable income during the carryforward  period will be
sufficient to utilize fully the NOLs before they expire.  Management anticipates
that taxable  income during the  carryforward  period will arise  primarily as a
result  of the  Company's  continued  growth  in its IT  training  business  and
operating   efficiencies  which  may  be  gained  under  the  Company's  current
strategies.

The  components  of the net deferred  income tax assets at December 31, 1997 and
1996 are as follows:

                                                    1997             1996
                                                    ----             ----
  Deferred tax assets:

    Net operating loss carryforwards             $ 2,328,000      $ 1,724,000 
    Depreciation and amortization                     -               602,000
    Allowance for bad debts                          109,000          127,000
    Non-deductible accruals                          358,000          390,000
    Compensation related to options granted
       below fair market value                       130,000          130,000
    Tax credit carryforwards and other               350,000             -
    Less - valuation allowance                      (254,000)        (424,000)
                                                 -----------      ----------- 
           Total deferred tax assets               3,021,000        2,549,000
                                                 -----------      ----------- 

  Deferred tax liabilities:

    Depreciation and amortization                    120,000             -
    Deferred revenue                                 524,000          235,000
    Other                                             -                18,000
                                                 -----------      ----------- 
           Total deferred tax liabilities            644,000          253,000
                                                 -----------      ----------- 
           Net deferred tax assets               $ 2,377,000      $ 2,296,000
                                                 ===========      ===========

A  reconciliation  of income tax  provision  from  continuing  operations at the
statutory rate to the Company's effective rate is as follows:

                                                            1997       1996
                                                            ----       ----


          Computed at the expected statutory rate             34%        34%
          Non-deductible expenses                              2%         2%
          State income tax benefit                             4%         4%
          Change in valuation allowance                       (3%)       (6%)
          Loss from S corporation                              -         14%
          Other                                                -         (1%)
                                                            ----       ----


          Income tax provision - effective rate               37%        47%
                                                            ====       ====

 (10) COMMITMENTS AND CONTINGENCIES:

          Licensing Agreement
                                      F-23
<PAGE>
On December  30, 1996,  the Company  signed a licensing  agreement  with a third
party to license a software  development  engine and over 100 existing  computer
based  training  titles,  as well as over  300  titles  to be  developed  in the
eighteen months following the signing of the agreement. The Company is committed
to paying the third party future minimum  royalties and license fees of $600,000
in 1997 and $400,000 in 1998 as well as royalties for each CBT title sold beyond
the amount required to fulfill the minimum royalty obligation.


          Employment Agreements

The Company has entered into  employment  agreements with certain key employees.
Such   employment   agreements   provide  for  severance   benefits  in  certain
circumstances,  as well as for bonus  payments  upon the  attainment  of certain
criteria, primarily related to operating income.


          Retirement and Profit Sharing Plans

The Company has adopted a 401(k)  retirement  savings plan (the "Plan").  All of
the Company's  employees are eligible to participate  beginning on the first day
of the month following  ninety days of employment and may elect to contribute up
to 15% of their  annual  compensation  to the Plan.  The Company  will provide a
matching  contribution  of 50% of the  employee's  contribution  up to an annual
maximum of 3% of the  employee's  annual  compensation.  The Company's  matching
contributions  vest over a four-year  period  beginning on the date the employee
was hired. During 1997 and 1996, the Company contributed  approximately $235,000
and $51,000, respectively, to the  Plan, for  employees included  in  continuing
operations.


          Legal Matters

The Company is party to various  claims and  lawsuits  arising out of the normal
course of business.  Management believes that the ultimate liability, if any, in
excess of amounts already provided for, is not likely to have a material adverse
effect on the Company's annual results of operations or financial condition.
                                      F-24
<PAGE>
          Operating Leases

The Company has entered into operating leases for office space and equipment. As
of  December  31,  1997,  future  minimum  lease  payments  required  under such
operating leases are as follows:

                   1998              $   1,275,282
                   1999                  1,546,030
                   2000                  1,546,030
                   2001                  1,540,257
                   2002                  1,540,257
                   Thereafter            8,748,055
                                     -------------
                            Total    $  16,195,911
                                     =============

Rent expense included in continuing operations in the accompanying  consolidated
statements of operations  for the years ended  December 31, 1997,  1996 and 1995
was approximately $285,000, $200,000 and $140,000, respectively.

 (11) SUBSEQUENT EVENT:

In February 1998, the Company announced that it had reached an agreement whereby
it would be merged with a wholly-owned  subsidiary of PLATINUM technology,  inc.
("PT" and the "Merger").  In management's  opinion, the Merger is expected to be
completed  in the  second  quarter  of 1998 and  accounted  for as a pooling  of
interests.  Consummation  of the  Merger  must  be  approved  by  the  Company's
shareholders. If the Merger is approved, PT will exchange 0.448 of a share of PT
common stock for each share of the  Company's  common  stock.  In  addition,  in
accordance with the terms of the outstanding stock option plans, all outstanding
unvested  stock  options will vest upon the  consummation  of the Merger and all
outstanding options will be assumed by PT.
                                      F-25
<PAGE>
<TABLE>
<CAPTION>
         Exhibit                                        Exhibit
         Number                  ----------------------------------------------------------------
         ------
          <S>              <C>   <C>
           3.1             --    Certificate of Incorporation of the Registrant(1)
           3.2             --    Bylaws of the Registrant(1)
           3.3             --    Certificate of Designation, Preferences and Rights of Series B
                                 Preferred Stock(1)
           4.1             --    Specimen Certificate for Common Stock(1) 4.2 -- Rights
                                 Agreement between the Registrant and Harris
                                 Trust and Savings Bank, as Rights Agent(1)
           4.3             --    Amendment to Rights Agreement between the Registrants and Harris
                                 Trust and Savings Bank, as Rights Agent (7)
          10.1             --    Registrant's Amended and Restated 1995 Executive Stock Option
                                 Plan(2)(5)
          10.2             --    Registrant's Amended and Restated 1995 Employee Stock Option Plan(5)
          10.3             --    Amended and Restated Employment Agreement with Terence
                                 M. Graunke(1)(2)
          10.4             --    Employment Agreement with Marc Pinto(1)(2)
          10.5             --    Form of Directorship Agreement between the Registrant
                                 and each director(1)
          10.6             --    Registrant's 401(k) Plan(1)(2)
          10.7             --    Trust  Agreement  between the Registrant and
                                 the Charles  Schwab Trust  Company  relating to
                                 the Registrant's 401(k)
                                 Plan(1)(2)
          10.8             --    Registrant's Employee Stock Purchase Plan(1)(2)
          10.9             --    Registrant's Performance Bonus Plan(1)(2)
          10.10            --    Registration Rights Agreement between the Registrant
                                 and the holders of the Registrant's Series A Preferred
                                 Stock, as amended(1)
          10.11            --    Asset Purchase Agreement by and among SkiView, Inc.,
                                 SkiView Acquisition Corp. and Allegheny Media(1)
          10.12            --    Secured Promissory Note of SkiView, Inc. in favor of
                                 Oldview, Inc.(1)
          10.13            --    Security Agreement between SkiView, Inc. and Oldview,
                                 Inc. and U.S. Communications Corporation(1)
          10.14            --    Agreement and Plan of Merger dated June 21, 1996 among
                                 Eagle River Interactive, Inc., Sushi Acquisition Corp.,
                                 Graphic Media, Inc. and Stockholders thereof(3)
          10.15            --    Stock Pledge Agreement dated June 21, 1996 by and among
                                 Lee Jacobson, Philip Meurer, E. Michael Loftus and Joseph
                                 Parker and Eagle River Interactive, Inc.(3)
          10.16            --    Registration Agreement dated June 21, 1996 between
                                 Eagle River Interactive, Inc., Philip Meurer, Joseph
                                 Parker, Lee J. Jacobson and E. Michael Loftus(3)
          10.17            --    Employment and Noncompetition Agreement dated June 21,
                                 1996 between Graphic Media, Inc. and Philip Meurer(3)(2)
          10.18            --    Agreement and Plan of Merger dated as of July 31, 1996
                                 by and among Eagle River Interactive, Inc., Ute Creek
                                 Acquisition Corp. and Mastering Computers, Inc.(4)
          10.19            --    Supplemental Agreement dated as of July 31, 1996 by and
                                 among Eagle River Interactive, Inc., Ute Creek
                                 Acquisition Corp., Mastering Computers, Inc. and Thomas R. Graunke(4)
          10.20            --    Stock Pledge  Agreement dated as of July 31,
                                 1996 between Eagle River Interactive,  Inc. and Thomas R.
                                 Graunke(4)
          10.21            --    Registration  Rights  Agreement dated as of
                                 July 31, 1996 between Eagle River  Interactive,
                                 Inc. and Thomas R. Graunke(4)
          10.22            --    Employment and Noncompetition Agreement dated as of
                                 July 31, 1996 between Eagle River Interactive, Inc. and
                                 Thomas R. Graunke(4)(2)
          10.23            --    Employment and Noncompetition Agreement dated as of December 9, 1996
                                 between Eagle River Interactive, Inc. and Kevin J. Rowe (2)
          10.24            --    Agreement and Plan of Merger dated as of February 18, 1998 among
                                 Platinum Technology, Inc., PT Acquisition Corporation I and the
                                 Registrant (6)
          21               --    Subsidiaries of Registrant
          23               --    Consent of Arthur Andersen LLP
          24               --    Power of Attorney (contained on signature pages hereto)
          27               --    Financial Data Schedule
</TABLE>
<PAGE>
(1) Incorporated  by  reference to the  exhibits to the  Company's  Registration
    Statement on Form S-1 (File No. 333-702)

(2) Management contract or compensatory plan or arrangement.

(3) Incorporated  by reference to the exhibits to the Company's  Current  Report
    on Form 8-K dated June 21, 1996.

(4) Incorporated  by reference to the exhibits to the Company's  Current  Report
    on Form 8-K dated July 31, 1996.

(5) Incorporated by reference to the Company's  Registration  Statement on Forms
    S-8 (File No. 333-42949)

(6) Incorporated  by reference to the exhibits to the company's  Current  Report
    on Form 8-K dated February 20, 1998.

(7) Incorporated  by reference to the Company's  Registration  Statement on Form
    8-A/A (File No. 0-28004)