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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



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FORM 10-Q

|                                              |  |                                                                                         
|--------------------------------------------- |  | ----------------------------------------------------------------------------------------
|(Mark One)                                   
|x                                             |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|                                             
|For the quarterly period ended March 31, 2002
|                                             
|or                                           
|                                             
|o                                             |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-24289

CLICK2LEARN, INC.(Exact name of registrant as specified in its charter)

|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization) |  | 91-1276003
(I.R.S. Employer Identification No.)

110-110th Avenue NE, Bellevue, Washington 98004
(Address of principal executive offices) (Zip Code)
 (425) 462-0501
(Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yesx     No  o

The number of shares outstanding of the issuers Common Stock, par value $0.01,
as of March 31, 2002 was 24,259,692 shares.



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TABLE OF CONTENTS



|                          |                                                                                               |                                                      |  |  |  |  |  | 
|------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|                          |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                          |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                          |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                          |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                          | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                          | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|PART IIOTHER INFORMATION
|                          | Item 1. Legal Proceedings.                                                                   
|                          | Item 2. Changes In Securities and Use of Proceeds.                                           
|                          | Item 3. Defaults Upon Senior Securities.                                                     
|                          | Item 4. Submission of Matters to a Vote of Securities Holders.                               
|                          | Item 5. Other Information.                                                                   
|                          | Item 6. Exhibits and Reports on Form 8-K.                                                    
|SIGNATURES               
|EXHIBIT INDEX            
|EXHIBIT 10.01            
|EXHIBIT 10.02            
|EXHIBIT 10.03            
|EXHIBIT 10.04            



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CLICK2LEARN, INC.

FORM 10-Q

For the Quarter Ended March 31, 2002

TABLE OF CONTENTS

|                              |  |                                                                                                    |  |   
|----------------------------- |  | -------------------------------------------------------------------------------------------------- |  | --
|PART I FINANCIAL INFORMATION |  | Page                                                                                              
|                             
|Item 1.                       |  | Financial Statements                                                                               |  |   
|                             
|                              |  | Condensed Consolidated Balance Sheets as of March 31,
2002 and December 31, 2001                   |  | 3 
|                             
|                              |  | Condensed Consolidated Statements of Operations for the
three months ended March 31, 2002 and 2001 |  | 4 
|                             
|                              |  | Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 2002 and 2001 |  | 5 
|                             
|                              |  | Notes to Condensed Consolidated Financial Statements                                               |  | 6 
|                             
|Item 2.                       |  | Managements Discussion and Analysis of Financial
Condition and Results of Operations              |  | 10
|                             
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                         |  | 21
|                             
|PART IIOTHER INFORMATION     |  |                                                                                                   
|                             
|Item 1.                       |  | Legal Proceedings                                                                                  |  | 22
|                             
|Item 2.                       |  | Change in Securities and Use of Proceeds                                                           |  | 22
|                             
|Item 3.                       |  | Defaults upon Senior Securities                                                                    |  | 22
|                             
|Item 4.                       |  | Submission of Matters to a Vote of Securities Holders                                              |  | 22
|                             
|Item 5.                       |  | Other Information                                                                                  |  | 22
|                             
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                   |  | 22
|                             
|SIGNATURES                    |  | 23                                                                                                

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CLICK2LEARN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

|                                          |                                                                                                              |                                            |       |           |        |              |       |          |        | 
|----------------------------------------- | ------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ----- | --------- | ------ | ------------ | ----- | -------- | ------ | 
|                                          |                                                                                                              |                                            |       | March 31, |        | December 31,
|                                          |                                                                                                              |                                            |       | 2002      |        | 2001        
|                                          |                                                                                                              |                                            |       |           |        |             
|Assets                                    |                                                                                                              |                                            |       |           |        |              |       |         
|Current assets:                           |                                                                                                              |                                            |       |           |        |              |       |         
|                                          | Cash and cash equivalents                                                                                    |                                            | $     | 6,546     |        |              | $     | 9,553    |       
|                                          | Accounts receivable, net of allowance for
returns and doubtful accounts of $1,143 in 2002
and $1,430 in 2001 |                                            |       | 15,134    |        |              |       | 19,449   |       
|                                          | Inventories                                                                                                  |                                            |       | 69        |        |              |       | 62       |       
|                                          | Prepaid royalties and licenses                                                                               |                                            |       | 242       |        |              |       | 180      |       
|                                          | Receivables from related companies                                                                           |                                            |       | 26        |        |              |       | 9        |       
|                                          | Other                                                                                                        |                                            |       | 1,326     |        |              |       | 1,001    |       
|                                          |                                                                                                              |                                            |       |           |        |              |       |         
|                                          |                                                                                                              | Total current assets                       |       |           | 23,343 |              |       |          | 30,254 | 
|Property and equipment, net               |                                                                                                              |                                            | 1,761 |           |        |              | 2,250 |         
|Goodwill and other intangible assets, net |                                                                                                              |                                            | 8,378 |           |        |              | 6,061 |         
|Other                                     |                                                                                                              |                                            | 700   |           |        |              | 789   |         
|                                          |                                                                                                              |                                            |       |           |        |              |       |         
|                                          |                                                                                                              | Total assets                               |       | $         | 34,182 |              |       | $        | 39,354 | 
|                                          |                                                                                                              |                                            |       |           |        |              |       |         
|Liabilities and Stockholders Equity      |                                                                                                              |                                            |       |           |        |              |       |         
|Current liabilities:                      |                                                                                                              |                                            |       |           |        |              |       |         
|                                          | Accounts payable                                                                                             |                                            | $     | 3,235     |        |              | $     | 2,617    |       
|                                          | Accrued compensation and benefits                                                                            |                                            |       | 2,965     |        |              |       | 2,788    |       
|                                          | Deferred revenue                                                                                             |                                            |       | 2,136     |        |              |       | 2,453    |       
|                                          | Customer prepayments                                                                                         |                                            |       | 104       |        |              |       | 166      |       
|                                          | Other                                                                                                        |                                            |       | 1,202     |        |              |       | 1,353    |       
|                                          |                                                                                                              |                                            |       |           |        |              |       |         
|                                          |                                                                                                              | Total current liabilities                  |       |           | 9,642  |              |       |          | 9,377  | 
|Other noncurrent liabilities              |                                                                                                              |                                            | 292   |           |        |              | 417   |         
|                                          |                                                                                                              |                                            |       |           |        |              |       |         
|                                          |                                                                                                              | Total liabilities                          |       |           | 9,934  |              |       |          | 9,794  | 
|                                          |                                                                                                              |                                            |       |           |        |              |       |         
|Stockholders equity:                     |                                                                                                              |                                            |       |           |        |              |       |         
|                                          | Preferred stock                                                                                              |                                            |       |          |        |              |       |         |       
|                                          | Common stock                                                                                                 |                                            |       | 243       |        |              |       | 242      |       
|                                          | Additional paid-in capital                                                                                   |                                            |       | 242,146   |        |              |       | 241,769  |       
|                                          | Accumulated deficit                                                                                          |                                            |       | (217,579  | )      |              |       | (211,894 | )     
|                                          | Deferred stock compensation                                                                                  |                                            |       |          |        |              |       | (5       | )     
|                                          | Accumulated other comprehensive loss                                                                         |                                            |       | (562      | )      |              |       | (552     | )     
|                                          |                                                                                                              |                                            |       |           |        |              |       |         
|                                          |                                                                                                              | Total stockholders equity                 |       |           | 24,248 |              |       |          | 29,560 | 
|                                          |                                                                                                              |                                            |       |           |        |              |       |         
|                                          |                                                                                                              | Total liabilities and stockholders equity |       | $         | 34,182 |              |       | $        | 39,354 | 
|                                          |                                                                                                              |                                            |       |           |        |              |       |         

See accompanying notes to Condensed Consolidated Financial Statements

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CLICK2LEARN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)

|                                                              |                                              |                          |        |                    |       |      |        |       |        | 
|------------------------------------------------------------- | -------------------------------------------- | ------------------------ | ------ | ------------------ | ----- | ---- | ------ | ----- | ------ | 
|                                                              |                                              |                          |        | Three Months Ended
|                                                              |                                              |                          |        | March 31,         
|                                                              |                                              |                          |        |                   
|                                                              |                                              |                          |        | 2002               |       | 2001
|                                                              |                                              |                          |        |                    |       |     
|Revenue:                                                      |                                              |                          |        |                    |       |      |        |      
|                                                              | Platforms                                    |                          | $      | 5,419              |       |      | $      | 3,006 |       
|                                                              | Tools                                        |                          |        | 1,258              |       |      |        | 2,021 |       
|                                                              | Content services                             |                          |        | 854                |       |      |        | 5,628 |       
|                                                              |                                              |                          |        |                    |       |      |        |      
|                                                              |                                              | Total revenue            |        |                    | 7,531 |      |        |       | 10,655 | 
|                                                              |                                              |                          |        |                    |       |      |        |      
|Cost of revenue:                                              |                                              |                          |        |                    |       |      |        |      
|                                                              | Platforms                                    |                          |        | 1,574              |       |      |        | 655   |       
|                                                              | Tools                                        |                          |        | 395                |       |      |        | 486   |       
|                                                              | Content services                             |                          |        | 2,215              |       |      |        | 5,130 |       
|                                                              |                                              |                          |        |                    |       |      |        |      
|                                                              |                                              | Total cost of revenue    |        |                    | 4,184 |      |        |       | 6,271  | 
|                                                              |                                              |                          |        |                    |       |      |        |      
|Gross margin                                                  |                                              |                          | 3,347  |                    |       |      | 4,384  |      
|                                                              |                                              |                          |        |                    |       |      |        |      
|Operating expenses:                                           |                                              |                          |        |                    |       |      |        |      
|                                                              | Research and development                     |                          |        | 2,282              |       |      |        | 2,340 |       
|                                                              | Sales and marketing                          |                          |        | 4,432              |       |      |        | 4,656 |       
|                                                              | General and administrative                   |                          |        | 2,048              |       |      |        | 1,637 |       
|                                                              | Amortization of goodwill                     |                          |        |                   |       |      |        | 239   |       
|                                                              | Employee severance and excess facility costs |                          |        | 1,138              |       |      |        |      |       
|                                                              |                                              |                          |        |                    |       |      |        |      
|                                                              |                                              | Total operating expenses |        |                    | 9,900 |      |        |       | 8,872  | 
|                                                              |                                              |                          |        |                    |       |      |        |      
|Loss from operations                                          |                                              |                          | (6,553 | )                  |       |      | (4,488 | )    
|Gain on sale of assets                                        |                                              |                          | 927    |                    |       |      |       |      
|Other income, net                                             |                                              |                          | 16     |                    |       |      | 172    |      
|Equity in losses of affiliate                                 |                                              |                          | (75    | )                  |       |      | (100   | )    
|                                                              |                                              |                          |        |                    |       |      |        |      
|Net loss                                                      |                                              | $                        | (5,685 | )                  |       | $    | (4,416 | )    
|                                                              |                                              |                          |        |                    |       |      |        |      
|Net loss per share, basic and diluted                         |                                              | $                        | (0.23  | )                  |       | $    | (0.24  | )    
|                                                              |                                              |                          |        |                    |       |      |        |      
|Weighted average common shares outstanding, basic
and diluted |                                              |                          | 24,199 |                    |       |      | 18,044 |      
|                                                              |                                              |                          |        |                    |       |      |        |      

See accompanying notes to Condensed Consolidated Financial Statements

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CLICK2LEARN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

|                                                 |                                                                             |                                         |                                    |                                           |        |                    |        |        |      |        |        |  
|------------------------------------------------ | --------------------------------------------------------------------------- | --------------------------------------- | ---------------------------------- | ----------------------------------------- | ------ | ------------------ | ------ | ------ | ---- | ------ | ------ | -
|                                                 |                                                                             |                                         |                                    |                                           |        | Three Months Ended
|                                                 |                                                                             |                                         |                                    |                                           |        | March 31,         
|                                                 |                                                                             |                                         |                                    |                                           |        |                   
|                                                 |                                                                             |                                         |                                    |                                           |        | 2002               |        | 2001  
|                                                 |                                                                             |                                         |                                    |                                           |        |                    |        |       
|Cash flows from operating activities:            |                                                                             |                                         |                                    |                                           |        |                    |        |       
|                                                 | Net loss                                                                    |                                         | $                                  | (5,685                                    | )      |                    | $      | (4,416 | )   
|                                                 | Adjustments to reconcile net loss to net cash used in
operating activities: |                                         |                                    |                                           |        |                    |        |        |     
|                                                 |                                                                             | Depreciation and amortization           |                                    |                                           | 662    |                    |        |        | 705  |       
|                                                 |                                                                             | Write-off property and equipment        |                                    |                                           | 270    |                    |        |        |     |       
|                                                 |                                                                             | Stock compensation expense              |                                    |                                           | 5      |                    |        |        | 16   |       
|                                                 |                                                                             | Gain on sale of assets                  |                                    |                                           | (927   | )                  |        |        |     |       
|                                                 |                                                                             | Loss on affiliate                       |                                    |                                           | 75     |                    |        |        | 100  |       
|                                                 |                                                                             | Changes in assets and liabilities:      |                                    |                                           |        |                    |        |        |      |       
|                                                 |                                                                             |                                         | Accounts receivable                |                                           |        | 4,315              |        |        |      | (1,426 | )     
|                                                 |                                                                             |                                         | Inventories                        |                                           |        | (7                 | )      |        |      | 32     |       
|                                                 |                                                                             |                                         | Prepaid royalties and licenses     |                                           |        | (62                | )      |        |      | 30     |       
|                                                 |                                                                             |                                         | Receivables from related companies |                                           |        | (17                | )      |        |      |       |       
|                                                 |                                                                             |                                         | Other current assets               |                                           |        | (343               | )      |        |      | (477   | )     
|                                                 |                                                                             |                                         | Accounts payable                   |                                           |        | 619                |        |        |      | (68    | )     
|                                                 |                                                                             |                                         | Accrued liabilities                |                                           |        | 176                |        |        |      | (79    | )     
|                                                 |                                                                             |                                         | Deferred revenue                   |                                           |        | (317               | )      |        |      | 385    |       
|                                                 |                                                                             |                                         | Other current liabilities          |                                           |        | (200               | )      |        |      | (184   | )     
|                                                 |                                                                             |                                         |                                    |                                           |        |                    |        |       
|                                                 |                                                                             |                                         |                                    | Net cash used in operating activities     |        |                    | (1,436 | )      |      |        | (5,382 | )
|                                                 |                                                                             |                                         |                                    |                                           |        |                    |        |       
|Cash flows from investing activities:            |                                                                             |                                         |                                    |                                           |        |                    |        |       
|                                                 |                                                                             | Purchase of property and equipment      |                                    |                                           | (2,813 | )                  |        |        | (176 | )     
|                                                 |                                                                             | Proceeds from sale of assets            |                                    |                                           | 1,000  |                    |        |        |     |       
|                                                 |                                                                             | Investment in Click2learn Japan KK      |                                    |                                           |       |                    |        |        | (639 | )     
|                                                 |                                                                             | Sale (purchase) of other assets         |                                    |                                           | 13     |                    |        |        | (4   | )     
|                                                 |                                                                             |                                         |                                    |                                           |        |                    |        |       
|                                                 |                                                                             |                                         |                                    | Net cash used in investing activities     |        |                    | (1,800 | )      |      |        | (819   | )
|                                                 |                                                                             |                                         |                                    |                                           |        |                    |        |       
|Cash flows from financing activities:            |                                                                             |                                         |                                    |                                           |        |                    |        |       
|                                                 |                                                                             | Repayment
of notes and loans payable    |                                    |                                           | (138   | )                  |        |        | (4   | )     
|                                                 |                                                                             | Proceeds from exercise of stock options |                                    |                                           | 43     |                    |        |        | 45   |       
|                                                 |                                                                             | Proceeds from sale of common stock      |                                    |                                           | 335    |                    |        |        | 572  |       
|                                                 |                                                                             |                                         |                                    |                                           |        |                    |        |       
|                                                 |                                                                             |                                         |                                    | Net cash provided by financing activities |        |                    | 240    |        |      |        | 613    |  
|                                                 |                                                                             |                                         |                                    |                                           |        |                    |        |       
|                                                 |                                                                             | Effect of foreign exchange rate changes |                                    |                                           | (11    | )                  |        |        | (142 | )     
|                                                 |                                                                             |                                         |                                    |                                           |        |                    |        |       
|                                                 |                                                                             |                                         |                                    | Net decrease in cash and cash equivalents |        |                    | (3,007 | )      |      |        | (5,730 | )
|Cash and cash equivalents at beginning of period |                                                                             |                                         | 9,553                              |                                           |        |                    | 15,321 |       
|                                                 |                                                                             |                                         |                                    |                                           |        |                    |        |       
|Cash and cash equivalents at end of period       |                                                                             | $                                       | 6,546                              |                                           |        | $                  | 9,591  |       
|                                                 |                                                                             |                                         |                                    |                                           |        |                    |        |       

See accompanying notes to Condensed Consolidated Financial Statements

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CLICK2LEARN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002 AND 2001

Note 1. Summary Of Significant Account Policies

(a) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of
Click2learn, Inc. (Click2learn) include the accounts of Click2learn and its
wholly-owned subsidiaries. All significant intercompany transactions have been
eliminated in consolidation.

These statements reflect all normal recurring adjustments which are, in
the opinion of management, necessary for a fair presentation of the financial
position and results of operations for the periods presented. Interim results
of operations for the three months ended March 31, 2002 are not necessarily
indicative of the operating results for the full fiscal year. Factors that may
affect such operating results, include, but are not limited to, those discussed
in Factors That May Affect Future Results of
Operations.Certain information
and footnote disclosures normally included in financial statements prepared in
conformity with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission.

These condensed consolidated financial statements and notes should be read
in conjunction with Click2learns audited consolidated financial statements
included in Click2learns Annual Report on Form 10-K for the fiscal year ended
December 31, 2001.

(b) Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the
weighted average number of common shares outstanding during the period.
Diluted earnings per share is computed by dividing the net loss by the weighted
average number of common and dilutive shares outstanding during the period. As
Click2learn had a net loss in each of the periods presented, basic and diluted
net loss per share are the same.

Excluded from the computation of diluted earnings per share for the three
months ended March 31, 2002 are options to acquire approximately 5,570,735
shares of common stock with a weighted average exercise price of $6.23 and
warrants to purchase 3,633,686 shares of common stock with a weighted average
exercise price of $5.75 because their effects would be anti-dilutive. Options
to acquire approximately 5,637,373 shares of common stock with a weighted
average exercise price of $8.60 and warrants to purchase 1,797,829 shares of
common stock with a weighted exercise share price of $8.45 have been excluded
from the computation of diluted earnings per share for the three months ended
March 31, 2001 because their effects would be anti-dilutive.

(c) Revenue Recognition

Click2learn recognizes revenue in accordance with Statement of Position
97-2 (SOP 97-2), Software Revenue Recognition,issued by the American
Institute of Certified Public Accountants, which, as amended, stipulates that
revenue recognized from software arrangements is to be allocated to each
element of the arrangement based upon the relative fair values of the elements,
such as software products, upgrades, enhancements, post contract customer
support, installation or training, using evidence which is specific to the
vendor. If such evidence of fair value for each element does not exist, all
revenue from the arrangement is deferred until such time that fair value does
exist or until all elements are delivered. Revenue from software licenses is
recognized upon shipment provided vendor specific evidence exists for remaining
obligations, if any, and collection of the resulting receivable is probable. An
allowance for product returns is provided at the time of the sale. Revenue from
subscription licenses, hosting agreements and support agreements is recognized
on a straight-line basis over the life of the contract.

Click2learn recognizes revenue from non-refundable minimum royalties from
distributors or resellers in the amount of the non-refundable royalties when
product has been delivered to the distributor or reseller, provided no

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significant obligations remain outstanding and collection of the resulting
receivable is probable. Additional royalties are earned to the extent the
minimums are exceeded and these additional royalties are recognized as revenue
when received, based on the distributors or resellers contractual reporting
obligations.

Professional services revenue is recognized from fixed price contracts as
services are provided or by using the percentage-of-completion method of
accounting, based on the ratio of costs incurred to the total estimated project
cost, for individual fixed-price contracts. Provisions for any estimated losses
on uncompleted contracts are made in the period in which such losses become
evident. Revenue from time and materials contracts is recognized as services
are performed.

Revenue from the
e-Learning Network, Platforms offering no longer offered to new
customers,
includes site fees, hosting, royalties and content sales. The revenues are
determined by individual contracts, one to three years in length, which specify
functionality of the site and the commerce conducted on the site. The
e-Learning Network fees are recognized ratably over the life of the contract.
Royalty revenue is recognized as earned. Content revenue is either recognized
evenly over the life of the contract for course usage on bundled curriculum
courses or recognized at the time of the purchase of individual e-Learning
courses. Revenues from tangible goods, including books, videotapes and CD-ROMs
are recognized at the time of shipment.

(d) Comprehensive Loss

The following table sets forth the components of comprehensive loss for
the periods presented below:

|                                        |  |                 |        |      |  |   |        |  
|--------------------------------------- |  | --------------- | ------ | ---- |  | - | ------ | -
|                                        |  | Three Months   
|                                        |  | Ended March 31,
|                                        |  |                
|                                        |  | 2002            |        | 2001
|                                        |  |                 |        |     
|Net loss                                |  | $               | (5,685 | )    |  | $ | (4,416 | )
|Foreign currency translation adjustment |  |                 | (10    | )    |  |   | 6      |  
|                                        |  |                 |        |      |  |   |        |  
|Total comprehensive loss                |  | $               | (5,695 | )    |  | $ | (4,410 | )
|                                        |  |                 |        |      |  |   |        |  

(e) Derivative Financial Instruments

Click2learn had no derivative financial instruments outstanding at March
31, 2002.

(f) Adoption of Accounting Pronouncements

In July 2001, the
Financial Accounting Standards Board issued Statement
No. 141, Business Combinations (Statement 141), and Statement No. 142,
Goodwill and Other Intangible Assets (Statement 142). Statement 141
requires business combinations initiated after June 30, 2001 to be accounted
for using the purchase method of accounting, and specifies criteria for
recognizing intangible assets acquired in a business combination. Statement 142
requires that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead be tested for impairment at least annually.
Intangible assets with definite useful lives will continue to be amortized over
their respective estimated useful lives.

Click2learn adopted the provisions of Statement 141 as of June 30, 2001.
No business combinations have been initiated since July 1, 2001. Goodwill resulting from business combinations completed
prior to June 30, 2001 was amortized through December 31,
2001. Based upon Click2learn's analysis, there was no
impairment upon adoption of Statement 142 on January 1,
2002. Click2learn's identifiable intangible assets as of
January 1, 2002 consisted of acquired technology. Click2learn
has reviewed the useful lives of identifiable intangible assets as of
January 1, 2002 and determined that the original useful lives of
3 to 5 years was appropriate. Click2learn plans to
conduct its annual goodwill impairment testing during the fourth quarter of each year.

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Net loss and loss per
share for the quarters ended March 31, 2002 and 2001
adjusted to exclude goodwill amortization expense are as follows (in thousands,
except per share data):

|                                      |                         |                                               |   |                 |        |      |   |        |        |  
|------------------------------------- | ----------------------- | --------------------------------------------- | - | --------------- | ------ | ---- | - | ------ | ------ | -
|                                      |                         |                                               |   | Three Months   
|                                      |                         |                                               |   | Ended March 31,
|                                      |                         |                                               |   |                
|                                      |                         |                                               |   | 2002            |        | 2001
|                                      |                         |                                               |   |                 |        |     
|Net loss:                             |                         |                                               |   |                 |        |      |   |       
|                                      | Reported net loss       |                                               | $ | (5,685          | )      |      | $ | (4,416 | )     
|                                      | Goodwill amortization   |                                               |   |                |        |      |   | 239    |       
|                                      |                         |                                               |   |                 |        |      |   |       
|                                      |                         | Adjusted net loss                             |   | $               | (5,685 | )    |   | $      | (4,177 | )
|                                      |                         |                                               |   |                 |        |      |   |       
|Basic and diluted net loss per share: |                         |                                               |   |                 |        |      |   |       
|                                      | Reported loss per share |                                               | $ | (0.23           | )      |      | $ | (0.24  | )     
|                                      | Goodwill amortization   |                                               |   |                |        |      |   | .01    |       
|                                      |                         |                                               |   |                 |        |      |   |       
|                                      |                         | Adjusted basic and diluted net loss per share |   | $               | (0.23  | )    |   | $      | (0.23  | )
|                                      |                         |                                               |   |                 |        |      |   |       

Goodwill and other intangibles are as follows:

|                    |  |                |        |                   |  |                     |       |        |  |                |       |                     |  |   |       |  |  |   |       |  |  |   |       | 
|------------------- |  | -------------- | ------ | ----------------- |  | ------------------- | ----- | ------ |  | -------------- | ----- | ------------------- |  | - | ----- |  |  | - | ----- |  |  | - | ----- | 
|                    |  | March 31, 2002 |        | December 31, 2001
|                    |  |                |        |                  
|                    |  | Gross Carrying |        | Accumulated       |  |                     |       |        |  | Gross Carrying |       | Accumulated         |  |   |       | 
|                    |  | Amount         |        | Amortization      |  | Net Carrying Amount |       | Amount |  | Amortization   |       | Net Carrying Amount
|                    |  |                |        |                   |  |                     |       |        |  |                |       |                    
|Goodwill            |  | $              | 3,310  |                   |  | $                   | 550   |        |  | $              | 2,760 |                     |  | $ | 3,310 |  |  | $ | 550   |  |  | $ | 2,760 | 
|Acquired Technology |  |                | 8,980  |                   |  |                     | 3,362 |        |  |                | 5,618 |                     |  |   | 6,300 |  |  |   | 2,999 |  |  |   | 3,301 | 
|                    |  |                |        |                   |  |                     |       |        |  |                |       |                     |  |   |       |  |  |   |       |  |  |   |       | 
|                    |  | $              | 12,290 |                   |  | $                   | 3,912 |        |  | $              | 8,378 |                     |  | $ | 9,610 |  |  | $ | 3,549 |  |  | $ | 6,061 | 
|                    |  |                |        |                   |  |                     |       |        |  |                |       |                     |  |   |       |  |  |   |       |  |  |   |       | 

During the quarter
ended March 31, 2002, acquired technology increased $2.7
million.

In October 2001, the FASB issued Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (Statement 144), which is
effective for fiscal years beginning after December 15, 2001. Statement 144
supersedes certain provisions of APB Opinion No. 30, Reporting the Results of
Operations  Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, and
supersedes Statement 121. Click2learn adopted Statement 144 as of January 1,
2002 and it did not have a material effect on its consolidated financial
position or results of operations.

Note 2. Segment Information

Click2learns internal reporting includes three reportable segments:
Platforms, Tools, and Content Services. Platforms includes software licenses,
subscription and hosting fees, implementation, and training and support for the
Aspen Enterprise Learning Platform as well as the Ingenium learning management
system which is now part of the Aspen platform and the e-Learning
Network, which is no longer offered to new customers. Tools include
software licenses and technical support and training for ToolBook II product
line. Content Services includes custom development of e-Learning courses,
consulting, licensing and hosting fees for ReDS, a content
development system that is no longer offered, and royalties from sales of
third party content.

Click2learns operating committee, which includes its Chief Executive
Officer and Chief Financial Officer, has been identified as the Chief Operating
Decision Maker (CODM) as it assesses the performance of the business units and
decides how to allocate resources to the business units. Segment income is the
measure of profit and loss that the CODM uses to assess performance and make
decisions. Segment income represents revenues less cost of revenues incurred
within the operating segments as presented in Click2learns consolidated
statements of operations. Click2learn does not allocate operating expenses
including research and development, sales and marketing, general and
administrative, or amortization of goodwill to its operating segments. In
addition, other income (expense) is also not allocated to operating segments.

There are no intersegment revenues. Click2learns CODM does not review
total assets or depreciation and amortization by operating segment. The
accounting policies for reported segments are the same as Click2learn as a
whole.

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Revenues by geographic region which are based on the location of the
customers are as follows (in thousands):

|         |                                  |   |                    |       |      |   |        |       | 
|-------- | -------------------------------- | - | ------------------ | ----- | ---- | - | ------ | ----- | 
|         |                                  |   | Three Months Ended
|         |                                  |   | March 31,         
|         |                                  |   |                   
|         |                                  |   | 2002               |       | 2001
|         |                                  |   |                    |       |     
|Revenue: |                                  |   |                    |       |      |   |        |      
|         | Domestic                         |   | $                  | 6,739 |      |   | $      | 9,605 | 
|         | International  primarily Europe |   |                    | 792   |      |   |        | 1,050 | 
|         |                                  |   |                    |       |      |   |        |      
|         |                                  | $ | 7,531              |       |      | $ | 10,655 |      
|         |                                  |   |                    |       |      |   |        |      

Long-lived assets by geographic location are as follows (in thousands):

|                           |                                  |   |           |     |              |   |       |     | 
|-------------------------- | -------------------------------- | - | --------- | --- | ------------ | - | ----- | --- | 
|                           |                                  |   | March 31, |     | December 31,
|                           |                                  |   |           |     |             
|                           |                                  |   | 2002      |     | 2001        
|                           |                                  |   |           |     |             
|Long-lived assets
Domestic |                                  | $ | 9,980     |     |              | $ | 8,081 |    
|                           | International  primarily Europe |   |           | 159 |              |   |       | 230 | 
|                           |                                  |   |           |     |              |   |       |    
|                           |                                  | $ | 10,139    |     |              | $ | 8,311 |    
|                           |                                  |   |           |     |              |   |       |    

Note 3. Sale of Certain Assets and Employee Severance and Loss on Excess
Facilities

During January 2002, Click2learn sold certain assets of its custom content
development business, including equipment and a customer list, to NIIT (USA),
Inc. (NIIT) under an Asset Purchase Agreement for $1 million, resulting in a
gain of $927,000 based on the book value of the assets. As a result of the
transaction, NIIT will be Click2learns primary strategic partner for custom
content development services. If certain targets for the referral of
custom content development business to NIIT are attained, NIIT will pay
Click2learn up to an additional $1 million in each of 2002 and
2003. In addition, Click2learn receives a commission on certain
custom content development or software implementation business
referred to NIIT.

As a result of the
transaction with NIIT, Click2learn significantly reduced the
headcount of its custom content development business and closed certain
facilities. During the quarter ended March 31, 2002, Click2learn had employee
severance and excess facilities costs of $1.1 million, which included $196,000
of severance benefits, $270,000 to write-down leasehold improvements to net
realizable value and $672,000, representing the excess of our future lease
commitments over estimated income from subleasing activities. As of March 31,
2002, all employee severance benefits had been paid and $524,000 was included
in accrued expenses for the loss on excess office facilities. Although,
Click2learn believes that its estimates of future sublease income and the time
required to locate tenants are reasonable, losses may increase if actual
experience differs from Click2learns estimates.

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Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations

The following discussion of the financial condition and results of
operations of Click2learn should be read in conjunction with Click2learns
Condensed Consolidated Financial Statements and related Notes thereto included
elsewhere in this Report. This Report and the documents incorporated herein by
reference include forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. This Act provides a safe
harbor for forward-looking statements to encourage companies to provide
prospective information about themselves so long as they identify these
statements as forward-looking and provide meaningful cautionary statements
identifying important factors that could cause actual results to differ from
the projected results. All statements other than statements of historical fact
we make in this Report are
forward-looking. Such forward-looking statements involve risks and
uncertainties, including, among other things, statements regarding our
anticipated costs and expenses and revenue mix. Such forward-looking statements
include, among others, those statements including the words expect,
anticipate, intend, believe and similar language. Our actual results may
differ significantly from those projected in the forward-looking statements.
Factors that might cause or contribute to such differences include, but are not
limited to those discussed in Factors That May Affect Future Results of
Operations. You are cautioned not to place undue reliance on the
forward-looking statements, which speak only as of the date of this
Quarterly
Report on Form 10-Q. We undertake no obligation to publicly release any
revisions to the forward-looking statements or reflect events or circumstances
after the date of this document.

Overview

We are a leading developer and provider of enterprise learning software
products and services for companies, government agencies and educational
institutions. We design, develop, market, license and support an integrated
suite of enterprise learning software products and related services that allow
our customers to cost-effectively create, personalize and manage the delivery
of educational content. In the third quarter of 2001, we introduced our new
Aspen platform that unifies collaborative content development, personalized
content delivery and comprehensive learning management in an integrated system
designed to be open, flexible and scalable. We provide our enterprise learning
products and services to customers across a broad range of industries including
financial services, accounting, healthcare, insurance, technology,
manufacturing, telecommunications, transportation, utilities, government and
education.

As part of our ongoing focus on the Aspen platform, in February 2002, we
purchased synchronous learning technology to enable real-time collaboration
among remote users of our Aspen platform, which will be incorporated
as an option in the future
releases of the product. We also decided to focus our services
offerings on
those directly related to the Aspen platform and our ToolBook II product line.
As a result, in January 2002 we sold certain assets of our custom content
development business to NIIT (USA), Inc. (NIIT), the U.S. operation of NIIT
Limited, a global custom software development firm. In addition, we
significantly reduced the headcount of our custom content development
business and closed certain facilities.

We group revenues around the primary components of our solutions:



| |  |  | Platforms revenues include software licenses,
subscription and hosting fees, implementation, customization,
training and support related to the Aspen platform, our Ingenium
learning management system, the precursor product to the Aspen
Learning Management Server, and our e-Learning Network, which is
no longer offered to new customers.                                                                                   
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Tools revenues primarily include software licenses,
technical support and training related to our ToolBook II line of
products.                                                                                                                                                                                                                                                                                                    
|
| |  |  | Content Services revenues are derived from the creation
of custom learning content, consulting, fees for licensing,
implementing and hosting our Rapid e-Learning Development System
(ReDS), which is no longer offered, and sales of third party off-the-shelf content. ReDS is
a collaborative development system that was licensed in
connection with certain custom content development engagements and is no
longer offered.

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Critical Accounting Policies and Estimates

Our critical accounting policies and estimates are as follows:



| |  |  | Revenue recognition                                                            
| | - |  | -------------------------------------------------------------------------------
|
| |  |  | Estimating allowances for sales returns and the allowance for doubtful accounts
|
| |  |  | Valuation of goodwill                                                          

Revenue Recognition.We recognize revenue pursuant to the requirements of
Statement of Position No. 97-2, Software Revenue Recognition (SOP 97-2), as
amended by Statement of Position No. 98-9, Software Revenue Recognition with
Respect to Certain Arrangements. Under SOP 97-2, revenue attributable to an
element in a customer arrangement is recognized when persuasive evidence of an
arrangement exists and delivery has occurred, provided the fee is fixed or
determinable, collectibility is probable and the arrangement does not require
significant customization of the software.

For all sales, we use either a binding purchase order or signed agreement,
depending on the nature of the transaction, as evidence of an arrangement.
Sales through our significant resellers are evidenced by a master agreement
governing the relationship.

For software license fees in single element arrangements and multiple
element arrangements which do not include customization or consulting services,
delivery typically is deemed to occur when the product is shipped to customers.

At the time of each transaction, we assess whether the fee associated with
our revenue is fixed and determinable and whether or not collection is
reasonably assured. We assess whether the fee is fixed and determinable based
on the payment terms associated with the transaction. If a significant portion
of a fee is due after our normal payment terms, based upon a variable matrix
such as a minimum level of distribution or subject to refund, we account for
the fee as not being fixed and determinable. In these cases, we defer revenue
and recognize it when it becomes due and payable.

We assess the probability of collection based on a number of factors,
including past transaction history with the customer and the current financial
condition of the customer. We do not request collateral from our customers. If
we determine at the time of the transaction that collection of a fee is not
reasonably assured, we defer revenue until the time collection becomes
reasonably assured.

For multiple element
arrangements, when Company-specific objective
evidence of fair value exists for all of the undelivered elements of the
arrangement, but does not exist for one or more of the delivered elements in
the arrangement, we recognize revenue under the residual method. Under the
residual method, at the outset of the arrangement with a customer, we defer
revenue for the fair value of its undelivered elements such as consulting
services and product support and upgrades, and recognize the revenue for the
remainder of the arrangement fee attributable to the elements initially
delivered, such as software licenses, when the criteria in SOP 97-2 have been
met. Company-specific objective evidence is established for support and
upgrades of standard products for which no installation or customization is
required based upon the amounts we charge when support and upgrades are sold
separately. For multiple element arrangements involving installation or
customization, Company-specific objective evidence is established for support
and maintenance arrangements if our customers have an optional annual renewal
rate specified in the arrangement and the rate is substantive.
Company-specific objective evidence is established for consulting and
installation services based on the hourly rates we charge for our employees
when they are performing these services provided we have the ability to
accurately estimate the hours required to complete a project based upon our
experience with similar projects.

Professional services revenue is recognized from fixed price contracts as
services are provided or by using the percentage-of-completion method of
accounting, based on the ratio of costs incurred to the total estimated project
cost, for individual fixed-price contracts. Provisions for any estimated losses
on uncompleted contracts are made in

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the period in which such losses become evident. Professional services
revenue from time and materials contracts and training services is recognized
as revenue as services are performed.

We recognize revenue from non-refundable minimum royalty agreements from
distributors or resellers upon delivery of product to the distributor or
reseller, provided no significant obligations remain outstanding and the
conditions of SOP 97-2 have been met. Additional royalties are recognized as
revenue to the extent the minimums are exceeded when earned, based on the
distributors or resellers contractual reporting obligations.

Revenue from subscription licenses, hosting agreements and support
agreements is recognized on a straight-line basis over the life of the
contract.

Allowances for Sales Returns and Doubtful Accounts.The preparation of
financial statements requires us to make estimates and assumptions that affect
the reported amount of assets and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Specifically, we must make
estimates of potential future product returns related to current period product
revenue. We analyze historical returns, current economic trends, and changes in
customer demand and acceptance of our products when evaluating the adequacy of
the sales returns and other allowances. Significant judgments and estimates
must be made and used in connection with establishing reserves for sales
returns and the allowance for doubtful accounts in any accounting period.
Material differences may result in the amount and timing of our revenue for any
period if we made different judgments or utilized different estimates.
Similarly, we must make estimates of the uncollectability of our accounts
receivables. We specifically analyze the age of accounts receivable and analyze
historical bad debts, customer concentrations, customer credit-worthiness and
current economic trends when evaluating the adequacy of the allowance for
doubtful accounts.

Valuation of Goodwill.We assess the impairment of
goodwill on an annual basis or whenever events or changes in circumstances
indicate the fair value of a reporting unit to which goodwill relates is less than its carrying value. Factors we consider
important which could trigger an impairment review include poor economic
performance relative to expected historical or projected future operating
results, significant negative industry, economic or company specific
trends and changes in the manner of our use of the assets or the plans for our business.
If we were to determine that the fair value of a reporting unit was less than its carrying
value, including goodwill based upon the annual test or the existence of one or
more of the above indicators of impairment, than we would measure impairment based
on a comparison of the implied fair value of reporting unit goodwill with the carrying amount
of goodwill. The implied fair value of goodwill is determined by allocating the fair
value of a reporting unit to its assets (recognized and unrecognized) and liabilities in
a manner similar to a purchase price allocation. The residual fair value after this
allocation is the implied fair value of reporting unit goodwill. To the extent the carrying
amount of reporting unit goodwill is greater than the implied fair value of reporting
unit goodwill, we would record an impairment charge for the difference.

Results of Operations

Revenue.Total revenues were $7.5 million for the quarter ended March 31,
2002, a decrease of 29% from $10.7 million for the quarter ended March 31,
2001. The decline in total revenue reflects the impact of the sale of
our certain content development assets to NIIT in January 2002.

Platforms revenue was $5.4 million for the quarter ended March 31, 2002,
an increase of 80% from $3.0 million for the quarter ended March 31, 2001. The
increase was due to the continued demand for the Aspen platform from new and
existing customers. Platform revenue as a percentage of total revenue was 72%
for the quarter ended March 31, 2002 as compared with 28% for the quarter ended
March 31, 2001.

Tools revenue was $1.3 million for the quarter ended March 31, 2002, a
decrease of 38% from $2.0 for the quarter ended March 31, 2001. The decline is
due to our decision to focus more of our research and development and sales and marketing efforts on
the Aspen platform. Tools revenue as a
percentage of total revenue was 17% for the quarter ended March 31, 2001 as
compared with 19% for the quarter ended March 31, 2001.

Content services revenue was $854,000 for the quarter ended March 31,
2002, a decrease of 85% from $5.6 million for the quarter ended March 31, 2001.
The decrease was a result of the sale of the certain assets of our custom content
development business to NIIT. We will continue to offer custom content
development services directly to the

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Washington National Guard, which was not part of
the sale to NIIT in January 2002. As a
result, content services revenue will be significantly reduced compared to
prior years.

Cost of Revenue.The total cost of revenue was $4.2 million for the
quarter ended March 31, 2002, a decrease of 33% from $6.3 million for the
quarter ended March 31, 2001. Platform and Tools revenues have a lower cost as
a percent of revenue than does Content Services therefore the decrease was a
result of the change in mix of our revenues and reduced costs associated with
our commercial content development business as certain of those assets were transitioned
to NIIT, and our headcount was reduced significantly.

Cost of platform revenue includes labor costs associated with software
implementations, costs of packaging and duplication. Cost of platform revenue
was $1.6 million for the quarter ended March 31, 2002, an increase of 140% from
$655,000 for the quarter ended March 31, 2001 and increased as a percentage of
platform revenue to 29% for the quarter ended March 31, 2002 from 22% the year
ago period. The increase in costs is a result of the increase in platform
revenues and an increase in the portion of costs associated with software
implementations labor.

Cost of tools revenue includes labor costs associated with training
Toolbook customers, costs of packaging, duplication, and royalties. Cost of
tools revenue was $395,000 for the quarter ended March 31, 2002, a decrease of
19% from $486,000 for the quarter ended March 31, 2001 and as a percentage of
tools revenue increased to 31% for the quarter ended March 31, 2002 compared to
24% the period a year ago. The decrease in costs is primarily due to a
decrease in revenue. The increase in cost as a percent of tools revenue was a
result of a greater portion of tools revenue in the quarter ended March 31,
2002 coming from higher cost services than the period a year ago.

Cost of content services revenue includes personnel costs for professional
services provided. Cost of content services revenue was $2.2 million for the
quarter ended March 31, 2002, a decrease of 57% from $5.1 million for the
quarter ended March 31, 2001 and as a percentage of content services revenue
increased to 259% for the quarter ended March 31, 2002 from 91% for the quarter
ended March 31, 2001. The increase as a percent of content services revenue
for the quarter ended March 31, 2002 as compared to the prior year was due
primarily to the excess capacity from transitioning certain assets of our content development
business to NIIT. As a result, future costs will be significantly reduced
compared to prior years.

Operating Expenses

Research and Development. Research and development expenses consist
primarily of salaries and related personnel costs, depreciation of development
equipment, supplies, and overhead allocations. Research and development costs
remain unchanged at $2.3 million for the quarters ended March 31, 2002 and
2001. Research and development costs as a percent of revenue increased to 30%
for the quarter ended March 31, 2002 from 22% for the quarter ended March 31,
2001 due to lower revenues.

Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and related personnel costs, sales commissions, advertising, trade
shows, and overhead allocations. Sales and marketing expenses were $4.4
million for the quarter ended March 31, 2002, a decrease of 5% from $4.7
million for the quarter ended March 31, 2001. Sales and marketing costs as a
percent of revenue increased to 59% for the quarter ended March 31, 2002 as
compared to 44% for the quarter ended March 31, 2001 due to lower revenues.

General and Administrative.General and administrative expenses consist
primarily of salaries and related personnel costs for administrative, executive
and finance personnel as well as outside advisors. General and administrative
expenses were $2.0 million for the quarter ended March 31, 2002, an increase of
25% from $1.6 million for the quarter ended March 31, 2001. The higher costs
were attributable to transition costs incurred during the quarter as a result
of the assets sold to NIIT. General and administrative expenses as percent of
revenue increased to 27% for the quarter ended March 31, 2002 as compared to
15% for the quarter ended March 31, 2001 due to the higher costs and lower
revenue.

Amortization of Goodwill.Goodwill amortization for the quarter ended
March 31, 2002 were $0 as compared to $239,000 for the quarter ended March 31,
2001. As of January 1, 2002, we adopted SFAS 142 which requires that goodwill
is no longer amortized, but subject to an annual impairment test.

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Other Income. Interest income, net, on cash and cash equivalents for the
quarter ended March 31, 2002 was $16,000 as compared to $172,000 for the
quarter ended March 31, 2001. The decrease was due to lower interest rates and
lower investment balances. Click2learn Japan K.K. is a joint venture which we
account for our interest using the equity method of accounting. We recorded a
loss of $75,000 and $100,000 for the quarters ended March 31, 2002 and 2001,
respectively, representing our equity share of losses.

Sale of Certain Assets and Employee Severance and Loss on Excess Facilities

During January 2002, we sold certain assets of our content development
business, including equipment and a customer list to NIIT under an Asset
Purchase Agreement for $1 million, resulting in a gain of
$927,000 based on the book
value of those assets during the quarter ended March 31, 2002. As a result of
the transaction, NIIT will be our primary strategic partner for custom content
development services and we will refer or subcontract custom content
development work to NIIT. If certain targets are attained, NIIT will pay us up
to $1 million additional in each of 2002 and 2003. In addition,
we will receive a commission on certain business referred to NIIT.

As a result of the transaction with NIIT, we significantly reduced the
headcount of our custom content development business and closed certain
facilities. During the quarter ended March 31, 2002, we had employee severance
and excess facilities costs of $1.1 million, which included $196,000 of
severance benefits, $270,000 to write-down leasehold improvements to net
realizable value and $672,000, representing the excess of our future lease
commitments over estimated income from subleasing activities. As of March 31,
2002, all employee severance benefits had been paid and $524,000 was included
in accrued expenses for the loss on excess office facilities. Although we
believe that our estimates of future sublease income and the time required to
locate tenants are reasonable, losses may increase if actual experience differs
from our estimates.

Adoption of Accounting Standards

In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, Business Combinations (Statement
141), and No. 142, Goodwill and Other Intangible Assets (Statement 142).
Statement 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001 as well as all purchase
method business combinations completed after June 30, 2001. Statement 141 also
specifies certain criteria that intangible assets acquired in a purchase method
business combination must meet in order to be recognized and reported apart
from goodwill. Statement 142 requires that goodwill and intangible assets
with indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement
142. Statement 142 also required that intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values. The provisions of Statement 141 were adopted
effective June 30, 2001. No business combinations were completed during the
period July 1, 2001 to March 31, 2002. Goodwill and intangible assets acquired
in business combinations completed before July 1, 2001 have been amortized
through December 31, 2001.

As of January 1, 2002, we have identified intangible assets, consisting of
acquired technology and goodwill, net of accumulated amortization. Upon
adoption of Statement 142, we ceased amortizing goodwill. During the quarter
ended March 31, 2002, we completed our transitional goodwill impairment test.
Based upon our analysis, there was no impairment of goodwill upon adoption of
Statement 142 on January 1, 2002. We plan to conduct our annual impairment
testing during the fourth quarter of each year. In addition, we reviewed the
useful lives of our identifiable intangible assets and determined that the
original estimated lives of 3 to 5 years remains appropriate.

In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, Accounting of the Impairment or
Disposal of Long-Lived
Assets (Statement 144), which is effective for fiscal years beginning after
December 15, 2001. Statement 144 supersedes certain provisions of APB Opinion
No. 30, Reporting the Results of Operations  Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual, and
Infrequently Occurring Events and Transactions and supersedes SFAS 121. We
adopted Statement 144 as of January 1, 2002. Adoption of Statement 144 did not
effect our consolidated financial position or results of operations.

Liquidity and Capital Resources

At March 31, 2002, our principal source of liquidity was $13.7 million of
working capital, a decrease of $7.2 million from December 31, 2001. At March
31, 2002, we had cash and cash equivalents totaling $6.5 million, a decrease of
$3.0 million from December 31, 2001. The primary uses of
cash were $1.4 million for
operating activities and $1.8 for investing activities offset by $240,000 from
financing activities. Uses of cash for investing activities consisted primarily
of the purchase of synchronous technology for $2.7 million
offset by $1.0 million for assets sold to NIIT. In addition to our cash and cash
equivalents, the other primary component of working capital was our accounts
receivable. At March 31, 2002, we had $15.1 million in receivables, down from
$19.4 million at December 31, 2001, due to decreased
revenues and improved collection efforts.

In order to increase the liquidity of our receivables, we have established
a $4 million working capital line of credit and a two-year $1 million term loan
facility for purchases of capital assets with Silicon Valley Bank. Both lines
bear interest at the Silicon Valley Bank prime rate plus 1.50% and are
collateralized by our assets. Covenants in the loan agreements include
restrictions on our ability to pay dividends or make other distributions, make
acquisitions or investments, merge or consolidate with others or dispose of
assets. If not renewed the working capital line terminates and any advances
made are due on November 5, 2002. The term loan is payable in 24 monthly
payments of $41,666.67 plus interest ending October 1, 2003. At March 31, 2002,
we had a balance of $792,000 on the two-year term loan facility and $0 on the
working capital line. Our loan agreement requires us to maintain
certain financial ratios and meet other financial covenants. The
failure to meet those covenants could prevent us from accessing the
working capital line and result in the acceleration of any balances
under either the working capital line or the term loan. We were in
compliance with these covenants at March 31, 2002 or have
obtained appropriate waivers from the bank at no cost to us.

Although we anticipate that our business will become cash flow positive
during 2002, it currently does not generate the cash needed to finance our
operations and may not begin to do so in 2002. Our long-term liquidity will be
affected by numerous factors, including acquisitions of businesses or
technologies, demand for our Aspen platform, the extent to which our enterprise
learning solutions achieve market acceptance, the timing and extent to which we
invest in new technology, the expenses of sales and marketing and new product
development, the extent to which competitors are successful in developing their
own products and services and increasing their own market share, the level and
timing of revenues, the collection of these receivables, the availability of
our lines of credit and other factors.

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To the extent that resources are insufficient to fund our activities, we
may need to raise additional funds. Such additional funding, if needed, may not
be available on attractive terms or at all. If adequate funds are not available
on acceptable terms, we may be unable to expand our business, develop or
enhance our products and services, take advantage of future opportunities or
respond to competitive pressures, any of which could have a material adverse
effect on our business.

Our contractual
commitments at March 31, 2002 are substantially similar to those
at December 31, 2001 disclosed in our annual report on Form 10-K.

Factors That May Affect Future Results of Operations

Our quarterly operating results are uncertain and may fluctuate significantly,
which could negatively affect the value of your investment.

Our operating results have varied significantly from quarter to quarter
and are likely to continue to fluctuate as a result of a variety of factors,
many of which we cannot control. Factors that may adversely affect our
quarterly operating results include:



| |  |  | the size and timing of product orders and the timing and
execution of professional services engagements;                                            
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the mix of revenue from products and services;                                                                                                      
|
| |  |  | the mix of products sold;                                                                                                                           
|
| |  |  | the ability to meet client project milestones;                                                                                                      
|
| |  |  | the market acceptance of our products and services;                                                                                                 
|
| |  |  | our ability to develop and market new or enhanced products
and services in a timely manner and the market acceptance of these
products and services;
|
| |  |  | the timing of revenues and expenses;                                                                                                                
|
| |  |  | recognition of impairment of existing assets; and                                                                                                   
|
| |  |  | the timing of revenue recognition.                                                                                                                  

Our future revenues are difficult to predict and we may not be able to
adjust spending in response to revenue shortfalls. Our limited operating
history with our current enterprise learning solutions, possible acquisitions
and the emerging nature of the enterprise learning market make prediction of
future revenue and expenses difficult. Expense levels are based, in part, on
expectations as to future revenue and largely are fixed in the short term. We
will likely be unable to, or may not elect to, reduce spending quickly enough
to offset any unexpected revenue shortfall. If we are unable to predict future
revenue accurately, we may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall.

We have a limited operating history in our current markets, which makes it
difficult to predict our future performance.

Our limited operating history in our current markets makes it difficult to
predict our future performance and may not provide investors with a meaningful
basis for evaluating an investment in our common stock. From our inception
until early 1995, we were engaged in various research and development
activities and in developing and marketing multimedia-authoring products,
database and Internet tools, web publishing products and other ancillary
products, most of which we do not currently sell. In 1995, we began to focus
our development and marketing efforts on products and services for the
enterprise learning market. We released the Aspen platform in September 2001.
Accordingly, we have a limited operating history on which to evaluate our
current business and future prospects.

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Our business currently does not generate the cash needed to finance our
operations, and for that and other reasons we may need additional financing in
the future, which we may be unable to obtain.

Our business currently does not generate the cash needed to finance our
operations and may not begin to do so in 2002. As a result, we may need
additional funds to finance our operations in the future as well as to enhance
our products and services, fund our expansion, respond to competitive pressures
or acquire complementary businesses or technologies. In addition, poor
financial results, additional expenses or unanticipated opportunities that
require capital commitments could give rise to additional financing
requirements sooner than we expect. We may be unable to obtain financing on
terms favorable to us, or at all. If adequate funds are not available or are
not available on acceptable terms, we may be unable to finance our operations,
enhance our services, fund our expansion, respond to competitive pressures or
take advantage of business opportunities and we may need to significantly
restrict our operations.

We have a history of losses and may have continued losses in the future.

We incurred a net loss of approximately $5.7 million in the three months
ended March 31, 2002. As of March 31, 2002, our accumulated
deficit was $217.6 million. Although we anticipate that we will achieve profitability on a
quarterly basis by the end of 2002, we have not yet achieved profitability and
may not do so during 2002. Even if we do achieve profitability, we may be
unable to sustain or increase profitability on a quarterly or annual basis.

We face risks encountered in emerging markets and may
be unsuccessful in addressing these risks.

We face risks frequently encountered in new and
rapidly evolving markets. Specific risks we face relate to the demand for and
market acceptance of our enterprise learning solutions. We may fail to
adequately address these risks, and therefore our business may suffer. To
address these risks, we must:



| |  |  | effectively market our enterprise learning software to new and existing customers;                                                  
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | continue to enhance the technology upon which our enterprise learning software is based;                                            
|
| |  |  | successfully implement our enterprise learning software for
our customers and generate continuing revenues from those customers;
and
|
| |  |  | address and establish new technologies and technology
standards.                                                                    

The enterprise learning software market is in the early stages of development
and may not grow to a sufficient size or at a sufficient rate to sustain our
business.

The enterprise learning software market is in the early stages of
development, and may not grow to a sufficient size or at a sufficient rate for
our business to succeed. Corporate training and education historically have
been conducted primarily through classroom instruction and traditionally have
been performed by internal personnel. Although technology-based training
applications have been available for several years, they currently account for
only a small portion of the overall training market. Accordingly, our success
will depend on the extent to which companies migrate from traditional training
methods to web-based solutions in connection with their training activities. In
addition, our success will depend upon the extent to which companies utilize
the products or services of third-party providers.

Many companies that have already invested substantial resources in
traditional training methods may be reluctant to adopt a new strategy that may
limit or compete with their existing investments. Even if companies implement
technology-based training or web-based learning solutions, they may still
choose to design, develop, deliver or manage all or a part of their education
and training internally. If the use of web-based learning solutions

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does not become widespread, or if companies do not use the products and
services of third parties to develop, deliver or manage their learning, then
our enterprise learning software may not be commercially successful.

A deterioration of general economic conditions may materially and adversely
affect our business.

Our revenues are subject to fluctuation as a result of general economic
conditions. A significant portion of our revenue is derived from the sale of
products and services to large companies or government agencies, which
historically have reduced their expenditures for education and training during
economic downturns. In recent months, our sales force has experienced increased
delays, cancellations or reductions in scope of sales opportunities as a result
of the downturn in the economy. Additional incidents of terrorism could cause
the economy to weaken further. Should the economy weaken further in any future
period, these organizations may further delay, cancel, or reduce their
expenditures on education and training, which could adversely affect our
business.

We face intense competition from other enterprise learning software providers
and may be unable to compete successfully.

The enterprise learning software market is highly fragmented and
competitive, with no single firm accounting for a dominant market share. Our
competitors vary in size, scope and the breadth of products and services
offered. We face competition from:



| |  |  | other developers of learning management systems, such as Saba
and Docent, as well as publishers of e-Learning courses that sell
management systems with their titles such as SmartForce;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | large professional consulting firms and in-house training departments;                                                                                                                  
|
| |  |  | many small, regional e-Learning and technology-based training services businesses; and                                                                                                  
|
| |  |  | developers of web authoring tools.                                                                                                                                                      

Certain of our existing and potential competitors have longer operating
histories and significantly greater financial, technical, marketing and other
resources and therefore may be able to respond more quickly to new or changing
opportunities, technologies, standards and customer requirements or to compete
more aggressively on pricing. Price competition would likely result in reduced
gross margins and may prevent the Aspen platform from yielding results
sufficient for our business to succeed.

Strategic relationships are important in expanding the distribution reach
of companies in the enterprise learning market. If our competitors were to
establish strategic relationships to bundle their products with the products
and services of their strategic partners, the demand for our products and
services might be substantially reduced and our ability to market and sell
products and services successfully may be substantially diminished. In
addition, the existence or announcement of strategic relationships involving
our competitors could adversely affect our ability to attract and retain
customers.

Because of the lack of significant barriers to entry in the enterprise
learning market, new competitors are likely to enter this market in the future.
In particular, vendors of other enterprise software applications such as
enterprise resource planning, human resource management or customer
relationship management have indicated an intent to add learning delivery and
management functionality to extend their current product lines within their
existing customer base. If such vendors were to announce plans to add such
functionality, our ability to sell to our products and service to their
customers could be substantially diminished and our business could be adversely
affected. Increased competition is likely to result in price reductions,
reduced gross margins and loss of market share. We may not be able to contend
effectively with such increased competition.

Our Aspen platform is a new product and may contain defects or otherwise
perform improperly.

Our Aspen platform was initially released in September 2001, and we
anticipate continuing to add new features, functionality and components.
Complex enterprise software products frequently contain errors or failures,

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especially when first introduced or when new versions are released. In the
past, we have discovered errors in our products after their initial release.
Because the Aspen platform products are complex software packages with new
features and functionality being added and new versions being released on a
regular basis, there is a greater likelihood that they may contain such errors.
In addition, since the Aspen platform is targeted at enterprise customers with
large numbers of users, customers and potential customers may have a greater
sensitivity to product defects or product integration than the market for
software products generally. To date we have experienced minor errors in the
Aspen platform that are typical of a newly released software product. Although
these errors have not had a material impact on our business, serious product
defects could result in loss of revenue or delay in market acceptance,
diversion of development resources, damage to our reputation, or increased
service and warranty costs.

If we are unable to build the Click2learn and Aspen brands, we may be unable to
grow our business.

We believe that establishing and maintaining the Click2learn and Aspen
brands will be critical to the success of our enterprise learning strategy and
that the importance of brand recognition will increase due to the growing
number of enterprise learning software products. We intend to increase our
marketing and branding expenditures in our effort to increase our brand
awareness. If our brand building strategy is unsuccessful, these expenses may
never be recovered, and our business could be materially harmed.

Acquisitions or investments may drain capital and equity resources, divert
managements attention or otherwise harm our business.

In the future we may acquire or make investments in other businesses,
products or technologies. Such acquisitions or investments may require that we
pay significant cash, issue stock or incur substantial debt. In addition, such
acquisitions or investments may require significant managerial attention, which
may be diverted from our other operations. These capital, equity and managerial
commitments may impair the operation of our business. Furthermore, acquired
businesses may not be effectively integrated, may be unable to maintain key
pre-acquisition business relationships, may contribute to increased fixed costs
and may expose us to unanticipated liabilities.

International expansion may impose substantial burdens on our resources, divert
managements attention or otherwise harm our business.

Our current and planned expansion into international markets will require
extensive management attention and resources. In addition, we will need to rely
extensively on third parties in foreign countries to help conduct our
international operations and conduct sales and marketing efforts. Our success
in international markets consequently will depend to a large degree on the
success of these third parties, over which we have little control. If they are
unwilling or unable to dedicate sufficient resources to our relationships, our
international operations will suffer. Furthermore, our efforts abroad are
subject to a number of additional risks inherent in international operations,
including:



| |  |  | difficulties and costs of staffing and managing foreign offices;
| | - |  | ----------------------------------------------------------------
|
| |  |  | different learning styles and cultures;                         
|
| |  |  | numerous and potentially conflicting regulatory requirements;   
|
| |  |  | export controls, import tariffs and other barriers to trade;    
|
| |  |  | reduced protection of intellectual property rights;             
|
| |  |  | regional political and economic instability; and                
|
| |  |  | fluctuations in currency exchange rates.                        

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The loss of the services of our senior executives and key personnel would
likely cause our business to suffer.

Our success depends to a significant degree on the performance of the
senior management team and other key employees. The loss of any of these
individuals could harm our business. We do not have employment agreements with
several of our executives or with any other key employees, and we do not
maintain key person life insurance for any officers or key employees.

Our success also depends on our ability to attract, integrate, motivate
and retain additional highly skilled technical, sales and marketing and
professional services personnel. Competition for qualified personnel in the
enterprise software industry is intense. To the extent we are unable to attract
and retain a sufficient number of additional skilled personnel our business
will suffer.

We may not be able to adapt to rapidly changing technology and evolving
industry standards.

The enterprise learning software market is characterized by rapidly
changing technologies, frequent new product and service introductions, short
development cycles and evolving industry standards. The introduction of new
products and services embodying new technologies and the emergence of new
industry standards may render our products and services obsolete. Our success
depends on our ability to adapt to a rapidly changing landscape and to offer
new products and services to address our customers changing demands. We may
experience difficulties that delay or prevent the successful design,
development, introduction or marketing of our products and services. To the
extent we in fact experience such delays, we may experience difficulty in
attracting new customers and may lose existing ones.

Our intellectual property may become subject to legal challenges, unauthorized
use or infringement, any of which could diminish the value of our products and
services.

Our success depends in large part on our proprietary technology. We rely
on a combination of copyrights, trademarks, trade secret laws, restrictions on
disclosure and other methods to protect our proprietary technology. While we
have patent applications pending, we do not have issued patents for any of the
technology underlying our Aspen platform. If we fail to successfully enforce
our intellectual property rights, the value of these rights, and consequently
the value of our products and services to our customers, could diminish
substantially. It may be possible for third parties to copy or otherwise obtain
and use our intellectual property or trade secrets without our authorization,
and it may be possible for third parties to independently develop substantially
equivalent intellectual property.

Litigation may be necessary in the future to enforce our intellectual
property rights, to protect trade secrets or to determine the validity and
scope of the proprietary rights of others. From time to time we have received,
and may in the future receive, notice of claims of infringement of other
parties proprietary rights. Such claims could result in costly litigation and
could divert management and technical resources. They could also delay product
shipment or require us to develop non-infringing technology or enter into
royalty or licensing agreements, which agreements may not be available on
reasonable terms, or at all.

Our products include third-party technology, the loss of which could materially
harm our business.

We use some licensed third-party technology components in our products.
Future licenses to this technology may not be available to us on commercially
reasonable terms, or at all. The loss of or inability to obtain or maintain any
of these technology licenses could result in delays in the introduction of new
products or could force us to discontinue offering portions of our enterprise
learning solutions until equivalent technology, if available, is identified,
licensed and integrated. Furthermore, we may become subject to legal claims
related to licensed technology based on product liability, infringement of
intellectual property or other legal theories.

We face the risk of liability for failures to meet unique customer
requirements, and the risk of cost overruns on fixed-price projects.

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The failure or inability to meet a customers unique expectations or
requirements in the performance of services could impair our reputation or
result in a claim for damages, regardless of our responsibility for the
failure. Although generally we attempt to limit contractually our liability for
damages arising from product defects and other mistakes in rendering
professional services, these contractual protections are not always obtained
and may not be enforced or otherwise may not protect us from liability. Our
insurance may not be sufficient to cover any of these claims.

In addition, many of our professional services projects are performed on a
fixed-price basis rather than on a time and materials basis. If we do not
accurately predict the costs of these projects, we could incur unexpected
costs. If we do not complete fixed-price engagements within budget, on time and
to clients satisfaction, we bear the risk of cost overruns.

Security and privacy breaches could subject us to litigation and liability.

We host many of our customers enterprise learning software
implementations at our data center and provide access to that software using
the Internet. The Internet is a public network and data is sent over this
network from many sources. Although we take reasonable steps in accordance with
current industry practices to ensure the security of our hosting systems and
customer data, computer viruses could be introduced into our systems or those
of our customers, which could disrupt the operation of our hosting systems or
make them inaccessible to users. In addition, well-publicized Internet security
breaches could deter customers from using the Internet to conduct transactions
that involve the transmission of confidential information. We depend on
Internet service providers and telecommunications companies and the efficient
operation of their computer networks and other computer equipment to enable
customers to access and use hosted software implementations. Each of these has
experienced significant outages in the past and could experience outages,
delays and other difficulties due to system failures unrelated to our systems.

We could become subject to litigation and liability if third parties
penetrate security for our hosting systems or otherwise misappropriate our
users confidential information or if customers are unable to access and use
hosted software implementations. Advances in computer capabilities, new
discoveries in the field of cryptography or other technological events or
developments could result in compromises or breaches of our security systems.
Anyone who circumvents our security measures could misappropriate proprietary
information or cause interruptions in our services or operations. We may be
required to expend significant capital and other resources to protect against
the threat of security breaches or service interruptions or to alleviate
problems caused by breaches or service interruptions.

Our debt covenants may significantly restrict our operations.

We are subject to numerous covenants in our agreement with Silicon Valley
Bank that impose financial and operating restrictions on our business. These
restrictions may affect our ability to operate our business, may limit our
ability to take advantage of potential business opportunities as they arise,
and may adversely affect the conduct of our current business. These covenants
place restrictions on our ability to, among other things:



| |  |  | incur more debt;                                                          
| | - |  | --------------------------------------------------------------------------
|
| |  |  | pay dividends, redeem or repurchase our stock or make other distributions;
|
| |  |  | make acquisitions or investments;                                         
|
| |  |  | use assets as security in other transactions;                             
|
| |  |  | enter into transactions with affiliates;                                  
|
| |  |  | merge or consolidate with others;                                         
|
| |  |  | dispose of assets or use asset sale proceeds;                             

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| |  |  | create liens on our assets; and
| | - |  | -------------------------------
|
| |  |  | extend credit.                 

In addition, the terms of our indebtedness require that we meet certain
financial ratios and tests. The covenants governing our existing indebtedness
restrict our operations and those of our subsidiaries, and these limitations
could impair our ability to meet such financial ratios and tests. In addition,
our ability to meet these ratios and tests and to comply with other provisions
governing our indebtedness may be affected by changes in economic or business
conditions or other events beyond our control. Moreover, our failure to comply
with our debt-related obligations could result in an event of default that, if
not cured or waived, could result in an acceleration of our indebtedness.

As a result of taking
a charge with respect to the impairment of goodwill related to our custom development business in the fourth quarter of 2001 and the
expenses related to the transition of this business to NIIT in the first
quarter of 2002, we are in violation of a covenant limiting the amount of
our quarterly losses. As a result of our use of cash to fund operations and
acquire synchronous learning technology in the first quarter of 2002, we are in
violation of a covenant requiring us to maintain a certain level of tangible
net worth. The bank has waived these violations of the covenants without cost
to us, and has indicated that it is willing to amend the covenants requiring a
certain level of tangible net worth so that we are no longer in violation.
However, we cannot assure you that the bank will amend the tangible net worth
covenant, that we will not violate these or other covenants in the future or
that the bank will waive any such future violations at no cost to us, or at
all.




Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market Rate Risk.We are exposed to market risk related to changes in
interest rates and foreign currency exchange rates. We do not use derivative
financial instruments for speculative or trading purposes.

Interest Rate Risk.We hold our assets primarily in cash and cash
equivalents, such as short-term marketable debt securities, money market funds
and other cash equivalents. We minimize risk by investing in financial
instruments with maturity of three months or less. As a result, if market
interest rates were to increase immediately and uniformly by 10% from levels at
December 31, 2001, the fair value of cash and cash equivalents would not change
by a material amount.

Foreign Currency Exchange Risk.We have foreign currency risk as a result
of foreign subsidiary activities. For the three months ended March 31, 2002,
international revenues from foreign subsidiaries accounted for approximately
11% of total revenues. All foreign subsidiaries use the local currency as their
functional currency.

Our exposure to foreign exchange rate fluctuations arises in part from
intercompany accounts in which costs incurred in the United States are charged
to the foreign subsidiaries. These intercompany accounts are typically
denominated in the functional currency of the foreign subsidiary in order to
centralize foreign exchange risk with the parent company in the United States.
We are also exposed to foreign exchange rate fluctuations as the financial
results of foreign subsidiaries are translated in U.S. dollars in
consolidation. As exchanges rates vary, these results, when translated, may
vary from expectations and adversely impact overall expected profitability. The
effect of foreign exchange rate fluctuations for the three months ended March
31, 2002 was not material. Due to the substantial volatility of currency
exchange rates, among other factors, we cannot predict the effect of exchange
rate fluctuations on our future operating results.

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PART IIOTHER INFORMATION




Item 1. Legal Proceedings.

Not Applicable.




Item 2. Changes In Securities and Use of Proceeds.

Not Applicable.




Item 3. Defaults Upon Senior Securities.

Not Applicable.




Item 4. Submission of Matters to a Vote of Securities Holders.

Not Applicable.




Item 5. Other Information.

Not Applicable




Item 6. Exhibits and Reports on Form 8-K.

|    |  |                                                                                                                                                                                                                                                                                    |  |                                                                                          
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------
|(a) |  | Exhibits                                                                                                                                                                                                                                                                           |  |                                                                                          
|   
|    |  | 10.01                                                                                                                                                                                                                                                                              |  | Employment Agreement dated March 21, 2002, between Click2learn and Kevin Oakes.          
|   
|    |  | 10.02                                                                                                                                                                                                                                                                              |  | Asset Purchase Agreement dated January 15, 2002, between Click2learn and NIIT (USA),
Inc.
|   
|    |  | 10.03                                                                                                                                                                                                                                                                              |  | Custom Software
Development Agreement.                                                   
|   
|    |  | 10.04                                                                                                                                                                                                                                                                              |  | Click2learns 1998
Equity Incentive Plan, as amended to date.1                           
|   
|(b) |  | Reports on Form 8-K                                                                                                                                                                                                                                                               
|   
|    |  | A report on Form 8-K dated April 4, 2001 was filed announcing Click2learns preliminary
results for fiscal first quarter 2002 and the departure of Dennis Worsley as Executive Vice
President, Worldwide Sales and Marketing. No financial statements were filed with such
report.

1 Compensation Plan or Arrangement

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SIGNATURES

Pursuant to the requirements 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.

|             |  |                                                                                                                                              
|------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|             |  | CLICK2LEARN, INC.                                                                                                                            
|            
|            
|May 15, 2002 |  | /s/John D. Atherly                                                                                                                           
|             |  |                                                                                                                                              
|            
|Date         |  | John D. Atherly
Vice President, Finance and Administration
and Chief Financial Officer
(Duly Authorized Officer and Chief Accounting Officer)

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EXHIBIT INDEX

| |  |       |  |                                                                                          
| |  | ----- |  | -----------------------------------------------------------------------------------------
|
| |  | 10.01 |  | Employment Agreement dated March 21, 2002, between Click2learn and Kevin Oakes.          
|
| |  | 10.02 |  | Asset Purchase Agreement dated January 15, 2002, between Click2learn and NIIT (USA),
Inc.
|
| |  | 10.03 |  | Custom Software Development Agreement                                                    
|
| |  | 10.04 |  | Click2learns 1998 Equity Incentive Plan