UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 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, 2001 or  ̈
  TRANSITION REPORT
  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  Commission File Number 000-24289   CLICK2LEARN.COM, INC.(Exact name of registrant as specified in its chapter)  Delaware
  91-1276003(State or other jurisdiction of
  (I.R.S. Employer Identification No.)incorporation or organization)
 110-110th Avenue NE, Bellevue, Washington98004(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. YesxNo ̈ The number of shares outstanding of the issuers Common Stock, par
value $0.01, as of March 31, 2001 was 18,124,974 shares.   CLICK2LEARN.COM, INC.

FORM 10 Q

For the Quarter Ended March 31,
2001

TABLE OF CONTENTS



PART I  FINANCIAL INFORMATIONItem
  1.  Financial StatementsCondensed
  Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000Condensed
  Consolidated Statements of Operations for the three months Ended March 31, 2001
  and 2000Condensed
  Consolidated Statements of Cash Flows for the three months Ended March 31,
  2001 and 2000Notes
  to Condensed Consolidated Financial StatementsItem
  2.   Managements Discussion and
  Analysis of Financial Condition and Results of OperationsItem
  3.   Quantitative and Qualitative
  Disclosures About Market RiskPART II  OTHER INFORMATIONItem 1. Legal ProceedingsItem
  2. Changes in Securities and Use of ProceedsItem 3.
  Defaults upon Senior SecuritiesItem
  4. Submission of Matters to a Vote of Securities HoldersItem 5. Other InformationItem 6.
  Exhibits and Reports on Form 8-KSIGNATURES



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



March 31,
  2001
  December
  31,
  2000AssetsCurrent assets:Cash and cash equivalents
  $9,591
  $15,321Accounts receivable, net of allowance for returns and doubtful
  accounts of  $1,009 in 2001 and $962
  in 2000
  16,394
  14,969Inventories
  160
  192Prepaid royalties and licenses
  207
  237Receivables from related companies
  11
  11Other
  1,370
  894Total current assets
  27,733
  31,624Property and equipment, net
  2,551
  2,695Goodwill and other intangible assets, net
  9,621
  10,006Other
  1,098
  555Total assets
  $41,003
  $44,880Liabilities and Stockholders
  EquityCurrent liabilities:Accounts payable
  $2,910
  $2,978Accrued compensation and benefits
  3,730
  3,810Deferred revenue
  2,065
  1,680Customer prepayments
  341
  428Other
  829
  927Total current liabilities
  9,875
  9,823Other
  noncurrent liabilities
  -
  4Total liabilities
  9,875
  9,827Stockholders equity:Preferred stock
  -
  -Common stock
  182
  180Additional paid-in capital
  228,380
  227,766Accumulated deficit
  (196,729)
  (192,313)Deferred stock compensation
  (56)
  (72)Accumulated other comprehensive loss
  (649)
  (508)Total stockholders equity
  31,128
  35,053Total liabilities and stockholders equity
  $41,003
  $44,880See
accompanying notes to Condensed Consolidated Financial Statements


CLICK2LEARN.COM,
INC.CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(In thousands)  Three months ended
  March 31,2001
  
  2000Revenue:Tools
  $2,021
  
  $2,574Content services
  5,628
  
  4,216Platforms
  3,006
  
  3,093Total revenue
  10,655
  
  9,883Cost
  of revenue:Tools
  486
  
  557Content services
  5,130
  
  3,819Platforms
  655
  
  461Total cost of revenue
  6,271
  
  4,837Gross margin
  4,384
  
  5,046Operating expenses:Research and development
  2,340
  
  2,451Sales and marketing
  4,656
  
  4,537General and administrative
  1,637
  
  1,448Amortization of goodwill
  239
  
  236Total operating expenses
  8,872
  
  8,672Loss from operations
  (4,888)
  
  (3,626)Other income, net
  172
  
  277Equity in losses of
  affiliate
  (100)
  
  -Net loss
  $(4,416)
  
  $(3,349)Net loss per share,
  basic and diluted
  $(0.24)
  
  $(0.20)Weighted average common
  shares outstanding, basic and diluted
  18,044
  
  16,417 See accompanying notes to Condensed Consolidated
Financial Statements


CLICK2LEARN.COM,
INC.CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (In thousands)  Three
  Months Ended
  March 31,2001
  
  2000Cash flows from operating activities:Net
  loss
  $(4,416)
  
  $(3,349)Adjustments to reconcile net loss to net cash used in operating
  activities:Depreciation and amortization
  705
  
  589Write-off property and equipment
  -
  
  1Stock compensation expense
  16
  
  20Loss on affiliate
  100
  
  -Changes in assets and liabilities:Accounts receivable
  (1,426)
  
  368Inventories
  32
  
  (4)Prepaid royalties and licenses
  30
  
  (99)Receivables from related companies
  -
  
  (59)Other current assets
  (477)
  
  148Accounts payable
  (68)
  
  (214)Accrued liabilities
  (79)
  
  574Deferred revenue
  385
  
  (200)Other current liabilities
  (184)
  
  (218)Net cash used in operating activities
  (5,382)
  
  (2,443)Cash flows from investing activities:Purchase of property and equipment
  (176)
  
  (222)Investment in Click2learn Japan KK
  (639)
  
  -Sale (purchase) of other assets
  (4)
  
  98Net cash used in investing
  activities
  (819)
  
  (124)Cash flows from financing activities:Proceeds of notes payable
  -
  
  71Payments on long-term debt
  (4)
  
  -Proceeds from exercise of stock options
  45
  
  1,907Proceeds from sale of common stock and common stock warrants
  572
  
  396Net cash provided by financing activities
  613
  
  2,374Effect of foreign exchange rate changes
  (142)
  
  (67)Net decrease in cash and cash equivalents
  (5,730)
  
  (260)Cash and cash equivalents at beginning of
  period
  15,321
  
  19,481Cash and cash equivalents at end of period
  $9,591
  
  $19,221 See
accompanying notes to Condensed Consolidated Financial Statements CLICK2LEARN.COM,
INC.NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001 AND 2000 Unaudited Interim Financial
Information The
accompanying unaudited condensed consolidated financial statements of
Click2learn.com, 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.  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, 2000. 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. Interim results of operations for the three months ended March 31,
2001 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. 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, 2001 are 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 average exercise price of
$8.45 because their effects would be anti-dilutive. Options to acquire
approximately 4,661,455 shares of common stock with a weighted average exercise
price of $6.87 and warrants to purchase 1,426,313 shares of common stock with a
weighted exercise share price of $8.61 have been excluded from the computation
of diluted earnings per share for the three months ended March 31, 2000 because
their effects would be anti-dilutive. 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 modified,
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 no significant
obligations remain outstanding and collection of the resulting receivable is
probable.  An allowance for returns is
provided at the time of the sale. 
Revenue from support agreements is recognized on a straight-line basis
over the life of the contract. 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 the e-Learning Network 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.

Comprehensive Loss

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



Three Months Ended
  March 31,2001
  2000Net loss
  $(4,416)
  $(3,349)Foreign currency translation
  adjustment
  6
  (67)Total comprehensive loss
  $(4,410)
  $(3,416)Derivative Financial Instruments

Effective
January 1, 2001, Click2learn adopted Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS 133).  The adoption of
SFAS 133 did not impact the Click2learns consolidated financial statements as
of January 1, 2001.

SFAS
133, as amended, requires that all derivative instruments be recorded on the
balance sheet at fair value.  Changes in
the fair value of derivatives are recorded each period in current results of
operations or other comprehensive income (loss) depending on whether a
derivative is designated as part of a hedge transaction, and if so, the type of
risk being hedged.

For
a derivative designated as a fair value hedge, the gain or loss of the
derivative in the period of change and the offsetting loss or gain of the
hedged item attributed to the hedged risk are recognized in results of
operations.  For a derivative designated
as a cash flow hedge, the effective portion of the derivatives gain or loss is
initially reported as a component of other comprehensive income (loss) and
subsequently reclassified into results of operations when the hedged exposure
affects results of operations.  The
ineffective portion of the gain or loss of a cash flow hedge is recognized
immediately in results of operations. 
For a derivative not designated as a hedging instrument, the gain or
loss is recognized in results of operations in the period of change.

Click2learn
had no derivative financial instruments outstanding at March 31, 2001.

Segment Information

During
most of 2000, Click2learn had two reportable segments, enterprise and
electronic commerce.  The enterprise
segment included revenues and cost of revenues from software licenses and
professional services which include consulting, custom development of
e-Learning courses, implementation, training and technical support for Ingenium
and ToolBook II.  The electronic
commerce segment included revenues and cost of revenues from our e-Learning
Network: professional services, royalties, and hosting.

During
the fourth quarter of 2000, Click2learn reorganized its internal reporting
along similar products and services and now includes three reportable
segments:  tools, content services and
platforms.  Amounts presented for the
three months ended March 31, 2000 have been restated to conform to current
presentation.

Click2learn
has three reportable segments: tools, content services and platforms.  Tools include software licenses and
technical support and training for ToolBook II and other products.  Content services includes custom development
of e-Learning courses, consulting, licensing and fees for the Rapid e-Learning
Development System, and royalties. 
Platforms includes software licenses, subscription and hosting fees,
implementation, and training and support for Ingenium and the e-Learning Network.

Click2learns
operating committee which includes its Chief Executive Officer, Chief Operating
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) are 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.

Geographic Information



For the Three Months Ended
  March 31,2001
  2000Revenue:Domestic
  $9,605
  $8,956International  primarily Europe
  1,050
  927$10,655
  $9,883Revenues are attributed
to geographic areas based on the location of the customers.

For
  the Three Months Ended
  March 31,2001
  2000Long-lived assets:Domestic operations
  $10,630
  $11,341International operations  primarily
  Europe
  266
  288$10,896
  $11,629Long-lived
assets  represents property, plant and
equipment and goodwill, net of accumulated depreciation and amortization.Subsequent Event

Subsequent
to March 31, 2001, Click2learn acquired IntelliPrep Technologies, Incorporated,
a provider of technology for personalized learning, for common stock and
options valued at approximately $4 million in a transaction that will be
accounted for under the purchase method of accounting.



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 contains forward-looking
statements that involve risks and uncertainties. Click2learns actual results
may differ significantly from the results discussed in the forward-looking statements.
Factors that may cause such a difference include, but are not limited to, those
discussed in Factors that May Affect Future Results of Operations.

Overview

The
e-Learning market is made up of three distinct categories: content, services
and delivery.  Content represents
off-the-shelf titles that provide training on a variety of general topics and
customer specific content that must be custom developed.  Services represent the outsourcing of
e-Learning content development, implementation or consulting to third parties
and delivery refers to the technology to host, deploy, manage and track
e-Learning users and content.

Click2learn
has developed leading technology that addresses the delivery, management and
the creation of e-Learning content.  Complementing
this technology is our service organization dedicated to consulting with
clients on e-Learning solutions, the development of client-specific e-Learning
content as well as the implementation of delivery and content creation systems.
Combined, we sell and market these offerings as solutions that enable
organizations to take advantage of the many benefits of e-Learning.

Our
e-Learning solutions focus on the needs of two primary markets: organizations
seeking to increase their effectiveness and gain a competitive advantage by
providing relevant and up-to-date knowledge when and where it is needed
throughout the extended enterprise, and organizations seeking to use e-Learning
to develop new lines of business or sources of revenue by leveraging existing
intellectual capital or product lines. 
For simplicity, we refer to these two markets as corporate solutions
and commercial solutions although customers of these solutions are not
limited to corporations or commercial entities.

Both
our corporate and commercial solutions are highly scalable yet flexible enough
to be tailored to the unique needs of each customer.   Our knowledgeable and experienced professionals work together
with our customers to deliver e-Learning initiatives with measurable results.   We work collaboratively with our clients to
develop business plans, evaluate e-Learning alternatives, plan, implement and
support the solution best suited to their e-Learning goals, and provide ongoing
evaluation to measure effectiveness and return on their e-Learning investment.

We
group related revenues around the primary components of our solutions:
Platforms, Content Services and Tools.

Platforms
include software licenses, subscription and hosting fees, implementation,
customization, training and support related to our Ingenium learning management
system and e-Learning Network.  Ingenium
is a highly scalable skills and competency based system that manages
traditional instructor lead training as well as e-Learning courses and can be
installed on a clients server or hosted by Click2learn.  The e-Learning Network is a robust Internet
based system that manages the delivery of courses and e-commerce associated
with commercial e-Learning implementations through an ASP environment.

Content
Services revenues are derived from the creation of custom e-Learning courses,
consulting, licenses and hosting fees for the Rapid e-Learning Development
System (ReDS) and sales of third party off the shelf content. ReDS is our
advanced content development technology designed for use by teams of content
developers to create learning objects, large e-Learning courses and curriculum
in a collaborative environment with our clients.

Tools
revenues include software licenses, technical support and training related to
our award winning ToolBook II line of products as well as software license
revenues from discontinued products sold before 2000.

We
recognize revenues for software licenses upon shipment; for technical support,
subscription and hosting evenly over the life of the contract; and for services
such as content development and implementation based on the percentage of
completion method or on a time and materials basis.

Costs
related to revenues consist of media, manuals, royalties, packaging and
distribution for software licenses and primarily salaries and overhead for
service related offerings.  Costs of
revenues for the Platforms and Tools category are similar due to a relatively
high mix of software licenses versus services with cost averaging between 20%
to 25% of related revenue. Contrasting the mix for Platforms and Tools, Content
Services consist primarily of relatively high personnel costs associated with
providing professional services compared to the lower materials, packaging and
other costs of software.

Results of Operations

The following table presents
Click2learns results of operations as a percentage of total revenue for the
periods indicated.

Three MonthsEnded
  March31,2001
  2000%
  %Revenue:Tools
  19.0
  26.0Content services
  52.8
  42.7Platforms
  28.2
  31.3Total revenue
  100.0
  100.0Cost
  of revenue:Tools
  4.6
  5.6Content services
  48.1
  38.6Platforms
  6.2
  4.7Total cost of revenue
  58.9
  48.9Gross margin
  41.1
  51.1Operating expenses:Research and development
  22.0
  24.8Sales and marketing
  43.7
  45.9General and administrative
  15.4
  14.7Amortization of goodwill
  2.2
  2.4Total operating expenses
  83.3
  87.8Loss from operations
  (42.2)
  (36.7)Other income(loss), net
  1.6
  2.8Equity in losses of
  affiliate
  (0.9)
  -Net loss
  (41.5)
  (33.9)Three Months Ended March 31, 2001 Compared to Three Months
Ended March 31, 2000



Revenue.  
Our total revenue increased 8% from $9.9 million in the period ended
March 31, 2000 to $10.7 million in the period ended March 31, 2001.  Revenue growth was attributable to a 33%
increase in Content Services revenues from $4.2 million the prior year to $5.6
million the period ended March 31, 2001.  
Content Services growth is attributable to increased size and scope of
projects currently being performed. Offsetting this growth was a decline in the
Tools revenue category of 27% from $2.6 million in the period last year versus
$2.0 million in the period ended March 31, 2001.  The Tools category decline was anticipated due to the overall
decline in the market for authoring tools. 
Revenues from Platforms were $3.1 in the period last year compared to
$3.0 million in the quarter ended March 31, 2001.

Cost of Revenue.Total
cost of revenues increased 30% from $4.8 million in the period ended March 31,
2000 to $6.3 million in the period ended March 31, 2001.  This increase is attributed to a 34%
increase in costs associated with Content Services revenues from $3.8 million
the prior year period to $5.1 million the period ended March 31, 2001.   This increase is associated with the higher
revenue level this period and severance costs related to reducing staffing
levels approximately 15% from levels built up in previous quarters.  Costs associated with Platforms increased
42% from $461,000 in the prior year period to $654,000 in the period ended
March 31, 2001.  The increase was due to
increased implementation and customer training work during the quarter.  Costs associated with Tools revenues were
down 13% from $557,000 in the prior years period to $486,000 this period and
were attributable to the lower Tools revenues.

Operating
Expenses

Research and Development.Research and development expenses include expenses associated with the
development of new products and new product versions and consist primarily of
salaries, depreciation of development equipment, supplies and overhead
allocations.  Research and development
expenses decreased 5% from $2.5 million in the period ended March 31, 2000 to
$2.3 million the period ended March 31, 2001. 
The decrease is related to completion of the initial development efforts
for the e-Learning Network.   Research
and development as a percent of revenue decreased from 25% the prior year period
to 22% in the period ended March 31, 2001. 
In April 2001, we announced the acquisition of Intelliprep Technologies,
Inc. and 15 Intelliprep employees will join Click2learn as a result of this
transaction.  The majority of
Intelliprep staff will be reflected in the research and development
category.   Therefore we anticipate that
research and development costs will increase in absolute dollars.

Sales and Marketing.Sales
and marketing expenses consist primarily of sales and marketing personnel
costs, including sales commissions, travel, advertising, public relations,
seminars, trade shows and other marketing literature and overhead
allocations.  Sales and marketing
expenses increased 3% from $4.5 million in the prior year period to $4.7
million in the period ended March 31, 2001.  
The change in sales and marketing expense as a percent of revenue
decreased from 46% in the 2000 period to 44% in the period ended 2001.  We expect that sales and marketing expenses
will grow in absolute dollars as our revenues increase and decrease as a
percent of revenue.

General
and Administrative.General and administrative expenses consist
primarily of salaries and other personnel-related expenses for administrative,
executive and finance personnel as well as outside advisors.  General and administrative expenses as a
percent of revenue were unchanged at 15%. 
Expenses increased from $1.4 million in the prior years period to $1.6
million in the period ended March 31, 2001. 
This increase was to support higher total headcount and our expanded
operations group in Europe.  We expect
that general and administrative expenses will increase as our overall headcount
increases and that they will decrease as a percent of revenue should our revenues
increase.

Amortization of Goodwill.Amortization of goodwill relates to
the amortization of excess purchase price over the fair value of identifiable
tangible and intangible assets acquired in acquisitions recorded using the
purchase method of accounting. 
Amortization of goodwill expense increased slightly to $239,000 for the
period ended March 31, 2001 from $236,000 for the same period last year.

Other Income.Interest income on cash and cash equivalents in the
period ended
March 31, 2000 was $172,000 as compared to $275,000 in the period ended March
31, 2001 due primarily to higher interest rates and to a lesser extent higher
cash balances.  In April 2000, we
established a joint venture with SOFTBANK Corporation subsidiaries creating
Click2learn Japan K.K.  We account for
our portion of the joint ventures operating results under the equity method,
and in the quarter ended March 31, 2001, we recorded $100,000 related to our
equity share of net losses.

Liquidity
and Capital Resources

At March 30, 2001 we had cash and
cash equivalents totaling $9.6 million, a decrease of $5.7 million from
December 31, 2000.  The decrease in cash
was due to uses of cash for operating expenses, payments to Go2Net of $750,000
related to a co-marketing agreement terminated in the third quarter of 2000 as
well as investments of approximately $700,000 in Click2learn Japan KK.  Cash flows from financing activities are
primarily related to our employee stock purchase plan.  At March 31, 2001, our principal source of
liquidity was $17.9 million of working capital.

We
anticipate that our cash and cash equivalents will be sufficient to meet our
working capital needs and capital expenditures for at least the next 12
months.  Our long-term liquidity will be
affected by numerous factors, including acquisitions of businesses or
technologies, demand for our e-Learning solutions, the extent to which our
e-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 and other factors.  In addition, from time to time we evaluate
potential acquisitions of businesses, products or technologies that complement
our business.  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.

Factors That May Affect Future Results of
Operations

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 does 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 began offering our Ingenium learning management system in 1998, our
e-Learning Network in 1999 and our ReDS system in 2000. Accordingly, we have a
limited operating history on which to evaluate our current business and future
prospects.

We have a
history of losses and anticipate continued losses in the future.We incurred net losses of approximately $16.8
million and $4.4 million in the year ended December 31, 2000 and the three
months ended March 31, 2001, respectively. 
As of December 31, 2000, our accumulated deficit was $192.2
million.  We have not achieved
profitability and expect to continue to incur operating losses at least through
the year ending December 31, 2001.  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 by early-stage companies in Internet-related business and may
be unsuccessful in addressing these risks.We
face risks frequently encountered by early-stage companies in new and rapidly
evolving markets.  Specific risks we
face relate to the demand for and market acceptance of our  e-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
e-Learning solutions to new and existing customers;·continue to enhance our
Ingenium learning management system, ReDS development platform and e-Learning
Network;·successfully implement
our e-Learning solutions for our customers and generate continuing revenues
from those customers;·continue to establish
relationships with leading providers of learning content and to sell that
content through our e-Learning Network; and·address and establish
new technologies and technology standards.

The market for e-Learning solutions
is in the early stages of development, and may not grow to a sufficient size or
at sufficient rate to sustain our business.The
e-Learning market is in the early stages of development, and may not grow to a
sufficient size or at 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 a companys 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 technology-based
solutions and use the Internet 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 and whether companies adopt hosted e-Learning
solutions delivered over the Internet.

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 e-Learning
solutions, they may still choose to design, develop, deliver or manage all or a
part of their education and training internally.  If technology-based learning and the use of the Internet for
learning do not become widespread, or if companies do not use the products and
services of third parties to develop, deliver or manage their training needs,
then our e-Learning solutions may not be commercially successful.

Our
pricing, expense and revenue model is unproven, and may not yield results
sufficient for our business to succeed.The
pricing, expense and revenue models for our e-Learning solutions have not been
broadly tested in the marketplace, and may not yield results sufficient for our
business to succeed.  If the pricing,
expense and revenue models are not acceptable to users, customers, or content
providers, our e-Learning solutions may not be commercially successful.

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 e-Learning solutions, possible
acquisitions and the emerging nature of the 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.  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.



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.  As a
result, we may need additional funds to finance our operations, 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,
unanticipated 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 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. 
If we raise additional funds through the issuance of additional equity
or convertible debt securities, the percentage ownership of our existing
shareholders will be reduced, and the newly issued securities may have rights,
preferences or privileges senior to those of our common stock.

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 revenues are derived from the sale of products and services to
Fortune 1000 companies or government agencies, which historically have reduced
their expenditures for education and training during economic downturns.  Should the economy weaken in any future
period, these organizations may reduce their expenditures on education and
training, which could adversely affect our business.

We face
intense competition from other e-Learning providers and may be unable to
compete successfully.The e-Learning 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 companies focused
on using the Internet to provide learning and education such as SmartForce and
DigitalThink, as well as developers or resellers of training content who make
their content available over the Internet;·many small, regional
e-Learning and technology-based training services businesses;·large professional
consulting firms and in-house training departments;·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; and·developers of web
authoring tools.Many
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.  Many of these competitors also have broader and more established
distribution channels that may be used to establish strategic alliances or
deliver competing products or services directly to customers.  If these competitors were to bundle
competing products or services 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 e-Learning market, new
competitors are likely to enter this market in the future.  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.

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



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.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 most of our executives or 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 Internet and technology industries is intense.  To the extent we are unable to attract and
retain a sufficient number of additional skilled personnel, our business will
suffer.

Our
software may contain defects or otherwise perform improperly.Software
products frequently contain errors or failures, 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 our e-Learning
products are complex software packages targeted at enterprise customers in an
emerging market, customers and potential customers may have a greater
sensitivity to product defects or product integration than the market for
software products generally.  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.

We depend
on third-party technology, the loss of which could materially harm our
business.We use licensed third-party technology and
content in our e-Learning solutions. 
Future licenses to this technology and content 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 or content licenses could result in delays in the introduction of
new products or could force us to discontinue offering portions of our
e-Learning solutions until equivalent technology or content, if available, is
identified, licensed and integrated. 
Furthermore, we may become subjected to legal claims related to licensed
technology or content based on defamation, negligence, product liability,
infringement of intellectual property or other legal theories.



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.  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.

Security
and privacy breaches could subject us to litigation and liability and deter
consumers from using our e-Learning Network.We
could become subject to litigation and liability if third parties penetrate
security for our hosted e-Learning solutions or otherwise misappropriate our
users confidential information. 
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 to alleviate problems caused by breaches.  Furthermore, to the extent that our commercial
activities may involve the storage and transmission of proprietary information,
such as personal information or credit card numbers, security breaches could
expose us to a risk of loss or litigation and possible liability.

The
Internet is a public network, and data is sent over this network from many
sources.  In the past, computer viruses,
software programs that disable or impair computers, have been distributed and
have rapidly spread over the Internet. 
Computer viruses could be introduced into our systems or those of our
customers or content providers, which could disrupt our hosted e-Learning
solutions or make them inaccessible to users.

A
significant barrier to the widespread use of the Internet for applications such
as training and education is the secure transmission of confidential
information over public networks.  Any
well-publicized security breaches, whether on our Web site or on those of other
companies, could deter people from using the Internet in general, or,
specifically, from using it to conduct transactions that involve the
transmission of confidential information. 
We cannot predict the extent to which transactions over the Internet
will be, or will be perceived to be, secure against breaches by third
parties.  As a result, we cannot be
certain the Internet ultimately will become widely accepted for commerce and
communications.

An
increase in the traffic or content may strain our systems, and our systems are
vulnerable to other technical malfunction.The
systems that support our hosted, Internet-delivered e-Learning solutions may be
unable to accommodate an increased volume of traffic or additional
content.  Consequently, our systems may
experience slower response times or other problems.  In addition, we depend on Internet service providers and
telecommunications companies and the efficient operation of their computer
networks and other computer equipment for the operation and delivery of our
hosted e-Learning solutions.  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.  Any delays in response time or
performance problems could cause users to perceive our systems as not
functioning properly and therefore not use our e-Learning solutions for their
training needs.

Our
business depends on the increasing acceptance and use of the Internet, the lack
of which could significantly reduce demand for our products and services.The success of our hosted e-Learning solutions
depends on the increased acceptance and use of the Internet, both generally and
as a means for the development, purchase and delivery of educational
content.  To the extent the acceptance
and use do not continue to grow at current rates, we may be unable to develop a
sufficiently broad base of business customers and our business may suffer.  Demand and market acceptance for recently
introduced services and products over the Internet are subject to a high level
of uncertainty, and there exist few proven services and products.  Our business would be seriously harmed if:

·use of the Internet does
not continue to increase or increases more slowly than expected;·the application service
provider approach to developing and delivering learning content does not become
more widely accepted;·the technology
underlying the Internet does not effectively support future expansion that may
occur; or·governmental regulation
of the Internet increases.

We may not be able to adapt to the
rapidly changing technology and evolving industry standards.The e-Learning 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 customers.

Item 3. Quantitative and
Qualitative Disclosures about Market Risk

Market Rate Risk.The
following discussion about our market rate risk involves forward-looking
statements.  Actual results could differ
materially from those projected in the forward-looking statements.  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 a maturity of three months or less.  Therefore, if market interest rates were to increase immediately
and uniformly by 10% from levels at December 31, 2000, the fair values of cash
and cash equivalents would not change by a material amount.

Foreign
Currency Exchange Risk.We have foreign currency risk because of
foreign subsidiary activities.  For the
three months ended March 31, 2001, revenues from foreign subsidiaries accounted
for approximately 10% of total revenues. 
International sales are made mostly from foreign subsidiaries and are
typically denominated in the local currency of each country.   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, 2001 was not
significant.  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.

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.

None(b)        Reports on Form 8-K.

On January 19, 2001,
Click2learn filed a report on Form 8-K announcing preliminary results for the
quarter ended December 31, 2000.

On May 8, 2001,
Click2learn filed a report on Form 8-K related to the purchase of IntelliPrep
Technologies, Incorporated.

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.COM, INC.



May 15, 2001
  /s/ John D. AtherlyDate
  John D. Atherly
  Vice President, Finance and Administration
  and Chief Financial Officer
  (Duly Authorized Officer and Chief Accounting Officer)