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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549



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FORM 10-K/A



(Mark One)

|x |  | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934          
|- |  | ---------------------------------------------------------------------------------------
|  | 
|  |  | For the fiscal year ended: July 31, 2003                                               
|  | 
| ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934
|  | 
|  |  | For the transition period from
to.                                                     





Commission File Number 000-21535



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ProsoftTraining

(Exact name of Registrant as specified in its charter)



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



410 N. 44thStreet, Suite 600, Phoenix, AZ 85008

(Address of principal executive offices) (Zip Code)



(602) 794-4199

(Registrants telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Act:

None



Securities registered pursuant to Section 12(g) of the Act:

Common Stock, Par
Value $.001 Per Share

(Title of class)



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



Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 126-2 of the Act). YES ̈NO x



The aggregate market value of common stock held by non-affiliates (excludes outstanding shares beneficially owned by directors and officers) as of October
24, 2003, was approximately $10.4 million. As of such date 24,209,414 shares of common stock, $.001 per value, were outstanding.



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. x



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PROSOFTTRAINING



INDEX TO ANNUAL
REPORT ON FORM 10-K/A



|         |  |                                                                                               |  | Page
|-------- |  | --------------------------------------------------------------------------------------------- |  | ----
|PART I  
|         |  |                                                                                              
|Item 1.  |  | Business                                                                                      |  | 1   
|         |  | Organization History                                                                          |  | 1   
|         |  | Business Segments                                                                             |  | 1   
|         |  | Customers                                                                                     |  | 4   
|         |  | Competition.                                                                                  |  | 5   
|         |  | Sources of Revenue                                                                            |  | 5   
|         |  | Sales, Marketing and Customer Support                                                         |  | 6   
|         |  | Seasonality                                                                                   |  | 6   
|         |  | Trademarks and Copyrights                                                                     |  | 6   
|         |  | Employees                                                                                     |  | 6   
|         |  | Regulations                                                                                   |  | 6   
|         |  |                                                                                              
|Item 2.  |  | Properties                                                                                    |  | 6   
|         |  |                                                                                              
|Item 3.  |  | Legal Proceedings                                                                             |  | 7   
|         |  |                                                                                              
|Item 4.  |  | Submission of Matters to Vote of Security Holders                                             |  | 7   
|        
|PART II 
|         |  |                                                                                              
|Item 5.  |  | Market for Registrants Common Equity and Related Stockholder Matters                         |  | 8   
|         |  |                                                                                              
|Item 6.  |  | Selected Financial Data                                                                       |  | 8   
|         |  |                                                                                              
|Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations         |  | 8   
|         |  |                                                                                              
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                                    |  | 16  
|         |  |                                                                                              
|Item 8.  |  | Financial Statements and Supplementary Data                                                   |  | 17  
|         |  |                                                                                              
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting & Financial Disclosure            |  | 33  
|         |  |                                                                                              
|Item 9A. |  | Controls and Procedures                                                                       |  | 33  
|        
|PART III
|         |  |                                                                                              
|Item 10. |  | Directors and Executive Officers of the Registrant                                            |  | 34  
|         |  |                                                                                              
|Item 11. |  | Executive Compensation                                                                        |  | 36  
|         |  |                                                                                              
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters |  | 38  
|         |  |                                                                                              
|Item 13. |  | Certain Relationships and Related Transactions                                                |  | 39  
|         |  |                                                                                              
|Item 14. |  | Principal Accountant Fees and Services                                                        |  | 40  
|        
|PART IV 
|         |  |                                                                                              
|Item 15. |  | Exhibits, Financial Statement Schedules and Reports On Form 8-K                               |  | 41  
|         |  |                                                                                              
|         |  | Signatures                                                                                    |  | 43  
|         |  |                                                                                              
|         |  | Exhibit Index                                                                                 |  | 44  



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FORWARD-LOOKING STATEMENTS



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



ITEM 1.    BUSINESS



Organization History



ProsoftTraining (the Company or Prosoft or we or our) is incorporated under the laws of the State of Nevada. Beginning in February 1995, the Companys business was operated as a sole
proprietorship (the Proprietorship). In December 1995, Pro-Soft Development Corp., a California corporation (Old ProSoft), was incorporated and acquired the business from the Proprietorship effective January 1, 1996. In March
1996, the Company entered into an Agreement and Plan of Reorganization (the Reorganization Agreement) with Old ProSoft and the Old ProSoft shareholders. Under the terms of the Reorganization Agreement, Old ProSoft shareholders received
one share of Common Stock of the Company in exchange for each of their shares of Old ProSoft, and Old ProSoft became a wholly owned subsidiary of the Company (the Reorganization). As part of the Reorganization, all of the executive
officers and directors of the Company resigned and the executive officers and directors of Old ProSoft became the executive officers and directors of the Company and the Company changed its name from Tel-Fed, Inc. to ProSoft Development, Inc. The
Company changed its name to Prosoft I-Net Solutions, Inc. in October 1996, to ProsoftTraining.com. in December 1998, and to ProsoftTraining in July 2001.



Business Segments



Content Development and
Distribution



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



The Companys content is focused on education and training for job-role and vendor-specific certifications. Other products offered by Prosoft assist in developing proficiency in specific computer programs,
programming languages or operating systems. As of July 2003, the Companys library consisted of approximately 800 unique course titles covering software and hardware products, programming, and certification programs such as Microsoft, Oracle,
Linux, A+, Network+, Cisco, Sun and the Companys proprietary certification programs including CIW, CCNT, and Convergent Technologies Professional (CTP). Many of these titles are produced in multiple learning modalities such as
instructor-led training (ILT), web-based training (WBT), computer-based training (CBT), and assessment. These products are also sold combined into a blended learning offering called Classroom-in-a-Box.



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Content Distribution



Through its ComputerPREP division, Prosoft has built a worldwide distribution network with a wide range of customers
including academic institutions, commercial training centers, corporations, and individuals. The Company provides products to a diverse client list that includes entities such as the University of Phoenix, New Horizons, CompUSA, American Express,
IBM, Lockheed Martin, Time Warner Cable, the Federal Aviation Administration (FAA), the United States Department of Agriculture (USDA), NETg, SBC Communications, Siemens, Avaya and a broad variety of community colleges, technical colleges and high
schools. The learning center channel represented approximately 44 percent of Prosofts fiscal year 2003 content revenues, followed by 33 percent for the academic channel and 21 percent for corporate customers.



ComputerPREP also manages an authorized channel of over 750 CIW Authorized
Training Providers (ATP) and Authorized Academic Partners (AAP) worldwide. Commercial channel partners generally pay a small membership fee for the rights to sell and teach Official Curriculum while academic channel partners
usually agree to place a minimum courseware order when joining the authorized channel program.



ComputerPREP seeks to establish a competitive advantage by distributing in-house developed education solutions for IT job certifications such as CIW, A+,
MOS and Network+. ComputerPREP proprietary curriculum provides a comprehensive ILT solution that includes innovative features, integrates classroom and Web-based learning, and appeals to a wide variety of learners. ComputerPREP classroom materials
for A+, Network+ and Linux+ have earned the CompTIA Authorized Quality Curriculum seal of approval. This third-party review, conducted by ProCert Labs, states that it highly recommends the curriculum to ICT educators and learners.



ComputerPREP offers academic versions of all of its major
products and has pursued a focused initiative to increase revenue from the academic channel. Its education solutions include a classroom-based assessment that allows teachers to control questions and monitor scores. Academic products also include
syllabi, extra labs, WebCT cartridges, Blackboard e-packs and other teaching aids that meet the needs of this channel. All of these features can be purchased in a single product package called Classroom-in-a-Box.



Prosoft has reached agreement with seven states for the endorsement and
implementation of the CIW program in their education systems. These arrangements position the Company to provide states, school districts and workforce development agencies with education solutions designed to integrate an industry-standard
certification into statewide curricula. The Company believes it is uniquely positioned to meet the needs of this growing market.



The Company distributes its content broadly outside the United States. The majority of the Companys content revenues are from the United States and
Canada (87 percent), followed by EMEA (10 percent). Prosoft distributes its content and maintains a direct sales presence in the Europe, Middle East and Africa (EMEA) region through its ProsoftTraining Europe Ltd. wholly owned
subsidiary, based in Limerick, Ireland. The Companys wholly owned subsidiary ProsoftTraining Hong Kong Ltd. (PHK), based in Hong Kong, expands its reach, develops partnerships, combats piracy of its products, and seeks endorsements
in the rapidly growing Asia-Pacific region. Prosoft also distributes content through a formal partnership in Japan.



Content Development



The Company has built a sizable library of proprietary content through a disciplined internal development process. Prosoft has a content development team
responsible for new product development and regular updates of existing titles in its library. The team is comprised of course directors, project managers, editors, publishers, and subject matter experts.



Prosoft develops content using its Proprietary Content Architecture
(PCA). All proprietary content has been developed using PCA. This modular architecture allows Prosoft to create comprehensive products for instructors and students in both the learning center and academic channels from a single set of
underlying



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content. The Company has developed and owns content for all of its major product lines including CIW, A+, MOS, Network+, Linux+, CTP and CCNT. The Company
believes its commitment to frequently update its content to reflect the most recent technology, evolving industry standards and best practices provides a competitive advantage. This commitment helps ensure our core products remain
relevant and continue to meet the needs of our customers.



Certification
Development, Ownership and Management



The Company
owns and manages two proprietary job-role certifications, CIW and CCNT, and has developed and manages the CTP program for the Telecommunications Industry Association (TIA). Prosoft develops certification exams and provides candidates
with access to these exams through commercial testing sites in the Prometric and VUE networks, each of which has testing affiliates in over 100 countries. These are the same testing services used by other leading certification providers such as
Novell, Microsoft and Cisco. As the owner and manager of the certification programs, the Company also creates official preparatory courseware and manages an authorized channel of official training centers.



The Company develops certification exams that validate a level of knowledge
related to a set of skills or topics. The CIW program focuses on job-role certification for Web, networking and security technologies, while the CCNT program targets basic data communications, basic telecommunications and telephony. The exams are
published electronically through the testing provider network and cost the candidate between $65 and $175 in the United States. Entry-level certifications generally require a single exam, while professional-level certifications typically require
between three and seven exams. Our certification programs have received the support and endorsement of non-profit, widely recognized organizations that have important visibility and credibility among policy makers, academic institutions and
industry.



The Companys certification revenues primarily
consist of student testing fees (91 percent of fiscal year 2003 certification revenues) and fees paid by institutions for participation in the Companys authorized programs (9 percent of fiscal year 2003 certification revenues). The Company
believes it has certification growth potential due to the integration of certifications into academic curricula, the continuing shortage of ICT skills in todays workforce, and the increasing recognition of portable vendor-neutral job-role
certifications.



We also provide certification management
services to organizations and associations that want to develop and promote their own ICT certifications Through its successful creation and development of the CIW and CCNT certification programs, the Company proved its ability to develop
certifications, develop supporting content to provide education in support of those certifications, establish and develop proprietary distribution channels, implement testing delivery networks, build and implement certified faculty and instructor
programs, and drive content demand through certification success. As a result of these successes, the Company was chosen by the Telecommunications Industry Association (TIA) to develop, manage and serve as the official content provider
for the CTP certification program, which launched in July 2002.



CIW



Prosoft owns both the CIW certification
and the Official CIW Curriculum. With over 70,000 certifications earned by September 2003, the CIW program has become one of the largest programs among the more than 350 existing ICT certifications. The CIW certification covers job roles in network
administration, security, application development, programming, Web design and e-commerce. Candidates from more than 100 countries have earned a CIW certification.



The Company seeks to create more growth of CIW by promoting vendor-neutral job-role standards in workforce development and
academic communities. In the United States, CIW has received support and endorsement from the National Workforce Center for Emerging Technology, along with seven statewide educational agencies.



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Internationally, CIW has also received recognition or endorsement from governmental and
quasi-governmental organizations. As a result of PHKs active involvement in Australia, Hong Kong, Singapore, India, and China, numerous endorsements of CIW and CCNT have been received in those countries. The Master CIW Administrator track is
endorsed by the Hong Kong Computer Society and certified by the IT Training Quality and Certification Institute of Hong Kong. The CIW certification is accredited by Singapores National Infocomm Competency Centre and endorsed under the Critical
Infocomm Technology Resource Programme.



CCNT



In December 2000, Prosoft acquired Mastery Point Learning
Systems. Mastery Point developed the CCNT certification program under the direction of the TIA to serve the needs of telephone companies and network service providers. CCNT is a vendor-neutral credential program for the convergence technology
industry that validates an individuals knowledge of basic data communications, basic telecommunications and telephony. Convergence technology is the merging of voice, video and data on a single network, integrating telecommunications and
computer technologies. This six-test low-stakes program is supported by both classroom and Web-based e-learning courses. The Companys CCNT exams and curriculum are sponsored and endorsed by the TIA. In China, Beijing Telecom delivers CCNT
educational programs as part of its company-wide employee training program and is the master distributor of CCNT education and testing for all of China.



CTP



Prosoft released the first industry-sponsored convergence technology certification in July 2002. Prosoft started working with the TIA in 2001 to fulfill
its members need for a convergence certification for the customer-premise equipment side of the telecommunications industry. The CTP Certification Advisory Council was formed in January 2002 with representatives from Cisco, Avaya, IBM,
Siemens, Nortel, Mitel and First Communications to provide assistance in creating the CTP certification exam. Prosoft created Official CTP courseware and a CTP authorized training channel. Prosoft shares testing revenue from this program with the
TIA. To date, CTP has been endorsed by Cisco, Avaya, Nortel, Mitel, Inter-Tel and Iwatsu as either a prerequisite to those entities IP telephony certifications, product certifications, or dealer network certifications.



Services



The Company effectively exited the services business in fiscal year 2002, currently has no employees or investments in the
services business and does not anticipate any material services revenue in the future. This business was the primary source of revenue for the Company for the fiscal years 1998 through 2000. In fiscal year 2003, the Company earned residual services
revenue related to training instructors to teach CIW and providing CIW instruction to some corporate customers, primarily in Europe.



Customers



We serve four major
customer groups: commercial training centers, academic institutions, corporations and individuals.



Commercial Learning Centers.    In fiscal year 2003, 44 percent of the Companys content revenue came from
commercial learning centers. The commercial learning center channel is composed of companies that provide individuals and corporations short-format courses in a commercial setting. Course length in this channel ranges from one day to two weeks. The
primary customer of our channel partners is a corporation seeking specialized training on technical topics. This channel is highly fragmented, with the largest companies responsible for a small percentage of the total market. Large chains in this
channel are New Horizons, Learning Tree, and CompUSA. In fiscal year 2003 New Horizons and its franchisees accounted for nine percent of the Companys content revenue. No other company accounted for more than five percent of content revenue.



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Academic Institutions.    In fiscal year 2003, 33 percent of
the Companys content revenue came from academic institutions. The academic channel is composed of high schools, community colleges, technical and vocational schools and other degree-granting institutions. Course length in this channel is tied
to academic semesters or quarters. This channel also provides continuing education in a format that competes directly with commercial learning centers. The academic channel is highly fragmented and no customer in this channel accounted
for more than five percent of our content revenue in fiscal year 2003.



Corporations.    In fiscal year 2003, 21 percent of the Companys content revenue came from corporate customers. Internal training departments and corporate universities represent the
majority of customers in this channel. These customers typically purchase the same products as commercial learning centers. No customer in this channel accounted for more than five percent of content revenue in fiscal year 2003.



Individuals.    A small amount of
content revenue is generated from sales directly to individuals. These sales generally occur through our ComputerPREP.com Web site. In addition, virtually all certification exams are sold directly to individuals. Individuals register and pay for
exams through an authorized Prometric or VUE testing center. Individuals are not required to complete training courses or buy content prior to taking an exam.



Competition



Both the content and
certification business segments are highly competitive, and there currently are only minor economic barriers to entry into either business. We face competition from many other companies offering training and certification services and products,
including the internal training departments of corporations and publishing units of large corporations. Some of our competitors have access to greater resources and capital than are currently available to us. We compete in general ICT skills
courseware with Element K, Thomson Learning and Pearson LLC, each of which has one or more subsidiaries that sells courseware. The trade association CompTIA offers i-Net+, a certification that competes directly with our CIW Associate certification.
Trade associations such as the World Organization of Webmasters have released certification exams that compete with aspects of our certification programs. Individuals can and often do earn multiple certifications, and our certifications focus on the
job-skills rather than product-specific curricula offered by Microsoft, Cisco and other large vendors. However, these vendors have more resources to attract candidates to their programs than do we.



Sources of Revenue



We derive our
revenue primarily from two sources: content sales and certification testing.



Content Revenue.    Content revenue includes fees received from the sale of course materials such as books, CD-ROMs, Wed-based course books, assessment products and content licenses. We
recognize content revenue from the sale of course books and other products when they are shipped. License revenue is recognized over the period in which we have a commitment for continuing involvement or obligation to provide services to the
customer. In most cases, no such commitment exists, and revenue is recognized when content is shipped.



Certification Revenue.    Certification revenue includes fees paid by certification candidates to take our
certification tests and annual fees received from our education partners including CIW and CTP ATPs. We recognize certification revenue when certification tests are administered, and partner fees over the period during which we have a commitment for
continuing involvement or obligation to provide services to the partner.



The Company formally exited the services business in fiscal 2002, yet continues to earn some residual revenue in this business when it trains the instructors of learning center providers of companies that plan to
conduct courses internally. We recognize services revenue when instruction or consulting services are provided.



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Sales, Marketing and Customer Support



We sell and market our certification exams, content and integrated courses to students primarily through a channel of academic institutions and commercial learning centers. As of September 30, 2003, we had 24 people directly involved in
sales, marketing and customer support in the United States, Asia, and Europe. Our customer service organization in Phoenix, Arizona accepts, enters and reviews domestic and EMEA courseware orders. Because many of our customers need to make
last-minute adjustments or wait to order courseware until a few days before a class starts, our quick response capability is a competitive advantage.



Seasonality



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



Trademarks and Copyrights



Copyright laws protect most of our content. We have also received or filed for trademark and service mark registration for certain of our products, tag lines and feature names. We will continue to protect our trademarks and to seek
copyright registration for newly developed content, software products and any other material assets.



Employees



As of September 30,
2003, we employed 54 people worldwide.



Regulations



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



ITEM 2.    PROPERTIES



As of September 30, 2003, the Company had entered into leases for commercial space in the following locations:



|Location                |  | Square Footage |  | Monthly Cost |        | Lease Expiration
|----------------------- |  | -------------- |  | ------------ | ------ | ----------------
|Phoenix, Arizona        |  | 13,301         |  | $            | 26,846 |                 
|Eden Prairie, Minnesota |  | 7,040          |  | $            | 5,283  |                 
|Limerick, Ireland       |  | 1,900          |  | $            | 1,472  |                 



The Phoenix, Arizona
location is our headquarters which provides a location for executive and administrative offices and serves our content development activities, sales, content publishing, IT, certification and customer service purposes. The Limerick and Eden Prairie
facilities serve sales and customer service purposes.



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During fiscal year 2003, we determined to close our Santa Ana, California facility, which lease expired
July 31, 2003. We relocated our Human Resources and Content Development functions to our Phoenix, Arizona location.



We do not intend to renew the leased facility in Eden Prairie, Minnesota after February 2004.



ITEM 3.    LEGAL PROCEEDINGS



The Free Methodist Foundation and other related parties filed a complaint against the Company on March 11, 1999, alleging misrepresentations and failure to properly register stock sold to the Foundation. The
complaint was filed in state court in Jackson County, Michigan. The lawsuit was removed to the U.S. District Court for the Eastern District of Michigan. In September 2000, the federal court found that there was no basis for the plaintiffs to seek
damages and entered summary judgment in favor of Prosoft for all claims. The plaintiffs filed a motion for reconsideration, which was rejected by the court in October 2000. A notice of Appeal was filed in the Circuit Court of Appeals. The Circuit
Court affirmed the decision of the Trial Court finding no liability on the part of the Company.



From time to time, we may also be involved in litigation relating to claims arising out of our operations in the normal course of business. As of the date
of this report, we are not a party to any legal proceedings.



ITEM 4.    SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS



None.



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PART II



|ITEM 5. |  | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDERMATTERS
|------- |  | --------------------------------------------------------------------



The Companys
common stock currently trades on the NASDAQ SmallCap Market, under the trading symbol of POSO. Prior to October 8, 2002, the Companys common stock traded on the NASDAQ National Market. The following table sets forth for each
quarter during fiscal years 2003 and 2002 the high and low bid quotations for the common stock as reported by NASDAQ.



|Quarter                           |  | Low |     | High
|--------------------------------- |  | --- | --- | ----
|May 1, 2003July 31, 2003         |  | $   | .14 |     
|February 1, 2003April 30, 2003   |  | $   | .09 |     
|November 1, 2002January 31, 2003 |  | $   | .12 |     
|August 1, 2002October 31, 2002   |  | $   | .14 |     
|May 1, 2002July 31, 2002         |  | $   | .18 |     
|February 1, 2002April 30, 2002   |  | $   | .55 |     
|November 1, 2001January 31, 2002 |  | $   | .38 |     
|August 1, 2001October 31, 2001   |  | $   | .29 |     



On October 24, 2003,
the Company had approximately 3,600 stockholders of record.



To
date, no dividends have been declared or paid on any capital stock of the Company, and the Company does not anticipate paying any dividends in the foreseeable future.



|ITEM 6. |  | SELECTED FINANCIAL DATA
|------- |  | -----------------------



The selected
financial data set forth below should be read in conjunction with the consolidated financial statements and the notes thereto and other information contained elsewhere in this report.



|                                             |  | Year Ended July 31,                   |       
|-------------------------------------------- |  | ------------------------------------- | ------
|                                             |  | 2003                                  |       
|                                             |  | (In thousands, except per share data) |       
|Consolidated Statement of Operations Data:   |  |                                       |       
|Revenue                                      |  | $                                     | 12,020
|Income (loss) from operations                |  |                                       | (2,024
|Net income (loss)                            |  |                                       | (2,308
|Net income (loss) per share:                 |  |                                       |       
|Basic                                        |  |                                       | (.10  
|Diluted                                      |  |                                       | (.10  
|                                             |  |                                       |       
|Consolidated Balance Sheet Data at Year End: |  |                                       |       
|Total assets                                 |  | $                                     | 10,579
|Short-term debt                              |  |                                       | 54    
|Long-term debt                               |  |                                       | 3,032 
|Stockholders equity                         |  |                                       | 5,351 



|ITEM 7. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS
|------- |  | ------------------------------------------------------------------------------------



The following
discussion and analysis should be read in conjunction with our Audited Consolidated Financial Statements and related Notes thereto contained elsewhere in this Report. The information contained in this Annual Report on Form 10-K is not a complete
description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by



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us in this Report and in our other reports filed with the Securities and Exchange Commission, including our subsequent reports on Form 10-Q and 8-K, which
discuss our business in greater detail.



The section entitled
Additional Factors That May Affect Results of Operations and Market Price of Stock, set forth on page 14 in this Report, and similar discussions in our other SEC filings, discuss some of the important risk factors that may affect our
business, results of operations and financial condition. You should carefully consider those risks, in addition to the other information in this Report and in our other filings with the SEC, before deciding to purchase, hold or sell our common
stock.



All statements included or incorporated by reference in
this Report, other than statements or characterizations of historical fact, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, but are not
limited to, statements regarding future results, future financing needs, changes in business strategy, competitive advantages, market growth, future profitability, and factors affecting liquidity. Without limiting the foregoing, the words
believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements. These forward-looking statements represent the Companys judgment as of the date
of the filing of this Annual Report on Form 10-K. Our actual results could differ materially and adversely from those expressed in any forward-looking statement as a result of various factors, some of which are listed under the section
Additional Factors That May Affect Results of Operations and Market Price of Stock. The Company disclaims any intent or obligation to update any forward-looking statement for any reason.



Development of Business



ProsoftTraining was founded in 1995 as a proprietorship that delivered training in vocational and advanced technical
subjects. After completing a private placement of stock in March 1997, the Company embarked on a strategy to build a nationwide network of learning centers to teach technical skills for the emerging Internet market. Overhead costs associated with
the bricks-and-mortar network significantly outpaced revenues. In fiscal year 1999, the Company closed the learning center network and focused exclusively on selling its content and instructional services to the technology training
industry and building its proprietary certification programs. The demand for instruction services declined sharply from fiscal year 2000 to fiscal year 2002. At the end of fiscal year 2002, the Company reduced its full-time instructor base to zero
and effectively exited the services business. The Company has refocused its business on offering job-role certifications and proprietary content solutions to academic institutions and adult education providers.



Results of Operations



Revenues



Total revenues for 2003 decreased 33 percent compared with 2002, to $12.02 million. The decline in total revenues was driven by continued weakness in
corporate training budgets resulting in sharply reduced purchases of our courseware products by our learning center customers.



Total revenues for 2002 were $17.92 million, a decrease of 43 percent compared with 2001. The decline in total revenues was largely driven by declines in
corporate training budgets resulting in sharply reduced purchases for training products and services.



Content revenues in 2003 decreased by 31 percent, or $4.20 million, compared to 2002, and decreased 40 percent, or $8.97 million, for 2002 compared
with 2001. The decline in content revenues was driven by continued weakness in corporate training budgets resulting in sharply reduced purchases of our content products by our learning center customers.



Certification revenues in 2003 decreased by 33 percent to $2.60 million
compared to 2002, and increased 8 percent to $3.85 million for 2002 compared with 2001. Certification revenues consist of CIW, CTP and CCNT



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certification exam fees and annual fees received from CIW ATPs. The decrease in 2003 was related to continuing weakness in the technology training
sector.



Services revenue in 2003 decreased by 84 percent, or
$0.45 million, compared with 2002, and decreased 90 percent, or $4.80 million, for 2002 compared with 2001. The decrease in 2003 was the result of our exiting the services business during the fiscal year. The decrease in 2002 was attributable
to the economic slowdown, a reduction in corporate training activities and a decrease in demand for our non-CIW services business.



Cost of Revenues



Cost of revenues in 2003 decreased $4.86 million, or 51 percent, compared with 2002. As a percentage of revenue, gross profit, defined as total revenue
less costs of revenue, increased to 62 percent in 2003, from 47 percent in 2002. The decrease in cost of revenues was primarily due to the decrease in content and services revenues and cost reductions. The increase in gross profit percentage
was primarily due to substantial operating cost reductions achieved through a broad restructuring of our operations and our exit from the low-margin services business.



Cost of revenues in 2002 decreased $5.00 million, or 35 percent, compared with 2001. As a percentage of revenue, gross
profit decreased to 47 percent in 2002 from 54 percent in 2001. This decrease was primarily a result of lower revenue and a decrease in content selling prices resulting from competitive pressures and weakness in customer budgets.



Content Development



Content development expenses in 2003 decreased $0.69 million, or 32 percent,
when compared with 2002. Content development expenses in 2002 increased $0.08 million, or 4 percent, when compared with 2001. The 2003 dollar decrease was largely the result of lower personnel costs associated with the strategic reduction in
headcount implemented during the year. Content development expenses as a percentage of revenue was 12 percent in 2003 and 2002, and 7 percent in 2001. The increase in 2002 compared with 2001 was primarily due to lower revenues.



Sales and Marketing



Sales and marketing expenses decreased $2.95 million, or 46 percent, in 2003
as compared with 2002 and decreased $1.15 million, or 15 percent, in 2002 as compared with 2001. As a percent of revenue, sales and marketing expenses decreased 7 percentage points in 2003 as compared with 2002 and increased 11 percentage points in
2002 as compared with 2001. The dollar decrease in 2003 is attributable to lower sales commissions and personnel costs associated with cost reductions implemented during the year. The dollar decrease in 2002 is attributable to lower sales volume.



General and Administrative



General and administrative expenses decreased $1.56 million, or 28 percent,
in 2003 as compared with 2002. General and administrative expenses decreased $2.36 million, or 29 percent, in 2002 as compared with 2001. As a percent of revenue, general and administrative expenses increased 2 percentage points in 2003 as compared
with 2002 and increased 7 percentage points in 2002 as compared with 2001. The dollar decreases in 2003 and 2002 were primarily a result of ongoing workforce reductions and other cost reduction measures implemented throughout the period.



Depreciation and Amortization



Depreciation expense was $0.57 million, $0.79 million and $0.67 million for
the years ended July 31, 2003, 2002 and 2001, respectively. The decrease in 2003 when compared to 2002 was primarily due to the closing of the Austin, Texas office.



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Amortization expense associated with goodwill and other acquired intangibles was $0.26 million,
$2.35 million and $2.94 million for the years ended July 31, 2003, 2002 and 2001, respectively. The decrease in amortization expense for 2003 when compared to 2002 and 2001 was attributable to no amortization of goodwill due to the adoption of
SFAS No. 142 effective August 1, 2002.



Write-down of
Courseware and Licenses



During the third quarter of
fiscal year 2002, we recorded a $1.45 million loss for the write-down of courseware and licenses because the carrying value of the assets was no longer supported by estimated future cash flows. Of this amount, $0.98 million was associated with the
write-down of self-study courseware and $0.47 was associated with the write-down of a long-term license.



Impairment of Goodwill



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



Special (Credit) Charges



During fiscal year 2003, we recorded a $0.37 million special credit, which
had an approximate $.02 earnings per diluted share impact to our results. The 2003 credit resulted from the settlement of a $0.50 million liability for $0.13 million.



During fiscal year 2002, we recorded a $0.76 million special charge, which had an approximate $0.03 loss per diluted share
impact to our common stock. The charge resulted from a workforce reduction and consisted of severance and other employee-related costs of $0.73 million and other costs of $0.03 million.



During fiscal year 2001, we recorded a $0.66 million special charge, which had an approximate $.03 loss per diluted share
impact to our common stock. The 2001 charge related to our decision to disinvest in the instructor-led training services business and realign the sales structure. The charge consisted of employee severance and other employee-related costs of $0.23
million and fixed asset write-downs, leased facilities, equipment and other costs of $0.43 million. Headcount was reduced by approximately 25%.



Interest Income and Interest Expense



Interest income decreased $0.06 million in 2003 as compared with 2002 and decreased $0.34 million in 2002 as compared with 2001. The decreases were
attributable to lower average cash balances and lower interest rates. The lower average cash balances were primarily a result of operating losses.



Interest expense increased $0.06 million in 2003 as compared with 2002 and increased $0.19 million in 2002 as compared with 2001. Higher interest expense
for 2003 and 2002 is attributable to the issuance of a $2.50 million Subordinated Convertible Note in the first quarter of fiscal year 2002.



Income Tax (Expense) Benefit



There was no income tax expense or benefit in 2003. Income tax expense was $0.93 million in 2002 compared with income tax benefits of $0.40 million in
2001. During 2002, the Company increased its valuation



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allowance related to deferred income taxes due to operating losses and the then-current economic slowdown. Income tax benefits in 2001 resulted from a
decrease in the deferred tax asset valuation allowance, primarily the result of our analysis of realizing some portion of our future tax benefit of tax loss carryforwards and additional temporary differences.



Liquidity and Capital Resources



Net cash used in operating activities was $1.92 million in 2003 compared
with $3.71 million in 2002, a decrease of $1.80 million. The decrease in net cash used in operating activities was due to a lower net loss in 2003 compared with 2002, as adjusted for non-cash income and expenses, of $3.88 million, offset by a
$2.08 million net decrease in changes in operating assets and liabilities in 2003 compared with 2002.



Net cash used in operating activities was $3.71 million in 2002 compared with $3.39 million in 2001, an increase of $0.32 million. The increase in net
cash used in operating activities was primarily a result of a higher net loss in 2002 compared with 2001, as adjusted for non-cash income and expenses of $4.56 million, offset by a net increase in changes in operating assets and liabilities in 2002
compared to 2001 of $4.24 million.



Cash used in investing
activities, primarily consisting of capital expenditures and content and license purchases in 2003 and 2002, was $0.07 million in 2003, $0.59 million in 2002, and $6.16 million in 2001. The 2001 amount was related to acquisition activity and
substantial content and property purchases during that year.



Cash used in financing activities was $0.06 million in 2003, compared with cash provided from financing activities of $2.58 million in 2002. In 2002, we received $2.50 million from Hunt Capital Growth Fund II, L.P. (Hunt
Capital) pursuant to an issuance to Hunt Capital of a Subordinated Secured Convertible Note. The Note is secured by all of the assets of the Company, has a five-year term, carries a 10% coupon, and does not require any interest payments until
maturity. The Note is convertible into common stock of the Company at $0.795 per share.



We believe, based on current operations, that cash on hand will be sufficient to meet our cash requirements for at least the next 12 months. If future financing is required, will be arranged to meet our requirements
with the timing, amount and form of issue depending on the prevailing market and general economic conditions.



The following summarizes our contractual cash obligations as of July 31, 2003 (in millions):



|                                   |  | Payments Due By Fiscal Year
|---------------------------------- |  | ---------------------------
|                                   |  | 2004                       
|Long term debt                     |  | $                          
|Capital lease obligations          |  |                            
|Operating leases                   |  |                            
|                                   |  |                            
|Total contractual cash obligations |  | $                          
|                                   |  |                            



Critical Accounting Policies



Our critical accounting policies are as follows:



Revenue recognition



The Company derives revenue from two primary sources; content and
certification.



| |  |  | Content revenue includes fees received from the sale of course materials such as books, CD-ROMs, Wed-based course books, assessment products and content licenses.
We recognize content revenue from the sale of course books and other products when they are shipped. Content licenses are either
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | purchased on a fee-per-use basis or for a one-time fee. Revenue is recognized over the period in which we have a commitment for continuing involvement or
obligation to provide services to the customer. In most cases, no such commitment exists, and revenue is recognized when content is shipped.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Certification revenue includes fees paid by certification candidates to take our certification tests and annual fees received from our education partners, including CIW ATPs. We
recognize certification revenue when certification tests are administered, and partner fees over the period during which we have a commitment for continuing involvement or obligation to provide services to the partner.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Valuation of intangibles and long-lived assets



We assess the impairment of identifiable intangibles, long-lived assets and
related goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered important which could trigger an impairment review include the following:



| |  |  | Significant underperformance relative to expected historical or projected future operating results;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | Significant changes in the manner of our use of the acquired assets or strategy for our overall business;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | Significant negative industry or economic trends; and
| | - |  | -----------------------------------------------------



| |  |  | Our market capitalization relative to net book value.
| | - |  | -----------------------------------------------------



When it is determined that the carrying value of intangibles and long-lived assets may not be recoverable based upon the existence of one or more of the
above indicators of impairment, the measurement of any impairment is determined and the carrying value is reduced as appropriate. Goodwill is tested for impairment at least annually in accordance with the provisions of Statement of Accounting
Standard No. 142, Goodwill and Other Intangibles Assets.



Other
Matters



In June 2002, the Financial Accounting Standards
Board, or FASB, issued Statement of Financial Accounting Standard, or SFAS, No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This statement addresses financial accounting and reporting for costs associated with exit
or disposal activities and nullifies the guidance of the Emerging Issues Task Force, or EITF, Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in
a Restructuring.This statement requires that a liability for a cost associated associated with exit or disposal activity be recognized at the fair value when the liability is incurred. Our adoption of this statement on August 1, 2002, did not
have a material impact on our consolidated financial condition or results of operations.



In November 2002, the FASB issued Interpretation No. 45 (FIN 45), Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN
45 requires certain guarantees to be measured at fair value upon issuance and recorded as a liability. In addition, FIN 45 expands current disclosure requirements regarding guarantees issued by an entity, including tabular presentation of the
changes affecting an entitys aggregate product warranty liability. Certain provisions of FIN 45 are effective December 15, 2002; others are effective December 31, 2002. The adoption of FIN 45 had no impact on our consolidated financial
condition or results of operations.



In December 2002, the FASB
issued SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, an Amendment of SFAS Statement No. 123. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148 amends certain provisions of SFAS No. 123 to require that disclosures



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of the proforma effect of applying the fair value method of accounting for stock-based employee compensation be prominently displayed in an entitys
accounting policy in annual and interim financial statements. Certain of the disclosure modifications are required for fiscal years ending after December 15, 2002. The Company has made the required proforma disclosures.



In January 2003, the FASB issued FIN No. 46, Consolidation of Variable
Interest Entities (VIE). FIN No. 46 requires that if a company holds a controlling interest in a VIE, the assets, liabilities and results of the VIEs activities should be consolidated in the entitys financial
statements. We do not expect that the adoption of FIN No. 46 will have a material impact on our consolidated financial condition or results of operations.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003.
The adoption of this pronouncement had no impact on our consolidated financial condition or results of operations.



Additional Factors That May Affect Results of Operations and Market Price of Stock



This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than historical or current facts, including, without limitation, statements about our business strategy, plans and objectives of management and our future
prospects, are forward-looking statements. Although we believe that these statements are reasonable in view of the facts available to us, no assurance can be given that all of these statements will prove to be accurate. Numerous factors could have a
material effect upon whether these projections could be realized or whether these trends will continue. Among these factors are those set forth in the following section, as well as those discussed elsewhere herein.



FACTORS AFFECTING LIQUIDITY



We are operating with limited cash resources. Based on our current activity
and expectations we have sufficient cash resources for at least the next twelve months of operations. Though we are profitable currently, a moderate change to our revenue-generating capability or our expense structure could result in operating
losses. Losses, if any, would erode our liquidity by further reducing cash resources.



Should we need to raise additional funds, we cannot be certain that we will be able to obtain them on terms satisfactory to us. If we could not raise additional funds on terms satisfactory to us, we would be forced to
raise funds on terms that we would not otherwise accept or seek funds through other means such as the sale of some or all of our assets or operations.



The Companys Board of Directors engaged an investment banker in July 2002 to explore strategic options for the Company, including a sale of some or
all of its assets and operations. We were involved in a number of discussions as the result of this engagement, none of which led to a material transaction. Should we need to raise capital for liquidity purposes through the sale of some or all of
our assets or operation, there can be no assurances that any future discussions would result in an acceptable transaction.



POTENTIAL DELISTING FROM THE NASDAQ STOCK MARKET



On October 7, 2002, the trading of our Common Stock was transferred from the Nasdaq National Market System to the Nasdaq
SmallCap Market as a result of our failure to satisfy the minimum $1.00 bid price per share requirement set forth in the Nasdaq Market Place Rules. However, in order to remain on the Nasdaq SmallCap Market, the Company must satisfy the $1.00 bid
price requirement by having a closing bid price of our Common Stock of at least $1.00 for a minimum of ten consecutive days, which we have not done to date. On



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November 21, 2002, Nasdaq notified us that we had until May 19, 2003 to regain compliance with the bid price requirement. On March 11, 2003, the SEC
declared effective Nasdaqs rule which extended compliance periods by an additional 90 days for issuers meeting certain more stringent financial criteria. On May 20, 2003, Nasdaq notified us that we had qualified for the additional grace period
and therefore had until August 18, 2003 to regain compliance. On August 19, 2003, Nasdaq notified us that as a result of our failure to satisfy the bid price requirement at the expiration of the grace period, the Companys securities were
immediately subject to delisting. On August 25, 2003 the Company requested a hearing, which stayed the delisting. On October 21, 2003, Nasdaq notified the Company that it had granted the Company an exception to the $1.00 bid price requirement
through December 1, 2003, to allow for further developments in the SEC rule-making process regarding Nasdaqs proposal to the SEC for modifications to its bid price rules. Under the Nasdaq proposal to the SEC, the Company could be eligible for
an additional compliance period through no later than May 23, 2004. If we do not comply by December 1, 2003 and the SEC does not approve Nasdaqs proposal, Nasdaq has indicated it will provide us with written notification that our securities
will be delisted. If Nasdaq delists our Common Stock, then our Common Stock may be traded on the OTC Bulletin Board or the pink sheets. Many institutional and other investors refuse to invest in stocks that are traded at levels below the
Nasdaq Markets, which could reduce the trading liquidity in our Common Stock or make our effort to raise capital more difficult. OTC Bulletin Board and pink sheets stocks are often lightly traded or not traded at all on any given day.
Any reduction in trading liquidity or active interest on the part of the investors in our Common Stock could have adverse consequences on our stockholders, either because of reduced market prices or lack of a regular, active trading market for our
Common Stock.



POSSIBILITY OF FUTURE LOSSES



The Company has incurred net losses of approximately $99
million from inception through July 31, 2003. Though our operations are currently profitable, our ability to generate revenue growth in the future is subject to uncertainty. There can be no assurance that we will be able to increase revenues, manage
expenses, or maintain profitability. Should revenue decrease in the future, we may not be able to stem losses thereafter through expense reductions, given the magnitude of the reductions already implemented.



INTENSE COMPETITION IN TRAINING MARKET



We face substantial competition in the education and training market.
Competition in the ICT training market is intense and is affected by the rapidly evolving nature of the information technology industry. A number of other companies offer products and services similar to ours, and additional new competitors may
emerge in the future. Many of our existing competitors have substantially greater capital resources, technical expertise, marketing experience, research and development status, established customers and facilities than do we. As a result, there is a
risk that we will not be able to successfully compete with existing and future competitors, which would adversely affect our financial performance.



NEED TO RESPOND TO RAPID TECHNOLOGICAL CHANGES



In our industry, technology advances rapidly and industry standards change frequently. To remain competitive and improve profitability, we must
continually enhance our existing products and promptly introduce new products, services, and technologies to meet the changing demands of our customers. Our failure to respond to technological changes quickly would adversely affect our financial
performance.



VOLATILITY OF STOCK PRICE



Our Common Stock has experienced substantial price
volatility, which may continue in the future. Additionally, the stock market from time to time experiences significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These broad market
fluctuations may also adversely affect the market price of our Common Stock. In addition to such broad market fluctuations, factors



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such as, but not limited to, the following may have a significant effect on the market price of our Common Stock:



| |  |  | the delisting of our Common Stock from the Nasdaq SmallCap Market
| | - |  | -----------------------------------------------------------------



| |  |  | fluctuations in our operating results
| | - |  | -------------------------------------



| |  |  | the perception by others of our ability to obtain any necessary new financing
| | - |  | -----------------------------------------------------------------------------



| |  |  | a limited trading market for our Common Stock
| | - |  | ---------------------------------------------



| |  |  | announcements of new ventures or products and services by us or our competitors
| | - |  | -------------------------------------------------------------------------------



ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Market risk relating to our operations results primarily from changes in foreign currency exchange rates. A portion of our cash flows is expected to be
received in non-U.S. currencies. In addition, a portion of our assets is held in foreign subsidiaries. Accordingly, we are exposed to foreign currency fluctuations against the U.S. dollar. Such exposure is not significant relative to our overall
operations and we believe that the risk associated with our exposure will not have a material adverse impact on our consolidated results of operations.



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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



PROSOFTTRAINING AND SUBSIDIARIES



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES



|Report of Independent Certified Public Accountants                                               |  | 18
|------------------------------------------------------------------------------------------------ |  | --
|                                                                                                 | 
|Financial Statements of ProsoftTraining                                                          |  |   
|Consolidated Balance Sheets at July 31, 2003 and 2002                                            |  | 19
|Consolidated Statements of Operations for the years ended July 31, 2003, 2002 and 2001           |  | 20
|Consolidated Statement of Stockholders Equity for the years ended July 31, 2003, 2002 and 2001. |  | 21
|Consolidated Statements of Cash Flows for the years ended July 31, 2003, 2002 and 2001           |  | 22
|Notes to Consolidated Financial Statements                                                       |  | 23
|                                                                                                 | 
|Schedule                                                                                         |  |   
|Schedule IIValuation and Qualifying Accounts                                                    |  | 42



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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



The Board of Directors and Stockholders

ProsoftTraining



We have
audited the accompanying consolidated balance sheets of ProsoftTraining (a Nevada corporation) and subsidiaries as of July 31, 2003 and 2002, and the related consolidated statements of operations, stockholders equity and cash flows for each of
the three years in the period ended July 31, 2003. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ProsoftTraining and subsidiaries at July 31, 2003 and 2002 and the
consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended July 31, 2003, in conformity with accounting principles generally accepted in the United States of America.



We have also audited Schedule II of ProsoftTraining for each of the three
years in the period ended July 31, 2003. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein.



As discussed in Note 1 to the consolidated financial statements, the Company adopted Statement of Financial Accounting
Standard No. 142, Goodwill and Other Intangible Assets on August 1, 2002.



/s/    GRANT THORNTON LLP



Dallas, Texas

September 26, 2003



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PROSOFTTRAINING AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)



|                                                                                                                  |  | July 31, |        
|----------------------------------------------------------------------------------------------------------------- |  | -------- | -------
|                                                                                                                  |  | 2003     |        
|ASSETS                                                                                                            |  |          |        
|                                                                                                                  |  |         
|Current assets:                                                                                                   |  |          |        
|Cash and cash equivalents                                                                                         |  | $        | 1,567  
|Accounts receivable, less allowances of $494 and $478                                                             |  |          | 1,023  
|Prepaid expenses and other current assets                                                                         |  |          | 157    
|                                                                                                                  |  |          |        
|Total current assets                                                                                              |  |          | 2,747  
|                                                                                                                  |  |         
|Property and equipment, net                                                                                       |  |          | 483    
|Goodwill, net of accumulated amortization of $5,506                                                               |  |          | 6,745  
|Courseware and licenses, net of accumulated amortization of $2,499 and $2,243                                     |  |          | 604    
|                                                                                                                  |  |          |        
|Total assets                                                                                                      |  | $        | 10,579 
|                                                                                                                  |  |          |        
|                                                                                                                  |  |         
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                              |  |          |        
|                                                                                                                  |  |         
|Current liabilities:                                                                                              |  |          |        
|Accounts payable  trade                                                                                          |  | $        | 1,061  
|Accrued expenses                                                                                                  |  |          | 826    
|Current portion of capital lease obligations                                                                      |  |          | 54     
|Other                                                                                                             |  |          | 255    
|                                                                                                                  |  |          |        
|Total current liabilities                                                                                         |  |          | 2,196  
|                                                                                                                  |  |         
|Long term debt                                                                                                    |  |          | 2,968  
|Obligations under capital leases, net of current portion                                                          |  |          | 64     
|                                                                                                                  |  |          |        
|Total liabilities                                                                                                 |  |          | 5,228  
|                                                                                                                  |  |          |        
|                                                                                                                  |  |         
|Stockholders equity:                                                                                             |  |          |        
|Common shares, par value $.001 per share: authorized shares: 75,000,000; issued: 24,221,326 and 24,209,326 shares |  |          | 24     
|Additional paid-in capital                                                                                        |  |          | 104,422
|Accumulated deficit                                                                                               |  |          | (99,161
|Accumulated other comprehensive income                                                                            |  |          | 141    
|Less common stock in treasury, at cost: 11,912 shares                                                             |  |          | (75    
|                                                                                                                  |  |          |        
|Total stockholders equity                                                                                        |  |          | 5,351  
|                                                                                                                  |  |          |        
|Total liabilities and stockholders equity                                                                        |  | $        | 10,579 
|                                                                                                                  |  |          |        



The accompanying notes
are an integral part of these statements.



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PROSOFTTRAINING AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)



|                                      |  | Fiscal Years Ended July 31, |       
|------------------------------------- |  | --------------------------- | ------
|                                      |  | 2003                        |       
|Revenues:                             |  |                             |       
|Content                               |  | $                           | 9,339 
|Certification                         |  |                             | 2,596 
|Services                              |  |                             | 85    
|                                      |  |                             |       
|Total revenues                        |  |                             | 12,020
|                                      |  |                             |       
|Costs and expenses:                   |  |                             |       
|Cost of revenues                      |  |                             | 4,608 
|Content development                   |  |                             | 1,460 
|Sales and marketing                   |  |                             | 3,405 
|General and administrative            |  |                             | 4,110 
|Depreciation and amortization         |  |                             | 831   
|Write-down of courseware and licenses |  |                             |      
|Impairment of goodwill                |  |                             |      
|Special (credit) charge               |  |                             | (370  
|                                      |  |                             |       
|Total costs and expenses              |  |                             | 14,044
|                                      |  |                             |       
|Loss from operations                  |  |                             | (2,024
|Interest income                       |  |                             | 5     
|Interest expense                      |  |                             | (289  
|                                      |  |                             |       
|Loss before income taxes              |  |                             | (2,308
|Income tax (expense) benefit          |  |                             |      
|                                      |  |                             |       
|Net loss                              |  | $                           | (2,308
|                                      |  |                             |       
|                                      |  |                             |       
|Net loss per share:                   |  |                             |       
|Basic and diluted                     |  | $                           | (0.10 
|                                      |  |                             |       
|Weighted average shares outstanding:  |  |                             |       
|Basic and diluted                     |  |                             | 24,204
|                                      |  |                             |       



The accompanying notes
are an integral part of these statements.



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PROSOFTTRAINING AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(In thousands, except share data)



|                                                           |  | Common Stock |  | AdditionalPaid-In Capital |    | Treasury Stock |        |         | Accumulated Deficit |        |  | AccumulatedOtherComprehensiveIncome |     |   | Total |  
|---------------------------------------------------------- |  | ------------ |  | ------------------------- | -- | -------------- | ------ | ------- | ------------------- | ------ |  | ----------------------------------- | --- | - | ----- | -
|                                                           |  | Shares       |  | Amount                    |    |                | Shares |         | Amount              |        |  |                                     |    
|Balances at August 1, 2000                                 |  | 22,645,462   |  | $                         | 23 |                | $      | 100,562 |                     | 11,912 |  | $                                   | (75 | ) |       | $
|Net loss                                                   |  |             |  |                           |   |                |        |        |                     |       |  |                                     |    |   |       |  
|Foreign currency translation adjustment                    |  |             |  |                           |   |                |        |        |                     |       |  |                                     |    |   |       |  
|                                                           |  |              |  |                           |    |                |        |         |                     |        |  |                                     |     |   |       |  
|Total comprehensive loss                                   |  |             |  |                           |   |                |        |        |                     |       |  |                                     |    |   |       |  
|Issuance of common stock for employee stock purchase plan  |  | 28,342       |  |                           |   |                |        | 30      |                     |       |  |                                     |    |   |       |  
|Acquisition of business                                    |  | 164,496      |  |                           |   |                |        | 1,500   |                     |       |  |                                     |    |   |       |  
|Issuance of common stock for services                      |  | 20,401       |  |                           |   |                |        | 61      |                     |       |  |                                     |    |   |       |  
|Exercise of stock options, warrants and other transactions |  | 828,197      |  |                           | 1  |                |        | 1,863   |                     |       |  |                                     |    |   |       |  
|                                                           |  |              |  |                           |    |                |        |         |                     |        |  |                                     |     |   |       |  
|Balances at July 31, 2001                                  |  | 23,686,898   |  |                           | 24 |                |        | 104,016 |                     | 11,912 |  |                                     | (75 | ) |       |  
|Net loss                                                   |  |             |  |                           |   |                |        |        |                     |       |  |                                     |    |   |       |  
|Foreign currency translation adjustment                    |  |             |  |                           |   |                |        |        |                     |       |  |                                     |    |   |       |  
|                                                           |  |              |  |                           |    |                |        |         |                     |        |  |                                     |     |   |       |  
|Total comprehensive loss                                   |  |             |  |                           |   |                |        |        |                     |       |  |                                     |    |   |       |  
|Issuance of common stock for employee stock purchase plan  |  | 57,103       |  |                           |   |                |        | 34      |                     |       |  |                                     |    |   |       |  
|Issuance of common stock for services                      |  | 296,225      |  |                           |   |                |        | 187     |                     |       |  |                                     |    |   |       |  
|Exercise of stock options, warrants and other transactions |  | 169,100      |  |                           |   |                |        | 184     |                     |       |  |                                     |    |   |       |  
|                                                           |  |              |  |                           |    |                |        |         |                     |        |  |                                     |     |   |       |  
|Balances at July 31, 2002                                  |  | 24,209,326   |  |                           | 24 |                |        | 104,421 |                     | 11,912 |  |                                     | (75 | ) |       |  
|Net loss                                                   |  |             |  |                           |   |                |        |        |                     |       |  |                                     |    |   |       |  
|Foreign currency translation adjustment                    |  |             |  |                           |   |                |        |        |                     |       |  |                                     |    |   |       |  
|                                                           |  |              |  |                           |    |                |        |         |                     |        |  |                                     |     |   |       |  
|Total comprehensive loss                                   |  |             |  |                           |   |                |        |        |                     |       |  |                                     |    |   |       |  
|Issuance of common stock for employee stock purchase plan  |  | 12,000       |  |                           |   |                |        | 1       |                     |       |  |                                     |    |   |       |  
|                                                           |  |              |  |                           |    |                |        |         |                     |        |  |                                     |     |   |       |  
|Balances at July 31, 2003                                  |  | 24,221,326   |  | $                         | 24 |                | $      | 104,422 |                     | 11,912 |  | $                                   | (75 | ) |       | $
|                                                           |  |              |  |                           |    |                |        |         |                     |        |  |                                     |     |   |       |  



The accompanying notes
are an integral part of these statements.



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PROSOFTTRAINING AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                                      |  | Years Ended July 31, |       
|------------------------------------------------------------------------------------- |  | -------------------- | ------
|                                                                                      |  | 2003                 |       
|Operating Activities:                                                                 |  |                      |       
|Net loss                                                                              |  | $                    | (2,308
|Adjustments to reconcile net loss to cash provided by (used in) operating activities: |  |                      |       
|Depreciation and amortization                                                         |  |                      | 1,124 
|Gain on settlement of liability                                                       |  |                      | (370  
|Non-cash interest expense                                                             |  |                      | 270   
|Impairment of goodwill                                                                |  |                      |      
|Operating expenses paid in common stock                                               |  |                      |      
|Restructuring                                                                         |  |                      |      
|Disposition of property and equipment                                                 |  |                      | 113   
|Deferred income taxes                                                                 |  |                      |      
|Changes in operating assets and liabilities:                                          |  |                      |       
|Accounts receivable                                                                   |  |                      | 872   
|Prepaid expenses and other current assets                                             |  |                      | 439   
|Accounts payable                                                                      |  |                      | (1,214
|Accrued expenses                                                                      |  |                      | (954  
|Accrued restructuring costs                                                           |  |                      | 110   
|                                                                                      |  |                      |       
|Net cash used in operating activities                                                 |  |                      | (1,918
|Investing Activities:                                                                 |  |                      |       
|Acquisitions, net of cash acquired                                                    |  |                      |      
|Purchases of property and equipment                                                   |  |                      | (30   
|Courseware and license purchases                                                      |  |                      | (35   
|                                                                                      |  |                      |       
|Net cash used in investing activities                                                 |  |                      | (65   
|Financing Activities:                                                                 |  |                      |       
|Issuance of common stock                                                              |  |                      | 1     
|Issuance of long term debt                                                            |  |                      |      
|Principal payments on debt and capital leases                                         |  |                      | (58   
|Debt issuance costs                                                                   |  |                      |      
|Other                                                                                 |  |                      |      
|                                                                                      |  |                      |       
|Net cash (used in) provided by financing activities                                   |  |                      | (57   
|Effects of exchange rates on cash                                                     |  |                      | 81    
|                                                                                      |  |                      |       
|Net decrease in cash and cash equivalents                                             |  |                      | (1,959
|Cash and cash equivalents at beginning of year                                        |  |                      | 3,526 
|                                                                                      |  |                      |       
|Cash and cash equivalents at end of year                                              |  | $                    | 1,567 
|                                                                                      |  |                      |       
|Supplementary disclosure of cash paid during the year for:                            |  |                      |       
|Interest                                                                              |  | $                    | 20    
|                                                                                      |  |                      |       
|Income taxes                                                                          |  | $                    |      
|                                                                                      |  |                      |       
|Supplementary disclosure of non-cash investing financing activities:                  |  |                      |       
|Acquisition of business:                                                              |  |                      |       
|Assets acquired                                                                       |  | $                    |      
|Liabilities assumed                                                                   |  |                      |      
|Common stock issued                                                                   |  |                      |      
|                                                                                      |  |                      |       
|Net cash paid for acquisition                                                         |  | $                    |      
|                                                                                      |  |                      |       



The accompanying notes
are an integral part of these statements.



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##### Table of Contents

PROSOFTTRAINING AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share data)



1.    Summary of Significant Accounting Policies



Business



ProsoftTraining offers content and certifications for individuals to develop
and validate critical ICT workforce skills. Prosoft creates and distributes a complete library of classroom and e-learning courses. Prosoft distributes its content through its ComputerPREP division to individuals, schools, colleges, commercial
training centers and corporations worldwide. Prosoft owns the CIW and CCNT certification programs and manages the CTP certification for the Telecommunications Industry Association.



Consolidation



The financial statements include the accounts of the Company and its wholly owned subsidiaries ProsoftTraining Europe Limited and Prosoft Training Hong
Kong Limited. Inter-company transactions and balances are eliminated in consolidation.



Currency Translation, Comprehensive Loss and Accumulative Other Comprehensive Income



Assets and liabilities of foreign functional currency financial statements are translated into United States dollars at the exchange rate in effect at the
close of the period. Income statement amounts are translated at the average exchange rates during the period. The Company accumulates translation adjustments as a separate component of stockholders equity. The Companys accumulated other
comprehensive income consists entirely of cumulative translation adjustments of foreign currency. Comprehensive loss presented in the consolidated statements of stockholders equity consists of net losses and foreign currency translation
adjustments.



Cash Equivalents



The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.



Accounts Receivable



The Companys
accounts receivable are due from various individuals, colleges, commercial training centers and corporations worldwide. Credit is extended based on evaluation of the customers financial condition and collateral generally is not required.
Accounts receivable are generally due within 30 days and are stated at amounts due from customers net of an allowance for uncollectible accounts. Accounts outstanding longer than contractual payment terms are considered past due. The Company records
an allowance on a specific basis by considering a number of factors, including the length of time the trade accounts receivable are past due, the Companys previous loss history, the customers current ability to pay its obligation to the
Company, and the condition of the general economy and the industry as a whole. The Company writes-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited back to bad debt expense in
the period the payment is received.



Changes in the
Companys allowance for doubtful accounts for the years ended July 31, 2003 and 2002 are as follows:



|                     |  | July 31, |    
|-------------------- |  | -------- | ---
|                     |  | 2003     |    
|Beginning balance    |  | $        | 478
|Bad debt expense     |  |          | 93 
|Accounts written off |  |          | (77
|                     |  |          |    
|Ending balance       |  | $        | 494
|                     |  |          |    



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PROSOFTTRAINING AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share data)



Financial Instruments



The fair value of the Companys financial instruments, consisting of cash and cash equivalents and accounts receivable,
approximate their carrying values. The Company believes that the fair value of its long-term debt approximates the recorded amount.



Advertising Costs



The Company expenses the costs of advertising as incurred. Advertising expenses were $2, $59, and $107 in 2003, 2002 and 2001, respectively.



Property and Equipment



Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed on a straight-line basis over the estimated useful lives of the assets, generally two to seven years. Leasehold improvements are amortized over the shorter of the life of the lease or the improvement.



Goodwill and License Agreements



License agreements are those rights acquired from others through business
combinations to produce and distribute courseware and other publications. License agreements are amortized on a straight-line basis over a period of seven years, subject to impairment based on the carrying value exceeding fair value. Goodwill is not
amortized, but tested for impairment at least annually in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. The Company adopted SFAS No. 142 on August 1, 2002 and identified one reporting unit and discontinued goodwill
amortization at that time.



Valuation of Long-Lived
Assets



The Company evaluates the carrying value of
other long-lived assets whenever events or changes in circumstances indicate the carrying amount may not be fully recoverable. If the total of the expected future undiscounted cash flows is less than the carrying amount of the asset, a loss is
recognized based on the amount by which the carrying value exceeds the assets fair value.



Revenue Recognition



The Company derives revenue from two primary sources: content and certification. Content revenue is derived from the sale of course books and related
products or licenses for training materials. Content revenue is recognized from the sale of course books and other products when they are shipped. License revenue is recognized over the period in which there is a commitment for continuing
involvement or obligation to provide services to the customer. Certification revenue includes fees paid by certification candidates to take certification tests and annual fees received from education partners, including CIW ATPs. The Company
recognizes certification revenue when certification tests are administered and partner fees over the period during which there is a commitment for continuing involvement or obligation to provide services to the partner. Services revenue, if any,
includes instructor training and is recognized when the services are provided.



Stock-based Compensation



The Company has adopted only the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation, for employee stock options and continues to apply Accounting Board Opinion No. 25,



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PROSOFTTRAINING AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share data)



Accounting for Stock Issued to Employees, for recording stock options granted. Pro forma information regarding net loss and net loss per share is
required by SFAS 123 as if the Company had accounted for its stock-based awards to employees under the fair value method. The fair value of the Companys stock-based awards to employees was estimated using the Black-Scholes multiple option
pricing model.



The fair value of the Companys
stock-based awards to employees was estimated assuming no expected dividends and the following assumptions:



|                                |  | 2003    |  | 2002    |  | 2001   
|------------------------------- |  | ------- |  | ------- |  | -------
|Weighted average expected life  |  | 4 years |  | 4 years |  | 4 years
|Expected stock price volatility |  | 80%     |  | 124%    |  | 109%   
|Risk-free interest rate         |  | 3.9%    |  | 4.1%    |  | 5.4%   



For purpose of pro
forma disclosures, the estimated fair value of the options is amortized to expense over the options vesting period. The Companys pro forma information for the years ended July 31 is as follows:



|                                             |  | 2003 |        |   | 2002 |   |         | 2001 | 
|-------------------------------------------- |  | ---- | ------ | - | ---- | - | ------- | ---- | 
|Net loss  actual                            |  | $    | (2,308 | ) |      | $ | (42,459 | )    | 
|Net loss  pro forma                         |  | $    | (4,128 | ) |      | $ | (46,475 | )    | 
|Basic and diluted loss per share  actual    |  | $    | (.10   | ) |      | $ | (1.77   | )    | 
|Basic and diluted loss per share  pro forma |  | $    | (.17   | ) |      | $ | (1.94   | )    | 



The weighted average
fair value per share of options granted during the years ended July 31, 2003, 2002, and 2001 was $0.10, $0.68, and $3.53, respectively.



Use of Estimates



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



Income (Loss)
Per Share



The Company uses the weighted-average
number of common shares outstanding during each period to compute basic income (loss) per common share. Diluted income (loss) per share is computed using the weighted-average number of common shares outstanding plus the number of additional common
shares that would have been outstanding if dilutive potential common shares had been issued. In years 2003, 2002 and 2001, all potentially dilutive common shares were anti-dilutive.



Recent Accounting Pronouncements



In June 2002, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standard, or SFAS,
No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies the guidance of the Emerging Issues
Task Force, or EITF, Issue No. 94-3, Liability Recognition for



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PROSOFTTRAINING AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share data)



Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring. This statement
requires that a liability for a cost associated with exit or disposal activity be recognized at the fair value when the liability is incurred. Adoption of this statement on August 1, 2002 did not have a material impact on the Companys
consolidated financial condition or results of operations.



In
November 2002, the FASB issued Interpretation No. 45 (FIN 45), Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires certain guarantees to
be measured at fair value upon issuance and recorded as a liability. In addition, FIN 45 expands current disclosure requirements regarding guarantees issued by an entity, including tabular presentation of the changes affecting an entitys
aggregate product warranty liability. Certain provisions of FIN 45 were effective December 15, 2002; others were effective December 31, 2002. The adoption of FIN 45 had no impact on the Companys consolidated financial condition or results
of operations.



In December 2002, the FASB issued SFAS No. 148,
Accounting for Stock-Based Compensation-Transition and Disclosure, an Amendment of SFAS Statement No. 123. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS No. 148 amends certain provisions of SFAS No. 123 to require that disclosures of the proforma effect of applying the fair value method of accounting for stock-based employee compensation be
prominently displayed in an entitys accounting policy in annual and interim financial statements. Certain of the disclosure modifications are required for fiscal years ending after December 15, 2002. The Company has made the required proforma
disclosures.



In January 2003, the FASB issued FIN No. 46,
Consolidation of Variable Interest Entities (VIE). FIN No. 46 requires that if a company holds a controlling interest in a VIE, the assets, liabilities and results of the VIEs activities should be consolidated in the
entitys financial statements. Adoption of FIN No. 46 is not expected to have a material impact on the Companys consolidated financial condition or results of operations.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument
that is within its scope as a liability (or an asset in some circumstances). SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of this pronouncement is not expected to have any impact on the Companys consolidated financial condition or results of operations.



Reclassifications



Certain reclassifications were made to the prior years consolidated
financial statements to conform to the current year presentation.



2.    Liquidity



During
fiscal 2003, the Company reduced operating expenses in response to lower revenue. As a result of these actions, the Companys financial results have improved and its future liquidity position has been enhanced. The Company has pursued
additional measures since the end of fiscal year 2003 that are expected to result in improved cash flow from operations and which are not yet reflected in the current operating results. As a result, management believes that, based on current
operations, the Company has cash and equivalent resources to enable it to operate for at least the next 12 months.



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PROSOFTTRAINING AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share data)



3.    Special Charges



During 2002, the Company recorded a $762 restructuring charge primarily due to severance and other employee-related costs.



During 2001, the Company recorded a $664 restructuring charge
related to our decision to disinvest in the instructor-led training business and realign our sales structure.



A summary of the related accrued liabilities is shown below:



|                            |  | Severance and Other Related Employee Costs |      |   | LeasedFacilities and Other Costs |   |      | Total | 
|--------------------------- |  | ------------------------------------------ | ---- | - | -------------------------------- | - | ---- | ----- | 
|Restructuring Charge  2001 |  | $                                          | 229  |   |                                  | $ | 435  |       | 
|Settlements                 |  |                                            | (229 | ) |                                  |   | (321 | )     | 
|                            |  |                                            |      |   |                                  |   |      |       | 
|Balance July 31, 2001       |  |                                            |     |   |                                  |   | 114  |       | 
|                            |  |                                            |     
|Restructuring Charge  2002 |  |                                            | 729  |   |                                  |   | 33   |       | 
|Settlements                 |  |                                            | (729 | ) |                                  |   | (129 | )     | 
|                            |  |                                            |      |   |                                  |   |      |       | 
|Balance July 31, 2002       |  | $                                          |     |   |                                  |   | 18   |       | 
|                            |  |                                            |      |   |                                  |   |      |       | 
|Settlements                 |  |                                            |      |   |                                  |   | (18  | )     | 
|                            |  |                                            |      |   |                                  |   |      |       | 
|Balance July 31, 2003       |  |                                            |      |   |                                  | $ |     |       | 
|                            |  |                                            |      |   |                                  |   |      |       | 



4.    Valuation
of Long-Lived Assets



Long-lived assets, such as property
and equipment and content and licenses, are reviewed for impairment annually or when changes in circumstances indicate that the carrying value may not be recoverable.



Based on operations at April 30, 2002, projected undiscounted cash flow was below the carrying amounts of goodwill and
content and licenses. Accordingly, the Company wrote down those assets to estimated fair value in the quarter ended April 30, 2002. The $23,952 write-down consisted of $22,500 for goodwill and $1,452 for content and licenses.



At July 31, 2002, based on continued operating losses in the fourth quarter
of fiscal year 2002, the inability to increase revenues, projected operating losses in the first quarter of fiscal year 2003, indications of interest regarding a sale of some or all of the Companys assets and operations, and revised future
cash flow projections, the Company determined that the recorded value of goodwill was impaired. As a result, the Company recognized impairment losses of $7,800 related to goodwill.



5.    Acquisition



In December 2000, the Company acquired the assets of Mastery Point Learning Systems in exchange for $2,643 and 164,496 shares of the Companys common
stock. Shares issued in connection with this purchase were valued at $1,500. As a result of this acquisition, which was accounted for as a purchase, the Company recorded goodwill of $4,167. The operating results of the acquired business have been
included in the consolidated statements of operations from the date of acquisition.



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PROSOFTTRAINING AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share data)



6.    Property and Equipment



Property and equipment consists of the following:



|                                         |  | July 31,
|---------------------------------------- |  | --------
|                                         |  | 2003    
|Computer equipment and software          |  | $       
|Office equipment, furniture and fixtures |  |         
|                                         |  |         
|                                         |  |         
|Less accumulated depreciation            |  |         
|                                         |  |         
|Property and equipment, net              |  | $       
|                                         |  |         



7.    Licenses
and Goodwill



Intangible assets consist of the following:



|                                   |  | Average Life (Years) |                    | July 31, 2003 |                         | July 31, 2002
|---------------------------------- |  | -------------------- | ------------------ | ------------- | ----------------------- | -------------
|                                   |  |                      | GrossCarryingValue |               | AccumulatedAmortization |              
|Amortizable intangible assets:     |  |                      |                    |               |                         |              
|License Agreements                 |  | 7                    |                    | $             | 2,985                   |              
|Non-amortizable intangible assets: |  |                      |                    |               |                         |              
|Goodwill                           |  |                      |                    |               | 12,251                  |              
|                                   |  |                      |                    |               |                         |              
|Total intangibles                  |  |                      |                    | $             | 15,236                  |              
|                                   |  |                      |                    |               |                         |              



License agreements are
amortized using the straight-line method over their estimated useful lives. Goodwill is not amortized, but tested for impairment at least annually in accordance with the provisions of SFAS No. 142, Goodwill and Other Intangible Assets. The
Company adopted SFAS No. 142 on August 1, 2002.



The
accompanying consolidated statements of operations reflect amortization expense of $257, $2,352 and $2,737 for 2003, 2002 and 2001, respectively. Estimated amortization expense, assuming the current intangible asset balance and no new acquisitions,
for each of the years ending July 31, is as follows:



|July 31, |  | EstimatedAmortizationExpense
|-------- |  | ----------------------------
|2004     |  | $                           
|2005     |  |                             
|         |  |                             
|         |  | $                           
|         |  |                             



In contrast to
accounting standards in effect during 2002 and 2001, SFAS No. 142 provided that goodwill should not be amortized by the Company in 2003. The information presented below reflects adjustments to information reported in 2002 and 2001 as if SFAS No. 142
had been applied in those years.



|                                  |  | Year ended July 31, |       
|--------------------------------- |  | ------------------- | ------
|                                  |  | 2003                |       
|Reported net loss                 |  | $                   | (2,308
|Goodwill amortization             |  |                     |      
|                                  |  |                     |       
|Adjusted net loss                 |  | $                   | (2,308
|                                  |  |                     |       
|Basic and diluted loss per share: |  |                     |       
|Reported net loss                 |  | $                   | (0.10 
|Goodwill amortization             |  |                     |      
|                                  |  |                     |       
|Adjusted loss per share           |  | $                   | (0.10 
|                                  |  |                     |       



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PROSOFTTRAINING AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share data)



8.    Debt



In October 2001, the Company received $2,500 from Hunt Capital Growth Fund II, L.P. (Hunt Capital) pursuant to
the issuance to Hunt Capital of a Subordinated Secured Convertible Note (Note). The Note is secured by all of the assets of the Company, has a five-year term, carries a 10% coupon, and does not require any interest payments until
maturity. The Note is convertible into Common Stock of the Company at $0.795 per share. Hunt Capital may accelerate the maturity of the Note upon certain events, including a sale or change of control of the Company or an equity financing by the
Company in excess of $2,500. In addition, as further consideration for the investment, Hunt Capital received the right to certain payments upon a sale of the Company in a transaction whose value falls below $145,000. The potential payment is $1,000
unless the transaction value falls below $60,000 at which point the payment would grow on a pro-rata basis to $4,500 if the transaction value falls below $10,000.



The amount reflected for long-term debt on the accompanying consolidated balance sheet at July 31, 2003 is $2,968. This
amount represents the original principal amount of $2,500 and related accrued interest, which is payable at maturity, of $468.



9.    Stock Options and Warrants on Common Stock



Stock options



The Companys stock option plans provide for the granting of options to purchase shares of the Companys common stock to employees, officers,
directors and consultants. The plans include nonstatutory options and incentive stock options. Options generally vest over three to four years and expire no earlier than five years and no later than ten years after the date of grant. The plans
authorized the issuance of an aggregate of 7,080,500 shares of common stock. As of July 31, 2003, 1,820,673 options were available for grant under the plans.



Stock option transactions are as follows:



|                              |  | Shares     |   |  | Weighted AverageExercise Price
|----------------------------- |  | ---------- | - |  | ------------------------------
|Outstanding at August 1, 2000 |  | 2,187,354  |   |  | $                             
|Granted                       |  | 2,635,758  |   |  | $                             
|Exercised                     |  | (516,907   | ) |  | $                             
|Cancelled                     |  | (434,687   | ) |  | $                             
|                              |  |            |   |  |                               
|Outstanding at July 31, 2001  |  | 3,871,518  |   |  | $                             
|Granted                       |  | 935,500    |   |  | $                             
|Exercised                     |  | (169,100   | ) |  | $                             
|Cancelled                     |  | (651,808   | ) |  | $                             
|                              |  |            |   |  |                               
|Outstanding at July 31, 2002  |  | 3,986,110  |   |  | $                             
|Granted                       |  | 722,000    |   |  | $                             
|Exercised                     |  |           |   |  |                               
|Cancelled                     |  | (2,098,345 | ) |  | $                             
|                              |  |            |   |  |                               
|Outstanding at July 31, 2003  |  | 2,609,765  |   |  | $                             
|                              |  |            |   |  |                               
|Exercisable at July 31, 2001  |  | 1,214,544  |   |  | $                             
|                              |  |            |   |  |                               
|Exercisable at July 31, 2002  |  | 2,103,911  |   |  | $                             
|                              |  |            |   |  |                               
|Exercisable at July 31, 2003  |  | 1,715,114  |   |  | $                             
|                              |  |            |   |  |                               



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PROSOFTTRAINING AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share data)



The following table summarizes information concerning options outstanding and exercisable as of July
31, 2003:



|                         |  | Options Outstanding |  | Options Exercisable           
|------------------------ |  | ------------------- |  | ------------------------------
|Range of Exercise Prices |  | Number              |  | WeightedAverage Exercise Price
|$0.10$1.00              |  | 854,854             |  | $0.21                         
|$1.01$4.00              |  | 1,315,660           |  | $1.42                         
|$4.01$15.37             |  | 439,251             |  | $9.81                         



Warrants



Warrants to purchase shares of common stock is as
follows:



|                        |  | Warrants  |   |  | Exercise Price 
|----------------------- |  | --------- | - |  | ---------------
|Balance, August 1, 2000 |  | 1,710,826 |   |  | $.01 to $20.06 
|Issued                  |  | 17,083    |   |  | $1.25 to $10.13
|Exercised               |  | (225,150  | ) |  | $1.10 to $11.00
|Expired                 |  |          |   |  |                
|                        |  |           |   |  |                
|Balance, July 31, 2001  |  | 1,502,759 |   |  | $.01 to $20.06 
|Issued                  |  |          |   |  |                
|Exercised               |  |          |   |  |                
|Expired                 |  |          |   |  |                
|                        |  |           |   |  |                
|Balance, July 31, 2002  |  | 1,502,759 |   |  | $.01 to $20.06 
|Issued                  |  |          |   |  |                
|Exercised               |  |          |   |  |                
|Expired                 |  | (15,000   | ) |  | $11.00         
|                        |  |           |   |  |                
|Balance, July 31, 2003  |  | 1,487,759 |   |  | $.01 to $20.06 
|                        |  |           |   |  |                



10.    Benefit
Plan



The Company has established a 401(k) savings plan.
Participants include all employees who have completed three months of service and are at least 21 years of age. Employees can contribute up to 20% of compensation and the Company may at its option make discretionary contributions. Vesting on the
Companys contribution occurs over a three-year period. The Company made contributions of $72, $170 and $172 during 2003, 2002 and 2001, respectively.



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##### Table of Contents

PROSOFTTRAINING AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share data)



11.    Commitments



The Company leases certain facilities as well as computers, production and other office equipment under noncancellable lease
agreements. The Companys future minimum lease payments at July 31, 2003 under such agreements are as follows:



|                                                         |  | Capital Leases |     |   | Operating Leases
|-------------------------------------------------------- |  | -------------- | --- | - | ----------------
|2004                                                     |  | $              | 64  |   |                 
|2005                                                     |  |                | 58  |   |                 
|2006                                                     |  |                | 10  |   |                 
|                                                         |  |                |     |   |                 
|Future minimum lease payments                            |  |                | 132 |   |                 
|                                                         |  |                |     |   |                 
|Less amounts representing interest                       |  |                | (14 | ) |                 
|                                                         |  |                |     |   |                 
|Present value of minimum lease payments                  |  |                | 118 |   |                 
|Less current portion                                     |  |                | (54 | ) |                 
|                                                         |  |                |     |   |                 
|Obligations under capital leases, net of current portion |  | $              | 64  |   |                 
|                                                         |  |                |     |   |                 



Assets held under
capital leases are included in property and equipment and had a total cost of $351, and a net book value of zero, at July 31, 2003 and 2002.



Rent expense for the periods ended July 31, 2003, 2002 and 2001 totaled $710, $876 and $788, respectively.



12.    Income Taxes



A reconciliation of income tax (benefit) expense using the statutory federal
income tax rate of 34% is as follows:



|                                               |  | Year Ended July 31, |       
|---------------------------------------------- |  | ------------------- | ------
|                                               |  | 2003                |       
|Income tax expense (benefit) at statutory rate |  | $                   | (785  
|Amortization of non-deductible goodwill        |  |                     |      
|Write-off of goodwill                          |  |                     |      
|State income taxes, net of federal benefit     |  |                     | (83   
|Other                                          |  |                     | (1,196
|Increase in valuation allowance                |  |                     | 2,064 
|                                               |  |                     |       
|Deferred income tax expense (benefit)          |  | $                   |      
|                                               |  |                     |       



Included in
Other for 2003 are adjustments to prior years tax returns of approximately $3,400 ($1,150 after tax effect).



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PROSOFTTRAINING AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share data)



Deferred income taxes reflect the tax consequences on future years of differences between the tax
basis of assets and liabilities and their basis for financial reporting purposes. Deferred tax assets and liabilities are as follows:



|                                 |  | July 31, |        
|-------------------------------- |  | -------- | -------
|                                 |  | 2003     |        
|Net operating loss carryforwards |  | $        | 29,965 
|Accrued expenses                 |  |          | 92     
|Accounts receivable              |  |          | 188    
|Property and equipment           |  |          | 304    
|                                 |  |          |        
|                                 |  |          | 30,549 
|Intangible assets                |  |          | (873   
|                                 |  |          |        
|                                 |  |          | 29,676 
|Valuation allowance              |  |          | (29,676
|                                 |  |          |        
|Net deferred tax assets          |  | $        |       
|                                 |  |          |        



As a result of the
significant net losses incurred in fiscal 2003 and 2002, the Company recorded a valuation allowance to fully reserve its deferred tax asset.



At July 31, 2003, the Company had net operating loss carryforwards available to offset future federal taxable income of approximately $79,000. Such
carryforwards expire principally from 2011 to 2023. Federal net operating loss carryforwards of approximately $13,200 were generated from the exercise of employee stock options and any decrease in the valuation reserve related to these carryforwards
will be reflected in the financial statements as a credit to additional paid-in capital. In 2001, the Company recognized a tax benefit of $100 related to these carryforwards which was recorded directly to paid-in capital. Because of various equity
transactions completed by the Company, utilization of all net operating loss carryforwards for federal income tax reporting purposes created prior to those transactions will be subject to annual limitations under the change in ownership provisions
of the Tax Reform Act of 1986.



13.    Business Segments
and Foreign Operations



Information regarding foreign
operations follows:



|                  |  | Year Ended July 31,
|----------------- |  | -------------------
|                  |  | 2003               
|Net sales         |  | $                  
|United States     |  |                    
|Foreign           |  |                    
|                  |  |                    
|Long-lived assets |  | $                  
|United States     |  |                    
|Foreign           |  |                    



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PROSOFTTRAINING AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share data)



14.    Unaudited Quarterly Data



Summarized quarterly financial data for 2003 and 2002 follow:



|                                       |  | 1st Quarter |        |   | 2nd Quarter |   |        | 3rd Quarter |  |   | 4th Quarter |  
|-------------------------------------- |  | ----------- | ------ | - | ----------- | - | ------ | ----------- |  | - | ----------- | -
|Year ended July 31, 2003:              |  |             |        |   |             |   |        |             |  |   |             |  
|Revenues                               |  | $           | 3,720  |   |             | $ | 2,840  |             |  | $ | 2,696       |  
|Operating income (loss)                |  |             | (1,320 | ) |             |   | (1,368 | )           |  |   | 434         |  
|Net income (loss )                     |  |             | (1,386 | ) |             |   | (1,440 | )           |  |   | 361         |  
|Basic income (loss) per common share   |  |             | (.06   | ) |             |   | (.06   | )           |  |   | .01         |  
|Diluted income (loss) per common share |  |             | (.06   | ) |             |   | (.06   | )           |  |   | .01         |  
|Year ended July 31, 2002:              |  |             |        |   |             |   |        |             |  |   |             |  
|Revenues                               |  | $           | 4,603  |   |             | $ | 4,413  |             |  | $ | 4,566       |  
|Operating loss                         |  |             | (3,168 | ) |             |   | (2,144 | )           |  |   | (26,350     | )
|Net loss                               |  |             | (3,164 | ) |             |   | (2,195 | )           |  |   | (27,331     | )
|Basic loss per common share            |  |             | (.13   | ) |             |   | (.09   | )           |  |   | (1.13       | )
|Diluted loss per common share          |  |             | (.13   | ) |             |   | (.09   | )           |  |   | (1.13       | )



|ITEM 9. |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE
|------- |  | -----------------------------------------------------------------------------------



None.



|ITEM 9A. |  | CONTROLS AND PROCEDURES
|-------- |  | -----------------------



Based on an
evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Act of 1934, as amended) our Chief (principal) Executive Officer and Chief (principal) Financial Officer
has concluded that such controls and procedures were effective as of the end of the period covered by this report. In connection with such evaluation, no change in our internal control over financial reporting was identified that occurred during the
period covered by this report and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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PART III



ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



The following table sets forth certain information regarding all directors and executive officers of the Company:



|Name              |  | Age |  | Position                                                     
|----------------- |  | --- |  | -------------------------------------------------------------
|Robert G. Gwin    |  | 40  |  | Chairman, Chief Executive Officer and Chief Financial Officer
|J. William Fuller |  | 51  |  | Director                                                     
|Jeffrey G. Korn   |  | 46  |  | Director                                                     
|Charles McCusker  |  | 34  |  | Director                                                     
|Edward Walsh      |  | 63  |  | Director                                                     



Robert G.
Gwin.  Mr. Gwin has served as Chairman and Chief Executive Officer of the Company since December 2002. Mr. Gwin joined the Company in August 2000 as its Chief Financial Officer, was promoted to Executive Vice President and Chief
Financial Officer in October 2001 and became President in May 2002. Prior to joining the Company, Mr. Gwin served as Managing Director of Prudential Capital Group, an asset management unit of The Prudential Insurance Company of America. He joined
Prudential in 1990, ultimately assuming management of its Dallas-based private investment activities, including both day-to-day operating responsibility and investment portfolio oversight. Mr. Gwin graduated from the University of Southern
California with a BS in Business Administration in 1985, earned an MBA from the Fuqua School at Duke University in 1990 and is a Chartered Financial Analyst (CFA). Mr. Gwin is a Class I Director whose term expires in 2003.



J. William Fuller.  Mr. Fuller has served as a Director of
the Company since December 1998. Mr. Fuller is a Registered Investment Advisor and owner of Fuller Capital Management LLC, a money management firm founded in 1983. Mr. Fuller has been active in venture capital and private investment banking ventures
for the past 17 years. Additionally, he is a registered representative of Cambridge Investment Research, a registered broker dealer. Mr. Fuller graduated from Southern Methodist University with a BA in Philosophy in 1974. Mr. Fuller is a Class
I Director whose term expires in 2003.



Jeffrey G.
Korn.  Mr. Korn has served as a Director of the Company since June 1997. He is an attorney in private practice and a consultant. Mr. Korn was our General Counsel from May 2000 to October 2001. Prior to May 2003, he was a partner in the
law firm of Kosto & Rotella, P.A. in Jacksonville, Florida, which he joined in 1983. Mr. Korn specialized in corporate law and dispute resolution. He graduated from the State University of New York at New Paltz with a BA in Political Science in
1979, and received his JD degree from Stetson University in 1982. Mr. Korn is a Class II Director whose term expires in 2004.



Charles P. McCusker.  Mr. McCusker has served as a Director of the Company since December 1998. Currently, Mr. McCusker serves as General
Partner of Patriot Capital, a licensed SBIC, investing in small to mid-sized growth opportunities. Between 2001 and 2003, Mr. McCusker served as President and Chief Operating Officer of the ServiceMaster Home Service Center, a division of the
ServiceMaster Company (NYSE: SVM). Since 1997, Mr. McCusker served as General Partner for the ServiceMaster Venture Fund, responsible for investment opportunities in for-profit education and electronic commerce. Prior to that, Mr. McCusker spent
three years as a Vice President of Bengur Bryan & Co., Inc., a venture capital and private equity firm. Mr. McCusker graduated from Virginia Tech with a BS in Mechanical Engineering in 1992, and earned an MBA from the University of Chicago
in 1998. Mr. McCusker is a Class II Director whose term expires in 2004.



Dr. Edward M. Walsh.  Dr. Walsh has served as a Director of the Company since December 1999. Dr. Walsh is the chairman of the Irish Council for Science Technology and Innovation and
the chairman of the



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##### Table of Contents

National Allocation Advisory Group, an organization that advises government on industrial emissions allowances under the Kyoto Accord. He was founding
president of the University of Limerick, the first new university established by the Republic of Ireland, a post from which he stepped down in l998 after a 28-year term. Dr. Walsh is a graduate of the National University of Ireland and holds
Masters and Doctorate qualifications in nuclear and electrical engineering from Iowa State University, where he was an Associate of the US Atomic Energy Commission Laboratory. Mr. Walsh is a Class III Director whose term expires in 2005.



Audit Committee Composition



The Company has a separately-designated standing audit committee
established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the Exchange Act). J. William Fuller, Charles P. McCusker and Dr. Edward M. Walsh are members of our audit committee. Our Board of
Directors has determined that all members of our Audit Committee are independent as defined in Rule 4200(a)(14) of the National Association of Securities Dealers.



Audit Committee Financial Expert



Our Board of Directors has determined that in its judgment, Charles P. McCusker qualifies as an audit committee financial expert in
accordance with the applicable rules and regulations of the Securities and Exchange Commission (SEC). An audit committee financial expert is a person who has (1) an understanding of generally accepted accounting principles and financial
statements; (2) the ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves; (3) experience preparing, auditing, analyzing or evaluating financial statements that present a
breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrants financial statements, or experience actively supervising
one or more persons engaged in such activities; (4) an understanding of internal controls and procedures for financial reporting; and (5) an understanding of audit committee functions.



Section 16(a) Beneficial Ownership Reporting Compliance



Section 16 of the Exchange Act of 1934, as amended, requires Directors, officers, and holders of more than ten percent of a
registered class of the Companys equity securities (collectively, Reporting Persons) to file reports of their trading in our equity securities with the SEC. Based on a review of the Section 16 forms filed by the Reporting Persons
during the fiscal year ended July 31, 2003, we believe that the Reporting Persons timely complied with all applicable Section 16 filing requirements.



Code of Ethics



The Company has adopted a Code of Ethics (as defined in Item 406 of Regulation S-K) that applies to our Chief Executive Officer, Chief Financial
Officer and members of our Finance Department. The Code of Ethics is posted on our website, http://www.prosofttraining.com under the heading Code of Ethics. We intend to satisfy the disclosure requirements regarding any amendment
to, or a waiver of, a provision of the Code of Ethics by posting such information at the same location on our website.



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##### Table of Contents

ITEM 11.    EXECUTIVE COMPENSATION



Summary Compensation Table



The following
table sets forth a summary of the compensation paid by the Company during the fiscal years ended July 31, 2003, 2002 and 2001 to the Companys Chief Executive Officer and any other executive officers whose compensation exceeded $100,000.



|Name and Principal Position                                       |  | FiscalYear     |  | Salary($)               |  | Bonus($)        |  | Long-TermCompensation AwardsShares of CommonStock UnderlyingStock Options |  | All OtherCompensation($) (2)
|----------------------------------------------------------------- |  | -------------- |  | ----------------------- |  | --------------- |  | ------------------------------------------------------------------------- |  | ----------------------------
|Robert G. Gwin(1) Chairman, President and Chief
Executive Officer |  | 2003 2002 2001 |  | 184,039 163,798 175,000 |  | 58,800  49,000 |  | 200,000 200,000 385,000                                                   |  | 6,071 3,051 34,499          
|Jerrell M. Baird (1) Former Chairman and Chief Executive
Officer  |  | 2003 2002 2001 |  | 55,997 194,231 200,000  |  |  36,000 89,000 |  |  200,000 364,000                                                         |  | 50,076 4,550 6,647          

---

|(1) | Effective December 2002, Mr. Gwin was elected Chairman of the Board and Chief Executive Officer and Mr. Baird resigned as an officer of the Company. Mr. Gwin joined us in August
2000 as Chief Financial Officer.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | These amounts represent matching contributions made under our 401(k) retirement plan. For Mr. Gwin in fiscal year 2001, this amount also includes $30,000 for moving expense
reimbursements. For Mr. Baird in fiscal year 2003, this amount also includes $50,000 as a severance payment.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Option Grants Table



The following table sets forth information concerning options to purchase shares of our common stock granted to our named executive officers during the
fiscal year ended July 31, 2003.



|Executive Officer   |  | Shares of CommonStock UnderlyingStock Options |     |  | % Of TotalOptions Grantedto Employees inFiscal Year |   |  | Exercise PricePer Share (1) |      | ExpirationDate |         | Grant DatePresentValue (2)
|------------------- |  | --------------------------------------------- | --- |  | --------------------------------------------------- | - |  | --------------------------- | ---- | -------------- | ------- | --------------------------
|Robert G. Gwin      |  | 200,000                                       | (3) |  | 28                                                  | % |  | $                           | 0.16 |                | 1/15/11 |                           
|Jerrell M. Baird(4) |  |                                              |     |  |                                                    |   |  |                             |     |                |        |                           

---

|(1) | All options were granted at fair market value (the last price for the Companys Common Stock as reported by Nasdaq on the day previous to the date of grant).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | As suggested by the SECs rules on executive compensation disclosure, the Company used the Black-Scholes model of option valuation to determine grant date pre-tax present
value. The calculation is based on a five-year term and upon the following assumptions; annual dividend growth of zero percent, volatility of approximately 80%, and an interest rate of 3.9%. There can be no assurance that the amount reflected in
this column will be achieved.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | The options were granted under the ProsoftTraining 2000 Stock Option Plan for a term of no more than ten years, subject to earlier termination in certain events related to
termination of employment. 50,000 options vested on each of January 15, 2003, April 15, 2003, July 15, 2003 and October 15, 2003.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Mr. Baird resigned as Chairman and Chief Executive Officer of the Company effective December 9, 2002.
|--- | -----------------------------------------------------------------------------------------------------



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##### Table of Contents

Aggregated Options Exercised In Last Fiscal Year and Fiscal-End Option Values



The following table sets forth information concerning each exercise of stock
options during the fiscal year ended July 31, 2003 by each of the named executive officers and the fiscal year-end value of unexercised stock options held by such executive officer as of July 31, 2003.



|Name                |  | SharesAcquiredon Exercise |             | ValueRealized |               | Number of UnexercisedOptions at July 31, 2003 |             | Value of Unexercised In-the-Money Options at July 31, 2003(1)
|------------------- |  | ------------------------- | ----------- | ------------- | ------------- | --------------------------------------------- | ----------- | -------------------------------------------------------------
|                    |  |                           | Exercisable |               | Unexercisable |                                               | Exercisable |                                                              
|Robert G. Gwin      |  |                          |             |              |               | 428,811                                       |             | 356,189                                                      
|Jerrell M. Baird(2) |  |                          |             |              |               |                                              |             |                                                             

---

|(1) | Represents the difference between the fair value of the shares underlying such options at fiscal year-end ($0.441) and the exercise price of such options.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Mr. Baird resigned as Chairman and Chief Executive Officer of the Company effective December 9, 2002. All options have been returned to the Company.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------



Director Compensation



Effective June 2002, Directors, other than associates or officers of the Company, are compensated with a stock option grant
of 5,000 shares of the Companys common stock for each meeting attended, subject to a maximum of 15,000 stock options per calendar year. Directors, other than associates or officers of the Company, who serve as Chairman of a Board Committee are
entitled to an additional grant of 5,000 stock options of the Companys common stock per calendar year. Prior to June 2002, no compensation was provided to Directors. Directors are reimbursed for expenses incurred in connection with attendance
at Board and committee meetings. Directors who are officers or associates of the Company are not compensated separately for service on the Board of Directors.



Employment Agreement, Termination of Employment Agreement, and Change in Control Arrangement



On December 9, 2002, we entered into a separation agreement with Mr. Baird. The agreement provided for the resignation of
Mr. Baird as Chairman of the Board and Chief Executive Officer, effective December 9, 2002. The agreement also provided for a payment of $50,000 on March 1, 2003, in lieu of the severance payment Mr. Baird was entitled to receive under his
February 1, 2002 employment agreement. In addition, Mr. Baird returned all of his stock options to the Company.



On August 1, 2003, the Company entered into an employment agreement with Robert G. Gwin, its Chairman, President and Chief Executive Officer. Mr.
Gwins agreement terminates on July 31, 2005 and provides for an annual base salary of $200,000. Mr. Gwin is entitled to receive an annual bonus, as determined by the Company, of up to $190,000 pursuant to operating performance criteria being
achieved and the discretion of the Board of Directors. In the event of termination of Mr. Gwins employment for any reason other than gross negligence or malfeasance, the Company is obligated to pay $300,000, plus acceleration and immediate
vesting of all unvested options. The Company has agreed that if a change of control of the Company occurs where Mr. Gwin is not President and Chief Executive Officer of the ultimate parent company following the completion of the change of
control, then a payment shall be made to Mr. Gwin equal to $300,000. In addition, all of Mr. Gwins unvested options shall vest upon any change in control.



Compensation Committee Interlocks and Insider Trading Participation



The members of the Companys Compensation Committee during the fiscal year ended July 31, 2003 were Jeffrey G. Korn,
Charles P. McCusker, and J. William Fuller. Each member of the Compensation Committee during fiscal 2003 was a non-employee Director of the Company. Mr. Korn was an officer of the Company prior to October 2001.



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##### Table of Contents

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



The following table and the notes thereto set forth certain information regarding the beneficial ownership of our common stock as of November 21, 2003, by
(i) each current Director; (ii) each named executive officer named in the summary compensation table included herein; (iii) all of our current Directors and executive officer as a group; and (iv) each person who is known by us to be a beneficial
owner of five percent or more of our common stock.



|                                                                             |  | Shares Beneficially Owned | 
|---------------------------------------------------------------------------- |  | ------------------------- | 
|Name and Address of Beneficial Owner(1)                                      |  | Number(2)                 | 
|Hunt Capital Growth Fund II, L.P(3) 1601 Elm, Suite 4000 Dallas, Texas
75201 |  | 5,434,251                 | 
|                                                                             |  |                          
|Charles L. Grimes PO Box 136 Mendenhall, PA
19357                            |  | 2,000,000                 | 
|                                                                             |  |                          
|J. William Fuller(4)                                                         |  | 111,791                   | 
|Robert G. Gwin(5)                                                            |  | 551,731                   | 
|Jeffrey G. Korn(6)                                                           |  | 300,000                   | 
|Charles McCusker(7)                                                          |  | 96,250                    | 
|Dr. Edward Walsh(8)                                                          |  | 153,800                   | 
|Jerrell M. Baird(9)                                                          |  | 20,000                    | 
|All executive officers and Directors, as a group(10)                         |  | 1,213,572                 | 

---

|* | Less than 1% of the outstanding shares of common stock.
|- | -------------------------------------------------------

|(1) | The address for all officers and Directors is 410 North 44thStreet, Suite 600, Phoenix, Arizona 85008.
|--- | ------------------------------------------------------------------------------------------------------

|(2) | Unless otherwise indicated, the named persons possess sole voting and investment power with respect to the shares listed (except to the extent such authority is shared with spouses
under applicable law). The percentages are based upon 24,209,414 shares outstanding as of November 21, 2003, except for certain parties who hold options and warrants that are presently exercisable or exercisable within 60 days, the percentages are
based upon the sum of shares outstanding as of November 21, 2003 plus the number of shares subject to options and warrants that are presently exercisable or exercisable within 60 days held by them, as indicated in the following notes.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes 3,805,031 shares subject to conversion rights (see Certain Relationships and Related Transactions), and 350,000 shares subject to stock warrant agreements.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes 80,000 shares subject to stock options exercisable within 60 days, and 20,641 shares subject to stock warrant agreements.
|--- | ----------------------------------------------------------------------------------------------------------------------------------

|(5) | Includes 478,812 shares subject to stock options exercisable within 60 days.
|--- | ----------------------------------------------------------------------------

|(6) | Includes 245,000 shares subject to stock options exercisable within 60 days.
|--- | ----------------------------------------------------------------------------

|(7) | Includes 95,000 shares subject to stock options exercisable within 60 days.
|--- | ---------------------------------------------------------------------------

|(8) | Includes 95,000 shares subject to stock options exercisable within 60 days.
|--- | ---------------------------------------------------------------------------

|(9) | Includes 20,000 shares subject to stock warrants. Mr. Baird resigned as Chairman and Chief Executive Officer of the Company effective December 9, 2002.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) | Includes 993,811 shares subject to stock options exercisable within 60 days, and 20,641 shares subject to stock warrants.
|---- | -------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Equity Compensation Plan Information



The following table provides certain information as of July 31, 2003 with respect to the Companys equity compensation
plans under which equity securities of the Company are authorized for issuance.



|Plan Category                                                |  | Number of securities tobe issued upon exerciseof outstanding options,warrants and rights |  | Weighted averageexercise price ofoutstanding options,warrants and rights |      | Number of securitiesremaining availablefor future issuancesunder plan |          
|------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------ | ---- | --------------------------------------------------------------------- | ---------
|Equity compensation plans approved by security holders(1)    |  | 2,370,003                                                                                |  | $                                                                        | 2.73 |                                                                       | 1,796,861
|Equity compensation plan not approved by security holders(3) |  | 239,762                                                                                  |  | $                                                                        | 1.25 |                                                                       | 260,238  
|                                                             |  |                                                                                          |  |                                                                          |      |                                                                       |          
|Total                                                        |  | 2,609,765                                                                                |  |                                                                          |      |                                                                       | 2,057,099
|                                                             |  |                                                                                          |  |                                                                          |      |                                                                       |          

---

|(1) | These plans consist of the 1996 Stock Option Plan, the 2000 Stock Incentive Plan and the Employee Stock Purchase Plan.
|--- | ----------------------------------------------------------------------------------------------------------------------

|(2) | The number of shares reserved for issuance under the Employee Stock Purchase Plan (ESPP) may be increased on the first trading day of each calendar year by an amount
equal to one half percent (.5%) of the total number of shares of common stock outstanding on the last trading day of the preceding calendar year, but in no event will any annual increase exceed 150,000 shares. As of July 31, 2003, 236,426 shares are
reserved for issuance under the ESPP.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | This plan consists of the 2001 Stock Option Plan and was adopted by the Board of Director in July 2001. Under the 2001 Stock Option Plan, the number of shares of common stock that
may be optioned and sold is 500,000 shares. The plan is administered by the Companys Board of Directors, which determines when and to whom options will be granted and, subject to the terms of the Plan, the exercise price, vesting schedule,
expiration date and other terms of each such grant. All of the Companys employees, other than Officers and Directors, and consultants are eligible to receive option grants under the Plan. Options granted under the Plan have an exercise price
equal to fair market value on the date previous to the date of grant and may not have a term in excess of ten years.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



The Company has entered into an employment agreement with its executive officer and a separation agreement with its former Chief Executive Officer, as
described in Item 11. Executive CompensationEmployment Agreement, Termination of Employment Agreement, and Change in Control Arrangement.



In October 2001, the Company received $2,500,000 from Hunt Capital Growth Fund II, L.P. (Hunt Capital) pursuant to the issuance to Hunt
Capital of a Subordinated Secured Convertible Note. At that time, Hunt Capital owned greater than five percent of the Companys outstanding Common Stock. J.R. Holland, Jr., a Director of the Company at that time, is President and Chief
Executive Officer of Unity Hunt, Inc., Chairman of the Unity Hunt Investment Committee, and the President and CEO of Hunt Capital Group, LLC. The Note is secured by all of the assets of the Company, has a five-year term, carries a 10 percent coupon,
and does not require any interest payments until maturity. The Note is convertible into common stock of the Company at $0.795. Hunt Capital may accelerate the maturity of the Note upon certain events, including a sale or change of control of the
Company or an equity financing by the company in excess of $2,500,000. In addition, as further consideration for the investment, Hunt Capital received the right to certain payments upon a sale of the Company in a transaction whose value falls below
$145,000,000. The potential payment is $1,000,000 unless the transaction value falls below $60,000,000 at which point the payment would grow on a pro-rata basis to $4,500,000 if the transaction value falls below $10,000,000.



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The Company believes that the foregoing transaction was in its best interests. As a matter of policy,
this transaction was and all future transactions between the Company and its officers, directors, principal shareholders or their affiliates will be, approved by a majority of the independent and disinterested members of the Board of Directors, on
terms no less favorable than could be obtained from unaffiliated third parties and in connection with bona fide business purposes of the Company.



ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES



Pursuant to SEC Release No. 33-8183 (as corrected by Release No. 33-8183A0, the disclosure requirements of this Item 14 are not effective until the filing
of the Companys Annual report on Form 10-K for its first fiscal year ending after December 15, 2003.



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PART IV



|ITEM 15. |  | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES AND REPORTS ONFORM 8-K.
|-------- |  | ------------------------------------------------------------------



| | a. | The following documents are filed as part of this report.
| | -- | ---------------------------------------------------------



| | 1. | Consolidated Financial Statements
| | -- | ---------------------------------



See Index to Consolidated Financial Statements Item 8.



| | 2. | Exhibits
| | -- | --------



See Exhibit Index.



| | b. | Reports on Form 8-K.
| | -- | --------------------



A Current Report on Form 8-K dated May 16, 2003, was filed with the Securities and Exchange Commission announcing the Companys financial results for
its third quarter ended April 30, 2003.



A Current Report on
Form 8-K dated August 21, 2003, was filed with the Securities and Exchange Commission announcing that the Company had received a Nasdaq Staff Determination on August 19, 2003, indicating that its common stock did not qualify for continued listing on
The Nasdaq SmallCap Market because the minimum bid price for Prosofts common stock remained below $1.00 and that the Company will request a hearing before a Nasdaq Listing Qualification Panel to review the Staff Determination.



A Current Report on Form 8-K dated October 28, 2003, was filed with the
Securities and Exchange Commission announcing the Companys financial results for its fourth quarter and fiscal year ended July 31, 2003. The Company also disclosed that a Nasdaq Listing Qualifications Panel has granted ProsoftTraining an
exception to the $1.00 minimum bid price requirement to allow for further developments in the U.S. Securities and Exchange Commission rule-making process. The exception extends through December 1, 2003.



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PROSOFTTRAINING AND SUBSIDIARIES



SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS

(In thousands)



|                                 |  | Balance atbeginning of year |       | Charged to costs andexpenses |   | Deductionswrite-offs, net of recoveries |  |   | Balance at end of year
|-------------------------------- |  | --------------------------- | ----- | ---------------------------- | - | --------------------------------------- |  | - | ----------------------
|Allowance for doubtful accounts: |  |                             |       |                              |   |                                         |  |   |                       
|Year ended July 31, 2003         |  | $                           | 478   |                              | $ | 93                                      |  | $ | (77                   
|Year ended July 31, 2002         |  | $                           | 1,003 |                              | $ | 295                                     |  | $ | (820                  
|Year ended July 31, 2001         |  | $                           | 251   |                              | $ | 99                                      |  | $ | (47                   



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SIGNATURES



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



PROSOFTTRAININGBy:

/s/    ROBERT G. GWINRobert G. Gwin Chairman of the Board and Chief Executive Officer




By:

/s/    WILLIAM J. WERONICKWilliam J. Weronick Vice President, Finance




Dated: November 24, 2003



Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on November 24, 2003.



|Name                                          |  | Title                                                                                                                                    
|--------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|                                              | 
|/s/    ROBERT G. GWINRobert G. Gwin           |  | Chairman of the Board and Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal
Financial Officer)
|                                              | 
|/s/    WILLIAM J. WERONICKWilliam J. Weronick |  | Vice President, Finance (Principal Accounting Officer)                                                                                   
|                                              | 
|/s/    EDWARD M. WALSHEdward Walsh            |  | Director                                                                                                                                 
|                                              | 
|/s/    JEFFREY G. KORNJeffrey G. Korn         |  | Director                                                                                                                                 
|                                              | 
|/s/    J. WILLIAM FULLERJ. William Fuller     |  | Director                                                                                                                                 
|                                              | 
|/s/    CHARLES P. MCCUSKERCharles McCusker    |  | Director                                                                                                                                 



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EXHIBIT INDEX



|Exhibit No. |  | Description of Exhibit                                                                                                                                                                                                                                                                                                              
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            | 
|2           |  | Agreement and Plan of Reorganization dated March 26, 1996 between the Company, Pro-Soft Development Corp. and the
shareholders of Pro-Soft Development Corp. Filed as Exhibit 2 to the Companys Registration Statement on Form S-1 (No. 333-11247) (Registration Statement No. 333-11247) and incorporated herein by reference.  
|            | 
|3.1         |  | Restated Articles of Incorporation of the Company, as amended. Filed as Exhibit 3.1 to Registration Statement No.
333-76984 and incorporated herein by reference.                                                                                                                                                                   
|            | 
|3.2         |  | Amended and Restated Bylaws of the Company. Filed as Exhibit 3.2 to Registration Statement No. 333-11247 and
incorporated herein by reference.                                                                                                                                                                                      
|            | 
|4.1         |  | Specimen Stock Certificate. Filed as Exhibit 4 to Registration Statement No. 333-11247 and incorporated herein by
reference.                                                                                                                                                                                                        
|            | 
|4.2         |  | Rights Agreement dated June 27, 2001, between the Company and Interwest Transfer Company, Inc., which includes the
form of Right Certificate as Exhibit A and the Summary of Rights as Exhibit B. Filed as Exhibit 4.1 to the Companys Current Report on Form 8-K dated June 28, 2001 and incorporated herein by reference.        
|            | 
|10.1        |  | Pro-Soft Development Corp. 1996 Stock Option Plan. Filed as Exhibit 10.1 to Registration Statement
No. 333-11247 and incorporated herein by reference.                                                                                                                                                                              
|            | 
|10.2        |  | Prosoft I-Net Solutions, Inc. Amended 1996 Stock Option Plan. Filed as Exhibit 10.2 to Registration Statement No.
333-35249 and incorporated herein by reference.                                                                                                                                                                   
|            | 
|10.3        |  | Form of Indemnification Agreement between the Company and its Directors and Officers. Filed as Exhibit 10.13
to Registration Statement No. 333-11247 and incorporated herein by reference.                                                                                                                                          
|            | 
|10.4        |  | Registration Rights Agreement dated as of December 2, 1998 among the Company and various investors. Filed as
Exhibit 10.20 to Registration Statement No. 333-35249 and incorporated herein by reference.                                                                                                                            
|            | 
|10.5        |  | Accounts Receivable Purchase Agreement dated as of November 6, 1998 by and between the Company and Silicon Valley
Financial Services (a division of Silicon Valley Bank). Filed as Exhibit 10.4 to the Companys Quarterly Report on Form 10-Q for the quarterly period ended January 31, 1999 and incorporated herein by reference.
|            | 
|10.6        |  | Employment Agreement dated February 1, 2002 between the Company and Jerrell M. Baird. Filed as Exhibit 10.1 to the
Companys Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2002 and incorporated herein by reference.                                                                                      
|            | 
|10.7        |  | Securities Purchase Agreement dated November 22, 1999 among the Company and Hunt Capital Growth Fund, II L.P. Filed
as Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1999 and incorporated herein by reference.                                                            
|            | 
|10.8        |  | Registration Rights Agreement dated November 22, 1999 among the Company and Hunt Capital Growth Fund, II L.P. Filed
as Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1999 and incorporated herein by reference.                                                            
|            | 
|10.9        |  | Warrant Agreement dated November 22, 1999 among the Company and Hunt Capital Growth Fund, II L.P. Filed as
Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q for the quarterly period ended October 31, 1999 and incorporated herein by reference.                                                                        
|            | 
|10.10       |  | Stock Purchase Agreement dated June 27, 2000 by and among the Company, Drake Personnel (New Zealand) Limited and
ComputerPREP, Inc. Filed as Exhibit 2.1 to the Companys Current Report on Form 8-K dated June 27, 2000 and incorporated herein by reference.                                                                      



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|10.11 |  | Registration Rights Agreement dated June 27, 2000 by and among the Company and Drake Personnel (New Zealand)
Limited. Filed as Exhibit 10.1 to the Companys Current Report on Form 8-K dated June 27, 2000 and incorporated herein by reference.             
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.12 |  | Common Stock Purchase Warrant dated June 27, 2000 to purchase 300,000 shares issued to Drake. Filed as Exhibit 10.2
to the Companys Current Report on Form 8-K dated June 27, 2000 and incorporated herein by reference.                                     
|      | 
|10.13 |  | Common Stock Purchase Warrant dated June 27, 2000 to purchase 300,000 shares issued to Drake. Filed as Exhibit 10.3
to the Companys Current Report on Form 8-K dated June 27, 2000 and incorporated herein by reference.                                     
|      | 
|10.14 |  | Securities Purchase Agreement dated June 27, 2000 by and among the Company and various investors. Filed as Exhibit
10.4 to the Companys Current Report on Form 8-K dated June 27, 2000 and incorporated herein by reference.                                 
|      | 
|10.15 |  | Registration Rights Agreement dated June 27, 2000 by and among the Company and various investors. Filed as Exhibit
10.5 to the Companys Current Report on Form 8-K dated June 27, 2000 and incorporated herein by reference.                                 
|      | 
|10.16 |  | Employment Agreement dated August 1, 2003 between the Company and Robert G. Gwin.*                                                                                                                                                                            
|      | 
|10.17 |  | Prosofttraining.com 2000 Stock Incentive Plan. Filed as Exhibit 99.1 to the Companys Registration Statement
on Form S-8 (333-51360) and incorporated herein by reference.                                                                                    
|      | 
|10.18 |  | Prosofttraining.com 2000 Employee Stock Purchase Plan. Filed as Exhibit 99.2 to the Companys Registration
Statement on Form S-8 (333-51360) and incorporated herein by reference.                                                                            
|      | 
|10.19 |  | Subordinated Secured Convertible Note dated October 16, 2001 among the Company and Hunt Capital Growth Fund II,
L.P. Filed as Exhibit 10.1 to the Companys Current Report on Form 8-K dated October 16, 2001 and incorporated herein by reference.           
|      | 
|10.20 |  | Security Agreement dated October 16, 2001 among the Company and Hunt Capital Growth Fund II, L.P. Filed as Exhibit
10.2 to the Companys Current Report on Form 8-K dated October 16, 2001 and incorporated herein by reference.                              
|      | 
|10.21 |  | Securities Purchase Agreement dated October 16, 2001 among the Company and Hunt Capital Growth Fund II, L.P. Filed
as Exhibit 10.3 to the Companys Current Report on Form 8-K dated October 16, 2001 and incorporated herein by reference.                   
|      | 
|10.22 |  | Rights Agreement dated October 16, 2001 among the Company and Hunt Capital Growth Fund II, L.P. Filed as Exhibit
10.4 to the Companys Current Report on Form 8-K dated October 16, 2001 and incorporated herein by reference.                                
|      | 
|10.23 |  | First Amendment to Registration Rights Agreement dated October 16, 2001 among the Company and Hunt Capital Growth
Fund II, L.P. Filed as Exhibit 10.5 to the Companys Current Report on Form 8-K dated October 16, 2001 and incorporated herein by reference.
|      | 
|10.24 |  | First Amendment to Securities Purchase Agreement dated October 16, 2001 among the Company and Hunt Capital Growth
Fund II, L.P. Filed as Exhibit 10.6 to the Companys Current Report on Form 8-K dated October 16, 2001 and incorporated herein by reference.
|      | 
|10.25 |  | Separation Agreement dated October 16, 2001, between the Company and David I. Perl. Filed as Exhibit 10.7 to the
Companys Current Report on Form 8-K dated October 16, 2001 and incorporated herein by reference.                                            
|      | 
|10.26 |  | Separation Agreement dated October 16, 2001, between the Company and Jeffrey G. Korn. Filed as Exhibit 10.8 to the
Companys Current Report on Form 8-K dated October 16, 2001 and incorporated herein by reference.                                          



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|10.27 |  | Separation Agreement dated December 9, 2002, between the Company and Jerrell M. Baird. Filed as Exhibit 10.1 to the
Companys Quarterly Report on Form 10-Q dated October 31, 2002 and incorporated herein by reference.                                    
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.28 |  | Amendment to Securities Purchase Agreement dated December 21, 2001 among the Company and Hunt Capital Growth Fund
II, L.P. Filed as Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q dated January 31, 2002 and incorporated herein by reference.
|      | 
|21    |  | Subsidiaries of the Company. Filed as Exhibit 21 to the Companys Annual Report on Form 10-K dated
October 22, 2001 and incorporated herein by reference.                                                                                                   
|      | 
|23    |  | Consent of Grant Thornton LLP, Independent Certified Public Accountants.*                                                                                                                                                                                   
|      | 
|31    |  | Section 302 Certification                                                                                                                                                                                                                                   
|      | 
|32    |  | Section 1350 Certification                                                                                                                                                                                                                                  

---

|* | Previously filed.
|- | -----------------



46