PROSOFT I NET SOLUTIONS INC, S-1/A, 1997-06-30

PROSOFT I NET SOLUTIONS INC
S-1/A, 1997-06-30
EDUCATIONAL SERVICES

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As filed with the Securities and Exchange Commission on June 30, 1997

Registration No. 333-28993

================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________

AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
____________________

PROSOFT I-NET SOLUTIONS, INC.
(Exact Name of Registrant as Specified in Its Charter)

2333 NORTH BROADWAY, SUITE 300
SANTA ANA, CALIFORNIA 92706
(714) 953-1200
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Executive Offices)

NEVADA 8243 87-0448639
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification No.)
Incorporation or
Organization)

KEITH D. FREADHOFF
CHIEF EXECUTIVE OFFICER
PROSOFT I-NET SOLUTIONS, INC.
2333 NORTH BROADWAY, SUITE 300
SANTA ANA, CALIFORNIA 92706
(714) 953-1200
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
____________________

COPY TO:
WILLIAM L. TWOMEY
HEWITT & MCGUIRE, LLP
19900 MACARTHUR BOULEVARD, SUITE 1050
IRVINE, CALIFORNIA 92612
____________________

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
____________________

If only the securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]

If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]

If this Form is filed to register additional securities for an Offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same Offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same Offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

Pursuant to Rule 429 of the Securities Act of 1933, the Prospectus contained
herein is a combined Prospectus relating to securities registered hereby and
under Registration Statement No. 333-11247.

Additional shares of Common Stock to be sold by stockholders (including shares
issuable upon exercise of outstanding Common Stock purchase warrants), have
been registered under an earlier Registration Statement on Form S-1 (File No.
333-11247) which was initially declared effective by the Securities and Exchange
Commission on November 27, 1996, and which is being amended by filing of this
Registration Statement pursuant to Rule 429. Accordingly, both Registration
Statements use the Prospectus that is a part of this Registration Statement.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT
TO SAID SECTION 8(a), MAY DETERMINE.

================================================================================
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PROSPECTUS

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

PROSOFT I-NET SOLUTIONS, INC.
3,418,589 Shares of Common Stock
324,140 Shares of Common Stock Issuable Upon Exercise
of Common Stock Purchase Warrants

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

This Prospectus relates to 3,742,729 Shares of Common Stock (the "Shares") of
Prosoft I-Net Solutions, Inc. (the "Company"), including 3,418,589 currently
outstanding Shares and 324,140 Shares issuable upon exercise of currently
outstanding common stock purchase warrants (the "Warrants"). The Shares may be
offered and sold from time to time by and for the account of one or more of the
stockholders (the "Selling Stockholders") of the Company identified under the
caption "Selling Stockholders." The Company will receive no part of the
proceeds of such sales, with the exception of the exercise price of such
Warrants as may be exercised. The Company will bear all of the expenses
incurred in connection with the registration of the Shares. Holders of
2,432,315 of the Shares have agreed to limit the number of Shares they may sell
during any one-month period under the Prospectus, unless they obtain the written
consent of the Company.

The Shares offered by this Prospectus may be sold from time to time by the
Selling Stockholders. The distribution of the Shares offered hereby may be
effected in one or more transactions that may take place in the over-the-counter
market, including ordinary brokers' transactions, privately negotiated
transactions or through sales to one or more dealers for resale of such Shares
as principals, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. Usual and
customary or specifically negotiated brokerage fees or commissions may be paid
by the Selling Stockholders.

The Selling Stockholders and intermediaries through whom such Shares are sold
may be deemed "underwriters" within the meaning of the Securities Act of 1933,
as amended (the "Securities Act"), with respect to the Shares offered, and any
profits realized or commission received may be deemed underwriting compensation.
The Company has agreed to indemnify the Selling Stockholders against certain
liabilities, including liabilities under the Securities Act.

The Company's Common Stock is currently traded on the NASDAQ SmallCap Market
under the symbol "POSO". On June 26, 1997, the closing bid price for the
Company's Common Stock was $7.00 per share. See "Price Range of Common Stock
and Dividend Policy."

____________________

THESE SHARES INVOLVE A HIGH DEGREE OF RISK AND SHOULD NOT BE PURCHASED BY
INVESTORS WHO CANNOT AFFORD TO LOSE THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS"
COMMENCING ON PAGE 5 OF THIS PROSPECTUS.

____________________

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

____________________

The Company intends to furnish its stockholders annual reports containing
audited consolidated financial statements with a report thereon by independent
accountants, and such other periodic reports as the Company may determine to be
appropriate or as required by law.

____________________

The date of this Prospectus is July 2, 1997.

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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. Unless otherwise indicated,
references to "Company" or "Prosoft" are to the consolidated operations of
Prosoft I-Net Solutions, Inc. and its wholly-owned subsidiary, Pro-Soft
Development Corp. This Prospectus contains certain forward-looking statements
and intentions. The cautionary statements made in this Prospectus should be read
as being applicable to all related forward-looking statements wherever they
appear in this Prospectus. The Company's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include those discussed under "Risk Factors," as well as those
discussed elsewhere herein.

THE COMPANY

The Company is engaged in the business of training individuals in small,
medium and large organizations in Internet and Intranet technologies, with a
current emphasis on Netscape- and Microsoft-based Internet/Intranet products and
solutions. In addition, Prosoft is a certified Microsoft Authorized Technical
Education Center ("ATEC"), a certified Private Post Secondary Institution in the
State of California, and an approved recipient of Job Training Partnership Act
(the "JTPA") funding, the last of which enables the Company to recruit, train
and hire its own advanced technology instructor staff. Prosoft also develops
proprietary Internet/Intranet courseware and offers more than 35 customized, on-
line, hands-on and instructor-led Internet/Intranet-related courses for end-
users, system engineers and developers. While for the period from December 8,
1995 to April 30, 1997, approximately 56% of the Company's revenues were
generated from JTPA funded vocational training, the Company expects a
significant majority of its revenues in the future will come from the delivery
of commercial Internet/Intranet training to the employees of organizations
ranging from Fortune 1000 corporations to small entrepreneurial enterprises
throughout the United States.

The Company believes that the market for Internet and Intranet training is
substantial. The Internet is the world's largest network of computer networks,
and one which grows everyday. Companies are also beginning to develop private
internal networking systems called Intranets, which use the infrastructure,
standards and many of the technologies of the Internet and the World Wide Web,
but are cordoned off and protected from the public through software technologies
known as "fire walls." Companies are developing Intranets in order to improve
internal communications, facilitate employee training and motivation, and to
reduce the need for paper-based materials such as operational and procedural
manuals, internal phone books, requisition forms, and other items that must be
updated frequently. Intranets can integrate all of the computers within an
organization, including software and databases, into a unified system that
allows employees to quickly access and utilize information.

Prosoft's Internet/Intranet instruction is made available through Company
operated Internet/Intranet Training and Resource Centers ("Training Centers") as
well as through on-site tailored training for large organizations. Each Prosoft
student who takes an Internet or Intranet class is taught using a personal
computer that is connected to the Internet. As of June 1, 1997, the Company had
opened 28 Training Centers in 17 states. The Company plans to continue to
expand the number of Training Centers across the country, with the goal of
creating a nationwide network of Training Centers that will make Prosoft a
primary choice for Fortune 1000 corporations and other smaller firms that
require unified, quality Internet and Intranet training. The Company also
offers tailored on-site training, usually for larger organizations with a
significant number of trainees. Because Prosoft's typical customer is expected
to be a medium or large organization with offices in different geographic
locations, the Company believes that effective Internet and Intranet training
must be available at many locations throughout the country and must be
consistently delivered so that all members of the organization have a common
understanding of the uses and applicability of the technologies being taught.
As such, Prosoft believes that the development of a nationwide network of
Prosoft Training Centers is essential to the delivery of quality
Internet/Intranet instruction.

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Prosoft has offered and will continue to offer a significant number of courses
relating to Microsoft products. In addition, the Company will continue to
attempt to develop strategic alliances with local training affiliates under its
Affiliate Program and with software manufacturers. Because of these strategic
alliances and the Company's broad categorical expertise in Internet and Intranet
training ranging from the most advanced system engineering to end-user training,
Prosoft believes that it is well-positioned to sell its training to small,
medium and large corporations and other organizations. As a result of the
Company's approach to Internet/Intranet training, which features highly-trained
instructors, course materials designed by the Company's internal courseware
department, live T-1 lines connected to the Internet, individual computers for
each student and rigorous pre- and post-testing of students, the Company
believes it can offer among the highest quality, consistent Internet curriculum
in the industry. In addition, because of the short curriculum development cycle
that the Company maintains, it can quickly create new course offerings to
support new and emerging technologies. Internet/Intranet software offerings and
technology will continue to evolve and training related to such software and
technology will need to keep pace. Technology trends indicate that end-user
interfaces are and will become more intuitive and user-friendly while system
engineering and solution development required to support these simple interfaces
will become increasingly complex. Because Prosoft addresses the full range of
Internet and Intranet technology training, the Company believes it is well
positioned to pursue and deliver on the expanding advanced Internet technology
training opportunities.

In June 1996, Prosoft created a division to develop and publish Internet,
Intranet and distant learning courseware and curriculum, which Prosoft uses in
its Internet/Intranet classes. The Company has several proprietary courseware
projects under development that support Microsoft, Netscape and Sun Microsystems
Internet/Intranet technologies.

The business of the Company was initially operated as a sole proprietorship
(the "Proprietorship") beginning in February 1995. 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 a reorganization (the "Reorganization")
with Old ProSoft and the Old ProSoft shareholders, whereby (i) the Old ProSoft
shareholders received shares of Common Stock of the Company in exchange for
their shares of Old ProSoft, (ii) the Company changed its name to ProSoft
Development, Inc., and (iii) Old ProSoft became a wholly-owned subsidiary of the
Company. The Company changed its name to Prosoft I-Net Solutions, Inc. in
October 1996. The Company was incorporated in Nevada in March 1985 as Tel-Fed,
Inc. From its incorporation until the Reorganization, the Company had no
significant operations.

Under applicable accounting rules, for financial statement purposes, the
Reorganization is required to be accounted for as an acquisition of the Company
by Old ProSoft, with the additional shares held by the Company's prior
shareholders reflected as a recapitalization of Old ProSoft. As a result, the
consolidated financial statements included in this Prospectus for the Company
reflect, for the period prior to the Reorganization, the operations of Old
ProSoft. Financial statements of the Proprietorship are also included herein.
The Company's executive offices are located at 2333 North Broadway, Suite 300,
Santa Ana, California 92706 and its telephone number is (714) 953-1200.

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THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the
Selling Stockholders.............. 3,742,729 shares(1)
Common Stock to be outstanding
after this Offering............... 10,302,557 shares(1)(2)
Use of Proceeds.................... Other than the exercise price of such of
the Warrants as may be exercised, none of
the proceeds from the sale of shares by the
Selling Stockholders will be received by
the Company. The gross proceeds to the
Company in the event that all of the
Warrants are exercised would be
approximately $2,284,271. Any proceeds
received by the Company will be utilized
for working capital and general corporate
purposes.
NASDAQ SmallCap Symbol............ POSO
</TABLE>
____________________

(1) Includes 324,140 shares issuable upon exercise of the Warrants.
(2) Does not include 1,821,558 shares reserved for issuance upon the exercise
of outstanding stock options and warrants, other than the Warrants.

4
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RISK FACTORS

INVESTMENT IN THE COMPANY INVOLVES A HIGH DEGREE OF RISK AND THE SECURITIES
OFFERED HEREBY SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD TO LOSE
THEIR ENTIRE INVESTMENT. IN ADDITION TO THE OTHER FACTORS SET FORTH IN THIS
PROSPECTUS, PROSPECTIVE INVESTORS SHOULD CAREFULLY EVALUATE THE FOLLOWING RISK
FACTORS BEFORE MAKING AN INVESTMENT DECISION.

EXTREMELY LIMITED OPERATING HISTORY AND EXPECTATION OF CONTINUING SIGNIFICANT
LOSSES

The Company has an extremely limited operating history, which makes it
difficult to predict future operating results. Although the Company was formed
in 1985, from its incorporation until its acquisition of Old ProSoft in March
1996, it had no significant operations. The business of the Company was only
begun in February 1995 where it was run as the Proprietorship until its
acquisition by Old ProSoft in January 1996. The first Training Center was not
opened until late 1995 and the Company has only opened 28 Training Centers to
date. As a result, there is little financial information concerning the business
of the Company of the type commonly used by investors to evaluate a potential
investment. In addition, certain aspects of the Company's business are
relatively new and have not yet been fully tested in the marketplace. The
Company incurred a net loss of $3,074,123 from December 8, 1995 through July 31,
1996. For the nine months ended April 30, 1997, the Company incurred a net loss
of $14,063,392 and expects to continue to incur losses on a quarterly basis
through at least the second quarter of fiscal 1998. The Company has achieved
only limited revenues to date, with revenues of $77,477 for the period from
February 1, 1995 to December 31, 1995 and $2,439,678 for the period from
December 8, 1995 to April 30, 1997. The Company's ability to generate
significant revenues in the future is subject to uncertainty, particularly with
respect to the Internet/Intranet training on which it intends to focus. There
can be no assurances that the Company will be able to address any of those
challenges, that its activities will be successful or that meaningful revenues
or profits will result from these activities.

POTENTIAL FLUCTUATIONS IN OPERATING RESULTS

As a result of the Company's extremely limited operating history as well as
the very recent emergence of the market addressed by the Company, the Company
has neither internal nor industry-based historical financial data for any
significant period of time upon which to base planned operating revenues and
expenses. The Company has incurred significant net losses to date and expects to
continue to incur losses on a quarterly basis through at least the second
quarter of fiscal 1998. For the period from December 8, 1995 to July 31, 1996,
the Company had a net loss of $3,074,123 and negative cash flow from operations
of $3,043,328. In addition, the Company had a net loss of $14,063,392 and
negative cash flow from operations of $11,238,383 for the nine months ended
April 30, 1997. The Company expects to increase its operating expenses to fund
the planned expansion of its network of Training Centers. To the extent these
increased expenses precede or are not subsequently and timely followed by
increased revenues, the Company's business, results of operation and financial
condition will be materially adversely affected. The Company expects to be
subject to some seasonal fluctuations in its operating results, with revenues in
November and December expected to be lower because of decreased enrollment in
its classes due to holidays. However, the Company is unable to predict the
extent of such seasonal fluctuations with certainty due to its limited operating
history.

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UNCERTAINTY OF RAPIDLY EVOLVING MARKET

While a majority of the Company's limited revenues to date have been
generated from JTPA vocational training, the Company expects a significant
majority of its revenues in the future will come from the delivery of commercial
Internet/Intranet training to the employees of organizations ranging from
Fortune 1000 corporations to small entrepreneurial enterprises throughout the
United States. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Development of Business." The market for these
Internet/Intranet products and services has only recently begun to develop and
is rapidly evolving. The Company and its prospects must be considered in light
of the risks, costs and difficulties frequently encountered by companies in
their early stage of development, particularly companies in the new and rapidly
evolving Internet market. In order to be successful, the Company must, among
other things, continue to attract, retain and motivate qualified training
personnel, successfully implement its Internet/Intranet training programs, open
a substantial number of new Training Centers, respond to competitive
developments and successfully expand its internal infrastructure, particularly
sales, marketing and administrative personnel and its accounting system. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources." Moreover, due to the intense
competition in the emerging markets addressed by the Company, the Company must
seek to expand all aspects of its business rapidly, which increases the
challenges facing the Company, making it more difficult for the Company to
recover from business errors.

RISK OF INABILITY TO MANAGE RAPID GROWTH AND ATTRACT QUALIFIED PERSONNEL

The Company is currently experiencing a period of rapid growth that has
placed, and could continue to place, a significant strain on the Company's
financial, management and other resources. The Company's ability to manage its
growth effectively will require it to continue to improve its operational,
financial and management information systems, and to attract, train, motivate,
manage and retain key employees. In particular, the Company's planned expansion
of Training Centers places significant pressure on the Company to attract, train
and retain qualified instructors for its Training Centers. Historically, the
Company has had a 10:1 student to instructor ratio but with the shift from
vocational to commercial business, the Company believes this ratio should
increase to approximately 12-1. In order to locate new instructors, the Company
is advertising in local and national markets via electronic services (including
its own Web site and other sites that offer job postings), newspapers and trade
publications. Additionally, the Company has engaged a recruiter who specializes
in technical recruiting. The Company's performance is also dependent upon a
number of other factors, including its ability to identify qualified affiliates
who will provide space for its Training Centers and its ability to locate
acceptable commercial space to lease for its Training Centers. Although the
Company has recently raised approximately $27 million from private placements of
its stock, its future success will be dependent upon its ability to generate
revenues and profits and, if necessary, additional financing to fund continued
growth. See "Future Capital Requirements and Uncertainty of Future Funding."
There can be no assurance that management of the Company will be able to
effectively manage the expansion of the Company's operations or achieve the
rapid execution necessary to fully exploit any potential market opportunity for
the Company's products and services. If the Company's management becomes unable
to manage growth effectively, the Company's business, operating results and
financial condition could be materially adversely affected.

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FUTURE CAPITAL REQUIREMENTS AND UNCERTAINTY OF FUTURE FUNDING

Since inception, the Company has been dependent on outside financing to
fund its growth. The Company recently raised approximately $27 million from the
private placement of 2,489,922 shares of Common Stock. The Company anticipates
that the proceeds from these offerings will be sufficient to meet its needs for
working capital expenditures for at least the next 12 months, including the
planned expansion of Training Centers. However, the Company's long-term capital
requirements will be dependent on numerous factors, including the rate at which
new Training Centers are opened, the profitability of existing Training Centers
and the acquisition and/or development of additional training tools. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."

NEED TO RESPOND TO RAPID TECHNOLOGICAL CHANGE

The market for the Company's products and services is characterized by
rapid technological change, changing customer needs, frequent new product
introductions and evolving industry standards. These market characteristics are
exacerbated by the emerging nature of the Internet market and the fact that many
companies are expected to introduce new Internet products and services in the
near future. The Company's future success will depend in significant part on
its ability to continually and on a timely basis introduce new products,
services and technologies and to continue to improve the Company's products and
services in response to both evolving demands of the marketplace and competitive
product offerings.

RELIANCE ON CURRENT MANAGEMENT

The Company is highly dependent upon the efforts of its officers who are
and will continue to be instrumental in the development of the Company's
business concept and the management of the Company's business. See
"MANAGEMENT." The loss of services of any one or more members of current
management could have a material adverse effect on the Company. The Company
currently does not have employment contracts with any of its employees,
including management.

DEPENDENCE ON STRATEGIC AFFILIATES

The Company has focused and expects to continue to focus on the development
of strategic relationships with key strategic affiliates such as Microsoft,
Netscape and other Internet and Intranet software developers. The Company's
success will depend in part on the success of those strategic affiliates and the
Company's ability to establish successful strategic relationships with other
entities. Although the Company has entered into informal arrangements with
several key strategic affiliates, the Company has not entered into any long-term
agreements with any such affiliates and no assurances can be given that such
relationships will be maintained. See "BUSINESS -- Strategic Alliances."

HIGHLY COMPETITIVE MARKET

The higher education market is highly competitive. The Company is subject
to intense competition from a large number of public and private companies
providing training, many of which are older, larger and have greater financial
and personnel resources than the Company. In addition, the market for Internet
products and services has only recently begun to develop, is rapidly evolving
and is characterized by an increasing number of market entrants with competing
products and services. See

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"Need to Respond to Rapid Technological Change." There can be no assurance that
the Company will be able to compete successfully against its current or future
competitors or that competition will not have a material adverse effect on the
Company's business, operating results and financial condition. See "BUSINESS --
Competition."

CONCENTRATION OF BUSINESS

During the period December 8, 1995 to April 30, 1997, the Company derived
approximately 15%, 17% and 12%, respectively, of its total revenues from the
County of Los Angeles, the City of Los Angeles and South Bay (a Private Industry
Council), respectively. Each of these southern California governmental agencies
provided JTPA vocational training funds for students in the Company's Training
Centers. Although a majority of the Company's limited revenues to date have
been generated from JTPA vocational training, the Company expects a significant
majority of its revenues in the future will come from commercial
Internet/Intranet training of the employees of organizations ranging from
Fortune 1000 corporations to small entrepreneurial enterprises throughout the
United States, and the reliance on these three agencies will diminish. However,
until such time as the Company is not as dependent on JTPA vocational training
for a significant portion of its revenues, the loss of, or significant adverse
change in, the relationship between the Company and any of these three agencies
could have a material adverse effect on the Company's business, operating
results and financial conditions. See "BUSINESS -- Government Regulation."

LIMITED MARKET FOR SECURITIES OF THE COMPANY; POSSIBLE VOLATILITY OF STOCK PRICE

There is a very limited trading market for the securities of the Company.
The Common Stock was approved for quotation on the NASDAQ SmallCap Market
effective December 6, 1996. Previously, trading, if any, in the Company's
securities was conducted in the over-the-counter market on the NASD OTC
Electronic Bulletin Board established for securities that do not meet NASDAQ
listing requirements. See "PRICE OF COMMON STOCK AND DIVIDEND POLICY." The
market price for the Common Stock of the Company may be highly volatile
depending on various factors, including the general economy, stock market
conditions, announcements by the Company or its competitors, the small trading
volume of the Common Stock, and other events or factors. See "Shares Eligible
for Future Sale."

SHARES ELIGIBLE FOR FUTURE SALE

Future sales of Common Stock by existing stockholders pursuant to Rule 144
under the Securities Act, pursuant to this Registration Statement or otherwise
could have an adverse effect on the price of the Company's Common Stock. On
June 1, 1997, the Company had outstanding 9,910,667 shares of Common Stock,
substantially all of which are "restricted securities" as defined in Rule 144
and which may not be sold without registration under the Securities Act unless
pursuant to an applicable exemption therefrom. Over 6,000,000 of such shares are
eligible for sale under Rule 144, subject to the satisfaction of certain
conditions, although holders of 4,399,300 of such shares have agreed not to sell
their shares under Rule 144 prior to January 15, 1998 without the prior written
consent of the Company. See "DESCRIPTION OF COMMON STOCK -- Shares Eligible for
Future Sale."

The Company has registered the sale of up to 3,742,729 shares of Common
Stock under the Registration Statements of which this Prospectus is a part and
has agreed to register an additional 1,935,927 shares under registration
agreements with certain investors. See "DESCRIPTION OF CAPITAL STOCK --
Registration Rights." Of the shares covered by the Registration Statements,
2,432,315 shares are held by stockholders who have agreed not to sell, under
this Prospectus, more than 1% of their respective Shares held as of November 27,
1996 for each month that elapses after that date,

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unless the Company's written consent is obtained, although 2,045,568 of those
Shares are eligible for sale under Rule 144. However, holders of substantially
all of those 2,045,568 shares have agreed not to sell their shares under Rule
144 prior to January 15, 1998 without the prior written consent of the Company.
See "DESCRIPTION OF CAPITAL STOCK-- Shares Eligible for Future Sale." In
addition, the Company has registered up to 1,792,500 shares issuable upon
exercise of outstanding options to purchase Common Stock of the Company held by
employees and consultants of the Company. As of June 1, 1997, 1,378,839 of these
options were exercisable.

The Company has had a very limited trading volume in its Common Stock to
date. Sales of substantial amounts of Common Stock of the Company under Rule
144, this Registration Statement or otherwise could adversely affect the
prevailing market price of the Common Stock and could impair the Company's
ability to raise capital at that time through the sale of its securities. See
"DESCRIPTION OF CAPITAL STOCK -- Shares Eligible for Future Sale."

NO DIVIDENDS

As of the date of this Prospectus, the Company has not paid any cash
dividends on its Common Stock and does not intend to declare any such dividends
in the foreseeable future. The Company's ability to pay dividends is subject to
limitations imposed by Nevada law and, as a quasi-California corporation, to the
more restrictive provisions of California law. Under Nevada law, dividends may
be paid to the extent that the corporation's assets exceed its liabilities and
it is able to pay its debts as they become due in the usual course of business.
California law generally prohibits a corporation from paying dividends unless
the retained earnings of the corporation immediately prior to the distribution
exceed the amount of the distribution. Alternatively, a corporation may pay
dividends if (i) the assets of the corporation exceed 1 1/4 times its
liabilities; and (ii) the current assets of the corporation equal or exceed its
current liabilities, but if the average pre-tax earnings of the corporation
before interest expense for the two years preceding the distribution was less
than the average interest expense of the corporation for those years, the
current assets of the corporation must exceed 1 1/4 times its current
liabilities. See "PRICE OF COMMON STOCK AND DIVIDEND POLICY" and "DESCRIPTION
OF CAPITAL STOCK."

EFFECT OF ANTI-TAKEOVER PROVISIONS

The Company is subject to the anti-takeover provisions of Sections 78.411
through 78.444 of the Nevada Revised Statutes, which restrict certain
"combinations" with "interested stockholders" unless certain conditions are met.
In addition, the Company's Bylaws provide that the Company's Board of Directors
will be divided into three classes of directors serving staggered three-year
terms and eliminate the right of stockholders to act by written consent without
a meeting, unless such written consent is unanimous. All of the foregoing could
have the effect of delaying or deterring unsolicited takeover attempts and could
adversely affect prevailing market prices for the Company's Common Stock. See
"DESCRIPTION OF CAPITAL STOCK -- Nevada Anti-Takeover Laws and Certain Charter
Provisions."

9
<PAGE>

USE OF PROCEEDS

Other than the exercise price of such of the Warrants as may be exercised,
the Company will not receive any proceeds from the sale of Shares by the Selling
Stockholders. Holders of the Warrants are not obligated to exercise their
Warrants, and there can be no assurance that such holders will choose to
exercise all or any of such Warrants. The gross proceeds to the Company in the
event that all of the Warrants are exercised would be approximately $2,284,271.
Any proceeds received by the Company will be utilized for working capital and
general corporate purposes.

PRICE OF COMMON STOCK AND DIVIDEND POLICY

The Company's Common Stock currently trades on the NASDAQ SmallCap Market,
under the trading symbol of "POSO." Prior to December 6, 1996, the Company's
Common Stock traded on the National Association of Security Dealers Over-the-
Counter (OTC) Market Bulletin Board. The following table sets forth the high and
low bid quotation for the Common Stock as reported by various Bulletin Board
market makers. The quotations do not reflect adjustments for retail mark-ups,
mark-downs, or commissions and may not necessarily represent actual
transactions. There were no trades of the Company's Common Stock between August
1, 1994 and April 1, 1996, therefore the following table does not reflect the
bid price per share during the quarters ending prior to April 1, 1996.

Quarter Low Bid High Bid
------- ------- --------
<S> <C> <C>
February 1, 1997 -- April 30, 1997 $11.00 $18.00
November 1, 1996 -- January 31, 1997 $16.38 $20.00
August 1, 1996 -- October 31, 1996 $18.00 $20.00
May 1, 1996 -- July 31, 1996 $15.00 $19.00
February 1, 1996 -- April 30, 1996 $ 6.00 $15.00
</TABLE>

On June 26, 1997, the closing bid price for the Common Stock was
$7.00.

On June 26, 1997, the Company had approximately 381 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.

10
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company at April
30, 1997.

<TABLE>
<CAPTION>
April 30, 1997
--------------
<S> <C>
Capital lease obligations, net of current portion........... $ 446,478
------------
Stockholder's equity:
Common stock, $.001 par value; 50,000,000 shares
authorized; 9,910,367 shares issued and outstanding(1)... 9,910
Additional paid-in capital............................... 36,649,893
Note receivable from stockholder......................... (9,500)
Accumulated deficit...................................... (17,137,515)
------------
Total stockholder's equity........................... 19,512,788
------------
Total capitalization............................... $ 19,959,266
============
</TABLE>
____________________
(1) Excludes: (i) an aggregate of 1,106,500 shares reserved for issuance under
the Company's Amended 1996 Stock Option Plan, of which 707,103 shares were
subject to outstanding options as of April 30, 1997 at exercise prices
ranging from $3.50 to $19.75 per share, with a weighted average exercise
price of $6.24 per share; (ii) 933,700 shares subject to other outstanding
options as of April 30, 1997 at an exercise price of $1.00 per share; and
(iii) 429,140 shares issuable upon exercise of warrants (including the
Warrants) at exercise prices ranging from $1.00 to $11.00, with a weighted
average exercise price of $6.62.

11
<PAGE>

SELECTED FINANCIAL DATA

The consolidated financial data as of July 31, 1996 and for the period
December 8, 1995 to July 31, 1996 has been derived from, and is qualified by
reference to, the consolidated financial statements of the Company included
elsewhere herein which have been audited by Ernst & Young, LLP, independent
auditors. The financial data of the Proprietorship as of December 31, 1995 and
for the period February 1, 1995 to December 31, 1995 has been derived from, and
is qualified by reference to, the financial statements of the Proprietorship
included elsewhere herein, which have been audited by Kelly & Company,
independent auditors. The financial data as of April 30, 1997 and for the nine-
month periods ended April 30, 1996 and 1997 is derived from unaudited financial
statements included elsewhere in this Prospectus. The unaudited financial data
include, in the opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the Company's
and the Proprietorship's financial position at those dates and results of
operation for those periods. The results for the nine months ended April 30,
1997 are not necessarily indicative of the results for any future period. The
following data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements of the Company and the Proprietorship and the notes thereto
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
PROPRIETORSHIP COMPANY (1) COMPANY
--------------- ------------ ----------- -------------
NINE NINE
FEBRUARY 1, DECEMBER 8, MONTHS MONTHS
1995 TO 1995 TO ENDED ENDED
DECEMBER 31, JULY 31, APRIL 30, APRIL 30,
1995 1996 1996 1997
-------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenue............................................. $ 77,477 $ 907,772 $ 405,280 $ 1,531,906
Cost of services.................................... 60,526 698,725 454,035 5,601,199
--------- ----------- ----------- ------------
Gross profit (loss)................................. 16,951 209,047 (45,755) (4,069,293)
Operating expenses:
Sales and marketing............................... 44,769 426,221 113,981 3,129,340
General and administrative........................ 556,382 2,788,188 963,015 6,943,830
--------- ----------- ----------- ------------
Loss from operations................................ (584,200) (3,005,362) (1,125,751) (14,142,463)
Interest income (expense)........................... (20,126) (67,961) (21,212) 83,071
--------- ----------- ----------- ------------
Loss before provision for taxes..................... (604,326) (3,073,323) (1,146,963) (14,059,392)
Provision for state franchise tax................... -- 800 0 4,000
--------- ----------- ----------- ------------
Net loss............................................ $(604,326) $(3,074,123) $(1,146,963) $(14,063,392)
========= =========== =========== ============
Net loss per share.................................. $(0.61) $(1.77)
=========== ============
Shares used in computing net loss per share......... 5,011,781 7,933,313
=========== ============
</TABLE>
<TABLE>
<CAPTION>
AT AT AT
DECEMBER 31, JULY 31, APRIL 30,
1995 1996 1997
------------ ---------- -----------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficiency)........................ $(561,885) $6,764,828 $16,619,486
Total assets........................................ 765,990 8,997,490 24,570,574
Capital lease obligations, net of current portion... 308,671 437,532 446,478
Stockholders' equity (owner's deficit).............. (194,473) 7,694,729 19,512,788
</TABLE>
____________________

(1) Represents operations of the Proprietorship from August 1, 1995 through
December 31, 1995 and of the Company from December 8, 1995 through April
30, 1996.

12
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the financial
statements and notes thereto found elsewhere herein. In March 1996, the Company
and Old ProSoft completed a reorganization pursuant to an Agreement and Plan of
Reorganization whereby Old ProSoft became a wholly-owned subsidiary of the
Company. Although the Company survived as the parent of Old ProSoft, the
transaction was accounted for such that the financial statements for the Company
following the transaction are the financial statements of Old ProSoft, with the
additional shares held by the Company's prior shareholders reflected as a
recapitalization of Old ProSoft. The assets and operating results of the
Company separate from Old ProSoft are not material and separate financial
statements of the Company prior to the transaction are not presented herein.
The financial statements of the Proprietorship, which operated the business from
its inception in February 1995 until it was acquired by Old ProSoft January 1,
1996, are included herein.

DEVELOPMENT OF BUSINESS

Prosoft, and prior to that, the Proprietorship, have delivered training in
the vocational and advanced technical education business since February 1995.
Initially, a majority of time and resources were spent in the development of
government funded, JTPA vocational business and qualifying as a recipient of
JTPA funds. Resources were also spent training and developing the initial staff
of Microsoft Certified Engineers, Developers and Trainers and in securing and
maintaining its status as a Microsoft ATEC. Vocational training sales commenced
on a limited basis at the end of 1995.

For the period from December 8, 1995 to April 30, 1997, JTPA funded
vocational training accounted for approximately 56% of the Company's revenues,
while commercial training accounted for approximately 44% of the Company's
revenues. However, with the recent expansion of the Company's Training Centers,
the Company expects revenues from commercial training to account for a majority
of the Company's revenues in fiscal 1997.

Upon completion of a private placement of stock in February 1996, the
Company had the resources to expand its vocational training capacity in March
through May of 1996. As the Company began to graduate MCSEs, MCSDs and MCPs, it
was able to retain several of these graduates as instructors to accommodate the
expanding vocational business.

Concurrent with the expansion of the government-funded vocational business,
the Company embarked on a strategy to build a nationwide network of Training
Centers. The Company developed and opened its first two Training Centers in
late 1995 in Buena Park and Palmdale, California, and opened a third Training
Center in February 1996 in North Hollywood, California. As of June 1, 1997, the
Company had opened 28 Training Centers located in 17 states and was in the
process of building out tenant improvements and hiring instructors for 5
additional Training Centers in those states. The Company is also in preliminary
negotiations for approximately 5 additional sites around the country. To
support this expansion strategy, the Company significantly increased its
accounting, operational, administrative, marketing, sales, courseware
development, instructor development, instructor, information systems and
technology staffing.

As a result of the start-up nature of the Company's business through April
30, 1997 and the shift in focus from vocational to commercial training which is
currently in process, the Company does not

13
<PAGE>

believe that the results of operations of the Company through April 30, 1997 are
indicative of future results.

RESULTS OF OPERATIONS

Nine Months Ended April 30, 1997 Compared to Nine Months Ended April 30, 1996

Revenues. Revenues for the nine-month period ended April 30, 1997 were
$1,531,906, compared with $405,280 for the nine-month period ended April 30,
1996. The increase in revenues is attributable to the increase in the number of
students taking classes from the Company. This is a direct result of the
expansion of the Company from two locations on April 30, 1996 to 26 locations on
April 30, 1997.

Cost of Services. The Company's cost of services includes the costs
associated with course instructors, content developers, course materials and
equipment and classroom facilities. Cost of services for the nine-month period
ended April 30, 1997 were $5,601,199, compared with $454,035 for the nine-month
period ended April 30, 1996. This increase is primarily the result of an
increased number of course events, a larger course library, and an increase in
the number of and training of instructors and content developers in the nine-
month period ended April 30, 1997 compared to the corresponding period of the
prior year.

Sales and Marketing. Sales and marketing expense consists of salaries,
commissions and travel-related costs of sales and marketing personnel, the costs
of designing, producing and distributing direct mail marketing and media
advertisements, and the costs of the information systems to support these
activities. Sales and marketing expense for the nine-month period ended April
30, 1997 were $3,129,340, compared with $113,981 for the nine-month period ended
April 30, 1996. The increase in sales and marketing expense is due to an
increase in marketing intended to reach a broader range of potential customers,
to expand the Company's presence in certain U.S. cities and to communicate the
availability of new course titles.

General and Administrative. General and administrative expenses for the
nine-month period ended April 30, 1997 were $6,943,830, compared to $963,015 for
the nine-month period ended April 30, 1996. This increase is primarily due to
the continued buildup of the administrative staffing needed to support the
expansion of sites and the growth in sales.

Interest. Net interest income for the nine-month period ended April 30,
1997 was $83,071, compared to net interest expense of $21,212 for the nine-month
period ended April 30, 1996. Interest expense, which consists principally of
interest paid on capital leases, increased for the nine-month period ended April
30, 1997 due to an increase in the amount of equipment financed through capital
leases. However, this increase was more than offset by interest earned from
higher cash balances generated by the proceeds from private placements completed
in late 1996 and early 1997.

Net Loss. Net loss for the nine-month period ended April 30, 1997 was
$14,063,392, compared to $1,146,963 for the nine-month period ended April 30,
1996. The increase in net loss resulted from (i) increased staffing, (ii) the
opening of new Training Centers without a corresponding increase in revenues,
(iii) developing new courseware, and (iv) an increase in the Company's sales and
marketing efforts.

14
<PAGE>

December 8, 1995 to July 31, 1996 Compared to February 1, 1995 to December 31,
1995

Revenues. Revenues for the period from December 8, 1995 to July 31, 1996
were $907,722, compared to $77,477 for the period from February 1, 1995 to
December 31, 1995. The increase was principally attributable to an increase in
the number of students enrolled in the Company's JTPA vocational training
programs. In January 1995, the number of students enrolled was 16 with monthly
training revenue of $34,000. By July 1996, student enrollment was up to 102 and
monthly training revenue was $213,000. The Company projects limited revenue
growth from JTPA vocational training in the future. The Company projects
substantial revenue growth in the future based on the expansion in the number of
sites, and its ability to deliver training in Internet and Intranet
technologies, and the Microsoft Back Office family of products.

Cost of Services. Cost of services for the period ended July 31, 1996 was
$698,725, compared to $60,526 for the period ended December 31, 1995. For the
period ended July 31, 1996, cost of services primarily consisted of courseware
($244,000), instructor salaries ($177,000) and overhead salaries ($161,000).
These costs are generally variable with revenues. The increase was principally
attributable to an increase in the number of classes being conducted, and the
related increase in the number of students attending those classes. The gross
margin for the period ended July 31, 1996 was 23%, compared to a gross margin of
22% for the period ended December 31, 1995.

Sales and Marketing. Sales and marketing expenses for the period ended
July 31, 1996 were $426,221, compared to $44,769 for the period ended December
31, 1995. For the period ended July 31, 1996, sales and marketing expenses
primarily consisted of promotions ($200,000), advertising ($90,000) and travel
($75,000). The increase in sales and marketing expenses was based on the
following: (i) new positioning of the Company in the commercial market of
Internet and Intranet training, (ii) establishing a national presence and image,
(iii) opening of a national sales office in Jacksonville Florida, (iv) hiring
four regional sales managers, and (v) participating in the Microsoft World Wide
Live promotion.

General and Administrative. General and administrative expenses for the
period ended July 31, 1996 were $2,788,188, compared to $556,382 for the period
ended December 31, 1995. For the period ended July 31, 1996, general and
administrative expenses primarily consisted of payroll ($1,510,000),
depreciation ($257,000) and rent ($206,000). Other than $381,000 of
compensation related to stock issued to the founders, these costs are
substantially fixed costs. The increase in general and administrative expenses
related primarily to expenses incurred in hiring and staffing of additional
personnel to support the business expansion.

Interest Expense. Interest expense for the period ended July 31, 1996 was
$67,961, compared to $20,126 for the period ended December 31, 1995. For the
period ended July 31, 1996, interest expense consisted solely of interest paid
on capital equipment leases. The increase in interest expense is related to the
increase in the amount of equipment financed through capital leases.

Net Loss. Net loss increased for the period ended July 31, 1996 to
$3,074,123, compared to $604,326 for the period ended December 31, 1995. The
increase in net loss resulted from (i) increased staffing, (ii) the opening of
new Training Centers without a corresponding increase in revenues, (iii)
developing new courseware, and (iv) an increase in the Company's sales and
marketing efforts.

15
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

From inception, the Company has financed its operations and met a portion
of its capital expenditure requirements primarily through net proceeds from
private sales of equity securities. Cash and cash equivalents increased from
$6,466,460 at July 31, 1996 to $13,803,703 at April 30, 1997. For the nine
months ending April 30, 1997, operating activities used cash of $11,238,383,
primarily due to a net operating loss of $14,063,392.

In October 1996, the Company entered into an agreement with the investment
banking firm of Smith Barney Inc. pursuant to which Smith Barney acted as
placement agent in connection with a private placement of the Company's
securities. From February through April 1997, the Company received gross
proceeds of approximately $22 million in this private placement through the
sale of 2,081,758 shares of common stock. Net proceeds from that offering,
after payment of commissions and finders fees, was $20,811,332. The proceeds
from that offering are being used by the Company for working capital
expenditures.

During the nine months ended April 30, 1997, the Company invested
$1,282,612 in equipment and leasehold improvements. The Company currently
estimates that the cost to open a Training Center is approximately $100,000. The
Company anticipates purchases of equipment and furniture of approximately an
additional $3,000,000 as it expands the number of Training Centers through
fiscal 1998. However, that amount may change depending on the speed and breadth
of the national expansion. The Company anticipates that it will continue to be
able to purchase a portion of this equipment and furniture through lease lines
of credit.

As its expansion continues, the Company may need to add internal
infrastructure, which will also require additional capital expenditures. As
sales increase, additional personnel will continue to be needed not only for
training but also for affiliate support, administration and accounting. Besides
personnel, plans have been implemented to increase the capacity of many of the
Company's management information systems to handle the anticipated growth in
sales, and the Company is developing a sophisticated customer reservation system
and an enhanced web page for customers.

In April 1997, the Company sold 408,164 shares of its common stock to an
institutional investor for $5 million. This amount was placed in escrow but
subsequently released to the Company upon effectiveness of the registration
statement of which this Prospectus is a part. If the registration statement had
not been declared effective by December 31, 1997, the investor would have had
certain rights of rescission of its investment. The net proceeds from this
offering were $4,700,008.

In April 1997, the Company made a 30-day loan to one of its vendors, a
computer memory distributor, in the principal amount of $500,000. This loan
bore interest at a rate equal to 9.5% per annum, and was guaranteed by a
principal of the borrower who had secured the guaranty with a pledge of certain
of his shares in the borrower. The loan and accrued interest were repaid to the
Company on May 9, 1997.

The Company anticipates that its existing resources will be sufficient to
meet its needs for working capital expenditures for at least the next 12 months,
including the planned expansion of Training Centers. The Company's long-term
capital requirements will depend on numerous factors, including the rate at
which new Training Centers are opened, the profitability of existing Training
Centers and the acquisition and/or development of additional training tools.

16
<PAGE>

The above discussion concerning future financing needs, business expansion
and factors affecting liquidity are forward-looking statements. Although
management believes that these statements are reasonable in view of the facts
available to it, there can be no assurance that all of these statements will
prove to be accurate. There are numerous factors which could have a material
impact upon whether these projections could be realized or whether these trends
will continue. Among these factors are those set forth in "RISK FACTORS," as
well as those discussed elsewhere herein.

17
<PAGE>

BUSINESS

OVERVIEW

Prosoft I-Net Solutions, Inc. ("Prosoft" or the "Company") is incorporated
under the laws of the State of Nevada. From its incorporation in May 1985 until
March 1996, the Company had no significant operations. The business of the
Company was initially operated as a sole proprietorship (the "Proprietorship")
beginning in February 1995. 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.

Prosoft is engaged in the business of training individuals in small, medium
and large organizations in Internet and Intranet technologies, with a current
emphasis on Netscape- and Microsoft-based Internet/Intranet products and
solutions. Prosoft is a certified Microsoft Authorized Technical Education
Center ("ATEC"), which is a certification from Microsoft Corporation
("Microsoft") allowing the Company to teach courses using certified Microsoft
courseware. In order to become a Microsoft ATEC, the Company first had to be
designated by Microsoft as a Microsoft Solution Provider (which was received
after the Company demonstrated to Microsoft that it trains others to use
Microsoft products), then had to submit an ATEC application and comprehensive
business plan to Microsoft for approval, which approval was received in November
1995. The Company is also a certified Private Post Secondary Institution in the
State of California, and an approved recipient of Job Training Partnership Act
(the "JTPA") funding, the last of which enables the Company to recruit, train
and hire its own advanced technology instructor staff. Prosoft also develops
proprietary Internet/Intranet courseware and offers more than 35 customized, on-
line, hands-on and instructor-led Internet/Intranet-related courses for end-
users, system engineers and developers.

While JTPA funded vocational training accounted for approximately 56% of
the Company's revenues through April 30, 1997, with the recent expansion of the
Company's Internet/Intranet Training Resource Centers ("Training Centers"), the
Company expects revenues from commercial training to account for a significant
majority of the Company's revenues in the future.

Internet/Intranet instruction is made available through Company-operated
Training Centers offering commercial Internet/Intranet training to the employees
of organizations ranging from Fortune 1000 corporations to small entrepreneurial
enterprises throughout the United States. The Company also offers tailored
training on-site at the customer's facility, usually for larger organizations
with a significant number of trainees. On-site training facilities are set up
by the customer, at its expense, in substantially the same configuration as a
Training Center classroom. Each Prosoft student who takes an Internet or
Intranet class is taught using a personal computer that is connected to the
Internet. As of June 1, 1997, the Company had opened 28 Training Centers in the
states of California, Florida, Georgia, Indiana, Maryland, Massachusetts,
Missouri, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania,

18
<PAGE>

South Carolina, Tennessee, Texas, Virginia, and Washington. The Company plans
to have between 65 and 90 Training Centers opened across the country by the end
of fiscal 1998. In addition, the Company expects to continue offering tailored
on-site training, usually for larger organizations with a significant number of
trainees.

A typical Training Center ranges in size from 600 to 5,000 square feet and
is comprised of from one to four classrooms that can accommodate approximately
20 students per classroom. The Company has either leased commercial space for
the Training Centers or has entered into marketing affiliations with existing
computer training, consulting, distribution and reseller companies. Under such
marketing affiliations, the affiliate typically makes classroom space available
to Prosoft in exchange for a royalty payment based upon the training revenue
collected by Prosoft. Whether Prosoft leases commercial space or enters into a
marketing affiliation, the Company is responsible for building the
infrastructure of the Training Center to its specifications. The Training
Centers are connected directly to the Internet by means of a high speed T-1 line
(provided by UUNET, a leader in high speed Internet/Intranet access) that
guarantees a connection of 1.544 MBps and insures that the students' computers
have the high speed bandwidth required to complete the complex, hands-on
exercises efficiently, especially those exercises that are focused on the
graphics-intensive World Wide Web. The Company's commercial Internet/Intranet
training courses range in length from one to five days at a cost of between $295
to $795 per day per student.

A common barrier to entry in the advanced technical education business is
developing and maintaining a staff of qualified, motivated instructors. In
addition to hiring experienced commercial instructors, Prosoft has developed a
strategy to internally develop staff members to support a national network of
Internet/Intranet training centers. Prosoft is an authorized recipient of JTPA
funding and uses these funds to recruit displaced defense, airline and aerospace
workers, provide them with instruction in advanced Microsoft and
Internet/Intranet technologies, and then hire them as Microsoft Certified
Professionals, Internet/Intranet Training Professionals or both. The JTPA-
funded programs pay Prosoft approximately $10,000 for each displaced worker that
receives advanced Microsoft technology training, which vocational training runs
eight hours a day, five days a week and spans six to nine months. The Company
has been successful at attracting and retraining displaced employees to become
Microsoft Certified and qualified to teach the Company's Internet/Intranet
curriculum. Each of the Company's vocational students graduates as a Microsoft
Certified System Engineer, a Microsoft Certified Solution Developer, a Microsoft
Certified Trainer (all three of these certifications fall under a designation
known as a Microsoft Certified Professional or "MCP") or an Internet/Intranet
Professional ("IIP"). As of June 1, 1997, Prosoft had employed approximately 39
full-time MCPs. In addition, as of June 1, 1997, the Company had approximately
22 additional students under development to be MCPs.

Once a student completes vocational training, he or she is either placed
into the job market through Prosoft's placement efforts or, if the student meets
Prosoft's training standards, is retained by the Company and hired to teach in
one of the Company's Training Centers. In addition, some students have been
recruited directly by employers on the Company's property. Through June 1,
1997, 130 people had graduated from the Company's Training Centers and the
Company had retained 23 graduates as instructors.

In June 1996, Prosoft created a division to develop and publish Internet,
Intranet and distant learning courseware and curriculum, which Prosoft uses in
its Internet/Intranet classes. The Company has several proprietary courseware
projects under development that support Microsoft, Netscape Communications Corp.
("Netscape") and Sun Microsystems Internet/Intranet technologies.

19
<PAGE>

MARKET BACKGROUND

Internet and Intranet information technology is transforming the way people
live and work. Companies are migrating to Internet and Intranet technologies in
order to improve customer service, seek productivity gains, access voluminous
databases around the world, and attain or maintain a competitive profile.
International Data Corp. and Forrester Research, Inc. estimate that the number
of Internet users doubles every nine months and that there will be more than 200
million users by the year 2000. Forrester estimates that less than 10% of the
population is currently connected to the Internet, with no estimate of how many
of those connected actually know how to access the full potential of the medium.

Companies are also beginning to develop private internal networking systems
called Intranets, which use the infrastructure, standards and many of the
technologies of the Internet and the World Wide Web, but are cordoned off and
protected from the public through software programs known as "fire walls."
Companies are developing Intranets in order to improve internal communications,
facilitate employee training and motivation, and to reduce the need for paper-
based materials such as operational and procedural manuals, internal phone
books, requisition forms, and other items that must be updated frequently.
Intranets can integrate all of the computers within an organization, including
software and databases, into a unified system that allows employees to quickly
access and utilize information. The percentage of large and mid-size companies
employing some sort of Intranet system increased to 55% in 1996 from just 11% in
1995, according to Business Research Group of Newton, Massachusetts. Zona
Research in Redwood City, California estimates that investment in Intranets
could rise from approximately $2.7 billion in 1996 to more than $13 billion in
1999.

The Company believes that the market for Internet and Intranet training is
substantial. The Internet is the world's largest network of computer networks,
and one which grows everyday. Originally conceived and implemented by the U.S.
Department of Defense and later taken over by the National Science Foundation,
the Internet was developed for scientists and those in academia. It was not
developed nor intended for the average American or as a corporate information
tool, and as a result, it is neither intuitive nor user friendly. In the eyes
of many executives in corporate America, understanding how to efficiently move
through this "maze" and identify and manage its power is critical if the
Internet is to achieve its full promise as a productivity tool and not become
merely a distraction in the workplace.

PROSOFT'S MARKET POSITIONING

Prosoft has and will continue to develop courseware, provide training and
deliver technical support relating to the Internet and Intranets as a
competitive business tool.

Because the Company's Internet/Intranet training relates primarily to the
software products developed by the major Internet software companies, Microsoft
and Netscape, the business strategies of these companies are highly relevant to
Prosoft. Microsoft and Netscape have given away "browser" software (software
that provides a user-friendly interface to the Internet) while selling the more
expensive "server" software. In addition, Microsoft is bundling both browser
and server software (Internet Information Server) with its Window NT operating
system. Dozens of major computer companies plan to ship their machines with
this software. Windows NT has become a leading network operating system for the
kind of small-scale servers used on local area networks and now those machines
are positioned to become Intranet servers. Microsoft's Internet Information
Server includes security features and has the ability to connect to corporate
data bases.

20
<PAGE>

Based on Microsoft's aggressive strategy and historical dominance of the
software market, Prosoft's management believes that Microsoft is well-positioned
to be a dominant entity in the Internet/Intranet technology market and has
strategically embraced Microsoft's vision and approach. Currently, most
training courses offered by Prosoft revolve around Microsoft's Internet/Intranet
tools and platforms, ranging from advanced courses for system engineers and
solution developers to courses for end-users and self-paced, self-help
instruction. A central part of the Company's strategy will be to proactively
assist Microsoft in building marketshare for Microsoft's Internet/Intranet
products and technologies by providing a nationwide network of Training Centers
that offer courses in all of the major Microsoft Internet and Intranet
technologies.

Notwithstanding the number of Prosoft courses that relate to Microsoft
products, the Company realizes that not every corporation and end-user will
ultimately embrace Microsoft's technologies, and that other Internet companies,
such as Netscape, will continue to maintain a large presence in this arena.
Accordingly, the Company intends to expand its training curriculum to include
Internet and Intranet tools and products offered by companies other than
Microsoft, including those offered by Netscape and Sun MicroSystems.

THE PROSOFT STRATEGY

Prosoft believes that it should have an advantage over the majority of
other computer and advanced technology training companies by virtue of its
growing national presence and its specific emphasis and expertise in
Internet/Intranet technologies. While other training institutions may offer a
limited number of Internet/Intranet courses, this type of training is Prosoft's
primary area of emphasis. As a result, the Company believes that it has
developed a broad range of experience with respect to classroom infrastructure,
curriculum, courseware and instructor development, mastery of subject matter,
breadth and depth of course offerings, and the ability to quickly develop and
offer new Internet/Intranet technology training as market demands shift.

The Company's strategy is to continue to expand the number of Training
Centers across the country, with the goal of creating a nationwide network of
Training Centers that will make Prosoft a primary choice for Fortune 1000
corporations and other smaller firms that require unified, quality Internet and
Intranet training. As of June 1, 1997, the Company had opened 28 Training
Centers located in 17 states and had 5 additional Training Centers under
development in those states. The Company plans to have between 65 and 90
centers opened across the country by the end of fiscal 1998. Prosoft believes
that the development of a nationwide network of Prosoft Training Centers is
essential to the delivery of quality Internet/Intranet instruction. By the very
nature of Internet/Intranet technology, the delivery of uniform, consistent
training is mandatory in order for companies with multiple geographic locations
to efficiently learn and use the technology. In addition, Prosoft believes that
because the Internet/Intranet demands that an entire organization be properly
trained in order for the technology to be effective, training should be
delivered locally, but with identical curriculum and content in every region of
the country. Internet/Intranet training is not effective if varying curriculum
is dispensed to one office or group of employees at a time. All members of an
organization must simultaneously learn the proper skills necessary to realize
the full capabilities of the Internet/Intranet.

In addition to its strategy of expanding the number of Training Centers
across the country, the Company believes there is excellent potential for future
growth in on-site training. The Company anticipates its on-site customers will
be larger organizations with a significant number of trainees, including both
corporate and government entities. As the trend of outsourcing
Internet/Intranet

21
<PAGE>

technology training continues, the Company believes that the largest and fastest
growing customer base within this market are those larger organizations that
require sophisticated technology training.

STRATEGIC ALLIANCES

Prosoft will continue to develop strategic relationships with Private
Industry Councils (PICs), which are provided technical assistance by the
Department of Labor (the "DOL"), Microsoft, Microsoft-based Internet and
Intranet software developers, computer distributors (otherwise known as value-
added-resellers or "VARs"), telecommunications companies, local training
affiliates under the Affiliate Program (described below), and future Internet
technology developers to attract and deliver training opportunities.

Prosoft will continue to work with the DOL through "subrecipients"
(administrators of JTPA funds on the local level) to access JTPA retraining
funds as a steady source of revenue and to develop its advanced technology
instructors. With respect to the Company's hiring programs, Prosoft is able to
administer its own intake and eligibility criteria under authority granted by
the City of Los Angeles. This is significant because Prosoft can execute its
own intake and eligibility of displaced workers living in the City of Los
Angeles to determine if they qualify for a JTPA grant. In addition, the Company
can complete the intake and eligibility process significantly quicker than the
normal government processing. This processing speed has enabled the Company to
attract and process large pools of qualified displaced workers from which to
select its instructor trainees.

In December 1996, the Company entered into an alliance with Gartner Group
Learning ("GGL"), a developer and distributor of technology-based training, for
the development of proprietary technology-based Internet/Intranet training
courses to be sold exclusively by Gartner Group Learning. The training courses
will be developed for local area networks (LANs), CBT, and Internet/Intranet
delivery, and will offer the marketplace self-paced, technology-based courseware
that matches Prosoft's classroom curricula. This courseware will also provide
students with the prerequisite knowledge to undertake other Prosoft instructor-
led training courses and provides a reference tool upon completion. Prosoft and
GGL extended this relationship in June 1997 by entering into a Distribution
Agreement pursuant to which GGL will resell Prosoft's instructor-led training
courses to GGL's corporate clients.

In January 1997, the Company entered into an alliance with Netscape
Communications Corporation ("Netscape") to collaborate in using Netscape's
server products and technical personnel to design Internet/Intranet applications
for Prosoft and to enhance Prosoft's Netscape Internet/Intranet training course
offerings to their customers. Under this arrangement, Prosoft will use Netscape
products and work with Netscape's consulting organization, Worldwide
Professional Services, to build 2-3 Netscape-based Internet/Intranet
applications based on Netscape software for use in Prosoft's course curriculum.
This will enable Prosoft to quickly acclimate to current and future Netscape
server products and to be able to develop content more rapidly than if it relied
on more traditional methods. In June 1997, Prosoft and Netscape entered into a
Development and Distribution Agreement for the creation by Prosoft of courseware
relating to the Netscape Communicator software product and the distribution of
such courseware by Prosoft and Netscape.

In March 1997, the Company entered into an agreement with AT&T pursuant to
which Prosoft will offer businesses regularly scheduled courses on the
implementation and use of AT&T Website Services, at Prosoft's Training Centers
at discounted rates. In addition, Prosoft will join AT&T's recently announced
Marketing Alliance Program to market and sell AT&T Website Services.

The Company's success will depend in large part on the success of its
strategic alliances and the Company's ability to establish successful strategic
relationships with other entities.

22
<PAGE>

COURSEWARE, COMPUTER BASED TRAINING AND DISTANCE LEARNING

The Company intends to continue to develop cutting edge courseware for all
new Microsoft and Netscape Internet/Intranet product releases as well as other
popular and emerging Internet/Intranet technology courses.

Once Prosoft has designed the books and materials that will constitute the
courseware for a given class, it is able to internally produce such courseware
on a sophisticated copying and binding machine located in its Santa Ana,
California facility. Prosoft courseware is published, packaged and shipped from
Santa Ana either to a Prosoft Training Center or another training company or
organization.

Prosoft is also building the staff and technological resources necessary to
offer what the Company calls "Learning on Demand" (LOD) or distance learning.
The Company is developing proprietary Internet/Intranet technologies that will
allow individuals to access training on an any number of products, tools or
applications, in real time and on demand. To reach this goal, the Company is
developing strategic alliances and plans to invest in the infrastructure and
development of LOD technologies.

Learning on Demand or distance learning over the Internet has the potential
to lower training costs, increase accuracy, and facilitate communications among
employees and their managers. By making LOD content available on the Internet,
companies can distribute curriculum around the world and update materials every
hour if they desire. Prosoft is addressing various security, billing and other
issues that must be resolved before LOD can become commonplace on the Internet,
but with the proliferation of Intranet systems within large organizations, there
is a large and immediate opportunity for the Company to sell and/or license its
LOD content. The Company believes that such LOD technologies could become an
important source of revenues in the future, and plans to commit funding and
employee time to develop such technologies, although the timing and amounts of
such commitments remain uncertain at this time.

MARKETING

Prosoft will market Internet and Intranet training through its own internal
sales and marketing organization in conjunction with key strategic alliances.
As of June 1, 1997, the Company's sales and marketing organization consisted of
79 employees. Prosoft is currently creating and producing marketing material
designed to help position Prosoft as the premier Internet/Intranet training and
resource company.

As part of Prosoft's overall strategy to offer a significant number of
courses relating to Microsoft products, whenever the Company opens a Training
Center in a new market, its first priority will be to offer introductory
Internet and Intranet training to all Microsoft Solution Providers and Microsoft
sales and marketing employees in the area. This plan is designed to help
Microsoft employees better understand Microsoft products as well as gain an
appreciation for the training support that Prosoft will provide to Microsoft
clients. The intent is to develop goodwill with Microsoft and ultimately to
increase the frequency of Microsoft recommendations and sales of Prosoft
Internet training.

Prosoft, as part of its strategy to open additional Training Centers,
established what is called the Affiliate Training Program (the "Affiliate
Program"). Under the terms of the Affiliate Program, an existing computer
training, consulting, distribution and/or reseller company, such as a
ComputerLand franchisee, provides the physical space within its premises for the
completion and operation of one or more Prosoft training rooms in a particular
market. In exchange for this rent-free classroom space, the affiliate is
generally entitled to 5%, except for certain initial affiliates who receive 3%
and one who

23
<PAGE>

receives 0%, of all revenue generated from the Internet and Intranet training
that occurs at that location. In addition, if the affiliate's sales staff,
either acting alone or in concert with Prosoft's sales force, sells the training
course, the affiliate is entitled to purchase the training course at a wholesale
price. In the past, the price at which an affiliate could purchase a training
course ranged from 4% to 25% (and in one instance 40%) less than the Company's
retail list price depending, among other things, on the affiliate's level of
participation in the sales effort. Beginning in August 1996, all new affiliates
purchase training courses at a wholesale price which is 20% less than the
Company's retail list price if they participate in the sales effort, regardless
of the level of their participation. The Company previously issued options to
acquire a total of 60,000 shares of its Common Stock, at exercise prices ranging
from $5.00 to $19.75 per share, to four of the initial participants in the
Affiliate Program, but has since discontinued this practice. By forming various
affiliations in this fashion, the Company has dramatically reduced its fixed
operating expense by replacing fixed rent or lease payments with a small
variable expense tied to sales revenue. In addition, the Affiliate Program
permits the Company to take advantage of the affiliate's local sales force in
each market, which understands and has personal relationships with the local
customer base.

In addition to the local affiliate's marketing and sales efforts, Prosoft
plans to enter each market with a uniform advertising campaign that employs
direct mail, newspaper and radio advertising, followed up by aggressive
telemarketing efforts, to support Prosoft's sale of training for each of the
Training Centers. The Company has also established two national
inbound/outbound telemarketing organizations located in Jacksonville, Florida
and Salt Lake City, Utah. The Company's telemarketing sales group markets the
Company's Internet and Intranet training to computer resellers and end-users.

Prosoft has also entered into agreements with various software training and
consulting companies to permit such companies to sell Prosoft training seats in
their regularly published catalogues and marketing materials. As part of this
program, these companies, including end-user application training firms,
software companies and VARs, may publish Prosoft training schedules in their
course catalogs and other marketing materials and will be paid a percentage of
the training revenue generated by such means. In this way, potential
competitors that offer a wide range of unrelated training courses can add
Internet offerings to their catalog without having to develop the curriculum or
instructors, install T-1 lines, or compete with Prosoft.

MARKET POTENTIAL

Because Prosoft has offered and will continue to offer a significant number
of courses relating to Microsoft products, and because the Company has broad
categorical expertise in Internet and Intranet training ranging from the most
advanced system engineering to end-user training, Prosoft believes that it is
well-positioned to sell its training to small, medium and large organizations.
As a result of the Company's approach to Internet/Intranet training, which
features highly-trained instructors, course materials designed by the Company's
internal courseware department, live T-1 lines connected to the Internet,
individual computers for each student, and numerous pre- and post-testing of
students, the Company believes it can offer among the highest quality,
consistent Internet curriculum in the industry. In addition, because of the
short curriculum development cycle that the Company maintains, it can quickly
create new course offerings to support new and emerging technologies.
Internet/Intranet software offerings and technology will continue to evolve and
training related to such software and technology will need to keep pace.
Technology trends indicate that end-user interfaces are and will become more
intuitive and user-friendly while system engineering and solution development
required to support these simple interfaces will become increasingly complex.
Because Prosoft addresses a broad range of Internet and

24
<PAGE>

Intranet technology training, the Company believes it is well positioned to
pursue and deliver on the expanding advanced Internet technology training
opportunities.

As corporations move to develop and expand internal Intranet systems,
Prosoft believes it will be positioned to deliver a wide range of Intranet
training classes, ranging from Internet Information Servers to Web Page
development and maintenance, as well as a host of other courses necessary for an
organization to maximize the utility of Intranet systems. Prosoft believes that
company-developed Intranets will become indispensable tools in the workplace and
intends to position itself to take advantage of this growing market.

COMPETITION

Historically, few computer training companies offered the breadth and depth
of Internet and Intranet courses that Prosoft offered, or taught such courses in
centers located across the country. However, as the Internet and company-
developed Intranets have continued to grow in popularity and become mandatory
productivity tools in the workplace, several existing training companies have
increased their focus on Internet/Intranet training. In addition, other large
computer software and reseller companies with even greater financial resources
have and may continue to enter the market and begin providing Internet training.

Although studies by the American Society for Training and Development and
the International Technology Training Association consistently demonstrate that
hands-on, instructor led training is the most effective manner in which to learn
and master technology-oriented subject matter, most Internet users in the U.S.
have not had access to this type of training. Historically, most Internet
instruction was delivered seminar-style in hotel auditoriums or similar venues
using passive training techniques such as slides, multimedia presentations or
perhaps an overhead of an instructor's computer in action. There are now
several national and regionally-based Internet/Intranet training companies that
have direct, high speed access to the Internet and offer hands-on, instructor-
led training. These include Learning Tree, New Horizons, Productivity Point,
Executrain, Global Knowledge Network and Wave Technologies.

Prosoft's management believes that it will have a competitive advantage
over most existing training organizations because of the Company's developed
curriculum, training focus and ability to quickly develop quality courseware to
support the rapidly evolving Internet products and technologies. In addition,
the Company believes that its expanding national presence will give it an
advantage over its competitors having a limited geographical presence. In order
for existing training companies to develop the level of expertise and
consistency offered by Prosoft, the Company believes they would have to narrow
their focus, eliminate many of their current course offerings, retrain and/or
develop their staffs, and dramatically expand their training locations.

Prosoft believes that by virtue of its careful positioning, convenience of
training, and commitment to an Internet/Intranet-specific strategy, its courses
and services will have a strong appeal to the corporate market, which is looking
to expand its understanding and use of Internet and Intranet technologies.
Prosoft also believes that it can preempt many potential competitors by teaming
up with training affiliates across the nation under the Affiliate Program and
expanding quickly to become the largest and most visible provider of
Internet/Intranet training. In addition, Prosoft has developed strategies and
programs that will allow other training companies in any Prosoft market to re-
sell Prosoft training seats as if they were their own.

25
<PAGE>

SEASONALITY

The Company's revenues and income are expected to vary significantly from
quarter to quarter due to seasonal and other factors. The Company expects
greater revenue in the second half of its fiscal year (February through July)
than in the first half of its fiscal year (August through January). This
seasonality is due in part to seasonal spending patterns of the Company's
customers, and in part to quarterly anticipated differences in the frequency and
size of the Company's marketing campaigns, as well as weather, holiday and
vacation patterns.

PROPRIETARY RIGHTS

Most of Prosoft's Internet courseware is protected by copyright laws. The
Company has also filed for trademark registration for certain of its products,
tags lines and feature names. The Company will continue to seek copyright
registration on certain newly developed courseware products and on operating
software products that relate to the delivery of Internet and Intranet training.

GOVERNMENT REGULATION

The Company is subject to extensive state and federal regulations with
respect to its vocational training. As a vocational, non-degree granting
school, the Company is governed by the State of California Council for Private
Postsecondary and Vocational Education ("CPPVE"). In addition to commercial
business, the Company also actively seeks vocational retraining funding as a
vendor under the JTPA.

Federal job re-training programs under the JTPA pay Prosoft, on average, a
grant of approximately $10,000 for each qualifying student for 22 to 37 weeks of
intensive advanced Microsoft-based Internet technology training. If a student
leaves a JTPA program before the completion of the course, Prosoft is paid a pro
rata portion of the grant. The Company has been successful at attracting and
re-training displaced defense and aerospace workers to become Microsoft
Certified Professionals. As discussed above, those MCPs who Prosoft deems
qualified are then offered positions as instructors to deliver Internet and
Intranet training in Prosoft Training Centers.

Prosoft actively seeks vocational retraining funding as a vendor under the
JTPA, which was signed into law in 1982 with the stated purpose to "establish
programs to prepare youth and unskilled adults for entry into the labor force
and to afford job training to those economically disadvantaged individuals and
others facing serious barriers to employment who are in special need of such
training to obtain productive employment." Prosoft participates primarily in
JTPA Title III programs, which provide for operation of state and local programs
of employment and training assistance for dislocated workers. Vocational schools
are traditionally providers of Title III training. Title III requires that the
entity delivering JTPA-funded training be a certified school operating within
the regulations set forth by the state department of education. The CPPVE is
the governing council for Vocational and non-degree granting schools.

JTPA awards are made directly from the DOL to the individual states, which
are the direct recipients of the funds. Each state then allocates funding to a
local grantee, known as a Service Delivery Area ("SDA"). The Governor of each
state designates SDAs pursuant to JTPA regulations (an SDA is also referred to
as a subrecipient). Funds may also be allocated to a subrecipient that,
depending on local circumstances, may be a Private Industry Council, local
elected official or administrative entity.

26
<PAGE>

Subrecipients then identify eligible participants for retraining and refer them
to vendors for the necessary training and contracted services.

California has 52 subrecipients. Each subrecipient allocates training
through service providers or vendors. A school becomes qualified to be a vendor
through a proposal process. Each subrecipient has its individual set of vendor
qualifications as allowed under the JTPA. Each subrecipient may allocate
funding to a vendor only through a direct contract allowing for individual
referral voucher training. The JTPA requires that all commercial for-profit
schools offer "commercially available off-the-shelf" training programs and
packages. In order to be a "commercially available off-the-shelf" training
program, such course must be sold to the general public in the course of normal
business operations at prices set forth in established catalogs or at market
prices. In addition, qualifying schools must not derive more than 90% of their
annual net revenues from students who participate in JTPA programs. A further
criteria for funding eligibility is a student job placement rate of 75%. From
inception through June 1, 1997, the Company has had a student job placement rate
of approximately 89%.

Because the JTPA imposes new regulations annually and because the DOL has
not fully developed administrative interpretations of such new regulations,
there exists some uncertainty concerning the application of the evolving rules.
New or revised interpretations of such requirements could have a material
adverse effect on the Company. In addition, changes in and new interpretations
of the applicable laws, rules or regulations could have a material adverse
effect on Prosoft's accreditation, authorization to operate, permissible
activities and cost of doing business in various states. The failure to
maintain or renew any required approval, accreditation or state authorization by
Prosoft could have a material adverse effect on the Company.

In addition, each subrecipient of JTPA funds may limit the amount of Title
III funds that are allocated per eligible student for retraining purposes. The
cost of retraining is dependent upon the type of retraining desired and
currently ranges from $6,000 to $12,000 per student. The limits are determined
by either the size of the grant received, the needs of the student and/or the
funding policy of the subrecipient's policy board.

The violation by the Company of regulatory standards governing JTPA
programs could be the basis for a proceeding by the subrecipient to suspend or
terminate the Company's participation in these Title III programs. Although
there is no such proceedings pending, and the Company has no reason to believe
such a proceeding is contemplated, if such a proceeding were initiated against
the Company, and resulted in a substantial curtailment of the Company's
participation in JTPA programs, the Company would be adversely effected. In
addition, if the CPPVE were to determine that the Company misappropriated JTPA
funds or failed to deliver the training as contracted, the Company could be
required to repay such funds as outlined in each contract executed with each
subrecipient.

CPPVE regulations contain specific requirements governing the establishment
of new main campuses, branch campuses and classroom locations at which students
qualifying for JTPA funds receive instruction. The Company intends to continue
to seek CPPVE approvals for certain of its new locations if and when it
determines that such locations warrant JTPA type training. To date, the Company
has not sought CPPVE approval for its new locations. Should the CPPVE change
its regulation with respect to this approval process, or delay approvals of new
locations beyond the current approval time rate, the Company's vocational
business may be adversely affected. In addition, the United States Department
of Education directs the CPPVE to assess the administrative capability of each
school participating in federal

27
<PAGE>

retraining programs. A finding by the CPPVE that a school has failed to satisfy
administrative capability criteria may result in a suspension or revocation of
that school's ability to operate.

CPPVE regulations also contain specific requirements governing curriculum
and course content for JTPA funded programs. While Prosoft has obtained all
approvals for the courses of instruction that are currently offered as well as
the projected 1997 course offerings, in the event that any Prosoft site is
determined by the CPPVE to have offered a course of instruction without having
obtained the proper approvals, Prosoft can be placed on probation by the CPPVE
for a specific period of time not to exceed two years, and can be ordered to
post a bond and to refrain from entering into any new agreements for any course
of instruction. In such a case, the CPPVE may order the Company to reimburse
all reasonable costs and expenses on behalf of the affected student.

During the period December 8, 1995 to April 30, 1997, three southern
California governmental agencies accounted for approximately 44% of the
Company's total revenues. Each of these agencies provided JTPA vocational
training funds for students in the Company's Training Centers. Although a
majority of the Company's revenues to date have been generated from JTPA
vocational training and these three agencies, the Company expects a significant
majority of its revenues in the future will come from Internet/Intranet
training, and its dependence on these agencies and its exposure to state and
federal regulations discussed above will diminish.

EMPLOYEES

As of June 1, 1997, Prosoft had 257 full-time employees and plans to hire
additional support, executive, and instructor staff as new Training Centers open
across the country. The current employees have considerable experience in all
areas of vocational and commercial advanced technology school management,
education and training.

PROPERTIES

As of June 1, 1997, the Company had entered into leases for commercial
space in the following locations:

<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE MONTHLY LEASE RENT EXPIRATION
<S> <C> <C> <C>
Carson, CA* 6,893 $ 8,616 December 1999
North Hollywood, CA* 3,000 $ 3,000 April 1999
Santa Ana, CA* 22,813 $23,953 September 1999
Jacksonville, FL* 6,191 $ 6,325 January 2000
Atlanta, GA* 3,127 $ 3,648 December 2001
New York, NY* 5,558 $ 7,410 August 1999
Dallas, TX* 2,000 $ 1,500 Month-to-month
Salt Lake City, UT 8,443 $ 9,322 March 2000
Vienna, VA* 3,497 $ 5,732 November 2001
Bellevue, WA* 3,550 $ 5,547 November 2001
</TABLE>
- -------------
* Open Training Center

In addition, Prosoft has entered into the Affiliate Program with several
independent training, consulting, distribution and/or reseller companies under
which the affiliates provide space to Prosoft for

28
<PAGE>

its Training Centers. See "Marketing." Prosoft's use of such affiliates' space
is not subject to a lease or sublease arrangement, but rather is set forth in an
agreement under which Prosoft is given use of such affiliates' facilities at
certain times for the providing of Internet/Intranet training in exchange for
the payment of commissions or royalties to such affiliates. The lease or rental
agreements reside with the affiliate and Prosoft has no fixed obligation or
liability for this rent. Prosoft is obligated to pay such affiliates a royalty
of up to 5% that is directly tied to the training revenues generated at such
affiliates' sites. In addition, the Company is responsible for all necessary
tenant improvements relating to the Training Centers made at the affiliates'
locations, which can range anywhere from $5,000 to $50,000 per site, and in the
event that any such affiliation is terminated prior to the expiration of the
contract, Prosoft would have to write off the remaining value of those
improvements, subject to certain reimbursement obligations on the part of some
affiliates. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Liquidity and Capital Resources." Affiliate
contracts can only be terminated by the affiliate for cause. As of June 1,
1997, the Company operated 20 Training Centers and was in the process of opening
five additional Training Centers under this type of arrangement in the following
locations:

29
<PAGE>

<TABLE>
<CAPTION>
LOCATION SQUARE FEET AFFILIATE ROYALTY
<S> <C> <C> <C>
Opened--
- ------
Menlo Park, CA 1,000 Reliant Integration Services 5%
San Diego, CA 700 Computerland of San Diego 5%
San Diego, CA 700 Viceo Tex of America 5%
San Jose, CA 1,200 Devries Data Systems, Inc. 5%
Deerfield Beach, FL 600 Florida Supplies and Solutions 5%
Jacksonville, FL* 1,400 Florida Supplies and Solutions 5%
Largo, FL 1,400 Florida Supplies and Solutions 5%
Chicago, IL 750 Checkpoint 5%
Springfield, IL 800 Computerland of Springfield 5%
Indianapolis, IN 1,250 Computerland of Indianapolis 5%
Owings Mills, MD 750 Valens Information Systems 3%
Boston, MA 750 Vanstar 5%
St. Louis, MO 660 G.A. Sullivan 5%
South Plainfield, NJ 1,600 Polmar, Inc. 3%
Durham, NC 720 National Technology Group 3%
Greensboro, NC 700 National Technology Group 3%
Tulsa, OK 609 Computer Resources of Tulsa 5%
Springfield, PA 760 Valens Information Systems 3%
Greenville, SC 720 Computerland of Greenville, SC 3%
Brentwood, TN 1,520 National Technology Group 5%

In Process of Opening--
- ---------------------
Denver, CO 1,550 Lewan & Associates 5%
Miami, FL 700 Legal Computer Consultants 5%
Overland Park, KS 600 IKON Office Solutions 5%
Charlotte, NC 750 Broadnet, Inc. 5%
Salt Lake City, UT 1,500 Advanced Technology Center 5%
</TABLE>
_______________
* This facility is located adjacent to a facility leased by the Company and
they are treated as a single Training Center by the Company.

LEGAL PROCEEDINGS

The Company is not a party to any material legal proceedings.

30
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Keith D. Freadhoff 37 Chairman of the Board and Chief
Executive Officer
Donald Danks 40 President and Director
Jerrell M. Baird 41 Chief Operating Officer
John J. Buckley 43 Chief Technology Officer
Eric W. Richardson 30 General Counsel
James P. Stapleton 34 Chief Knowledge Officer
Brooks A. Corbin 36 Chief Financial Officer
Andrew Stallman 39 Director
Jeffrey G. Korn 39 Director
</TABLE>

KEITH D. FREADHOFF. Mr. Freadhoff has served as Director, Chairman of the
Board and Chief Executive Officer of the Company since the Reorganization and
prior to that served in the same capacities with Old ProSoft from its inception.
From February 1995 to December 1995, Mr. Freadhoff operated the business of the
Company while it was owned by the Proprietorship. From 1994 through 1995, Mr.
Freadhoff served as Executive Director for the Career Planning Center, a
community based non-profit organization. From 1993 through 1994, Mr. Freadhoff
served as President of The Focus Institute, a company specializing in computer
based, classroom training. Mr. Freadhoff headed a new government training
program division for Frojen Advertising Company between 1991 and 1993. Mr.
Freadhoff began his training background by forming Oasis Corporate Education and
Training in 1987. Oasis was a customized training company that developed
courseware for manufacturing, financial, service and public organizations. Mr.
Freadhoff completed graduate level coursework in the University of Southern
California School of Business Management and graduated from the University of
Nebraska in 1982.

In November 1991, Oasis filed for bankruptcy protection and Mr. Freadhoff
filed for personal bankruptcy. As a result of these bankruptcies, Mr. Freadhoff
was unable to pay state and federal taxes due for the years 1992 through 1994
totaling approximately $55,000 and was also personally liable for unpaid state
and federal payroll taxes for Oasis during the same time period totaling
approximately $225,000. Mr. Freadhoff's personal tax returns and Oasis's
payroll tax filings were all made on a timely basis, but without payment due to
financial difficulties arising out of the Oasis bankruptcy. In 1995 and 1996,
Mr. Freadhoff made payments on these taxes, leaving total obligations owing the
Internal Revenue Service ("IRS") and California Franchise Tax Board ("CFTB") of
approximately $255,000 inclusive of penalties and interest. The IRS and CFTB
have filed tax liens against Mr. Freadhoff for these unpaid taxes. Mr.
Freadhoff intends to pay down these delinquent taxes over the next six to twelve
months.

DONALD DANKS. Mr. Danks has served as Director and President of the
Company since the Reorganization and prior to that served in the same capacities
with Old ProSoft from its inception. From 1991 through 1995, Mr. Danks was
President and Chief Executive Officer of Advantage Life Products, Inc.
("Advantage"), a publicly traded consumer products company. From 1989 to 1991,
Mr. Danks was

31
<PAGE>

the Chief Operating Officer for Advantage. Mr. Danks has extensive experience
in strategic planning, capital formation and the development and implementation
of national marketing strategies. Mr. Danks graduated from the University of
California, Los Angeles, in 1979.

JERRELL M. BAIRD. Mr. Baird joined the Company as Chief Operating Officer
in June 1997. Prior thereto, Mr. Baird served as the Chief Information Officer
of IBM's Consumer Product Division from 1996 to 1997. In 1992, Mr. Baird founded
Baird Information Systems, an information technology outsourcing company where
he served as President until 1994. From 1978 to 1992 and from 1994 to 1996, Mr.
Baird served in a variety of positions at Mrs. Baird's Bakeries, a wholesale
baking company, including Plant Manager, Director of Information Technology and
Vice President of Marketing. Mr. Baird graduated from Washington and Lee
University with a B.S. in Business Administration in 1978, and earned an M.B.A.
from Harvard University in 1982.

JOHN J. BUCKLEY. Mr. Buckley has served as the Chief Technology Officer of
the Company since the Reorganization and prior to that served in the same
capacities with Old ProSoft which he joined in February 1996. Mr. Buckley was
Vice President of Business Development for Gestalt Systems, Inc., an Internet
training company, from July 1993 through January 1996. From May 1992 through
June 1993, Mr. Buckley was an Information Technology Consultant to corporations
in the Washington, D.C. metropolitan area, where he specialized in the design
and implementation of Novell LANs. From October 1987 through April 1992, Mr.
Buckley served as President of Communication Services International, a company
specializing in LAN consulting and implementation services for corporations in
the Mid-Atlantic U.S. Mr. Buckley graduated from the University of Maryland at
College Park with a BA in Political Science in 1974, and earned an MBA in 1976
from the same institution.

ERIC W. RICHARDSON. Mr. Richardson has served as General Counsel of the
Company since June 1996 and served as Chief Operating Officer from December
1996 to June 1997. From September 1994 through June 1996, Mr. Richardson was an
attorney at Shearman & Sterling, where he specialized in the practice of real
estate, banking and corporate law. From February 1994 through August 1994, he
was Vice President of The Focus Institute. Prior to that, he was an attorney at
Milbank, Tweed, Hadley & McCloy from October 1991 through February 1994. Mr.
Richardson received his J.D. degree in 1991 from the University of Michigan and
graduated from the University of Southern California with a B.A. degree in
Political Science in 1988.

JAMES P. STAPLETON. Mr. Stapleton became Chief Knowledge Officer of the
Company in December 1996 and served as the Chief Operating Officer of the
Company from May 1996 until December 1996. Prior thereto, Mr. Stapleton served
as the Chief Financial Officer since he joined the Company in March 1996. Mr.
Stapleton was the Chief Financial Officer of BioTek Solutions, Inc., a life-
sciences company, from December 1995 through February 1996. Prior to that, Mr.
Stapleton was employed in a variety of positions for Advantage Life Products,
Inc. From 1992 though 1995, Mr. Stapleton was Executive Vice President and
Chief Financial Officer of Advantage. From March 1991 through May of 1992 Mr.
Stapleton was Vice President of Sales - Western U.S., and from May 1987 through
March of 1991, Mr. Stapleton was Vice President: Finance and Operations of
Advantage. Mr. Stapleton graduated from the University of California at Irvine
with an MBA in 1995, and from the University of Washington with a BA in
Economics in 1985.

BROOKS A. CORBIN. Mr. Corbin has served as Chief Financial Officer since
he joined the Company in May 1996. From 1995 through 1996, Mr. Corbin was Chief
Financial Officer for Hastl Acquisitions, Inc., an import-export company. In
February 1996, Hastl filed for Chapter 11 bankruptcy protection. Prior to 1995,
Mr. Corbin worked for six years as a business consultant to start-up and
troubled companies. He started his career with Price Waterhouse in 1982. Mr.
Corbin graduated from Stanford University with BAs in Economics and
International Relations in 1982, and from the University of California, Los
Angeles with an MBA in Finance and Real Estate in 1987. Mr. Corbin is a member
of the AICPA.

JEFFREY G. KORN. Mr. Korn has served as a Director of the Company since
June 1997. Mr. Korn is a partner in the law firm of Kosto & Rotalla, P.A. in
Jacksonville, Florida, which he joined in 1983. Mr. Korn specializes in
corporate law, commercial litigation and bankruptcy. He graduated from the State
University of New York at New Paltz with a B.A. in Political Science in 1979,
and received his J.D. degree from Stetson University in 1982.

ANDREW STALLMAN. Mr. Stallman has served as a Director of the Company since
June 1997. Mr. Stallman is a full-time private investor and has been investing
his own capital in hedge fund trading and technology company deals since 1991.
Prior to becoming a full-time private investor, Mr. Stallman was a portfolio
manager at Soros Fund Management and at Steinhardt Partners. Mr. Stallman has
also been a research analyst in Transportation and Technology at Lehman Brothers
Asset Management and an analyst in the Corporate Finance Department of E.F.
Hutton. Mr. Stallman graduated from the State University of New York at New Palz
with a B.A. in History in 1979, and earned an M.B.A. in Finance from Harvard
University in 1982.

32
<PAGE>

SUMMARY COMPENSATION TABLE

The following sets forth certain summary compensation information
concerning the named executive officers of the Company. No other executive
officer of the Company received more than $100,000 in compensation during the
period December 8, 1995 to July 31, 1996.

ANNUAL COMPENSATION
-------------------------
NAME AND PERIOD ENDING OTHER ANNUAL
PRINCIPAL POSITION JULY 31, 1996 SALARY COMPENSATION
------------------ ------------- ------- ------------
<S> <C> <C> <C>
Keith D. Freadhoff(1) 1996 $35,000 $190,500(2)
Chairman of the Board and
Chief Executive Officer
Donald L. Danks(1) 1996 $35,000 $190,500(2)
President
</TABLE>
- ---------------
(1) Mr. Freadhoff became Chief Executive Officer and Mr. Danks President of the
Company in March 1996 upon completion of the Reorganization. The amounts
disclosed include compensation received as executive officers of Old
ProSoft prior to the Reorganization, as well as compensation received as
executive officers of the Company. Neither Mr. Freadhoff nor Mr. Danks were
granted any stock options by the Company.
(2) Upon the formation of Old ProSoft, Mr. Freadhoff and Mr. Danks each
received 1,000,000 shares of Old ProSoft Common Stock in exchange for
$9,500. For financial statement purposes, these shares were valued at $.20
per share and the receipt thereof was treated as compensation of $190,500
to each of Mr. Freadhoff and Mr. Danks.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Company did not have a compensation committee or other committee of the
Board of Directors performing similar functions during the last fiscal year.
Messrs. Freadhoff and Danks are each officers of the Company and, as members of
the Board of Directors, participated in deliberations of the Board concerning
executive officer compensation.

COMMITTEES OF THE BOARD OF DIRECTORS

Audit Committee. The Board of Directors has established an audit committee
(the "Audit Committee"), which consists of Messrs. Stallman and Korn. The Audit
Committee, among other things, makes recommendations concerning the engagement
of independent public accountants, reviews with the independent public
accountants the plans and results of the audit engagement, considers the range
of audit and non-audit fees and reviews the adequacy of the Company's internal
accounting controls.

Compensation Committee. The Board of Directors has established a
compensation committee (the "Compensation Committee"), which consists of Messrs.
Stallman and Korn, to determine the compensation for the Company's senior
executive officers and determine awards under the Company's stock option
plans.

The Board of Directors of the Company does not have a nominating
committee.

COMPENSATION OF BOARD OF DIRECTORS

Each non-employee member of the Board of Directors receives $500 for each
meeting of the Board of Directors attended by that director and $250 for each
meeting of a committee of the Board attended, other than committee meetings
held in conjunction with meetings of the Board of Directors. Employee directors
of the Company do not receive compensation for serving on the Board of
Directors.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company believes that certain provisions of its Restated Articles of
Incorporation ("Articles") and Bylaws will be useful to attract and retain
qualified persons as directors and officers. The Company's Articles limit the
liability of directors to the fullest extent permitted by Nevada law. This is
intended to allow the Company's directors the benefit of Nevada Corporation Law
which provides that directors of Nevada corporations may be relieved of monetary
liabilities for breach of their fiduciary duties as directors, except under
certain circumstances, including (i) acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law, or (ii) the payment of unlawful
distributions. The Company's Bylaws generally require the Company to indemnify,
as well as to advance expenses, to its directors and its officers to the fullest
extent permitted by Nevada law upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if it should be ultimately
determined that they are not entitled to indemnification by the Company. The
Company has also entered into indemnification agreements with its directors and
officers which similarly provide for the indemnification and advancement of
expenses by the Company.

33
<PAGE>

The Company has obtained officer and director liability insurance with
respect to liabilities arising out of certain matters, including matters arising
under the Securities Act.

There is no pending litigation or proceeding involving a director,
officer, associate or other agent of the Company as to which indemnification is
being sought, nor is the Company aware of any threatened litigation that may
result in claims for indemnification by any director, officer, associate or
other agent.

EMPLOYMENT AGREEMENTS

The Company has not entered into any employment agreements with its
executive officers.

STOCK OPTION PLAN

In 1996, the Board of Directors and stockholders of the Company
approved the adoption of a 1996 Stock Option Plan (the "1996 Plan"). The
following is a brief summary of the material features of the 1996 Plan.

The 1996 Plan originally called for the granting of options to
purchase up to 750,000 shares of the Company's Common Stock. In April 1997, the
Board of Directors approved, subject to stockholder approval, an increase in the
shares eligible for issuance upon exercise of options granted under the Plan to
1,250,000 shares. No employee, director or consultant may be granted options to
acquire more than 250,000 shares during any one-year period under the 1996 Plan.
Shares covered by options which terminate without exercise are available for
issuance upon the grant of additional options. The number and kind of shares
subject to the 1996 Plan and any outstanding options under the 1996 Plan will be
appropriately adjusted in the event of a stock split, stock dividend,
reorganization or other specified changes in the capitalization of the Company.
The 1996 Plan allows for the grant of either incentive stock options or
nonstatutory stock options.

The 1996 Plan is administered by the Company's Board of Directors,
which has the sole authority to determine which eligible persons shall receive
options and the terms and provisions of the options. The Board also has the
full power and authority to interpret the provisions of the 1996 Plan and any
option granted under the 1996 Plan. The Board may delegate administration of
the 1996 Plan to a committee of not less than two members of the Board.

Employees, directors and consultants of the Company and any subsidiary
of the Company are eligible to receive options under the 1996 Plan, with only
employees eligible to receive incentive stock options. At June 1, 1996,
approximately 200 persons were eligible to participate in the 1996 Plan. The
Board has the discretion to set the exercise price for options granted under the
1996 Plan, provided that the exercise price per share for each incentive stock
option cannot be less than the fair market value on the date of grant and the
exercise price per share for each nonstatutory stock option cannot be less than
85% of the fair market value on the date of grant; provided, further, that the
exercise price per share for each option granted to a person owning greater than
10% of the total combined voting power of all classes of stock of the Company (a
"Restricted Stockholder") cannot be less than 110% of the fair market value on
the date of grant. The Board also has broad discretion as to the other terms
and conditions upon which options granted shall be exercisable, but under no
circumstances will an option have a term exceeding ten years from the date of
grant, nor may an option granted to an employee who is not an officer or
director be exercisable at a rate of less than 20% per year.

34
<PAGE>

The purchase price for shares issued under the 1996 Plan shall be paid
by cash or such other means deemed acceptable by the Board, including the
payment of all or part of the exercise price with shares previously acquired by
the optionee. The Company may also facilitate the cashless exercise of options
through customary brokerage arrangements.

Each option will expire on the date established by the Board for that
option, except that no option may be exercised later than ten years after the
date of grant and no incentive stock option granted to a Restricted Stockholder
may be exercised later than five years after the date of grant. Options
generally terminate upon the termination of the optionee's employment, except
that the Board may provide in the option agreement that the vested portion of
the option at the time of termination may be exercisable for up to three months
after termination for any reason other than death or disability, and for up to
one year after termination in the event of death or disability. The Board also
has the authority to extend the post-termination exercise period, although not
beyond the original option expiration date, and to accelerate unvested portions
of an option upon the termination of employment. Options are not transferable
by the optionee other than by will or the laws of descent and distribution.

The 1996 Plan provides that in the case of certain reorganizations,
mergers or consolidations of the Company with one or more corporations, or the
sale of substantially all of the Company's assets, all outstanding options,
including unvested installments, shall be accelerated and be exercisable in full
beginning immediately prior to the consummation of the transaction unless such
options are assumed in some manner as part of the transaction or new options or
securities are substituted for them.

The 1996 Plan provides that the Board may at any time amend or
terminate the 1996 Plan, although no amendment or termination may adversely
affect any previously granted option without the consent of the holder of the
option. Unless sooner terminated by the Board, the 1996 Plan will terminate in
March 2006.

As of June 1, 1997, there were options outstanding under the 1996 Plan
to purchase 748,750 shares of Common Stock, with exercise prices ranging from
$3.50 to $19.75 per share and termination dates ranging from January 1998 to
March 2001. The options under the 1996 Plan vest over varying lengths of time
pursuant to various option agreements that the Company has entered into with the
grantees of such options.

OTHER STOCK OPTIONS

As a result of the Reorganization, nonstatutory stock options to
purchase 1,042,500 shares of common stock of Old ProSoft were converted into
options to purchase 1,042,500 shares of the Company's Common Stock on
substantially the same terms and conditions as options granted under the 1996
Plan. As of June 1, 1997, 933,700 of these options remained outstanding and
were fully exercisable at an exercise price of $1.00 per share. All of these
options expire on July 31, 1997.

35
<PAGE>

CERTAIN TRANSACTIONS

REORGANIZATION

From its incorporation in May 1985 until March 1996, the Company had no
significant operations. In March 1996, the Company entered into the
Reorganization Agreement with Old ProSoft and the Old ProSoft shareholders.
Under the term of the Reorganization Agreement, the 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. An aggregate of 4,726,250 shares were issued to the Old ProSoft
shareholders in the Reorganization and the Old ProSoft shareholders ended up
owning approximately 90% of the Company immediately after the Reorganization.
All outstanding options and warrants to purchase shares of common stock of Old
ProSoft became options or warrants to purchase the same number of shares of
Common Stock of the Company, and on the same terms, in 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.

STOCK ISSUANCES BY OLD PROSOFT

Old ProSoft was incorporated in December 1995. Donald L. Danks, a director
and President of the Company, Keith D. Freadhoff, Chairman of the Board and
Chief Executive Officer of the Company, and Douglas Hartman, a former director
of the Company, each received 1,000,000 shares of Common Stock of Old ProSoft in
exchange for $9,500 in the case of Mr. Danks, a demand promissory note for
$9,500 in the case of Mr. Freadhoff, and the contribution of all of the assets
and liabilities of the Proprietorship in the case of Mr. Hartman. For financial
statement purposes, the shares of Old ProSoft were valued at $.20 per share and
the receipt thereof was treated as compensation of $190,500 to each of Mr.
Freadhoff and Mr. Danks.

From January to March 1996, Old ProSoft conducted a private offering of its
common stock and warrants to purchase common stock. Pursuant to that offering,
a total of 931,250 shares of common stock were sold for total cash consideration
of $927,500. Warrants to purchase an aggregate of 945,000 shares of common
stock at $1.00 per share were issued to investors in that private placement.
Mr. William Richardson, a former director of the Company, purchased 25,000
shares and received a warrant to purchase 25,000 shares in that offering for
$25,000. Although the warrants issued in that offering were called for
redemption in May 1996, the Company has agreed to extend Mr. William
Richardson's warrants until 1999.

All outstanding Old ProSoft shares were exchanged for newly-issued shares
of Company Common Stock in the Reorganization. In addition, all outstanding Old
ProSoft options and warrants became options or warrants to purchase Company
Common Stock in the Reorganization.

POST-REORGANIZATION PRIVATE PLACEMENT

During April and May of 1996, the Company conducted a private offering of
its Common Stock and warrants to purchase Common Stock. Pursuant to that
offering, a total of 430,462 shares of Common Stock were sold for total cash
consideration of $1,506,639 and warrants to purchase 143,473 shares of Common
Stock at $5.00 per share were also issued to the investors. Mr. William
Richardson

36
<PAGE>

purchased 10,000 shares and a warrant to purchase an additional 3,333 shares in
that offering for an aggregate of $35,000. Mr. Eric Richardson, the Company's
Chief Operating Officer and General Counsel, purchased 8,000 shares and a
warrant to purchase an additional 2,666 shares in that offering for an aggregate
of $28,000. Brooks Corbin, the Company's Chief Financial Officer, purchased
7,000 shares and a warrant to purchase an additional 2,333 shares for an
aggregate of $24,500.

OTHER

During the period January 1996 through April 1997, the Company loaned
approximately $206,350 to Mr. Freadhoff at an interest rate of 10% per annum.
The balance which remained outstanding at June 1, 1996 was $113,350. Principal
and interest on this loan is due and payable on demand.

The Company has agreed to include in the Registration Statement of which
this Prospectus is a part an aggregate of 60,000, 10,666 and 9,333 shares of
Common Stock, including 25,000, 2,666 and 2,333 shares of Common Stock issuable
upon exercise of warrants, owned by Mr. William Richardson, Mr. Eric Richardson
and Mr. Corbin, respectively. The Company has entered into a registration
agreement with these three individuals and certain other Selling Stockholders in
connection with such registration of their shares. See "DESCRIPTION OF CAPITAL
STOCK -- Shares Eligible For Future Sale".

All transactions between the Company and its officers, directors and
principal stockholders have been on terms no less favorable to the Company than
could have been obtained from unaffiliated third parties.

37
<PAGE>

SELLING STOCKHOLDERS

All of the Shares offered by this Prospectus are being offered by the
Selling Stockholders for their own respective accounts. The following table
sets forth certain information as of June 1, 1997, with respect to the Selling
Stockholders:

<TABLE>
<CAPTION>
Shares Shares
Beneficially Shares Beneficially
Owned Covered Owned
Prior to By after the
Name of Selling Stockholder Offering Prospectus Offering(1)
--------------------------- -------------- --------------- -------------
<S> <C> <C> <C>
Alder, Susan 13,000(2) 13,000 0
Alhadeff, Victor D. 9,000 9,000 0
American Ports Consultants, Inc. 95,236(2) 95,236 0
Baker, Jason R. & Kelly JTWROS 333(2) 333 0
Bannister, Henry F. 3,500 3,500 0
Banyan Investment Co. 113,310(2) 113,310 0
Basson, David N. 2,858(2) 2,858 0
Beebe, R. Scott 50,000(2) 50,000 0
Bev Partners 21,000 21,000 0
Biggs, John W., D.C.,P.C. Pension Plan & Trust 5,000 5,000 0
Bodon, Michael G. 29,100(2) 29,100 0
Boyko, Jeffrey A., D.C., P.C. Pension Plan 3,000 3,000 0
Brades, Doreen 4,000(2) 4,000 0
Bradshaw, Brett 2,000(2) 2,000
Buma, Ryan L. 6,368(2) 6,368 0
Butler, Jeffrey D. 8,571(2) 8,571 0
Carter, Kathy 13,470(2) 13,470 0
Cecala, Enrico 50,000(2) 50,000 0
Chaffetz, Alex 10,800(2) 800 10,000(3)
Chaffetz, Jason E. & Julie Marie, Trust 7,400(2) 7,400 0
Chaffetz, John 40,000(2) 40,000 0
Clark Fork Medical Associates, P.C. 401(K)
Profit Sharing Plan 2,000 2,000 0
Clem, Brent 50,000(2) 50,000 0
Cochran, Kirby D. 150,000(2) 50,000 100,000(4)
Conners Family Trust 3,800(2) 3,800 0
Cook, Steve 600(2) 600 0
Corbin, Brooks A. 109,333(2)(5) 9,333(6) 100,000(4)
Cord Capital LLC 6,000 6,000 0
Cox, Craig & Susan 5,000 5,000 0
Cranshire Capital L.P. 5,000 5,000 0
Crilly, Patrick J. 7,143(2) 7,143 0
Cudd & Co. 30,000 30,000 0
Cunningham, Joe N. 5,733(2) 5,733 0
D'Ambrosio, Christianne C. & Kara C. 2,000(2) 2,000 0
</TABLE>

38
<PAGE>

<TABLE>
<CAPTION>
Shares Shares
Beneficially Shares Beneficially
Owned Covered Owned
Prior to By after the
Name of Selling Stockholder Offering Prospectus Offering(1)
--------------------------- -------------- --------------- -------------
<S> <C> <C> <C>
D'Ambrosio, Kara C. 30,000(2) 30,000 0
D'Ambrosio, Louis J. 117,600(2) 117,600 0
D'Ambrosio, Louis J. & Kara C. 1,000(2) 1,000 0
D'Ambrosio, Louis J. & Sue R. JTWROS 20,000(2) 20,000 0
Davies, Paul M. 4,500 4,500 0
Delaware Charter Guarantee & Trust, FBO
Burt Cohen IRA 12,000 12,000 0
DRC Corporation Pension Plan 27,999(2) 27,999 0
Dukakis, John & Lisa 2,811(2) 2,811 0
Eagle Growth Limited Partnership 50,000 50,000 0
Eggleston, Thomas & Mary 14,200(2) 14,200 0
EGS Associates 42,000 42,000 0
Evans, Pat 1,000(2) 1,000 0
Ervin, Cohen & Jessup Profit Sharing Plan FBO
Gary Freedman 3,000 3,000 0
Fliege, James R. 48,500(2) 48,500 0
Forrester, Michael & Pamela 83,500(2) 83,500 0
Gaeta, Frank 1,000(2) 1,000 0
Geary Partners 41,667 41,667 0
General Electric Pension Trust, Trustees 408,164 408,164 0
Gilbreth, Joseph Jr. & Jean 10,000 10,000 0
Gillen, Frank J. 20,640(2) 20,640 0
Gladstein, Gary S. 5,000 5,000 0
Gramm, Colton 2,500 2,500 0
Granville, Richard 1,000(2) 1,000 0
Gronning, Gene 2,000(2) 2,000 0
Grubbs, Joel 2,660(2) 2,660 0
Gunn, Bob 2,660(2) 2,660 0
Hall, L. Dee 500(2) 500 0
Harding, David 9,904(2)(7) 9,904(7) 0
Haussman Holdings N.V. 40,000 40,000 0
Heiserman & Hamer 921(2) 921 0
Herron, Christopher & Elizabeth 300(2) 300 0
Holt, Dave 1,000(2) 1,000 0
Honig, Roy & Valeta 500(2) 500 0
Hunsaker, Stephen 2,000(2) 2,000 0
IPESA NV 20,000(2) 20,000 0
Jackson, Valerie 4,000(2) 4,000 0
Jensen, W. Reed 10,000(2) 10,000 0
JMB/FEB Partners 10,417 10,417 0
</TABLE>

39
<PAGE>

<TABLE>
<CAPTION>
Shares Shares
Beneficially Shares Beneficially
Owned Covered Owned
Prior to By after the
Name of Selling Stockholder Offering Prospectus Offering(1)
--------------------------- -------------- --------------- -------------
<S> <C> <C> <C>
J.M. Bryan Family Trust 10,416 10,416 0
Johnston, Susan 2,860(2) 2,860 0
Jones, Milton C. 50,000(2) 50,000 0
Kaveggia, Laszlo P. 1,250 1,250 0
Ketcher, Fred 2,500 2,500 0
Keyway Investments 36,000 36,000 0
Khaled, Michael E. 339,000(2)(8) 129,000(8) 210,000(9)
Koch, Ronald R. Living Trust 4,000 4,000 0
Lothian, Mathew 40,000(2) 40,000 0
Lowe, Raymond E. IRA 49,000(2) 49,000 0
Lukoff, Jonathon 5,607(2) 5,607 0
Lyneis, Donald & Janet 200(2) 200 0
Malamut, Mark 1,333(2) 1,333 0
Manni, Arthur 25,000(2) 25,000 0
Marathan Investments, LTD 31,665(2)(10) 31,665(10) 0
McCulloch, Patricia 2,667(2) 2,667 0
Miller, Kim 1,000(2) 1,000 0
Minkoff, Donald E. 2,500 2,500 0
Mock, David 150,000(2)(11) 150,000(11) 0
Modiano, Mario 14,600(2) 14,600 0
Moon, Cynthia 500(2) 500 0
Morning Star Partners 8,333 8,333 0
Mourlas, James 1,000(2) 1,000 0
Nievaard, Hans 1,000(2) 1,000 0
Nosseck, Noel 3,000 3,000 0
Olafson, Gregory 100,000(2)(12) 100,000(2)(12) 0
Olafson, Joan 1,330(2) 1,330 0
Patrou, John P. 5,000 5,000 0
Patterson, M. Lisa 500(2) 500 0
Peterson, Brian 1,000(2) 1,000 0
Peterson, Jeffrey 1,000(2) 1,000 0
Peterson, Nancy cust Jonathan Peterson 1,000(2) 1,000 0
Peterson, Mark 18,000(2) 18,000 0
Peterson, Robert 1,000(2) 1,000 0
Presidio Partners 116,667 116,667 0
Resource Services Ltd. Money Purchase Pension 4,576(2) 4,576 0
& Profit Sharing Trust
Richardson, Eric W. 140,666(2)(13) 10,666(14) 130,000(15)
Richardson, William E. 146,400(2)(16) 46,400(16) 100,000(4)
Pillsbury, Jill & Taylor 4,000(2) 4,000 0
</TABLE>

40
<PAGE>

<TABLE>
<CAPTION>
Shares Shares
Beneficially Shares Beneficially
Owned Covered Owned
Prior to By after the
Name of Selling Stockholder Offering Prospectus Offering(1)
--------------------------- -------------- --------------- -------------
<S> <C> <C> <C>
Rizzotto, Ken & Jane 1,000(2) 1,000 0
Ronchetti, Jennifer Cook 300(2) 300 0
ROPAR, LLC 15,000 15,000 0
Rosenthal, Murray H. 19,046(2) 19,046 0
Ruenitz Associates 2,000 2,000 0
Schenker, Walter Milton 3,000 3,000 0
Schmidt Family Trust 5,000 5,000 0
Sheppard, Robert 68,200(2) 68,200 0
Siegel, Richard B. 50,000(2) 50,000 0
Slawson, Steve 3,000 3,000 0
Slobe, Roger D. 7,850(2) 7,850 0
Smith, Randy 13,300(2) 13,300 0
Smith, George R. 1,000(2) 1,000 0
Stallman, Andrew 60,000(2)(17) 60,000(17) 0
Steps, Inc. 50,000(2) 50,000 0
Stevens, Sandra 1,000(2) 1,000 0
Sullivan, Gregory A. 23,333(2) 23,333 0
SunAmerica Small Company Growth Fund 250,000 250,000 0
Terreau, William R. & Marilyn J. JTWROS 500(2) 500 0
Thomas, William E. 47,000(2) 47,000 0
Thomas, William E., Custodian for
Kelly O'Rourke 9,600(2) 9,600 0
Thorp, Terry L. & Pamela A. JTWROS 3,000(2) 3,000 0
Torp, Wade 1,000(2) 1,000 0
Travelers Indemnity Co. 110,000 110,000 0
Trimble, Kelly 119,200(2) 19,200 100,000(4)
Turnbow, Lynn 120,000(2) 120,000 0
Vanderhoff, Michael D. 229,990(2) 149,990 80,000(3)
Wasatch Textiles 9,700(2) 9,700 0
Weinstein, Ronald A. 9,000 9,000 0
Whisper Investment Company 20,000(2) 20,000 0
Whittier Equities Corp. 5,000 5,000 0
Wittwer, Chet A. 1,000(2) 1,000 0
Wood, Mark 3,500(2) 3,500 0
Wood, Mark & Jerri 10,000(2) 10,000 0
Young, Kenneth M. 50,000(2) 50,000 0
Zane and Alice Feldman Trust 7,142(2) 7,142 0
--------- --------- -------
4,572,729 3,742,729 830,000
========= ========= =======
</TABLE>

41
<PAGE>

____________________
(1) Assumes that each Selling Stockholder sells all of the Shares to which this
Prospectus relates.
(2) These Selling Stockholders have agreed generally not to sell, under this
Prospectus, more than 1% of their respective Shares held as of November 27,
1996 for each month that elapses after that date unless the consent of the
Company is obtained. See "DESCRIPTION OF CAPITAL STOCK -- Shares Eligible
for Future Sale."
(3) Represents less than 1% of the Company's shares after this offering.
(4) Represents 1.0% of the Company's shares after this offering.
(5) Includes 100,000 shares subject to a currently exercisable option and 2,333
shares subject to a currently exercisable warrant.
(6) Includes 2,333 shares subject to a currently exercisable warrant.
(7) Includes 2,476 shares subject to a currently exercisable warrant.
(8) Includes 25,000 shares subject to a currently exercisable warrant.
(9) Represents 2.1% of the Company's shares after this offering.
(10) Includes 31,665 shares subject to a currently exercisable warrant.
(11) Includes 120,000 shares subject to a currently exercisable warrant.
(12) Includes 55,000 shares subject to a currently exercisable warrant.
(13) Includes 100,000 shares subject to a currently exercisable option and 2,666
shares subject to a currently exercisable warrant.
(14) Includes 2,666 shares subject to a currently exercisable warrant.
(15) Represents 1.3% of the Company's shares after this offering.
(16) Includes 25,000 shares subject to a currently exercisable warrant.
(17) Includes 60,000 shares subject to a currently exercisable warrant.

42
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Company's capital stock at June 1, 1997, and as
adjusted to reflect the sale by the Company of the Shares offered hereby, (i) by
each person who is known by the Company to be the beneficial owner of more than
5% of the Common Stock of the Company, (ii) by each of the Company's directors,
and (iii) by all directors and executive officers as a group. Except as
otherwise noted, each named beneficial owner has sole voting and investment
power with respect to the shares owned.

Shares Beneficially Shares Beneficially
Name of Individual Owned Prior to Shares Owned After
or Identity of Group(1) the Offering to be Sold the Offering
----------------------- ----------------------- ------------- -----------------------
Number Percent Number Percent
------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C>
J.P. Morgan & Co., Incorporated(2) 1,013,244 10.2% -- 1,013,244 10.2%
Keith D. Freadhoff 715,000 7.2% -- 715,000 7.2%
Douglas Hartman 710,000 7.2% -- 710,000 7.2%
Donald L. Danks 706,500 7.1% -- 706,500 7.1%
All directors and executive officers 2,060,099(3) 20.0% 19,999(4) 2,040,100(3) 19.8%
as a group (6 persons) --------- ---- ---------- --------- ----
</TABLE>
- --------------------
(1) The address of each of Messrs. Freadhoff, Hartman and Danks is c/o the
Company, 2333 North Broadway, Suite 300, Santa Ana, California 92706.
Unless otherwise noted, the Company believes that all persons named in
the table have sole voting and investment power with respect to all
shares of stock beneficially owned by them.
(2) J.P. Morgan & Co., Incorporated is the ultimate parent of the trustee
of four record stockholders, none of which individually owns greater
than 5% of the Common Stock of the Company.
(3) Includes 400,999 shares issuable pursuant to options and warrants
exercisable within 60 days of the date of this Prospectus.
(4) Includes 4,999 shares issuable pursuant to warrants exercisable within
60 days of the date of this Prospectus.

43
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, $0.001 par value per share, of which 9,910,667 shares of Common
Stock were issued and outstanding as of June 1, 1997.

The holders of outstanding shares of Common Stock are entitled to share
ratably in dividends declared out of assets legally available therefor at such
time and in such amounts as the Board of Directors may from time to time
lawfully determine. Each holder of Common Stock is entitled to one vote for
each share held. Cumulative voting in elections of directors and all other
matters brought before stockholders meetings, whether they be annual or special,
is not provided for under the Company's Articles or Bylaws. However, under
certain circumstances, cumulative voting rights in the election of the Company's
directors may exist under California law. See "--Application of California GCL".
The Common Stock is not entitled to conversion or preemptive rights and is not
subject to redemption or assessment. Upon liquidation, dissolution or winding up
of the Company, any assets legally available for distribution to stockholders as
such are to be distributed ratably among the holders of the Common Stock at that
time outstanding. The Common Stock presently outstanding is, and the Common
Stock issued in this offering will be, fully paid and nonassessable.

The Transfer Agent for the Company's Common Stock is Interwest Transfer
Company, Inc.

SHARES ELIGIBLE FOR FUTURE SALE

On June 1, 1997, the Company had 9,910,667 shares of Common Stock
outstanding, assuming no exercise of the outstanding stock options or warrants,
which total 2,213,443 shares.

Substantially all of the outstanding shares of Common Stock are "restricted
securities" as defined in Rule 144 under the Securities Act of 1933, as amended
(the "Securities Act"). These shares may not be sold unless registered under
the Securities Act or sold pursuant to an applicable exemption from registration
such as Rule 144. In general, under Rule 144, as currently in effect, subject to
the satisfaction of certain other conditions, a person, including an affiliate
of the Company (or persons whose shares are aggregated), who has owned
restricted shares of Common Stock beneficially for at least one year is entitled
to sell, within any three-month period, a number of shares that do not exceed
the greater of 1% of the total number of outstanding shares of the same class
or, if the Common Stock is quoted on NASDAQ, the average weekly trading volume
during the four calendar weeks preceding the sale. Any person who has not been
an affiliate of the Company for at least the three months immediately preceding
the sale, and who has beneficially owned shares of Common Stock for at least two
years, is entitled to sell such shares under Rule 144 without regard to any of
the limitations described above. Over 6,000,000 of the Company's outstanding
shares are currently eligible for sale under Rule 144, although holders of
4,399,300 of such shares have agreed not to sell their shares under Rule 144
prior to January 15, 1998 without the prior written consent of the Company.

An aggregate of 3,742,729 shares have been registered for sale by the
Selling Stockholders under this Prospectus. In connection with such
registration, holders of 2,432,315 of these shares have entered into an
agreement with the Company relating to the sale of shares under this Prospectus
(the "Registration Agreement"). Under the Registration Agreement, the Company
has agreed to include those shares in this Prospectus and the stockholders have
agreed not to sell under this Prospectus, without the written consent of the
Company, more than 1% of their Shares held as of November 27, 1996 for each
month that elapses after that date, although 2,045,568 of those Shares are
eligible for sale outside the Prospectus under Rule 144. However, holders of
substantially all of those 2,045,568 shares have agreed not to sell their shares
under Rule 144 prior to January 15, 1998 without the prior written consent of
the Company.

44
<PAGE>

To the extent the Company allows shares in excess of the 1% amount to be
sold under this Prospectus it has agreed to do so only on a pro rata basis among
all stockholders who are parties to the Registration Agreement, except the
Company may, in its discretion, allow Selling Stockholders to sell amounts less
than 1,000 shares without regard to the percentage of that stockholder's shares.
Such stockholders have also agreed that, in the event of any future underwritten
public offering of the Company's securities they will not sell their shares for
a period of 180 days after the closing of such offering without the written
consent of the managing underwriter.

The Company has also registered 1,792,500 shares issuable upon exercise of
outstanding options to purchase Common Stock of the Company held by employees
and consultants of the Company. As of June 1, 1997, 1,378,839 of these options
were exercisable. In addition, the Company has agreed to register an additional
1,894,260 shares under registration agreements with certain investors. See
"Registration Rights."

REGISTRATION RIGHTS

In connection with a private placement of 727,000 shares of its Common
Stock, the Company agreed to prepare, file and use its best efforts to have
declared effective a registration statement covering the shares with the
Securities and Exchange Commission. The Company agreed to file this
registration statement no later than August 31, 1996 and to keep it effective
until November 27, 1998 or until all of such shares could otherwise be sold
under Rule 144 under the Securities Act. This Prospectus is part of the
Registration Statement intended to satisfy the obligation to the purchasers in
that private placement.

Under the Registration Agreement, the Company also agreed to register
2,660,291 shares of Common Stock held by certain investors in the Company. See
"Shares Eligible for Future Sale." This Prospectus is part of the Registration
Statement intended to satisfy this obligation.

Investors in an earlier private placement by the Company received certain
piggyback registration rights with respect to a portion of the shares issuable
to them upon exercise of the warrants received in that offering. Generally,
those shareholders and others receiving warrants related to that offering are
entitled to include up to 50% of their warrant shares in any registration
statement filed by the Company after the closing of the Company's initial public
offering, subject to possible cutbacks by the underwriters, if any, in the
offering covered by that registration statement. A total of 116,579 shares of
Common Stock are issuable or have been issued upon exercise of warrants relating
to that private placement. Under the Registration Agreement, the Company has
agreed to include all of those warrant shares in this Prospectus, as well as all
430,462 shares issued in that private placement.

Another shareholder of the Company has certain piggyback registration
rights with respect to 120,000 shares of Common Stock issuable upon exercise of
a warrant held by him. All of those shares are included in this Prospectus.

In connection with a private placement of 2,081,758 shares of Common Stock
in February through April 1997, the Company entered into a Registration Rights
Agreement with the purchasers of

45
<PAGE>

those shares. Under that Registration Rights Agreement, the Company has agreed
to file a registration statement covering 187,500 of those shares no later than
June 11, 1997 and a registration statement covering the remaining 1,902,591 of
those shares no later than September 9, 1997. This Prospectus is part of the
Registration Statement intended to satisfy the obligation to register the
179,167 shares by June 11, 1997. The Company has agreed to use its best efforts
to cause those registration statements to be declared effective and to keep them
effective until all such shares have been sold or until all of such shares could
otherwise be sold under Rule 144 under the Act. The Company has also granted
the holders of 1,013,244 of those shares certain piggyback registration rights
during the period from September 13, 1997 to March 13, 2000.

The Company also agreed to file a registration statement by October 17,
1997 covering 408,164 shares sold to an institutional investor in April 1997 and
to use its best efforts to cause that registration statement to be declared
effective and to keep it effective until April 1999. This Prospectus is part of
the Registration Statement intended to satisfy this obligation. The Company has
also granted this investor certain piggyback registration rights for so long as
it owns greater than three percent of the Company's outstanding shares.

No other stockholders of the Company have registration rights with respect
to the Common Stock which they own or have the right to acquire.

NEVADA ANTI-TAKEOVER LAWS AND CERTAIN CHARTER PROVISIONS

Nevada's "Combination with Interested Stockholders Statute," Nevada Revised
Statutes 78.411-78.444, which applies to Nevada corporations having at least 200
stockholders, prohibits an "interested stockholder" from entering into a
"combination" with the corporation, unless certain conditions are met. A
"combination" includes (a) any merger with an "interested stockholder," or any
other corporation which is or after the merger would be, an affiliate or
associate of the interested stockholder, (b) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of assets, in one transaction or
a series of transactions, to an "interested stockholder," having (i) an
aggregate market value equal to 5% or more of the aggregate market value of the
corporation's assets, (ii) an aggregate market value equal to 5% or more of the
aggregate market value of all outstanding shares of the corporation, or (iii)
representing 10% or more of the earning power or net income of the corporation,
(c) any issuance or transfer of shares of the corporation or its subsidiaries,
to the "interested stockholder," having an aggregate market value equal to 5% or
more of the aggregate market value of all the outstanding shares of the
corporation, (d) the adoption of any plan or proposal for the liquidation or
dissolution of the corporation proposed by the "interested stockholder," (e)
certain transactions which would have the effect of increasing the proportionate
share of outstanding shares of the corporation owned by the "interested
stockholder," or (f) the receipt of benefits, except proportionately as a
stockholder, of any loans, advances or other financial benefits by an
"interested stockholder." An "interested stockholder" is a person who (i)
directly or indirectly owns 10% or more of the voting power of the outstanding
voting shares of the corporation or (ii) an affiliate or associate of the
corporation which at any time within three years before the date in question was
the beneficial owner, directly or indirectly, of 10% or more of the voting power
of the then outstanding shares of the corporation.

A corporation to which the statute applies may not engage in a
"combination" within three years after the interested stockholder acquired its
shares, unless the combination or the interested stockholder's acquisition of
shares was approved by the board of directors before the interested stockholder
acquired the shares. If this approval was not obtained, then after the three-
year period expires, the combination

46
<PAGE>

may be consummated if all the requirements in the Articles of Incorporation are
met and either (a)(i) the board of directors of the corporation approves, prior
to such person becoming an "interested stockholder," the combination or the
purchase of shares by the "interested stockholder" or (ii) the combination is
approved by the affirmative vote of holders of a majority of voting power not
beneficially owned by the "interested stockholder" at a meeting called no
earlier than three years after the date the "interested stockholder" became such
or (b) the aggregate amount of cash and the market value of consideration other
than cash to be received by holders of common shares and holders of any other
class or series of shares meets the minimum requirements set forth in Sections
78.411 through 78.443, inclusive, and prior to the consummation of the
combination, except in limited circumstances, the "interested stockholder" will
not have become the beneficial owner of additional voting shares of the
corporation.

Nevada's "Control Share Acquisition Statute," Nevada Revised Statute
(S)78.378-78.379, prohibits an acquiror, under certain circumstances, from
voting shares of a target corporation's stock after crossing certain threshold
ownership percentages, unless the acquiror obtains the approval of the target
corporation's stockholders. The Control Share Acquisition Statute only applies
to Nevada corporations with at least 200 stockholders, including at least 100
record stockholders who are Nevada residents, and which do business directly or
indirectly in Nevada. While the Company does not currently exceed these
thresholds, it may well do so in the near future. In addition, although the
Company does not presently "do business" in Nevada within the meaning of the
Control Share Acquisition Statute, it plans to open offices there shortly.
Therefore, it is likely that the Control Share Acquisition Statute will apply to
the Company. The statute specifies three thresholds: at least one-fifth but
less than one-third, at least one-third but less than a majority, and a majority
or more, of all the outstanding voting power. Once an acquiror crosses one of
the above thresholds, shares which it acquired in the transaction taking it over
the threshold or within ninety days become "Control Shares" which are deprived
of the right to vote until a majority of the disinterested stockholders restore
that right. A special stockholders' meeting may be called at the request of the
acquiror to consider the voting rights of the acquiror's shares no more than 50
days (unless the acquiror agrees to a later date) after the delivery by the
acquiror to the corporation of an information statement which sets forth the
range of voting power that the acquiror has acquired or proposes to acquire and
certain other information concerning the acquiror and the proposed control share
acquisition. If no such request for a stockholders' meeting is made,
consideration of the voting rights of the acquiror's shares must be taken at the
next special or annual stockholders' meeting. If the stockholders fail to
restore voting rights to the acquiror or if the acquiror fails to timely deliver
an information statement to the corporation, then the corporation may, if so
provided in its articles of incorporation or bylaws, call certain of the
acquiror's shares for redemption. The Company's Restated Articles of
Incorporation and Bylaws do not currently permit it to call an acquiror's shares
for redemption under these circumstances. The Control Share Acquisition Statute
also provides that the stockholders who do not vote in favor of restoring voting
rights to the Control Shares may demand payment for the "fair value" of their
shares (which is generally equal to the highest price paid in the transaction
subjecting the stockholder to the statute).

Certain provisions of the Company's Bylaws which are summarized below may
affect potential changes in control of the Company. The Board of Directors
believes that these provisions are in the best interests of stockholders because
they will encourage a potential acquiror to negotiate with the Board of
Directors, which will be able to consider the interests of all stockholders in a
change in control situation. However, the cumulative effect of these terms may
be to make it more difficult to acquire and exercise control of the Company and
to make changes in management more difficult.

47
<PAGE>

The Bylaws provide that each director will serve for a three-year term and
that approximately one-third of the directors are to be elected annually. The
Company may have three to twenty-five directors as determined from time to time
by the Board, which currently consists of two members. Between stockholder
meetings, the Board may appoint new directors to fill vacancies or newly created
directorships. A director may be removed from office by the affirmative vote of
66-2/3% of the combined voting power of the then outstanding shares of stock
entitled to vote generally in the election of directors.

The Bylaws further provide that stockholder action must be taken at a
meeting of stockholders and may not be effected by a consent in writing, unless
such consent is unanimous. If a stockholder wishes to propose an agenda item
for consideration, they must give a brief description of each item and written
notice to the Company (i) in the case of an annual meeting called for a date
within 30 days of the anniversary date of the immediately preceding annual
meeting, not less than 120 days in advance of the anniversary date of the proxy
statement for the previous year's annual meeting nor more than 150 days prior to
such date and (ii) in the case of an annual meeting called for a date that is
not within 30 days of the anniversary date of the immediately preceding annual
meeting, not later than 10 days following the day on which notice of the date of
the meeting is mailed or public disclosure of the date of the meeting is made,
whichever occurs first.

The Bylaws generally provide that the foregoing provisions of the Bylaws
may be amended or repealed by stockholders only with the affirmative vote of at
least a majority of the outstanding shares. This provision exceeds the usual
majority of a quorum vote requirement of Nevada law and is intended to prevent
the holders of less than 50% of the voting power from circumventing the
foregoing terms by amending the Bylaws.

The effect of such provisions of the Company's Bylaws may be to make more
difficult the accomplishment of a merger or other takeover or change in control
of the Company. To the extent that these provisions have this effect, removal
of the Company's incumbent Board of Directors and management may be rendered
more difficult. Furthermore, these provisions may make it more difficult for
stockholders to participate in a tender or exchange offer for Common Stock and
in so doing may diminish the market value of the Common Stock. The Company is
not aware of any proposed takeover attempt or any proposed attempt to acquire a
large block of Common Stock.

The provisions described above may have the effect of delaying or deterring
a change in the control or management of the Company.

APPLICATION OF CALIFORNIA GCL

Although incorporated in Nevada, the Company is headquartered in the State
of California. Section 2115 of the California GCL ("Section 2115") provides
that certain provisions of the California GCL shall be applicable to a
corporation organized under the laws of another state to the exclusion of the
law of the state in which it is incorporated, if the corporation meets certain
tests regarding the business done in California and the number of its California
stockholders.

An entity such as the Company can be subject to Section 2115 if the average
of the property factor, payroll factor and sales factor deemed to be in
California during its latest full income year is more than 50 percent and more
than one-half of its outstanding voting securities are held of record by persons
having addresses in California. Section 2115 does not apply to corporations
with outstanding securities

48
<PAGE>

listed on the New York or American Stock Exchange, or with outstanding
securities designated as qualified for trading as a national market security on
NASDAQ, if such corporation has at least 800 beneficial holders of its equity
securities. Since the average of the property factor, payroll factor and sales
factor of the Company deemed to be in California during the Company's latest
fiscal year was almost 100% and over 60% of the Company's outstanding voting
securities are held of record by persons having addresses in California, and as
the Company does not currently qualify as a national market security on NASDAQ,
it is subject to Section 2115.

During the period that the Company is subject to Section 2115, the
provisions of the California GCL regarding the following matters are made
applicable to the exclusion of the law of the State of Nevada: (i) general
provisions and definitions; (ii) annual election of directors; (iii) removal of
directors without cause; (iv) removal of directors by court proceedings; (v)
filling of director vacancies where less than a majority in office were elected
by the stockholders; (vi) directors' standard of care; (vii) liability of
directors for unlawful distributions; (viii) indemnification of directors,
officers and others; (ix) limitations on corporate distributions of cash or
property; (x) liability of a stockholder who receives an unlawful distribution;
(xi) requirements for annual stockholders meetings; (xii) stockholders' right to
cumulate votes at any election of directors; (xiii) supermajority vote
requirements; (xiv) limitations on sales of assets; (xv) limitations on mergers;
(xvi) reorganizations; (xvii) dissenters' rights in connection with
reorganizations; (xviii) required records and papers; (xix) actions by the
California Attorney General; and (xx) rights of inspection.

PLAN OF DISTRIBUTION

The sale of the Shares by the Selling Stockholders may be effected from
time to time in transactions (which may include block transactions by or for the
account of the Selling Stockholders) in the over-the-counter market or in
negotiated transactions, a combination of such methods of sale or otherwise.
Sales may be made at fixed prices which may be changed, at market prices
prevailing at the time of sale or at negotiated prices.

Selling Stockholders may effect such transactions by selling their Shares
directly to purchasers, through broker-dealers acting as agents for the Selling
Stockholders or to broker-dealers who may purchase Shares as principals and
thereafter sell the Shares from time to time in the over-the-counter market, in
negotiated transactions or otherwise. Such broker-dealers, if any, may receive
compensation in the form of discounts, concessions or commissions from the
Selling Stockholders or the purchasers for whom such broker-dealers may act as
agents or to whom they may sell as principals or otherwise (which compensation
as to a particular broker-dealer may exceed customary commissions).

Holders of 2,432,315 of the Shares have agreed to sell only certain
specified percentages of such Shares under this Prospectus. See "DESCRIPTION OF
CAPITAL STOCK -- Shares Eligible for Future Sale."

The Selling Stockholders and broker-dealers, if any, acting in connection
with such sales may be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act and any commission received by them and any profit
on the resale of the securities by them might be deemed to be underwriting
discounts and commissions under the Securities Act. The Company has agreed to
indemnify the Selling Stockholders against certain liabilities, including
liabilities under the Securities Act.

49
<PAGE>

From time to time this Prospectus will be supplemented and amended as
required by the Securities Act. During any time when a supplement or amendment
is so required, the Selling Stockholders are to cease sales until the Prospectus
has been supplemented or amended. Pursuant to registration rights granted to
certain of the Selling Stockholders, the Company has agreed to update and
maintain the effectiveness of this Prospectus until April 1999 and, in certain
instances, until such shares have been sold or could be sold under Rule 144
within a 90-day period. Certain of the Selling Stockholders also may be
entitled to sell their Shares without the use of this Prospectus, provided that
they comply with the requirements of Rule 144 promulgated under the Securities
Act. See "DESCRIPTION OF CAPITAL STOCK -- Shares Eligible for Future Sale."

The Company has agreed to pay the fees and expenses incurred by it in
connection with the preparation and filing of the Registration Statements of
which this Prospectus is a part.

LEGAL MATTERS

The validity of the issuance of the Shares offered hereby have been passed
upon for the Company by Eric W. Richardson, General Counsel to the Company. As
of June 1, 1997, Mr. Richardson beneficially owned 140,666 shares of Common
Stock of the Company.

EXPERTS

The consolidated financial statements of Prosoft I-Net Solutions, Inc. at
July 31, 1996 and for the period from December 8, 1995 (date of incorporation)
to July 31, 1996, appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young, LLP, independent auditors, as set forth in their
report thereon, appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.

The financial statements of Professional Development Institute as of
December 31, 1995, and for the period from February 1, 1995 (date of inception)
to December 31, 1995, appearing in this Prospectus and Registration Statement
have been audited by Kelly & Company, independent auditors, as set forth in
their report thereon, appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., two Registration Statements (Nos. 333-11247 and
333-28993) under the Securities Act with respect to the Shares. This Prospectus
omits certain information contained in said Registration Statements as permitted
by the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock, reference is made to such
Registration Statements, including the exhibits thereto. Statements contained
herein concerning the contents of any contract or any other document are not
necessarily complete, and in each instance, reference is made to such contract
or other document filed with the Commission as exhibits to the Registration
Statements, or otherwise, each such statement being qualified in all respects by
such reference. The Registration Statements, including exhibits and schedules
thereto, may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at the Chicago Regional Office, Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511
and at the New York Regional Office, 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such materials can be obtained from the Public

50
<PAGE>

Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission also maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants, such as the Company, that file
electronically with the Commission.

51
<PAGE>

PROSOFT I-NET SOLUTIONS, INC. AND PREDECESSOR

CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS

<TABLE>
<S> <C>
Reports of Independent Auditors
Ernst & Young LLP............................................... F-2
Kelly & Company................................................. F-3

Financial Statements of Prosoft I-Net Solutions, Inc. and
Predecessor at December 31, 1995 and July 31, 1996 and for
the periods then ended
Consolidated Balance Sheets..................................... F-4
Consolidated Statements of Operations........................... F-5
Consolidated Statements of Stockholders' Equity................. F-6
Consolidated Statements of Cash Flows........................... F-7
Notes to Consolidated Financial Statements...................... F-8
Condensed Financial Statements of Prosoft I-Net Solutions, Inc.
and Predecessor at July 31, 1996 and April 30, 1997 and for the
nine months ended April 30, 1996 and 1997
Condensed Consolidated Balance Sheets........................... F-13
Condensed Consolidated Statements of Operations................. F-14
Condensed Consolidated Statements of Cash Flows................. F-15
Notes to Condensed Consolidated Financial Statements............ F-16
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Prosoft I-Net Solutions, Inc.

We have audited the accompanying consolidated balance sheet of Prosoft I-Net
Solutions, Inc. (formerly known as ProSoft Development, Inc.) as of July 31,
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for the period December 8, 1995 (date of incorporation) to
July 31, 1996. 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 audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 Prosoft I-Net
Solutions, Inc. at July 31, 1996, and the consolidated results of its operations
and its cash flows for the period from December 8, 1995 (date of incorporation)
to July 31, 1996, in conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Orange County, California
August 28, 1996

F-2
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Owner
Professional Development Institute (a Sole Proprietorship)

We have audited the accompanying balance sheet of Professional Development
Institute (a Sole Proprietorship) as of December 31, 1995, and the related
statements of operations, Owner's deficit and cash flows for the period February
1, 1995 (date of inception) to December 31, 1995. 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 audit.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Professional Development
Institute (a Sole Proprietorship) as of December 31, 1995, and the results of
its operations and its cash flows for the period February 1, 1995 (date of
inception) to December 31, 1995, in conformity with generally accepted
accounting principles.

KELLY & COMPANY

Newport Beach, California
March 8, 1996

F-3
<PAGE>

PROSOFT I-NET SOLUTIONS, INC. AND PREDECESSOR
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PREDECESSOR
ENTITY COMPANY
----------------- -------------
DECEMBER 31, 1995 JULY 31, 1996
----------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 420 $ 6,466,460
Tuition receivable 89,487 766,405
Notes receivable from officers/shareholders - 85,600
Prepaid expenses and other current assets - 311,592
--------- -----------
Total current assets 89,907 7,630,057

Property and equipment:
Computer equipment and software 300,520 1,494,677
Office equipment, furniture and fixtures 335,354 118,211
--------- -----------
635,874 1,612,888
Less accumulated depreciation 29,861 245,455
--------- -----------
606,013 1,367,433

Other assets 70,070 -
--------- -----------
Total assets $ 765,990 $ 8,997,490
========= ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ - $ 61,832
Accounts payable 293,305 363,414
Accrued payroll and related expenses - 88,474
Deferred revenue 38,744 -
Other accrued liabilities 16,811 -
Current portion of capital lease obligations 302,932 351,509
--------- -----------
Total current liabilities 651,792 865,229

Obligations under capital leases, net of current portion 308,671 437,532

Commitments and contingencies

Stockholders' equity (owner's deficit):
Common stock, $.001 par value:
Authorized shares - 50,000,000
Issued and outstanding shares - 7,336,404 - 7,336
Additional paid-in capital - 10,771,016
Note receivable from stockholder - (9,500)
Accumulated deficit - (3,074,123)
Owner's deficit (194,473) -
--------- -----------
Total stockholders' equity (owner's deficit) (194,473) 7,694,729
--------- -----------
Total liabilities and shareholders' equity (owner's deficit) $ 765,990 $ 8,997,490
========= ===========
</TABLE>

See accompanying notes.

F-4
<PAGE>

PROSOFT I-NET SOLUTIONS, INC. AND PREDECESSOR
CONSOLIDATED STATEMENTS OF OPERATIONS

PREDECESSOR ENTITY COMPANY
---------------------- ------------------
PERIOD FROM
PERIOD FROM DECEMBER 8, 1995
FEBRUARY 1, 1995 (DATE OF
(DATE OF INCEPTION) TO INCORPORATION) TO
DECEMBER 31, 1995 JULY 31, 1996
---------------------- ------------------
<S> <C> <C>
Revenue $ 77,477 $ 907,772

Costs and expenses:
Cost of services 60,526 698,725
Sales and marketing 44,769 426,221
General and administrative 556,382 2,788,188
--------- -----------
Total costs and expenses 661,677 3,913,134
--------- -----------

Loss from operations (584,200) (3,005,362)

Interest expense 20,126 67,961
--------- -----------

Loss before provision for income taxes (604,326) (3,073,323)

Provision for state franchise tax - 800
--------- -----------
Net loss $(604,326) $(3,074,123)
========= ===========
Net loss per share $ (.61)
===========
Shares used in computing net loss per share 5,011,781
===========

</TABLE>

See accompanying notes.

F-5
<PAGE>

PROSOFT I-NET SOLUTIONS, INC. AND PREDECESSOR
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
PREDECESSOR PROSOFT I-NET
ENTITY PRO-SOFT DEVELOPMENT CORP. SOLUTIONS, INC.
----------- COMMON STOCK COMMON STOCK
OWNER'S --------------------------- --------------------
DEFICIT SHARE AMOUNT SHARES AMOUNT
--------- ---------- ------- --------- ------
<S> <C> <C> <C> <C> <C>
Capital contributions to sole
proprietorship $ 409,853 - $ - - $ -
Net loss (604,326) - - - -
--------- ---------- ------- --------- ------
Balance at December 31, 1995 (194,473) - - - -

Contribution of net assets of
Predecessor to Pro-Soft
Development Corp. in
exchange for common stock 194,473 1,000,000 1,000 - -

Issuance of common stock for
cash, note and services - 3,576,250 3,576 - -

Conversion of accounts
payable to common stock - 150,000 150 - -

Shares outstanding prior to
reorganization - - - 480,060 480

Acquisition of Pro-Soft
Development Corp. by the
Company - (4,726,250) (4,726) 4,726,250 4,726

Issuance of common stock for
cash, net of issuance costs
of $338,000 - - - 1,169,462 1,169

Exercise of warrants - - - 960,632 961

Net loss - - - - -
--------- ---------- ------- --------- ------

Balance at July 31, 1996 $ - - $ - 7,336,404 $7,336
========= ========== ======= ========= ======

NOTE
ADDITIONAL RECEIVABLE
PAID-IN FROM ACCUMULATED
CAPITAL STOCKHOLDER DEFICIT TOTAL
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Capital contributions to sole
proprietorship $ - $ - $ - $ -
Net loss - - - -
----------- ----------- ----------- -----------
Balance at December 31,1995 - - - -

Contribution of net assets of
Predecessor to Pro-Soft
Development Corp. in
exchange for common stock (195,473) - - (194,473)

Issuance of common stock for
cash, note and services 1,380,174 (9,500) - 1,374,250

Conversion of accounts
payable to common stock 37,350 - - 37,500

Shares outstanding prior to
reorganization (455) - - 25

Acquisition of Pro-Soft
Development Corp. by the
Company - - - -

Issuance of common stock for
cash, net of issuance costs
of $338,000 8,307,221 - - 8,308,390

Exercise of warrants 1,242,199 - - 1,243,160

Net loss - - (3,074,123) (3,074,123)
----------- ----------- ----------- -----------

Balance at July 31, 1996 $10,771,016 $ (9,500) $(3,074,123) $ 7,694,729
=========== =========== =========== ===========
</TABLE>

See accompanying notes.

F-6
<PAGE>

PROSOFT I-NET SOLUTIONS, INC. AND PREDECESSOR
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PREDECESSOR ENTITY COMPANY
----------------------- -----------------------
PERIOD FROM PERIOD FROM
FEBRUARY 1, 1995 DECEMBER 8, 1995
(DATE OF INCEPTION) TO (DATE OF INCORPORATION)
DECEMBER 31, 1995 TO JULY 31, 1996
---------------------- -----------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(604,326) $(3,074,123)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 40,441 257,454
Compensation and operating expenses paid in
common stock - 397,250
Change in operating assets and liabilities:
Tuition receivable (89,487) (766,405)
Prepaid expenses and other assets (28,200) (311,592)
Accounts payable 293,305 363,414
Accrued liabilities 16,811 88,474
Deferred revenue 38,744 -
Other - 2,200
--------- -----------
Net cash used in operating activities (332,712) (3,043,328)

INVESTING ACTIVITIES
Acquisition of Predecessor, net of cash acquired - (194,893)
Acquisition of Tel-Fed, Inc., net of cash acquired - (560)
Purchases of property and equipment - (570,838)
Purchases of licenses (52,450) -
Notes receivable from officers/shareholders - (85,600)
--------- -----------
Net cash used in investing activities (52,450) (851,891)

FINANCING ACTIVITIES
Capital contributions 409,853 -
Issuance of common stock - 10,528,575
Payments on capital lease obligations (24,271) (228,728)
Proceeds from notes payable - 61,832
--------- -----------
Net cash provided by financing activities 385,582 10,361,679
--------- -----------

Increase in cash and cash equivalents 420 6,466,460
Cash and cash equivalents at beginning of period - -
--------- -----------
Cash and cash equivalents at end of period $ 420 $ 6,466,460
--------- -----------

SUPPLEMENTARY DISCLOSURE OF CASH PAID DURING THE
PERIOD FOR:
Interest $ 3,315 $ 84,772
========= ===========
Income taxes $ - $ -
========= ===========

SUPPLEMENTARY DISCLOSURE OF NONCASH FINANCING
ACTIVITIES:
Accounts payable converted to common stock $ - $ 37,500
========= ===========
Equipment acquired under capital leases $ 635,874 $ 393,460
========= ===========
</TABLE>

See accompanying notes.

F-7
<PAGE>

PROSOFT I-NET SOLUTIONS, INC. AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996

1. SIGNIFICANT ACCOUNTING POLICIES

COMPANY BACKGROUND

Prosoft I-Net Solutions, Inc. (Prosoft or the Company) is a Nevada
corporation (previously named Tel-Fed, Inc. and ProSoft Development, Inc.) that
is engaged in the business of training individuals in small, medium and large
organizations in Internet and Intranet technologies, with a current emphasis on
Microsoft and Internet/Intranet products and solutions.

Professional Development Institute, the predecessor entity, (a sole
proprietorship formed on February 1, 1995), acquired and developed training
curricula and commenced a marketing program for a private vocational training
institution. Its first students were enrolled in September 1995. On December
8, 1995, Pro-Soft Development Corp. was formed as a California corporation, and
effective January 1, 1996, the assets and liabilities of the Professional
Development Institute, (Predecessor) were contributed to Pro-Soft Development
Corp. in exchange for 1,000,000 shares of common stock.

In March 1996, Pro-Soft Development Corp. entered into an Agreement and
Plan of Reorganization whereby Pro-Soft Development Corp.'s shareholders
received one share of common stock of the Company in exchange for each of the
4,726,250 outstanding shares and Pro-Soft Development Corp. became a wholly
owned subsidiary of the Company. For accounting purposes, Pro-Soft Development
Corp. is deemed to be the acquiring corporation and, therefore, the transaction
is being accounted for as a reverse acquisition of the Company by Pro-Soft
Development Corp. Prior to March 31, 1996, the Company did not have operations
and at March 31, 1996, only immaterial liabilities existed. Accordingly, the
financial statements present the historical financial position and results of
operations of Pro-Soft Development Corp. and its predecessor entity,
Professional Development Institute.

The Company has incurred losses of $3,074,123 from inception, primarily due
to the start-up nature of its business. The ability of the Company to establish
itself as a successful operating entity on an ongoing basis is dependent upon
future events, including further marketing of its services and achieving
profitable operations.

BASIS OF CONSOLIDATION

The financial statements include the accounts of the Company and its wholly
owned subsidiary. All significant intercompany transactions and balances have
been eliminated in consolidation.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

F-8
<PAGE>

CASH EQUIVALENTS

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

CONCENTRATION OF BUSINESS AND CREDIT RISK

Financial instruments which potentially subject the Company to a
concentration of credit risk consist primarily of trade receivables. In the
normal course of business, the Company provides credit terms to its customers
and collateral is generally not required. The Company has not experienced any
credit losses during its existence, and does not consider its exposure to such
losses to be significant at July 31, 1996. As of July 31, 1996, three customers
accounted for 90% of total accounts receivable.

Revenues from three southern California governmental agencies aggregated
34%, 27% and 21% of revenues, respectively, in 1996 and revenues from two
southern California governmental agencies in 1995 aggregated 57% and 39% of
revenues, respectively.

ADVERTISING COSTS

The Company expenses the costs of advertising as incurred. Advertising
expenses aggregated $90,000 in 1996 and were not significant in 1995.

TAXES BASED ON INCOME

Deferred taxes are provided for items recognized in different periods for
financial and tax reporting purposes in accordance with Financial Accounting
Standards Board Statement No. 109, Accounting for Income Taxes.

NET LOSS PER SHARE

Net loss per share is computed using the weighted average number of common
shares outstanding during the period presented.

LONG-LIVED ASSETS

In 1996, the Company adopted SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which requires
impairment losses to be recorded on long-lived assets used in operations or are
expected to be disposed of, when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying value of the assets. There were no impairment losses recorded in
fiscal 1996 as the result of adopting SFAS No. 121.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation and amortization
are computed on a straight-line basis over the lesser of the estimated useful
lives of the related assets or the lease term. The estimated useful lives range
from two to seven years.

F-9
<PAGE>

STOCK OPTION PLANS

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123). As permitted by SFAS 123, the Company intends to
continue to account for employee stock options under previous accounting
standards, and will make pro forma disclosures required by SFAS 123 in fiscal
1997.

RECOGNITION OF REVENUE AND COSTS

Tuition revenue is recognized ratably as earned over the term of the
course. Vocational training courses generally range from 20 to 37 weeks while
Internet training courses range from one to five days. Costs of providing
services to students are charged to expense as incurred.

TUITION RECEIVABLE

At various times, the Company will have unbilled receivables for tuition
earned prior to, or in excess of, billings under the terms of various contracts
with paying agencies. Tuition receivable consists of the following:

December 31, 1995 July 31, 1996
----------------- -------------
<S> <C> <C>
Billed tuition $58,725 $542,054
Unbilled tuition 30,762 224,351
------- --------
$89,487 $766,405
======= ========
</TABLE>

2. STOCKHOLDERS' EQUITY

FORMATION OF PRO-SOFT DEVELOPMENT CORP.

Upon the formation of Pro-Soft Development Corp. two of the founders
acquired an aggregate of 2,000,000 shares of common stock in exchange for
$19,000. For financial statement purposes, these shares were valued at $.20 per
share and compensation expense of $381,000 was recorded to reflect the
difference between the amount paid and the deemed fair market value of the
shares issued.

1996 STOCK OPTION PLAN

The ProSoft Development, Inc. 1996 Stock Option Plan (the Plan) provides
for the granting of options to purchase shares of the Company's common stock, to
employees, officers, consultants, and directors. The Plan includes nonstatutory
options (NSOs) and incentive stock options (ISOs). Options expire no later than
ten years after the date of grant.

The plan allows for the issuance of up to 750,000 shares of common stock.
At July 31, 1996, options to purchase 697,500 shares of common stock at exercise
prices ranging from $3.50 to $20 per share were outstanding. At July 31, 1996,
none of the options issued under the Plan were exercisable.

F-10
<PAGE>

As a result of the reorganization, nonstatutory stock options to purchase
1,042,500 shares of common stock of Pro-Soft Development Corp. were converted
into options to purchase 1,042,500 shares of the Company's common stock at an
exercise price of $1.00 per share, which become exercisable August 1, 1996.

During 1996, the Company issued warrants to purchase 1,496,461 shares of
common stock to purchasers of its common stock and other parties at prices
ranging from $1.00 to $11.00 per share. During 1996, warrants for 960,632
shares of common stock were exercised at prices ranging from $1.00 to $5.00, and
warrants for 49,882 were redeemed for a nominal amount. At July 31, 1996,
warrants for 485,947 shares of common stock exercisable at $1 to $11 per share
and expiring through 1999 remained outstanding.

COMMON STOCK RESERVED

At July 31, 1996, a total of 2,195,947 shares of the Company's common stock
were reserved for future exercise of stock options and warrants.

3. LEASES AND OTHER COMMITMENTS

The Company leases certain facilities as well computers and production
equipment under noncancelable, lease agreements. The Company's future minimum
lease payments under such agreements are as follows:

CAPITAL OPERATING
LEASES LEASES
---------- ---------

<S> <C> <C>
1997 $ 447,425 $ 98,182
1998 235,665 78,792
1999 99,505 59,094
2000 99,505 -
2001 94,065 -
Thereafter 31,600 -
---------- ---------
1,007,765 $ 236,068
=========
Less amounts representing interest 218,724
----------
Present value of minimum lease payments 789,041
Less current portion 351,509
----------
Obligations under capital lease,
net of current portion $ 437,532
==========
</TABLE>

Assets held under capital leases are included in property and equipment and
at December 31, 1995 and July 31, 1996 had a total value of $635,874 and
$1,242,781, respectively, and a net book value of $606,013 and $1,043,822,
respectively.

Rent expense for the periods ended December 31, 1995 and July 31, 1996
totaled $20,516 and $166,763, respectively.

F-11
<PAGE>

4. INCOME TAXES

The Predecessor's financial statements include no provision for income
taxes because, as a proprietorship, the results of operations were reported on
the individual income tax return of the owner.

There was no significant provision for federal or state income taxes for
any period as the Company has incurred operating losses and there can be no
assurance that the Company will realize the benefit of the resulting net
operating loss carryforwards.

Deferred income taxes reflect the tax consequences on future years of
differences between the tax bases of assets and liabilities and their bases for
financial reporting purposes. Temporary differences which give rise to deferred
tax assets are as follows:

<TABLE>
<S> <C>
Net operating loss carryforwards $ 960,000
Valuation allowance (960,000)
---------
Net deferred tax assets $ -
=========
</TABLE>

At July 31, 1996, the Company has net operating loss carryforwards
available to offset future federal and state taxable income of approximately
$2,600,000 and $1,300,000, respectively, that expire in 2011 and 2001,
respectively. Because of the equity transactions completed by the Company in
1996, utilization of net operating loss carryforwards for federal income tax
reporting purposes will be subject to annual limitations under the change in
ownership provisions of the Tax Reform Act of 1986.

5. NOTES PAYABLE

At July 31, 1996, notes payable consisted of a $61,832 demand note payable
to a shareholder bearing interest at 8%

6. RELATED PARTY TRANSACTIONS

During 1996, the Company made short-term loans and advances to certain
officers and shareholders generally bearing interest at 10%.

F-12
<PAGE>

PROSOFT I-NET SOLUTIONS, INC. AND PREDECESSOR
CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JULY 31, APRIL 30,
1996 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,466,460 $ 13,803,703
Restricted cash (See Notes) - 4,700,008
Tuition receivable, net 766,405 844,443
Note receivable - 500,000
Notes receivable from officers/shareholders 85,600 389,465
Prepaid expenses and other current assets 311,592 993,355
----------- ------------
Total current assets 7,630,057 21,230,974

Property and equipment:
Leasehold improvements - 749,063
Computer equipment and software 1,494,677 3,446,150
Office equipment, furniture and fixtures 118,211 202,638
----------- ------------
1,612,888 4,397,851
Less depreciation and amortization 245,455 1,058,071
----------- ------------
1,367,433 3,339,780
----------- ------------
Total assets $ 8,997,490 $ 24,570,754
=========== ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 61,832 $ -
Accounts payable 363,414 2,726,178
Accrued payroll and related expenses 88,474 306,948
Deferred revenue - 190,956
Current portion of capital lease obligations 351,509 1,387,406
----------- ------------
Total current liabilities 865,229 4,611,488

Obligations under capital leases, net of current portion 437,532 446,478

Stockholders' equity:
Common stock, $.001 par value:
Authorized shares - 50,000,000 7,336 9,910
Issued and outstanding shares at April 30, 1997 -
9,910,367; and at July 31, 1996 - 7,336,404
Additional paid-in capital 10,771,016 36,649,893
Note receivable from stockholder (9,500) (9,500)
Accumulated deficit (3,074,123) (17,137,515)
----------- ------------
Total stockholders' equity 7,694,729 19,512,788
----------- ------------
Total liabilities and stockholders' equity $ 8,997,490 $ 24,570,754
=========== ============
</TABLE>

F-13
<PAGE>

PROSOFT I-NET SOLUTIONS, INC. AND PREDECESSOR
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>

NINE MONTHS ENDED APRIL 30,
1996 1997
----------- ------------

<S> <C> <C>
Revenue.................................. $ 405,280 $ 1,531,906

Costs and expenses:
Cost of services........................ 454,035 5,601,199
Sales and marketing..................... 113,981 3,129,340
General and administrative.............. 963,015 6,943,830
----------- ------------
Total costs and expenses................. 1,531,031 15,674,369
----------- ------------

Loss from operations..................... (1,125,751) (14,142,463)

Interest income (expense)................ (21,212) 83,071
----------- ------------

Loss before provision for income taxes... (1,146,963) (14,059,392)
Provision for state franchise tax........ 0 4,000
----------- ------------
Net loss................................. $(1,146,963) $(14,063,392)
=========== ============
Net loss per share....................... N/A $(1.77)
=========== ============
Weighted average number of common N/A 7,933,313
shares outstanding...................... =========== ============

</TABLE>

F-14
<PAGE>

PROSOFT I-NET SOLUTIONS, INC. AND PREDECESSOR
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

NINE MONTHS ENDED APRIL 30,
---------------------------------
1996 1997
---------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Loss $(1,146,963) $(14,063,392)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 105,259 812,616
Changes in operating assets and liabilities:
Tuition receivable (297,730) (78,038)
Prepaid expenses and other assets (114,265) (681,763)
Accounts payable 178,951 2,362,764
Accrued payroll and related expenses 45,800 218,474
Deferred revenue 38,744 190,956
----------- ------------
Net cash used in operating activities (1,190,204) (11,238,383)
----------- ------------

INVESTING ACTIVITIES:
Purchases of property and equipment (397,452) (1,282,612)
Notes receivable (57,650) (803,865)
----------- ------------
Net cash (used in) investing activities (455,102) (2,086,477)
----------- ------------

FINANCING ACTIVITIES:
Principal payments on debt and capital leases (81,661) (519,340)
Proceeds from issuance of notes payable 61,832 -
Issuance of common stock 2,897,887 21,181,443
----------- ------------
Net cash provided by financing activities 2,878,058 20,662,103
----------- ------------

Increase in cash and cash equivalents 1,232,752 7,337,243
Cash and cash equivalents at the beginning of period 1,231 6,466,460
----------- ------------
Cash and cash equivalents at the end of period $ 1,233,983 $ 13,803,703
=========== ============

SUPPLEMENTARY DISCLOSURE OF CASH PAID DURING THE
PERIOD FOR:
Interest $ 21,212 $ 81,456
=========== ============
Income taxes $ 0 $ 4,000
=========== ============
Acquisition of equipment under capital leases $ 592,652 $ 1,502,351
=========== ============
</TABLE>

F-15
<PAGE>

PROSOFT I-NET SOLUTIONS, INC. AND PREDECESSOR
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

See Note 1 of the Notes to Consolidated Financial Statements at page F-8 for a
description of the formation of the Company and its Predecessor.

The condensed consolidated financial statements do not include footnotes and
certain financial information normally presented annually under generally
accepted accounting principles and, therefore, should be read in conjunction
with the Company's July 31, 1996 year-end financials. Accounting measurements at
interim dates inherently involve greater reliance on estimates than at year-end.
The results of operations for the nine months ended April 30, 1997 are not
necessarily indicative of results that can be expected for the full year.

The condensed consolidated financial statements included herein are unaudited;
however, they contain all adjustments (consisting of normal accruals) which, in
the opinion of the Company, are necessary to present fairly its consolidated
financial position at April 30, 1997 and its consolidated results of operations
for the nine months ended April 30, 1997, and its cash flows for the nine months
ended April 30, 1997.

In April 1997, the Company sold 408,164 shares of its common stock to an
institutional investor for $5,000,000. The net proceeds from this offering have
been placed in escrow and will be released to the Company when a registration
statement covering such shares is declared to be effective. If a registration
statement is not declared effective by December 31, 1997, the investor will have
certain rights of rescission.

Notes receivable from officers/shareholders bear interest generally at 10%, are
repayable upon demand and are secured by the Company's common stock and options
to purchase the Company's common stock owned by such officers/shareholders.

Tuition revenue is recognized ratably as earned over the term of the course.
Amounts charged customers are deferred until earned.

Net loss per share is based on the weighted average number of shares of common
stock outstanding during the period. Common stock equivalents (stock options
and warrants) were not considered because the effect of their inclusion would
have been anti-dilutive.

F-16
<PAGE>

================================================================================

No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given or
made, such information and representations must not be relied upon as having
been authorized by the Company. This Prospectus does not constitute an offer to
sell or a solicitation of any offer to buy the shares of Preferred Stock by
anyone in any jurisdiction in which such offer or solicitation is not
authorized, or in which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such offer
or solicitation. Neither the delivery of this prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that
information contained herein is correct as of any time subsequent to the date
hereof.
_____________________

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary...................................................... 2
Risk Factors............................................................ 5
Use of Proceeds......................................................... 10
Price of Common Stock and Dividend Policy............................... 10
Capitalization.......................................................... 11
Selected Financial Data................................................. 12
Management's Discussion and Analysis of
Financial Condition and Results of Operations........................... 13
Business................................................................ 18
Management.............................................................. 31
Certain Transactions.................................................... 36
Selling Stockholders.................................................... 38
Principal Stockholders.................................................. 43
Description of Capital Stock............................................ 44
Plan of Distribution.................................................... 49
Legal Matters........................................................... 50
Experts................................................................. 50
Additional Information.................................................. 50
Index to Consolidated Financial Statements.............................. F-1
</TABLE>

PROSOFT I-NET
SOLUTIONS, INC.

3,418,589 Shares of
Common Stock

324,140 Shares of
Common Stock
Issuable Upon Exercise of
Common Stock Purchase Warrants

____________________

PROSPECTUS

____________________

July 2, 1997

================================================================================
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered. All of the amounts
shown are estimates, except the Securities and Exchange Commission registration
and NASDAQ filing fees.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee... $ 1,174
Accounting fees and expenses.......................... $ 4,500
Blue sky fees and expenses (including counsel fees)... $ 2,000
Other legal fees and legal expenses................... $10,000
Miscellaneous expenses................................ $ 2,326
-------
Total............................................ $20,000
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Nevada Private Corporation Law ("NPCL") provides that a corporation may
indemnify any person who was or is a party or is threatened to be made a party,
by reason of the fact that such person was an officer or director of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, to (x) any action or suit by or in the right
of the corporation against expenses, including amounts paid in settlement and
attorneys' fees, actually and reasonably incurred, in connection with the
defense or settlement believed to be in, or not opposed to, the best interests
of the corporation, except that indemnification may not be made for any claim,
issue or matter as to which such a person has been adjudged by a court of
competent jurisdiction to be liable to the corporation or for amounts paid in
settlement to the corporation and (y) any other action or suit or proceeding
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement, actually and reasonably incurred, if he or she acted in good
faith and in a manner which he or she reasonably believed to be in, or not
opposed to, reasonable cause to believe his or her conduct was unlawful. To the
extent that a director, officer, employee or agent has been "successful on the
merits or otherwise" the corporation must indemnify such person. The articles
of incorporation or bylaws may provide that the expenses of officers and
directors incurred in defending any such action must be paid as incurred and in
advance of the final disposition of such action. The NPCL also permits the
corporation to purchase and maintain insurance on behalf of the corporation's
directors and officers against any liability arising out of their status as
such, whether or not the corporation would have the power to indemnify him
against such liability. These provisions may be sufficiently broad to indemnify
such persons for liabilities arising under the Securities Act.

The Company's Restated Articles of Incorporation provide that the Company
shall indemnify any director or officer of the Company in connection with
certain actions, suits or proceedings, against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred. The Company is also required to pay any expenses incurred by a
director or officer in defending the Company or its stockholders for damages for
breach of fiduciary duty as a director or

II-1
<PAGE>

officer, provided that such a provision must not eliminate or limit the
liability of a director or officer for: (a) acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law; or (b) the payment
of illegal distributions. The Company's Restated Articles of Incorporation
include a provision eliminating the personal liability of directors for breach
of fiduciary duty except that such provision will not eliminate or limit any
liability which may not be so eliminated or limited under applicable law.

The Company's Bylaws generally require the Company to indemnify, as well as to
advance expenses, to its directors and its officers to the fullest extent
permitted by Nevada Law upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it should be ultimately determined
that they are not entitled to indemnification by the Company. The Company has
also entered into indemnification agreements with its directors and officers
which similarly provide for the indemnification and advancement of expenses by
the Company.

The Company maintains liability insurance for its directors and officers
covering, subject to certain exceptions, any actual or alleged negligent act,
error, omission, misstatement, misleading statement, neglect or breach of duty
by such directors or officers, individually or collectively, in the discharge of
their duties in their capacity as directors or officers of the Company.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The following securities of the Company have been sold by the Company during
the past three years without registration under the Securities Act of 1933, as
amended (the "Act").

(a) In February 1995, the Company issued 100,000 shares for $1,500 in cash to
Kelly Trimble. No commissions were paid in connection with this issuance. The
Company believes the foregoing sale was exempt from the registration
requirements of the Act in reliance on the exemption contained in Section 4(2)
of the Act.

(b) In March 1996, the Company entered into the Reorganization Agreement with
Old ProSoft and the Old ProSoft stockholders. Under the terms of the
Reorganization Agreement, Old ProSoft stockholders 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. An aggregate of
4,726,250 shares were issued to the 76 Old ProSoft stockholders in the
Reorganization and the Old ProSoft stockholders ended up owning approximately
90% of the Company immediately after the Reorganization. No commissions were
paid in connection with such issuance. The Company believes that the issuance
of Common Stock to the Old ProSoft stockholders was exempt from the registration
requirements of the Act in reliance on the exemption contained in Section 4(2)
of the Act.

(c) In March 1996, the Company issued 25,000 shares to Kelly Trimble in
consideration for consulting services rendered in connection with the
Reorganization and valued at $25,000. The Company believes the foregoing
issuance was exempt from the registration requirements of the Act in reliance on
the exemption contained in Section 4(2) of the Act.

(d) In April and May of 1996, the Company issued and sold 430,462 shares of
Common Stock at $3.50 per share and warrants to purchase 143,473 shares of
Common Stock at $5.00 per share to 30 investors in a private offering (the
"$3.50 Private Placement"). This offering was made on a private basis only to
persons who were "accredited investors" as defined in Securities Act Rule
501(a). No

II-2
<PAGE>

commissions were paid in connection with the $3.50 Private Placement. The
Company believes the foregoing sales were exempt from the registration
requirement of the Act in reliance on the exemption contained in Section 4(2) of
the Act and/or Regulation D promulgated thereunder.

(e) In connection with the $3.50 Private Placement, in April 1996 the Company
issued warrants to purchase an aggregate of 22,988 shares to Barry Nussbaum and
Bram Nager as payment of finders' fees. These warrants were at an exercise
price of $5.25 per share. The Company believes that the foregoing issuances
were exempt from the registration requirement of the Act in reliance on the
exemption contained in Section 4(2) of the Act.

(f) In June and July of 1996, an aggregate of 840,000 shares were issued to 27
stockholders of the Company upon exercise of warrants at $1.00 per share to
purchase Common Stock by those stockholders. The warrants were originally
acquired by the stockholders in a private placement by Old ProSoft and became
warrants to purchase Common Stock of the Company as part of the Reorganization.
Each of the individuals exercising warrants was an accredited investor. The
Company believes the foregoing sales were exempt from the registration
requirements of the Act in reliance on the exemption contained in Section 4(2)
of the Act.

(g) In June 1996, 50,000 shares of Common Stock were issued to a stockholder
of the Company upon exercise of a warrant at $1.00 per share which was
originally received by the stockholder in consideration for services performed
for Old ProSoft. The warrant became a warrant to purchase Common Stock of the
Company as part of the Reorganization. The Company believes the foregoing
issuance was exempt from the registration requirements of the Act in reliance on
the exemption contained in Section 4(2) of the Act.

(h) In June through August 1996, the Company issued an aggregate of 71,832
shares to 17 stockholders of the Company upon exercise of warrants at $5.00 per
share acquired in the $3.50 Private Placement. Each of the individuals
exercising warrants was an accredited investor. The Company believes the
foregoing sales were exempt from the registration requirements of the Act in
reliance on the exemption contained in Section 4(2) of the Act.

(i) During April 1996 through December 1996, the Company, pursuant to its 1996
Stock Option Plan, issued options to purchase 748,750 shares of Common Stock to
certain of its employees and consultants, with exercise prices ranging from
$3.50 to $19.75 per share. None of these options has been exercised. The
Company believes the foregoing issuances were exempt from the registration
requirements of the Act in reliance on the exemption contained in Section 4(2)
of the Act and by virtue of Rule 701 promulgated under the Act.

(j) In July through August 1996, the Company issued and sold 727,000 shares of
Common Stock at $10.00 per share to 42 investors in a private offering (the
"$10.00 Private Placement"). This offering was made on a private basis only to
persons who were "accredited investors" as defined in Securities Act Rule
501(a). No commissions were paid in connection with the $10.00 Private
Placement. The Company believes the foregoing sales were exempt from the
registration requirement of the Act in reliance on the exemption contained in
Section 4(2) of the Act and/or Regulation D promulgated thereunder.

(k) In August 1996, the Company issued an option to purchase 50,000 shares at
$10.00 per share to J.R. Boothe & Associates, a consultant to the Company, for
financial public relations work. The

II-3
<PAGE>

Company believes that the foregoing issuance was exempt from the registration
requirement of the Act in reliance on the exemption contained in Section 4(2) of
the Act.

(l) In August 1996, the Company issued warrants to purchase an aggregate of
120,000 and 60,000 shares at $11.00 per share to David Mock and Andy Stallman,
respectively. These warrants were issued as consideration for ongoing
consultant services by these two individuals. The Company believes that the
foregoing issuance was exempt from the registration requirement of the Act in
reliance on the exemption contained in Section 4(2) of the Act.

(m) In February through April 1997, the Company issued and sold 2,081,758
shares of Common Stock to 16 investors for aggregate consideration of
$22,139,714 in a private offering. This offering was made on a private basis
only to persons who were "accredited investors" as defined in Securities Act
Rule 501(a). Total commissions of $112,500 will be paid in connection with this
offering. The Company believes the foregoing sales were exempt from the
registration requirement of the Act in reliance on the exemption contained in
Section 4(2) of the Act and/or Regulation D promulgated thereunder.

(n) In April 1997, the Company issued 408,164 shares of Common Stock to one
investor for aggregate consideration of $5,000,009 in a private offering. This
offering was made only to one "accredited investor" as defined in Securities Act
Rule 501(a). No commissions were paid in connection with this offering. The
Company believes the foregoing sale was exempt from the registration
requirements of the Act in reliance on the exemption contained in Section 4(2)
of the Act and/or Regulation D promulgated thereunder.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Index of Exhibits

<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibits
- ------- -----------------------
<C> <S>
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. 333-11247 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 Specimen Stock Certificate. Filed as Exhibit 4 to Registration
Statement No. 333-11247 and incorporated herein by reference.*

5 Opinion of Eric W. Richardson.*

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.*
</TABLE>

II-4
<PAGE>

<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibits
- ------- -----------------------
<C> <S>
10.2 ProSoft I-Net Solutions, Inc. Amended 1996 Stock Option Plan. Filed
as Exhibit 10.2 to Registration Statement No. 333-11247 and
incorporated herein by reference.*

10.3 Stock and Warrant Purchase Agreement dated April 15, 1996 by and
among the Company, Donald L. Danks, Keith D. Freadhoff, Douglas
Hartman and various investors. Filed as Exhibit 10.3 to Registration
Statement No. 333-11247 and incorporated herein by reference.*

10.4 Form of Subscription Agreement, entered into in July and August 1996,
between the Company and various investors. Filed as Exhibit 10.4 to
Registration Statement No. 333-11247 and incorporated herein by
reference.*

10.5 Form of Registration and Lock-Up Agreement dated September __, 1996
between the Company and certain of the Selling Stockholders. Filed as
Exhibit 10.5 to Registration Statement No. 333-11247 and incorporated
herein by reference.*

10.6 Microsoft/Internet Contract Teaching Agreement dated as of April 29,
1996 by and between the Company and Merisel, Inc. Filed as Exhibit
10.6 to Registration Statement No. 333-11247 and incorporated herein
by reference.*

10.7 AT&T Professional Consultant Agreement dated March 28, 1997 by and
between the Company and AT&T Corp.*

10.8 Lease dated September 29, 1995 between Douglas E. Hartman dba
Professional Development Institute and Steven R. Layton, as Receiver.
Filed as Exhibit 10.8 to Registration Statement No. 333-11247 and
incorporated herein by reference.*

10.9 Xerox Order Agreement dated September 26, 1995 between Professional
Development Institute and Xerox Corporation. Filed as Exhibit 10.9 to
Registration Statement No. 333-11247 and incorporated herein by
reference.*

10.10 Term Lease Master Agreement dated as of April 19, 1996 between Pro-
Soft Development Corp. and IBM Credit Corporation. Filed as Exhibit
10.10 to Registration Statement No. 333-11247 and incorporated herein
by reference.*

10.11 Lease Agreement dated as of June 21, 1996 between Pro-Soft
Development Corp. and Sanwa Leasing Corporation. Filed as Exhibit
10.11 to Registration Statement No. 333-11247 and incorporated herein
by reference.*

10.12 Promissory Notes dated July 3, 1996 and July 31, 1996 made by Keith
Freadhoff in favor of the Company. Filed as Exhibit 10.12 to
Registration Statement No. 333-11247 and incorporated herein by
reference.*

10.13 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.*

10.14 Licensing Agreement dated August 6, 1996 between Street Technologies,
Inc. and the Company. Filed as Exhibit 10.14 to Registration
Statement No. 333-11247 and incorporated herein by reference.*
</TABLE>

II-5
<PAGE>

<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibits
- ------- -----------------------
<C> <S>
10.15 Office Building Lease dated as of December 16, 1996 between COSCAN
California Limited Partnership and the Company. Filed as Exhibit 10
to the Company's Report on Form 10-Q for the quarter ended January
31, 1997 and incorporated herein by reference.*

10.16 Form of Subscription Agreement, entered into in February through
April 1997, between the Company and various investors. Filed as
Exhibit 10.16 to Registration Statement No. 333-11247 and
incorporated herein by reference.*

10.17 Registration Rights Agreement dated as of March 13, 1997 among the
Company and various investors. Filed as Exhibit 10.17 to Registration
Statement No. 333-11247 and incorporated herein by reference.*

10.18 Subscription Agreement between the Company and General Electric
Pension Trust dated April 4, 1997. Filed as Exhibit 10.18 to
Registration Statement No. 333-11247 and incorporated herein by
reference.*

10.19 Escrow Agreement among the Company, General Electric Pension Trust
and State Street Bank and Trust dated April 4, 1997. Filed as Exhibit
10.19 to Registration Statement No. 333-11247 and incorporated herein
by reference.*

10.20 Secured Promissory Note dated April 9, 1997 in favor of the Company.
Filed as Exhibit 10.20 to Registration Statement No. 333-11247 and
incorporated herein by reference.*

21 Subsidiaries of the Company. Filed as Exhibit 21 to Registration
Statement No. 333-11247 and incorporated herein by reference.*

23.1 Consent of Ernst & Young, LLP

23.2 Consent of Kelly & Co.

23.3 Consent of Eric W. Richardson (included in the opinion filed as
Exhibit 5).*

24 Power of Attorney (included on signature page).

27 Financial Data Schedule.*
</TABLE>

- -------------
* Previously filed

II-6
<PAGE>

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:

(i) To include any Prospectus required by section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually, or in the
aggregate, represent a fundamental change in the information set
forth in the Registration Statement; notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low
or high end of the estimated maximum Offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) (230.424(b) of this Chapter) if, in the
aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate Offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement; and

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.

(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new Registration Statement relating to the securities offered therein,
and the Offering of such securities at that time shall be deemed to be
the initial bona fide Offering thereof.

(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the Offering.

Insofar as indemnification for liabilities arising from the Securities Act of
1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

II-7
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Amendment No. 1 to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Santa Ana,
State of California on the 30th day of June, 1997.

PROSOFT I-NET SOLUTIONS, INC.

By: /s/ Keith D. Freadhoff
----------------------
Keith D. Freadhoff,
Chief Executive Officer

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Keith D.
Freadhoff and Eric Richardson his true and lawful attorney-in-fact and agent,
acting alone, with full powers of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
(including Registration Statement No. 333-11247 which is amended hereby), any
amendments thereto and any Registration Statement for the same offering which is
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, each acting alone, full powers and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all said attorney-in-fact
and agent, acting alone, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registration Statement has been signed below by the following persons on behalf
of the Company in the capacities and on the dates indicated.

Signature Capacity Date
--------- -------- ----
<S> <C> <C>

/s/ Keith D. Freadhoff Chief Executive Officer and June 30, 1997
- ------------------------- Chairman of the Board
Keith D. Freadhoff (Principal Executive Officer)

/s/ Donald L. Danks President and Director June 30, 1997
- -------------------------
Donald L. Danks

/s/ Brooks A. Corbin Chief Financial Officer June 30, 1997
- ------------------------- (Principal Financial and
Brooks A. Corbin Accounting Officer)

/s/ Andrew Stallman Director June 30, 1997
- -------------------------
Andrew Stallman

/s/ Jeffrey G. Korn Director June 30, 1997
- -------------------------
Jeffrey G. Korn
</TABLE>

II-8
<PAGE>

EXHIBIT INDEX

3.1 Restated Articles of Incorporation of the Company, as amended. Filed
as Exhibit 3.1 to Registration Statement No. 333-11247 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 Specimen Stock Certificate. Filed as Exhibit 4 to Registration
Statement No. 333-11247 and incorporated herein by reference.*

5 Opinion of Eric W. Richardson.*

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. 333-11247 and
incorporated herein by reference.*

10.7 AT&T Professional Consultant Agreement dated March 28, 1997 by and
between the Company and AT&T Corp.*

10.13 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.*

10.14 Licensing Agreement dated August 6, 1996 between Street Technologies,
Inc. and the Company. Filed as Exhibit 10.14 to Registration
Statement No. 333-11247 and incorporated herein by reference.*

10.15 Office Building Lease dated as of December 16, 1996 between COSCAN
California Limited Partnership and the Company. Filed as Exhibit 10
to the Company's Report on Form 10-Q for the quarter ended January
31, 1997 and incorporated herein by reference.*

10.20 Secured Promissory Note dated April 9, 1997 in favor of the Company.
Filed as Exhibit 10.20 to Registration Statement No. 333-11247 and
incorporated herein by reference.*

21 Subsidiaries of the Company. Filed as Exhibit 21 to Registration
Statement No. 333-11247 and incorporated herein by reference.*

23.1 Consent of Ernst & Young, LLP

23.2 Consent of Kelly & Co.

23.3 Consent of Eric W. Richardson (included in the opinion filed as
Exhibit 5).*

24 Power of Attorney (included on signature page).

27 Financial Data Schedule.*
</TABLE>

- -------------
* Previously filed

<PAGE>

EXHIBIT 23.1

Consent of Ernst & Young LLP, Independent Auditors

We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our report dated August 28, 1996, in (i)
Amendment No. 1 to the Registration Statement (Form S-1 No. 333-28993) of
Prosoft I-Net Solutions, Inc. for the registration of 595,664 shares of its
common stock and (ii) the Post-Effective Amendment to Registration Statement
(Form S-1 No. 333-11247) for the registration of 3,147,065 shares of its common
stock amended thereby, and the related Prospectus.

Ernst & Young LLP

Orange County, California
June 30, 1997

<PAGE>

EXHIBIT 23.2

INDEPENDENT AUDITOR'S CONSENT

We consent to the use in this Amendment No. 1 to the Registration Statement on
Form S-1 (No. 333-28993) relating to 595,664 shares of common stock of Prosoft
I-Net Solutions, Inc. and the Post-Effective Amendment to Registration Statement
on Form S-1 (No. 333-11247) relating to 3,147,065 shares of common stock of
Prosoft I-Net Solutions, Inc. amended thereby of our report dated March 8, 1996,
appearing in the Prospectus, which is part of such Registration Statements.

We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.

KELLY & COMPANY

Newport Beach, California
June 30, 1997