PROSOFT I NET SOLUTIONS INC, 10-Q, 1999-06-17

PROSOFT I NET SOLUTIONS INC
10-Q, 1999-06-17
EDUCATIONAL SERVICES

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<PAGE>

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

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 AND 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ending April 30, 1999

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

For the transition period from ________________ to _______________

Commission File Number 000-21535
_______________

ProsoftTraining.com
(Exact Name of Registrant as Specified in its Charter)

NEVADA 87-0448639
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

3001 Bee Caves Road, Suite 100, Austin, Texas 78746
(Address of Principal Executive Offices) (Zip Code)

(512) 328-6140
Registrant's Telephone Number, Including Area Code

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]

The number of shares of the registrant's common stock, $.001 par value,
outstanding as of June 1, 1999, was 13,855,678 shares.
<PAGE>

ProsoftTraining.com and Subsidiaries
Consolidated Balance Sheets

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

<TABLE>
<CAPTION>
April 30, 1999 July 31, 1998
--------------- --------------
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents............................................................ $ 1,474,617 $ 3,311,014
Accounts receivable, less allowances of $145,178 and $329,802, respectively.......... 1,492,928 2,224,638
Notes receivable..................................................................... 29,300 422,750
Prepaid expenses and other current assets............................................ 318,438 567,596
------------ ------------
Total current assets.................................................................. 3,315,283 6,525,998
------------ ------------
Property and equipment:
Computer equipment and software...................................................... 701,543 5,744,480
Office equipment, furniture and fixtures............................................. 529,692 1,939,270
------------ ------------
1,231,235 7,683,750
Less accumulated depreciation........................................................ 836,225 4,584,566
------------ ------------
395,010 3,099,184

Goodwill, net of accumulated amortization of $451,853 and $249,043, respectively...... 2,273,239 2,898,839
License agreements, net of accumulated amortization of $219,723....................... 1,576,987 0
Other assets.......................................................................... 127,743 0
------------ ------------
Total assets.......................................................................... $ 7,688,262 $ 12,524,021
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................................... $ 528,985 $ 1,054,866
Accrued payroll and related expenses................................................. 578,405 648,802
Deferred revenue..................................................................... 0 23,105
Current portion of capital lease obligations......................................... 1,090,838 1,465,159
Accrued restructuring costs.......................................................... 2,043,673 0
------------ ------------
Total current liabilities............................................................. 4,241,901 3,191,932

Obligations under capital leases, net of current portion.............................. 1,070,440 559,205
Convertible debentures................................................................ 2,142,200 0
------------ ------------
Total liabilities..................................................................... 7,454,541 3,751,137
------------ ------------
Common stock subject to redemption.................................................... 56,666 2,056,520
Stockholders' equity:
Common stock, $.001 par value:
Authorized - 50,000,000
Issued and outstanding 13,903,926 and 11,502,079 shares, respectively............ 13,904 11,502
Additional paid-in capital............................................................ 51,620,274 47,030,129
Accumulated deficit................................................................... (51,382,375) (40,250,519)
Less common stock in treasury, at cost; 11,912 shares................................. 74,748 74,748
------------ ------------
Total stockholder's equity............................................................ 177,055 6,716,364
------------ ------------
Total liabilities and stockholders' equity............................................ $ 7,688,262 $ 12,524,021
============ ============
</TABLE>
See Accompanying Notes
<PAGE>

ProsoftTraining.com and Subsidiaries
Consolidated Statements of Operations
(Unaudited)

<TABLE>
<CAPTION>
Three Months Ended April 30, Nine Months Ended April 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Training $ 1,593,726 $ 2,080,211 $ 4,459,593 $ 4,807,001
Courseware 440,575 846,250 1,019,209 1,023,171
Certification 141,949 0 212,499 0
----------- ----------- ------------ -------------
Total revenue 2,176,250 2,926,461 5,691,301 5,830,172
----------- ----------- ------------ -------------

Costs and expenses:
Costs of services 2,003,279 3,057,747 7,194,718 9,686,524
Sales and marketing 257,238 1,225,869 1,320,859 2,595,142
General and administrative 1,256,550 1,702,710 4,368,459 5,084,761
Restructuring charge 3,723,148 0 3,723,148 0
----------- ----------- ------------ -------------
Total costs and expenses 7,240,215 5,986,326 16,607,184 17,366,427
----------- ----------- ------------ -------------

Loss from operations (5,063,965) (3,059,865) (10,915,883) (11,536,255)
Interest income (expense), net (171,059) 60,121 (215,973) 148,909
----------- ----------- ------------ -------------

Net loss $(5,235,024) $(2,999,744) $(11,131,856) $(11,387,346))
----------- ----------- ------------ -------------

Net loss per share $(0.39) $(0.26) $(0.89) $(1.05)
----------- ----------- ------------ -------------

Weighted average number of common
shares outstanding 13,419,306 11,370,845 12,555,270 10,796,972
----------- ----------- ------------ -------------
</TABLE>

See Accompanying Notes
<PAGE>

ProsoftTraining.com and Subsidiaries
Consolidated Statements of Cash Flow
(Unaudited)

<TABLE>
<CAPTION>
Nine Months Ended April 30,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Operating activities
Net loss...................................................... ($11,131,856) ($11,387,346)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization............................ 2,185,299 2,080,233
Write-down of property and equipment..................... 911,215 0
Changes in operating assets and liabilities:
Accounts receivable................................. 731,710 (578,724)
Prepaid expenses and other current assets........... 249,158 149,341
Other assets........................................ (127,743) 0
Accounts payable.................................... (860,894) (1,434,878)
Accrued payroll and related expenses................ (70,397) (748,289)
Deferred revenue.................................... (23,105) (65,892)
Accrued restructuring expenses...................... 2,043,673 0
------------- -------------

Net cash used in operating activities......................... (6,092,940) (11,985,555)

Investing activities:
Acquisitions of businesses net of cash..................... (30,000) (1,000,000)
Purchase of property and equipment......................... 0 (1,137,107)
Proceeds from sales of property and equipment.............. 44,253 0
Notes receivable........................................... 93,450 195,120
------------- -------------

Net cash provided by (used in) investing activities........... 107,703 (1,941,987)

Financing activities:
Issuance of convertible debentures and warrants............ 3,060,000 0
Issuance of common stock................................... 957,403 8,774,914
Principal payments on debt and capital leases.............. 131,437 (1,376,202)
------------- -------------
Net cash provided by financing activities..................... 4,148,840 7,398,712
------------- -------------

Decrease in cash and cash equivalents......................... (1,836,397) (6,528,830)
Cash and cash equivalents at the beginning of period.......... 3,311,014 12,911,684
------------- -------------
Cash and cash equivalents at the end of period................ $ 1,474,617 $ 6,382,854

Supplementary disclosure of cash paid during the period for:
Interest................................................... $ 149,050 $ 248,623
Income taxes............................................... $ 0 $ 0
Supplementary disclosure on non-cash financing activities:
Equipment acquired under capital leases.................... $ 0 $ 173,290
Common Stock used in acquisitions............................. $ 567,500 $ 1,699,998
</TABLE>

See Accompanying Notes
<PAGE>

ProsoftTraining.com and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. The 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 Annual Report on Form 10-K filed with the Securities and
Exchange Commission. The results of operations for the three month and nine
month periods ended April 30,1999, are not necessarily indicative of results
that can be expected for the fiscal year ending July 31, 1999. The consolidated
financial statements included herein are unaudited; however, they contain all
adjustments (consisting of normal recurring accruals) which, in the opinion of
the Company, are necessary to present fairly its consolidated financial
position, results of operations, and cash flows as of and for the three month
and nine month periods ended April 30, 1999.

2. In January 1998, the Company purchased 100% of the outstanding common
stock of Net Guru Technologies, Inc. (Net Guru) in exchange for cash of
$1,000,000 and 152,809 shares of the Company's common stock valued at
$1,700,000. In March 1998, the Company purchased 100% of the outstanding common
stock of The Chapel Hill Group-Technology Consultants, Inc. in exchange for
68,728 shares of the Company's common stock, valued at $500,000. In November
1998, the Company purchased the remaining 51% of the outstanding common stock of
International Certification Internet Institute (ICII) in exchange for 300,000
shares of the Company's common stock valued at $547,500. As part of the January
1998 Net Guru acquisition, the Company also received 49% of ICII. However, share
transference was subject to a shareholder agreement. With the purchase of 51% of
ICII, the other 49% was also transferred to Prosoft. The operations of the
acquired companies have been reflected in the Company's financial statements
since the dates of the acquisitions. For the quarter and nine months ended April
30, 1999, the operations of the acquired companies were not significant.
Accordingly, a pro forma statement of operations, giving effect to the
acquisitions of the aforementioned companies as if they occurred on August 1,
1997, are not presented.

During the quarter ended January 31, 1999, the Company determined that
$1,005,122 of the purchase price of the Net Guru acquisition should have been
allocated to license agreements and other identifiable intangibles like service
marks, brands, and certification credentials at the date of acquisition. As a
result, a reclassification from goodwill to license agreements has been made.

3. In November of 1998, the Company entered into an Accounts Receivable Line
of Credit whereby up to 80% of the accounts receivable can be advanced up to
$3,500,000. As of April 30, 1999, there have been no borrowings on this line. In
November 1998, the Company issued approximately $700,000 in common stock and
$3,200,000 in the form of 13% convertible promissory notes with detachable
warrants. The convertible debt has a five year maturity with interest payable
quarterly.

4. During the second quarter, the Company issued shares of common stock in
lieu of the waiver of certain put rights issued in conjunction with certain
acquisitions.

5. In the third quarter ended April 30, 1999, the Company recorded a
$3,723,148 charge for restructure and other unusual items associated with the
Company's decision to exit the retail training business. The restructuring
charge and the amount settled are summarized as follows:
<TABLE>
<CAPTION>

CHARGE SETTLED TO BE SETTLED
---------- ------------ -------------
<S> <C> <C> <C>

Severance and other related employee costs $ 284,600 $ (184,600) $ 100,000
Fixed asset write-downs 1,104,452 (1,104,452) 0
Leased facilities, equipment and other
termination costs 2,334,096 (390,423) 1,943,673
---------- ----------- ----------

$3,723,148 $(1,679,475) $2,043,673
---------- ----------- ----------
</TABLE>

The unsettled amounts may change when final payments are made. The Company
anticipates that the remaining restructuring actions will be substantially
completed by approximately mid-year of fiscal 2000.
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

This Management Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements. For this purpose, any statements
contained herein that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the foregoing, the words
"believes", "anticipates", "plans", "expects" and similar expressions are
intended to identify forward-looking statements. In addition, forward looking
statements include, but are not limited to, statements regarding future
financing needs, changes in business strategy, future profitability, and factors
affecting liquidity. A number of important factors could cause the Company's
actual results to differ materially from those indicated by such forward-looking
statements. These forward-looking statements represent the Company's judgment as
of the date of the filing of this Form 10-Q. The Company disclaims any intent or
obligation to update these forward-looking statements.

OVERVIEW

ProsoftTraining.com ("Prosoft" or the "Company") is an Internet skills
solutions company committed to providing comprehensive Internet skills
curriculum, vendor-neutral Internet skills certification programs and
instructors to deliver the curriculum and certification. Prosoft offers more
than 50 instructor led Internet skill courses ranging from one-day end-user
workshops to 10-day certification programs. The Certified Internet Webmaster
program offered by the Company creates the professional skills required to
develop and implement e-business solutions for the Internet age. The
certification testing program is administered worldwide by testing leader Sylvan
Prometric. The Company also sells its courseware to Prosoft Certified Training
Center (PCTC) resellers and courseware licensees. The Company works closely with
industry associations, vendors and its partners to define the job roles and
skills essential to deploy today's e-business.

Prosoft offers comprehensive training solutions. Company services include
certification in critical Internet skills, instructor-led training (ILT),
instructor-facilitated online learning using the Company's proprietary ProFlex
distance learning program, classroom texts, custom courseware development,
courseware licensing and multimedia courseware.

The Company's Certified Internet Webmaster (CIW) certification, currently in
its third generation, is offered globally in partnership with IBM subsidiaries
Catapult and PBSC (Canada), CompUSA, ExecuTrain, Computer Prep, among others.
The program is based on key e-business job roles and the skills required to
perform them. The CIW curriculum and examinations develop and prove competency
in those critical job roles. It is a standardized method of ensuring that
individuals have demonstrated technical competency in selected areas and is
vendor-neutral in that it is not content specific to any single vendor or any
single product associated with any vendor. CIW is endorsed by the Association
of Internet Professionals and the World Organization of Webmasters.

Historically, Internet instruction had been offered through Company-operated
training centers ("Training Centers"). Since January 31, 1999, the Company no
longer operated any Training Centers. As of July 31, 1998, the Company
operated 31 Training Centers in 18 states. The Company altered its strategy and
decided to exit the retail training business and sell curriculum and instruction
services to the training industry on a wholesale basis. Prosoft has increased
its offerings through wholesale relationships with other international,
national, and regional training companies. The companies add Prosoft Internet
curriculum which provides them a new or expanded product line to augment their
other training product lines. The Company also provides contract training
services at a wholesale cost of $1,450 to $2,600 per day. This strategy shift to
eliminate Company run sites and increase distribution through Prosoft Certified
Training Centers (resellers) began to impact the financial statements in the
fiscal third quarter. The Company is now positioned as a wholesale training
services company, supplying training and curriculum in the Unites States and
abroad. This new wholesale plan leverages instructor resources and adds a
product line in courseware sales. This transition plan which began in the second
quarter should allow the Company to significantly reduce its fixed operating
expenses as training occurs at resellers or customer sites. In the third
quarter, the Company recorded a restructuring charge of $3,723,148 to provide
for site closures, termination of unproductive equipment leases, non-cash write-
offs of unproductive assets and reduction to the workforce. Since resellers have
training schedules published six months in advance and the need to train
personnel who will deliver the new program, there will be a lag for the
distribution of Prosoft's product from the time of agreement signing.
Distribution agreements entered into in the first and second fiscal quarters
with ExecuTrain, CompUSA, IBM, ComputerPrep, and various PCTCs should provide a
solid foundation to implement the Company's new strategy and remain a leader in
Internet/intranet skills development. However, there can be no assurances that
this strategy will be successful and that such sales will occur and such margins
realized.
<PAGE>

RESULTS OF OPERATIONS

Three Months Ended April 30, 1999, Compared to the Three Months Ended
April 30, 1998

RECLASSIFICATIONS

Certain amounts for the three months ended April 30, 1998, and for the nine
months ended April 30, 1998, have been reclassified to conform with the 1999
presentation.

REVENUE

Training revenue for the three months ended April 30, 1999, was $1,593,726,
compared to $2,080,211 in the three months ended April 30, 1998, a decrease of
$486,485. This decrease reflects a change in the distribution strategy of the
Company from a retail to a wholesale model. Training revenue for the third
quarter of 1999 primarily came as a result of instructor rental to other
training companies. Training revenue for the third quarter of 1998 primarily
came from student fees.

Courseware sales decreased to $440,575 in the three months ended April 30,
1999, compared to $846,250 in the three months ended April 30, 1998. Courseware
sales in 1998 came from courseware licensing whereas courseware sales in 1999
came from courseware licensing and textbook sales. Courseware licensing revenue
can vary significantly from quarter to quarter. The sale of textbooks under the
new model represents a revenue source that will be more consistent from quarter
to quarter.

Certification revenue increased to $141,949 in the three months ended April
30, 1999, compared to $0 in the three months ended April 30, 1998. Certification
revenue is derived from the new PCTC program and certification testing.

COST OF SERVICES

The Company's cost of services includes the costs of instructors, course
materials, classroom equipment, and facilities. The majority of course
instructors are employees. Instructor travel varies with, among other things,
the location of class offerings and local instructor availability. The Company
uses instructors, dedicated content development employees, and contractors to
develop course content and materials. The cost of content development varies
with the Company's evaluation of the effectiveness of its existing class
offerings and the anticipated release of new software products.

Cost of services for the three months ended April 30,1999, were $2,003,279,
compared to $3,057,747 for the three months ended April 30, 1998, a decrease of
$1,054,468 or 34%. The reduction in costs was primarily related to a decrease
of instructors and classroom equipment and facilities cost. Instructor
headcount at April 30, 1999 was 24 compared to 42 at April 30, 1998.

SALES AND MARKETING

Sales and marketing expenses are composed of:

<TABLE>
<CAPTION>
Three Months Ended April 30,
------------------------------
1999 1998
---- ----
<S> <C> <C>
Advertising and trade shows.............. $ 19,856 $ 476,484
Salaries and wages....................... 138,857 664,355
Travel and entertainment................. 98,525 85,030
-------- ----------
Total................................ $257,238 $1,225,869
======== ==========
</TABLE>

Sales and marketing expenses for the three months ended April 30, 1999,
amounted to $257,238, compared to $1,225,869 for the three months ended
April 30, 1998, a decrease of $968,631 or 79%. This decrease reflects the
elimination of the Company's public class schedule and direct mail and
telemarketing staff associated with that distribution method.
<PAGE>

GENERAL AND ADMINISTRATIVE

General and administrative expenses for the three months ended April 30,1999,
were $1,256,550, compared to $1,702,710 for the three months ended April 30,
1998, a decrease of $446,160 or 26%. The decrease is primarily due to savings
from headcount reductions and other cost control initiatives.

RESTRUCTURING CHARGE

A restructuring charge of $3,723,148 was recorded in the three months ended
April 30, 1999. The restructuring charge consisted of the following: employee
termination and severance costs, $284,600; fixed asset write-downs, $1,104,452;
and leased facilities, equipment and other termination costs, $2,334,096. Of
the total $3,723,148 restructuring charge, $1,679,475 was settled in the quarter
and $2,043,673 remains in accrued restructuring costs. The unsettled amounts
may change when final payments are made. The Company anticipates that the
remaining restructuring actions will be substantially completed by mid-year of
fiscal 2000.

NET INTEREST INCOME (EXPENSE)

Net interest expense was $171,059 for the three months ended April 30, 1999,
compared to net interest income of $60,121 for the three months ended April 30,
1998, a decrease of $231,180. Interest expense, which consists principally of
interest on the convertible debentures, is offset by interest earned on cash
balances. The increase in net interest expense was a result of smaller cash
balances and the convertible debenture issued in the second quarter. Only half
of the convertible debenture interest must be paid in cash.

Nine Months Ended April 30, 1999, Compared to the Nine Months Ended April 30,
1998

REVENUE

Training revenue for the nine months ended April 30, 1999, was $4,459,593,
compared to $4,807,001 in the nine months ended April 30, 1998, a decrease of
$347,408. This decrease reflects the change in the distribution strategy of the
company from a retail to a wholesale model.

Courseware sales for the nine months ended April 30, 1999 totaled $1,019,209,
compared to $1,023,171 for the nine months ended April 30, 1998, a decrease of
less than 1%.

Certification revenue increased to $212,499 in the nine months ended April
30, 1999, compared to $0 in the nine months ended April 30, 1998. Certification
revenue is derived from the new PCTC program and certification testing.

COST OF SERVICES

The Company's cost of services includes the costs of instructors, course
materials, classroom equipment, and facilities. Most course instructors are
employees. Instructor travel varies with, among other things, the location of
class offerings and local instructor availability. The Company uses instructors,
dedicated content development employees and contractors to develop course
content and materials. The cost of content development varies with the Company's
evaluation of the effectiveness of its existing class offerings and the
anticipated release of new software products. The cost of courseware for the
current period included additional expenses resulting from the completion of the
third generation of the courseware library.

Cost of services for the nine months ended April 30, 1999, were $7,194,718
compared to $9,686,524 for the nine months ended April 30, 1998, a decrease of
$2,491,806 or 26%. The reduction in costs was primarily related to a decrease
of instructors and classroom equipment and facilities cost. Instructor
headcount at April 30, 1999 was 24 compared to 42 at April 30, 1998.

SALES AND MARKETING

Sales and marketing expenses are composed of:
<PAGE>

<TABLE>
<CAPTION>
Nine Months Ended April 30,
----------------------------
1999 1998
------------ -------------
<S> <C> <C>
Advertising and trade shows.............. $ 47,060 $ 489,892
Salaries and wages....................... 1,062,449 1,775,478
Travel and entertainment................. 211,350 329,772
---------- ----------
Total.................................. $1,320,859 $2,595,142
========== ==========
</TABLE>

Sales and marketing expenses for the nine months ended April 30, 1999,
amounted to $1,320,859, compared to $2,595,142 for the nine months ended April
30, 1998, a decrease of $1,274,283 or 49%. The decrease in costs was primarily
related to the reduction in sales and marketing staff and trade show costs.

GENERAL AND ADMINISTRATIVE

General and administrative expenses for the nine months ended April 30,1999,
were $4,368,459, compared to $5,084,761 for the nine months ended April 30,
1998, a decrease of $716,302 or 14%. The decrease is primarily due to savings
from headcount reductions and other cost control initiatives.

RESTRUCTURING CHARGE

A restructuring charge of $3,723,148 was recorded in the nine months ended
April 30, 1999. The restructuring charge consisted of the following: employee
termination and severance costs, $284,600; fixed asset write-downs, $1,104,452;
and leased facilities, equipment and other termination costs, $2,334,096. Of
the total $3,723,148 restructuring charge, $1,679,475 was settled in the quarter
and $2,043,673 remains in accrued restructuring costs. The unsettled amounts
may change when final payments are made. The Company anticipates that the
remaining restructuring actions will be substantially completed by mid-year of
fiscal 2000.

NET INTEREST INCOME (EXPENSE)

Net interest expense was $215,973 for the nine months ended April 30, 1999,
compared to net interest income of $148,909 for the nine months ended April 30,
1998, a decrease of $364,882. Interest expense, which consists principally of
interest paid on capital leases and convertible debentures, is offset by
interest earned on cash balances. The increase in net interest expense was a
result of smaller cash balances and interest expense attributable to the
convertible debenture issued in the second quarter. Only half of the
convertible debenture interest must be paid in cash.

Liquidity And Capital Resources

From inception, the Company has financed its operations and met substantially
all of its capital expenditure requirements primarily through net proceeds from
private sales of securities. Cash and cash equivalents decreased from $3,311,014
at July 31, 1998, to $1,474,617 at April 30, 1999. This decrease was the result
of net cash used by operations, primarily due to a net loss of $11,131,856 for
the period, which was partially offset by financing activities that raised
approximately $3,800,000 and non-cash expenses of approximately $5,500,000.

In November 1998, the Company entered into a renewable one year line of
credit with Silicon Valley Bank for a maximum of $3,500,000. The collateral for
the line is the Company's accounts receivable of which the Company can draw
down up to 80% of the accounts receivable balance.

The Company has incurred losses of approximately $51 million since inception,
primarily due to the startup nature of its business. However, due to the recent
sales reorganization and refocusing efforts, the Company is beginning to realize
increasing revenue and decreasing costs. This shift in the business strategy
should reduce fixed costs over comparable fiscal 1998 periods. If revenues
continue to grow as demonstrated in the third quarter of fiscal 1999 and cost
savings are realized from programs previously discussed as anticipated, the
Company hopes to reach profitability in fiscal 2000. The Company anticipates
that its existing resources, along with the $3.5 million asset based credit line
from Silicon Valley Bank, will be sufficient to meet its needs for working
capital expenditures through at least fiscal 1999. However, no assurances can be
given that the Company will be successful in realizing
<PAGE>

its goals. The Company's ability to continue as a going concern depends upon its
ability to obtain necessary financing, grow revenue, attain operational
efficiencies and, ultimately, sustain a profitable level of operations.

YEAR 2000 ISSUE RISKS

Many existing computer systems and applications, and other control devices,
use only two digits to identify a year in the date field, without considering
the impact of the upcoming change in the century. As a result, such systems and
applications could fail or create erroneous results unless corrected so that
they can process data related to the year 2000. We rely on our systems,
applications and devices, including financial systems, registration systems,
embedded computer chips, networks and telecommunications equipment.

We have completed our Year 2000 assessment and determined our financial
system needed to be updated at an expected cost of less than $3,000. This update
was completed in fiscal 1999. We have received assurances from our other
software vendors that their systems are Year 2000 compliant. In addition, we
have conducted an inventory, review and assessment of our personal computers,
networks and servers and desktop software applications to determine whether they
support Year 2000 date codes and we believe that all are Year 2000 compliant. In
the event of an unexpected failure in one of our systems, our employees would be
able to continue operations on a manual basis until such systems have been
restored to full operating capacity. We estimate that the total cost of our Year
2000 compliance will not be significant.

We have contacted our key vendors and service suppliers to determine the
extent to which we are vulnerable to their failure to address the Year 2000
problem. We have received verbal assurances from these key suppliers that their
systems are Year 2000 compliant. Although we do not believe our operations will
be significantly disrupted even if third parties with whom we have relationships
are not Year 2000 compliant, we cannot guarantee that any Year 2000 compliance
problems of our suppliers will not negatively affect our financial performance.
If our key suppliers are unable to provide us sufficient quantities of materials
or goods as a result of their failure to be Year 2000 compliant, we believe that
we can obtain adequate supplies of materials and goods at comparable prices from
other sources. Because uncertainty exists concerning the potential costs and
effects associated with any Year 2000 compliance, we intend to continue to make
efforts to ensure that third parties with whom we have relationships are Year
2000 compliant.

The Year 2000 problem could also have an effect on our customers. If
customers delay or forego purchasing our products based upon Year 2000 related
issues, it could affect our operating results. Based upon our evaluation of our
current information, we do not believe such an occurrence is likely. However, we
cannot control the Year 2000 readiness of third parties and such a risk is
possible.

ADDITIONAL FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS OR THE COMPANY

The discussions in this Form 10-Q concerning future financing needs, changes
in business strategy, future profitability, and factors affecting liquidity
contain forward-looking statements. Although management believes that these
statements are reasonable in view of the facts available to it, no assurance can
be given that all of these statements will prove to be accurate. Numerous
factors could have a material effect upon whether these projections could be
realized or whether these trends will continue. Among these factors are those
set forth in the following section, as well as those discussed elsewhere herein.
For purposes of this Form 10-Q, "we" and "our" refer to the Company.

EXPECTATION OF CONTINUING LOSSES

We have a limited operating history, particularly with the new distribution
strategy, which makes it difficult to predict our future operating results. In
addition, we do not expect quarterly profitability until fiscal 2000. We have
incurred net losses of approximately $51 million from our inception on December
5, 1995, through April 30, 1999. For the quarter ended April 30, 1999, we
incurred a net loss of $5,235,024, which included a restructuring charge of
$3,723,148. Our ability to generate significant revenues in the future is
subject to uncertainty. In order to achieve profitability, we must increase our
revenues. We cannot assure you that we will be able to increase revenues or
achieve profitability.

UNCERTAINTY OF FUTURE CAPITAL REQUIREMENTS

Since our inception, we have been dependent on outside financing to fund our
operations and growth. We have raised approximately $47 million from private
placements since our inception and incurred losses of approximately $51 million.
We
<PAGE>

began realizing increasing revenues this past quarter as a result of the
implementation of the new business strategy. This shift in our business strategy
should also result in a reduction in overhead expenses and, if revenues continue
to grow as demonstrated in the third quarter of fiscal 1999, we hope to reach
profitability in fiscal 2000. We believe that our existing resources will be
sufficient to meet our needs for working capital expenditures through at least
fiscal 1999. However, if we do not achieve profitability and generate positive
cash flow as anticipated, our ability to continue as a going concern will be
jeopardized unless additional outside financing can be obtained.

UNCERTAINTY OF FUTURE FUNDING

If we do not achieve profitability and generate positive cash flow as
anticipated, we may need additional outside financing. Even if we do achieve
profitability and positive cash flow, we may need outside financing to fund
further growth of our business. We do not know at this time when we may need
additional funds, and we cannot be certain that if we do need additional funds
in the future that we will be able to obtain them on terms satisfactory to us,
if at all. If we are unable to raise additional funds when necessary, we may
have to reduce planned capital expenditures, scale back our operations or growth
or enter into financing arrangements on terms which we would not otherwise
accept.

INTENSE COMPETITION IN TRAINING MARKET

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

NEED TO RESPOND TO RAPID TECHNOLOGICAL CHANGES

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

EFFECT OF MARKET OVERHANG ON STOCK PRICE

Future sales of our Common Stock could depress the market price of our Common
Stock. In addition, the perception that such sales will occur could also
adversely effect the price. As long as certain registration statements which
have been filed with the SEC remain effective, the selling stockholders under
those registration statements may sell approximately 8,000,000 shares (or
approximately 47% of the shares of Common Stock currently outstanding on a
fully-diluted basis). These shares were privately issued and are otherwise
subject to restrictions on resale under securities laws. Any such sales, or even
the market perception that such sales could be made, may depress the price of
the Common Stock. The majority of the shares registered were already saleable
under rule 144.

VOLATILITY OF STOCK PRICE

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

. Fluctuations in our operating results.

. The perception by others of our ability to obtain any necessary new
financing.

. Limited trading market for our Common Stock.

. Announcements of new ventures or products and services by us or our
competitors.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable
<PAGE>

PART II - OTHER INFORMATION

Item 6: Exhibits and Reports on Form 8-K

a) Exhibits

10.1 Consultant Agreement dated July 1, 1999 by and between the Company
and Investment Transaction, LLC.

10.2 Employment Agreement dated January 1, 1999 between Prosoft I-Net
Solutions, Inc. and David I. Perl.

10.3 Employment Agreement dated January 1, 1999 between Prosoft I-Net
Solutions, Inc. and Uday O. Pabrai.

10.4 Employment Agreement dated January 1, 1999 between Prosoft I-Net
Solutions, Inc. and Jerrell M. Baird.

27 Financial Data Schedule.

b) Reports on Form 8-K

No reports on Form 8-K were filed during the three months ended April 30,
1999.
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

ProsoftTraining.com
Dated: June 16, 1999
/s/ JERRELL M. BAIRD
----------------------------------
Jerrell M. Baird
Chief Executive Officer
and Chairman of the Board
(Duly Authorized Officer)

Dated: June 16, 1999
/s/ WILLIAM J. WERONICK
----------------------------------
William J. Weronick
Vice President, Finance
(Principal Financial Officer)

<PAGE>

Exhibit 10.1

CONSULTANT AGREEMENT

The Consulting Agreement (the "Agreement") is made and entered into as
of July 1 1999, by and between ProsoftTraining.com (f/k/a ProsoftTraining.com,
Inc.,) a Nevada Corporation (the "Company"), and Investment Transaction, LLC, a
Nevada limited liability company ("Consultant").

R E C I T A L S
- - - - - - - -

A. Consultant has substantial expertise and experience in start-up
businesses in many different industries, particularly in the field of corporate
finance.

B. The Company desires to engage Consultant to obtain the benefit of
Consultant's special knowledge, experience, background, skills and abilities,
and Consultant desires to accept such engagement, upon the terms and subject to
the conditions set forth herein.

A G R E E M E N T
- - - - - - - - -

NOW, THEREFORE, in consideration of the foregoing recitals, and the
mutual representations, agreements and promises contained in this Agreement, the
Company and Consultant agree as follows:

1. Engagement. The Company hereby engages Consultant as A consultant
----------
to render the services and perform the duties described in this Agreement, the
Consultant hereby accepts such engagement, upon the terms and subject to the
conditions set forth herein.

2. Term. The engagement of Consultant by the Company shall Commence
----
on the date of this Agreement and continue until July 31, 2000. (The "Consulting
Period").

3. Service and Duties. During the Consulting Period, Consultant
------------------
Shall make all of its staff, including its President, available to (i) consult
with management of the Company on the Company's corporate finance strategy and
strategic direction; and (ii) assist the Company in structuring and implementing
corporate financings. Consultant shall cause all of its staff, including its
President to be reasonably available by telephone and, if possible, in person,
as needed, to render such services to the Company.
<PAGE>

4. Compensation
------------

(a) Reimbursement: Subject to Section 6, the company Agrees to
-------------
reimburse Consultant for all reasonable expenses incurred by Consultant in the
performance of Consultant's duties under this Agreement. Company agrees to
reimburse consultant for housing expenses of $3,500 per month. Consultant shall
also receive monthly non-housing expenses of up to $3,000.00 per month.

(b) Escrow of payments: The Parties agree that all payments to
------------------
be paid by the company through December 31, 1999 have been paid into an escrow
account. Consultant shall submit documented proof of expenses to the escrow
agent who shall then issue reimbursement to consultant for all documented
expenses up to the limits indicated in (4) (a). The company shall receive copies
of the expenses, but the obligation for verification shall vest with the escrow
agent. The company shall be obligated to make an additional payment to the
escrow agent in January 2000 in the amount of $39,000.00 (six months of expenses
at $6,500.00 per month). Consultant shall continue to submit expenses to the
escrow agent.

(c) Non-reimbursed Expenses: In the event consultant fails to
-----------------------
provide receipts for, or expenses do not total the amounts held in escrow, any
monies remaining in the account at the end of the contract term are to be paid
to consultant as a fee.

5. Independent Contractor. Consultant acknowledges and agrees that
----------------------
Consultant is an independent contractor and nothing contained in this Agreement
shall be construed to create the relationship of employer and employee or
principal and agent between Consultant and the Company. During the consulting
Period, Consultant shall maintain and pay for all federal, state, and local
disability, workers' compensation, payroll taxes self-employment insurance, and
income and other taxes, and the Company will not withhold or pay any such taxes
or insurance on behalf of Consultant.

6. Termination. If at any time the company terminates this Agreement
-----------
prior to the end of the consulting period without cause the company shall not be
entitled to a reimbursement of any expenses paid hereunder.

7. Non-Disclosure of Confidential Information. Consultant Agrees not
------------------------------------------
to divulge, communicate, use to the detriment of the Company or for its own
benefit or for the benefit of any other person or persons, or misuse in any way,
any confidential information or trade secrets of the Company.

8. Authority. Consultant shall not have authority to act as an Agent
---------
of the Company, and it shall not represent the contrary to any person or entity.
<PAGE>

9. Miscellaneous Provisions.
------------------------

(a) Notices. Any notice required in connection with this
-------
Agreement shall be given in writing and shall be deemed effective upon personal
delivery or three business days after deposit in the United States mail,
registered or certified, postage prepaid and addressed to the party entitled to
such notice at the address indicated below such party's signature line on this
Agreement or at such other address as such party may designate by ten (10) days'
advance written notice under Section 9(a) to all other parties to this
Agreement.

(b) Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof.

(c) Change, Modifications, Waiver. No change or Modification of
-----------------------------
this Agreement shall be valid unless it is in writing and signed by each of the
parties hereto. No waiver of any provision of this Agreement shall be valid
unless it is in writing and signed by the party against whom the waiver is
sought to be enforced.

(d) Assignment and Binding Nature. The services and Duties to be
-----------------------------
performed by Consultant hereunder are its own and may not be assigned. This
Agreement shall be binding upon and inure to the benefit of the Company, its
successors and assigns.

(e) Attorneys' Fees. In the event any party institutes any
---------------
Action or proceeding to enforce this Agreement or any provision hereof, or for
damages or equitable relief by reason of any alleged breach of this Agreement or
of any provision hereof, or for a declaration of rights hereunder, the
prevailing party in any such action or proceeding shall be entitled to receive
from the other party all costs and expenses, including reasonable attorneys'
fees, incurred by the prevailing party in connection with such action or
proceeding.

(f) Governing Law and Forum. This Agreement shall be Construed
-----------------------
in accordance with, and governed by, the laws of the State of Nevada, excluding
any choice of law principles which direct the application of the laws of another
jurisdiction. The exclusive forum for the determination of any action relating
to the adjudication of any dispute hereunder shall be with an appropriate court
of said State or that court of the United States which includes said State
within its territorial jurisdiction.

(g) Counterparts. This Agreement may be executed Simultaneously
------------
in counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>

IN WITNESS WHEREOF, the parties here to have executed this Agreement
as of the date first above written

"Company"

ProsoftTraining.com, INC.,
A Nevada Corporation

By:______________________________

<PAGE>

Exhibit 10.2

EMPLOYMENT AGREEMENT

This Employment Agreement ("Agreement") is made this 1st day of January,
1999, between PROSOFT I-NET SOLUTIONS, INC., a Nevada corporation (the
"Company"), and DAVID I. PERL ("Employee").

WHEREAS:

1. The Company is engaged in the provision of internet and intranet
training and other computer training and services.

2. The Company desires to employ Employee as its Chief Operating Officer,
and Employee wishes to accept such employment on the terms and conditions set
forth herein.

NOW, THEREFORE, in consideration of the promises and mutual covenants
herein set forth, the parties do hereby agree and promise as follows:

1. Employment. The Company hereby employs Employee and Employee hereby
----------
accepts employment under the terms and conditions set forth below. The
Employee's initial title shall be Chief Operating Officer.

2. Duties.
------

2.1 The Employee shall perform such managerial, supervisory,
development or executive duties in connection with the business of the Company
as the board of directors of the Company (the "Board of Directors") and other
more senior officers of the Company may from time to time assign consistent with
Employee's title of Chief Operating Officer.

2.2 Employee will report and be responsible to persons designated by
the Chief Executive Officer of the Company.

2.3 Employee agrees to devote his full business time, energy and
skills to such employment subject to absences and customary vacations and for
temporary illnesses.

2.4 Employee will not engage in other gainful occupation during the
term of this Agreement without prior written consent of the Company; provided,
however, that nothing contained herein shall be construed to prevent the
Employee from trading for his own account and benefit in stocks, bonds,
securities, real estate, commodities and other forms of investments.

3. Term. The term of this Agreement shall begin on January 1, 1999 and
----
shall continue until July 31, 2000, unless earlier terminated pursuant to the
provisions hereof.

1
<PAGE>

4. Compensation.
------------

4.1 Employee shall receive a base salary of $125,000 per year payable
in equal installments on the Company's regular payroll dates ("Base Salary"),
which Base Salary the Company shall continue to pay during the term of this
Agreement until the Company is no longer obligated to pay the same pursuant to
the provisions of Section 6 hereof. Employee's Base Salary shall increase to no
less than $150,000 beginning on the first day of the first quarter following the
Company achieving breakeven on a quarterly basis ("Breakeven"). By January 1,
2000, Employee's Base Salary shall be reviewed by the Compensation Committee of
the Board of Directors and, if appropriate, adjusted upward to a level
commensurate with executives holding similar titles in similar companies with
similar performance. In addition, Employee's Base Salary will be adjusted upward
such that his total cash compensation keeps him as one of the four highest
compensated associate of the Company (based on cash compensation only).

4.2 In addition to Employee's Base Salary, Employee shall be entitled
to receive an annual bonus as determined by the Board of Directors of the
Company, in its sole and absolute discretion; provided, however, such bonus
shall be not less than Fifteen Thousand Dollars ($15,000) and shall be payable
in September of each year.

5. Termination.
-----------

5.1 The Company may terminate this Agreement for cause by giving the
Employee written notice. "Cause" shall mean gross negligence or willful
misconduct in the performance of Employee's duties hereunder, willful breach or
habitual neglect of duties, defalcation, fraud, conviction of a felony, or
incarceration for not less than 30 consecutive days, all as determined by the
Board of Directors. If the Employee disputes the Company's right to terminate
this Agreement for Cause, the dispute shall be resolved in accordance with
Section 11 hereof.

5.2 The Company may terminate this Agreement if Employee is mentally
or physically disabled and such disability renders him unable to perform his
duties under this Agreement for 90 consecutive days in any 12-month period.
During the term of this Agreement, the Company will take out a disability
insurance policy providing Employee commensurate compensation in the event of
such a disability.

5.3 This Agreement may be terminated voluntarily by the Employee by
providing the Company with written notice specifying the date of such
termination not less than 90 days prior to the effective date of termination.

5.4 This Agreement may be terminated by the Company without Cause by
providing Employee with written notice specifying the date of such termination
not less than 30 days prior to the effective date of termination.

<PAGE>

6. Effect of Termination.
---------------------

6.1 If Employee's employment hereunder is terminated without Cause
pursuant to Section 5.4, the Company shall (i) pay to Employee an amount equal
to Employee's cash compensation from the Company for the previous 12 months or
$150,000, whichever is greater, plus the value of any accrued or unused vacation
and (ii) provide acceleration and immediate vesting of all of Employee's stock
options from the Company which have not yet vested at that time, and such
accelerated options as well as any other options which have vested and are then
exercisable shall be exercisable for a period of three (3) months following the
date of termination and shall then expire and be of no further force or effect.
The Company shall thereafter have no further obligations under this Agreement.

6.2 If Employee's employment hereunder is terminated pursuant to
Sections 5.1, 5.2 or 5.3, the Company shall pay to Employee the Base Salary
through the date of such termination, plus the value of any accrued or unused
vacation, and the Company shall thereafter have no further obligations to
Employee under this Agreement.

6.3 If Employee's employment is terminated as a result of the
expiration of the term of this Agreement, then the Company shall pay to Employee
the Base Salary through the expiration date, plus the value of any accrued or
unused vacation, and the Company shall thereafter have no further obligations
under this Agreement.

7. Change of Control.
-----------------

7.1 For purposes of this Agreement, a "Change of Control" shall mean
the occurrence of either one of the following events:

(1) any corporation, partnership, person, other entity or group
(as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended) (collectively, a "Person"), acquires shares of capital stock of the
Company representing more than fifty percent (50%) of the total number of shares
of capital stock that may be voted for the election of directors of the Company;
or

(2) a merger, consolidation or other business combination of the
Company with or into another Person is consummated, or all or substantially all
of the assets of the Company are acquired by another Person, as a result of
which the stockholders of the Company immediately prior to the consummation of
such transaction own, immediately after consummation of such transaction, equity
securities possessing less than fifty percent (50%) of the voting power of the
surviving or acquiring Person (or any Person in control of the surviving or
acquiring Person), the equity securities of which are issued or transferred in
such transaction.

3
<PAGE>

7.2 Upon the occurrence of a Change of Control during the term of
this Agreement, all outstanding employee stock options then held by Employee
shall accelerate and immediately vest, and such accelerated options as well as
any other options which have vested and which are then exercisable shall remain
exercisable until expiration or earlier termination pursuant to the terms of the
respective original option agreements.

7.3 If upon the completion of a Change of Control Employee is not
President or Chief Operating Officer of the ultimate parent organization of
which the Company is a part, then the Company shall immediately make a payment
to Employee equal to the greater of (i) $250,000 or (ii) two times Employee's
cash compensation from the Company for the previous 12 months.

8. Withholding Taxes and Other Deductions. To the extent required by law,
--------------------------------------
the Company shall withhold from any payments due Employee under this Agreement
any applicable federal, state or local taxes and such other deductions as are
prescribed by law or Company policy.

9. Proprietary Information.
-----------------------

9.1 Employee understands that the Company possesses and will continue
to possess information that has been created, discovered, developed or otherwise
become known to the Company (including, without limitation, information created,
discovered, developed or made known by Employee during the period of or arising
out of his employment by the Company, whether prior to or after the date hereof)
or in which property rights have been assigned or otherwise conveyed to the
Company, which information has commercial value in the business in which the
Company is engaged. All such information is hereinafter called "Proprietary
Information." By way of illustration, but not limitation, Proprietary
Information includes processes, formulas, codes, data, programs, know-how,
improvements, discoveries, developments, designs, inventions, techniques,
marketing plans, strategies, forecasts, new products, unpublished financial
statements, budgets, projections, licenses, prices, costs, contracts and
customer and supplier lists.

9.2 In consideration of the compensation received by the Employee
from the Company and the covenants contained in this Agreement, Employee agrees
as follows:

9.2.1 All Proprietary Information shall be the sole property of
the Company and its assigns, and the Company and its assigns shall be the sole
owner of all patents, copyrights, and other rights in connection therewith.
Employee hereby assigns to the Company rights he may have or acquire in such
Proprietary Information. At all times, both during his employment by the Company
and after its termination, Employee will keep in strictest confidence and trust
all Proprietary Information and will not use or disclose any Proprietary
Information without the written consent of the Company, except as may be
necessary in the ordinary course of performing his duties under this Agreement.

4
<PAGE>

9.2.2 All documents, records, equipment and other physical
property, whether or not pertaining to Proprietary Information, furnished to
Employee by the Company or produced by Employee or others in connection with
Employee's employment with the Company shall be and remain the sole property of
the Company. In the event of the termination of his employment by him or the
Employee for any reason, Employee will deliver to the Company all documents,
notes, drawings, specifications, programs, data, customer lists and other
materials of any nature pertaining to his work with the Company and Employee
will not take with him or use any of the foregoing, any reproduction of any of
the foregoing, or any Proprietary Information that is embodied in a tangible
medium of expression.

9.3 Employee recognizes that the Company is engaged in a continuous
program of development and marketing respecting its present and future business.
Employee understands that as part of his employment by the Company he has been
and is expected to make new contributions of value to the Company and that his
employment has created a relationship of confidence and trust between him and
the Company with respect to certain information applicable to the business of
the Company or applicable to the business of any customer of the Company, which
has been or may be made known to Employee by the Company or by any customer of
the Company or which may have been or may be learned by Employee during the
period of his employment by the Company.

10. Covenant Not to Compete.
-----------------------

10.1 In consideration for the payments to be made under this
Agreement, Employee shall, for the greater of (a) a period of three (3) years or
(b) such period as Employee may be employed by the Company, refrain from, either
alone or in conjunction with any other person, or directly or indirectly through
its present or future affiliates:

(1) employing, engaging or seeking to employ or engage any
person who within the prior twenty-four (24) months had been an officer or
employee of the Company;

(2) causing or attempting to cause (A) any client, customer or
supplier of the Company to terminate or materially reduce its business with the
Company, or (B) any officer, employee or consultant of the Company to resign or
sever a relationship with the Company;

(3) disclosing (unless compelled by judicial or administrative
process) or using any confidential or secret information relating to the Company
or any of their respective clients, customers or suppliers; or

(4) participating or engaging in (other than through the
ownership of five percent (5%) or less of any class of securities registered
under the Securities Exchange Act of 1934, as amended), or otherwise lending
assistance (financial or otherwise) to any person participating or engaged in,
any of the lines of business in which the Company is participating or engaged on
the

5
<PAGE>

date hereof in any jurisdiction in which the Company participates or engages in
such line of business on the date hereof.

Notwithstanding the foregoing, the restrictive covenants set forth in
this Section 10 shall terminate immediately upon a termination of this Agreement
by the Company without Cause.

10.2 The parties hereto recognize that the laws and public policies
of the various states of the United States may differ as to the validity and
enforceability of covenants similar to those set forth in this Section. It is
the intention of the parties that the provisions of this Section be enforced to
the fullest extent permissible under the laws and policies of each jurisdiction
in which enforcement may be sought, and that the unenforceability (or the
modification to conform to such laws or policies) of any provisions of this
Section shall not render unenforceable, or impair, the remainder of the
provisions of this Section. Accordingly, if any provision of this Section shall
be determined to be invalid or unenforceable, such invalidity or
unenforceability shall be deemed to apply only with respect to the operation of
such provision in the particular jurisdiction in which such determination is
made and not with respect to any other provision or jurisdiction.

10.3 The parties hereto acknowledge and agree that any remedy at law
for any breach of the provisions of this Section would be inadequate, and
Employee hereby consents to the granting by any court of an injunction or other
equitable relief, without the necessity of actual monetary loss being proved, in
order that the breach or threatened breach of such provisions may be effectively
restrained.

10.4 The Company and the Employee acknowledge that the foregoing
restrictive covenants in this Section 10 are essential elements of this
Agreement and that, but for the agreement of the Employee to comply with those
covenants, the Company would not have agreed to enter into this Agreement. The
covenants by the Employee shall be construed as agreements independent of any
other provision in this Agreement.

10.5 The Company and the Employee intend that the covenants contained
in this Section 10 shall be construed as a series of separate covenants, one for
each county of the State of Texas and one for each State of the United States
other than Texas.

10.6 The Company and the Employee understand and agree that, if any
portion of the restrictive covenants set forth in this Section 10 is held to be
unreasonable, arbitrary, or against public policy, then that portion of those
covenants shall be considered divisible as to time and geographical area. The
Company and the Employee agree that, if any court of competent jurisdiction
determines that the specified time period or the specified geographical area of
application in any covenant is unreasonable, arbitrary, or against public
policy, then a lesser time period, geographical area, or both, that is
determined to be reasonable, nonarbitrary, and not against public policy may be
enforced against Employee. The Company and the Employee agree and acknowledge
that they are familiar with the present and proposed operations of the Company
and believe that the restrictive

6
<PAGE>

covenants set forth in this Section 10 are reasonable with respect to their
subject matter, duration, and geographical application.

10.7 The parties acknowledge that the status of the Employee in this
business and industry is unique and the success of the Company in said business
is materially and substantially dependent upon the continued employment of the
Employee, and in the event the employment of the Employee is terminated for any
reason, such business of the Company will be substantially and irrevocably
damaged. In view thereof, the parties acknowledge that monetary damages alone
will not fully compensate the Company in the event the Employee fails or refuses
to comply with the terms of this Section 10 above when applicable, and agree
that the Company, in addition to all other remedies provided in law and in
equity, shall have the remedy of injunctive relief and specific performance to
enforce the terms of said Section.

11. Arbitration. Except as otherwise provide herein, any controversies or
-----------
claims arising out of, or relating to this Agreement or the breach thereof,
shall be settled by arbitration in Austin, Texas in accordance with the rules
of, but not subject to the jurisdiction of, the American Arbitration
Association, which decision shall be final and binding on the parties, and
judgment upon the award rendered may be entered in any court having jurisdiction
thereof. For these purposes the arbitrator shall be an individual who has
demonstrated that such individual is familiar with and has experience in the
legal issues involving employer-employee relationships and has had no prior
prejudicial contacts with either party. In addition to all other remedies
provided in law or in equity, the arbitrator is hereby authorized to assess
costs and attorneys' fees against either party if the arbitrator finds, based on
all the facts and circumstances, that the conduct of or the claims made by such
party were unreasonable or substantially without merit.

12. Notice. All notices, requests and other communications hereunder must
------
be in writing and will be deemed to have been duly given only if delivered
personally or by facsimile transmission or mailed (first class postage prepaid)
to the parties at the following addresses or facsimile numbers:

If to Employee: David I. Perl

Facsimile No.:

If to the Company: Prosoft I-Net Solutions, Inc.
3001 Bee Caves Road, Suite 100
Austin, TX 78746
Facsimile No.: (512) 328-5237
Attn: Chief Executive Officer

All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile

7
<PAGE>

transmission to the facsimile number as provided in this Section, be deemed
given upon receipt, and (iii)if delivered by mail in the manner described above
to the address as provided in this Section, be deemed given upon receipt (in
each case regardless of whether such notice, request or other communication is
received by any other person to whom a copy of such notice, request or other
communication is to be delivered pursuant to this Section). Any party from time
to time may change its address, facsimile number or other information for the
purpose of notices to that party by giving notice specifying such change to the
other party hereto.

13. Invalid Provision. The invalidity or unenforceability of any
-----------------
particular provision of this Agreement in any jurisdiction shall not affect the
other provisions hereof or the validity of that particular provision in any
other jurisdiction, and the Agreement shall be construed in all respects as
though such invalid or unenforceable provisions were omitted only in the
jurisdiction in which the case is held to be invalid or unenforceable.

14. Interpretation. This Agreement shall be interpreted in accordance with
--------------
the laws of the State of Texas.

15. Successors. This Agreement shall be binding upon and shall inure to
----------
the benefit of the parties hereto and their respective successors, assigns,
heirs, and legal representatives, including any person, firm, corporation or
other business entity which at any time, by merger, purchase or otherwise,
acquires substantially all of the assets or business of the Company. The duties
and covenants of Employee under this Agreement, being personal, may not be
delegated.

16. Entire Agreement; Modification. This Agreement constitutes the entire
------------------------------
agreement between the parties, and may be changed only by an agreement in
writing signed by the parties.

17. Headings. Sections and other headings contained in this Agreement are
--------
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

18. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. Signatures may be
exchanged by telecopy, with original signatures to follow. Each of the parties
hereto agrees that it will be bound by its own telecopied signature and that it
accepts the telecopied signatures of the other parties to this Agreement. The
original signature pages shall be forwarded to the Company or its counsel and
the Company or its counsel will provide all of the parties hereto with a copy of
the entire Agreement.

8
<PAGE>

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officer of each party hereto as of the date first above
written.

THE COMPANY

PROSOFT I-NET SOLUTIONS, INC., a Nevada
corporation

By:_____________________________________
Name:________________________________
Title:_______________________________

EMPLOYEE

________________________________________
David I. Perl

<PAGE>

Exhibit 10.3

EMPLOYMENT AGREEMENT

This Employment Agreement ("Agreement") is made this 1st day of January,
1999, between PROSOFT I-NET SOLUTIONS, INC., a Nevada corporation (the
"Company"), and UDAY O. PABRAI ("Employee").

WHEREAS:

1. The Company is engaged in the provision of internet and intranet
training and other computer training and services.

2. The Company desires to employ Employee as its Chief Technology
Officer, and Employee wishes to accept such employment on the terms and
conditions set forth herein.

NOW, THEREFORE, in consideration of the promises and mutual covenants
herein set forth, the parties do hereby agree and promise as follows:

2. Duties.
------

2.2 Employee will report and be responsible to persons designated by
the Chief Executive Officer of the Company.

2.3 Employee agrees to devote his full business time, energy and
skills to such employment subject to absences and customary vacations and for
temporary illnesses.

2.5 Employee will be permitted to maintain his place of employment in
the Chicago, Illinois metropolitan area and will only be required by the Company
to relocate to another

1
<PAGE>

location if Employee consents to such relocation. Notwithstanding the foregoing,
Employee shall be required to travel to the Company's various offices and other
locations as part of his employment and he shall be reasonably available to do
so.

3. Term. The term of this Agreement shall begin on January 1, 1999 and
----
shall continue until July 31, 2000, unless earlier terminated pursuant to the
provisions hereof.

4. Compensation.
------------

4.1 Employee shall receive a base salary of $150,000 per year payable
in equal installments on the Company's regular payroll dates ("Base Salary"),
which Base Salary the Company shall continue to pay during the term of this
Agreement until the Company is no longer obligated to pay the same pursuant to
the provisions of Section 6 hereof. By January 1, 2000, Employee's Base Salary
shall be reviewed by the Compensation Committee of the Board of Directors and,
if appropriate, adjusted upward to a level commensurate with executives holding
similar titles in similar companies with similar performance. In addition,
Employee's Base Salary will be adjusted upward such that his total cash
compensation keeps him as one of the four highest compensated associates of the
Company (based on cash compensation only).

4.2 In addition to Employee's Base Salary, Employee shall be entitled
to receive an annual bonus as determined by the Board of Directors of the
Company, in its sole and absolute discretion; provided, however, such bonus
shall not be less than Fifteen Thousand Dollars ($15,000) and shall be payable
in September of each year.

5. Termination.
-----------

2
<PAGE>

6. Effect of Termination.
---------------------

7. Change of Control.
-----------------

7.1 For purposes of this Agreement, a "Change of Control" shall mean
the occurrence of either one of the following events:

3
<PAGE>

of such transaction, equity ecurities possessing less than fifty percent (50%)
of the voting power of the surviving or acquiring Person (or any Person in
control of the surviving or acquiring Person), the equity securities of which
are issued or transferred in such transaction.

7.3 If upon the completion of a Change of Control Employee is not a
senior executive of the ultimate parent organization of which the Company is a
part, then the Company shall immediately make a payment to Employee equal to the
greater of (i) $250,000 or (ii) two times Employee's cash compensation from the
Company for the previous 12 months.

9. Proprietary Information.
-----------------------

9.2 In consideration of the compensation received by the Employee
from the Company and the covenants contained in this Agreement, Employee agrees
as follows:

4
<PAGE>

consent of the Company, except as may be necessary in the ordinary course of
performing his duties under this Agreement.

10. Covenant Not to Compete.
-----------------------

(1) employing, engaging or seeking to employ or engage any
person who within the prior twenty-four (24) months had been an officer or
employee of the Company;

(4) participating or engaging in (other than through the
ownership of five percent (5%) or less of any class of securities registered
under the Securities Exchange Act of 1934,

5
<PAGE>

as amended), or otherwise lending assistance (financial or otherwise) to any
person participating or engaged in, any of the lines of business in which the
Company is participating or engaged on the date hereof in any jurisdiction in
which the Company participates or engages in such line of business on the date
hereof.

Notwithstanding the foregoing, the restrictive covenants set forth in
this Section 10 shall terminate immediately upon a termination of this Agreement
by the Company without Cause.

6
<PAGE>

be enforced against Employee. The Company and the Employee agree and acknowledge
that they are familiar with the present and proposed operations of the Company
and believe that the restrictive covenants set forth in this Section 10 are
reasonable with respect to their subject matter, duration, and geographical
application.

If to Employee: Uday O. Pabrai
1523 Monarch Circle
Naperville, IL 60564
Facsimile No.:

If to the Company: Prosoft I-Net Solutions, Inc.
3001 Bee Caves Road, Suite 100
Austin, TX 78746
Facsimile No.: (512) 328-5237
Attn: Chief Executive Officer

7
<PAGE>

All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, and (iii)if delivered by
mail in the manner described above to the address as provided in this Section,
be deemed given upon receipt (in each case regardless of whether such notice,
request or other communication is received by any other person to whom a copy of
such notice, request or other communication is to be delivered pursuant to this
Section). Any party from time to time may change its address, facsimile number
or other information for the purpose of notices to that party by giving notice
specifying such change to the other party hereto.

14. Interpretation. This Agreement shall be interpreted in accordance with
--------------
the laws of the State of Texas.

16. Entire Agreement; Modification. This Agreement replaces in its
------------------------------
entirety the Employment Agreement dated January 1, 1998 between the Company and
Employee, which agreement shall be of no further force or effect. This Agreement
constitutes the entire agreement between the parties, and may be changed only by
an agreement in writing signed by the parties.

17. Headings. Sections and other headings contained in this Agreement are
--------
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

8
<PAGE>

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officer of each party hereto as of the date first above
written.

THE COMPANY

PROSOFT I-NET SOLUTIONS, INC., a
Nevada corporation

By: ______________________________
Name: ________________________
Title: _______________________

EMPLOYEE

__________________________________
Uday O. Pabrai

<PAGE>

EXHIBIT 10.4

EMPLOYMENT AGREEMENT

This Employment Agreement ("Agreement") is made this 1st day of January,
1999, between PROSOFT I-NET SOLUTIONS, INC., a Nevada corporation (the
"Company"), and JERRELL M. BAIRD ("Employee").

WHEREAS:

1. The Company is engaged in the provision of internet and intranet
training and other computer training and services.

2. The Company desires to employ Employee as its Chief Executive Officer,
and Employee wishes to accept such employment on the terms and conditions set
forth herein.

NOW, THEREFORE, in consideration of the promises and mutual covenants
herein set forth, the parties do hereby agree and promise as follows:

2. Duties.
------

2.1 The Employee shall perform such managerial, supervisory,
development or executive duties in connection with the business of the Company
as the board of directors of the Company (the "Board of Directors") may from
time to time assign consistent with Employee's title of Chief Executive Officer.

2.2 Employee will report and be responsible to the Board of
Directors.

2.3 Employee agrees to devote his full business time, energy and
skills to such employment subject to absences and customary vacations and for
temporary illnesses.

3. Term. The term of this Agreement shall begin on January 1, 1999 and
----
shall continue until July 31, 2000, unless earlier terminated pursuant to the
provisions hereof.

1
<PAGE>

4. Compensation.
------------

4.1 Employee shall receive a base salary of $140,000 per year payable
in equal installments on the Company's regular payroll dates ("Base Salary"),
which Base Salary the Company shall continue to pay during the term of this
Agreement until the Company is no longer obligated to pay the same pursuant to
the provisions of Section 6 hereof. Employee's Base Salary shall increase to no
less than $165,000 beginning on the first day of the first quarter following the
Company achieving breakeven on a quarterly basis ("Breakeven"). By January 1,
2000, Employee's Base Salary shall be reviewed by the Compensation Committee of
the Board of Directors and, if appropriate, adjusted upward to a level
commensurate with executives holding similar titles in similar companies with
similar performance. In addition, Employee's Base Salary will be adjusted upward
such that his total cash compensation keeps him as the highest compensated
associate of the Company (based on cash compensation only).

4.2 In addition to Employee's Base Salary, Employee shall be entitled
to receive an annual bonus as determined by the Board of Directors of the
Company, in its sole and absolute discretion; provided, however, Employee's
unpaid bonus of $25,000 from September 1998 will be paid the first day of the
first quarter following the achievement of Breakeven, and a minimum annual bonus
of not less than Twenty-Five Thousand Dollars ($25,000) shall be payable in
September of each year thereafter.

5. Termination.
-----------

2
<PAGE>

6. Effect of Termination.
---------------------

7. Change of Control.
-----------------

7.1 For purposes of this Agreement, a "Change of Control" shall mean
the occurrence of either one of the following events:

3
<PAGE>

of the surviving or acquiring Person (or any Person in control of the surviving
or acquiring Person), the equity securities of which are issued or transferred
in such transaction.

7.3 If upon the completion of a Change of Control Employee is not
Chairman and Chief Executive Officer of the ultimate parent organization of
which the Company is a part, then the Company shall immediately make a payment
to Employee equal to the greater of (i) $300,000 or (ii) two times Employee's
cash compensation from the Company for the previous 12 months.

8. Withholding Taxes and Other Deductions. To the extent required by
--------------------------------------
law, the Company shall withhold from any payments due Employee under this
Agreement any applicable federal, state or local taxes and such other deductions
as are prescribed by law or Company policy.

9. Proprietary Information.
-----------------------

9.2 In consideration of the compensation received by the Employee
from the Company and the covenants contained in this Agreement, Employee agrees
as follows:

9.2.1 All Proprietary Information shall be the sole property
of the Company and its assigns, and the Company and its assigns shall be the
sole owner of all patents, copyrights, and other rights in connection therewith.
Employee hereby assigns to the Company rights he may have or acquire in such
Proprietary Information. At all times, both during his employment by the Company
and after its termination, Employee will keep in strictest confidence and trust
all Proprietary Information and will not use or disclose any Proprietary
Information without the written

4
<PAGE>

consent of the Company, except as may be necessary in the ordinary course of
performing his duties under this Agreement.

10. Covenant Not to Compete.
-----------------------

(1) employing, engaging or seeking to employ or engage any
person who within the prior twenty-four (24) months had been an officer or
employee of the Company;

(4) participating or engaging in (other than through the
ownership of five percent (5%) or less of any class of securities registered
under the Securities Exchange Act of 1934,

5
<PAGE>

Notwithstanding the foregoing, the restrictive covenants set forth in
this Section 10 shall terminate immediately upon a termination of this Agreement
by the Company without Cause.

6
<PAGE>

If to Employee: Jerrell M. Baird

Facsimile No.:

If to the Company: Prosoft I-Net Solutions, Inc.
3001 Bee Caves Road, Suite 100
Austin, TX 78746
Facsimile No.: (512) 328-5237
Attn: Chief Financial Officer

7
<PAGE>

14. Interpretation. This Agreement shall be interpreted in accordance
--------------
with the laws of the State of Texas.

17. Headings. Sections and other headings contained in this Agreement are
--------
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

8
<PAGE>

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officer of each party hereto as of the date first above
written.

THE COMPANY

PROSOFT I-NET SOLUTIONS, INC., a
Nevada corporation

By: _________________________________
Name: ___________________________
Title:___________________________

EMPLOYEE

_____________________________________
Jerrell M. Baird

<PAGE>
<ARTICLE> 5

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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> APR-30-1999
<CASH> 1,474,617
<SECURITIES> 0
<RECEIVABLES> 1,638,106
<ALLOWANCES> 145,178
<INVENTORY> 0
<CURRENT-ASSETS> 3,315,283
<PP&E> 1,231,235
<DEPRECIATION> 836,225
<TOTAL-ASSETS> 7,688,262
<CURRENT-LIABILITIES> 4,241,901
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0
0
<COMMON> 13,904
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<TOTAL-LIABILITY-AND-EQUITY> 7,688,262
<SALES> 5,691,301
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 7,194,718
<OTHER-EXPENSES> 9,412,466
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<INTEREST-EXPENSE> 215,973
<INCOME-PRETAX> (11,131,856)
<INCOME-TAX> 0
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