ASYMETRIX LEARNING SYSTEMS INC, S-1/A, 1998-05-18

ASYMETRIX LEARNING SYSTEMS INC
S-1/A, 1998-05-18
COMPUTER PROGRAMMING SERVICES

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 18, 1998
REGISTRATION NO. 333-49037

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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PRE-EFFECTIVE

AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ASYMETRIX LEARNING SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 7371 91-1276003
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR ----------------
ORGANIZATION)

110-110TH AVENUE NE
BELLEVUE, WASHINGTON 98004
(425) 462-0501
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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JOHN D. ATHERLY
VICE PRESIDENT, FINANCE AND ADMINISTRATION AND CHIEF FINANCIAL OFFICER
ASYMETRIX LEARNING SYSTEMS, INC.
110-110TH AVENUE NE
BELLEVUE, WASHINGTON 98004
(425) 462-0501
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
MARK C. STEVENS, ESQ. THERESE A. MROZEK, ESQ.
JEFFREY R. VETTER, ESQ. NORA L. GIBSON, ESQ.
MICHAEL J. MCADAM, ESQ. RANDALL M. LAKE, ESQ.
FENWICK & WEST LLP BROBECK, PHLEGER & HARRISON LLP
TWO PALO ALTO SQUARE TWO EMBARCADERO PLACE
PALO ALTO, CALIFORNIA 94306 2200 GENG ROAD
(650) 494-0600 PALO ALTO, CALIFORNIA 94303
(650) 424-0160
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

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, check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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. [_]

----------------
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 THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION, DATED MAY 18, 1998

3,000,000 SHARES

[LOGO OF ASYMETRIX LEARNING SYSTEMS, INC. APPEARS HERE]

COMMON STOCK

All of the shares of Common Stock offered hereby are being sold by Asymetrix
Learning Systems, Inc. ("Asymetrix" or the "Company"). Prior to this offering,
there has been no public market for the Common Stock of the Company. It is
currently estimated that the initial public offering price will be between
$10.00 and $12.00 per share. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price. The Company
has applied to have its Common Stock approved for quotation on the Nasdaq
National Market under the symbol "ASYM."

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING
ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.

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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.

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<TABLE>
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<CAPTION>
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
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<S> <C> <C> <C>
Per Share..................................... $ $ $
Total (3)..................................... $ $ $
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</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting offering expenses payable by the Company estimated at
$900,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 450,000 additional shares of Common Stock, solely to cover over-
allotments, if any. If the Underwriters exercise this option in full, the
Price to Public will total $ , the Underwriting Discount will total $
and the Proceeds to Company will total $ . See "Underwriting."

The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of NationsBanc Montgomery Securities LLC on or about , 1998.

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NationsBanc Montgomery Securities LLC
BancAmerica Robertson Stephens
Hambrecht & Quist

, 1998
<PAGE>

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF
COMMON STOCK TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

2
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PROSPECTUS SUMMARY

The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information including "Risk Factors" and the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus. The discussion in this Prospectus contains forward-looking
statements. The outcome of the events described in such forward-looking
statements is subject to risks and uncertainties. The Company's actual results
may differ materially from those discussed in such forward-looking statements.
Factors that may cause or contribute to such differences include those
discussed in sections entitled "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business" as
well as those discussed elsewhere in this Prospectus.

THE COMPANY

Asymetrix is a leading provider of online enterprise learning solutions
designed to enable organizations to capture, deploy and manage knowledge more
effectively for use as a competitive advantage. The Company's comprehensive
learning solution consists of an open, standards-based, Internet-centric
technology platform as well as professional services for the online learning
market. The Company's technology platform includes ToolBook II Instructor and
ToolBook II Assistant, products which enable customers to author online
learning applications, and Librarian, a learning management system designed to
enable customers to deploy and manage such applications. The Company's
professional services include a wide range of consulting and custom development
services focused on the online learning market as well as training and customer
support.

Information technology has been successfully used to automate mission
critical business processes, such as manufacturing, human resources, finance,
sales, distribution and customer support. However, a critical function which
technology-based solutions have not adequately addressed is training and
education. The Company believes there is a need for an enterprise learning
solution that enables organizations to improve employee productivity,
coordinate their training efforts, measure the effectiveness of training and
deliver knowledge to employees and business partners more rapidly, broadly and
uniformly. The Company believes the market for enterprise learning solutions
will be fueled by the convergence of trends and technologies that enable
technology-based training solutions, including computer-based training, video-
based training and Internet-based training solutions, to be deployed
increasingly as substitutes for, or complements to, instructor-led and other
traditional forms of training. The primary advantages of technology-based
training over traditional forms of training include performance improvements
and potential cost savings in the form of reduced instructor salaries,
compressed training times and reduced travel costs. Furthermore, the ease and
speed of deployment associated with Internet-based training allows for "just-
in-time" delivery of content, broadens the potential use of training within the
enterprise and offers a cost- and time-effective way to accumulate and retain
company knowledge. According to International Data Corporation ("IDC"),
revenues from all technology-based training applications in the United States
are expected to grow from $1.7 billion in 1997 to $4.1 billion in 2001.

Asymetrix believes that by providing a single source solution, it is well-
positioned to be the leading provider of online enterprise learning products
and services. Beginning in 1996, the Company redirected its focus to its online
learning products, divested several product lines and discontinued development
efforts not directly related to its online enterprise learning solution. A key
component of the Company's strategy is to provide an online learning solution
at the enterprise level. In February 1998, the Company introduced an enhanced
version of Librarian which the Company believes significantly extends the
existing features and functionality of Librarian by enabling enterprise-wide
deployment of online learning applications. In addition, the Company has
significantly expanded its professional services capabilities and, since July
1, 1997, has acquired six professional services companies and the Company may
seek to acquire additional professional services companies in the future.

The Company has licensed its online learning products or provided
professional services to leading companies in a variety of industries. Such
customers include The Boeing Company, Hewlett-Packard Company, IBM Corporation,
Intel Corporation, Lucent Technologies, Inc., MCI Communications Corporation,
Metropolitan Life Insurance Company, Microsoft Corporation, Pfizer, Inc. and
the United States Army.

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The Company was incorporated in Washington in December 1984. The Company
intends to reincorporate under the laws of Delaware prior to the closing of
this offering. The Company's executive offices are located at 110-110th Avenue
NE, Bellevue, Washington 98004 and its telephone number is (425) 462-0501.

RECENT DEVELOPMENTS

In May 1998, the Company entered into a letter of intent to acquire Strategic
Systems Associates, Inc. ("SSA"), an Illinois-based provider of custom
development and consulting services for the online learning market. The Company
will issue approximately 102,000 shares of Common Stock in connection with the
acquisition. The Company will also grant options to purchase up to 112,500
shares of Common Stock to former SSA employees who remain employed by
Asymetrix. It is anticipated that this acquisition will be accounted for using
the purchase method of accounting. Also in May 1998, the Company entered into a
letter of intent to acquire Meliora Systems, Inc. ("Meliora"), a New York-based
online learning software developer and provider of consulting services. The
Company will issue approximately 250,000 shares of Common Stock in connection
with the acquisition of Meliora. The Company will also grant options to
purchase up to 270,000 shares of Common Stock to former Meliora employees who
remain employed by Asymetrix. It is anticipated that this acquisition will be
accounted for as a pooling of interests. There can be no assurance that the
Company will be able to complete these acquisitions successfully or that either
acquisition will not have a material adverse effect on the Company's business,
results of operations and financial condition. See "Risk Factors--Risks Related
to Acquisitions".

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As used in this Prospectus, the "Company" and "Asymetrix" refer to Asymetrix
Learning Systems, Inc., a Delaware corporation, its Washington predecessor and
its wholly-owned subsidiaries. Except as otherwise noted herein, information in
this Prospectus (i) assumes no exercise of the Underwriters' over-allotment
option, (ii) gives effect to the conversion of all outstanding shares of Class
B Stock of the Company into shares of Common Stock of the Company, which will
occur upon the closing of this offering, (iii) reflects the reincorporation of
the Company in Delaware prior to the closing of this offering, (iv) refers to
historical and not pro forma financial information, (v) gives effect to a 3-
for-4 reverse stock split to be effected immediately prior to the consummation
of this offering and (vi) gives effect to the filing, upon the closing of this
offering, of an Amended and Restated Certificate of Incorporation, authorizing
2,000,000 shares of undesignated Preferred Stock.

Asymetrix, Asymetrix Digital Video Producer, IconAuthor and ToolBook are
registered trademarks of the Company and Librarian, ToolBook II Assistant,
ToolBook II Instructor, Librarian and Web 3D are trademarks of the Company.
This Prospectus also includes trademarks of companies other than the Company.

4
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THE OFFERING

<TABLE>
<S> <C>
Common Stock offered.............................. 3,000,000 shares
Common Stock to be outstanding after the
offering......................................... 13,124,822 shares (1)
For general corporate purposes, including working capital.
Use of proceeds................................... See "Use of Proceeds."
Proposed Nasdaq National Market symbol............ ASYM
</TABLE>

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
------------
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED MARCH 31,
---------------------------- DECEMBER 31, ---------------
CONSOLIDATED STATEMENT OF 1995 1996 1997 1997 (6) 1997 1998
OPERATIONS DATA: -------- -------- -------- ------------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Product revenue:
Online learning
products (2).......... $ -- $ 3,135 $ 7,056 $ 7,056 $1,403 $ 2,069
Other products......... 16,238 11,165 10,425 12,080 2,811 1,540
Total product
revenue.............. 16,238 14,300 17,481 19,136 4,214 3,609
Services revenue........ 1,926 2,955 6,583 14,784 770 4,186
Total revenue........ 18,164 17,255 24,064 33,920 4,984 7,795
Gross margin............ 13,551 12,073 17,273 20,664 3,955 4,564
Loss from operations.... (19,063) (23,221) (12,927) (9,182) (2,631) (1,718)
Net income (loss)....... (19,715) (23,555) (13,115) (9,468) (2,555) 455
Accretion of redemption
value of redeemable
common stock (3)....... -- -- -- -- -- (766)
Net loss attributable to
common stockholders
(3).................... (19,715) (23,555) (13,155) (9,468) (2,555) (311)
Basic and diluted net
loss per share (4)(5).. (4.14) (4.01) (2.17) (1.44) (0.43) (0.05)
Shares used to compute
basic and diluted net
loss per share (4)(5).. 4,766 5,879 6,038 6,588 5,932 6,657
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1998
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ACTUAL AS ADJUSTED (8)
------- ---------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 2,911 $32,701
Working capital........................................ 1,849 31,639
Total assets........................................... 20,780 50,570
Long-term obligations.................................. 164 164
Redeemable common stock (7)............................ 2,234 --
Total stockholders' equity............................. 9,888 41,912
</TABLE>
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(1) Based on the number of shares outstanding as of March 31, 1998. Excludes
(i) 3,600,111 shares of Common Stock issuable upon the exercise of options
then outstanding with a weighted average exercise price of $3.95 per share,
(ii) 174,902 shares of Common Stock reserved for issuance under the
Company's 1995 Combined Incentive and Nonqualified Stock Option Plan (the
"1995 Plan") as of such date, (iii) 1,687,500 shares reserved for issuance
under the Company's 1998 Equity Incentive Plan and 1998 Directors Stock
Option Plan, (iv) 14,573 shares of Common Stock subject to an outstanding
option not granted under the 1995 Plan. Includes 331,246 shares of Common
Stock subject to an escrow to secure certain indemnification obligations of
former stockholders of Aimtech Corporation ("Aimtech") relating to the
acquisition of Aimtech and (v) an aggregate of 352,000 shares of Common
Stock issuable in connection with the proposed acquisitions of SSA and
Meliora. See "Capitalization," "Management--Employee Benefit Plans" and
Note 11 of Notes to the Company's Consolidated Financial Statements.
(2) The Company's online learning products consist of its Librarian learning
management system, its ToolBook II Instructor and ToolBook II Assistant
authoring products, its ToolBook II Synergy pre-authoring product and the
Allen Communications' Designer's Edge product, for which the Company is a
reseller. See "Business--Products and Services."
(3) See Note 8 of Notes to the Company's Consolidated Financial Statements.
(4) See Note 1 of Notes to the Company's Consolidated Financial Statements for
an explanation of the determination of the number of shares used to compute
basic and diluted net loss per share.
(5) See Note (f) of Notes to Consolidated Pro Forma Financial Statements for an
explanation of the determination of the number of pro forma shares used to
compute basic and diluted pro forma net loss per share.
(6) Pro forma consolidated statement of operations data for the year ended
December 31, 1997 reflects (i) the acquisitions of Oakes Interactive
Incorporated, TopShelf Multimedia, Inc. and Acorn Associates, Incorporated
(collectively, the "Oakes Companies"), Aimtech and Communications
Strategies, Incorporated ("CSI") and (ii) the dispositions of SuperCede,
Inc. ("SuperCede") and Infomodelers, Inc. ("Infomodelers"), in each case as
if such transaction had occurred on January 1, 1997. See Consolidated
Condensed Pro Forma Financial Statements.
(7) Redeemable common stock represents 191,489 shares of Common Stock issued in
connection with the acquisition of CSI which are subject to a put right
held by the two former shareholders of CSI. See Note 8 of Notes to the
Company's Consolidated Financial Statements.
(8) As adjusted to reflect (i) the conversion of all outstanding shares of
Class B Stock into shares of Common Stock upon the closing of this
offering, (ii) the expiration of a put right held by the former
shareholders of CSI with respect to 191,489 shares of Common Stock issued
in connection with the acquisition of CSI and (iii) the sale of the
3,000,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $11.00 per share and after deducting estimated
underwriting discount and estimated offering expenses. See "Use of
Proceeds" and "Capitalization."

5
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RISK FACTORS

This offering involves a high degree of risk. In addition to the other
information set forth in this Prospectus, the following risk factors should be
considered carefully in evaluating the Company and its business before
purchasing any of the shares of Common Stock of the Company. This Prospectus
contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as being applicable to all forward-looking statements wherever
they appear in this Prospectus. The Company's actual results could differ
materially from the results discussed in this Prospectus. Factors that could
cause or contribute to such differences include those discussed below, as well
as those discussed elsewhere in this Prospectus.

SUBSTANTIAL HISTORICAL OPERATING LOSSES; LIMITED OPERATING HISTORY IN TARGET
MARKET; UNCERTAIN PROFITABILITY

The Company was incorporated in December 1984. Until early 1995, the Company
was engaged in various technology and development activities and in the
development and marketing of multimedia authoring products, database and
Internet tools, World Wide Web publishing products and other ancillary
products, most of which are not included as part of the Company's online
enterprise learning solution. Starting in 1995, the Company recapitalized and
redirected its focus to the development and marketing of authoring products
and a learning management system designed to capitalize on the advantages of
the Internet as a means of delivering technology-based training applications.
Since 1995 the Company has also introduced a variety of professional services.
Accordingly, the Company has only a limited operating history upon which to
base an evaluation of its current business and prospects. The Company's
prospects must be considered in light of the risks and uncertainties
encountered by companies in the early stage of development, particularly
companies in new and rapidly evolving markets such as online enterprise
learning and by companies engaged in a business transition from developing and
marketing software products to offering an integrated product and services
solution. Such risks include, but are not limited to: the demand for
technology-based training and online enterprise learning applications; the
management of both internal and acquisition-based growth; demand for the
Company's products and services; the ability of the Company to meet the needs
of sophisticated corporate customers; and competition. To address these risks,
the Company must, among other things: successfully introduce new products and
services; achieve commercial acceptance of its new products and services,
including the latest release of its Librarian product; continue to expand its
professional services business; successfully identify, acquire and integrate
acquired businesses; respond to competitive developments; attract, integrate,
retain and motivate qualified personnel; and address new or evolving
technologies and standards. There can be no assurance that the Company will be
successful in addressing such risks and the failure to do so could have a
material adverse effect on the Company's business, operating results and
financial condition.

From December 1984, the Company's inception, through 1997, the Company
incurred net losses on an annual basis, and as of March 31, 1998, the Company
had an accumulated deficit of $159.6 million. Such net losses and accumulated
deficit resulted from the Company's lack of substantial revenues and the
significant costs incurred as a result of the Company's focus on a variety of
technology and development activities and the development and marketing of
products which have been sold or discontinued or which are not part of the
Company's online enterprise learning solution. The Company incurred net losses
of $23.6 million and $13.1 million in 1996 and 1997, respectively, and an
operating loss of $1.7 million in the three months ended March 31, 1998, and
has yet to achieve income from operations under its new business model. The
Company's limited operating history under its new business model, the emerging
nature of the market for online enterprise learning and the factors described
under "--Fluctuations in Quarterly Operating Results; Unpredictability of
Future Revenue; Seasonality," among other factors, make prediction of the
Company's future operating results difficult. Although the Company has
experienced revenue growth in certain recent periods and although the pro
forma financial statements also reflect revenue growth in certain recent
periods, there can be no assurance that such growth rates are sustainable or
indicative of actual growth rates that the Company may experience. Therefore,
they should not be considered indicative of future operating results. In
addition, the Company intends to continue to invest in acquisitions and
research and

6
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development, among other things. As a result, the Company expects to continue
to incur operating losses at least through 1998. There can be no assurance
that the Company will achieve profitability or that, if profitability is
achieved, it will be sustained. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Asymetrix
Strategy."

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; UNPREDICTABILITY OF FUTURE
REVENUE; SEASONALITY

The Company's quarterly operating results have varied significantly in the
past and are expected to fluctuate significantly in the future as a result of
a variety of factors, many of which are outside the Company's control. Factors
that may adversely affect the Company's quarterly operating results include:
the demand for technology-based training in general and demand for online
enterprise learning solutions in particular; the size and timing of product
orders and the timing and execution of professional services engagements; the
mix of revenue from products and services; the mix of products sold; the
inability of the Company to meet its own or client project milestones or to
meet client expectations; market acceptance of the Company's or competitors'
products and services; the ability of the Company to develop and market new or
enhanced products and services in a timely manner and market acceptance of
such products, including the latest release of Librarian, and services; the
Company's ability to integrate acquisitions successfully and to identify,
acquire and integrate suitable acquisition candidates; the timing of revenue
recognition; charges related to acquisitions; competitive conditions;
technological changes; personnel changes; general economic conditions; and
economic conditions specific to the technology-based training and online
learning markets. With its new emphasis on providing an online enterprise
learning solution, the Company is targeting its selling and marketing efforts
towards customers with the potential need for enterprise-wide solutions.
Because the Company believes that the implementation of its solutions may
require an enterprise-wide decision by prospective customers, the Company may
be required to provide a significant level of education to prospective
customers regarding the Company's solutions. Therefore, the Company believes
that the period between initial contact and the sale of the Company's
solutions could be lengthy, and the implementation cycle could lengthen
because of increases in the size and complexity of customer implementations.
Uncertainty of timing with respect to sales or implementations could have a
material adverse effect on the Company's business and operations and cause the
Company's operating results to vary significantly from quarter to quarter.
Therefore, the Company's operating results for any particular quarterly period
may not be indicative of future operating results.

The Company's limited operating history under its current business model,
its recent acquisitions and dispositions and the emerging nature of its market
make prediction of future revenue and expenses difficult. The Company's
expense levels are based, in part, on its expectations as to future revenue
and to a large extent are fixed in the short term. There can be no assurance
that the Company will be able to predict its future revenue accurately and the
Company may be unable to adjust spending in a timely manner to compensate for
any unexpected revenue shortfall. Accordingly, any significant shortfall of
revenue in relation to the Company's expectations could cause significant
fluctuations in quarterly operating results, which would have an adverse
effect on the Company's business, operating results and financial condition.

Due to all of the foregoing factors, the Company's quarterly revenue and
operating results are difficult to forecast, and the Company believes that
period-to-period comparisons of its operating results will not necessarily be
meaningful and should not be relied upon as an indication of future
performance. It is likely that the Company's operating results will fall below
the expectations of the Company, securities analysts or investors in some
future quarter. In such event, the trading price of the Common Stock would
likely be materially and adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

Like many companies in the software industry, the Company has experienced
higher revenue in its last quarter as a result of efforts to meet sales quotas
and as many customers complete annual budgetary cycles and lower revenue in
its first quarter. Additionally, the Company believes that many of its
customers in the education and government markets tend to have higher product
purchasing activity during the last few weeks of the third quarter as compared
to other periods. Furthermore, revenue recognized by some components of the
Company's services business is dependent in part upon the number of business
days during the particular period and budget

7
<PAGE>

cycles of its customers. Because of these factors, the Company anticipates
that its professional services and training revenue growth could be slower in
the first and fourth quarters than in other quarters because of this
seasonality. Although the Company has not been able to determine the extent to
which its current business is affected by any seasonal trends because of the
refocusing and growth of its business since 1995, there can be no assurance
that the Company's results in any future quarter will not be negatively
affected by such trends. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

NEW BUSINESS MODEL

Although the Company was incorporated in 1984, it is in the process of
transitioning to a new business model which is focused on the online
enterprise learning market. In transitioning to this new business model, the
Company is undergoing many substantial changes in its product emphasis,
distribution channels, business operations, sales and implementation
practices, customer service and support and management focus. These changes
include: the divestiture of a number of product lines, including its consumer
products, database tools and Internet tools, products for which the Company
had previously devoted substantial financial and other resources to develop
and market; the acquisition of eight businesses since July 1, 1997; the change
of the Company's product emphasis from general purpose multimedia authoring
and other multimedia products to products targeted for the development and
management of online learning applications; the change of the Company's prior
product distribution strategy from retail and other indirect distribution
channels to a direct sales model with a current focus on the United States,
which has required the Company to develop a sales infrastructure to market its
products to a new customer base and to introduce customer support services to
address the needs of enterprise customers; and the introduction of
professional services, which are businesses with which the Company has had
limited experience and which typically have lower gross margins than software
product sales businesses and the growth of which are substantially dependent
upon and limited by the number of professional services personnel employed by
the Company.

The Company introduced its most recent version of Librarian in February
1998. The Company believes that this new version significantly extends the
existing features and functionality of Librarian and that market acceptance of
this new version of Librarian is key to its ability to offer an enterprise-
level solution that will satisfy the increasingly complex requirements of
sophisticated corporate customers. See "--Dependence on Online Learning
Products" and "--Rapid Technological Change; Product Development."

The change in the Company's business model has also required the Company to
face new risks and challenges that it previously had not faced, including,
among others: the acquisition-related risks described under "--Risks Related
to Acquisitions;" the need to hire, train, integrate and motivate a larger
direct sales force and a professional services organization; the need to adopt
new and more focused marketing and research and development strategies; the
need to market its solutions successfully to enterprise customers; the need
for the Company to expand further the functionality of its products and
customer support services to address the needs of enterprise customers;
greater potential fluctuations in gross margins resulting from the mix of
products and services sold; less meaningful historic financial data on which
to plan future budgets; competition from a wider range of sources than the
Company had previously faced; and the other factors described under "Risk
Factors." The failure of the Company to address these risks successfully in
completing its transition to a new business model could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--The Asymetrix Solution" and "--
Asymetrix Strategy."

RISKS RELATED TO ACQUISITIONS

Since July 1, 1997, the Company has acquired eight businesses: Oakes
Interactive Incorporated, Acorn Associates Incorporated and TopShelf
Multimedia, Inc. (collectively, the "Oakes Companies"); Aimtech Corporation
("Aimtech"); Communications Strategies, Incorporated ("CSI"); Graham-Wright
Interactive, Inc. ("Graham-Wright"); Socha Computing, Inc. ("Socha"); and
Adams Consulting Group, Inc. ("Adams Consulting"). The Company has also
entered into letters of intent to acquire two additional companies, Strategic
Systems Associates, Inc.

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("SSA") and Meliora Systems, Inc. ("Meliora"). The Company's future
performance will depend in part on its ability to integrate and grow these
acquired businesses. Acquisitions involve a number of risks, including: the
integration of acquired products and technologies in a timely manner; the
integration of businesses and employees with the Company's business; the
management of geographically-dispersed operations; adverse effects on the
Company's reported operating results from acquisition-related charges and
amortization of goodwill; potential increases in stock compensation expense
and increased compensation expense resulting from newly-hired employees; the
diversion of management attention; the assumption of unknown liabilities;
potential disputes with the sellers of one or more acquired entities; the
inability of the Company to maintain customers or goodwill of an acquired
business; the need to divest unwanted assets or products, such as the
Company's sale of the Aimtech Jamba product; and the possible failure to
retain key acquired personnel. Client satisfaction or performance problems
with an acquired firm could also have a material adverse effect on the
reputation of the Company as a whole, and any acquired business could
significantly underperform relative to the Company's expectations. In
addition, the Oakes Companies, CSI, Graham-Wright and Adams Consulting were
primarily professional services businesses and prior to acquiring these
businesses, the Company had limited experience in providing professional
services. The Company is currently facing all of these challenges and its
ability to meet them over the long term has not been established. As a result,
there can be no assurance that the Company will be able to integrate acquired
businesses, products or technologies successfully or in a timely manner in
accordance with its strategic objectives, which could have a material adverse
effect on the Company's business, operating results and financial condition.

The Company's past acquisitions have been accounted for using the purchase
method of accounting. Because most software and professional services business
acquisitions involve the purchase of significant amounts of intangible assets,
acquisitions of such businesses also result in goodwill and significant
amortization charges and may also involve charges for acquired research and
development projects. For example, as a result of the acquisitions of Aimtech
and Socha, the Company has incurred charges relating to acquired in-process
research and development of $4.1 million for 1997 and, in connection with all
of its acquisitions from July 1, 1997 through March 31, 1998, has recorded an
aggregate of $8.5 million in goodwill, approximately $1.5 million of which
will be amortized on a straight-line basis over a five year period and the
remainder (approximately $7.0 million) of which will be amortized over a 15
year period. If the Company were to incur additional charges for acquired in-
process research and development and amortization of goodwill with respect to
future acquisitions, the Company's business, operating results and financial
condition could be materially and adversely affected.

In order to grow its business, the Company may continue to acquire
businesses that it believes are complementary. The successful implementation
of this strategy depends on the Company's ability to identify suitable
acquisition candidates, acquire such companies on acceptable terms, integrate
their operations and technology successfully with those of the Company, retain
existing customers and maintain the goodwill of the acquired business. There
can be no assurance that the Company will be able to identify additional
suitable acquisition candidates, acquire any such candidates on acceptable
terms, integrate their operations or technology successfully, or retain
customers or maintain the goodwill of the acquired business, particularly in
light of the Company's limited experience with operating a professional
services business. Moreover, in pursuing acquisition opportunities, the
Company may compete for acquisition targets with other companies with similar
growth strategies. Some of these competitors may be larger and have greater
financial and other resources than the Company. Competition for these
acquisition targets likely could also result in increased prices of
acquisition targets and a diminished pool of companies available for
acquisition. In addition, the Company would likely face the same integration
issues described above with respect to any future acquisitions. If the Company
is unable to manage internal or acquisition-based growth effectively, the
Company's business, operating results and financial condition would be
materially and adversely affected.

Due to all of the foregoing, the Company's execution on an acquisition
strategy or any individual completed or future acquisition may have a material
adverse effect on the Company's business, operating results and financial
condition. Although to date the Company has not used a material amount of cash
for acquisition consideration, to the extent the Company chooses to do so in
the future, the Company may be required to obtain additional financing, and
there can be no assurance that such financing will be available on favorable
terms, if at all. In addition, if the Company issues equity securities as
consideration for any future acquisitions, existing stockholders will
experience further ownership dilution and such equity securities could have
rights, preferences,

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<PAGE>

privileges or other rights superior to those of the Common Stock. See "--
Dilution," "--Management of Growth and Expansion" and "--Future Capital Needs;
Uncertainty of Additional Funding," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Asymetrix
Strategy."

DEPENDENCE ON ONLINE LEARNING PRODUCTS

The Company derived approximately 29% and 27% of its total revenue and
approximately 40% and 57% of its product revenue from the sale and licensing
of its online learning products, which include ToolBook II Instructor,
ToolBook II Assistant and Librarian, in 1997 and the three months ended March
31, 1998, respectively. The Company intends to focus its product development
and product sales and marketing efforts on its online learning products, and
therefore any growth in product revenue will be substantially dependent on
increased sales of its online learning products. In addition, the Company
believes it will be particularly dependent upon market acceptance of the most
recent version of its Librarian product because it believes that this new
version is key to its ability to offer an enterprise-level solution and that
market acceptance of Librarian may influence sales of the Company's other
online learning products and professional services. This new version of
Librarian was only recently introduced and the Company intends to devote
significant resources to the sales and marketing of this product. The
Company's shift from the development and marketing of multimedia authoring
products, database and Internet tools, Web publishing products and other
ancillary products to the development and marketing of its online learning
products has required the Company to, among other things, focus its attention
and resources away from its other products, market its products to enterprise
customers and shift its development and marketing efforts to its online
learning products. Accordingly, the Company's future operating results are
substantially dependent on the market acceptance and growth of its online
learning products and enhancements thereto. As a result, a reduction in demand
for or an increase in competition with respect to the Company's online
learning products, including price competition, or a decline in sales, would
have a material adverse effect on the Company's product revenue. See "--Rapid
Technological Change; Product Development" and "Business--Products and
Services."

DEMANDING CUSTOMER REQUIREMENTS; PRODUCT FUNCTIONALITY AND DEFECTS

The online learning market is a developing market characterized by complex
and varied customer expectations and requirements, a lack of technical
standards and frequent introductions or announcements of new products and
services. Because the Company's online learning solution is targeted for
customers with enterprise-wide deployments in an emerging market, customers
and potential customers may have a greater sensitivity to product integration,
interoperability and defects than customers in the market for software
products generally. In addition, these customers may have evolving and rapidly
changing requirements for their online enterprise learning needs, which the
Company must address satisfactorily. The Company has recently released new
versions of Librarian and ToolBook II Assistant. Software products as complex
as those offered by the Company frequently contain errors or failures,
especially when first introduced or when new versions are released. Although
the Company conducts extensive product testing during product development, the
Company has in the past discovered errors in its products after their initial
release. There can be no assurance that, despite testing by the Company and by
current and potential customers, errors will not be found in recently
introduced versions of its online learning products or in other new product
releases after commencement of commercial shipments, resulting in loss of
revenue or delay in market acceptance, diversion of development resources,
damage to the Company's reputation, or increased service and warranty costs,
any of which could have a material adverse effect on the Company's business,
operating results and financial condition.

Many of the Company's professional services engagements require the Company
to develop learning applications to suit unique customer requirements. The
Company's failure or inability to meet a customer's expectations or
requirements in the performance of its services could potentially damage the
Company's reputation or result in a claim for substantial damages against the
Company, regardless of the Company's responsibility for such failure. The
Company attempts to limit contractually its liability for damages arising from
product defects or negligent acts, errors, mistakes or omissions in rendering
professional services; however, there can be no assurance that any contractual
protections will be enforced or would otherwise protect the Company from
liability for damages. Furthermore, certain acquired businesses may not
include limitation of liability

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<PAGE>

provisions in their customer agreements. Although the Company maintains
general liability insurance coverage, including coverage for errors and
omissions, there can be no assurance that such coverage will continue to be
available on reasonable terms or will be available in sufficient amounts to
cover one or more large claims, or that the insurer will not disclaim coverage
as to any future claim. The successful assertion of one or more large claims
against the Company that are uninsured, exceed available insurance coverage or
result in changes to the Company's insurance policies, including premium
increases or the imposition of a large deductible or co-insurance
requirements, could have a material adverse effect on the Company's business,
operating results and financial condition. See "Business--Products and
Services" and "--Technology, Research and Development."

MANAGEMENT OF GROWTH AND EXPANSION

The Company is currently experiencing a period of significant expansion. The
Company's historical growth has placed, and any further growth is likely to
continue to place, a significant strain on the Company's managerial,
operational, financial and other resources. The Company has grown from 175
employees at September 30, 1995 to 317 employees at March 31, 1998. During
this period, the Company has also significantly expanded its operations both
internally and through acquisitions. The Company's future success will depend,
in part, upon the ability of its senior management to manage growth
effectively, which will require the Company to implement additional management
information systems, to develop further its operating, administrative,
financial and accounting systems and controls and to maintain close
coordination among its engineering, accounting, finance, marketing, sales,
customer support and professional services organizations. Furthermore, the
Company's future performance will depend in part upon its ability to integrate
recently acquired businesses and future acquisitions, and there can be no
assurance that the Company will be able to integrate such businesses in a
timely manner or in accordance with its strategic objectives. The difficulties
of such integration may be further compounded by the necessity of coordinating
geographically-dispersed divisions and integrating personnel with disparate
backgrounds, all of which could divert management's attention from the day-to-
day business of the Company. The failure of the Company to manage successfully
its historic and future growth could have a material adverse effect on the
Company's business, operating results and financial condition. See "--New
Business Model" and "--Risks Related to Acquisitions" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

DEVELOPING MARKET

The market for online enterprise learning is a new and emerging market.
Corporate training and education has historically been conducted primarily
through classroom instruction and instructor-led training and has
traditionally been performed by in-house personnel. Although technology-based
training applications have been available for several years, they currently
account for only a small portion of the overall training market. Accordingly,
the Company's future success will depend upon, among other factors, the extent
to which companies adopt technology-based training solutions, particularly
online learning solutions, and the extent to which companies utilize the
services or purchase products of third-party providers. There can be no
assurance that the use of technology-based training or online learning
applications will become widespread or that the Company's products and
services will achieve commercial success. In addition, companies that have
already invested substantial resources in other methods of corporate training
may be reluctant to adopt a new strategy that may limit or compete with their
existing investments. Any failure of technology-based training, and online
learning in particular, to gain wider market acceptance would have a material
adverse effect on the Company's business, operating results and financial
condition. Even if companies implement technology-based training or online
learning solutions, they may still choose to design, develop or manage all or
a part of their education and training internally. The failure of companies to
utilize third parties to design, develop or manage their education and
training applications would materially and adversely affect the Company's
services revenue and would also have a material adverse effect on the
Company's business, operating results and financial condition. See "Business--
Industry Background."

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<PAGE>

COMPETITION

The online learning market is highly fragmented and competitive, rapidly
evolving and subject to rapid technological change, with no single competitor
accounting for a dominant market share. Because of the lack of significant
barriers to entry in its market, the Company expects that a number of new
competitors will enter this market in the future.

The Company's competitors vary in size and scope and the breadth of products
and services offered. The Company's online learning authoring products face
competition from developers of multimedia authoring tools. Librarian faces
competition from vendors of other management systems, including those offered
with off-the-shelf technology-based training courses, and the Company's
professional services business faces competition from many small, regional
online learning and technology-based training services businesses as well as
large professional consulting firms and in-house training departments. Because
of the emerging nature of the market for online learning, the Company believes
that being first to achieve market or brand awareness should provide a
competitive advantage. A number of large companies have announced an intention
to enter the market for online learning and technology-based training. There
can be no assurance that additional companies will not enter the online
learning market and offer products and services that are competitive with
those of the Company. Increased competition could result in pricing pressures,
reduced margins or the failure of the Company's products and services to
achieve or maintain market acceptance, any of which could have a material
adverse effect on the Company's business, operating results and financial
condition.

Several of the Company's current and potential competitors have longer
operating histories and significantly greater financial, technical, marketing
and other resources than the Company and therefore may be able to respond more
quickly than the Company to new or changing opportunities, technologies,
standards and customer requirements. Many of these competitors also have
broader and more established distribution channels that may be used to deliver
competing products or services directly to customers. If such competitors were
to bundle competing products or services for their customers and offer a
complete online learning solution, the demand for the Company's products and
services might be substantially reduced and the ability of the Company to
market and sell its products and services successfully might be substantially
diminished. In addition, the existence or announcement of collaborative
relationships involving competitors of the Company could adversely affect the
Company's ability to attract and retain customers. As a result of the
foregoing and other factors, there can be no assurance that the Company will
compete effectively with current or future competitors or that competitive
pressures faced by the Company will not have a material adverse effect on the
Company's business, operating results and financial condition. See "Business--
Competition."

ADOPTION OF INTERNET AND INTRANET SOLUTIONS

In order for the Company to be successful, the Internet and intranets must
continue to be adopted as a means of communication, particularly for corporate
training and education. Because information exchange over these networks is
continuing to evolve, it is difficult to estimate with any assurance the size
of this market and its growth rate, if any. To date, many businesses have been
deterred from utilizing these networks for a number of reasons, including but
not limited to potentially inadequate development of network infrastructure,
security concerns, inconsistent quality of service, lack of availability of
cost-effective high-speed service, limited numbers of local access points for
corporate users, the inability to integrate business applications on these
networks, the need to interoperate with multiple and frequently incompatible
products and a lack of tools to simplify access to and use of these networks.
Even if the Internet and intranets are widely adopted, the adoption of these
networks for corporate training and education, particularly by companies that
have relied on traditional means of training their personnel, will require
broad acceptance of new training methods. In addition, companies that have
already invested substantial resources in other methods of corporate training
and education may be reluctant to adopt a new strategy that may limit or
compete with their existing investments.

The use of the Internet and intranets may not increase or may increase more
slowly than expected because the infrastructure required to support such
networks may not fully develop. For example, the Internet has

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<PAGE>

experienced, and may continue to experience, significant growth in its number
of users and amount of traffic. There can be no assurance that the Internet
infrastructure will continue to support the demands placed on it by this
continued growth or that the performance or reliability of the Internet will
not be adversely affected by this continued growth. In addition, the Internet
and intranets could lose their viability due to delays in the development or
adoption of new standards and protocols to handle increased levels of activity
or due to increased governmental regulation. Changes in or insufficient
availability of communications services to support the Internet and intranets
could result in slower response times and could adversely affect their usage.
If the use of the Internet and intranets for information exchange and
particularly for corporate education and training fails to develop or develops
more slowly than expected, or if the Internet infrastructure does not
adequately support continued growth, the Company's business, operating results
and financial condition would be materially and adversely affected. See
"Business--Industry Background" and "--Customers."

RAPID TECHNOLOGICAL CHANGE; PRODUCT DEVELOPMENT

The market for technology-based training and online learning products and
services, particularly Internet or intranet-based products and services, is
characterized by rapid technological advances, changes in customer
requirements and frequent new product introductions and enhancements. The
introduction of products embodying new technologies and the emergence of new
industry standards could render existing products obsolete and unmarketable.
The Company must also respond rapidly to developments related to Internet
technology, hardware platforms and operating systems and applicable
programming languages. Such developments will require the Company to continue
to make substantial product development investments. Any failure by the
Company to anticipate or respond adequately to technological developments or
customer requirements, or any significant delays in product development or
introduction, could result in a loss of competitiveness and revenue, which
could have a material adverse effect on the Company's business, operating
results and financial condition.

The Company's future success will depend on its ability to continue to
enhance its current product line and to continue to develop and introduce new
products and offer new services that keep pace with competitive product
introductions and technological developments, satisfy diverse and evolving
customer requirements and otherwise achieve market acceptance. In particular,
the Company believes that its future success will be dependent, in large part,
upon market acceptance of the most recent version of Librarian which was
introduced in February 1998. There can be no assurance that the Company will
be successful in developing and marketing on a timely and cost-effective basis
future products or product enhancements, or offer new services that respond to
technological advances. There can also be no assurance that this new product
or any other new products, enhancements or services will achieve market
acceptance. The Company has in the past experienced delays in the development,
introduction and marketing of new or enhanced products, and there can be no
assurance that the Company will not experience similar delays with respect to
other new products or product enhancements. Any failure by the Company to
anticipate or respond adequately to changes in technology and customer
preferences, or any significant delays in other product development efforts,
could have a material adverse effect on the Company's business, operating
results and financial condition. The introduction or announcement of new
product offerings by the Company or its competitors may cause customers to
defer or forego purchases of the Company's products or services, which could
have a material adverse effect on the Company's business, operating results
and financial condition. See "Business--Technology, Research and Development."

RISKS OF FIXED-PRICE ENGAGEMENTS

The Company has experienced an increased number of professional services
engagements that are billed on a fixed-price basis and intends to pursue such
engagements in the future with the goal of increasing the percentage of
services revenue derived from fixed-price engagements. Prior to its recent
acquisitions, the Company has had limited experience in the professional
services area, and to date the Company has primarily relied upon acquisitions
to develop its professional services business. The Company's failure to
estimate accurately the resources and time required for an engagement, to
manage client expectations effectively regarding the scope of services to be
delivered for the estimated fees or to complete fixed-price engagements within
budget,

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<PAGE>

on time and to clients' satisfaction would expose the Company to risks
associated with cost overruns and may expose the Company, in certain cases, to
penalties, any of which could have a material adverse effect on the Company's
business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

RISKS ASSOCIATED WITH CHANGING ECONOMIC CONDITIONS

The Company's revenue is subject to fluctuation as a result of general
economic conditions. A significant portion of the Company's revenue is derived
from the sale of products and services to Fortune 1000 companies, educational
organizations and government agencies, which historically have adjusted their
expenditures for education and training during economic downturns. Should the
economy weaken in any future period, these organizations may not increase or
may reduce their expenditures on education and training generally, and on
technology-based training and online learning in particular, which could have
an adverse effect on the Company's business, operating results and financial
condition. See "Business--Asymetrix Strategy" and "--Sales and Marketing."

DEPENDENCE ON KEY PERSONNEL

The Company's future success will be highly dependent on the performance of
its senior management team and other key employees. The Company's success will
also depend on its ability to attract, integrate, motivate and retain
additional highly skilled technical, sales and marketing and professional
services personnel. Furthermore, the Company's ability to provide a complete
solution to a large number of enterprise customers and therefore to achieve
growth is dependent upon its ability to attract, integrate, motivate and
retain additional professional services personnel. There is intense
competition for such personnel in the areas of the Company's activities. The
Company does not have employment agreements with most of its executives or
other key employees. In addition, the Company does not maintain key person
life insurance for any of its officers or key employees. The loss of the
services of any of the Company's senior management team or other key employees
or the failure of the Company to attract, integrate, motivate and retain
additional key employees, including professional services personnel, could
have a material adverse effect on the Company's business, operating results
and financial condition. See "Business--Employees" and "Management."

INTELLECTUAL PROPERTY; LITIGATION

The Company relies primarily on a combination of copyrights, trademarks,
trade secret laws, restrictions on disclosure and other methods to protect its
intellectual property and trade secrets. While the Company also has two
patents covering technology related to its current products, there can be no
assurance that these patents will not be invalidated, circumvented or
challenged, or that the rights granted under such patents will provide
competitive advantages to the Company. The Company also enters into
confidentiality agreements with its employees and consultants, and generally
controls access to and distribution of its documentation and other proprietary
information. Despite these precautions, it may be possible for a third party
to copy or otherwise obtain and use the Company's intellectual property or
trade secrets without authorization. In addition, there can be no assurance
that others will not independently develop substantially equivalent
intellectual property. There can be no assurance that the precautions taken by
the Company will prevent misappropriation or infringement of its technology. A
failure by the Company to protect its intellectual property in a meaningful
manner could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, litigation may be
necessary in the future to enforce the Company's intellectual property rights,
to protect the Company's trade secrets or to determine the validity and scope
of the proprietary rights of others. Such litigation could result in
substantial costs and diversion of management and technical resources, either
of which could have a material adverse effect on the Company's business,
operating results and financial condition.

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<PAGE>

There can be no assurance that the outcome of any litigation between such
licensors and a third party or between the Company and a third party will not
lead to royalty obligations of the Company for which the Company is not
indemnified or for which such indemnification is insufficient, or that the
Company will be able to obtain any additional license on commercially
reasonable terms or at all. In the future, the Company may seek to license
additional technology to incorporate in its products. There can be no
assurance that any third-party technology licenses that the Company may be
required to obtain in the future will be available to the Company on
commercially reasonable terms or at all. The loss of or inability to obtain or
maintain any of these technology licenses could result in delays in
introduction of the Company's products until equivalent technology, if
available, is identified, licensed and integrated, which could have a material
adverse effect on the Company's business, operating results and financial
condition.

From time to time the Company has received, and the Company may in the
future receive, notice of claims of infringement of other parties' proprietary
rights. The Company is currently involved in litigation filed in May 1996
relating to a claim that its ToolBook and Multimedia ToolBook products
infringe a patent owned by Richard B. Grant. The plaintiff is seeking an
unspecified amount of damages. This action is still in the discovery stage and
it is not yet possible to assess its outcome or its effect on the Company. An
adverse outcome in this litigation could have a material adverse effect on the
Company's business, operating results and financial condition. Although the
Company has received an opinion from counsel that its Multimedia ToolBook
product does not infringe this patent and that the patent is invalid, the cost
of the Company's defense of this claim, regardless of outcome, could have a
material adverse effect on the Company's business, operating results and
financial condition.

There can be no assurance that additional infringement or other claims will
not be asserted or prosecuted against the Company in the future or that any
assertions or prosecutions will not materially adversely affect the Company's
business, operating results and financial condition. Any such claims, with or
without merit, could be time-consuming, result in costly litigation and
diversion of technical and management personnel, cause product shipment delays
or require the Company to develop non-infringing technology or enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on commercially reasonable terms or at all. In
the event of a successful claim of intellectual property infringement against
the Company and the failure or inability of the Company to develop non-
infringing technology or license the infringed or similar technology on a
timely basis, the Company's business, operating results and financial
condition could be materially and adversely affected. See "Business--
Proprietary Rights" and "--Legal Proceedings."

DILUTION

Investors participating in this offering will incur immediate, substantial
dilution in net tangible book value in the amount of $8.47 per share (based
upon an assumed initial public offering price of $11.00 per share). To the
extent that outstanding options to purchase the Company's Common Stock are
exercised, there will be further dilution. In addition, the Company intends to
continue its acquisition program for the foreseeable future and in connection
with such acquisitions, the Company generally intends when feasible to issue
shares of Common Stock as acquisition consideration and may grant additional
stock options and stock bonuses to employees of acquired businesses who become
employed by the Company. Accordingly, the Company's acquisition strategy will
result in further ownership dilution to investors participating in this
offering. See "Dilution."

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING

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<PAGE>

increasing their own market share, the level and timing of revenues, and other
factors. To the extent that resources are insufficient to fund the Company's
activities, the Company may need to raise additional funds. There can be no
assurance that such additional funding, if needed, will be available on terms
attractive to the Company, or at all. If adequate funds are not available on
acceptable terms, the Company may be unable to expand its business, develop or
enhance its products and services, take advantage of future opportunities or
respond to competitive pressures, any of which could have a material adverse
effect on the Company's business, operating results and financial condition.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."

YEAR 2000 COMPLIANCE

Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field and cannot distinguish
21st century dates from 20th century dates. These date code fields will need
to distinguish 21st century dates from 20th century dates and, as a result,
many companies' software and computer systems may need to be upgraded or
replaced in order to comply with such "Year 2000" requirements. Although the
Company believes that its products and internal systems are Year 2000
compliant, the Company utilizes third-party equipment and software that may
not be Year 2000 compliant. Failure of such third-party equipment or software
to operate properly with regard to the Year 2000 and thereafter could require
the Company to incur unanticipated expenses to remedy any problems, which
could have a material adverse effect on the Company's business, operating
results and financial condition. Furthermore, the purchasing patterns of
customers or potential customers may be affected by Year 2000 issues as
companies expend significant resources to correct their current systems for
Year 2000 compliance. These expenditures may result in reduced funds available
to purchase products and services such as those offered by the Company, which
could have a material adverse effect on the Company's business, operating
results and financial condition.

CERTAIN ANTI-TAKEOVER PROVISIONS

Upon completion of this offering, the Company's Board of Directors will have
the authority to issue up to 2,000,000 shares of Preferred Stock and to
determine the price, rights, preferences, privileges and restrictions,
including voting rights, of those shares without any further vote or action by
the stockholders. The rights of the holders of Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing flexibility in connection with possible financings,
acquisitions or other corporate purposes, may have the effect of delaying,
deferring or preventing a change in control of the Company, may discourage
bids for the Company's Common Stock at a premium over the market price of the
Common Stock, and may adversely affect the market price of, and the voting and
other rights of the holders of, the Common Stock. The Company has no current
plans to issue shares of Preferred Stock. In addition, certain provisions of
the Company's Amended and Restated Certificate of Incorporation and Bylaws
which will become effective upon the closing of this offering will have the
effect of delaying, deferring or preventing a change of control of the
Company. These provisions will provide, among other things, that the Board of
Directors is divided into three classes to serve staggered three-year terms,
that stockholders may not take actions by written consent and that the ability
of stockholders to call special meetings will be restricted. In addition, the
Company will be subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law, which will prohibit the Company from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved
in a prescribed manner. The Company's indemnity agreements provide and the
Company's Certificate of Incorporation and Bylaws will provide that the
Company will indemnify officers and directors against losses that they may
incur in investigations and legal proceedings resulting from their services to
the Company, which may be broad enough to include services in connection with
takeover defense measures. Such provisions may have the effect of preventing
changes in the management of the Company. See "Description of Capital Stock."

16
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Sales of a substantial number of shares of Common Stock in the public market
following this offering could adversely affect the market price of the
Company's Common Stock. The number of shares of Common Stock available for
sale in the public market is limited by restrictions under the Securities Act
of 1933, as amended (the "Securities Act"), and lock-up agreements executed by
certain of the security holders of the Company under which such security
holders have agreed not to sell or otherwise dispose of any of their shares
for a period of 180 days after the date of this Prospectus without the prior
written consent of NationsBanc Montgomery Securities LLC. NationsBanc
Montgomery Securities LLC may, however, in its sole discretion and at any time
without notice, release all or any portion of the shares subject to lock-up
agreements. In addition to the 3,000,000 shares of Common Stock offered hereby
(assuming no exercise of the Underwriters' over-allotment option), there will
be 10,124,822 shares of Common Stock outstanding as of the date of this
Prospectus, all of which are "restricted securities" under the Securities Act.
On the date of this Prospectus, 3,450 of these shares will be eligible for
sale in the public market. Ninety days after the date of this Prospectus an
additional 246,644 shares will be eligible for sale. Upon the expiration of
lock-up agreements 180 days after the date of this Prospectus, an additional
9,323,517 shares will become eligible for sale, subject in the case of
9,065,168 of such shares to the volume limitations and other conditions of
Rule 144 adopted under the Securities Act ("Rule 144"). The remaining 572,780
shares will become eligible for sale at various times from December 19, 1998
to March 16, 1999, subject to the volume limitations and other conditions of
Rule 144. In addition, the Company intends to file a registration statement on
Form S-8 with the Securities and Exchange Commission shortly after this
offering covering (i) the 1,687,500 shares of Common Stock reserved or to be
reserved for issuance under the Company's 1998 Equity Incentive Plan and 1998
Directors Stock Option Plan, (ii) an additional number of shares of Common
Stock to be reserved for issuance under the Equity Incentive Plan equal to the
number of shares reserved for future issuance under the Company's 1995
Combined Incentive and Nonqualified Stock Option Plan (the "1995 Plan") as of
the date of this Prospectus (169,728 as of March 31, 1998), and (iii) the
shares subject to outstanding options as of the date of this Prospectus
(3,614,684 as of March 31, 1998). The holder of 291,294 shares of Common Stock
will also be entitled to certain rights with respect to registration of such
shares of Common Stock for offer or sale to the public. If this holder were to
exercise these rights, the holders of an additional 3,478,597 shares of Common
Stock with "piggyback" registration rights could also include all or a portion
of their shares in such a registration. Such sales could have an adverse
effect on the market price for the Company's Common Stock. See "Management--
Director Compensation" and "--Employee Benefit Plans," "Description of Capital
Stock--Registration Rights" and "Shares Eligible for Future Sale."

NO PRIOR TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to this offering, there has been no public market for the Common Stock
of the Company and there can be no assurance that an active trading market
will develop or be sustained upon completion of this offering. The initial
public offering price, which will be established by negotiations between the
Company and the representatives of the Underwriters based upon a number of
factors, may not be indicative of prices that will prevail in the trading
market. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The stock market from time to
time has experienced significant price and volume fluctuations. In addition,
the market prices of securities of other technology companies, particularly
Internet-related companies, have been highly volatile. Factors such as
fluctuations in the Company's operating results, announcements of
technological innovations or new products by the Company or its competitors,
analysts' reports and projections and general market conditions may have a
significant effect on the market price of the Company's Common Stock. See
"Underwriting." In the past, following periods of volatility in the market
price of a company's securities, securities class action litigation has often
been instituted against such a company. Such litigation could result in
substantial costs and a diversion of management's attention and resources,
which would have a material adverse effect on the Company's business,
operating results and financial condition.

17
<PAGE>

BENEFITS OF THE OFFERING TO CURRENT STOCKHOLDERS

Current stockholders of the Company (including certain of the Company's
directors, officers and employees) will realize certain benefits from this
offering. Prior to this offering there has been no public market for the
Common Stock of the Company. After the offering, a public market will exist
for the Company's stockholders to sell their shares, subject to the
registration requirements of the Securities Act, the provisions of Rule 144 or
Rule 701 promulgated under the Securities Act. In addition, the completion of
this offering will result in an increase in the pro forma net tangible book
value of existing stockholders' shares of Common Stock (as of March 31, 1998)
from $0.34 to $2.53 per share. See "--Dilution," "--Shares Eligible for Future
Sale," "Dilution" and "Shares Eligible for Future Sale."

CONTROL BY EXISTING STOCKHOLDERS

Upon completion of this offering, the present executive officers and
directors of the Company and their affiliates will beneficially own
approximately 55.8% of the Company's outstanding Common Stock (54.0% if the
Underwriters' over-allotment option is exercised in full). In particular, Paul
Allen, a director of the Company, will beneficially own approximately 44.8% of
the Company's Common Stock upon the completion of this offering. As a result,
these stockholders will be able to control the management and affairs of the
Company and all matters requiring stockholder approval, including the election
of directors and approval of significant corporate transactions such as a
merger, consolidation or sale of substantially all of the Company's assets.
Such concentration of ownership might have the effect of delaying or
preventing a change in control of the Company, impede a merger, consolidation,
takeover or other business combination involving the Company or discourage a
potential acquiror from making a tender offer or otherwise attempting to
obtain control of the Company, which in turn could have an adverse effect on
the market price of the Company's Common Stock. See "Principal Stockholders."

UNSPECIFIED USE OF PROCEEDS

The Company plans to use substantially all of the net proceeds from this
offering for general corporate purposes, including working capital. The
Company may also use a portion of the net proceeds from this offering to
acquire or invest in businesses, technologies and product lines that are
complementary to the Company's business. In the ordinary course of business,
the Company evaluates potential acquisitions of such businesses, technologies
and product lines. However, the Company has no agreements or commitments and
is not currently engaged in any negotiations with respect to such
transactions. As a result, the Company will have significant discretion as to
the use of the net proceeds from this offering. See "Use of Proceeds."

18
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered hereby are estimated to be approximately $29.8 million
(approximately $34.4 million if the Underwriters' over-allotment option is
exercised in full), at an assumed initial public offering price of $11.00 per
share and after deducting the estimated underwriting discount and estimated
offering expenses. The primary purposes of this offering are to obtain
additional capital, create a public market for the Company's Common Stock and
facilitate future access by the Company to public equity markets.

The Company intends to use the net proceeds for general corporate purposes,
including working capital and other general corporate purposes, including
expansion of sales and marketing activities and its professional services
organization to accommodate anticipated growth in these areas. The amounts
actually expended by the Company for such working capital purposes may vary
significantly and will depend on a number of factors, including the amount of
the Company's future revenues and cash generated by operations and the other
factors described under "Risk Factors." Accordingly, the Company's management
will retain broad discretion in the allocation of the net proceeds of this
offering. A portion of the net proceeds may also be used to acquire or invest
in complementary businesses, technologies, product lines or products. In the
ordinary course of business, the Company evaluates potential acquisitions of
such businesses, technologies and product lines. However, the Company has no
current agreements or commitments with respect to any such acquisition, and
the Company is not currently engaged in any negotiations with respect to any
such transaction. Pending such uses, the net proceeds of this offering will be
invested in short-term, interest-bearing, investment grade securities. See
"Risk Factors--Risks Related to Acquisitions" and "--Unspecified Use of
Proceeds."

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying any cash dividends on its capital stock
in the foreseeable future.

19
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of March
31, 1998 (i) on an actual basis and (ii) on an as adjusted basis to give
effect to the conversion of each outstanding share of Class B Stock into
approximately 0.75 shares of Common Stock and the expiration of a put right
with respect to 191,489 shares of the Company's Common Stock, both of which
will occur upon the closing of this offering, and the sale of the 3,000,000
shares of Common Stock offered hereby, at an assumed initial public offering
price of $11.00 per share and after deducting estimated underwriting discount
and estimated offering expenses.

<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current liabilities--notes payable...................... $ 810 $ 810
Other noncurrent liabilities............................ 164 164
Redeemable Common Stock, $.01 par value; 191,489 shares
issued and outstanding, actual; no shares issued and
outstanding, as adjusted(1)............................ 2,234 --
Stockholders' equity:
Class B Stock, $.01 par value; 5,000,000 shares
authorized, 4,321,389 shares issued and outstanding,
actual; 2,000,000 shares authorized, no shares issued
and outstanding, as adjusted.......................... 43 --
Common Stock, $.01 par value; 40,000,000 shares
authorized, 6,692,365 shares issued and outstanding
actual; 13,124,822 shares issued and outstanding, as
adjusted(2)........................................... 67 131
Additional paid-in capital............................. 169,426 201,429
Accumulated deficit.................................... (159,572) (159,572)
Accumulated other comprehensive income (loss).......... (76) (76)
--------- ---------
Total stockholders' equity........................... 9,888 41,912
--------- ---------
Total capitalization................................ $ 13,096 $ 42,886
========= =========
</TABLE>
- --------
(1) Redeemable Common Stock represents 191,489 shares of Common Stock issued
in connection with the acquisition of CSI which are subject to a put right
held by the two former shareholders of CSI. See Note 8 of Notes to the
Company's Consolidated Financial Statements.

(2) Excludes (i) 3,600,111 shares of Common Stock issuable upon exercise of
options outstanding as of March 31, 1998 under the 1995 Plan with a
weighted average exercise price of $3.95 per share, (ii) 174,902 shares of
Common Stock reserved for issuance under the 1995 Plan as of such date,
(iii) 1,500,000 additional shares of Common Stock reserved for issuance
under the Company's 1998 Equity Incentive Plan, (iv) 187,500 shares of
Common Stock reserved for issuance under the Company's 1998 Directors'
Stock Option Plan, (v) 14,573 shares of Common Stock subject to an
outstanding option not granted under the 1995 Plan, and (vi) an aggregate
of 352,000 shares of Common Stock issuable in connection with the proposed
acquisitions of SSA and Meliora. Includes 331,246 shares of Common Stock
subject to an escrow to secure certain indemnification obligations of
former stockholders of Aimtech relating to the acquisition of Aimtech. See
"Management--Employee Benefit Plans," "Description of Capital Stock" and
Note 10 of Notes to the Company's Consolidated Financial Statements.

20
<PAGE>

DILUTION

The pro forma net tangible book value of the Company as of March 31, 1998
was approximately $3.5 million or $0.34 per share of Common Stock. Pro forma
net tangible book value per share represents the amount of total tangible
assets less total liabilities, divided by the pro forma shares of Common Stock
outstanding as of March 31, 1998. After giving effect to the issuance and sale
of the 3,000,000 shares of Common Stock offered hereby (at an assumed initial
public offering price of $11.00 per share and after deducting estimated
underwriting discount and estimated offering expenses) and the expiration of a
put right with respect to 191,489 shares of Common Stock, the Company's pro
forma net tangible book value as of March 31, 1998 would have been $33.3
million, or $2.53 per share. This represents an immediate increase in pro
forma net tangible book value of $2.19 per share to existing stockholders and
an immediate dilution of $8.47 per share to new investors. The following table
illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $11.00
Pro forma net tangible book value per share at March 31, 1998.... $0.34
Increase in pro forma net tangible book value per share
attributable to new investors................................... 2.19
-----
Pro forma net tangible book value per share after offering........ 2.53
------
Dilution per share to new investors............................... $ 8.47
======
</TABLE>

The foregoing discussion and tables assume no exercise of any stock options
outstanding as of March 31, 1998. As of March 31, 1998, there were (i) options
outstanding to purchase a total of 3,600,111 shares of Common Stock with a
weighted average exercise price of $3.95 per share under the 1995 Plan, (ii)
174,902 shares of Common Stock reserved for issuance under the 1995 Plan and
(iii) 14,573 shares of Common Stock subject to an outstanding option not
granted under the 1995 Plan. Assuming the exercise of these outstanding
options, the pro forma net tangible book value per share after this offering
would be $2.84, and the dilution per share to new investors would be $8.16.
See "Risk Factors--Dilution," "Capitalization," "Management--Employee Benefit
Plans" and Note 10 of Notes to the Company's Consolidated Financial
Statements.

21
<PAGE>

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following selected historical consolidated financial data is qualified
by reference to, and should be read in conjunction with, the Company's
historical Consolidated Financial Statements and the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus. The selected historical
consolidated statement of operations data for the year ended December 31, 1997
and the selected historical consolidated balance sheet data as of December 31,
1997 are derived from historical consolidated financial statements of the
Company that have been audited by KPMG Peat Marwick LLP, independent auditors,
and are included elsewhere in this Prospectus. The selected historical
consolidated statement of operations data presented below for each of the two
years in the period ended December 31, 1996, and the selected historical
consolidated balance sheet data as of December 31, 1996, are derived from
historical consolidated financial statements of the Company that have been
audited by Ernst & Young LLP, independent auditors, and are included elsewhere
in this Prospectus. The selected historical consolidated statement of
operations data for the two years in the period ended December 31, 1994 and
the selected historical consolidated balance sheet data as of December 31,
1993, 1994 and 1995 are derived from audited historical consolidated financial
statements of the Company not included in this Prospectus. The selected
historical consolidated statement of operations data for the three months
ended March 31, 1997 and 1998, and the selected historical consolidated
balance sheet data as of March 31, 1998, are derived from unaudited historical
consolidated financial statements of the Company included elsewhere in this
Prospectus. The unaudited financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the Company's financial position and results of operations for
these periods. The financial data for the three months ended March 31, 1998
are not necessarily indicative of the results that may be expected for the
year ending December 31, 1998 or any other future period.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, PRO FORMA MARCH 31,
------------------------------------------------ ------------ ---------------
YEAR ENDED
DECEMBER 31,
1993 1994 1995 1996 1997 1997 1997 1998
-------- -------- -------- -------- -------- ------------ ------- ------
HISTORICAL CONSOLIDATED
STATEMENT OF OPERATIONS
DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Product revenue:
Online learning
products (1).......... $ -- $ -- $ -- $ 3,135 $ 7,056 $ 7,056 $ 1,403 $2,069
Other products......... 7,178 12,409 16,238 11,165 10,425 12,080 2,811 1,540
-------- -------- -------- -------- -------- ------- ------- ------
Total product
revenue.............. 7,178 12,409 16,238 14,300 17,481 19,136 4,214 3,609
Services revenue....... 1,140 1,639 1,926 2,955 6,583 14,784 770 4,186
-------- -------- -------- -------- -------- ------- ------- ------
Total revenue........ 8,318 14,048 18,164 17,255 24,064 33,920 4,984 7,795
Cost of revenue:
Product revenue:
Online learning
products (1).......... -- -- -- 136 585 585 58 196
Other products......... 2,849 4,487 3,343 2,946 2,069 2,708 481 289
-------- -------- -------- -------- -------- ------- ------- ------
Total cost of product
revenue.............. 2,849 4,487 3,343 3,082 2,654 3,293 539 485
Services revenue....... 484 1,186 1,270 2,100 4,137 9,857 490 2,746
-------- -------- -------- -------- -------- ------- ------- ------
Total cost of
revenue............. 3,333 5,673 4,613 5,182 6,791 13,256 1,029 3,231
-------- -------- -------- -------- -------- ------- ------- ------
Gross margin............ 4,985 8,375 13,551 12,073 17,273 20,664 3,955 4,564
Operating expenses:
Research and
development........... 11,948 16,630 13,315 12,122 8,115 6,864 2,246 1,435
Sales and marketing.... 7,878 13,169 11,984 14,989 13,589 14,876 3,443 3,251
General and
administrative........ 4,735 4,432 3,997 4,292 4,432 8,106 897 1,596
Loss on impairment of
assets (2)............ -- 3,836 -- 2,787 -- -- -- --
Restructuring charge
(3)................... -- -- 3,318 1,104 -- -- -- --
Acquired in-process
research and
development (4)....... -- -- -- -- 4,064 -- -- --
-------- -------- -------- -------- -------- ------- ------- ------
Total operating
expenses.............. 24,561 38,067 32,614 35,294 30,200 29,846 6,586 6,282
-------- -------- -------- -------- -------- ------- ------- ------
Loss from operations.... (19,576) (29,692) (19,063) (23,221) (12,927) (9,182) (2,631) (1,718)
Other income (expense):
Other expense.......... -- -- -- (1,128) -- -- -- --
Interest income from
principal stockholder
(5)................... -- -- 1,222 1,066 436 436 182 --
Interest expense paid
by principal
stockholder........... (2,978) (5,007) (1,846) -- -- -- -- --
Other interest income
(expense), net........ (301) (440) 50 36 48 (50) 44 4
Equity in income
(losses) from
Infomodelers, Inc..... -- -- -- (112) (634) (634) (150) 2,169
-------- -------- -------- -------- -------- ------- ------- ------
Total other income
(expense)............. (3,279) (5,447) (574) (138) (150) (248) 76 2,173
-------- -------- -------- -------- -------- ------- ------- ------
Income (loss) before
income taxes........... (22,855) (35,139) (19,637) (23,359) (13,077) (9,430) (2,555) 455
Provision for income
taxes.................. 11 32 78 196 38 38 -- --
-------- -------- -------- -------- -------- ------- ------- ------
Net income (loss)....... $(22,866) $(35,171) $(19,715) $(23,555) $(13,115) (9,468) $(2,555) $ 455
Accretion of redemption
value of redeemable
common stock........... -- -- -- -- -- -- -- (766)
-------- -------- -------- -------- -------- ------- ------- ------
Net loss attributable to
common stockholders.... (22,866) (35,171) (19,715) (23,555) (13,115) (9,468) (2,555) (311)
======== ======== ======== ======== ======== ======= ======= ======
Basic and diluted net
loss per share (6)..... $(206.00) $(268.48) $ (4.14) $ (4.01) $ (2.17) $ (1.44) $ (0.43) $(0.05)
======== ======== ======== ======== ======== ======= ======= ======
Shares used to compute
basic and diluted net
loss per share (6)(7).. 111 131 4,766 5,879 6,038 6,588 5,932 6,657
</TABLE>

(footnotes appear on next page)

22
<PAGE>

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
-------- -------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED BALANCE SHEET
DATA:
Cash and cash equivalents................. $ 490 $ 1,296 $ 3,551 $ 3,763 $ 2,454 $ 2,911
Working capital (deficit)................. (64,069) (91,347) 25,323 9,847 607 1,849
Total assets.............................. 13,531 16,033 35,259 18,727 21,564 20,780
Long-term obligations..................... -- 605 68 -- 181 164
Redeemable common stock (8)............... -- -- -- -- 1,468 2,234
Total stockholders' equity (deficit)...... (55,277) (85,368) 29,736 12,310 9,762 9,888
</TABLE>

- --------
(1) The Company's online learning products consist of its Librarian learning
management system, its ToolBook II Instructor and ToolBook II Assistant
authoring products, its ToolBook II Synergy pre-authoring product and
Allen Communications' Designer's Edge product, for which the Company is a
reseller. See "Business--Products and Services."
(2) Loss on impairment of assets in 1996 related to products and technologies
written-off as a result of the spin-off of Infomodelers. See Note 9 of
Notes to the Company's Consolidated Financial Statements. Loss on
impairment of assets in 1994 related to asset write-offs related to
products and technologies which were discontinued in 1994.

(3) Restructuring charge in 1995 of $3,318,000 relates to the Company's
restructuring of its domestic operations and restructuring charge in 1996
includes a charge of $604,000 for the Company's restructuring of its
European operations and a non-cash expense of $500,000 associated with a
modification of stock option plan rights of Asymetrix employees who
transferred to Infomodelers. See Note 9 of Notes to the Company's
Consolidated Financial Statements.
(4) Acquired in-process research and development relates to the costs of in-
process research and development acquired by the Company in connection
with the acquisitions of Aimtech and Socha. See Note 8 of Notes to the
Company's Consolidated Financial Statements.
(5) Interest income on note receivable from stockholder relates to interest
earned on a note receivable from the Company's principal stockholder which
was repaid to the Company in full in October 1997. See "Certain
Transactions" and Note 7 of Notes to the Company's Consolidated Financial
Statements.
(6) See Note 1 of Notes to the Company's Consolidated Financial Statements for
an explanation of the determination of the number of shares used to
compute basic and diluted net loss per share.

(7) See Note (f) of Notes to the Company's Consolidated Pro Forma Financial
Statements for an explanation of the determination of the number of pro
forma shares used to compute basic and diluted pro forma net loss per
share.

(8) Redeemable common stock represents 191,489 shares of Common Stock issued
in connection with the acquisition of CSI which are subject to a put right
held by the two former shareholders of CSI. This put right will expire
upon the closing of this offering. See "Capitalization" and Note 8 of
Notes to the Company's Consolidated Financial Statements.

23
<PAGE>

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

The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with "Selected
Historical Consolidated Financial Data" and the Company's Consolidated
Financial Statements and related Notes thereto included elsewhere in this
Prospectus. This Prospectus contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that may
cause such a difference include, but are not limited to, those discussed in
"Risk Factors."

OVERVIEW

Asymetrix was founded in 1984 by Paul Allen, a co-founder of Microsoft
Corporation, and during the Company's first ten years it operated in large
part as a technology development organization, with less emphasis on the
commercialization of technologies. Starting in 1995, Asymetrix recapitalized
and redirected its focus to the development and marketing of authoring
products and learning management systems designed to capitalize on the
advantages of the Internet as a means of delivering technology-based training
applications. Research and development and product lines not directly related
to this focus were decreased, eliminated or subsequently spun off. In order to
offer a more complete online enterprise learning solution, the Company also
introduced a variety of professional services, including a wide range of
consulting and development services, training programs and customer and
technical support targeted for the online enterprise learning market. The
Company's principal products include its learning management system known as
Librarian, its online learning authoring products, consisting of ToolBook II
Instructor and ToolBook II Assistant and its multimedia products, consisting
of media creation products, and third-party learning titles.

The Company anticipates that future revenue growth, if any, will be
attributable to its online learning products and its professional services. To
the extent these products and services do not achieve commercial acceptance or
that revenue from these products or services do not increase or meet the
Company's expectations, the Company's business, operating results and
financial condition will be materially and adversely affected. To date, the
Company has not realized a substantial amount of its product revenue from its
Librarian product. The Company believes that it will be dependent in large
part on market acceptance of the latest release of its Librarian product for
future growth because the Company believes that market acceptance of Librarian
may influence sales of the Company's other online learning products and
professional services. See "Risk Factors--Dependence on Online Learning
Products."

The Company has acquired several technologies and services businesses in
pursuing the online enterprise learning market. On September 12, 1997, the
Company acquired Aimtech Corporation ("Aimtech"), a developer of multimedia
authoring products and Internet authoring technologies for an aggregate of
2,183,894 shares of its Series 4 Class B Stock valued at $3.1 million (which
are convertible into an aggregate of 1,637,853 shares of Common Stock). These
shares include 2,111,795 shares issued in exchange for all of Aimtech's
outstanding capital stock (which are convertible into an aggregate of
1,583,780 shares of Common Stock), 44,171 shares issued as a financial
advisory fee (which are convertible into an aggregate of 33,128 shares of
Common Stock) and 27,928 shares issued under Aimtech's "Change of Control"
severance policy (which are convertible into an aggregate of 20,945 shares of
Common Stock). On September 30, 1997, the Company acquired the three Oakes
Companies (Oakes Interactive Incorporated, Acorn Associates Incorporated and
TopShelf Multimedia, Inc.), which provide online learning consulting, custom
development and training services and also distribute certain technology-based
training applications. The Company issued an aggregate of 1,512,500 shares of
its Series 5 Class B Stock valued at $2.1 million (which are convertible into
an aggregate of 1,134,371 shares of Common Stock) in connection with the
acquisition of the Oakes Companies. On December 23, 1997, the Company acquired
CSI, a provider of online learning consulting, custom development and training
services and issued an aggregate of 550,193 shares of its Common Stock valued
at $4.8 million. The Company has also acquired three other small businesses,
Socha in July 1997, Graham-Wright Interactive, Inc. in December 1997 and Adams
Consulting Group, Inc. in March 1998. All of these eight acquisitions were
accounted for using the purchase method of accounting. Accordingly, the
Company's historical consolidated financial statements do not include

24
<PAGE>

results of operations, financial position or cash flows of these entities
prior to their respective dates of acquisition. In addition, as a result of
the acquisitions of Aimtech and Socha, the Company has incurred charges
relating to the cost of acquired in-process research and development of $4.1
million for 1997 and, in connection with all of its acquisitions from July 1,
1997 through March 31, 1998, has recorded an aggregate of $8.5 million in
goodwill, approximately $1.5 million of which will be amortized on a straight-
line basis over a five year period and the remainder (approximately
$7.0 million) of which will be amortized over a 15 year period. If the Company
were to incur additional charges for acquired in-process research and
development and amortization of goodwill with respect to any future
acquisitions, the Company's business, operating results and financial
condition could be materially and adversely affected. See "Risk Factors--New
Business Model" and "--Risks Related to Acquisitions."

As part of its strategy to focus on the online enterprise learning market,
the Company divested product lines and technologies which were unrelated to
this market. In October 1996, the Company completed the spin-off of its
Database Tools Division to Infomodelers, Inc. ("Infomodelers") and distributed
a controlling interest in Infomodelers to its stockholders. In March 1998, the
Company sold substantially all of its remaining interest in Infomodelers to
Vulcan Ventures, Inc. for an aggregate purchase price of approximately $2.4
million in cash, which price included approximately $2.0 million for shares of
Infomodelers Series A Preferred Stock and approximately $390,000 for shares of
Infomodelers Common Stock. See "Certain Transactions." In July 1997, the
Company established SuperCede, Inc. ("SuperCede"), which is now a 50%-owned
subsidiary, and transferred the assets of its Internet Development Tools
Division and SuperCede products to SuperCede. The Company's historical
financial statements do not consolidate the results of operations, financial
position or cash flows of Infomodelers subsequent to October 1996 or of
SuperCede subsequent to September 1997. The Company accounts for its
Infomodelers and SuperCede investments using the equity method of accounting.
See "Certain Transactions" and Note 9 of Notes to the Company's Consolidated
Financial Statements.

The Company incurred net losses of $23.6 million and $13.1 million in 1996
and 1997, respectively, and an operating loss of $1.7 million in the three
months ended March 31, 1998, and has yet to achieve operating income under its
new business model. The Company's limited operating history under its new
business model, the emerging nature of the market for online enterprise
learning and the factors described under "Risk Factors--Potential Fluctuations
in Quarterly Operating Results; Unpredictability of Future Revenue;
Seasonality," among other factors, make prediction of the Company's future
operating results difficult. Although the Company has experienced revenue
growth in certain recent periods and although the pro forma financial
statements herein also reflect revenue growth in certain periods there can be
no assurance that such growth rates are sustainable or indicative of actual
growth rates that the Company may experience and, therefore, they should not
be considered indicative of future operating results. In addition, the Company
intends to continue to invest in acquisitions, its professional services
business and research and development, among other things. As a result, the
Company expects to continue to incur operating losses at least through 1998.
There can be no assurance that the Company will achieve profitability or, if
profitability is achieved, that it will be sustained. See "Risk Factors--
Substantial Historical Operating Losses; Limited Operating History in Target
Market; Uncertain Profitability" and "--New Business Model."

The Company derives its revenue principally from sales of its software
products and fees from professional services, training, support and
maintenance. The Company recognizes revenue from product sales at such time as
the software product has been shipped, collection is probable and there are no
significant obligations of the Company remaining to be performed. Product
license fees are generally determined on a per user basis, except that its
learning management system is licensed on either a per server per user basis
or on a single server unlimited user basis at the option of the customer. In
the case of non-refundable royalties from OEMs, resellers or other
distributors, the Company recognizes revenue when it delivers its product to
the OEM, reseller or other distributor provided no significant obligations of
the Company remain. Additional royalties are paid to the extent that the
advances are exceeded and these additional royalties are recognized when
earned. Professional services revenue is derived primarily from professional
fees billed to clients and is recognized as services are performed, for
contracts that are billed on a time and materials basis, and on the percentage
of completion method, based on the ratio of costs incurred to the total
estimated project cost, for fixed-price and maintenance agreements.

25
<PAGE>

Revenue from training fees is recognized in the month in which the last day of
the training event falls. Maintenance revenue associated with technical
support contracts is recognized ratably over the term of the contract,
typically one year. The Company recognizes revenue from installation services
as the services are provided. Services revenue represented approximately 17%,
27% and 54% of total revenue in 1996, 1997 and the three months ended March
31, 1998, respectively.

Effective January 1, 1998, the Company adopted Statement of Position (SOP)
97-2, Software Revenue Recognition, issued by the American Institute of
Certified Public Accountants. The statement provides specific industry
guidance and stipulates that revenue recognized from software arrangements is
to be allocated to each element of the arrangement based on the relative fair
values of the elements, such as software products, upgrades, enhancements,
post contract customer support, installation, or training. Under SOP 97-2, the
determination of fair value is based on objective evidence which is specific
to the vendor. If such evidence of fair value for each element of the
arrangement does not exist, all revenue from the arrangement is deferred until
such time that evidence of fair value does exist or until all elements of the
arrangement are delivered. Revenue allocated to software products, specified
upgrades and enhancements is generally recognized upon delivery of the related
products, upgrades and enhancements. Revenue allocated to post contract
customer support is generally recognized ratably over the term of the support,
and revenue allocated to service elements is generally recognized as the
services are performed. The adoption of SOP 97-2 did not have a material
effect on revenue recognition for the three months ended March 31, 1998.

As a result of focusing its business on the online enterprise learning
market, the Company has changed its distribution strategy from emphasizing
retail and other indirect distribution channels to emphasizing a direct sales
model. Direct sales accounted for approximately 50%, 48% and 82% of the
Company's total revenue for 1996, 1997 and the three months ended March 31,
1998, respectively. See "Risk Factors--New Business Model." While
international revenue accounted for approximately 32%, 31% and 14% of total
revenue for 1996, 1997 and the three months ended March 31, 1998,
respectively, the Company believes that the online enterprise learning market
has not yet developed significantly outside the United States and currently
does not intend to market actively its online learning products and
professional services internationally other than in the United Kingdom and in
a limited number of other foreign markets. Therefore, the Company anticipates
that international revenue will constitute a lesser percentage of total
revenue in the future.

In accordance with Statement of Financial Accounting Standards No. 86,
Accounting for Costs of Computer Software to be Sold, Leased or Otherwise
Marketed, software development costs are expensed as incurred until
technological feasibility has been established, at which time such costs are
capitalized until the product is available for general release to customers.
To date, establishment of technological feasibility of the Company's products
and general release of such software have substantially coincided. As a
result, software development costs qualifying for capitalization have not been
significant, and therefore the Company has not capitalized any internal
software development costs.

26
<PAGE>

RESULTS OF OPERATIONS

The following table presents the Company's results of operations as a
percentage of total revenue for the periods indicated.
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- -------------
1995 1996 1997 1997 1998
STATEMENT OF OPERATIONS DATA: -------- -------- ------- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue:
Product revenue:
Online learning products...... --% 18.2% 29.3% 28.2 % 26.5%
Other products................ 89.4 64.7 43.3 56.4 19.8
-------- -------- ------- ----- -----
Total product revenue........ 89.4 82.9 72.6 84.6 46.3
Services revenue............... 10.6 17.1 27.4 15.4 53.7
-------- -------- ------- ----- -----
Total revenue................ 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
Product revenue:
Online learning products...... -- 0.8 2.4 1.2 2.5
Other products................ 18.4 17.1 8.6 9.6 3.7
-------- -------- ------- ----- -----
Total cost of product
revenue..................... 18.4 17.9 11.0 10.9 6.2
Services revenue............... 7.0 12.1 17.2 9.8 35.2
-------- -------- ------- ----- -----
Total cost of revenue........ 25.4 30.0 28.2 20.6 41.4
-------- -------- ------- ----- -----
Gross margin.................... 74.6 70.0 71.8 79.4 58.6
Operating expenses:
Research and development....... 73.3 70.2 33.7 45.1 18.4
Sales and marketing............ 66.0 86.9 56.5 69.1 41.6
General and administrative..... 22.0 24.9 18.4 18.0 20.6
Loss on impairment of assets... -- 16.1 -- -- --
Restructuring charge........... 18.3 6.4 -- -- --
Acquired in-process research
and development............... -- -- 16.9 -- --
-------- -------- ------- ----- -----
Total operating expenses...... 179.6 204.5 125.5 132.2 80.6
-------- -------- ------- ----- -----
Loss from operations............ (105.0) (134.6) (53.7) (52.8) (22.0)
Other income (expense), net:
Other expense.................. -- (6.5) -- -- --
Interest income from principal
stockholder................... 6.7 6.1 1.8 3.6 --
Interest expense paid by
principal stockholder......... (10.2) -- -- -- --
Other interest income, net..... 0.3 0.2 0.2 0.9 --
Equity in income (losses) from
Infomodelers, Inc............. -- (0.6) (2.6) (3.0) 27.8
-------- -------- ------- ----- -----
Total other income (expense).. (3.2) (0.8) (0.6) 1.5 27.8
-------- -------- ------- ----- -----
Income (loss) before income
taxes.......................... (108.1) (135.4) (54.3) (51.3) 5.8
Provision for income taxes...... 0.4 1.1 0.2 -- --
-------- -------- ------- ----- -----
Net income (loss)............... (108.5)% (136.5)% (54.5)% (51.3)% 5.8%
======== ======== ======= ===== =====
</TABLE>

THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997

Revenue. Total revenue increased 56% from $5.0 million in the three months
ended March 31, 1997 to $7.8 million in the three months ended March 31, 1998.
Total product revenue decreased 14% from $4.2 million in the three months
ended March 31, 1997 to $3.6 million in the three months ended March 31, 1998.
Online learning product revenue increased 47% from $1.4 million in the three
months ended March 31, 1997 to $2.1 million in the three months ended March
31, 1998. This increase was due primarily to increased demand for the
Company's online learning products as a result of the Company's focus on the
online learning market. Other

27
<PAGE>

product revenue decreased 41% from $2.8 million in the three months ended
March 31, 1997 to $1.7 million in the three months ended March 31, 1998. Other
products revenue consists of revenue from the Company's products which are not
targeted at the online learning market. These products include SuperCede
products prior to its spinoff in September 1997, Infomodelers products prior
to the spinoff in October 1996, Web Publisher, 3D F/X, Digital Video Producer,
Compel, Toolbook, Multimedia Toolbook, IconAuthor, CBT Express, Web 3D, Web
Titles, InfoAssistant and other non-online learning products. Included in
other product revenue in the three months ended March 31, 1997 was
approximately $690,000 from sales of SuperCede products. As a result of the
Company's strategy to focus on the online enterprise learning market, the
Company anticipates that future growth in product sales, if any, will be
attributable to its online learning products and that its other product
revenue will decrease in the future. Services revenue increased 444% from
$770,000 in the three months ended March 31, 1997 to $4.2 million in the three
months ended March 31, 1998 due primarily to the expansion of the Company's
professional services business. The Company has experienced an increased
number of professional services engagements which are billed on a fixed price
basis and intends to pursue such engagements in the future. See "Risk
Factors--Risks of Fixed-Price Engagements."

Cost of Revenue. Cost of product revenue includes costs of media, manuals
and distribution costs. Gross margin from the Company's online learning
products is generally higher than that of its other products because these
products are typically sold by the Company's direct sales force, as compared
with other products sold through indirect channels, such as OEMs and
resellers. Costs of services revenue consists primarily of personnel-related
costs in providing consulting, maintenance and training to customers. Gross
margin on product revenue is higher than gross margin on services revenue,
reflecting the lower materials, packaging and other costs of software compared
with the relatively high personnel costs associated with providing
professional services.

Total cost of revenue increased 214% from $1.0 million in the three months
ended March 31, 1997 to $3.2 million in the three months ended March 31, 1998.
Total cost of product revenue decreased 10% from $539,000 in the three months
ended March 31, 1997 to $485,000 in the three months ended March 31, 1998.
Cost of online learning products revenue increased 238% from $58,000 in the
three months ended March 31, 1997 to $196,000 in the three months ended March
31, 1998, due primarily to increased sales of the Company's online learning
products. Cost of other products revenue decreased 40% from $481,000 in the
three months ended March 31, 1997 to $289,000 in the three months ended March
31, 1998. This decrease was due primarily to decreased sales of the Company's
other products. Cost of other products revenue attributable to sales of
SuperCede products was $131,000 in the three months ended March 31, 1997.
Total product gross margin remained constant at 87% in the three months ended
March 31, 1997 and 1998. Online learning products gross margin was 96% and 90%
in the three months ended March 31, 1997 and 1998, respectively. Other
products gross margin remained constant at 83% in the three months ended March
31, 1997 and 1998.

Cost of services revenue increased 460% from $490,000 in the three months
ended March 31, 1997 to $2.7 million in the three months ended March 31, 1998.
This increase was due primarily to increased professional service projects in
the first quarter of 1998. Services gross margin decreased from 36% in the
three months ended March 31, 1997 to 34% in the three months ended March 31,
1998. The Company anticipates that cost of services revenue will increase in
absolute dollars as it adds additional professional services personnel. To the
extent services revenue increases relative to product sales revenue as a
percentage of total revenue, overall gross margins would decline.

Operating Expenses

Research and Development. Research and development expenses include expenses
associated with the development of new products and new product versions and
consist primarily of salaries, depreciation of development equipment, supplies
and overhead allocations. Research and development expenses decreased 36% from
$2.2 million in the three months ended March 31, 1997 to $1.4 million in the
three months ended March 31, 1998. This decrease was due primarily to the spin
off of SuperCede. Research and development expenses as

28
<PAGE>

a percentage of total revenue decreased from 45% in the three months ended
March 31, 1997 to 18% in the three months ended March 31, 1998 as a result of
the spin-off of SuperCede. Research and development expenses related to
SuperCede were $845,000 in the three months ended March 31, 1997. The Company
expects research and development expenses to increase in absolute dollars in
the future.

Sales and Marketing. Sales and marketing expenses consist primarily of sales
and marketing personnel costs, including sales commissions, travel,
advertising, public relations, seminars, trade shows and other marketing
literature and overhead allocations. Sales and marketing expenses decreased 6%
from $3.4 million in the three months ended March 31, 1997 to $3.3 million in
the three months ended March 31, 1998. Sales and marketing expenses as a
percentage of total revenue decreased from 69% in the three months ended March
31, 1997 to 42% in the three months ended March 31, 1998. The decreases were
due primarily to sales and marketing expenses relating to the launch of the
SuperCede products in the first quarter of 1997, and version 6.0 of ToolBook
II Assistant in March 1997, offset by expenses relating to the launch of
Librarian and new versions of ToolBookII Instructor and ToolBook II Assistant
in the first quarter of 1998. Sales and marketing expenses related to
SuperCede were $913,000 in the three months ended March 31, 1997. The Company
expects that sales and marketing expenses will increase in absolute dollars in
the future as the Company continues to increase its sales and marketing
efforts in the online learning market.

General and Administrative. General and administrative expenses consist
primarily of salaries and other personnel-related expenses for the Company's
administrative, executive and finance personnel as well as outside legal and
audit costs. General and administrative expenses increased 78% from $897,000
in the three months ended March 31, 1997 to $1.6 million in the three months
ended March 31, 1998. This increase was due primarily to increased overhead
due to the Company's increased size as well as a $185,000 expense relating to
the amortization of goodwill and a $135,000 charge relating to the cashless
exercise of stock options by employees of the Company who transferred to
Infomodelers. General and administrative expenses as a percentage of total
revenue increased from 18% in the three months ended March 31, 1997 to 21% in
the three months ended March 31, 1998. General and administrative expenses
related to SuperCede were $316,000 in the three months ended March 31, 1997.
The Company expects that general and administrative expenses will increase in
absolute dollars in the future as the Company incurs additional costs
(including directors' and officers' liability insurance, investor relations
programs and increased professional fees) related to being a public company.

Other Income (Expense). The Company recorded no other expense in the three
months ended March 31, 1997 and 1998. Interest income from principal
stockholder was $182,000 in the three months ended March 31, 1997 and was
related to interest payments to the Company on a note receivable from the
Company's principal stockholder. This note receivable was repaid in full in
October 1997. Other interest income, net was $44,000 and $4,000 in the three
months ended March 31, 1997 and 1998, respectively. Equity in income (losses)
from Infomodelers was $(150,000) and $2.2 million in the three months ended
March 31, 1997 and 1998, respectively, representing the Company's equity in
the net income (losses) from Infomodelers in such periods. Equity in income
(losses) from Infomodelers in 1998 resulted from the sale by Infomodelers of
substantially all of its assets to Visio Corporation. Because the Company sold
substantially all of its interest in Infomodelers in March 1998, the Company
does not anticipate that it will record equity in income (losses) from
Infomodelers in future periods.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

Revenue. Total revenue increased 39% from $17.3 million in 1996 to $24.1
million in 1997. Product revenue increased 22% from $14.3 million in 1996 to
$17.5 million in 1997. Online learning product revenue increased 129% from
$3.1 million in 1996 to $7.1 million in 1997. This increase was due primarily
to increased demand for the Company's online learning products as a result of
the Company's focus on the online learning market. Other product revenue
decreased 7% from $11.2 million in 1996 to $10.4 million in 1997. Included in
other product revenue in 1997 was approximately $2.0 million from SuperCede.
Services revenue increased 123% from $3.0 million in 1996 to $6.6 million in
1997 due primarily to the expansion of the Company's custom development
efforts and the acquisition of the Oakes Companies in September 1997.

29
<PAGE>

Cost of Revenue. Total cost of revenue increased 31% from $5.2 million in
1996 to $6.8 million in 1997. Cost of product revenue decreased 13% from $3.1
million in 1996 to $2.7 million in 1997. Cost of online learning products
revenue increased 330% from $136,000 in 1996 to $585,000 in 1997, due
primarily to increased sales of the Company's online learning products. Cost
of other products revenue decreased 28% from $2.9 million in 1996 to $2.1
million in 1997. This decrease was due primarily to the shift in distribution
method from distributors to direct sales and the subsequent return of products
from the distribution channel in 1996. Distributors received discounts of 20%
to 40% off suggested retail prices, requiring higher volumes and associated
costs of revenue to realize the same level of revenue generated from direct
sales. In association with changing to a direct sales model in 1996, $465,000
of inventory returned from distributors was discarded. Cost of other products
revenue attributable to SuperCede was $273,000 in 1997 and cost of other
product revenue attributable to Infomodelers was $160,000 in 1996. Total
product gross margin increased from 78% in 1996 to 85% in 1997. Online
learning products gross margin was 96% and 92% in 1996 and 1997 respectively.
Other products gross margin was 74% and 80% in 1996 and 1997, respectively.
Cost of services revenue increased 95% from $2.1 million in 1996 to $4.1
million in 1997. This increase was due primarily to increased professional
services projects in such period. Services gross margin increased from 29% in
1996 to 37% in 1997.

Operating Expenses

Research and Development. Research and development expenses decreased 33%
from $12.1 million in 1996 to $8.1 million in 1997. This decrease was due
primarily to the exclusion of research and development expenses relating to
Infomodelers in 1997. Research and development expenses as a percentage of
total revenue decreased from 70% in 1996 to 34% in 1997 as a result of the
spin-offs of Infomodelers and SuperCede. Research and development expenses
related to SuperCede were $2.5 million and $2.6 million in 1996 and 1997,
respectively, and research and development expenses related to Infomodelers
were $3.0 million in 1996.

Sales and Marketing. Sales and marketing expenses decreased 9% from $15.0
million in 1996 to $13.6 million in 1997. Sales and marketing expenses as a
percentage of total revenue decreased from 87% in 1996 to 57% in 1997. The
decreases were due primarily to sales and marketing expenses relating to the
Company's "Web event" launch of Tool Book II Instructor and the launch of
Infomodelers products during 1996, partially offset by sales and marketing
expenses relating to the launch of the SuperCede products in the first quarter
of 1997, version 6.0 of Tool Book II Assistant in March 1997 and version 5.5
of Librarian in July 1997. Sales and marketing expenses related to SuperCede
were $172,000 and $2.5 million in 1996 and 1997, respectively, and sales and
marketing expenses related to Infomodelers were $1.3 million in 1996.

General and Administrative. General and administrative expenses increased 2%
from $4.3 million in 1996 to $4.4 million in 1997. This increase was due
primarily to a one-time charge in October 1997 of $670,000 relating to the
cashless exercise of stock options by employees of the Company who transferred
to SuperCede. General and administrative expenses as a percentage of total
revenue decreased from 25% in 1996 to 18% in 1997 as a result of a small
increase in expenses relative to increased revenue. General and administrative
expenses related to SuperCede were $989,000 and $653,000 in 1996 and 1997,
respectively and general and administrative expenses related to Infomodelers
were $941,000 in 1996.

Loss on Impairment of Assets. Loss on impairment of assets in 1996 relates
to asset write-offs related to the spin-off of Infomodelers. As a result of
this spin-off, the Company reviewed the technology remaining in the Company
and recorded an impairment charge of $2.8 million in the fourth quarter of
1996.

Restructuring Charge. In the third quarter of 1996, the Company adopted a
plan to restructure its European operations, closing its offices in France and
Germany, and recorded an expense of $604,000, which included involuntary
termination benefits for employee compensation of $208,000 and certain exit
costs of $396,000, which consisted of costs related to terminated leases,
legal costs, and accounting and other services. The restructuring was required
due to the Company's focus on online learning which requires customers to have
access to the Internet or installed intranets. The Company determined that
this market was immature, which made the continued operation of three European
offices economically prohibitive. The Company continues to maintain

30
<PAGE>

a small office in the United Kingdom to manage its European operations. The
Company also recorded a non-cash restructuring expense of $500,000 in 1996
related to a modification of stock option plan rights of Asymetrix employees
who transferred to Infomodelers. As of December 31, 1997, the restructuring
plans were completed and all costs associated with the restructuring plans
have been incurred.

Acquired In-Process Research and Development. The Company recognized the
cost of acquired in-process research and development totaling $4.1 million in
1997. This amount represented all in-process research and development acquired
by the Company in connection with the acquisitions of Aimtech and Socha during
1997 and consisted of $3.6 million resulting from the Aimtech acquisition and
$484,000 resulting from the Socha acquisition. The in-process research and
development acquired in the Socha acquisition relates to future simulation and
animation functionality that management expects may be incorporated in future
versions of the Company's online learning products within the next two years.
Additional costs to complete development, testing and documentation of the
acquired technology is estimated to be approximately $500,000. Technological
feasibility has not yet been established and the Company has no future
alternative uses for this technology. Failure to complete the project may
result in competitive disadvantages in the future, which could have a material
adverse affect on the Company's business, results of operations and financial
condition. The in-process research and development acquired in the Aimtech
acquisition is applicable to the Company's future online learning authoring
products and relates to streaming technologies (Dynamic HTML, ActiveX and
Java). Management expects that such in-process research and development may be
incorporated within the next two years at an estimated cost of $2.0 million to
$3.0 million. Technological feasibility has not yet been established and the
Company has no future alternative uses for this technology. Failure to
complete the project may result in competitive disadvantages in the future,
which could have a material adverse affect on the Company's business, results
of operations and financial condition.

Other Income (Expense). The Company recorded no other expense in 1997 and
other expense of $(1.1 million) in 1996 relating to a terminated acquisition.
Interest income from principal stockholder was $1.1 million and $436,000 in
1996 and 1997, respectively and was related to interest payments to the
Company on a note receivable from the Company's principal stockholder. This
note receivable was repaid in October 1997. Other interest income, net was
$36,000 and $48,000 in 1996 and 1997, respectively. Equity in income (losses)
from Infomodelers was $(112,000) and $(634,000) in 1996 and 1997,
respectively, representing the Company's equity in the net losses of
Infomodelers in such period. Because the Company sold substantially all of its
interest in Infomodelers in March 1998, the Company does not anticipate that
it will record equity in income (losses) from Infomodelers in future periods.
The Company recorded no equity in earnings in SuperCede subsequent to its
spinoff in 1997, as it owns SuperCede Series B Preferred Stock. Such stock has
a liquidation preference subordinate to SuperCede's Series A Preferred Stock,
and the Company will not record equity in earnings of SuperCede until the net
assets of SuperCede exceed the liquidation preference which exists for
SuperCede Series A Preferred Stock. The Company has no further funding
obligation for SuperCede, and therefore the Company will not record a share of
the losses at SuperCede in the future.

Provision for Income Taxes. The Company accounts for income taxes under the
asset and liability method. Under the asset and liability method, the
provision for income taxes includes income taxes currently payable and
deferred taxes arising from temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and amounts used
for income tax purposes. As of December 31, 1997, the Company had $47.4
million total deferred tax assets, primarily reflecting potential future tax
savings attributable to its federal operating loss and tax credit
carryforwards. These assets were reduced by a $47.4 million valuation
allowance, reflecting uncertainty as to their realization. As of December 31,
1997, the Company had federal tax loss carry forwards of approximately $128.2
million and federal tax credit carry forwards of approximately $2.6 million.
The federal tax loss carryforwards expire in 2000 through 2011. The Tax Reform
Act of 1986 imposes substantial restrictions on the utilization of operating
losses and tax credits in the event of an "ownership change" of a corporation.
The Company's ability to utilize net operating loss carry forwards and tax
credits may be limited as a result of an "ownership change" with respect to
the Company.

31
<PAGE>

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

Revenue. Total revenue decreased approximately 5% from $18.2 million in 1995
to $17.3 million in 1996. Product revenue decreased 12% from $16.2 million in
1995 to $14.3 million in 1996. The Company first introduced its online
learning products during the second quarter of 1996 and the Company's online
learning product revenue was $3.1 million in 1996. Other products revenue
decreased approximately 31% from $16.2 million in 1995 to $11.2 million in
1996. This decrease was due primarily to the Company's shift in focus to
online learning products and a decrease in sales of the Company's Infomodeler
products from $1.0 million in 1995 to $200,000 in 1996 as a result of the
spin-off of Infomodelers in October 1996. The Company's SuperCede product was
released during the fourth quarter of 1996 and contributed approximately
$200,000 to other products revenue in 1996. Services revenue increased 53%
from $1.9 million in 1995 to $3.0 million in 1996 as the Company began to
emphasize providing online learning-related professional services.

Cost of Revenue. Total cost of revenue increased 12% from $4.6 million in
1995 to $5.2 million in 1996. Cost of product revenue decreased 8% from $3.3
million in 1995 to $3.1 million in 1996. Cost of online learning product
revenue was $136,000 in 1996. Cost of other product revenue decreased 12% from
$3.3 million in 1995 to $2.9 million in 1996, due primarily to decreased other
product revenue and the spin-off of Infomodelers in October 1996. Total
product gross margin remained relatively constant at 79% and 78% in 1995 and
1996, respectively. Online learning products gross margin was 96% in 1996 and
other products gross margin was 74% in 1996. Cost of services revenue
increased 65% from $1.3 million in 1995 to $2.1 million in 1996. This increase
was due primarily to higher professional services revenue. Services gross
margin decreased from 39% in 1995 to 29% in 1996.

Research and Development. Research and development expenses decreased 9%
from $13.3 million in 1995 to $12.1 million in 1996. This decrease was due
primarily to the spin-off of Infomodelers. Research and development expenses
as a percentage of total revenue decreased slightly from 73% in 1995 to 70% in
1996. Research and development expenses related to SuperCede were $3.3 million
in 1996 and research and development expenses related to Infomodelers were
$4.7 million and $3.0 million in 1995 and 1996, respectively.

Sales and Marketing. Sales and marketing expenses increased 25% from $12.0
million in 1995 to $15.0 million in 1996. This increase was due primarily to
an increase in the number of sales representatives, sales engineers and
marketing personnel as the Company continued to invest in the development of
its online learning business and moved towards a direct sales model. Sales and
marketing expenses as a percentage of total revenue increased from 61% in 1995
to 87% in 1996, as a result of increases in the Company's direct sales force
and the time required for new sales employees to generate revenue. Sales and
marketing expenses related to SuperCede were approximately $373,000 in 1996
and sales and marketing expenses related to Infomodelers were $1.7 million and
$1.3 million in 1995 and 1996, respectively.

General and Administrative. General and administrative expenses increased 7%
from $4.0 million in 1995 to $4.3 million in 1996. General and administrative
expenses as a percentage of total revenue increased slightly from 22% in 1995
to 25% in 1996. These increases were due primarily to legal expenses incurred
to defend against the Grant patent litigation. See "Business--Legal
Proceedings." General and administrative expenses related to SuperCede were
$1.3 million in 1996 and general and administrative expenses related to
Infomodelers were $1.2 million and $941,000 in 1995 and 1996, respectively.

Restructuring Charge. In 1995, the Company adopted a plan to restructure its
domestic operations. Under this plan, the Company discontinued development of
certain products and reduced its product development, support and sales work
force by a total of 89 full-time employees (approximately 30% of the Company's
then-current total work force). The Company recorded an aggregate expense of
$3.3 million in the third and fourth quarters of 1995 as a result of this
reorganization. As described above, in 1996, the Company recorded aggregate
non-cash restructuring expenses of $1.1 million due to the restructuring of
its European operations and the modification of stock option plan rights
related to employees who transferred to Infomodelers.

32
<PAGE>

Other Income (Expense). The Company recorded other expense of $1.1 million
in 1996 relating to a terminated acquisition. Interest income from principal
stockholder was $1.2 million and $1.1 million in 1995 and 1996, respectively.
Other interest income, net was $50,000 and $36,000 in 1995 and 1996,
respectively. Equity interest in income (losses) from Infomodelers was
$(112,000) in 1996, representing the Company's equity in the net losses of
Infomodelers from October 17 through December 31, 1996.

33
<PAGE>

SELECTED HISTORICAL QUARTERLY RESULTS OF OPERATIONS

The following table sets forth certain unaudited historical quarterly
results of operations for the nine quarters ended March 31, 1998, as well as
such data expressed as a percentage of total revenue. In management's opinion,
this information has been prepared on the same basis as the audited historical
consolidated financial statements and includes all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
information for the quarters presented, when read in conjunction with the
Company's Historical Consolidated Financial Statements and the notes thereto.
The results of operations for any quarter are not necessarily indicative of
results for any future period.

<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1996 1996 1996 1997 1997 1997 1997 1998
-------- -------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Product revenue:
Online learning
products (1).......... $ -- $ 426 $ 1,199 $ 1,510 $ 1,403 $ 1,648 $ 1,907 $ 2,097 $2,069
Other products......... 4,597 2,922 1,569 2,077 2,811 2,639 2,352 2,624 1,540
------- ------- ------- ------- ------- ------- ------- ------- ------
Total product
revenue.............. 4,597 3,348 2,768 3,587 4,214 4,287 4,259 4,721 3,609
Services revenue....... 480 872 1,034 569 770 1,105 1,656 3,052 4,186
------- ------- ------- ------- ------- ------- ------- ------- ------
Total revenue........ 5,077 4,220 3,802 4,156 4,984 5,392 5,915 7,773 7,795
Cost of revenue:
Product revenue:
Online learning
products (1).......... -- 6 46 84 58 108 168 251 196
Other products......... 940 826 572 608 481 456 452 680 289
------- ------- ------- ------- ------- ------- ------- ------- ------
Total cost of product
revenue.............. 940 832 618 692 539 564 620 931 485
Services revenue....... 327 536 918 319 490 648 1,136 1,863 2,746
------- ------- ------- ------- ------- ------- ------- ------- ------
Total cost of
revenue............. 1,267 1,368 1,536 1,011 1,029 1,212 1,756 2,794 3,231
------- ------- ------- ------- ------- ------- ------- ------- ------
Gross margin............ 3,810 2,852 2,266 3,145 3,955 4,180 4,159 4,979 4,564
Operating expenses:
Research and
development........... 3,439 3,115 3,258 2,310 2,246 2,159 2,206 1,504 1,435
Sales and marketing.... 3,115 4,243 3,950 3,681 3,443 3,241 3,718 3,187 3,251
General and
administrative........ 954 1,311 900 1,127 897 847 817 1,871 1,596
Loss on impairment of
assets (2)............ -- -- -- 2,787 -- -- -- -- --
Restructuring charge
(3)................... -- -- 604 500 -- -- -- -- --
Acquired in-process
research and
development (4)....... -- -- -- -- -- -- 4,064 -- --
------- ------- ------- ------- ------- ------- ------- ------- ------
Total operating
expenses.............. 7,508 8,669 8,712 10,405 6,586 6,247 10,805 6,562 6,282
------- ------- ------- ------- ------- ------- ------- ------- ------
Loss from operations.... (3,698) (5,817) (6,446) (7,260) (2,631) (2,067) (6,646) (1,583) (1,718)
Other income (expense):
Other expense.......... -- -- -- (1,128) -- -- -- -- --
Interest income from
principal stockholder
(5)................... 388 289 209 180 182 147 92 15 --
Other interest income
(expense), net........ (25) 5 8 48 44 2 3 (1) 4
Equity in income
(losses) from
Infomodelers, Inc. ... -- -- -- (112) (150) (188) (148) (148) 2,169
------- ------- ------- ------- ------- ------- ------- ------- ------
Total other income
(expense)............. 363 294 217 (1,012) 76 (39) (53) (134) 2,173
------- ------- ------- ------- ------- ------- ------- ------- ------
Income (loss) before
income taxes........... (3,335) (5,523) (6,229) (8,272) (2,555) (2,106) (6,699) (1,717) 455
Provision for income
taxes.................. 22 130 23 21 -- -- -- 38 --
------- ------- ------- ------- ------- ------- ------- ------- ------
Net income (loss)....... $(3,357) $(5,653) $(6,252) $(8,293) $(2,555) $(2,106) $(6,699) $(1,755) $ 455
======= ======= ======= ======= ======= ======= ======= ======= ======
</TABLE>

(footnotes appear on next page)

34
<PAGE>

<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1996 1996 1996 1997 1997 1997 1997 1998
AS A PERCENTAGE OF TOTAL REVENUE: -------- -------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Product revenue:
Online learning products
(1)........................ --% 10.1% 31.5% 36.3% 28.2% 30.6% 32.2% 27.0% 26.5%
Other products.............. 90.5 69.2 41.3 50.0 56.4 48.9 39.8 33.8 19.8
----- ------ ------ ------ ----- ----- ------ ----- -----
Total product revenue..... 90.5 79.3 72.8 86.3 84.6 79.5 72.0 60.8 46.3
Services revenue............ 9.5 20.7 27.2 13.7 15.4 20.5 28.0 39.2 53.7
----- ------ ------ ------ ----- ----- ------ ----- -----
Total revenue........... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
Product revenue:
Online learning products
(1)........................ -- 0.1 1.2 2.0 1.2 2.0 2.8 3.2 2.5
Other products.............. 18.5 19.6 15.1 14.7 9.6 8.5 7.6 8.8 3.7
----- ------ ------ ------ ----- ----- ------ ----- -----
Total cost of product
revenue.................. 18.5 19.7 16.3 16.7 10.8 10.5 10.4 12.0 6.2
Services revenue............ 6.4 12.7 24.1 7.7 9.8 12.0 19.2 24.0 35.2
----- ------ ------ ------ ----- ----- ------ ----- -----
Total cost of revenue... 24.9 32.4 40.4 24.4 20.6 22.5 29.6 36.0 41.4
----- ------ ------ ------ ----- ----- ------ ----- -----
Gross margin................. 75.1 67.6 59.6 75.6 79.4 77.5 70.4 64.0 58.6
Operating expenses:
Research and development.... 67.7 73.8 85.7 55.6 45.1 40.0 37.3 19.4 18.4
Sales and marketing......... 61.4 100.5 103.9 88.6 69.1 60.1 62.9 41.0 41.6
General and administrative.. 18.8 31.1 23.7 27.1 18.0 15.7 13.8 24.1 20.6
Loss on impairment of assets
(2)........................ -- -- -- 67.1 -- -- -- -- --
Restructuring charge (3).... -- -- 15.9 12.0 -- -- -- -- --
Acquired in-process research
and development (4)........ -- -- -- -- -- -- 68.7 -- --
----- ------ ------ ------ ----- ----- ------ ----- -----
Total operating expenses.... 147.9 205.4 229.2 250.4 132.2 115.8 182.7 84.5 80.6
----- ------ ------ ------ ----- ----- ------ ----- -----
Loss from operations......... (72.8) (137.8) (169.6) (174.8) (52.8) (38.3) (112.3) (20.5) (22.0)
Other income (expense):
Other expense............... -- -- -- (27.1) -- -- -- -- --
Interest income from
principal stockholder (5).. 7.6 6.8 5.5 4.3 3.7 2.7 1.6 0.2 --
Other interest income
(expense), net............. -- 0.1 0.2 1.2 0.9 -- -- -- --
Equity in income (losses) of
Infomodelers, Inc. ........ -- -- -- (2.7) (3.0) (3.5) (2.5) (1.9) 27.8
----- ------ ------ ------ ----- ----- ------ ----- -----
Total other income
(expense).................. 7.6 6.9 5.7 (24.3) 1.6 (0.8) (0.9) (1.7) 27.8
----- ------ ------ ------ ----- ----- ------ ----- -----
Income (loss) before income
taxes....................... (65.2) (130.9) (163.9) (199.0) (51.2) (39.1) (113.2) (22.2) 5.8
Provision for income taxes... 0.4 3.1 0.6 0.5 -- -- -- 0.5 --
----- ------ ------ ------ ----- ----- ------ ----- -----
Net income (loss)............ (65.6)% (134.0)% (164.5)% (199.5)% (51.2)% (39.1)% (113.2)% (22.7)% 5.8%
===== ====== ====== ====== ===== ===== ====== ===== =====
</TABLE>
- --------
(1) The Company's online learning products consist of its Librarian learning
management system, its ToolBookII Instructor and ToolBook II Assistant
authoring products, its ToolBook II Synergy pre-authoring product and
Allen Communications' Designer's Edge product, for which the Company is a
reseller. See "Business--Products and Services."
(2) Loss on impairment of assets in 1996 related to products and technologies
written off as a result of the spin-off of Infomodelers. See Note 9 of
Notes to the Company's Consolidated Financial Statements.

(3) Restructuring charge in 1996 relates to the Company's restructuring charge
of $604,000 for the restructuring of its European operations and a non-
cash expense of $500,000 associated with a modification of stock option
plan rights of Asymetrix employees who transferred to Infomodelers. See
Note 9 of Notes to the Company's Consolidated Financial Statements.
(4) Acquired in-process research and development relates to the costs of in-
process research and development acquired by the Company in connection
with the acquisitions of Aimtech and Socha. See Note 8 of Notes to the
Company's Consolidated Financial Statements.
(5) Interest income on note receivable from stockholder relates to interest
earned on a note receivable from the Company's principal stockholder which
was repaid to the Company in October 1997. See "Certain Transactions" and
Note 7 of Notes to the Company's Consolidated Financial Statements.

35
<PAGE>

ability to integrate acquisitions successfully and to identify, acquire and
integrate suitable acquisition candidates; the timing of revenue recognition;
charges related to acquisitions; competitive conditions; technological
changes; personnel changes; general economic conditions; and economic
conditions specific to the technology-based training and online learning
markets. With its new emphasis on providing an online enterprise learning
solution, the Company is targeting its selling and marketing efforts towards
customers with the potential need for enterprise-wide solutions. Because the
Company believes that the implementation of its solutions may require an
enterprise-wide decision by prospective customers, the Company may be required
to provide a significant level of education to prospective customers regarding
the Company's solutions. Therefore, the Company believes that the period
between initial contact and the sale of the Company's solutions could be
lengthy, and this implementation cycle could lengthen because of increases in
the size and complexity of customer implementations. Uncertainty of timing
with respect to sales or implementations could have a material adverse effect
on the Company's business and operations and cause the Company's operating
results to vary significantly from quarter to quarter. Therefore, the
Company's operating results for any particular quarterly period may not be
indicative of future operating results.

Like many companies in the software industry, the Company has experienced
higher revenue in its last fiscal quarter as a result of efforts to meet sales
quotas and as many customers complete annual budgetary cycles, and lower
revenue in its first quarter. Additionally, the Company believes that many of
its customers in the education and government markets tend to have higher
product purchasing activity during the last few weeks of the third quarter as
compared to other periods. Furthermore, revenue recognized by some components
of the Company's services business is dependent in part upon the number of
business days during the particular period and budget cycles of its customers.
Because of these factors, the Company anticipates that its professional
services and training revenue growth could be slower in the first and fourth
quarters than in other quarters because of this seasonality. Although the
Company has not been able to determine the extent to which its current
business is affected by any seasonal trends because of the refocusing and
growth of its business since 1995, there can be no assurance that the
Company's results in any future quarter will not be negatively affected by
such trends. See "Risk Factors--Fluctuations in Quarterly Operating Results;
Unpredictability in Future Revenue; Seasonality."

LIQUIDITY AND CAPITAL RESOURCES

Since 1995, the Company has funded its operations from cash flows from
operations, the private sale of equity securities and the sale of its interest
in Infomodelers in March 1998. At March 31, 1998, the principal sources of
liquidity for the Company were $1.8 million in working capital and a $5.0
million bank line of credit. Borrowings under the Company's line of credit
will bear interest at the bank's reference rate or LIBOR plus 1.0% per annum,
and this line of credit expires on December 31, 1998. The Company's
obligations under this line of credit are secured by the Company's accounts
receivable. As of March 31, 1998, the Company had no outstanding borrowings
under this line of credit.

36
<PAGE>

The Company has had significant negative cash flows from operating
activities to date. Net cash used by operating activities was $13.6 million,
$15.0 million, $7.4 million and $2.1 million in 1995, 1996, 1997 and the three
months ended March 31, 1998, respectively. Net cash used by operating
activities through 1997 was primarily the result of net losses, which include
a non cash expense of $4.1 million for acquired in-process research and
development in 1997, partially offset by an increase in accounts receivable
over such periods. Net cash provided by operating activities in the three
months ended March 31, 1998 was due primarily to net income offset by equity
in the income of Infomodelers.

Net cash provided by (used in) investing activities was $(1.8 million),
$(1.7 million), $(645,000) and $2.3 million in 1995, 1996, 1997 and the three
months ended March 31, 1998, respectively. Net cash used in investing
activities through 1997 was primarily the result of capital expenditures for
computer equipment, purchased software, office equipment, furniture and
fixtures and, in 1997, acquisition-related costs. In addition, in November
1996, the Company used $1.0 million of cash for the investment in
Infomodelers, Inc., which was partially offset by $200,000 of proceeds from
the sale of assets in 1996. Net cash provided by investing activities in the
three months ended March 31, 1998 was primarily due to proceeds received from
the sale of the Company's investment in Infomodelers. As of March 31, 1998,
the Company had no material commitments for capital expenditures. The
Company's planned capital expenditures for 1998 are approximately $1.2
million, primarily for computer equipment and contingent acquisition payments.
As of December 31, 1997, the Company also had commitments under noncancelable
operating leases with terms in excess of one year of $3.7 million through
2002.

Cash provided by financing activities was $17.7 million, $16.9 million, $6.9
million and $107,000 in 1995, 1996, 1997 and the three months ended March 31,
1998, respectively, resulting primarily from payments received on the note
receivable from principal stockholder of $11.9 million in 1996 and $6.7
million in 1997, net proceeds of $5.3 million and $500,000 from the sale of
Class B Stock in 1996 and 1997, respectively, and proceeds from the sale of
Common Stock, primarily from the exercise of stock options. Cash used for
payments on long-term debt was $523,000 and $398,000 in 1996 and 1997,
respectively, and was not significant in the three months ended March 31,
1998.

The Company anticipates that the net proceeds from this offering, together
with cash, cash equivalents and short-term investments will be sufficient to
meet its working capital needs and capital expenditures for at least the next
12 months. The Company's long-term liquidity will be affected by numerous
factors, including acquisitions of businesses or technologies, demand for the
Company's online learning products and services, the extent to which such
online learning products and services achieve market acceptance, the timing of
and extent to which the Company invests in new technology, the expenses of
sales and marketing and new product development, the extent to which
competitors are successful in developing their own products and services and
increasing their own market share, the level and timing of revenues, and other
factors. To the extent that resources are insufficient to fund the Company's
activities, the Company may need to raise additional funds. There can be no
assurance that such additional funding, if needed, will be available on terms
attractive to the Company, or at all. If adequate funds are not available on
acceptable terms, the Company may be unable to expand its business, develop or
enhance its products and services, take advantage of future opportunities or
respond to competitive pressures, any of which could have a material adverse
effect on the Company's business, operating results and financial condition.
See "Risk Factors--Future Capital Needs; Uncertainty of Additional Funding."

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the FASB issued SFAS No. 131, Disclosure About Segments of an
Enterprise and Related Information ("Statement 131"). Statement 131
establishes standards for the way that public business enterprises report
information about operating segments. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. Statement 131 is effective for fiscal years beginning after
December 15, 1997. In the initial year of application, comparative information
for earlier years must be restated. The Company has not determined the manner
in which it will present the information required by Statement 131.

37
<PAGE>

BUSINESS

This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in these forward-looking statements. Factors that may cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."

OVERVIEW

Asymetrix is a leading provider of online enterprise learning solutions
designed to enable organizations to capture, deploy and manage knowledge more
effectively for use as a competitive advantage. The Company's comprehensive
learning solution consists of an open, standards-based, Internet-centric
technology platform as well as professional learning services for the online
learning market. The Company's technology platform includes ToolBook II
Instructor and ToolBook II Assistant, products which enable customers to
author online learning applications, and Librarian, a learning management
system designed to enable customers to deploy and manage such applications.
The Company's professional services include a wide range of consulting and
custom development services focused on the online learning market as well as
training and customer support.

Asymetrix believes that by providing a single source solution, it is well-
positioned to be the leading provider of online enterprise learning products
and services. Beginning in 1996, the Company redirected its focus to its
online learning products, divested several product lines and discontinued
development efforts not directly related to its online enterprise learning
solution. A key component of the Company's strategy is to provide an online
learning solution at the enterprise level. In February 1998, the Company
introduced an enhanced version of Librarian which the Company believes
significantly extends the existing features and functionality of Librarian by
enabling enterprise-wide deployment of online learning applications. In
addition, the Company has significantly expanded its professional services
capabilities and, since July 1, 1997, has acquired six professional services
companies. In addition, in May 1998, the Company entered into letters of
intent to acquire two additional companies. See "Recent Developments." The
Company may seek to acquire additional companies in the future.

INDUSTRY BACKGROUND

Need for an Enterprise Learning Solution

Information technology has been successfully used to automate mission
critical business processes, such as manufacturing, human resources, finance,
sales, distribution and customer support. However, a critical function which
technology-based solutions have not adequately addressed is training and
education. In today's knowledge-based economy, an organization's ability to
learn and to apply knowledge is increasingly becoming a key competitive
advantage. With escalating job complexity, rapidly changing business
processes, shorter product life cycles, continuous investments in new
technologies that require skilled workforces, greater geographic dispersion
and increased employee mobility, organizations must be able to capture and
distribute knowledge rapidly throughout the organization. Organizations must
also frequently share this knowledge with suppliers, customers and
distributors. Training magazine estimates that U.S. organizations with 100 or
more employees budgeted an aggregate of approximately $58 billion in 1997 on
disparate training and education solutions, including instructor-led training,
conferences, seminars, written reference materials, computer-based training,
distance learning and, more recently, Internet and intranet-based training. In
addition, many organizations outsource the design, development and
implementation of training and learning management applications to third
parties. The Company believes there is a need for a learning solution that
enables organizations to improve employee productivity, coordinate their
training efforts, measure the effectiveness of training and deliver knowledge
to employees and business partners more rapidly, broadly and uniformly.

Enabling Trends and Technologies

The Company believes the market for enterprise learning solutions will be
fueled by the convergence of trends and technologies that enable technology-
based training solutions, including computer-based training, video-based
training and Internet-based training solutions, to be deployed increasingly as
substitutes for or

38
<PAGE>

complements to, instructor-led and other traditional forms of training. These
trends and enabling technologies include the proliferation of multimedia-
capable computers and networking solutions throughout all levels of
organizations, advances in PC processing power and in audio and video
streaming technologies that allow for the delivery of multimedia content in
digital format, high speed communications capabilities, object-oriented
programming technologies and, most importantly, the emergence of the Internet
and corporate intranets (collectively, the "Internet") as platforms for a wide
variety of business applications. The primary advantages of technology-based
training over traditional forms of training include performance improvements
and potential cost savings in the form of performance improvements and reduced
instructor salaries, compressed training times and reduced travel costs.
Derived from improved retention, consistent content quality, customization to
individual training needs and the ability to deliver training on CD-ROM or
through a network connection. According to International Data Corporation
("IDC"), revenues from all technology-based training applications in the
United States are expected to grow from $1.7 billion in 1997 to $4.1 billion
in 2001.

Internet-based training applications offer additional advantages over other
forms of technology-based training. Course content and application
enhancements can be deployed and updated without the need to create and
redistribute CD-ROMs or make substantial modifications to client software. The
ability to deploy and update centrally is particularly important for
organizations with dispersed or rapidly changing operations or with
significant training requirements. The ease and speed of deployment associated
with Internet-based training allows for "just-in-time" delivery for a
particular task, broadens the potential use of training within the enterprise
and offers a cost- and time-effective way to accumulate and retain company
knowledge. Internet-based training also provides the opportunity to track and
optimize individual or group performance and to collect feedback to
individualize and monitor the effectiveness of training applications. Finally,
training applications delivered over the Internet are platform independent and
require only a Web browser, eliminating the need for specialized hardware or
client software. This allows for greater accessibility at a lower cost and the
opportunity for on-demand training. Because of these benefits, the Company
believes that many organizations will target training and education as an
important corporate intranet application. IDC estimates that 75% of U.S.
corporations will have deployed an intranet by the end of 1998.

Limitations of Existing Solutions

Notwithstanding the many advantages of Internet-based training, to date, few
corporations have deployed Internet-based training applications throughout the
enterprise. Due to the lack of an established technology platform for the
development of these applications, organizations that have attempted to deploy
Internet-based training systems or applications typically have been forced to
rely on internal development efforts. Such solutions usually are costly, time-
consuming and characterized by the use of a variety of authoring products
purchased from different vendors that are not supported by a comprehensive,
standards-based development or management platform and are not optimized for
an Internet-based solution. As a result, the authoring and management products
employed are difficult to maintain, do not interoperate easily and do not
enable organizations to schedule, deploy, track and measure the effectiveness
of the training application or leverage the scalability inherent in Internet
deployment. In addition, the authoring products employed are often designed
for expert developers, which forces organizations to rely on their limited and
often over-burdened software development staffs to develop and deploy
Internet-based training applications.

Given the complexity of developing and deploying Internet-based training
applications and the scarcity of in-house technology-based training expertise
and resources, many organizations have sought assistance from third-party
experts for their technology-based training needs. However, the professional
services providers that offer technology-based training solutions typically
are small consulting and custom development firms with limited financial and
personnel resources and a narrow geographic focus. Even those professional
services firms with the resources to serve the needs of a large organization
cannot offer or deploy a single source solution and must rely on third parties
for technology, upgrades and technical support.

The Company believes that many organizations have a need for both a
technology platform and professional services that support the development and
deployment of Internet-based training applications. The Company also

39
<PAGE>

believes that the integration of products and professional services by a
single-source vendor will be a key customer requirement in the emerging market
for Internet-based training solutions. Vendors that provide the most effective
solutions as measured by increased employee productivity and return on
investment should enjoy a significant competitive advantage.

THE ASYMETRIX SOLUTION

Tightly Integrated Product Offerings. The Company provides authoring
products for users with a broad range of skills and a learning management
system that collectively provide a technology platform for the development,
deployment and management of online learning applications. The Company's
online learning authoring products and learning management system are
tightly integrated ensuring that online learning applications created with
the Company's ToolBook II Instructor or ToolBook II Assistant authoring
products can be modified, reused and managed throughout an organization.

Open, Internet-Centric Approach. The Company's solution supports relevant
open standards and Internet protocols, including TCP/IP, HTML, Java and
ActiveX, enabling organizations to capitalize on the advantages of the
Internet, such as "anywhere, anytime" accessibility, cost effective
deployment, ease of updating and enhanced tracking and measurement
capabilities. The Company's learning management system uses the Open
Library Exchange ("OLX"), a published, specified interface that enables
organizations to integrate learning applications authored from a variety of
sources and that facilitates the Company's ability to incorporate emerging
technologies rapidly.

Flexibility. Customers can purchase the Company's online learning
products and professional services as a comprehensive solution or
individual products on a stand-alone basis for internal application
development with assurance that initial implementations can be integrated
into an online enterprise learning solution at a later date.

Manageability. The Company's Librarian learning management system
provides centralized, flexible control and easy administration of online
learning applications. Utilizing the interactive capabilities of the
Internet, this management system is designed to allow organizations to
track and optimize individual or group performance, collect feedback and
monitor the effectiveness of learning applications.

Comprehensive Professional Services. The Company's professional services
address a wide range of corporate education and training needs, including
needs assessment, creation of online learning applications, assimilation of
legacy and third-party content and performance evaluation services. The
Company's custom development services can also supplement customers' own
internal development efforts to enable more rapid development and
deployment of learning applications, the creation of larger and more
complex learning applications and access to instructional design or
technical, production or project management expertise not available
internally.

ASYMETRIX STRATEGY

The Company's objective is to be the leading provider of online enterprise
learning solutions. Key elements of the Company's strategy to achieve this
objective are:

Provide a Single Source Online Enterprise Learning Solution. The Company
seeks to distinguish its solution by providing a single source for online
enterprise learning. The Company's single source solution provides
organizations with both an open, standards-based, Internet-centric
technology platform for authoring, deploying and managing learning
applications and a wide range of professional services to assist
organizations in developing and implementing learning applications rapidly.
The Company believes its latest release of Librarian offers an enhanced
solution that will enable organizations to deploy and manage online
learning solutions throughout an enterprise.

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<PAGE>

Extend Technology Leadership. Since its inception in 1984, the Company
has invested heavily in the development of advanced technologies, many of
which are incorporated in the Company's open, Internet-centric, tightly-
integrated, object-oriented technology platform for online learning. The
Company intends to continue to capitalize on advanced technologies and
rapidly incorporate new technologies into its online learning products.

Provide Superior Professional Services. The Company believes that
superior professional services can enhance and accelerate the successful
implementation of online enterprise learning solutions. The Company offers
a broad range of custom development, consulting, training and technical
support services to accelerate customer adoption and the successful
implementation of its online enterprise learning solution. The Company
intends to continue to expand its professional services capabilities both
internally and through acquisitions. The Company has recently acquired the
Oakes Companies, CSI, as well as two other smaller professional services
companies and it may seek to acquire additional professional services
companies in the future.

Expand Sales and Marketing Capabilities and Leverage Relationships. To
facilitate the shift in the Company's focus to online enterprise learning
solutions, the Company has substantially expanded its North American direct
sales organization. The Company intends to continue to expand its sales and
marketing activities in this market. In addition, the Company has entered
into relationships with providers of learning applications such as CBT
Systems, and intends to pursue such relationships in the future to
accelerate the adoption of the Company's solution.

Broaden Market for Online Learning Authoring Products. The Company seeks
to broaden the market for online learning with a multi-tiered approach to
its authoring product line. The Company's ToolBook II Instructor addresses
the market for professional developers of online learning applications.
ToolBook II Assistant is designed for professional trainers and educators.
ToolBook II Instructor can be used to create customized template for use by
subject matter experts using ToolBook II Assistant who do not have
programming or authoring expertise. The Company believes that this largely
untapped market segment provides an opportunity for additional growth.

Promote Successful Enterprise Implementations at Key Accounts. The
Company's online enterprise learning solution is designed to meet the
requirements of large organizations with geographically-dispersed
operations and continually changing training needs. The Company intends to
market its solution to leading organizations in a broad range of industries
and to promote successful enterprise implementations of its online learning
solution to create awareness and to drive further adoption of its solution.

PRODUCTS AND SERVICES

The Company's online enterprise learning solution includes software products
that collectively provide a technology platform and a wide variety of
professional services including consulting and custom development services
focused on the online learning market as well as training and customer
support.

PRODUCTS

The Company's software products offer customers a platform for online
enterprise learning applications. The Company's technology platform is
comprised of Librarian, a learning management system, and ToolBook II
Instructor and ToolBook II Assistant, online learning authoring products. The
Company also offers a variety of multimedia products.

<PAGE>

The following table depicts the Company's key products:

<TABLE>
<CAPTION>
END USER
PRODUCT DESCRIPTION LIST PRICE*
<S> <C> <C>
ONLINE LEARNING PRODUCTS

Learning Management System:

Librarian Online learning management system $4,000 to
designed to provide centralized, $50,000
flexible control and easy and above
administration of online learning
applications.
Authoring Products:
ToolBook II Instructor Object-oriented authoring product $2,495
designed for professional software
developers to create multimedia-
rich, interactive learning
applications. ToolBook II Instructor
can be used to create customized
templates for use by subject matter
experts using ToolBook II Assistant.

ToolBook II Assistant Object-oriented authoring product $1,195
designed for professional trainers
and educators to create online
learning applications.

MULTIMEDIA PRODUCTS
Digital Video Producer Video capture, editing and assembly $495
product for creating video content.
Web 3D Three-dimensional modeling program $129
designed to help create and edit 3D
graphics.

Learning Titles Selection of over 100 third-party $125 to
CD-ROM learning applications. $1,795
</TABLE>

* The terms and conditions, including sales prices and discounts from list
prices, may be negotiated based on product volumes and related services and
therefore may vary from customer to customer. The list price for Librarian
varies based on the number of registered users and server site
configuration. The Company typically receives a percentage of the end user
list price for products that are sold through the Company's distribution
channels.

Online Learning Products

Learning Management System. The Company's Librarian product is an object-
oriented, client-server learning management system designed to provide
centralized and flexible control and administration of online learning
applications. Librarian 5.0 was first shipped in July 1996. Librarian includes
an Internet- and intranet-based server implementation and utilizes standard,
Java-enabled Web browsers as the client for both learners and administrators.
Based on Internet standards, including HTML, Java and TCP/IP, Librarian is
available on Windows NT and Solaris UNIX and can connect to Microsoft
SQLServer, Oracle and other databases that comply with the open database
connectivity ("ODBC") standard.

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<PAGE>

[GRAPH OF THE LIBRARIAN CLIENT APPEARS HERE]

The Company released version 6.0 of Librarian, the most recent version of
Librarian, in February 1998. The Company believes that this new version of
Librarian significantly extends the features and functionality of Librarian.
This new version is targeted for the enterprise market and is designed to
manage a wide range of tasks, diverse content and a large number of concurrent
users. This new version of Librarian is designed to provide the following key
features not available in previous versions of Librarian:

Scalability. Librarian is designed to scale from one server to multiple
servers while maintaining a single database view whether on a centrally-
located database or multiple distributed databases and, with proper
authorization, can be administered from any geographic location within an
organization. Librarian also supports a large and variable number of
concurrent users and can be configured to avoid the performance limitations
typically associated with such systems.

Organizational flexibility. In order to manage large numbers of learners
and courses at an enterprise level, Librarian permits users to define
centrally an organizational tree which mirrors their departmental or
enterprise structure as well as numerous alternative groups. With this
flexible structure, administrators can efficiently establish and update
groupings such as new employees or employees assigned to a particular
project, and can assign, track and manage various subsets of courses and
learners.

Collaborative learning. In addition to online discussion capabilities
integrated with Librarian, the product is designed to support third-party
Internet-based synchronous applications such as threaded discussion, chat
and online whiteboard programs.

Management of online and offline content. In addition to the management
of online content, Librarian can catalog and track learner activity in
offline learning content such as books and videos through the creation of
HTML pages.

Enhanced features. Librarian offers a variety of enhanced features
including: an enhanced visual interface; sophisticated search and online
help features; broadcast email notification; controlled access to courses
and to a variety of administrative functions; enhanced reporting
capabilities; security features, including encryption and authentication
features; and enhanced course management capabilities, such as automatic
course assignments based on pre-assessment and conditional movement in
courses.

To date, the Company has not realized a substantial amount of its online
learning product revenue from its learning management system. There can be no
assurance that Librarian 6.0 will achieve market acceptance or that it will
produce substantial revenue in the future. See "Risk Factors--Rapid
Technological Change; Product Development," "--Dependence on Online Learning
Products" and "--Demanding Customer Requirements; Product Functionality and
Defects."

Authoring Products. The Company has a multi-tiered approach to its authoring
product line. The Company's ToolBook II Instructor addresses the market for
professional developers of online learning applications. ToolBook II Assistant
is designed for professional trainers and educators. ToolBook II Instructor
can be used to create customized templates for use by subject matter experts
using ToolBook II Assistant who

43
<PAGE>

do not have programming or authoring experience. The Company's authoring
products are designed to ensure that learning applications created with the
Company's authoring products are optimized for deployment and management by
its Librarian learning management system. The Company's authoring products
also provide a range of distribution options, including an "export to Web"
feature, which outputs applications in HTML or Java, an Internet-ready format.
The Company's authoring products also enable hybrid distribution, combining
Internet or LAN distribution with a CD-ROM, permitting an online learning
application running within a browser to call multimedia-rich files from a
client-based CD-ROM, thereby optimizing delivery of the application
notwithstanding network bandwidth constraints.

[GRAPH APPEARS HERE]

ToolBook II Instructor. ToolBook II Instructor is a Windows-based, object-
oriented authoring product designed for professional software developers to
create multimedia-rich, online learning applications. ToolBook II Instructor
contains a number of features that are designed to simplify the authoring and
deployment process, such as a book and page metaphor, a drag and drop
interface, book specialists that function like wizards, templates, question
objects, online help, a catalog of more than 1,000 objects to facilitate
creation of online learning applications and a "publish to Librarian" button.
Although scripting is not required, ToolBook II Instructor incorporates an
object-oriented scripting language known as OpenScript, which is designed to
extend the functionality of ToolBook II Instructor to support the creation of
custom templates and objects that can be used for authoring in ToolBook II
Instructor and ToolBook II Assistant. To augment ToolBook II Instructor, the
Company resells Allen Communications' Designer's Edge pre-authoring product
and sells its ToolBook II Synergy product which functions as the link between
Designer's Edge and ToolBook II Instructor.

ToolBook II Assistant. ToolBook II Assistant is a Windows-based, object-
oriented authoring product designed for use by professional trainers and
educators. This product incorporates many of ToolBook II Instructor's ease of
use features, including pre-defined templates and book specialists, and
streamlines user options to facilitate the creation of high-quality learning
applications without the need for any programming or scripting. Objects and
templates can be created in ToolBook II Instructor and exported to ToolBook II
Assistant, and applications authored in ToolBook II Assistant can be modified
or enhanced in ToolBook II Instructor, enabling professional trainers and
applications developers to collaborate on content creation.

Multimedia Products

The Company offers several digital media products which can be used to
create high quality multimedia content, such as digital video, 3D models and
animations. These products can be used on a stand-alone basis or in
conjunction with the Company's authoring products. Through its TopShelf
Multimedia subsidiary, the Company also resells a variety of CD-ROM-based
online learning applications.

Digital Video Producer. Digital Video Producer is a Windows-based video
capture, editing and assembling product designed to make sophisticated desktop
video editing capabilities intuitive and easy to use. Users can drag and drop
captured video and audio files on timeline tracks and add transitions, text
and graphics and can preview and optimize the images.

44
<PAGE>

Web 3D. Web 3D is an easy-to-use Windows-based 3D modeling product. Users
can drag and drop a 3D graphic from a large catalog of 3D models, add color,
and choose from a large number of surface effects and lighting settings with
multiple camera views, shadows, animation paths and backdrop scenes.

Learning Titles. The Company offers over 100 third-party CD-ROM based online
learning applications. These titles include Development Dimensions
International's award-winning Targeted Selection and a variety of other
management and professional skills, PC skills and IT training, OSHA compliance
and health and safety titles. The Company has a staff of online learning
professionals who can consult with and advise customers so that they can
select the courses most appropriate for their online learning needs.

As a result of the Company's strategy to focus on the online enterprise
learning market, the Company anticipates that growth in product sales, if any,
will be attributable primarily to its online learning products and that its
other product revenue will decrease in the future. See "Risk Factors--
Dependence on Online Learning Products."

PROFESSIONAL SERVICES

In order to provide a complete solution for the online learning needs of its
customers, the Company offers a variety of learning services, including a wide
range of consulting and development services, training programs and customer
and technical support. The Company's professional services organization has
employees located in Georgia, Illinois, Massachusetts, New Hampshire, New
York, North Carolina, Ohio, Texas, Virginia, Washington and the United
Kingdom.

Consulting Services. Through the Asymetrix Consulting Organization, known as
ACORN, the Company provides customers with needs identification and
assessment, learner analysis and training performance evaluation services.
Customers may use consulting services as a supplement to internal development
efforts or in conjunction with other learning services provided by the
Company.

Custom Development. The Company's project teams provide a wide range of
development services, including the planning, design, development,
administration and evaluation of online learning applications. The Company's
custom development services supplement customers' own internal development
efforts by enabling more rapid development and deployment of online learning
applications, the creation of larger and more complex applications and access
to instructional design, technical, production or project management expertise
not available internally. The Company employs many skilled personnel in its
development services organization, including instructional designers who
participate in project analysis, writing and design development, graphic
artists who create graphics and multimedia content, and programmers.

Training. The Company offers a variety of training classes for its products.
These classes provide instruction on the use of the Company's authoring and
management products and are offered for novice developers as well as
sophisticated programmers. The Company also offers customized classes to meet
a customer's unique requirements. Training classes are offered at the
Company's facilities, at client locations or at other locations across the
country. The Company also has a network of approximately 55 authorized
training centers which provide training for the Company's authoring products.

Customer Support. The Company generally requires Librarian customers to
purchase installation services at the time of the initial licensing of the
product. For additional fees, the Company also integrates Librarian with the
customer's online learning environment. The Company provides technical support
without charge for a limited period of time for its authoring and multimedia
products. Thereafter, the Company offers fee-based telephone support and
various levels of support contracts which can include email support, telephone
support, upgrades and monthly bulletins. For its Librarian product,
maintenance is sold at the time of product purchase. The Company also offers
Web-based support which includes an online knowledge base.

45
<PAGE>

CUSTOMERS

The Company has licensed its online learning products or provided
professional services to customers in a wide variety of markets. No single
customer accounted for more than 10% of total revenues in 1996, 1997 or the
three months ended March 31, 1998. The following table sets forth a
representative list of the Company's customers who have purchased at least
$50,000 of the Company's online learning products or professional services
from the Company since January 1, 1996:

Financial/Accounting Health Care/Insurance

Deloitte & Touche LLP CUNA Mutual Group
Fidelity Investments Harvard Pilgrim Health Care
First Union Corp. The Hartford Financial Services
Ford Motor Credit Company Group, Inc.
Merrill Lynch & Co., Inc. Metropolitan Life Insurance
New York Stock Exchange, Inc. Company
Price Waterhouse LLP Oxford Health Plans, Inc.

Prudential Securities Incorporated
Government

Networking/Communications
Los Alamos National Laboratory

Lucent Technologies Inc. United States Air Force
MCI Communications Corporation United States Army
United States Department of
Defense

Manufacturing/Other

The Boeing Company Hardware/Software

Development Dimensions International
Duracell Inc. Cheyenne Software
The Laurasian Institute Hewlett-Packard Company
Lockheed Martin Corporation IBM Corporation
Pfizer Inc. Intel Corporation
The Proctor & Gamble Company Microsoft Corporation
Raytheon Company Pinnacle Systems, Inc.
Union Camp Corporation Symbol Technologies, Inc.
Systems & Computer Technology
Corp.
Tandy Corporation

The following examples illustrate how certain organizations use the
Company's products and services:

Boeing. To increase productivity and reduce rework time, the Boeing
Company needs to capture the shop-floor knowledge of its experienced
factory workers and efficiently distribute that information to other
workers throughout the organization. The Company and Boeing's Everett
Multimedia Implementation Planning Group collaborated on a customized
version of the Company's ToolBook II Assistant authoring product that
certain Everett factory area and support personnel are using to create
multimedia-rich online job aids, including videos capturing expert
demonstrations on topics such as riveting, skin quality, wiring and color-
coded schema for pipes and tubes. These skill training modules are then
made available by CD-ROM to factory workers and are prototyped for
deployment over Boeing's corporate intranet.

Lucent. Lucent Technologies needs to ensure that its customers have the
most appropriate training for its telecommunications products and
solutions. Lucent worked with the Company's consulting organization to
determine the appropriate mix of traditional instructor-led training and
online learning to improve the implementation process and overall customer
satisfaction. The Company's consulting organization designated integrated
instructor-led and online training for Lucent's INTUITY messaging system
and DEFINITY PBX system.

46
<PAGE>

Hewlett-Packard. The Hewlett-Packard Company needs to train and test
approximately 5,000 internal and third-party authorized field service
engineers worldwide on new and rapidly evolving products and procedures.
The Company's professional services organization developed a Web-based
training and testing application to meet Hewlett-Packard's strict testing
requirements. The application includes unique and randomly-assigned test
questions which permit the generation of unique tests for different
learners. Librarian is used for the management and administration of the
application's knowledge and skill tests and of students' course evaluation
forms.

Metropolitan Life. Metropolitan Life Insurance Company ("MetLife") needs
to deploy state-of-the-art laptop computers with custom-designed software
applications to over 7,000 agents nationwide, many of whom have little or
no experience with computers. MetLife looked to the Company to create a
solution that would significantly reduce training time. The Company
performed a needs assessment and audience analysis and, using its authoring
product, created a learning application using a comic strip theme with
application-specific characters that leads users through a tutorial on how
to operate the computer and the customized applications.

TECHNOLOGY, RESEARCH AND DEVELOPMENT

Starting in 1995, Asymetrix redirected its focus to the development and
marketing of authoring products and learning management systems designed to
capitalize on the advantages of the Internet. Research and development and
product lines not directly related to this focus were decreased, eliminated or
subsequently spun off. The Company invests aggressively in its core
technologies and believes that its future success and competitiveness will
depend on continued product innovation.

Key features of the Company's technology include:

Open Learning Management Platform. The Company's Librarian product is
based on an open architecture. A key element of this open architecture is a
Company-developed communications protocol, OLX, which is designed to
facilitate communications between Librarian and learning applications. The
OLX protocol is a published, specified interface that enables organizations
to integrate learning applications authored from a variety of sources and
that accelerates the Company's ability to incorporate emerging
technologies.

[GRAPH APPEARS HERE]

47
<PAGE>

Support of Open Internet Standards. The Company's development efforts
support open and de facto standards including HTML, DHTML, Java, ActiveX,
AICC, Netscape and Microsoft browsers and streaming technologies. This
focus, together with the Company's experience with rapidly changing
technologies such as multimedia management, facilitates the incorporation
of internally or externally developed advanced technologies.

Scalable Authoring. The Company's ToolBook II authoring products
incorporate an object-oriented core code base and user interface technology
that provide the power and flexibility required by professional developers,
as well as the ease of use needed to support training professionals who
have little or no computer programming or authoring experience. Using the
Company's objected-oriented scripting language known as OpenScript, custom
templates and objects can be created in ToolBook II Instructor and exported
to ToolBook II Assistant. Learning applications created in ToolBook II
Assistant can be modified or enhanced in ToolBook II Instructor.

Enterprise-Class Architecture. The Company's technologies incorporated in
the latest version of Librarian support integrated management solutions
that are designed to scale from one server to multiple servers while
maintaining centralized administration, and support a large number of
concurrent users. This version of Librarian also provides for an adaptable
hierarchical organizational structure that can mirror the many
organizational structures within an enterprise, controlled access to
administrative functions and other advanced security features such as
encryption and authentication features, and supports emerging Internet
collaborative learning applications.

The Company believes that its focus on research has attracted qualified
engineering and other research and development personnel and has contributed
to the Company's core technology capabilities, which it believes include
expertise in object-oriented programming languages and tools; multimedia
design, including video and audio; multimedia authoring and interactive user
interface design; instructional design; and client/server and Internet
technologies. The Company's research and development group is located in
Bellevue, Washington, with an additional team in Nashua, New Hampshire.
Research and development expenses were $13.3 million, $12.1 million,
$8.1 million and $1.4 million in 1995, 1996, 1997 and the three months ended
March 31, 1998, respectively and represented 73%, 70%, 34% and 18% of total
revenue for those respective periods. The Company expects that it will
continue to commit significant resources to research and development in the
future, although it anticipates that research and development expenses in the
near term will not be at the same levels as 1996 and prior periods.

The Company's future success will depend on its ability to continue to
enhance its current product line and to continue to develop and introduce new
products or offer new services that keep pace with competitive product
introductions, technological developments and emerging industry standards,
satisfy diverse and evolving customer requirements and otherwise achieve
market acceptance. There can be no assurance that the Company will be
successful in developing and marketing on a timely and cost-effective basis
future products or product enhancements, or offer new services that respond to
technological advances. In addition, the Company has in the past experienced
delays in the development, introduction and marketing of new or enhanced
products, and there can be no assurance that the Company will not experience
similar delays with respect to other new products or product enhancements. Any
failure by the Company to anticipate or respond adequately to changes in
technology and customer preferences, or any significant delays in product
development or introduction, could have a material adverse effect on the
Company's business, operating results and financial condition. See "Risk
Factors--Rapid Technological Change; Product Development."

SALES AND MARKETING

The Company markets its online learning products and professional services
principally in the U.S. and through its direct sales force. The Company
targets its direct sales and marketing activities to Fortune 1000 companies,
educational organizations and government agencies. As of March 31, 1998, the
Company's sales, marketing and support organization consisted of 68 employees
based at the Company's corporate headquarters in Bellevue, Washington and at
its field offices in California, Georgia, Kansas, Massachusetts, New
Hampshire,

48
<PAGE>

New Jersey, New York, Virginia and the United Kingdom. The direct sales
organization includes a small telesales force that handles smaller orders and
assists with lead generation. The Company's direct sales organization also
includes engineers who answer technical questions and assist customers with
product installation implementation. The Company's direct sales force
accounted for 50%, 48% and 82% of total revenue in 1996, 1997 and the three
months ended March 31, 1998, respectively. The Company expects this level to
increase as a result of the acquisitions of Aimtech, the Oakes Companies and
CSI and as a result of the Company's focus on the online learning market.

The Company offers its learning services in a small number of foreign
markets. While international revenue accounted for 32%, 31% and 14% of the
Company's total revenue for 1996, 1997 and the months ended March 31, 1998,
respectively, the Company believes that the online enterprise learning market
has not yet developed significantly outside the United States and currently
does not intend to market actively its online learning products and
professional services internationally other than in the United Kingdom and in
a limited number of other foreign markets. Therefore, the Company anticipates
that international revenue will constitute a lesser percentage of total
revenue in the future.

The Company conducts a variety of marketing programs to promote its products
and services, including direct mail, advertising, seminars, trade shows,
public relations and distribution of product literature. The Company sponsors
an online learning conference, the most recent of which was named "Asymetrix
Online Learning '97," which had over 500 attendees, that featured a variety of
speakers representing key participants in the online learning industry. For
1998, the Company and Lakewood Publications, the publisher of Training
magazine, will jointly present the "Online Learning '98" conference in
September 1998. The Company also participates as an exhibitor and speaker at
many technology-based training trade shows. In addition, the Company offers
jointly-sponsored seminars and other marketing events with other companies in
the training market, such as Systems & Computing Technology Corporation and
CBT Systems, to help promote awareness of online learning and the Company's
solutions. The Company also maintains a Web site where potential customers can
obtain information about the Company and its products, services and
distributors.

COMPETITION

The Company's competitors vary in size and scope and the breadth of products
and services offered. The Company's online learning authoring products face
competition from developers of multimedia authoring tools, Librarian faces
competition from vendors of other management systems, including those offered
with off-the-shelf technology-based training courses, and its professional
services business faces competition from many small, regional online learning
and technology-based training services businesses as well as large
professional consulting firms and in-house training departments. Because of
the emerging nature of the market for online learning, the Company believes
that being first to achieve market or brand awareness should provide a
competitive advantage. A number of large companies have announced an intention
to enter the market for online learning and technology-based training. There
can be no assurance that additional companies will not enter the online
learning market and offer products and services that are competitive with
those of the Company. Increased competition could result in pricing pressures,
reduced margins or the failure of the Company's products and services to
achieve or maintain market acceptance, any of which could have a material
adverse effect on the Company's business, operating results and financial
condition.

The Company believes that the principal competitive factors affecting its
market include: product features such as adaptability, scalability, ability to
integrate with other technology-based training products; quality of
professional services; expertise and technical knowledge; functionality and
ease of use of products or developed
learning applications; quality and performance of online learning solutions;
pricing; customer service and

49
<PAGE>

support; the effectiveness of sales and marketing efforts; and company
reputation. Although the Company believes that its solution currently competes
favorably with respect to such factors, there can be no assurance that the
Company can maintain its competitive position against current and potential
competitors, especially those with significantly greater financing, marketing,
service, support, technical and other resources.

PROPRIETARY RIGHTS

The Company relies primarily on a combination of copyrights, trademarks,
trade secret laws, restrictions on disclosure and other methods to protect its
intellectual property and trade secrets. While the Company also has two
patents, there can be no assurance that these patents will not be invalidated,
circumvented or challenged, or that the rights granted under such patents will
provide competitive advantages to the Company. The Company also enters into
confidentiality agreements with its employees and consultants, and generally
controls access to and distribution of its documentation and other proprietary
information. Despite these precautions, it may be possible for a third party
to copy or otherwise obtain and use the Company's intellectual property or
trade secrets without authorization. In addition, there can be no assurance
that others will not independently develop substantially equivalent
intellectual property. There can be no assurance that the precautions taken by
the Company will prevent misappropriation or infringement of its technology. A
failure by the Company to protect its intellectual property in a meaningful
manner could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, litigation may be
necessary in the future to enforce the Company's intellectual property rights,
to protect the Company's trade secrets or to determine the validity and scope
of the proprietary rights of others. Such litigation could result in
substantial costs and diversion of management and technical resources, either
of which could have a material adverse effect on the Company's business,
operating results and financial condition.

The Company also uses certain licensed third-party technology in some of its
products. In these license agreements, the licensors have generally agreed to
defend, indemnify and hold the Company harmless with respect to any claim by a
third party that the licensed software infringes any patent or other
proprietary right. There can be no assurance that the outcome of any
litigation between such licensors and a third party or between the Company and
a third party will not lead to royalty obligations of the Company for which
the Company is not indemnified or for which such indemnification is
insufficient, or that the Company will be able to obtain any additional
license on commercially reasonable terms or at all. In the future, the Company
may seek to license additional technology to incorporate in its products.
There can be no assurance that any third-party technology licenses that the
Company may be required to obtain in the future will be available to the
Company on commercially reasonable terms or at all. The loss of or inability
to obtain or maintain any of these technology licenses could result in delays
in introduction of the Company's products until equivalent technology, if
available, is identified, licensed and integrated, which could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Risk Factors--Intellectual Property; Litigation" and
"Business--Legal Proceedings."

50
<PAGE>

EMPLOYEES

As of March 31, 1998, Asymetrix had 317 full-time employees, including 50 in
research and development, 68 in sales, marketing and support, 161 in
professional services and customer support and 38 in administration. The
Company has never had a work stoppage and no employees are represented under
collective bargaining agreements. The Company considers its relations with its
employees to be good. The Company believes that its future success will depend
in part on its continued ability to attract, integrate, retain and motivate
highly qualified sales, technical, professional services and managerial
personnel, and upon the continued service of its senior management and key
sales, professional services and technical personnel, none of whom is bound by
an employment agreement. Competition for qualified personnel is intense, and
there can be no assurance that the Company will be successful in attracting,
integrating, retaining and motivating a sufficient numbers of qualified
personnel to conduct its business in the future. See "Risk Factors--Management
of Growth and Expansion" and "--Dependence on Key Personnel."

FACILITIES

The Company's principal administrative, sales, marketing and research
development facilities are located in approximately 63,815 square feet of
leased office space in Bellevue, Washington, which lease expires in October
1999. The Company subleases approximately 23,000 square feet of its premises
to certain related entities including Vulcan Northwest and SuperCede, Inc. for
monthly rental equivalent to that paid by Asymetrix. See "Certain
Transactions." The Company also has facilities in Atlanta, Georgia; Nashua,
New Hampshire; Needham, Massachusetts; and Fort Worth, Texas for certain of
its research and development teams and for its professional services group.
The Company believes that its current facilities will be adequate to meet its
needs, or that alternate leased space will be available to meet its needs, for
the foreseeable future. The Company also maintains sales offices in
California, Georgia, Kansas, Maryland, New Jersey, New York, Ohio, Virginia
and London, England.

LEGAL PROCEEDINGS

From time to time, the Company is involved in legal proceedings and
litigation arising in the ordinary course of business. As of the date of this
Prospectus, except as described below, the Company is not a party to any
litigation or other legal proceeding that, in the opinion of management, could
have a material adverse effect on the Company's business, operating results
and financial condition.

Richard B. Grant v. Asymetrix Corporation, No. CV-96-3635 HLH, Central
District of California. On May 21, 1996, Richard B. Grant filed a complaint
alleging that the Company's ToolBook and Multimedia ToolBook products infringe
a patent owned by him and seeking unspecified damages. The Company has
received an opinion that the products do not infringe this patent and that the
patent is invalid. This action is still in the discovery stage, and it is not
yet possible to assess the likelihood of its outcome. An adverse outcome in
this litigation could have a material adverse effect on the Company's
business, operating results and financial condition. Although the Company
believes that it does not infringe this patent and that the patent is invalid,
and although the Company intends to vigorously defend this action, the results
of litigation can never be predicted with certainty, and the costs of defense,
regardless of outcome, could have a material adverse effect on the business,
operating results and financial condition of the Company.

In addition, litigating this claim could be time-consuming and distract
management personnel, or require the Company to develop non-infringing
technology or enter into royalty licensing agreements. Such royalty or
licensing agreements, if required, might not be available on commercially
reasonable terms, or at all. In the event of a successful claim of
intellectual property infringement against the Company and the failure or
inability of the Company to develop noninfringing technology or license the
infringed or similar technology on a timely basis, the Company's business,
operating results and financial condition could be materially and adversely
affected.

51
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information regarding the executive
officers and directors of the Company as of March 31, 1998:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James A. Billmaier.................. 42 Chief Executive Officer and Director
Kevin M. Oakes...................... 34 President, General Manager, Learning
Services and Director
E. Charles Ellison.................. 44 Vice President, Business Development
John M. Kellum...................... 47 Vice President and General Manager,
Online Learning Products
Steven Martino...................... 39 Vice President, Sales
John D. Atherly..................... 39 Vice President, Finance and
Administration and Chief Financial
Officer
Steven Esau......................... 35 Vice President, General Counsel and
Corporate Secretary
Bert Kolde (1)(2)................... 43 Chairman of the Board
Paul G. Allen....................... 45 Director
Shelley Harrison, Ph.D. (1)(2)...... 55 Director
Gary Rieschel (1)(2)................ 41 Director
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee

Mr. Billmaier has served as Chief Executive Officer and a director of the
Company since July 1995 and served as President of the Company from July 1995
until September 1997. From January 1994 until July 1995, he was the Vice
President and General Manager of the Network Software Products Business of Sun
Microsystems, Inc.. From February 1992 until January 1994 he was Vice
President of Marketing and Business Development for SunSoft, Sun Microsystems'
software business division. Prior to joining Sun Microsystems, Mr. Billmaier
served as the Vice President of Software Marketing and Business Development at
MIPS Technologies, Inc., and before that he was responsible for UNIX
workstation products and strategies at Digital Equipment Corporation.

Mr. Oakes has served as President and General Manager, Learning Services,
since he joined the Company in September 1997. Prior to that time, Mr. Oakes
was the President of each of Oakes Interactive Incorporated, TopShelf
Multimedia, Inc. and Acorn Associates Incorporated (together, the "Oakes
Companies"), which he founded in March 1993, January 1996 and March 1997,
respectively, and each of which the Company acquired in September 1997. See
"Certain Transactions." Prior to forming the Oakes Companies, Mr. Oakes was a
Senior Account Representative for The Minnesota Mutual Life Insurance Company.

Mr. Ellison has served as Vice President, Business Development of the
Company since October 1997, was the Company's Senior Vice President, Worldwide
Sales from September 1995 to October 1997, and was the Company's Vice
President, Sales and Marketing from July 1993, when he joined the Company,
until September 1995. From December 1991 until July 1993 he was the Senior
Vice President, Client Services at Upgrade Corporation of America (now
SOFTBANK Services Group), a telemarketing and fulfillment company. Prior to
that time, he served as a Vice President for each of Gupta Technologies,
Government Technology Services, Inc., and Ashton-Tate, and as National Manager
for government, education and corporate accounts for Microsoft.

52
<PAGE>

Mr. Kellum has served as Vice President and General Manager, Online Learning
Products since November 1995, and prior to that was the Company's Senior
Director of Business Development since he joined the Company in September
1995. From May 1993 to September 1995 he served as Director of Technology and
Business Development at SunSoft. From 1987 to May 1993 he served as Director
of Engineering at Intergraph Corporation, a graphics workstation company.
Prior to that time, he served as Director of Operating Systems at Fairchild
Research Center and as a Senior Research Scientist at Honeywell Research
Center.

Mr. Martino has served as Vice President, Sales of the Company since October
1997, and prior to that was the Company's Vice President and General Manager,
Professional Services from February 1997 to October 1997 and the Company's
Vice President, Marketing from September 1995, when he joined the Company, to
February 1997. From 1990 to September 1995 Mr. Martino was with Sun
Microsystems, most recently as the Senior Director of Marketing for SunSoft.
Prior to that time, he was a Senior Manager at Price Waterhouse, and held
various sales and marketing positions at Xerox Corporation.

Mr. Atherly has served as Vice President, Finance and Administration and
Chief Financial Officer of the Company since February 1995, and prior to that
was the Company's Director of Finance and Operations, Treasurer and Secretary
from February 1993 until February 1995. Mr. Atherly held various other
positions since he joined the Company in June 1990, including the Company's
Controller from February 1991 until February 1993. Prior to joining the
Company, Mr. Atherly was a Finance and Operations Manager at MicroDisk
Services, a software manufacturing services company.

Mr. Esau has served as General Counsel of the Company since October 1995 and
also as a Vice President and the Secretary of the Company since January 1997.
Prior to that time, Mr. Esau was the Company's Director of Legal Affairs from
February 1995 until October 1995, and before that he was counsel to the
Company since he joined the Company in February 1994. From 1988 until February
1994, he was in private law practice, first with Stoel Rives LLP in Seattle
and then with his own law firm, where he focused on serving software and
technology startup companies.

Mr. Kolde was appointed Chairman of the Board of the Company in July 1997,
and has been a director of the Company since it was founded in December 1984.
Mr. Kolde served as Executive Vice President of the Company from December 1984
until April 1993, and thereafter as President of the Company until November
1994. Mr. Kolde is Vice Chairman of Trail Blazers Inc., Football Northwest
LLC, First & Goal Inc. and Oregon Arena Corporation and is Vice President of
Vulcan Ventures, Inc. Mr. Kolde serves as a director of those organizations,
MetaCreations Corporation and Precision Systems, Inc. Prior to joining the
Company, Mr. Kolde was the Vice President of Management Reporting of Seafirst
Corporation.

Mr. Allen founded the Company in 1984 and has served as a director of the
Company since that time. Mr. Allen also served as the President of the Company
from its founding until April 1993, and as the Chief Executive Officer of the
Company from its founding until July 1995. Mr. Allen was a co-founder of
Microsoft Corporation and is a member of Microsoft's board of directors. Mr.
Allen owns and invests in a suite of companies exploring the potential of
multimedia digital communications. Mr. Allen is the owner of Interval Research
Corp., Vulcan Ventures, Inc., Trail Blazers Inc. and Football Northwest LLC,
is a partner in the entertainment studio Dreamworks SKG, and holds investments
in more than 35 technology companies. Mr. Allen is also a director of USA
Networks, Inc.

Dr. Harrison has served as a director of the Company since September 1997,
when the Company acquired Aimtech. See "Certain Transactions." Dr. Harrison
serves as Chairman and Chief Executive Officer of Spacehab, Incorporated, a
developer of habitable modules for the United States space shuttle fleet.
Since 1987, Dr. Harrison has been a Managing General Partner of Poly Ventures,
Limited Partnership, a venture capital fund. Prior to that time, Dr. Harrison
co-founded and served as Chairman and Chief Executive Officer of Symbol
Technologies, Inc., a provider of bar code laser scanners and portable
terminals. Dr. Harrison is also a Director of Netmanage, Inc., Globecomm
Systems Inc. and JetFax, Inc.

53
<PAGE>

Mr. Rieschel has served as a director of the Company since October 1996. Mr.
Rieschel has been a Senior Vice President of SOFTBANK Holdings, Inc., a
venture capital fund, since January 1996. Prior to that time, Mr. Rieschel
served as Vice President of Marketing for nCUBE from August 1994 to December
1995, as Director of Channel Sales for Cisco Systems from September 1993 to
August 1994, and as General Manager, Asia for Sequent Computer from January
1989 to July 1993. Mr. Rieschel is a director of OnLive! Technologies, Inc.,
Concentric Network Corporation, USWeb Corporation and several private
companies.

Directors are elected by the stockholders at each annual meeting of
stockholders to serve until the next annual meeting of stockholders or until
their successors are duly elected and qualified. Three of the existing
directors were elected pursuant to certain provisions of the Series A
Preferred Stock Purchase Agreement and voting agreements entered into in
connection with each of the Company's acquisitions of Aimtech and the Oakes
Companies, each of which is described in "Certain Transactions." These
provisions will terminate upon the completion of this offering. Executive
officers are elected by, and serve at the discretion of, the Company's Board
of Directors (the "Board"). The Company's Amended and Restated Bylaws, which
will become effective upon the completion of this offering, will provide that
the Board will be divided into three classes, Class I, Class II and Class III,
with each class serving staggered three-year terms. The Class I directors,
initially Messrs. Allen and Rieschel, will stand for reelection or election at
the 1999 annual meeting of stockholders. The Class II directors, initially Dr.
Harrison and Mr. Oakes, will stand for reelection or election at the 2000
annual meeting of stockholders. The Class III directors, initially Messrs.
Billmaier and Kolde, will stand for reelection or election at the 2001 annual
meeting of stockholders.

BOARD COMMITTEES

The Board has established an Audit Committee to meet with and consider
suggestions from members of management and the Company's internal audit staff,
as well as the Company's independent accountants, concerning the financial
operations of the Company. The Audit Committee also has the responsibility to
review audited financial statements of the Company and consider and recommend
the employment of, and approve the fee arrangements with, independent
accountants for both audit functions and for advisory and other consulting
services. The Audit Committee is currently comprised of Dr. Harrison and
Messrs. Kolde and Rieschel. The Board has also established a Compensation
Committee to review and approve the compensation and benefits for the
Company's key executive officers, administer the Company's stock purchase,
equity incentive and stock option plans and make recommendations to the Board
regarding such matters. The Compensation Committee is currently comprised of
Dr. Harrison and Messrs. Kolde and Rieschel.

DIRECTOR COMPENSATION

Directors do not receive any cash fees for their service on the Board or any
Board committee, but they are entitled to reimbursement of all reasonable out-
of-pocket expenses incurred in connection with their attendance at Board and
Board committee meetings. All Board members are eligible to receive stock
options under the Company's 1995 Plan. In July 1995, the Company granted to
each of Mr. Allen and Mr. Kolde options to purchase 75,000 shares and 90,000
shares, respectively, of its Common Stock under its 1995 Plan, each with an
exercise price per share of $1.55.

In December 1997, the Board adopted, subject to stockholder approval, the
1998 Directors Stock Option Plan (the "Directors Plan") and reserved a total
of 187,500 shares of the Company's Common Stock for issuance thereunder.
Members of the Board who are not employees of the Company or any parent,
subsidiary or affiliate of the Company are eligible to participate in the
Directors Plan. Option grants under the Directors Plan are automatic and
nondiscretionary, and the exercise price of such options is 100% of the fair
market value of the Common Stock on the date of grant. Each eligible director
who is a member of the Board on or after the effective date of the
Registration Statement of which this Prospectus forms a part (the "Effective
Date") will be granted an option to purchase 7,500 shares (an "Initial Grant")
on the later of the Effective Date or the date such director first becomes a
director. On each anniversary of a director's Initial Grant, each eligible
director will automatically be granted an additional option to purchase 7,500
shares if such director has served continuously as a member of the Board since
the date of such director's Initial Grant. The term of such options

54
<PAGE>

is ten years, provided that they will terminate seven months following the
date the director ceases to be a director of the Company or a consultant of
the Company (twelve months if the termination is due to death or disability).
All options granted under the Directors Plan will vest as to 2.77% of the
shares each month after the date of grant, provided the optionee continues as
a director of the Company or a consultant of the Company. Additionally,
immediately prior to the dissolution or liquidation of the Company or a
"change in control" transaction, all options granted pursuant to the Directors
Plan will accelerate and will be exercisable for a period of up to six months
following the transaction, after which period any unexercised options will
expire.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to this offering, the Company's Board did not have a compensation
committee and all compensation decisions, other than grants of stock options,
were made by the full Board or the Chief Executive Officer. Since October
1997, grants of stock options have been made by the Company's Stock Option
Plan Administration Committee, which is comprised of Messrs. Billmaier and
Kolde. Neither Mr. Billmaier nor Mr. Oakes has participated in Board
deliberations regarding his respective compensation, and the Stock Option Plan
Administration Committee has not granted any options to its members. Upon
completion of this offering, the Compensation Committee will make all
compensation decisions. No interlocking relationship exists between the Board
or Compensation Committee and the board of directors or compensation committee
of any other company, nor has any such interlocking relationship existed in
the past.

EXECUTIVE COMPENSATION

The following table sets forth certain summary information concerning the
compensation awarded to, earned by, or paid for services rendered to the
Company in all capacities during the year ended December 31, 1997 by the
Company's Chief Executive Officer and the four most highly compensated
executive officers, other than the Chief Executive Officer, who were serving
as executive officers at the end of 1997 (collectively, the "Named Executive
Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------------
ANNUAL COMPENSATION AWARDS
--------------------------------- ---------------------
NAME AND PRINCIPAL POSITION OTHER ANNUAL SECURITIES UNDERLYING
(1) SALARY BONUS COMPENSATION OPTIONS (#)
- --------------------------- -------- ------- ------------ ---------------------
<S> <C> <C> <C> <C>
James A. Billmaier....... $250,000 $74,875 (2) -- 187,500
Chief Executive Officer
E. Charles Ellison....... 175,000 93,911 (3) -- --
Vice President, Business
Development
Steven Martino........... 133,404 36,075 (2) -- 37,500
Vice President, Sales
John D. Atherly.......... 119,327 28,260 (2) -- 15,000
Vice President, Finance
and Administration and
Chief Financial Officer
John M. Kellum........... 121,827 26,643 (2) -- 37,500
Vice President and
General Manager,
Online Learning
Products
</TABLE>
- --------
(1) Kevin M. Oakes, the Company's President and General Manager, Learning
Services, joined the Company in September 1997. Based on his annual
salary, Mr. Oakes would have been a Named Executive Officer if he had been
with the Company during all of 1997.
(2) Includes certain bonus compensation earned in 1996 but not paid until
1997, and does not include bonus compensation earned in 1997 but not paid
in 1997.
(3) All bonus compensation for this individual consists of sales commissions.
Includes commissions earned with respect to certain sales made in 1996 but
not paid until 1997, and excludes commissions earned with respect to
certain sales made in 1997 but not paid in 1997.

55
<PAGE>

OPTION GRANTS IN FISCAL 1997

The following table sets forth certain information regarding stock options
granted to each of the Named Executive Officers during the year ended December
31, 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS(1) FOR OPTION TERMS (2)
------------------------------------------------------ ---------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED TO
UNDERLYING EMPLOYEES IN EXERCISE
OPTIONS FISCAL YEAR (%) PRICE EXPIRATION
NAME GRANTED (3) PER SHARE (4) DATE 5% 10%
- ---- ---------- ------------------ ------------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
James A. Billmaier...... 187,499 13.6 $7.67 12/4/07 $ 904,036 $ 2,291,005
E. Charles Ellison...... -- -- -- -- -- --
Steven Martino.......... 29,999 2.2 6.00 10/20/07 113,201 286,874
7,500 0.5 6.00 4/22/07 28,300 71,718
John D. Atherly......... 7,500 0.5 6.00 10/20/07 28,300 71,718
7,500 0.5 6.00 4/22/07 28,300 71,718
John M. Kellum.......... 29,999 2.2 6.00 10/20/07 113,201 286,874
7,500 0.5 6.00 4/22/07 28,300 71,718
</TABLE>
- --------
(1) Options granted in 1997 were granted under the Company's 1995 Plan. These
options become exercisable with respect to 25% of the shares covered by
the option on the first anniversary of the date of grant and with respect
to an additional 2.08% of these shares each month thereafter, subject to
acceleration upon certain changes in control of the Company. These options
have a term of ten years. See "--Employee Benefit Plans" for a description
of the material terms of these options.
(2) Potential realizable value is based on the assumption that the Common
Stock of the Company appreciates at the annual rate shown (compounded
annually) from the date of grant until the expiration of the ten-year
term. These numbers are calculated based on Securities and Exchange
Commission requirements and do not reflect the Company's projection or
estimate of future stock price growth.
(3) The Company granted options to purchase an aggregate of 1,380,823 shares
of Common Stock to all employees during 1997.
(4) Options were granted at an exercise price equal to the fair market value
of the Company's Common Stock, as determined by the Board.

FISCAL YEAR-END OPTION VALUES

The following table sets forth for each of the Named Executive Officers the
number and year-end value of exercisable and unexercisable options for the
year ended December 31, 1997.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT 12/31/97 (1) AT 12/31/97 (2)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James A. Billmaier.......... 271,875 365,624 $2,569,219 $2,307,653
E. Charles Ellison.......... 123,750 56,250 1,169,438 531,563
Steven Martino.............. 44,999 75,000 425,241 541,879
John D. Atherly............. 62,229 43,320 588,064 342,624
John M. Kellum.............. 43,748 76,251 413,419 553,701
</TABLE>
- --------
(1) Options shown were granted under the 1995 Plan and are subject to vesting
as described in footnote (1) to the option grant table above. See "--
Employee Benefit Plans" for a description of the material terms of these
options.
(2) Based on an assumed initial public offering price of $11.00 per share, net
of exercise price.

56
<PAGE>

No options were exercised during 1997 by the Named Executive Officers. No
compensation intended to serve as incentive for performance to occur over a
period longer than one year was paid pursuant to a long-term incentive plan
during 1997 to any Named Executive Officer. The Company does not have any
defined benefit or actuarial plan under which benefits are determined
primarily by final compensation and years of service with any of the Named
Executive Officers.

EMPLOYEE BENEFIT PLANS

1995 Combined Incentive and Nonqualified Stock Option Plan. In July 1995,
the Board adopted and the stockholders approved the 1995 Plan. At that time,
3,150,000 shares of Common Stock were reserved for issuance under the 1995
Plan, which number was increased to 3,525,000 shares in April 1996 and to
4,275,000 shares in December 1996. As of March 31, 1998, options to purchase
499,986 shares had been exercised, options to purchase an additional 3,600,111
shares of Common Stock were outstanding with a weighted average exercise price
of $3.90 and 169,728 shares remained available for future grants. Following
the closing of this offering, no additional options will be granted under the
1995 Plan. Options granted under the 1995 Plan are subject to terms
substantially similar to those described below with respect to options to be
granted under the Equity Incentive Plan. The 1995 Plan does not provide for
issuance of restricted stock or stock bonus awards.

1998 Equity Incentive Plan. In December 1997, the Board adopted, subject to
stockholder approval, the 1998 Equity Incentive Plan (the "Equity Incentive
Plan"). The total number of shares of Common Stock reserved for issuance
thereunder is 1,500,000. The Equity Incentive Plan will become effective on
the closing of the initial public offering and will serve as the successor to
the 1995 Plan. Options granted under the 1995 Plan before their termination
will remain outstanding according to their terms, but no further options will
be granted under the 1995 Plan after the closing of the initial public
offering. Shares that: (a) are subject to issuance upon exercise of an option
granted under the 1995 Plan or the Equity Incentive Plan that cease to be
subject to such option for any reason other than exercise of such option; (b)
have been issued pursuant to the exercise of an option granted under the 1995
Plan or the Equity Incentive Plan with respect to which the Company's right of
repurchase has not lapsed and are subsequently repurchased by the Company; (c)
are subject to an award granted pursuant to restricted stock purchase
agreements under the Equity Incentive Plan that are forfeited or are
repurchased by the Company at the original issue price; or (d) are subject to
stock bonuses granted under the Equity Incentive Plan that otherwise terminate
without shares being issued, will again be available for grant and issuance
under the Equity Incentive Plan. Any authorized shares not issued or subject
to outstanding grants under the 1995 Plan on the Effective Date will no longer
be available for grant and issuance under the 1995 Plan but will be available
for grant and issuance under the Equity Incentive Plan. The Equity Incentive
Plan will terminate in December 2007, unless sooner terminated in accordance
with the terms of the Equity Incentive Plan. The Equity Incentive Plan
authorizes the award of options, restricted stock awards and stock bonuses
(each an "Award"). No person will be eligible to receive more than 375,000
shares in any calendar year pursuant to Awards under the Equity Incentive Plan
other than a new employee of the Company who will be eligible to receive no
more than 750,000 shares in the calendar year in which such employee commences
employment. The Equity Incentive Plan will be administered by the Compensation
Committee. The Compensation Committee has the authority to construe and
interpret the Equity Incentive Plan and any agreement made thereunder, grant
Awards and make all other determinations necessary or advisable for the
administration of the Equity Incentive Plan.

The Equity Incentive Plan provides for the grant of both incentive stock
options ("ISOs") that qualify under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), and nonqualified stock options ("NQSOs").
ISOs may be granted only to employees of the Company or of a parent or
subsidiary of the Company. NQSOs (and all other Awards other than ISOs) may be
granted to employees, officers, directors, consultants, independent
contractors and advisors of the Company or any parent or subsidiary of the
Company, provided such consultants, independent contractors and advisors
render bona fide services not in connection with the offer and sale of
securities in a capital-raising transaction ("Eligible Service Providers").
The exercise price of ISOs must be at least equal to the fair market value of
the Company's Common Stock on the date of grant. The exercise price of NQSOs
must be at least equal to 85% of the fair market value of the Company's Common
Stock on the date of grant. The maximum term of options granted under the
Equity Incentive Plan is ten years.

57
<PAGE>

Awards granted under the Equity Incentive Plan may not be transferred in any
manner other than by will or by the laws of descent and distribution and may
be exercised during the lifetime of the optionee only by the optionee (unless
otherwise determined by the Compensation Committee and set forth in the Award
agreement with respect to Awards that are not ISOs). Options granted under the
Equity Incentive Plan generally expire three months after the termination of
the optionee's service to the Company or a parent or subsidiary of the
Company, except in the case of death or disability, in which case the options
generally may be exercised up to 12 months following the date of death or
termination of service. Options will generally terminate immediately upon
termination for cause. In the event of the Company's dissolution or
liquidation or a "change in control" transaction, outstanding Awards may be
assumed or substituted by the successor corporation (if any). If a successor
corporation (if any) does not assume or substitute the Awards, they will
accelerate prior to the effectiveness of the transaction.

401(k) Plans. The Company maintains the PGA Companies 401(k) Plan (the
"401(k) Plan"), a defined contribution plan intended to qualify under Section
401 of the Code. All eligible employees who are at least 18 years old are
eligible to participate in the 401(k) Plan. An eligible employee of the
Company may begin to participate in the 401(k) Plan on the first day of
January, April, July or October of the Plan year following the date on which
such employee meets the eligibility requirements. A participating employee may
make pre-tax contributions of a percentage of his or her eligible
compensation, subject to limitations under the federal tax laws. Employee
contributions and the investment earnings thereon are fully vested at all
times. The Company does not make matching or profit-sharing contributions.

The Company also maintains the Oakes Interactive Incorporated 401(k) Plan
and Trust (the "Oakes 401(k) Plan"), a defined contribution plan intended to
qualify under Section 401 of the Code. All eligible employees who are at least
21 years old and have completed six months' service are eligible to
participate in the Oakes 401(k) Plan. An eligible employee may begin to
participate in the Oakes 401(k) Plan on the first day of January or July of
the Plan year coinciding with or next following the date on which such
employee meets the eligibility requirements. A participating employee may make
pre-tax contributions of a percentage (up to 10 percent) of his or her
eligible compensation, subject to limitations under the federal tax laws.
Employee contributions and the investment earnings thereon are fully vested at
all times. The Company does not make matching or profit-sharing contributions.

The Company also maintains the CSI 401(k) Plan and Trust (the "CSI 401(k)
Plan"), a defined contribution plan intended to qualify under Section 401 of
the Code. All eligible employees who are at least 21 years old and have
completed six months' service are eligible to participate in the CSI 401(k)
Plan. An eligible employee may begin to participate in the CSI 401(k) Plan on
the first day of January, April, July or October coincident with or
immediately following the date on which such employee meets the eligibility
requirements. A participating employee may make pre-tax contributions of a
percentage of his or her eligible compensation, subject to limitations under
the federal tax laws. Employee contributions and the investment earnings
thereon are fully vested at all times. The Company, at its discretion, may
make discretionary contributions on behalf of participants.

EMPLOYMENT AGREEMENT

In September 1997, in connection with the Company's acquisitions of the
Oakes Companies, the Company entered into an Employment Agreement with Kevin
Oakes, the Company's President and General Manager, Learning Services.
Pursuant to the terms of this agreement, Mr. Oakes receives an annual salary
of $150,000, has a target bonus of 35% of his annual salary, and is eligible
to receive a maximum bonus of 100% of his annual salary. In addition, Mr.
Oakes was granted an option to purchase 17,250 shares of the Company's Common
Stock at a price per share of $6.00, in accordance with the terms of the
Company's 1995 Plan. Upon the involuntary termination of Mr. Oakes' employment
during the one-year term of the employment agreement for other than "Cause"
(as defined in the agreement), Mr. Oakes shall be entitled, for a period
ending on the later of one year after the effective date of the agreement or
six months following the date of such termination, to receive his then-current
salary in addition to his then-accrued compensation and benefits (including
his accrued pro-rata bonus compensation).

58
<PAGE>

INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF
LIABILITY

As permitted by the Delaware General Corporation Law (the "DGCL"), the
Company's Amended and Restated Certificate of Incorporation, which will become
effective upon the closing of this offering, includes a provision that
eliminates the personal liability of its directors for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) under section 174 of the DGCL
(regarding unlawful dividends and stock purchases) or (iv) for any transaction
from which the director derived an improper personal benefit.

As permitted by the DGCL, the Company's Bylaws which will become effective
upon the completion of this offering provide that (i) the Company is required
to indemnify its directors and officers to the fullest extent permitted by the
DGCL, subject to certain very limited exceptions, (ii) the Company may
indemnify its other employees and agents to the extent that it indemnifies its
officers and directors, unless otherwise required by law, its Amended and
Restated Certificate of Incorporation, its Bylaws or agreements, (iii) the
Company is required to advance expenses, as incurred, to its directors and
executive officers in connection with a legal proceeding to the fullest extent
permitted by the DGCL, subject to certain very limited exceptions and (iv) the
rights conferred in the Bylaws are not exclusive.

Prior to the completion of this offering, the Company intends to enter into
Indemnification Agreements with each of its current directors and executive
officers to give such directors and officers additional contractual assurances
regarding the scope of the indemnification set forth in the Company's Amended
and Restated Certificate of Incorporation and Bylaws and to provide additional
procedural protections. At present, there is no pending litigation or
proceeding involving a director, officer or employee of the Company regarding
which indemnification is sought, nor is the Company aware of any threatened
litigation that may result in claims for indemnification.

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<PAGE>

CERTAIN TRANSACTIONS

Since January 1, 1995 there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which the Company or any
of its subsidiaries was or is to be a party in which the amount involved
exceeded or will exceed $60,000 and in which any director, executive officer,
holder of more than 5% of the Common Stock of the Company or any member of the
immediate family of any of the foregoing persons had or will have a direct or
indirect material interest other than (i) compensation agreements and other
arrangements, which are described where required in "Management," and (ii) the
transactions described below.

1995 Restructuring and Recapitalization. In January 1995, the Company sold
Mr. Allen 225,000 shares of Common Stock for an aggregate purchase price of
$150,000. In February 1995, the Company underwent a restructuring of its
operations. In connection with this restructuring, in March 1995, the Company
merged with ASX R&D Corporation, which was formed for the sole purpose of
consummating the restructuring, and all of the outstanding capital stock of
which was owned by Paul Allen, the founder and a director of the Company. In
connection with this merger, Mr. Allen received 11,250 shares of the Company's
Common Stock in exchange for the shares of ASX R&D Corporation Common Stock
owned by Mr. Allen. All outstanding shares of Common Stock of the Company
(other than 288,750 shares of Common Stock then held by Mr. Allen) were
repurchased by the Company at a price per share of $0.67 and were canceled in
the merger. In July 1995 the Company issued to Mr. Allen an additional
5,550,000 shares of Common Stock in consideration of (i) Mr. Allen's
assumption of the Company's outstanding indebtedness under a credit agreement
in the amount of approximately $114.6 million and (ii) the issuance by Mr.
Allen of a demand promissory note in the aggregate principal amount of
approximately $18.4 million, which bore interest at a rate of 8% per annum.
The issuance of Common Stock in exchange for the promissory note and
assumption of outstanding indebtedness was accounted for as an increase to
stockholders' equity of $133.0 million. Interest accrued under the promissory
note to the Company was approximately $1.2 million, $1.1 million and $436,000
in 1995, 1996 and 1997, respectively, and principal payments received under
this note were approximately $11.9 million and $9.0 million in 1996 and 1997,
respectively. This note was repaid in full in October 1997.

SOFTBANK Investment. In October 1996, the Company sold an aggregate of
388,395 shares of its Class B Stock called "Series A Preferred Stock" (which
shares will convert into an aggregate 291,296 shares of Common Stock upon the
closing of this offering) at a cash purchase price of $12.88 per share to
SOFTBANK Holdings, Inc. ("SOFTBANK"). Gary Rieschel, Senior Vice President of
SOFTBANK, serves on the Company's Board of Directors. The Company also entered
into an Investor's Rights Agreement with SOFTBANK pursuant to which SOFTBANK
has certain demand and piggyback registration rights with respect to the
shares of Common Stock issuable upon conversion of the Series A Preferred
Stock. See "Description of Capital Stock--Registration Rights."

Aimtech Acquisition. In September 1997, the Company acquired Aimtech (the
"Aimtech Acquisition"). In connection with the Aimtech Acquisition, the
Company issued an aggregate of 2,183,894 shares of Series 4 Class B Stock
(which are convertible into 1,637,853 shares of Common Stock), which included
2,111,795 shares of Series 4 Class B Stock valued at $3.0 million issued in
exchange for all of Aimtech's outstanding common stock (which are convertible
into 1,583,780 shares of Common Stock), 44,171 shares of Series 4 Class B
Stock valued at $63,000 issued as a financial advisory fee (which are
convertible into 33,128 shares of Common Stock), and 27,928 shares of Series 4
Class B Stock issued under Aimtech's "change of control" severance policy
(which are convertible into 20,945 shares of Common Stock). The aggregate
dollar value of the Series 4 Class B Stock issued in the Aimtech acquisition
was $3.1 million. Dr. Shelley Harrison, a director of the Company, is a
managing general partner of Poly Ventures, Limited Partnership ("Poly
Ventures"), which was a stockholder of Aimtech. Poly Ventures received 409,392
shares of Series 4 Class B Stock in the Aimtech Acquisition. Upon the closing
of this offering, each share of Series 4 Class B Stock will be converted into
approximately .75 shares of Common Stock of the Company. In addition, in
connection with the Aimtech Acquisition, the Company, Dr. Harrison (as
representative of the former stockholders of Aimtech) and Mr. Allen entered
into a Voting Agreement, pursuant to which the former Aimtech stockholders
were given the right to designate one director of the Company. Dr. Harrison
was named as the initial director of the Company designated in this Voting
Agreement. This Voting Agreement will terminate upon the completion of this
offering.

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<PAGE>

Oakes Acquisitions. In September 1997, the Company acquired the Oakes
Companies, which consisted of Oakes Interactive Incorporated, Acorn Associates
Incorporated and TopShelf Multimedia, Inc. (the "Oakes Acquisitions"). In
connection with the Oakes Acquisitions, the Company issued an aggregate of
1,512,500 shares of Series 5 Class B Stock (which are convertible into an
aggregate of 1,134,371 shares of Common Stock upon the closing of this
offering), in exchange for all of the outstanding shares of common stock of
each of the Oakes Companies. The aggregate dollar value of the Series 5 Class
B Stock issued in connection with the Oakes Acquisitions was $2.1 million.
Kevin Oakes, the Company's President and General Manager, Learning Services,
who at the time of the Oakes Acquisitions was the President and a principal
shareholder of each of the Oakes Companies, received an aggregate of 680,625
shares of Series 5 Class B Stock (which are convertible into an aggregate of
1,134,371 shares of Common Stock upon the closing of this offering) in
connection with the Oakes Acquisitions. Furthermore, Mr. Oakes' father, Gordon
Oakes, who was at the time of the Oakes Acquisitions a principal shareholder
of each of the Oakes Companies, also received an aggregate of 680,625 shares
of Series 5 Class B Stock in connection with the Oakes Acquisitions. Upon the
closing of this offering, each share of Series 5 Class B Stock will be
converted into approximately .75 shares of Common Stock of the Company. In
addition, in connection with the Oakes Acquisitions, the Company, the
shareholders of the Oakes Companies and Mr. Allen entered into a Voting
Agreement pursuant to which the former shareholders of the Oakes Companies
were given the right to designate one director of the Company. Mr. Oakes was
named as the initial director of the Company designated in this Voting
Agreement. This Voting Agreement will terminate upon the completion of this
offering.

Vulcan Transactions. The Company subleases approximately 8,200 square feet
of office space to Vulcan Northwest Inc. ("Vulcan Northwest"), a company
controlled by Mr. Allen. Pursuant to the terms of this sublease, Vulcan
Northwest pays rent of $18.25 per square foot per year in monthly installments
plus its pro rata portion of any additional rent the Company is required to
pay under the prime lease. The term of this sublease commenced in November
1995 and expires upon the expiration of the prime lease. Payments by Vulcan
Northwest under this sublease were approximately $27,000, $200,000, $150,000
and $50,000 in 1995, 1996, 1997 and the three months ended March 31, 1998,
respectively.

In March 1998, the Company entered into a Directed Engineering Agreement
(the "Engineering Agreement") with Vulcan Northwest, d/b/a APEX ("APEX"),
pursuant to which the Company has agreed to develop customized extensions of
its Librarian product. The terms of the Engineering Agreement are similar to
other custom development arrangements which the Company has entered into with
other third parties. Pursuant to the terms of the Engineering Agreement, the
Company will retain all intellectual property rights to these extensions. APEX
is obligated to pay the Company an aggregate of $250,000 in non-refundable
installments upon the achievement by the Company of the following milestones:
the specification of functional requirements, the specification of user
interface, the delivery of a beta version of Librarian with enhancements, and
the delivery of a final version of Librarian with enhancements. Revenue is
recognized based upon the percentage of completion method.

SuperCede Transactions. In June 1997, the Company contributed certain
technology assets related to its SuperCede development project to a wholly-
owned subsidiary in exchange for 3,500,000 shares of common stock of that
subsidiary and a license back to the Company of such technology assets for use
in the Company's online learning products (the "SuperCede License"). In August
1997, Vulcan Ventures Inc. ("Vulcan Ventures"), a venture capital company
controlled by Mr. Allen, loaned to SuperCede an aggregate of $1.75 million
which was evidenced by a convertible promissory note (the "SuperCede Note").
In September 1997, the Company's SuperCede common stock was converted into
3,500,000 shares of SuperCede Series B Preferred Stock in consideration for
the cancellation of the SuperCede License, pursuant to the terms of a Series B
Preferred Stock Exchange Agreement between the Company and SuperCede. In
September 1997, SuperCede sold an aggregate of 3,500,000 shares of its Series
A Preferred Stock to Vulcan Ventures for a purchase price of $2.00 per share,
including cancellation of the indebtedness represented by the SuperCede Note.
On the date the Company exchanged its SuperCede common stock for SuperCede
Series B Preferred Stock and SuperCede sold its Series A Preferred Stock to an
entity affiliated with the Company's principal stockholder, SuperCede had a
deficit in stockholders' equity of $1,357,000. The Company treated the
transaction in a manner similar to a sale of stock by its subsidiary. Because
the holder of SuperCede's Series A Preferred Stock has rights and preferences

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<PAGE>

superior to those of SuperCede's Series B Preferred Stock, the Company's share
of SuperCede's net assets is $0. Therefore, the Company increased the carrying
amount of its investment in SuperCede to $0. The increase in the carrying
amount of the Company's investment in SuperCede was reflected as an increase
of $1,402,000 to additional paid-in capital. The Company accounts for its
investment in SuperCede using the equity method of accounting. The Company
subleases approximately 8,500 square feet of office space in the Company's
headquarters to SuperCede pursuant to a sublease which was entered into in
June 1997. Pursuant to the terms of this sublease, SuperCede pays rent of
$20.00 per square foot per year in monthly installments plus SuperCede's pro
rata portion of any additional rent the Company is required to pay under the
prime lease. The term of this sublease commenced in June 1997 and expires upon
the expiration of the prime lease for the Company's headquarters in October
1999. In 1997, SuperCede made payments to the Company under this sublease of
$40,000 and $40,000 in 1997 and the three months ended March 31, 1998,
respectively.

Infomodelers Spin-off, Investment and Sublease. In October 1996, the Company
spun off certain assets, employees and liabilities relating to its
Client/Server Tools Division into a newly-created wholly-owned subsidiary, ASX
Corporation, which was subsequently renamed ConQuer Data, Inc. and later
renamed Infomodelers, Inc. ("Infomodelers"). In connection with this spin-off
(the "Infomodelers Spin-off"), the Company and Infomodelers entered into a
Technology Transfer and License Agreement (the "Technology Transfer and
License Agreement") under which the Company transferred to Infomodelers
certain technologies relating to its Client/Server Tools Division (the
"Infomodelers Technology") in exchange for (i) 3,500,000 shares of
Infomodelers Common Stock, (ii) a royalty of 8% of sales of products and
services based on the Infomodelers Technology for a five year period and (iii)
a license for the Company to use the then-current Infomodelers Technology in
non-competing products. The Technology Transfer and License Agreement was
amended in January 1998 to provide that (i) the Company would be licensed to
use the then-most recent versions of the Infomodelers Technology and of
Infomodelers' "Active Query" technology in its online enterprise learning
products, (ii) the Company would forego the 8% royalty on sales of products
and services based on the Infomodelers Technology and (iii) the Company would
license Infomodelers to use the Company's InfoAssistant technology, a
technology unrelated to the Company's online enterprise learning products.

The Company and Infomodelers also entered into an Asset Purchase and Loan
Agreement in October 1996, whereby (i) the Company sold to Infomodelers the
assets (including property and equipment, software patents and trademarks
covering the Infomodelers Technology previously transferred under the
Technology Transfer and License Agreement described above) of the Company's
Client/Server Tools Division in exchange for a stated value of $500,000 and
Infomodelers' agreement to assume liabilities associated with third-party
contracts relating to the business and accrued compensation for transferred
employees and (ii) the Company loaned Infomodelers $1.0 million. Both the
purchase price of the assets and the loan were reflected in a $1.5 million
promissory note from Infomodelers to the Company. In November 1996, this
promissory note was canceled in exchange for the issuance to the Company of
700,000 shares of Infomodelers Series A Preferred Stock. The transaction was
accounted for using the Company's historical cost basis in the assets and
liabilities sold. Accordingly, no gain or loss was recognized.

In October 1996, the Company distributed an aggregate of 2,802,774 shares of
Infomodelers Common Stock to its existing stockholders (in the form of a
dividend) and holders of vested options (in the form of a stock bonus). In
connection with this distribution, Mr. Allen, a director and principal
stockholder of the Company, received 2,422,243 shares of Infomodelers Common
Stock. Subsequent to the completion of these transactions, the Company's
investment in Infomodelers was $950,000.

In October 1996, the Company entered into a sublease agreement with
Infomodelers, under which the Company subleases to Infomodelers approximately
6,350 square feet of office space in the Company's headquarters. Rent is
payable directly from Infomodelers to the prime landlord in accordance with
the terms of the Company's prime lease on the property. Infomodelers has
notified the Company that it intends to terminate this sublease in May 1998.
Infomodelers made payments to the Company under this sublease of $36,000,
$145,000 and $26,000 in 1996, 1997 and the three months ended March 31, 1998,
respectively.

In March 1998, the Company sold all 700,000 shares of its Infomodelers
Series A Preferred Stock for an aggregate purchase price of approximately $2.0
million in cash, and sold 16 of its 19 shares (on a post 1-for-

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35,647 reverse stock split basis) of Infomodelers Common Stock for an
aggregate purchase price of approximately $390,000 in cash, to Vulcan
Ventures, Inc., an entity controlled by Mr. Allen.

Transactions with Multimedia Asia Pacific. In December 1996, the Company
issued, pursuant to a Series B Stock Purchase Agreement (the "Series B
Agreement"), 388,395 shares of its Class B Stock called "Series B Preferred
Stock" to Multimedia Asia Pacific Pty. Ltd. ("Multimedia Asia Pacific") for an
aggregate purchase price of approximately $5.0 million. Of this amount,
$502,528 was paid in cash (representing 39,015 shares of Series B Preferred
Stock which were fully paid) and $4.5 million was paid with a promissory note
(the "Series B Note"), which bore interest at a rate of 6% per annum. Of these
shares, 349,380 shares were pledged to secure the Series B Note. Mr. Allen
owns 10% of the outstanding capital stock of Multimedia Asia Pacific. Under
the terms of the Series B Note, one installment of $500,000 (plus accrued
interest) was paid to the Company in January 1997, resulting in the release of
an additional 38,820 shares of Series B Preferred Stock from the pledge. The
remaining indebtedness was to be repaid in four consecutive monthly
installments of $1.0 million (plus accrued interest).

In January 1997, the Company and Asymetrix Asia Pacific Pty. Ltd., which is
a wholly-owned subsidiary of Multimedia Asia Pacific and which is licensed by
the Company to use the name Asymetrix Asia Pacific ("Asymetrix Asia Pacific"),
entered into an Exclusive Master Distributor Agreement (the "Distributor
Agreement") under which Asymetrix Asia Pacific acted as the exclusive
distributor of certain of the Company's products within the Asia Pacific
region (excluding Japan). The Distributor Agreement replaced a previous
distributor agreement entered into between the Company and Asymetrix Asia
Pacific in January 1994. As of October 31, 1997, Asymetrix Asia Pacific owed
the Company $870,686 pursuant to the terms of the Distributor Agreement, a
substantial portion of which was overdue and, therefore, caused a breach of
the Distributor Agreement, which breach caused the entire amount owed
thereunder to become immediately due and payable. In addition, as of October
31, 1997, Multimedia Asia Pacific owed the Company $4.0 million (plus accrued
interest) under the Series B Note.

In settlement of these outstanding amounts, on October 31, 1997 the Company,
Asymetrix Asia Pacific and Multimedia Asia Pacific entered into an agreement
(the "Resolution Agreement") which resolved the outstanding debts of Asymetrix
Asia Pacific and Multimedia Asia Pacific to the Company and which set forth
revised terms and conditions pursuant to which Asymetrix Asia Pacific may
continue to function as the Company's exclusive distributor in the Asia
Pacific region. Pursuant to the Resolution Agreement, (i) all shares of Series
B Preferred Stock that were pledged to secure the Series B Note were retained
and canceled by the Company in full satisfaction of the amounts due under the
Series B Note, (ii) all 77,835 shares of Series B Preferred Stock that were
then fully paid were redeemed by the Company in exchange for $750,000 owed by
Asymetrix Asia Pacific to the Company under the Distributor Agreement, and
(iii) the Series B Agreement and the Series B Note were canceled. Asymetrix
Asia Pacific repaid all remaining amounts owned under the Distributor
Agreement in January 1998.

In addition, the Company and Asymetrix Asia Pacific entered into an Amended
and Restated Exclusive Master Distributor Agreement (the "Amended Distributor
Agreement"), which took effect as of January 1, 1998 and which replaced the
Distributor Agreement. Pursuant to the Amended Distributor Agreement,
Asymetrix Asia Pacific was to be the exclusive distributor of certain of the
Company's products in the Asia Pacific region so long as Asymetrix Asia
Pacific met certain quarterly minimum commitment levels and meets certain
other obligations. The exclusivity under the Amended Distributor Agreement was
terminated in March 1998 when Asymetrix Asia Pacific failed to meet its
performance obligations. In connection with the termination of this
exclusivity, the Company revoked the license to use the name Asymetrix Asia
Pacific, subject to a transition period ending July 1, 1998. The Amended
Distributor Agreement terminates on December 31, 1998.

The Company believes that the terms of each of the transactions described
above, taken as a whole, were no less favorable than the Company could have
obtained from unaffiliated third parties. All future transactions between the
Company and its officers, directors and principal stockholders and their
affiliates will be approved by a majority of the Board of Directors, including
a majority of the independent and disinterested outside directors.

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PRINCIPAL STOCKHOLDERS

The following table sets forth certain information known to the Company with
respect to the beneficial ownership of the Company's Common Stock as of March
31, 1998 and as adjusted to reflect the sale by the Company of the 3,000,000
shares of Common Stock offered hereby by: (i) each person who is known by the
Company to own beneficially more than 5% of the Company's Common Stock, (ii)
each director of the Company, (iii) each of the Named Executive Officers and
(iv) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK
NUMBER OF BENEFICIALLY OWNED(1)
SHARES --------------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING(2)
- ------------------------ ------------ ---------- ------------
<S> <C> <C> <C>
Paul G. Allen(3)..................... 5,909,374 58.0% 44.8%
Cynthia Boyd(4)...................... 550,193 5.4 4.2
James Boyd(5)........................ 550,193 5.4 4.2
Kevin M. Oakes(6).................... 510,467 5.0 3.9
Gordon Oakes......................... 510,467 5.0 3.9
James A. Billmaier(7)................ 318,749 3.1 2.4
Shelley Harrison, Ph.D.(8)........... 307,043 3.0 2.3
Gary Rieschel(9)..................... 291,294 2.9 2.2
E. Charles Ellison(10)............... 142,500 1.4 1.1
John D. Atherly(11).................. 73,775 * *
Bert Kolde(12)....................... 71,250 * *
Steven Martino(13)................... 55,623 * *
John M. Kellum(14)................... 54,374 * *
All officers and directors as a group
(11 persons)(15).................... 7,766,701 71.3 55.9
</TABLE>
- --------
* Less than 1% of the Company's outstanding Common Stock

(1) Percentage ownership reflects the proposed three-for-four reverse stock
split of the Company's Common Stock to occur immediately prior to the
closing of this offering and is based on 10,124,822 shares outstanding as
of March 31, 1998, including shares issuable upon conversion of all
outstanding Class B Stock into Common Stock in connection with this
offering (of which 331,246 shares will remain held in escrow to secure
certain indemnification obligations of former stockholders of Aimtech
under the Agreement and Plan of Reorganization relating to the
acquisition of Aimtech), and shares outstanding after the offering.
Shares of Common Stock subject to options currently exercisable or
exercisable within 60 days of March 31, 1998 are deemed outstanding for
the purpose of computing the percentage ownership of the person holding
such options but are not deemed outstanding for computing the percentage
ownership of any other person. The address for each holder of more than
5% of the Company's Common Stock is c/o the Company, 110-110th Avenue NE,
Bellevue, Washington 98004. Unless otherwise indicated below, the persons
and entities named in the table have sole voting and sole investment
power with respect to all shares beneficially owned, subject to community
property laws where applicable.
(2) Assumes the Underwriters' over-allotment option is not exercised.
(3) Includes 59,374 shares subject to stock options exercisable within 60
days of March 31, 1998. Mr. Allen is the founder and a director of the
Company.
(4) Includes 137,548 shares held of record by James Boyd, Ms. Boyd's spouse.
(5) Includes 412,645 shares held of record by Cynthia Boyd, Mr. Boyd's
spouse.
(6) Mr. Oakes is President and General Manager, Learning Services and a
director of the Company.
(7) Represents shares subject to stock options exercisable within 60 days of
March 31, 1998. Mr. Billmaier is the Chief Executive Officer and a
director of the Company.
(8) Represents shares held of record by Poly Ventures, Limited Partnership
("Poly Ventures"). Dr. Harrison is a managing general partner of Poly
Ventures. Dr. Harrison disclaims beneficial ownership of shares held by
Poly Ventures except to the extent of his pecuniary interest therein.
(9) Represents shares held of record by SoftVen No. 2 Investment Enterprise
Partnership. Mr. Rieschel, a Senior Vice President of SOFTBANK, an
affiliate of SoftVen No. 2 Investment Enterprise Partnership, is a
director of the Company. Mr. Rieschel disclaims beneficial ownership of
such shares.
(10) Represents shares subject to stock options exercisable within 60 days of
March 31, 1998. Mr. Ellison is Vice President, Business Development of
the Company.
(11) Includes 73,700 shares subject to stock options exercisable within 60
days of March 31, 1998. Mr. Atherly is Vice President, Finance and
Administration and Chief Financial Officer of the Company.
(12) Represents shares subject to stock options exercisable within 60 days of
March 31, 1998. Mr. Kolde is Chairman of the Board of the Company.
(13) Represents shares subject to stock options exercisable within 60 days of
March 31, 1998. Mr. Martino is Vice President, Sales of the Company.
(14) Represents shares subject to stock options exercisable within 60 days of
March 31, 1998. Mr. Kellum is Vice President and General Manager, Online
Learning Products of the Company.
(15) Represents the shares described in footnotes (3) and (6)-(14), plus an
additional 32,252 shares beneficially owned by one other executive
officer of the Company, of which 30,002 shares were subject to stock
options exercisable within 60 days of March 31, 1998.

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<PAGE>

DESCRIPTION OF CAPITAL STOCK

As of March 31, 1998, assuming the conversion of all outstanding shares of
Class B Stock into shares of Common Stock, there were outstanding 10,124,822
shares of Common Stock, each with a par value of $0.01, held of record by
approximately 225 stockholders, and outstanding options to purchase 3,600,111
shares of Common Stock.

Immediately prior to the closing of this offering, the Company intends to
reincorporate in the State of Delaware and, upon the closing of this offering,
the Company intends to amend and restate its Certificate of Incorporation. The
following summary of certain provisions of the Common Stock and Preferred
Stock does not purport to be complete and is subject to, and qualified in its
entirety by, the provisions of the forms of the Company's Amended and Restated
Certificate of Incorporation and Bylaws to be effective upon the closing of
this offering, which are included as exhibits to the Registration Statement of
which this Prospectus forms a part, and by the provisions of applicable law.

COMMON STOCK

Upon the closing of this offering, the Company will be authorized to issue
40,000,000 shares of Common Stock. Subject to preferences that may be
applicable to any Preferred Stock outstanding at the time, the holders of
outstanding shares of Common Stock are entitled to receive dividends out of
assets legally available therefor at such times and in such amounts as the
Board from time to time may determine. Holders of Common Stock are entitled to
one vote for each share held on all matters submitted to a vote of
shareholders. Cumulative voting for the election of directors will not be
authorized by the Company's Amended and Restated Certificate of Incorporation,
which means that the holders of a majority of the shares voted can elect all
of the directors then standing for election. The Common Stock is not entitled
to preemptive rights and is not subject to conversion or redemption. Upon
liquidation, dissolution or winding-up of the Company, the assets legally
available for distribution to stockholders are distributable ratably among the
holders of the Common Stock and any participating Preferred Stock outstanding
at that time after payment of liquidation preferences, if any, on any
outstanding Preferred Stock and payment of other claims of creditors. Each
outstanding share of Common Stock is, and all shares of Common Stock to be
outstanding upon completion of this offering will be, fully paid and
nonassessable.

PREFERRED STOCK

Upon the closing of this offering, all outstanding shares of Class B Stock
(the "Convertible Preferred") will be converted into shares of Common Stock.
See Note 10 of Notes to the Company's Consolidated Financial Statements for a
description of the Convertible Preferred. Following the offering, the Company
will be authorized to issue 2,000,000 shares of Preferred Stock. The Board is
authorized, subject to any limitations prescribed by Delaware law, to provide
for the issuance of Preferred Stock in one or more series, to establish from
time to time the number of shares to be included in each such series, to fix
the rights, preferences and privileges of the shares of each wholly unissued
series and any qualifications, limitations or restrictions thereon, and to
increase or decrease the number of shares of any such series (but not below
the number of shares of such series then outstanding), without any further
vote or action by the stockholders. The Board may authorize the issuance of
Preferred Stock with voting or conversion rights that could adversely affect
the voting power or other rights of the holders of Common Stock. The issuance
of Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things,
adversely affect the voting power of holders of Common Stock and, under
certain circumstances, have the effect of delaying, deferring or preventing a
change in control of the Company. The Company has no current plan to issue any
shares of Preferred Stock.

REGISTRATION RIGHTS

Following this offering, the holder of 291,294 shares of Common Stock
(representing the Common Stock issuable upon conversion of the series of the
Company's Class B Stock called "Series A Preferred Stock") will

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<PAGE>

have certain rights to cause the Company to register those shares (the
"Registrable Securities") under the Securities Act pursuant to the Investors'
Rights Agreement. The Company is required to effect one such demand
registration. These registration rights are subject to certain conditions and
limitations, including (i) the right, under certain circumstances, of the
underwriters of an offering to limit the number of shares included in such
registration and (ii) the right of the Company to delay the filing of a
registration statement for not more than 90 days after receiving the
registration demand. The Company is obligated to pay all registration expenses
incurred in connection with such registration (other than underwriters'
discounts and commissions) and the reasonable fees and expenses of a single
counsel to the selling stockholder.

The holder of the Series A Preferred Stock may also require the Company, on
no more than two occasions, to register all or a portion of the Registrable
Securities on Form S-3 under the Securities Act when such form becomes
available for use by the Company, if the securities to be so registered
represent an aggregate selling price to the public of not less than $250,000.
These registration rights are subject to certain conditions and limitations,
including the right of the Company to delay the filing of such a registration
statement for a period of not more than 90 days after receiving the
registration demand. The Company is obligated to pay all registration expenses
incurred in connection with such registration (other than underwriters'
discounts and commissions) and the reasonable fees and expenses of a single
counsel to the selling holder.

If the Company proposes to register any of its securities under the
Securities Act, whether or not for sale for its own account, other than in
connection with a Company employee benefit plan or a corporate reorganization,
the holder of the Series A Preferred Stock, together with the holders of an
aggregate of 3,479,597 shares of Common Stock, will be entitled to notice of
such registration and are entitled to include such securities therein. These
rights are subject to certain conditions and limitations, including the right,
under certain circumstances, of the underwriters of an offering to limit the
number of shares included in such registration. The Company is obligated to
pay all registration expenses incurred in connection with such registration
(other than underwriters' discounts and commissions). If the Company were to
initiate a registration and include shares pursuant to this "piggyback" right,
such sales might have an adverse effect on the Company's ability to raise
capital.

Each stockholder's registration rights expire upon the earlier of the fifth
anniversary of the closing of this offering or such time that such stockholder
can sell all of his, her or its stock under Rule 144(k).

DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS

Upon the closing of this offering, the Company will be subject to the
provisions of Section 203 of the Delaware General Corporation Law (the "Anti-
Takeover Law") regulating corporate takeovers. The Anti-Takeover Law prevents
certain Delaware corporations, including those whose securities are listed on
the Nasdaq National Market, from engaging, under certain circumstances, in a
"business combination" (which includes a merger or sale of more than 10% of
the corporation's assets) with any "interested stockholder" (a stockholder who
owns 15% or more of the corporation's outstanding voting stock, as well as
affiliates and associates of any such persons) for three years following the
date that such stockholder became an "interested stockholder" unless (i) the
transaction is approved by the Board of Directors prior to the date the
"interested stockholder" attained such status, (ii) upon consummation of the
transaction that resulted in the stockholder's becoming an "interested
stockholder," the "interested stockholder" owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced
(excluding those shares owned by (a) persons who are directors and also
officers and (b) employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer), or (iii) on or
subsequent to such date the "business combination" is approved by the Board of
Directors and authorized at an annual or special meeting of stockholders by
the affirmative vote of at least two-thirds of the outstanding voting stock
that is not owned by the "interested stockholder." A Delaware corporation may
"opt out" of the Anti-Takeover Law with an express provision in its original
certificate of incorporation or an express provision in its certificate of
incorporation or bylaws resulting from a stockholders' amendment approved by
at least a majority of the outstanding voting shares. The Company has not
"opted out" of the provisions of the Anti-

66
<PAGE>

Takeover Law. The statute could prohibit or delay mergers or other takeover or
change-in-control attempts with respect to the Company and, accordingly, may
discourage attempts to acquire the Company.

The Company's Amended and Restated Certificate of Incorporation and Bylaws,
which will be in effect upon the completion of this offering, will provide for
the division of the Board into three classes as nearly equal in size as
possible with staggered three-year terms. The classification of the Board
could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, control of the
Company. In addition, the Bylaws will provide that any action required or
permitted to be taken by the stockholders of the Company at an annual meeting
or special meeting of stockholders may only be taken if it is properly brought
before such meeting and may not be taken by written action in lieu of a
meeting. The Bylaws will provide that special meetings of the stockholders may
only be called by the Chairman of the Board, the Chief Executive Officer of
the Company or the Board.

The Company's Amended and Restated Certificate of Incorporation and Bylaws
will provide that the Company will indemnify officers and directors against
losses that they may incur in investigations and legal proceedings resulting
from their services to the Company, which may include services in connection
with takeover defense measures. Such provisions may have the effect of
preventing changes in the management of the Company.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Company's Common Stock is
ChaseMellon Shareholder Services, L.L.C.

LISTING

The Company has applied to list its Common Stock on the Nasdaq National
Market under the trading symbol ASYM.

67
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect prevailing market prices from time to
time. Furthermore, since the substantial majority of the Company's outstanding
Common Stock (other than the shares offered hereby) will not be available for
sale immediately after this offering because of certain contractual and legal
restrictions on resale (as described below), sales of substantial amounts of
Common Stock of the Company in the public market after these restrictions
lapse could adversely affect the prevailing market price of the Common Stock
and the ability of the Company to raise equity capital in the future.

Upon completion of this offering, the Company will have outstanding an
aggregate of 13,124,822 shares of Common Stock, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options. Of
these shares, all of the shares sold in this offering will be freely tradeable
without restriction or further registration under the Securities Act, unless
such shares are purchased by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act (the "Affiliates"). The remaining
10,124,822 shares of Common Stock held by existing stockholders are
"restricted securities" as that term is defined in Rule 144 under the
Securities Act ("Restricted Shares"). Restricted Shares may be sold in the
public market only if they are registered or if they qualify for an exemption
from registration under Rule 144 or 701 promulgated under the Securities Act,
which rules are summarized below. All officers and directors and certain
stockholders and option holders of the Company have agreed not to offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly (or
enter into any swap or other arrangement that transfers to another, in whole
or in part, any of the economic consequences of ownership of), any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for shares of Common Stock, for a period of 180 days after the date of this
Prospectus, without the prior written consent of NationsBanc Montgomery
Securities LLC. As a result of the contractual restrictions described below
and the provisions of Rule 144 and 701, the Restricted Shares will be
available for sale in the public market as follows: (i) 3,450 shares will be
eligible for immediate sale on the date of this Prospectus; (ii) 246,644
shares will be eligible for sale 90 days after the date of this Prospectus;
(iii) an additional 9,323,517 shares will be eligible for sale upon expiration
of the lock-up agreements 180 days after the date of this Prospectus, subject
in the case of 9,065,168 of such shares to the volume limitations of Rule 144,
and (iv) the remaining shares will become eligible for sale on December 19,
1998 with respect to 9,372 shares, on December 22, 1998 with respect to
550,193 shares and on March 16, 1999 with respect to 13,215 shares, in each
case subject to the volume limitations of Rule 144.

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except an Affiliate) would be entitled
to sell within any three-month period a number of shares that does not exceed
the greater of: (i) 1% of the number of shares of Common Stock then
outstanding (which will equal approximately 131,248 shares immediately after
this offering); or (ii) the average weekly trading volume of the Common Stock
on the Nasdaq National Market during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to such sale. Sales under Rule 144
are also subject to certain manner of sale provisions and notice requirements
and to the availability of current public information about the Company. Under
Rule 144(k), a person who is not deemed to have been an Affiliate of the
Company at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner except an Affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144; therefore,
unless otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering. In general, under Rule 701 of the Securities Act
as currently in effect, any employee, consultant or advisor of the Company who
purchases shares from the Company in connection with a compensatory stock or
option plan or other written agreement is eligible to resell such shares

68
<PAGE>

90 days after the effective date of this offering in reliance on Rule 144, but
without compliance with certain restrictions, including the holding period,
contained in Rule 144.

Upon completion of this offering, the holder of 291,294 shares of Common
Stock issuable upon conversion of Class B Stock, or its transferees, will be
entitled to certain demand registration rights with respect to such shares.
See "Description of Capital Stock--Registration Rights." Registration of such
shares under the Securities Act would result in such shares becoming freely
tradable without restriction under the Securities Act (except for share
purchases by affiliates) immediately upon the effectiveness of such
registration.

The Company intends to file a registration statement under the Securities
Act covering (i) 1,687,500 shares of Common Stock reserved for issuance under
the Equity Incentive Plan and the Directors Plan, (ii) the shares subject to
outstanding options under the 1995 Plan, (iii) 14,573 shares of Common Stock
subject to an option not granted under the 1995 Plan and (iv) an additional
number of shares to be reserved for issuance under the Equity Incentive Plan
equal to the number of shares reserved for future issuance under the 1995
Plan. As of March 31, 1998, options to purchase 3,600,111 shares of Common
Stock were issued and outstanding and 174,902 shares of Common Stock were
reserved for future issuance under the 1995 Plan. See "Management--Employee
Benefit Plans." Such registration statement is expected to be filed and become
effective as soon as practicable after the effective date of this offering.
Accordingly, shares registered under such registration statement will, subject
to Rule 144 volume limitations applicable to Affiliates, be available for sale
in the open market, unless such shares are subject to vesting restrictions
with the Company or the lock-up agreements described above.

69
<PAGE>

UNDERWRITING

The Underwriters named below (the "Underwriters"), represented by
NationsBanc Montgomery Securities LLC, BancAmerica Robertson Stephens and
Hambrecht & Quist LLC (the "Representatives"), have severally agreed, subject
to the terms and conditions set forth in the Underwriting Agreement, to
purchase from the Company the number of shares of Common Stock indicated below
opposite their respective names at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters are
committed to purchase all of the shares if they purchase any.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
NationsBanc Montgomery Securities LLC..............................
BancAmerica Robertson Stephens.....................................
Hambrecht & Quist LLC..............................................
---------
Total............................................................ 3,000,000
=========
</TABLE>

The Representatives have advised the Company that the Underwriters initially
propose to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow to
selected dealers a concession of not more than $ per share, and the
Underwriters may allow, and such dealers may reallow, a concession of not more
than $ per share to certain other dealers. After the offering, the offering
price and concessions and other selling terms may be changed by the
Representatives. No change in such terms shall change the amount of proceeds
to be received by the Company as set forth on the cover page of this
Prospectus. The Common Stock is offered subject to receipt and acceptance by
the Underwriters and to certain other conditions, including the right to
reject orders in whole or in part.

The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a
maximum of 450,000 additional shares of Common Stock to cover over-allotments,
if any, at the same price per share as the initial 3,000,000 shares to be
purchased by the Underwriters. To the extent the Underwriters exercise this
option, each of the Underwriters will be committed to purchase such additional
shares in approximately the same proportion as set forth in the above table.
The Underwriters may purchase such shares only to cover over-allotments made
in connection with this offering.

The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under
the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.

All of the Company's officers and directors and certain stockholders have
agreed that, subject to certain exceptions, for a period of 180 days after the
date of this Prospectus, they will not, without the prior written consent of
NationsBanc Montgomery Securities LLC, directly or indirectly sell, offer to
sell or otherwise dispose of any such shares of Common Stock or any right to
acquire such shares. In addition, the Company has agreed that, for a period of
180 days after the date of this Prospectus, it will not, without the prior
written consent of NationsBanc Montgomery Securities LLC, issue, offer, sell,
grant options to purchase or otherwise dispose of any of the Company's equity
securities or any other securities convertible into or exchangeable for the
Common Stock or other equity security, other than the grant of options to
purchase Common Stock, or the issuance of shares of Common Stock under the
Company's stock option and stock purchase plans, the issuance of shares of
Common Stock in connection with certain acquisitions and the issuance of
shares of Common Stock pursuant to the exercise of outstanding options.

Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined by
negotiations between the Company and the Representatives. Among

70
<PAGE>

the factors to be considered in such negotiations will be the history of, and
the prospects for, the Company and the industry in which it competes, an
assessment of the Company's management, the prospects for future earnings of
the Company, the present state of the Company's development, the general
condition of the securities markets at the time of the offering, the market
prices of and demand for publicly traded common stock of comparable companies
in recent periods and other factors deemed relevant.

The Representatives, on behalf of the Underwriters, may engage in over-
allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities and Exchange
Act of 1934. Over-allotment involves syndicate sales in excess of the offering
size, which creates a syndicate short position. Stabilizing transactions
permit bids to purchase the underlying security so long as the stabilizing
bids do not exceed a specified maximum. Syndicate covering transactions
involve purchases of shares of Common Stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Representatives to reclaim a selling concession from a
syndicate member when the shares of Common Stock originally sold by such
syndicate member are purchased in a syndicate covering transaction to cover
syndicate short positions. Such stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the Common Stock to be
higher than it would otherwise be in the absence of such transactions. These
transactions may be effected on the Nasdaq National Market or otherwise and,
if commenced, may be discontinued at any time.

The Representatives have informed the Company that the Underwriters do not
expect to make sales in excess of five percent of the number of shares of
Common Stock offered hereby to accounts over which they exercise discretionary
authority.

Certain affiliates of the Representatives have, from time to time, performed
certain banking services for the Company, for which they have received
customary fees and expenses.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Fenwick & West LLP, Palo Alto, California. Certain
legal matters in connection with this offering will be passed upon for the
Underwriters by Brobeck, Phleger & Harrison LLP, Palo Alto, California.

CHANGES IN ACCOUNTANTS

On December 29, 1997, the Board of Directors authorized the Company to
retain KPMG Peat Marwick LLP as its independent public accountants and to
dismiss its former accountants, Ernst & Young LLP. The report of Ernst & Young
LLP for the year ended December 31, 1996 contained no adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty,
audit scope or applications or accounting principles. During the year ended
December 31, 1996 and through the date of replacement, there were no
disagreements with Ernst & Young LLP on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure.

EXPERTS

The consolidated financial statements of the Company as of and for the year
ended December 31, 1997 have been included herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
auditors, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.

The consolidated financial statements of the Company at December 31, 1996,
and for each of the two years in the period ended December 31, 1996; appearing
in this Prospectus and Registration Statement have been

71
<PAGE>

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 Aimtech Corporation as of December 31, 1996 and
for the year ended December 31, 1996 included in this Prospectus and elsewhere
in the Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm
as experts in giving said report. Reference is made to said report which
includes an explanatory paragraph that describes the uncertainty regarding the
substantial doubt about Aimtech Corporation's ability to continue as a going
concern discussed in note 1 to the financial statements.

The financial statements of Communications Strategies, Incorporated at
December 31, 1996 and September 30, 1997 and for the year ended December 31,
1996 and the nine months ended September 30, 1997 have been included herein
and in the Registration Statement in reliance upon the report of KPMG Peat
Marwick LLP, independent auditors, appearing elsewhere herein and 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") a Registration Statement on Form S-1 under the Securities Act
with respect to the shares of Common Stock offered hereby. This Prospectus
does not contain all of the information set forth in the Registration
Statement and the exhibits and schedule filed therewith. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits and schedule
filed therewith. Statements contained in this Prospectus regarding the
contents of any contract or any other document to which reference is made are
not necessarily complete, and, in each instance, reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement and the exhibits and schedule
filed therewith may be inspected without charge at the public reference
facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048, and copies of all or any part of the Registration Statement may be
obtained from such offices upon the payment of the fees prescribed by the
Commission. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
site is http://www.sec.gov.

72
<PAGE>

INDEX TO FINANCIAL STATEMENTS

ASYMETRIX LEARNING SYSTEMS, INC.

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ASYMETRIX LEARNING SYSTEMS, INC.
Independent Auditors' Reports.............................................. F-2
Consolidated Balance Sheets................................................ F-4
Consolidated Statements of Operations...................................... F-5
Consolidated Statements of Stockholders' Equity (Deficit).................. F-6
Consolidated Statements of Cash Flows...................................... F-7
Notes to Consolidated Financial Statements................................. F-9
CONSOLIDATED CONDENSED PRO FORMA FINANCIAL STATEMENTS
Overview................................................................... F-25
Pro Forma Consolidated Statement of Operations............................. F-27
Notes to Consolidated Pro Forma Financial Statements....................... F-28
AIMTECH CORPORATION
Report of Independent Public Accountants .................................. F-29
Consolidated Balance Sheets................................................ F-30
Consolidated Statements of Operations...................................... F-31
Consolidated Statements of Stockholders' Equity (Deficit).................. F-32
Consolidated Statements of Cash Flows...................................... F-33
Notes to Consolidated Financial Statements................................. F-34
COMMUNICATIONS STRATEGIES, INCORPORATED
Independent Auditors' Report .............................................. F-41
Balance Sheets............................................................. F-42
Statements of Income and Retained Earnings................................. F-43
Statements of Cash Flows................................................... F-44
Notes to Financial Statements.............................................. F-45
</TABLE>

F-1
<PAGE>

WHEN THE TRANSACTION REFERRED TO IN NOTE 12 OF THE NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS HAS BEEN CONSUMMATED, WE WILL BE IN A POSITION TO RENDER
THE FOLLOWING REPORT.

/s/ KPMG PEAT MARWICK LLP

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Asymetrix Learning Systems, Inc.:

We have audited the accompanying consolidated balance sheet of Asymetrix
Learning Systems, Inc. and subsidiaries as of December 31, 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for year then ended. These consolidated 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 Asymetrix
Learning Systems, Inc. and subsidiaries at December 31, 1997, and the
consolidated results of its operations and its cash flows for year then ended,
in conformity with generally accepted accounting principles.

Seattle, Washington
March 27, 1998, except as to note 12 which is as of May , 1998.

F-2
<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Asymetrix Learning Systems, Inc.:

We have audited the accompanying consolidated balance sheet of Asymetrix
Learning Systems, Inc. as of December 31, 1996, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the two years in the period ended December 31, 1996. These financial
statements are the responsibility of the Companys' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits 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 audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Asymetrix
Learning Systems, Inc. at December 31, 1996, and the consolidated results of
its operations and its cash flows for each of the two years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.

Seattle, Washington
April 23, 1997

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

The foregoing report is in the form that will be signed upon completion of
the reverse stock split described in note 12 to the consolidated financial
statements.

Seattle, Washington

May 15, 1998 Ernst & Young LLP

F-3
<PAGE>

ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
MARCH 31,
1996 1997 1998
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 3,763 $ 2,454 $ 2,911
Note receivable from principal stockholder.. 9,035 -- --
Accounts receivable, net of credit and sales
allowances of $3,346 in 1996, $1,148 in
1997, and $1,173 in 1998................... 1,793 7,105 5,876
Inventories................................. 720 480 421
Prepaid royalties and licenses.............. 278 79 118
Receivables from related companies.......... 128 299 314
Other current assets........................ 547 343 703
--------- --------- --------
Total current assets....................... 16,264 10,760 10,343
Property and equipment, net.................. 1,182 1,834 1,718
Purchased technology......................... 316 451 405
Goodwill, net ............................... -- 8,190 8,189
Investment in Infomodelers, Inc. ............ 838 204 --
Other assets................................. 127 125 125
--------- --------- --------
Total assets............................... $ 18,727 $ 21,564 20,780
========= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................ $ 2,354 $ 1,956 $ 1,455
Accrued compensation and benefits........... 1,696 2,164 2,209
Deferred revenue............................ 1,103 2,981 2,247
Payables to related companies............... 26 -- --
Notes payable............................... -- 762 810
Reserve for restructuring costs ............ 653 375 375
Other current liabilities................... 585 1,915 1,398
--------- --------- --------
Total current liabilities.................. 6,417 10,153 8,494
Other noncurrent liabilities................. -- 181 164
--------- --------- --------
Total liabilities............................ 6,417 10,334 8,658
--------- --------- --------
Redeemable common stock, $0.01 par value;
issued and outstanding no shares in 1996 and
191,489 shares in 1997 and 1998; (aggregate
redemption value of $3,000 in 1997 and
1998)....................................... -- 1,468 2,234
Stockholders' equity:
Class B Stock, $0.01 par value:
Authorized 5,000,000 shares; issued and
outstanding, 814,290 shares in 1996,
4,322,289 shares in 1997, and 4,321,389
shares in 1998.............................
Liquidation preference of $5,805 in 1996 and
$5,303 in 1997 and 1998.................... 8 43 43
Common stock, $0.01 par value:
Authorized 40,000,000 shares; issued and
outstanding 5,915,201 shares in 1996,
6,625,036 shares in 1997, and 6,692,365
shares in 1998............................. 59 66 67
Additional paid-in capital.................. 162,862 169,075 169,426
Accumulated deficit......................... (146,146) (159,261) (159,572)
Class B stock subscription receivable ...... (4,500) -- --
Accumulated other comprehensive income
(loss)..................................... 27 (161) (76)
--------- --------- --------
Total stockholders' equity................. 12,310 9,762 9,888
Commitments..................................
--------- --------- --------
Total liabilities and stockholders' equity. $ 18,727 $ 21,564 $ 20,780
========= ========= ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
---------------------------- --------------
1995 1996 1997 1997 1998
-------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenue:
Product revenue:
Online learning products...... $ -- $ 3,135 $ 7,056 $1,403 $2,069
Other products................ 16,238 11,165 10,425 2,811 1,540
-------- -------- -------- ------ ------
Total product revenue........ 16,238 14,300 17,481 4,214 3,609
Services revenue............... 1,926 2,955 6,583 770 4,186
-------- -------- -------- ------ ------
Total revenue............... 18,164 17,255 24,064 4,984 7,795
-------- -------- -------- ------ ------
Cost of revenue:
Product revenue:
Online learning products...... -- 136 585 58 196
Other products................ 3,343 2,946 2,069 481 289
-------- -------- -------- ------ ------
Total cost of product
revenue..................... 3,343 3,082 2,654 539 485
Services revenue............... 1,270 2,100 4,137 490 2,746
-------- -------- -------- ------ ------
Total cost of revenue....... 4,613 5,182 6,791 1,029 3,231
-------- -------- -------- ------ ------
Gross margin..................... 13,551 12,073 17,273 3,955 4,564
-------- -------- -------- ------ ------
Operating expenses:
Research and development...... 13,315 12,122 8,115 2,246 1,435
Sales and marketing........... 11,984 14,989 13,589 3,443 3,251
General and administrative.... 3,997 4,292 4,432 897 1,596
Loss on impairment of assets.. -- 2,787 -- -- --
Restructuring charge.......... 3,318 1,104 -- -- --
Acquired in-process research
and development.............. -- -- 4,064 -- --
-------- -------- -------- ------ ------
Total operating expenses...... 32,614 35,294 30,200 6,586 6,282
-------- -------- -------- ------ ------
Loss from operations............. (19,063) (23,221) (12,927) (2,631) (1,718)
-------- -------- -------- ------ ------
Other income (expense):
Other expense................. -- (1,128) -- -- --
Interest income from principal
stockholder.................. 1,222 1,066 436 182 --
Interest expense paid by
principal stockholder........ (1,846) -- -- -- --
Other interest income, net.... 50 36 48 44 4
Equity in income (losses) from
Infomodelers, Inc............ -- (112) (634) (150) 2,169
-------- -------- -------- ------ ------
Total other income (expense). (574) (138) (150) 76 2,173
-------- -------- -------- ------ ------
Income (loss) before income
taxes........................... (19,637) (23,359) (13,077) (2,555) 455
Provision for income taxes....... 78 196 38 -- --
-------- -------- -------- ------ ------
Net income (loss)................ $(19,715) $(23,555) $(13,115) (2,555) 455
Accretion of redemption value of
redeemable common stock......... -- -- -- -- (766)
-------- -------- -------- ------ ------
Net loss attributable to common
stockholders.................... $(19,715) (23,555) (13,115) (2,555) (311)
======== ======== ======== ====== ======
Basic and diluted net loss per
share........................... $ (4.14) $ (4.01) $ (2.17) $(0.43) $(0.05)
======== ======== ======== ====== ======
Shares used to compute basic and
diluted net loss per share...... 4,766 5,879 6,038 5,932 6,657
======== ======== ======== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.

F-5
<PAGE>

ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ACCUMU-
LATED
OTHER
CLASS B COMPRE-
CLASS B STOCK COMMON STOCK ADDITIONAL STOCK ACCUMU- HENSIVE
----------------- ----------------- PAID-IN SUBSCRIPTION LATED INCOME
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT (LOSS) TOTAL
--------- ------ --------- ------ ---------- ------------ --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995................... -- $-- 347,500 $ 3 $ 17,592 $ -- $(102,876) $ (87) $(85,368)
Common stock
repurchased............ -- -- (58,750) (1) (38) -- -- -- (39)
Exchange of common stock
for debt and note
receivable............. -- -- 5,561,250 56 132,956 -- -- -- 133,012
Stock options exercised. -- -- 4,583 -- 7 -- -- -- 7
Interest expense paid by
stockholder............ -- -- -- -- 1,846 -- -- -- 1,846
Net loss................ -- -- -- -- -- -- (19,715) -- (19,715)
Translation adjustments. -- -- -- -- -- -- -- (7) (7)
--------- --- --------- --- -------- ------ --------- ----- --------
Balance at December 31,
1995................... -- -- 5,854,583 58 152,363 -- (122,591) (94) 29,736
Common stock issued for
services............... -- -- 6,076 -- 7 -- -- -- 7
Series 1 Class B stock
issued for services.... 37,500 -- -- -- 300 -- -- -- 300
Series A preferred Class
B stock issued for
cash................... 388,395 4 -- -- 4,826 -- -- -- 4,830
Series B preferred Class
B stock issued for cash
and Class B Stock
subscription
receivable............. 388,395 4 -- -- 4,999 (4,500) -- -- 503
Stock options exercised. -- -- 54,542 1 86 -- -- -- 87
Dividend of Infomodelers
stock.................. -- -- -- -- (219) -- -- -- (219)
Stock compensation...... -- -- -- -- 500 -- -- -- 500
Net loss................ -- -- -- -- -- -- (23,555) -- (23,555)
Translation adjustments. -- -- -- -- -- -- -- 121 121
--------- --- --------- --- -------- ------ --------- ----- --------
Balance at December 31,
1996................... 814,290 8 5,915,201 59 162,862 (4,500) (146,146) 27 12,310
Stock options exercised. -- -- 341,757 3 362 -- -- -- 365
Series 4 Class B stock
issued in acquisitions. 2,383,894 24 -- -- 3,361 -- -- -- 3,385
Series 5 Class B stock
issued in acquisitions. 1,512,500 15 -- -- 2,133 -- -- -- 2,148
Common stock issued in
acquisitions........... -- -- 368,078 4 2,818 -- -- -- 2,822
Stock options issued in
acquisitions........... -- -- -- -- 89 -- -- -- 89
Net liability spun off
in SuperCede
transaction............ -- -- -- -- 1,402 -- -- -- 1,402
Stock compensation...... -- -- -- -- 822 -- -- -- 822
Payment of Class B stock
subscription
receivable............. -- -- -- -- -- 500 -- -- 500
Interest on Class B
stock subscription
receivable............. -- -- -- -- -- (28) -- -- (28)
Cancellation of Series B
preferred Class B
stock.................. (388,395) (4) -- -- (4,774) 4,028 -- -- (750)
Net loss................ -- -- -- -- -- -- (13,115) -- (13,115)
Translation adjustments. -- -- -- -- -- -- -- (188) (188)
--------- --- --------- --- -------- ------ --------- ----- --------
Balance at December 31,
1997................... 4,322,289 $43 6,625,036 $66 $169,075 $ -- $(159,261) $(161) $ 9,762
Stock options exercised
(unaudited)............ -- -- 55,369 1 73 -- -- -- 74
Common stock issued in
acquisitions
(unaudited)............ -- -- 13,215 -- 145 -- -- -- 145
Stock compensation
(unaudited)............ -- -- -- -- 135 -- -- -- 135
Cancellation of common
stock (unaudited)...... -- -- (1,255) -- (2) -- -- -- (2)
Cancellation of Series 4
Class B stock
(unaudited)............ (900) -- -- -- -- -- -- -- --
Accretion of redemption
value of redeemable
common stock
(unaudited)............ -- -- -- -- -- -- (766) -- (766)
Net income (unaudited).. -- -- -- -- -- -- 455 -- 455
Translation adjustments
(unaudited)............ -- -- -- -- -- -- -- 85 85
--------- --- --------- --- -------- ------ --------- ----- --------
Balance at March 31,
1998 (unaudited)....... 4,321,389 $43 6,692,365 $67 $169,426 $ -- $(159,572) $ (76) $ 9,888
========= === ========= === ======== ====== ========= ===== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>

ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- ----------------
1995 1996 1997 1997 1998
-------- -------- -------- ------- -------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)........ $(19,715) $(23,555) $(13,115) $(2,555) $ 455
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Depreciation and
amortization........... 2,086 1,696 1,118 287 390
Interest expense paid by
principal stockholder.. 1,846 -- -- -- --
Write-off of property
and equipment.......... 1,333 -- -- -- 8
Write-off of capitalized
software and license
agreements............. 509 -- -- -- --
Acquired in-process
research and
development............ -- -- 4,064 -- --
Impairment of
intangibles............ -- 2,787 -- -- --
Accrued interest on note
receivable from
principal stockholder.. (1,222) (1,066) 2,288 (182) --
Accrued interest on
Class B stock
subscription
receivable............. -- -- (28) (28) --
Equity in income
(losses) from
Infomodelers, Inc...... -- 112 634 150 (2,169)
Stock compensation
expense................ -- 500 822 -- 135
Class B stock issued in
exchange for services.. -- 300 -- -- --
Common stock issued in
exchange for services.. -- 7 -- -- --
Changes in assets and
liabilities:
Accounts receivable... 289 3,190 (4,130) (560) 1,229
Inventories........... 609 73 207 43 59
Prepaid royalties and
licenses............. (561) (298) (212) (381) (39)
Receivables from
related companies.... 566 (13) (171) (392) (15)
Other current assets.. (159) (156) 231 242 (360)
Accounts payable...... (275) 367 (1,779) (197) (501)
Accrued compensation
and benefits......... 491 89 398 (206) 7
Payable to related
companies............ 332 (306) (27) (6) --
Reserve for
restructuring costs.. 316 337 (278) (411) --
Deferred revenue...... (195) 1,095 573 74 (734)
Other current
liabilities.......... 129 (165) 2,030 528 (517)
-------- -------- -------- ------- ------
Net cash used in
operating
activities......... (13,621) (15,006) (7,375) (3,594) (2,052)
-------- -------- -------- ------- ------
Cash flows from investing
activities:
Purchase of property and
equipment.............. (591) (805) (316) (66) (56)
Purchase of technology.. (1,290) -- -- -- --
Payments related to
acquisitions, net of
cash acquired.......... -- -- (321) -- --
Disposition of
(investment in)
Infomodelers, Inc...... -- (1,000) -- -- 2,373
Disposal (purchase) of
other assets........... 57 155 (8) (1) --
-------- -------- -------- ------- ------
Net cash used in
investing
activities......... (1,824) (1,650) (645) (67) 2,317
-------- -------- -------- ------- ------
Subtotal, carried
forward............ $(15,445) $(16,656) $ (8,020) $(3,661) $ 265
======== ======== ======== ======= ======
</TABLE>

F-7
<PAGE>

ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- ----------------
1995 1996 1997 1997 1998
-------- -------- ------- ------- -------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Subtotal, brought
forward............... $(15,445) $(16,656) $(8,020) $(3,661) $ 265
Cash flows from financing
activities:
Repayment of capital lease
obligations................ -- -- (16) -- (15)
Proceeds from (repayment of)
notes payable.............. -- -- (299) -- 48
Borrowings on note payable
to stockholder............. 18,285 -- -- -- --
Payments received on note
receivable from principal
stockholder................ -- 11,850 6,747 -- --
Payments on long-term debt.. (546) (523) (398) -- --
Payments received on Class B
stock subscription
receivable................. -- -- 500 500 --
Proceeds from sale of Class
B stock, net............... -- 5,333 -- -- --
Proceeds from exercise of
stock options.............. 7 87 365 18 74
Repurchase of common stock.. (39) -- -- -- --
-------- -------- ------- ------- ------
Net cash provided by
financing activities.. 17,707 16,747 6,899 518 107
-------- -------- ------- ------- ------
Effect of exchange rate
changes on cash............ (7) 121 (188) (86) 85
-------- -------- ------- ------- ------
Net increase (decrease)
in cash and cash
equivalents........... 2,255 212 (1,309) (3,229) 457
Cash and cash equivalents at
beginning of period......... 1,296 3,551 3,763 3,763 2,454
-------- -------- ------- ------- ------
Cash and cash equivalents at
end of period............... $ 3,551 $ 3,763 $ 2,454 $ 534 $2,911
======== ======== ======= ======= ======
</TABLE>

F-8
<PAGE>

ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997 AND MARCH 31, 1997 AND 1998

(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Business

Asymetrix Learning Systems, Inc. (Asymetrix or the Company) is a provider of
online enterprise learning solutions designed to enable organizations to
capture, deploy and manage knowledge more effectively. The Company's products
can be used by clients on a variety of computer platforms. The Company's
online learning products include its learning management system known as
Librarian, its online learning authoring products, consisting of ToolBook II
Instructor and ToolBook II Assistant, its multimedia products, consisting of
media creation products and third-party learning titles. The Company's other
products include multimedia authoring tools and other products not related to
online learning. The Company also offers a variety of professional services,
including consulting and development services, training programs and customer
and technical support targeted for the online learning market.

(b) Working Capital

At December 31, 1997, the Company had working capital of $607,000. In 1998,
the Company obtained a line of credit for $5.0 million which provides funds
available to the Company through July 1, 1998. Additionally in 1998, the
Company received $2.4 million in cash from the sale of its Infomodelers stock.
The Company continues to seek additional working capital in the form of
additional lines of credit, extensions of existing lines of credit or
investments of equity in the Company which will be adequate to sustain
operations through at least December 31, 1998. The Company will manage its
operations commensurate with its level of available working capital.

The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. Investments
in 20% to 50% owned companies are accounted for using the equity method of
accounting.

(d) Use of Estimates

The preparation of financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Accordingly, actual results may differ from
these estimates.

(e) Foreign Currency Translation

The functional currency of the Company's foreign subsidiaries is the local
currency in the country in which the subsidiary is located. Assets and
liabilities denominated in foreign currencies are translated to U.S. dollars
at the exchange rate in effect on the balance sheet date. Revenues and
expenses are translated at the average rates of exchange prevailing during the
year. The translation adjustment resulting from this process is shown
separately as a component of stockholders equity. Gains and losses on foreign
currency transactions are included in the consolidated statement of operations
as incurred. To date, gains and losses on foreign currency transactions have
not been significant.

F-9
<PAGE>

ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(f) Cash and Cash Equivalents

All highly liquid financial instruments purchased with a remaining maturity
of three months or less at the date of purchase are reported as cash
equivalents. The carrying amounts reported in the consolidated balance sheets
for cash and cash equivalents approximate their fair values.

(g) Concentration of Credit and Sales Risk

The Company distributes its products through direct sales to end-users and
on an indirect basis through resellers, distributors, and original equipment
manufacturers (OEMs). The Company performs ongoing credit evaluations of its
customers' financial condition and generally requires no collateral.

(h) Inventories

Inventories are stated at the lower of cost or market and include
adjustments for estimated obsolescence. Cost is determined principally using
periodically adjusted standards, which approximate actual cost on a first-in,
first-out basis.

(i) Other Financial Instruments

At December 31, 1997, the carrying values of financial instruments, such as
trade receivables and current payables, approximated their fair values based
on the short-term maturities of these instruments.

(j) Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of three to seven years. Leasehold improvements are amortized
over the lesser of the lease term or estimated useful life. Repairs and
maintenance that do not improve or extend the lives of the respective assets
are expensed in the period incurred.

(k) Intangible Assets

Purchased technology consists of software products acquired by the Company
from third parties. At the time of their acquisition, the products had either
reached technological feasibility or were complete. Purchased technology is
amortized on a product-by-product basis using the greater of the amount
computed using the ratio that current sales bear to the total of current and
anticipated future gross revenues for that product or the straight line method
over the remaining estimated economic life of the product.

Goodwill represents excess purchase price over the fair value of tangible
and identifiable intangible assets acquired and is amortized over estimated
useful lives of 5 to 15 years.

(l) Accounting for Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of their carrying amount or fair
value less cost to sell.

(m) Revenue Recognition

Revenue from sales of software products to end-users, resellers, and
distributors is recognized when the products are shipped provided that no
significant obligations of the Company remain and collection of the

F-10
<PAGE>

ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

resulting receivable is deemed probable. The Company's agreements with certain
distributors and resellers permit them to exchange products under certain
circumstances and permit returns from certain resellers subject to specific
limitations. When appropriate, accruals are established for estimated returns
and exchanges. In the case of nonrefundable minimum royalties from an OEM,
reseller or other distributor, provided that no significant obligations of the
Company remain, the Company recognizes revenue when it delivers its product to
the OEM reseller or other distributor, provided that no significant
obligations of the Company remain. Additional royalties are paid to the extent
that the advances are exceeded and these additional royalties are recognized
when earned. The Company recognizes revenue associated with technical support
and maintenance agreements over the life of the contract. The Company
recognizes revenue from installation services as the services are provided.

The Company recognizes revenue under custom development contracts as
services are provided for time and materials contracts or by using the
percentage-of-completion method of accounting, based on the ratio of costs
incurred to the total estimated project cost, for individual fixed-price
contracts. Provisions for any estimated losses on uncompleted contracts are
made in the period in which such losses become evident.

(n) Research and Development

Research and development costs, which consist primarily of software
development costs, are expensed as incurred. Financial accounting standards
provide for the capitalization of certain software development costs after
technological feasibility of the software is established. Under the Company's
current practice of developing new products and enhancements, the
technological feasibility of the underlying software is not established until
substantially all product development is complete, including the development
of a working model. No such costs have been capitalized because the impact of
capitalizing such costs would not be material.

(o) Income Taxes

Income taxes are computed using the asset and liability method. Under this
method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in results of operations in the period that
includes the enactment date.

F-11
<PAGE>

ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(p) Stock-Based Compensation

In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123, "Accounting for Stock-Based Compensation" (Statement 123). The
Company has adopted the disclosure-only provisions of Statement 123 and
applies Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB 25) and related interpretations in accounting for
its stock option plans. Accordingly, the Company's stock-based compensation
expense is recognized based on the intrinsic value of the option on the date
of grant. Recognition of stock-based compensation expense under Statement 123
requires the use of a fair value method to value stock options using option
valuation models. Pro forma disclosure of net loss under Statement 123 is
provided in Note 9 to the financial statements.

(q) Advertising

Advertising costs are expensed as incurred and are included in sales and
marketing expense. Advertising expense was $667,000, $1,257,000 and $1,241,000
during the years ended December 31, 1995, 1996 and 1997, respectively, and
$332,000 and $193,000 during the three months ended March 31, 1997 and 1998,
respectively.

(r) Net Loss Per Share

The Financial Accounting Standards Board (FASB) recently issued SFAS No.
128, Earnings Per Share. SFAS No. 128 requires the presentation of basic
earnings per share, and for companies with complex capital structures, diluted
earnings per share. Basic earnings per share is computed by dividing the sum
of net income (loss) plus accretion of redemption value of redeemable common
stock by the weighted average number of common shares outstanding during the
period. Diluted earnings per share is computed by dividing the sum of net
income (loss) plus accretion of redemption value of redeemable common stock by
the weighted average number of common and dilutive common equivalent shares
outstanding during the period. The Company has presented historical basic and
diluted net loss per share in accordance with SFAS No. 128. As the Company had
a net loss attributable to common stockholders in each of the periods
presented, basic and diluted net loss per share is the same.

Excluded from the computation of diluted earnings per share for the year
ended December 31, 1997 are options to acquire 3,389,835 shares of Common
Stock with a weighted-average exercise price of $3.46 because their effects
would be anti-dilutive. Also excluded from the computation of diluted earnings
per share for the year ended December 31, 1997 are 3,241,645 common equivalent
shares resulting from the assumed conversion of the Class B stock because
their effects would be anti-dilutive.

(s) Comprehensive Income

In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income
(Statement 130), which establishes standards for reporting and disclosure of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. Statement 130 is
effective for fiscal years beginning after December 15, 1997 and requires
reclassification of financial statements for earlier periods to be provided
for comparative purposes. The Company has not determined the manner in which
it will present the information required by Statement 130 in its annual
financial statements for the year ending December 31, 1998. The Company's
total comprehensive income (loss) for the years ended December 31, 1995, 1996
and 1997, and the three months ended March 31, 1997 and 1998 was $(19,722),
$(23,434), $(13,303), $(2,641) and $540, respectively.

(t) New Accounting Pronouncements

In June 1997, the FASB issued SFAS No. 131, Disclosure About Segments of an
Enterprise and Related Information, (Statement 131). Statement 131 establishes
standards for the way that public business enterprises

F-12
<PAGE>

ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

report information about operating segments. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. Statement 131 is effective for fiscal years beginning after
December 15, 1997. In the initial year of application, comparative information
for earlier years must be restated. The Company has not determined the manner
in which it will present the information required by Statement 131.

(2) INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------
MARCH 31,
1996 1997 1998
------ ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Raw materials...................................... $ 686 $ 351 $238
Finished goods..................................... 419 180 231
Less obsolescence reserve.......................... (385) (51) (48)
------ ------ ----
$ 720 $ 480 $421
====== ====== ====
</TABLE>

(3) PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------- MARCH 31,
1996 1997 1998
------ ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Leasehold improvements............................... $ 181 $ 247 $ 273
Equipment............................................ 4,004 5,753 5,734
Furniture and fixtures............................... 402 494 525
------ ------ ------
4,587 6,494 6,532
Less accumulated depreciation........................ 3,405 4,660 4,814
------ ------ ------
$1,182 $1,834 $1,718
====== ====== ======
</TABLE>

(4) NOTES PAYABLE

The Company maintains a $500,000 revolving line of credit facility with a
bank. Interest is payable at the bank's stated rate plus 1.0% (10% at December
31, 1997). The facility expires April 1, 1998 and is unsecured. The Company
had outstanding borrowings under the facility of $274,000 and $322,000 at
December 31, 1997 and March 31, 1998, respectively.

At December 31, 1997 and March 31, 1998, the Company is also obligated under
a note payable to a former stockholder of the Oakes Companies in the amount of
$488,000. This note bears interest at the prime rate (8.5% at December 31,
1997) and matures in 1998.

In January 1998, the Company entered into a $5.0 million line of credit with
a bank which expires on July 1, 1998. Borrowings under this line of credit
bear interest at the bank's reference rate or LIBOR plus 1.0% per annum and
are secured by the Company's accounts receivable. There were no borrowings
outstanding under this line of credit at March 31, 1998.

F-13
<PAGE>

ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(5) LEASES

The Company leases office space under noncancelable operating leases. Future
minimum lease payments under noncancelable operating leases with terms in
excess of one year are as follows (in thousands):

<TABLE>
<S> <C>
Years ending December 31:
1998............................................................ $1,828
1999............................................................ 1,107
2000............................................................ 454
2001............................................................ 258
2002............................................................ 26
------
Total minimum lease payments.................................. $3,673
======
</TABLE>

The Company sublets a portion of its office space to related parties and
offsets rent expense through sublease billings. Total sublease billings
through 1999 are expected to approximate $717,000. No sublease billings are
expected beyond 1999. Rent expense under operating leases approximated
$1,080,000, $1,343,000 and $1,189,000 during the years ended December 31,
1995, 1996 and 1997, respectively and $277,000 and $444,000 during the three
months ended March 31, 1997 and 1998, respectively.

(6) INCOME TAXES

Income (loss) before income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. ............................................ $(19,786) $(23,498) $(13,107)
Foreign.......................................... 149 139 30
-------- -------- --------
Total loss before income taxes................. $(19,637) $(23,359) $(13,077)
======== ======== ========
</TABLE>

The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current tax expense:
U.S. Federal.............. $ -- $ -- $ --
State..................... 3 6 --
Foreign................... 75 190 38
------- -------- -------
Total provision for
income taxes........... $ 78 $ 196 $ 38
======= ======== =======
</TABLE>

The effective rate differs from the U.S. federal statutory rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax expense (benefit) at statutory
rate of 34%................................ $(6,677) $(7,942) $(4,446)
Losses producing no current tax benefit..... 6,621 7,869 2,954
Acquired in-process research and
development................................ -- -- 1,382
Foreign taxes............................... 75 190 38
Other, net.................................. 59 79 110
------- ------- -------
Total provision for income taxes.......... $ 78 $ 196 $ 38
======= ======= =======
</TABLE>

F-14
<PAGE>

ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

As of December 31, 1997, Asymetrix had federal net operating loss (NOL)
carryforwards and research and development (R&D) tax credit carryforwards
whose expiration approximated the following:

<TABLE>
<CAPTION>
NOL R&D
-------- ------
(IN THOUSANDS)
<S> <C> <C>
From 2000 through 2001...................................... $ 2,392 $ --
From 2002 through 2006...................................... 27,080 928
From 2007 through 2012...................................... 98,710 1,630
-------- ------
$128,182 $2,558
======== ======
</TABLE>

The Company's ability to utilize NOL carryforwards may be limited in the
event that a change in ownership, as defined in the Internal Revenue Code,
occurs in the future.

Deferred income tax assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............................ $40,660 $43,582
Research and development tax credit carryforwards........... 2,463 2,558
Provisions for credit and sales allowances.................. 1,138 390
Provision for inventory obsolescence........................ 131 17
Stock compensation.......................................... 170 398
Other provisions and expenses not currently deductible...... 271 427
------- -------
44,833 47,372
Valuation allowance for deferred tax assets................. (44,833) (47,372)
------- -------
Net deferred tax assets................................... $ -- $ --
======= =======
</TABLE>

For financial reporting purposes, the deferred tax assets valuation
allowance has been established due to the uncertainty of realization of the
deferred tax assets. The valuation allowance increased $5,581,000, $7,637,000
and $2,539,000 in 1995, 1996 and 1997, respectively.

(7) RELATED-PARTY TRANSACTIONS

Prior to March 1995, the Company financed its operations through a bank-
provided line of credit up to $120,000,000 guaranteed by its principal
stockholder, who was also coborrower under the line of credit. The credit
facility was secured by collateral pledged by the Company's principal
stockholder. As interest on the debt was paid directly by the Company's
principal stockholder, in accordance with SEC Staff Accounting Bulletin No.
79, interest expense of $1,846,000 in 1995 was recognized by the Company and
treated as a contribution to capital from the stockholder.

In March 1995, the Company effected a recapitalization under which all of
the outstanding shares of common stock, except for 288,750 shares held by the
principal stockholder, were repurchased for $.67 per share, the estimated fair
value of the Company's Common Stock. Subsequent to this repurchase, the
Company issued an aggregate of 5,561,250 shares of stock to its then sole
stockholder, bringing the total outstanding shares to 5,850,000. In exchange
for this stock, the sole stockholder contributed $18,404,000 in the form of a
note receivable and canceled the note payable which, at that date, had an
outstanding balance of $114,608,000. The note receivable is due on demand,
bears interest at 8%, and had a balance of $9,035,000 at December 31, 1996.
The note receivable was repaid in full in October 1997.

F-15
<PAGE>

ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In March 1998, the Company entered into a Directed Engineering Agreement
(the Engineering Agreement) with Vulcan Northwest, d/b/a APEX (APEX), an
entity controlled by the Company's principal stockholder pursuant to which the
Company has agreed to develop customized extensions of its Librarian product.
The terms of the Engineering Agreement are similar to those of other custom
development arrangements which the Company has entered into with other third
parties. Pursuant to the terms of the Engineering Agreement, the Company will
retain all intellectual property rights to these extensions. APEX is obligated
to pay the Company an aggregate of $250,000 in non-refundable installments
upon the achievement by the Company of the following milestones: the
specification of functional requirements, the specification of user interface,
the delivery of a beta version of Librarian with enhancements, and the
delivery of a final version of Librarian with enhancements. Revenue is
recognized based upon the percentage of completion method.

(8) ACQUISITIONS

(a) Socha Computing, Inc. (Socha)

In July 1997, the Company acquired all the outstanding shares of common
stock of Socha. The acquisition was recorded under the purchase method of
accounting. The purchase price included $200,000 in cash and 200,000 shares of
Series 4 Class B Stock (which are convertible into an aggregate of 150,000
shares of Common Stock) valued at $284,000. At the time of the acquisition,
the operations of Socha consisted primarily of development of technology. At
the date of the acquisition, the in-process research and development was
evaluated as to its state of completion and it was determined that
technological feasibility had not yet been established and that the technology
had no alternative future uses. As a result, the aggregate purchase price of
$484,000 has been allocated to acquired in-process research and development.
An additional $400,000 will be paid contingent upon the satisfaction of
certain performance milestones related to technology purchased in the
acquisition. In addition, the Company is obligated to pay 10% of net revenues
generated from the purchased technology, as well as 2% of net revenues from
products developed utilizing the purchased technology, not to exceed maximum
aggregate royalties of $5,400,000.

(b) Aimtech Corporation (Aimtech)

In September 1997, the Company acquired all the outstanding shares of common
stock of Aimtech, a provider of computer based training (CBT) development
products based in Nashua, New Hampshire. The Aimtech acquisition was recorded
under the purchase method of accounting. Accordingly, the results of Aimtech's
operations from September 12, 1997 are included in the Company's consolidated
financial statements. The purchase price consisted of 2,183,894 shares of
Series 4 Class B Stock (which are convertible into an aggregate of 1,637,853
shares of Common Stock) valued at $3,101,000 and options to purchase 19,431
shares of Series 4 Class B Stock (which are convertible into an aggregate of
14,573 shares of Common Stock) and $154,000 of other acquisition costs. No
value has been ascribed to the options issued as the amount was not
significant. Included in the 2,183,894 shares of Series 4 Class B Stock issued
in this acquisition were 44,171 shares (convertible into an aggregate of
33,128 shares of Common Stock) valued at $63,000, which represented a
financial advisory fee, and 27,928 shares (convertible into an aggregate of
20,945 shares of Common Stock) valued at $40,000, which were distributed to
employees of Aimtech pursuant to Aimtech's "change of control" severance and
retention policy The purchase price has been allocated to assets acquired and
liabilities assumed based on their fair value at the date of acquisition as
follows (in thousands):

<TABLE>
<S> <C>
Acquired in-process research and development...................... $3,580
Purchased technology.............................................. 350
Goodwill.......................................................... 1,467
Net current liabilities........................................... (2,243)
Property and equipment and other assets........................... 101
------
$3,255
======
</TABLE>

F-16
<PAGE>

ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

At the date of the acquisition, technological feasibility of the acquired
in-process technology had not been established, and the technology had no
alternative future uses. In connection with the acquisition of Aimtech,
441,705 shares of the Series 4 Class B stock issued in connection with the
acquisition of Aimtech (which are convertible into an aggregate of 331,246
shares of Common Stock) were placed in escrow to secure certain
indemnification obligations of former stockholders of Aimtech. Subsequent to
the acquisition of Aimtech, the Company entered into an agreement to license
to a third party certain technology acquired from Aimtech. Pursuant to the
agreement, the licensee is required to pay royalties to the Company over a
three-year period based on percentages of net revenue. Total royalties paid
are not to exceed $5,000,000, with minimum guaranteed royalties of $500,000,
payable through 1998.

In September 1997, the Company acquired all of the outstanding shares of
common stock of the Oakes Companies. The Oakes Companies consist of Oakes
Interactive Incorporated, a multimedia training developer based in Needham,
Massachusetts, Acorn Associates Incorporated, a consulting services
organization, and Top Shelf Multimedia, Inc., a reseller of third-party
multimedia titles. The acquisition of the Oakes Companies was recorded under
the purchase method of accounting. The purchase price consisted of 1,512,500
shares of Series 5 Class B Stock (which are convertible into an aggregate of
1,134,371 shares of Common Stock) valued at $2,148,000, and $72,000 of other
acquisition costs, and has been allocated to assets acquired and liabilities
assumed based on their fair value at the date of acquisition as follows (in
thousands):

<TABLE>
<S> <C>
Property and equipment and other assets........................... $ 686
Goodwill.......................................................... 2,809
Net current liabilities........................................... (197)
Long-term obligations............................................. (1,078)
------
$2,220
======
</TABLE>

(d) Communications Strategies, Incorporated (CSI)

In December 1997, the Company acquired all the outstanding shares of common
stock of CSI. The purchase price consisted of 550,193 shares of Common Stock
valued at $4,218,000, options to purchase 22,500 shares of the Company's
Common Stock at $7.67 per share to stockholders of CSI and acquisition costs
of $10,000. The fair value of the options issued is $89,000. The acquisition
of CSI has been recorded under the purchase method of accounting. Accordingly,
the purchase price has been allocated to assets acquired and liabilities
assumed based on their fair value at the date of acquisition as follows (in
thousands):

<TABLE>
<S> <C>
Property and equipment and other assets........................... $1,233
Goodwill.......................................................... 3,901
Current liabilities............................................... (817)
------
$4,317
======
</TABLE>

In the event the Company does not complete an initial public offering of its
Common Stock with aggregate proceeds not less than $10,000,000 on or prior to
June 30, 1998, the former shareholders of CSI have the right to require the
Company to repurchase up to 191,490 shares of the Common Stock issued in the
acquisition at a price of $15.67 per share. This right expires upon the
earlier of the closing of an initial public offering as described above, the
date such stockholder no longer holds any shares of the Company's Common
Stock, or July 31, 1998. The shares subject to this right have been classified
as redeemable common stock outside of stockholders' equity pursuant to the
rules and regulations of the Securities and Exchange Commission.

(e) Graham-Wright Interactive, Inc. (GWI)

In December 1997, the Company acquired all the outstanding shares of common
stock of GWI. The acquisition of GWI was accounted for under the purchase
method of accounting. The purchase price consisted of

F-17
<PAGE>

ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

9,372 shares of common stock valued at $72,000, and has been allocated to
assets acquired and liabilities assumed based on their fair value at the date
of acquisition as follows (in thousands):

<TABLE>
<S> <C>
Property and equipment............................................. $ 52
Goodwill........................................................... 132
Net current liabilities............................................ (112)
-----
$ 72
=====
</TABLE>

A summary of the purchase price paid for all of the 1997 acquisitions is as
follows:

<TABLE>
<S> <C>
Consideration:
Cash, including acquisition costs.............................. $ 436
Current liabilities assumed.................................... 4,944
Non-current liabilities assumed................................ 1,078
Stock and stock options........................................ 9,912
-------
$16,370
=======
</TABLE>

A summary of the allocation of the purchase price for all of the 1997
acquisitions is as follows:

<TABLE>
<S> <C>
Cash acquired..................................................... $ 115
Current assets acquired........................................... 2,437
Property and equipment and other non-current assets............... 1,095
Software technology--completed.................................... 350
Software technology in progress--charged to in-process research
and development.................................................. 4,064
Goodwill.......................................................... 8,309
-------
$16,370
=======
</TABLE>

(f) Unaudited Pro Forma Financial Information

The following table presents unaudited pro forma results of operations as if
the acquisitions of Socha, Aimtech, Oakes, CSI and GWI had occurred on January
1, 1996:

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED
---------------- MARCH 31,
1996 1997 1997
------- ------- ------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Revenue....................................... $30,772 $35,951 $8,888
Net loss...................................... (29,030) (17,505) (3,959)
Net loss per share............................ (4.65) (2.74) (0.63)
</TABLE>

(9) IMPAIRMENT OF ASSETS AND RESTRUCTURINGS

(a) Restructuring of Domestic Operations

In January 1995, the Company adopted a plan to restructure its domestic
operations. Pursuant to this plan, the Company discontinued development of
certain products and reduced its development, sales, and support work force by
89 full-time employees (approximately 30% of the work force). The Company
recognized a charge to income of $3,318,000 as a result of this
reorganization. This charge related primarily to involuntary termination
benefits for employee compensation of $1,455,000, guaranteed royalties of
$375,000, cost for abandoned office space of $319,000, computer equipment,
furniture and office equipment of $284,000, and other costs, of $885,000. As
of December 31, 1995, the remaining obligations relating to this restructuring
were insignificant.

F-18
<PAGE>

ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(b) Restructuring of European Operations

In September 1996, the Company adopted a plan to restructure its European
operations. The Company recognized a charge to income of $604,000, which
included involuntary termination benefits for employee compensation and
certain exit costs.

On October 7, 1996, the Company transferred employees previously employed in
the Company's Client/Server Tools Division to a new wholly-owned subsidiary
Infomodelers, Inc. (Infomodelers), previously ASX Corporation, formed in
August 1996. The Company entered into two agreements with Infomodelers: (1) a
Technology Transfer and License Agreement, whereby the Infomodelers and
Conceptual Query technologies were transferred to Infomodelers in exchange for
3,500,000 shares of Infomodelers' common stock (all of the outstanding stock
of ASX Corporation), a royalty of 8% on sales of Infomodelers' products and
services based on this technology over the next five years; and a license for
the Company to use the technology in noncompeting products; and (2) an Asset
Purchase and Loan Agreement, whereby the Company sold Infomodelers all net
assets (including patents and trademarks covering the technology) of the
Client/Server Tools Division for $500,000. Additionally, the Company loaned
Infomodelers $1,000,000. Both the purchase price of the assets and the loan
were reflected in a $1,500,000 promissory note from Infomodelers to the
Company. The Company recorded a noncash restructuring expense of $500,000
related to a modification of Asymetrix stock option plan rights related to
employees who transferred to Infomodelers. The Company canceled the $1,500,000
promissory note in exchange for 700,000 shares of Infomodelers preferred
stock.

On October 17, 1996, the Company distributed, in the form of a dividend,
2,434,262 shares of Infomodelers common stock valued at $219,000 to its
existing stockholders, and distributed 368,512 shares of Infomodelers common
stock valued at $33,000 (in the form of compensation) to holders of vested
options of the Company's common stock.

Subsequent to these transactions, and the sale of $700,000 shares of
Infomodelers preferred stock by Infomodelers to a third party, the Company
owned approximately 28% of the outstanding voting stock of Infomodelers at
December 31, 1996 and accounts for its investment in Infomodelers using the
equity method of accounting.

As a result of this spin-off, the Company reviewed the technology remaining
in the Client/Server Tools Division and development activities using the
technology were abandoned. Therefore, the Company recorded an impairment
charge of $2,787,000 in 1996, to write-off previously capitalized amounts
related to licenses for the technology.

(d) Spin-Off of Internet Tools Division

In June 1997, the Company established a wholly-owned subsidiary, SuperCede,
Inc. (SuperCede), and transferred the assets and liabilities of its Internet
Tools Division to SuperCede. In connection with the transfer, the Company
entered into an Asset Transfer, License and Stock Issuance Agreement under
which these assets and liabilities, including technologies, were transferred
to SuperCede in exchange for 3,500,000 shares of SuperCede common stock and a
license for the Company to use the technology in noncompeting products
specifically including the Company's online enterprise learning products. In
September 1997, the Company exchanged its SuperCede common stock for an
equivalent number of shares of SuperCede Series B preferred stock, and the
license of SuperCede technology to the Company was terminated. Also in
September 1997, an additional investor controlled by the Company's principal
stockholder purchased 3,500,000 shares of SuperCede Series A preferred stock
for $2.00 per share, reducing the Company's investment in SuperCede to 50%.
Each of the Series A and Series B preferred stock are convertible into one
share of SuperCede common stock at the option of the holder and carry

F-19
<PAGE>

ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

liquidation preferences of $2.00 per share plus any declared but unpaid
dividends. The liquidation preference on SuperCede Series A preferred stock is
senior to that of the SuperCede Series B preferred stock.

On the date the Company exchanged its SuperCede common stock for SuperCede
Series B preferred stock and SuperCede sold Series A preferred stock to the
Company's principal stockholder, SuperCede had net liabilities of $1,357,000.
The Company treated the transaction as a sale of stock by its subsidiary.
Because SuperCede's Series A preferred stockholder has rights, preferences and
privileges superior to those of the Company's Series B preferred stock, the
Company's share of SuperCede's net assets is $0 and, therefore, the Company
increased the carrying amount of its investment in SuperCede to $0. The
increase in the carrying amount of the Company's investment in SuperCede was
reflected as an increase of $1,402,000 to additional paid-in capital. The
Company accounts for its investment in SuperCede using the equity method of
accounting. Additionally, the Company will record no equity in earnings in
SuperCede until the net assets of SuperCede exceed the then liquidation
preference on the Series A preferred stock.

(10) STOCKHOLDERS' EQUITY

(a) Class B Stock

SERIES 1 CLASS B STOCK

On September 5, 1996, the Company designated a total of 50,000 shares of
$.01 par value Series 1 Class B Stock (Series 1 Stock). These shares have a
preference on liquidation of $8.00 per share. On September 5, 1996, the
Company issued 37,500 shares of Series 1 Stock (which are convertible into an
aggregate of 28,125 shares of Common Stock) valued at $300,000 to EnCompass
Group, Inc. in consideration for certain localization services.

SERIES A PREFERRED CLASS B STOCK

On October 11, 1996, the Company designated 388,395 shares of $.01 par value
Series A Preferred Class B Stock (Series A Stock). These shares have a
preference on liquidation equal to the original issue price of the shares plus
all declared but unpaid dividends thereon. On October 25, 1996, the Company
issued 388,395 shares of Series A Stock (which are convertible into an
aggregate of 291,296 shares of Common Stock) to SOFTBANK Holdings, Inc. in
exchange for cash of $5,002,528, reduced by offering costs of $173,000.

SERIES B PREFERRED CLASS B STOCK

On December 13, 1996, the Company designated 388,395 shares of $.01 par
value Series B Preferred Class B Stock (Series B Stock). These shares have a
preference on liquidation equal to the original issue price of the shares plus
all declared but unpaid dividends thereon. On December 20, 1996, Multimedia
Asia Pacific Pty. Ltd. (MAP) purchased 388,395 shares of Series B Stock in
exchange for $502,528 in cash and a promissory note for $4,500,000, bearing
interest at an annual rate of 6%. The note calls for a series of scheduled
payments through May of 1997, and payment for $500,000 was received in January
1997.

As of December 31, 1996, 349,380 shares of Series B Stock were pledged as
security on the note. In February of 1997, MAP defaulted on the note, with
310,560 shares remaining pledged against the note. Subsequent to the default,
the Company granted MAP an extension to pay off all, or a portion of, the
unpaid principal on the note of $4,000,000, plus accrued interest, by December
31, 1997.

In October 1997, the Company and MAP effected a settlement of the note
through the following transactions:

. All shares of Series B Stock that were pledged to secure the note were
cancelled in full satisfaction of the balance of the note, and

F-20
<PAGE>

ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

. All shares of Series B Stock that were then fully paid were redeemed by the
Company in exchange for $750,000 of accounts receivable owed to the Company
by Asymetrix Asia Pacific Pty. Ltd., a wholly-owned subsidiary of MAP.

SERIES 4 AND 5 CLASS B STOCK

On June 24, 1997 and July 10, 1997, the Company designated a total of
2,500,000 shares of $0.01 par value Series 4 Class B Stock (Series 4 Stock).
These shares have no preference on liquidation. In July 1997, the Company
issued 200,000 shares of Series 4 Stock valued at $284,000 to effect the
acquisition of Socha. In September 1997, the Company issued 2,183,894 shares
of Series 4 Stock (which are convertible into an aggregate of 1,637,853 shares
of Common Stock) valued at $3,101,000 to effect the acquisition of Aimtech.

On September 26, 1997, the Company designated a total of 1,512,500 shares of
$0.01 par value Series 5 Class B Stock (Series 5 Stock). These shares have no
preference on liquidation. In September 1997, the Company issued 1,512,500
shares of Series 5 Stock (which are convertible into an aggregate of 1,134,371
shares of Common Stock) valued at $2,148,000 to effect the acquisition of the
Oakes Companies.

STOCK RIGHTS AND PREFERENCES

The Series 1 Stock, the Series A Stock, Series B Stock, Series 4 Stock and
Series 5 Stock (collectively known as Class B Stock) are convertible into
common stock at a conversion ratio of 0.75 to 1.0 (subject to subsequent
adjustments for stock dividends or other events). Such conversion may occur at
the option of the holder of the shares, upon an initial public offering, or
certain other events. Each holder of paid-up Class B Stock is entitled to vote
upon all matters which the holders of common stock have the right to vote, in
accordance with the conversion ratio described above. Dividends for Class B
Stock are not mandatory or cumulative and are at the discretion of the Board
of Directors. However, any dividends which are declared must be paid to the
holders of the Series A Stock and Series B Stock before dividends are paid to
the holders of the Series 1 Stock, Series 4 Stock, Series 5 Stock or common
stock. Additionally, the holders of Series 4 and 5 Stock are not entitled to
receive any dividends which may be paid upon the Company's disposition of its
investment in SuperCede. All dividends are paid on an as-converted to common
stock basis.

The Series 1 Stock liquidation preference rights are subordinate to the
Series A Stock and Series B Stock, whose liquidation preference rights are
equal.

A summary of Class B Stock follows:

<TABLE>
<CAPTION>
ISSUED AND OUTSTANDING
----------------------------
DESIGNATED
SHARES 1996 1997
---------- ------- ---------
<S> <C> <C> <C>
Series 1 Stock..................................... 50,000 37,500 37,500
Series A Stock..................................... 388,395 388,395 388,395
Series B Stock..................................... 388,395 388,395 --
Series 4 Stock..................................... 2,500,000 -- 2,383,894
Series 5 Stock..................................... 1,512,500 -- 1,512,500
Undesignated....................................... 160,710 -- --
--------- ------- ---------
5,000,000 814,290 4,322,289
========= ======= =========
</TABLE>

(b) Stock Option Plan

In 1995, the Company's Board of Directors adopted and approved the Asymetrix
Corporation 1995 Combined Incentive and Nonqualified Stock Option Plan (the
Plan) that provides for the issuance of nonqualified

F-21
<PAGE>

ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

and incentive stock options to officers, employees, and consultants to acquire
4,275,000 shares of common stock. The Board of Directors determines the terms
and conditions of options granted under the Plans, including the exercise
price. The exercise price for incentive stock options shall not be less than
the fair market value at the date of grant, and the options expire ten years
from the date of grant. Options granted on the Plan inception date vest
ratably each month over four years. Options granted subsequent to Plan
inception generally vest at 25% after the first year and ratably each month
for the next three years. When options are issued at less than fair market
value, compensation expense is recorded. All canceled options revert back to
the option pool.

The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options rather than the alternative fair
value accounting allowed by Statement 123. APB 25 provides that compensation
expense relative to the Company's employee stock options is measured based on
the intrinsic value of the stock option. Statement 123 requires companies that
continue to follow APB 25 to provide a pro forma disclosure of the impact of
applying the fair value method of Statement 123.

Under APB 25, because the exercise price of the Company's employee stock
options equals the fair value of the underlying stock on the date of grant, no
compensation expense is recognized. Had stock compensation expense for the
Company's stock option plan been determined based on the fair value
methodology under Statement 123, the Company's net loss would have increased
to these pro forma amounts:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net loss:
As reported.................................... $(19,715) $(23,555) $(13,115)
Pro forma...................................... (19,859) (23,926) (13,616)
Basic and diluted net loss per share:
As reported.................................... $ (4.14) $ (4.01) $ (2.17)
Pro forma...................................... (4.17) (4.07) (2.26)
</TABLE>

The fair value for these options was estimated at the date of grant using
the minimum value option pricing model that takes into account (1) the stock
price at the grant date, (2) the exercise price, (3) a five-year expected life
of the options, (4) no dividends, and (5) a risk-free interest rate of 6.5%
during 1995 and 1996, and 6.0% during 1997 over the expected life of the
options. Compensation expense recognized in providing pro forma disclosures
may not be representative of the effects on pro forma net income or loss for
future years because the amounts above include only the amortization for the
fair value of the 1995, 1996 and 1997 grants.

The weighted-average fair value of stock options granted in 1995, 1996 and
1997 was $0.41, $0.64 and $1.57, respectively.

F-22
<PAGE>

ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

A summary of the Company's stock option activity is as follows:

<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------
WEIGHTED
SHARES AVERAGE
AVAILABLE NUMBER EXERCISE
FOR GRANT OF SHARES PRICE
---------- ----------- ---------
<S> <C> <C> <C>
Outstanding at January 1, 1995............ -- -- --
Plan introduction....................... 4,275,000 -- --
Options granted......................... (3,164,473) 3,164,473 $ 1.55
Options exercised....................... -- (4,583) 1.55
Options canceled........................ 266,322 (266,322) 1.55
---------- -----------
Balances at December 31, 1995............. 1,376,849 2,893,568 1.55
Options granted......................... (750,434) 750,434 2.37
Options exercised....................... -- (54,542) 1.55
Options canceled........................ 482,603 (482,603) 1.55
---------- -----------
Balances at December 31, 1996............. 1,109,018 3,106,857 1.75
Options granted......................... (1,380,823) 1,380,823 6.23
Options exercised....................... -- (341,757) 1.55
Options canceled in cashless exercises.. -- (40,089) 1.55
Options canceled........................ 715,999 (715,999) 2.33
---------- -----------
Balances at December 31, 1997............. 444,194 3,389,835 3.46
Options granted......................... (396,399) 396,399 7.67
Options exercised....................... -- (55,369) 1.55
Options canceled in cashless exercises.. -- (3,647) 1.55
Options canceled........................ 127,107 (127,107) 3.41
---------- -----------
Balances at March 31, 1998................ 174,902 3,600,111 3.95
========== ===========
</TABLE>

The following table summarizes information concerning currently outstanding
and exercisable options at December 31, 1997:

<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICES
-------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$1.55 2,004,428 7.6 years $1.55 1,297,158 $1.55
6.00 1,197,908 9.6 years 6.00 99,900 6.00
7.67 187,499 9.9 years 7.67 -- --
--------- ---------
3,389,835 8.4 years 3.46 1,397,058 1.87
========= =========
</TABLE>

F-23
<PAGE>

ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

At December 31, 1997, the Company has reserved shares of Common Stock as
follows:

<TABLE>
<S> <C>
Employee stock options............................................. 3,389,835
Stock options issued in acquisitions............................... 37,073
Conversion of Class B Stock:
Series 1 Class B................................................. 28,125
Series A Class B................................................. 291,296
Series 4 Class B................................................. 1,787,853
Series 5 Class B................................................. 1,134,371
---------
6,668,553
=========
</TABLE>
(d) 1998 Equity Incentive Plan

In December 1997, the Board adopted, subject to stockholder approval, the
1998 Equity Incentive Plan (the "Equity Incentive Plan"). The total number of
shares of Common Stock reserved for issuance thereunder is 1,500,000. The
Equity Incentive Plan will become effective on the closing of the initial
public offering and will serve as the successor to the 1995 Plan. Options
granted under the 1995 Plan before their termination will remain outstanding
according to their terms, but no further options will be granted under the
1995 Plan after the closing of the initial public offering.

(e) 1998 Directors Stock Option Plan

(11) BENEFIT PLANS

The Company has a Retirement Savings Plan to provide for voluntary salary
deferral contributions on a pretax basis in accordance with Section 401(k) of
the Internal Revenue Code of 1986, as amended. To date, the Company has made
no contributions.

(12) REVERSE STOCK SPLIT

On December 29, 1997, the Board approved, subject to stockholder approval, a
3-for-4 reverse split of its Common Stock. The consolidated financial
statements, including all share and per share amounts, have been restated to
reflect the reverse stock split.

(13) SALE OF INFOMODELERS STOCK

In February 1998, Infomodelers sold substantially all of its assets to Visio
Corporation, a publicly traded company, in exchange for Visio Corporation
common stock. In connection with this transaction the Company included in
equity in earnings of Infomodelers approximately $2.2 million, which
represents its share of the gain which Infomodelers realized on this
transaction.

In March 1998, the Company sold to its principal stockholder Infomodelers
shares with an aggregate book value of $2.4 million to the Company's principal
stockholder for cash of $2.4 million.

F-24
<PAGE>

ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(14) ADAMS CONSULTING GROUP, INC. ACQUISITION

In March 1998, the Company acquired Adams Consulting Group, Inc. (Adams) by
issuing 13,215 shares of the Company's Common Stock. The acquisition of Adams
was accounted for under the purchase method of accounting. The purchase price
consisted of the Common Stock issued valued at $145,000, and has been
allocated to assets acquired and liabilities assumed based on their fair
values at the date of acquisition as follows (in thousands):

<TABLE>
<S> <C>
Goodwill............................................................... $183
Current liabilities.................................................... (38)
----
$145
====
</TABLE>

(15) LITIGATION

In 1996, a complaint seeking unspecified damages was filed against the
Company alleging that the Company's ToolBook and Multimedia ToolBook products
infringe a patent. The Company has received an opinion from counsel that the
products do not infringe this patent and that the patent is invalid. The
action is still in the discovery stage. Although the Company does not believe
that the resolution of this litigation will have a material impact on its
financial position and results of operations, it is reasonably possible that
the outcome will result in a loss to the Company. The Company's best estimate
of the range of loss is insignificance. The Company intends to vigorously
defend this action.

(16) SUBSEQUENT EVENTS (UNAUDITED)

In May 1998, the Company entered into a letter of intent to acquire
Strategic Systems Associates, Inc. (SSA), an Illinois-based provider of custom
development and consulting services for the online learning market. The
Company will issue approximately 102,000 shares of Common Stock in connection
with the acquisition. The Company will also grant options to purchase up to
112,500 shares of Common Stock to former SSA employees who remain employed by
Asymetrix. It is anticipated that this acquisition will be accounted for using
the purchase method of accounting.

Also in May 1998, the Company entered into a letter of intent to acquire
Meliora Systems, Inc. (Meliora), a New York-based developer of online learning
software and provider of consulting services. The Company will issue
approximately 250,000 shares of Common Stock in connection with the
acquisition. The Company will also grant options to purchase up to 270,000
shares of Common Stock to former Meliora employees who remain employed by
Asymetrix. It is anticipated that this acquisition will be accounted for as a
pooling of interests.

F-25
<PAGE>

CONSOLIDATED CONDENSED PRO FORMA FINANCIAL STATEMENTS

ASYMETRIX AND SUBSIDIARIES

During the period from January 1, 1997 to March 17, 1998, Asymetrix Learning
Systems, Inc. ("the Company") recognized the effect of the acquisition of
eight entities in separate transactions whereby the Company acquired all of
the outstanding stock of eight entities in exchange for either Class B Stock
or Common Stock of the Company. In addition, in a separate transaction in
September 1997, the Company spun off certain of its assets and liabilities,
and employees in exchange for stock of a newly created entity.

ACQUISITIONS

The acquisitions of Communications Strategies, Incorporated ("CSI"), Aimtech
Corporation ("Aimtech"), and Oakes Interactive Incorporated, TopShelf
Multimedia, Inc. and Acorn Associates Incorporated (collectively, the "Oakes
Companies"), have been accounted for using the purchase method of accounting,
and accordingly, each purchase price has been allocated to the tangible and
identifiable intangible assets acquired and liabilities assumed on the basis
of their fair values on the acquisition dates. The fair value of the Company's
stock issued in the acquisitions was estimated to be $1.42 per share for the
acquisitions of Aimtech and the Oakes Companies, and $7.67 per share for the
acquisition of CSI.

In September 1997, the Company acquired Aimtech by issuing an aggregate of
2,183,894 shares of Series 4 Class B Stock (which are convertible into an
aggregate of 1,637,853 shares of Common Stock) valued at $3,101,000 in
exchange for all of Aimtech's outstanding common stock. Included in the
2,183,894 shares of Series 4 Class B Stock issued in this acquisition were
44,171 shares (convertible to an aggregate of 33,128 shares of Common Stock)
valued at $63,000, which represented a financial advisory fee, and 27,928
shares (convertible to an aggregate of 20,945 shares of Common Stock) valued
at $40,000, which were distributed to employees of Aimtech pursuant to
Aimtech's "change of control" severance and retention policy. Additionally,
the Company issued an option to purchase 19,431 shares of Series 4 Class B
Stock (which are convertible into an aggregate of 14,573 shares of Common
Stock). No value was ascribed to the option as the amount was not significant.

In September 1997, the Company acquired the Oakes Companies by issuing an
aggregate of 1,512,500 shares of Series 5 Class B Stock (which are convertible
into an aggregate of 1,134,371 shares of Common Stock) valued at $2,148,000 in
exchange for all of the outstanding shares of common stock of each of the
Oakes Companies.

In December 1997, the Company acquired CSI by issuing an aggregate of
550,193 shares of Common Stock valued at $4,218,000 and options to purchase
30,000 shares of Common Stock at an exercise price of $7.67 per share valued
at $89,000 in exchange for all of the outstanding shares of CSI's common
stock.

In addition to the acquisitions discussed above, in 1997 the Company
completed an acquisition of Socha Computing, Inc. (Socha) and an acquisition
of Graham-Wright Interactive, Inc. (Graham-Wright), and in 1998 the Company
completed an acquisition of Adams Consulting Group, Inc. (Adams). The purchase
price for Socha consisted of $200,000 cash and 200,000 shares of Series 4
Class B Stock (which are convertible into an aggregate of 150,000 shares of
Common Stock) valued at $284,000. The purchase price for Graham-Wright
consisted of 9,375 shares of Common Stock valued at $72,000. The purchase
price for Adams consisted of 13,215 shares of Common Stock valued at $145,000.
The impact of the acquisitions of Socha, Graham-Wright and Adams have not been
included in the pro forma financial statements as the impact would not be
significant to the pro forma financial statements taken as a whole.

DISPOSITION

In September 1997, the Company contributed certain technology assets related
to its SuperCede development project to a wholly-owned subsidiary in exchange
for 3,500,000 shares of Common Stock in that subsidiary. In August 1997,
Vulcan Ventures Inc. ("Vulcan Ventures"), a venture capital company controlled

F-26
<PAGE>

by the principal stockholder of the Company, loaned to SuperCede an aggregate
of $7,000,000 which was evidenced by a convertible promissory note (the
"SuperCede Note"). In September 1997, SuperCede sold an aggregate of 3,500,000
shares of its Series A Preferred Stock to Vulcan Ventures for a purchase price
of $2.00 per share, including cancellation of the indebtedness represented by
the SuperCede Note reducing the Company's investment in SuperCede to 50%. Also
in September 1997, the Company exchanged its SuperCede Common Stock for an
equivalent number of shares of SuperCede Series B Preferred Stock. Each share
of SuperCede Series A Preferred Stock and Series B Preferred Stock is
convertible into one share of SuperCede Common Stock at the option of the
holder and carries a liquidation preference of $2.00 per share plus any
declared but unpaid dividends. The liquidation preference on SuperCede Series
A Preferred Stock is senior to that of the SuperCede Series B Preferred Stock.

On the date the Company exchanged its SuperCede common stock for SuperCede
Series B Preferred Stock and SuperCede sold its Series A Preferred Stock to an
entity affiliated with the Company's principal stockholder, SuperCede had a
deficit in stockholders' equity of $1,357,000. The Company treated the
transaction in a manner similar to a sale of stock by its subsidiary. Because
SuperCede's Series A Preferred Stock has rights, preferences and privileges
superior to those of SuperCede's Series B Preferred Stock, the Company's share
of SuperCede's net assets is $0. Therefore, the Company increased the carrying
amount of its investment in SuperCede to $0. The increase in the carrying
amount of the Company's investment in SuperCede was reflected as an increase
of $1,402,000 to additional paid-in capital. The Company accounts for its
investment in SuperCede using the equity method of accounting. Additionally,
the Company will record no equity in earnings in SuperCede until the net
assets of SuperCede exceed the then-current liquidation preference on the
SuperCede Series A Preferred Stock.

F-27
<PAGE>

The following unaudited pro forma consolidated statement of operations
consolidates the operating results of the Company with those of CSI for the
period from January 1, 1997 to December 23, 1997, Aimtech for the period from
January 1, 1997 to September 12, 1997 and the Oakes Companies for the period
from January 1, 1997 to September 30, 1997 , and removes the operating results
of SuperCede for the period from January 1, 1997 to September 30, 1997 as if
each such transaction had occurred on January 1, 1997.

The pro forma financial information is presented for informational purposes
only and is not necessarily indicative of the results of operations had the
acquisitions occurred on such date, nor do they purport to be indicative of
the Company's future results of operations.

F-28
<PAGE>

ASYMETRIX AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
ACQUISITIONS DISPOSITION
-------------------------- ----------- PRO FORMA
OAKES ADJUSTMENTS
ASYMETRIX CSI AIMTECH COMPANIES SUPERCEDE DR. (CR.) PRO FORMA
--------- ------ ------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Product Revenue:
Online learning
products............. $ 7,056 $ -- $ -- $ -- $ -- $ -- $ 7,056
Other products........ 10,425 -- 2,545 1,267 (2,031) 126 (a) 12,080
-------- ------ ------- ------- ------- ------- --------
Total product
revenue............ 17,481 -- 2,545 1,267 (2,031) 126 19,136
Services.............. 6,583 4,489 825 2,887 -- -- 14,784
-------- ------ ------- ------- ------- ------- --------
Total revenue....... 24,064 4,489 3,370 4,154 (2,031) 126 33,920
Cost of revenue:
Product Revenue:
Online learning
products............. 585 -- -- -- -- -- 585
Other products........ 2,069 -- 447 644 (273) (73)(b) 2,708
-------- ------ ------- ------- ------- ------- --------
Total cost of
product revenue.... 2,654 -- 447 644 (273) (73) 3,293
Services.............. 4,137 2,690 800 2,230 -- -- 9,857
-------- ------ ------- ------- ------- ------- --------
Total cost of
revenue............ 6,791 2,690 1,247 2,874 (273) (73) 13,256
-------- ------ ------- ------- ------- ------- --------
Gross margin............ 17,273 1,799 2,123 1,280 (1,758) 53 20,664
Operating expenses:
Research and
development.......... 8,115 -- 1,368 -- (2,619) -- 6,864
Sales and marketing... 13,589 227 2,812 707 (2,459) -- 14,876
General
administrative....... 4,432 1,520 1,340 1,124 (653) 343 (c) 8,106
Acquired in-process
research and
development.......... 4,064 -- -- -- -- (4,064)(d) --
-------- ------ ------- ------- ------- ------- --------
Total operating
expenses........... 30,200 1,747 5,520 1,831 (5,731) (3,721) 29,846
-------- ------ ------- ------- ------- ------- --------
Loss from operations.... (12,927) 52 (3,397) (551) 3,973 (3,668) (9,182)
Other income (expense):
Interest income from
principal
shareholder.......... 436 -- -- -- -- -- 436
Other interest income
(expense), net....... 48 (41) 31 (88) -- -- (50)
Equity in losses from
Infomodelers......... (634) -- -- -- -- -- (634)
-------- ------ ------- ------- ------- ------- --------
Income (loss) before
income taxes........... (13,077) 11 (3,366) (639) 3,973 (3,668) (9,430)
Provision for income
taxes.................. 38 4 -- -- -- (4)(e) 38
-------- ------ ------- ------- ------- ------- --------
Net income (loss)....... $(13,115) $ 7 $(3,366) $ (639) $ 3,973 $(3,672) $ (9,468)
======== ====== ======= ======= ======= ======= ========
Basic and diluted net
loss per share......... (f) $ (1.44)
</TABLE>

(See accompanying notes to pro forma financial statements)

F-29
<PAGE>

ASYMETRIX AND SUBSIDIARIES

NOTES TO CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)

The following adjustments were applied to the historical consolidated
financial statements of the Company, CSI, Aimtech, and the Oakes Companies to
arrive at the pro forma consolidated financial information:

(a) Represents the elimination of intercompany revenues of $126,000
associated with CSI, Aimtech and the Oakes Companies.
(b) Represents the elimination of intercompany expenses of $126,000
associated with CSI, Aimtech and the Oakes Companies and recognition of
$53,000 of amortization expense related to purchased technology
associated with Aimtech.
(c) Represents amortization expense related to goodwill associated with the
acquisitions of CSI, Aimtech and the Oakes Companies, which is
amortized on an entity by entity basis over its estimated useful life
of fifteen, five and fifteen years, respectively, and the elimination
of discretionary bonus compensation received by shareholders of CSI as
these shareholders entered into employment contracts in conjunction
with the acquisition of CSI. These adjustments are summarized as
follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
DR. (CR.)
--------------
(IN THOUSANDS)
<S> <C>
Amortization of goodwill:
CSI........................... $ 260
Aimtech....................... 220
Oakes Companies............... 140
-----
620
Discretionary bonus
compensation................. (277)
-----
$ 343
=====
</TABLE>

(d) Represents the in-process research and development acquired in
conjunction with the acquisitions of Aimtech and Socha of $3,580,000
and $484,000, respectively.

(e) Represents the reduction of provision for income taxes of $4,000 as a
result of operating losses incurred on a consolidated basis.

(f) Pro forma basic and diluted net loss per share is computed using the
weighted average number of common shares outstanding during the period,
including shares of Common Stock and redeemable Common Stock issued to
effect acquisitions as if they were issued on January 1, 1997. The
following is a reconciliation of shares used to compute historical
basic and diluted net loss per share to shares used to compute pro
forma basic and diluted net loss per share (in thousands):

<TABLE>
<S> <C>
Weighted average common shares
outstanding........................... 6,038
Common Stock issued in CSI acquisition. 359
Redeemable Common Stock issued in CSI
acquisition........................... 191
-----
6,588
=====
</TABLE>

F-30
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders
Aimtech Corporation:

We have audited the accompanying consolidated balance sheet of Aimtech
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1996,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Aimtech
Corporation and subsidiaries as of December 31, 1996, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from its
operations and requires additional financing to fund its 1997 operations that
raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.

Arthur Andersen LLP

Boston, Massachusetts
May 9, 1997

F-31
<PAGE>

AIMTECH CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 2,536,571 $ 319,856
Accounts receivable, net of allowance for returns
and doubtful accounts of approximately $243,000
in 1996 and $131,341 in 1997..................... 1,121,814 349,399
Inventory......................................... 145,474 137,213
Prepaid and other current assets.................. 127,060 86,041
------------ -----------
Total current assets............................ 3,930,919 892,509
------------ -----------
Property and equipment, at cost:
Computer equipment................................ 1,194,711 1,335,490
Furniture and fixtures............................ 353,534 356,708
Equipment under capital leases.................... 265,311 265,311
Leasehold improvements............................ 67,302 60,042
------------ -----------
1,880,858 2,017,551
Less-accumulated depreciation and amortization.... 1,308,656 1,582,474
------------ -----------
Net property and equipment...................... 572,202 435,077
------------ -----------
Other assets........................................ 13,496 13,496
------------ -----------
Total assets.................................... $ 4,516,617 $ 1,341,082
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of capital lease obligations...... $ 30,917 $ 28,491
Accounts payable.................................. 687,586 653,538
Deferred revenue.................................. 1,067,480 724,412
Other accrued expenses............................ 576,754 382,941
Customer advances................................. 681,000 686,500
------------ -----------
Total current liabilities....................... 3,043,737 2,475,882
------------ -----------
Capital lease obligations, net of current portion... 32,446 16,556
------------ -----------
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $.0.01 par value. Authorized
5,000,000 shares; issued and outstanding--none... -- --
Common stock, $0.01 par value. Authorized
20,000,000 shares; issued and outstanding
7,311,911 shares in 1996 and 7,576,700 shares in
1997............................................. 73,119 75,767
Additional paid-in capital........................ 14,776,286 14,809,917
Accumulated deficit............................... (13,450,635) (16,080,624)
Cumulative translation adjustment................. 41,664 43,584
------------ -----------
Total stockholders' equity (deficit)............ 1,440,434 (1,151,356)
------------ -----------
Total liabilities and stockholders' equity
(deficit)...................................... $ 4,516,617 $ 1,341,082
============ ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-32
<PAGE>

AIMTECH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -------------------------
1996 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Net revenues:
Product............................... $ 5,697,000 $ 3,099,558 $ 2,168,091
Service............................... 1,707,524 1,035,876 616,691
----------- ------------ -----------
Total revenues ..................... 7,404,524 4,135,434 2,784,782
----------- ------------ -----------
Cost of revenues:
Product............................... 439,646 123,907 280,011
Service............................... 896,148 528,380 649,652
----------- ------------ -----------
Total cost of revenues.............. 1,335,794 652,287 929,663
----------- ------------ -----------
Gross profit........................ 6,068,730 3,483,147 1,855,119
----------- ------------ -----------
Selling and marketing expenses.......... 6,780,251 3,570,811 2,436,915
Product development expenses............ 2,745,183 1,500,033 1,075,295
General and administrative expenses..... 1,549,689 666,369 1,002,881
----------- ------------ -----------
Loss from operations................ (5,006,393) (2,254,066) (2,659,972)
Interest expense........................ (11,896) (5,663) (3,984)
Interest income......................... 157,473 79,123 33,967
----------- ------------ -----------
Net loss............................ $(4,860,816) $ (2,180,606) $(2,629,989)
=========== ============ ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-33
<PAGE>

AIMTECH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL CUMULATIVE TOTAL
NUMBER OF $0.01 PAID-IN ACCUMULATED TRANSLATION STOCKHOLDERS'
SHARES PAR VALUE CAPITAL DEFICIT ADJUSTMENT EQUITY (DEFICIT)
--------- --------- ---------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... 5,155,957 $51,560 9,428,212 (8,589,819) 52,866 942,819
Sale of common stock,
net of issuance costs
of $18,304............. 1,703,910 17,039 5,076,387 -- -- 5,093,426
Sale of common stock
under employee stock
purchase plan.......... 40,544 405 109,464 -- -- 109,869
Exercise of options..... 111,000 1,110 142,490 -- -- 143,600
Exercise of warrants and
stock rights........... 300,500 3,005 11,920 -- -- 14,925
Compensation expense
associated with stock
options................ -- -- 7,813 -- -- 7,813
Cumulative translation
adjustment............. -- -- -- -- (11,202) (11,202)
Net loss................ -- -- -- (4,860,816) -- (4,860,816)
--------- ------- ---------- ----------- ------- ----------
Balance at December 31,
1996................... 7,311,911 73,119 14,776,286 (13,450,635) 41,664 1,440,434
Exercise of warrants
(unaudited)............ 218,673 2,187 -- -- -- 2,187
Exercise of options
(unaudited)............ 46,116 461 33,631 -- -- 34,092
Net loss (unaudited).... -- -- -- (2,629,989) -- (2,629,989)
Cumulative translation
adjustment (unaudited). -- -- -- -- 1,920 1,920
--------- ------- ---------- ----------- ------- ----------
Balance at June 30, 1997
(unaudited)............ 7,576,700 $75,767 14,809,917 (16,080,624) 43,584 (1,151,356)
========= ======= ========== =========== ======= ==========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-34
<PAGE>

AIMTECH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ------------------------
1996 1996 1997
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................... $(4,860,816) $(2,180,606) $(2,629,989)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization......... 433,217 205,609 273,818
Compensation expense associated with
stock options........................ 7,813 5,860 --
Provision for sales returns and
doubtful accounts.................... 164,939 -- --
Loss on sale of fixed assets.......... 10,413 -- --
Changes in assets and liabilities:
Accounts receivable.................. 292,699 605,245 772,415
Inventory............................ (42,989) (94,502) 8,261
Prepaid and other current assets..... (15,694) (41,340) 41,019
Other assets......................... 2,642 (6,628) --
Accounts payable..................... 112,395 38,200 (34,049)
Deferred revenue..................... 103,505 326,923 (343,068)
Customer advances.................... (137,068) 5,978 5,500
Other accrued expenses............... (202,937) 16,920 (193,813)
----------- ----------- -----------
Net cash used in operating
activities........................ (4,131,881) (1,118,341) (2,099,906)
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment.... (206,710) (164,178) (136,692)
Proceeds from sale of property and
equipment............................. 12,231 -- --
----------- ----------- -----------
Net cash used in investing
activities........................ (194,479) (164,178) (136,692)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock,
net of issuance costs................. 5,203,295 5,203,295 --
Repayment of long-term debt and
capitalized lease obligations......... (36,527) (18,250) (18,316)
Proceeds from exercise of warrants and
options............................... 158,525 117,768 36,279
----------- ----------- -----------
Net cash provided by financing
activities........................ 5,325,293 5,302,813 17,963
----------- ----------- -----------
Effect of exchange rate changes......... (11,202) (10,516) 1,920
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents.................. 987,731 4,009,778 (2,216,715)
Cash and cash equivalents at beginning
of period.............................. 1,548,840 1,548,840 2,536,571
----------- ----------- -----------
Cash and cash equivalents at end of
period................................. $ 2,536,571 $ 5,558,618 $ 319,856
----------- ----------- -----------
Supplemental disclosures of cash flow
information--cash paid during the year
for:
Interest.............................. $ 11,069 $ 8,000 $ 4,000
Taxes................................. 800 -- --
Supplemental disclosure of noncash
financing activities--acquisition of
equipment under capital lease
obligations............................ $ 82,785 $ 63,722 $ --
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-35
<PAGE>

AIMTECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1996

(INFORMATION WITH REGARD TO JUNE 30, 1996 AND 1997 IS UNAUDITED)

(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Aimtech Corporation and subsidiaries (the Company) are engaged in developing
and marketing interactive multimedia and Internet software applications. The
Company's products are visual authoring tools used to create Internet and
computer-based training courses, sales and manufacturing product
demonstrations, informational and transactional kiosks and CD-ROM titles. In
1996, the Company released a new product for web designers and creative
professionals that creates Java Applets and applications for use on web sites.
The Company sells its products both directly and through a network of domestic
and international resellers into corporate, governmental and educational
markets.

The Company is subject to the same risks that other technology-based
companies in similar stages of development face, including the need for
adequate financing to fund future operations, dependence on key individuals
and the continued successful development and marketing of its products.

The Company has incurred significant operating losses since inception.
Management believes that additional financing will be required during fiscal
year 1997 to continue to fund its current level of operations and to achieve
the Company's strategic plan. The Company is actively pursuing arrangements to
secure additional equity financing and other sources of liquidity, including
the possible sale of the Company. However, there can be no assurance such
efforts will be successful. In the event these or other steps are not
accomplished, there exists substantial doubt concerning the Company's ability
to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty. See note
7.

The accompanying consolidated financial statements reflect the application
of certain significant accounting policies as described below and elsewhere in
the notes to consolidated financial statements.

(a) Management Estimates

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

(b) Consolidation

The Company's consolidated financial statements include the accounts of its
wholly owned subsidiaries, Aimtech Europe Limited and Aimtech Deutschland,
GmbH. All material intercompany transactions and balances have been eliminated
in consolidation.

The Company classifies all highly liquid, short-term investments with
initial maturities of less than three months as cash and cash equivalents. All
amounts are recorded at cost.

(d) Revenue Recognition

Revenue from the sale of software licenses is recognized upon shipment,
provided that no significant vendor obligations remain outstanding and
collection of the resulting receivable is deemed probable. The Company
provides reserves for any returns and warranty expenses upon shipment of the
product. Postcontract customer

F-36
<PAGE>

AIMTECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

support bundled in the sale of initial license fees is deferred and amortized
over the maintenance period. The Company recognizes revenue associated with
separately billed maintenance and customer support ratably over the life of
the contract. These contracts generally have terms of one year or less.

The Company recognizes revenue under courseware development contracts as
services are provided for per diem contracts or by using the percentage-of-
completion method of accounting based on the ratio of hours incurred to the
total estimated hours of a contract for individual fixed-price contracts. The
Company recognizes revenue under development contracts requiring completed
software products upon delivery of the products and acceptance by the
customer. Provisions for any estimated losses on uncompleted contracts are
made in the period in which such losses become evident. If a transaction
includes both license and service elements, license fee revenue is recognized
upon shipment of the product, provided services do not include significant
customization or modification of the base products and payment terms for
licenses are not subject to acceptance criteria. In cases in which license fee
payments are contingent upon the acceptance of services, revenues for both the
license and service elements are deferred until the acceptance criteria are
met.

(e) Foreign Operations

The Company's United Kingdom and German subsidiaries use the local currency
as the functional currency and translate all assets and liabilities at year-
end exchange rates and all income and expense accounts at average rates.
Resulting translation adjustments are included in the accompanying
consolidated balance sheets as the cumulative translation adjustment within
stockholders' equity.

In June of 1996, the Company closed their German subsidiary, Aimtech
Deutschland, GmbH. The costs incurred to close the facility were not
significant and were fully incurred and paid by December 31, 1996.

(f) Depreciation and Amortization

The Company provides for depreciation and amortization using accelerated
methods by charges to operations in amounts that allocate the cost of assets
over their estimated useful lives, as follows:

<TABLE>
<CAPTION>
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE
-------------------- ---------------------
<S> <C>
Computer equipment................................. 2-3 years
Furniture and fixtures............................. 5 years
Equipment under capital leases..................... Term of lease
Leasehold improvements............................. Term of lease
</TABLE>

(g) Impairment of Long-Lived Assets

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of. This
statement addresses the accounting for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to assets to be held and
used, and for long-lived assets and certain identifiable intangibles to be
disposed of.

This statement requires that long-lived assets, including intangibles, be
reviewed for impairment whenever events or changes in circumstances, such as a
change in market value, indicate that asset carrying amounts may not be
recoverable. In performing the review for recoverability, if estimated future
undiscounted cash flows (without interest charges) from the use and ultimate
dispositions of the assets are less than their carrying value, an impairment
loss is recognized. Impairment losses are to be measured based on the fair
value of the asset.

F-37
<PAGE>

AIMTECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company's adoption of the statement did not have a material impact on
the Company's financial statements.

(h) Software Research and Development Costs

The Company capitalizes product development costs subsequent to the
establishment of technological and commercial feasibility until the product is
available for general release. Costs incurred prior to the establishment of
technological feasibility are charged to product development expense.
Development costs associated with product enhancements that extend the life of
the original product or significantly improve the marketability of the
original product are also capitalized upon technological feasibility.
Amortization of product development costs begins the month after the products
are released over the shorter of the estimated useful life of the product or
three years, which results in amortization expense no less than that which
would result from using the ratio of current gross revenues to total expected
gross revenues. The Company records the amortization as a component of cost of
revenues.

For the year ended December 31, 1996 and the six months ended June 30, 1996
and 1997, the Company did not capitalize any significant amount of product
development costs because the costs incurred after technological feasibility
was established were not material.

(i) Inventory

Inventory is stated at the lower of cost (first-in, first-out) or market and
consists of software diskettes, CD-ROMs and related documentation.

(j) Income Taxes

The Company provides for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under the liability method specified by SFAS No.
109, a deferred tax asset or liability is determined based on the difference
between the financial statement and tax bases of assets and liabilities, as
measured by the enacted tax rates assumed to be in effect when these
differences reverse.

The sources of deferred income tax and the related tax effect at December
31, 1996 are approximately as follows:

<TABLE>
<S> <C>
Net operating loss carryforwards............................ $ 3,800,000
Temporary differences....................................... 127,000
Less-valuation allowance.................................... (3,927,000)
-----------
Deferred income taxes....................................... $ --
===========
</TABLE>

The Company has recorded a valuation allowance equal to the full value of
the deferred tax assets, including net operating loss carryforwards, because
of the uncertainty of their future utilization.

At December 31, 1996, the Company has federal net operating loss
carryforwards of approximately $11,200,000 to be offset against future taxable
income and tax credit carryforwards to be offset against future federal tax,
if any. These carryforwards expire in varying amounts through 2011 and are
subject to review and possible adjustment by the Internal Revenue Service (the
IRS). The Tax Reform Act of 1986 contains provisions that may severely limit
the net operating loss carryforwards available to be used in any given year in
the event a significant change in ownership occurs, as defined in the tax
regulations.

F-38
<PAGE>

AIMTECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(k) Postretirement and Postemployment Benefits

The Company has no obligations for postretirement or postemployment
benefits.

(l) Derivative Financial Instruments

SFAS No. 119, Disclosure About Derivative Financial Instruments and Fair
Value of Financial Instruments, requires certain disclosures about derivative
financial instruments, including futures, forward swap and option contracts
and other financial instruments with similar characteristics. As of December
31, 1996, the Company had no instruments requiring disclosure under SFAS No.
119.

(m) Interim Financial Statements

The accompanying balance sheet as of June 30, 1997, and the statements of
operations and cash flows for the six months ended June 30, 1996 and June 30,
1997, and the statement of stockholders' equity (deficit) for the six months
ended June 30, 1997 are unaudited, but in the opinion of management, include
all adjustments (consisting of normal, recurring adjustments) necessary for a
fair presentation of results for these interim periods. The results of
operations for the six months ended June 30, 1997 are not necessarily
indicative of the results to be expected for the entire fiscal year.

(2) COMMITMENTS AND CONTINGENCIES--LEASES

The Company leases various office space and equipment expiring in varying
amounts through 2000.

The future minimum annual lease payments at December 31, 1996 are as
follows:

<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
Year ending December 31:
1997.................................................... $365,694 $39,408
1998.................................................... 67,086 30,682
1999.................................................... 45,234 --
2000.................................................... 3,292 --
2001.................................................... -- --
-------- -------
Total minimum lease payments.......................... $481,306 $70,090
========
Less amount representing interest....................... 6,727
-------
Present value of minimum lease payments............... 63,363
Less current portion of capital lease obligations....... 30,917
-------
Long-term portion of capital lease obligations........ $32,446
=======
</TABLE>

Rental expense charged to operations was approximately $387,000 for the year
ended December 31, 1996. One of the facility operating leases is considered
excess. The Company has accrued approximately $14,000 to cover its expected
loss, net of subrental income.

(3) STOCKHOLDERS' EQUITY

(a) Preferred Stock

The Company has authorized the issuance of 5,000,000 shares of preferred
stock, none of which have been issued. The Board of Directors shall determine
the number, designation, preferences, voting power, qualifications and other
rights and privileges of each series of preferred stock.

F-39

<PAGE>

AIMTECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(b) Common Stock

Certain stockholders have entered into an agreement that allows these
stockholders to participate in a purchase offer should one be received by a
significant stockholder. These stockholders also have a right of first refusal
on any purchase offer received by a stockholder on the same terms and
conditions. If the other stockholders refuse to acquire the shares, the
Company also has a right of refusal to acquire the shares on the same terms
and conditions. These stockholders also have a right of refusal to purchase
all or any part of new securities issued by the Company sufficient for the
stockholders to maintain their pro rata interest. These stockholders'
agreements terminate upon the closing of an initial public offering.

On May 2, 1996, the Company sold 1,703,910 shares of common stock with
warrants to purchase an additional 511,173 shares of common stock at an
exercise price of $.01 per share in exchange for total consideration of
$5,111,730. The warrants are fully exercisable and expire upon the earlier of
the closing of a public offering, the closing of the sale or merger of the
Company, or on January 31, 1997. As of December 31, 1996, 292,500 of these
warrants have been exercised. The balance of the warrants were exercised in
1997.

Effective July 1, 1993, the Company adopted the Aimtech Corporation Employee
Stock Purchase Plan (the Purchase Plan). The Company has reserved and may
issue up to 200,000 shares of common stock in semiannual offerings over a 10-
year period. The offering price shall never be less than 85% of the fair
market value per share on the offering date. Employee contributions to each
individual stock purchase account shall not exceed 10% of the employee's
compensation, as defined. The Purchase Plan prohibits any employee from owning
5% or more of the total combined voting power or value of all classes of stock
of the Company, or from purchasing shares valued in excess of $25,000 (at the
offering date) in any calendar year.

(d) Stock Options

In 1989, the Company adopted the 1989 Stock Incentive Plan (the Plan),
pursuant to which options to purchase up to 2,000,000 shares of the Company's
common stock are available for issuance. The Plan provides for the granting of
stock options, restricted stock or performance share awards to eligible
employees of the Company. Incentive stock options are granted at an exercise
price of not less than the fair market value of the common stock at the date
of grant. Nonqualified stock options are granted at an exercise price that is
determined by the Board of Directors and which may be less than the fair
market value of the common stock at the date of grant. All outstanding options
have exercise prices equal to the estimated fair value of the common stock at
the date of grant. Generally, the options vest over four years and expire not
more than 10 years from the date of grant. Stock awarded pursuant to the Plan
may be subject to certain restrictions and conditions as decided by the Board
of Directors. No restricted stock or performance share awards had been granted
as of December 31, 1996. At December 31, 1996, 1,838,449 shares have been
reserved for issuance under the Plan. Stock option activity for the year ended
December 31, 1996 is as follows:

<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE PRICE
OF SHARES PER SHARE
--------- -------------
<S> <C> <C>
Outstanding, December 31, 1995.................... 1,470,251 $2.60
Granted........................................... 376,123 2.37
Exercised......................................... (111,000) 1.29
Canceled.......................................... (627,458) 2.33
---------
Outstanding, December 31, 1996.................... 1,107,916 2.67
=========
Exercisable, December 31, 1996.................... 320,959 2.37
=========
</TABLE>

The weighted average fair value of options granted in 1996 was $0.48.

F-40
<PAGE>

AIMTECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In addition to the above Plan, in 1991, the Company issued to an officer an
option to purchase 8,000 shares of common stock with an exercise price of
$1.50 per share. The officer exercised this option in 1996. In 1993, the
Company issued to an individual an option to purchase 10,000 shares of common
stock with an exercise price of $3.00 per share. The exercise prices
represented the fair value at the date of grant.

On January 1, 1994, the Company adopted the Stock Option Plan for
Nonemployee Directors, pursuant to which 200,000 shares were reserved for
issuance. The Company granted a total of 30,000 options to two Directors with
an exercise price of $3.00 per share. Each Nonemployee Director initially
elected to the Board of Directors in the future will also receive an option to
purchase 15,000 shares of common stock. These options vest in three equal
annual installments beginning on the date of grant.

In August 1994, the Company extended the exercise period of certain options
granted under the terms of the Plan. This resulted in compensation expense to
the Company equal to the difference between the grant price and the fair
market value at the new measurement date, which was recognized over the
remaining terms of the options. For the year ended December 31, 1996, the
Company recorded compensation expense related to this transaction of $7,813.

During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation, which defines a fair value based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of
their employee stock compensation plans. However, it also allows an entity to
continue to measure compensation costs for those plans using the intrinsic
method of accounting prescribed by APB Opinion No. 25. Entities electing to
remain with the accounting in APB Opinion No. 25 must make pro forma
disclosures of net income and earnings per share, if presented, as if the fair
value based method of accounting defined in SFAS No. 123 had been applied.

The Company has elected to account for its stock-based compensation plan
under APB Opinion No. 25. However, the Company has computed, for pro forma
disclosure purposes, the value of all options granted during 1996 using the
minimum value method as prescribed by SFAS No. 123, using the following
weighted average assumptions for grants in 1996:

<TABLE>
<S> <C>
Risk-free interest................................................ 5.98%
Expected dividend yield........................................... 0%
Expected life..................................................... 1 year
Expected volatility............................................... 0%
</TABLE>

The total value of options granted during 1996 would be amortized on a pro
forma basis over the vesting period of the options. Options generally vest
equally over four years. Because the SFAS No. 123 method of accounting has not
been applied to options granted prior to January 1, 1995, the resulting pro
forma compensation costs may not be representative of that to be expected in
future years. If the Company had accounted for these plans, including the
Employee Stock Purchase Plan, in accordance with SFAS No. 123, the Company's
net loss for the year ended December 31, 1996 would have increased as
reflected in the following pro forma amounts:

<TABLE>
<S> <C>
Net loss:
As reported............................................... $(4,860,816)
Pro forma................................................. (5,036,770)
</TABLE>

F-41
<PAGE>

AIMTECH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Set forth is a summary of options outstanding and exercisable as of December
31, 1996:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- -----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER OF REMAINING AVERAGE NUMBER OF AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICE SHARES LIFE (YEARS) PRICE OPTIONS PRICE
---------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.30-2.00 147,500 5.13 $1.57 137,250 $1.54
2.31-3.00 960,416 9.07 2.84 183,709 3.00
---------- --------- ---- ----- ------- -----
$1.30-3.00 1,107,916 8.55 $2.67 320,959 $2.37
========== ========= ==== ===== ======= =====
</TABLE>

(4) AIMTECH CORPORATION 401(K) PROFIT SHARING PLAN

Effective January 1, 1994, the Company established the Aimtech Corporation
401(k) Profit Sharing Plan (the 401(k) Plan) under Section 401(k) of the
Internal Revenue Code. The 401(k) Plan allows eligible employees to make
contributions up to a specified percentage, not to exceed 15% of their
compensation, subject to certain IRS limitations.

The Company may elect to make contributions to the 401(k) Plan, at the
discretion of the Board of Directors, not to exceed 5% of an employee's
compensation, as defined. The Company did not make a 401(k) Plan contribution
in 1996.

(5) SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK

In 1996, two customers accounted for 26% of the Company's net sales.

SFAS No. 105, Disclosure of Information About Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. The Company has no significant off-balance-sheet
concentrations of credit risk such as foreign exchange contracts, option
contracts or other foreign hedging arrangements. The Company's accounts
receivable credit risk is not concentrated within any geographic area, and no
single customer represents a significant credit risk to the Company.

(6) GEOGRAPHIC DATA

United States and international sales as a percentage of total revenues are
as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
GEOGRAPHIC AREA 1996
--------------- ------------
<S> <C>
United States............................................... 71%
Canada...................................................... 2
Europe...................................................... 21
Far East.................................................... 4
Other....................................................... 2
---
100%
===
</TABLE>

(7) SUBSEQUENT EVENT (UNAUDITED)

On September 12, 1997, Asymetrix Learning Systems, Inc. acquired the Company
in exchange for 2,183,894 shares of Asymetrix Learning Systems, Inc. Series 4
Class B Stock.

F-42
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Communication Strategies, Inc.:

We have audited the accompanying balance sheets of Communication Strategies,
Inc. (the "Company") as of December 31, 1996 and September 30, 1997, and the
related statements of income and retained earnings and cash flows for the year
ended December 31, 1996 and the nine-month period ended September 30, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Communication Strategies,
Inc. as of December 31, 1996 and September 30, 1997, and the results of its
operations and its cash flows for the year ended December 31, 1996 and the
nine-month period ended September 30, 1997 in conformity with generally
accepted accounting principles.

KPMG Peat Marwick LLP
December 19, 1997
Dallas, Texas

F-43
<PAGE>

COMMUNICATION STRATEGIES, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
ASSETS ------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 38,957 $ 96,753
Accounts receivable................................ 703,007 776,479
Unbilled receivables............................... 4,006 54,976
Prepaid expenses and other current assets.......... 7,393 21,999
---------- ----------
Total current assets............................. 753,363 950,207
Property, plant and equipment, net................. 380,210 415,915
---------- ----------
Total assets..................................... $1,133,573 $1,366,122
========== ==========
</TABLE>

LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current liabilities:
Accounts payable........................................ $ 25,860 $ 81,958
Accrued payroll-related expenses........................ 71,460 135,845
Bank line of credit..................................... 394,942 319,538
Deferred revenue........................................ 164,912 166,804
Income tax payable...................................... 11,925 69,220
Deferred tax liability.................................. 158,261 158,558
---------- ----------
Total liabilities..................................... 827,360 931,923
Stockholders' equity:
Common stock, $1 par value; 1,000 shares authorized;
1,000 shares issued and outstanding.................... 1,000 1,000
Retained earnings....................................... 305,213 433,199
---------- ----------
Total stockholders' equity............................ 306,213 434,199
---------- ----------
Commitments
Total liabilities and stockholders' equity............ $1,133,573 $1,366,122
========== ==========
</TABLE>

See accompanying notes to financial statements.

F-44
<PAGE>

COMMUNICATION STRATEGIES, INC.

STATEMENTS OF INCOME AND RETAINED EARNINGS

<TABLE>
<CAPTION>
NINE-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Consulting and placement service revenue............. $3,966,151 $3,394,924
---------- ----------
Cost and expenses:
Consulting and placement service cost of revenue.... 2,346,563 2,016,579
Selling, general and administrative expenses........ 1,465,732 1,150,686
---------- ----------
Total costs and expenses......................... 3,812,295 3,167,265
---------- ----------
Operating income................................. 153,856 227,659
Interest expense, net................................ 22,289 28,607
---------- ----------
Income before income taxes....................... 131,567 199,052
Income taxes......................................... 47,912 71,066
---------- ----------
Net income....................................... 83,655 127,986
Retained earnings at beginning of year............... 221,558 305,213
---------- ----------
Retained earnings at end of year..................... $ 305,213 $ 433,199
========== ==========
</TABLE>

See accompanying notes to financial statements.

F-45
<PAGE>

COMMUNICATION STRATEGIES, INC.

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
NINE-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 83,655 $127,986
Adjustments to reconcile net income to net cash
used in
operating activities:
Depreciation and amortization................... 123,818 75,500
Deferred income taxes........................... 30,385 297
Loss on disposition of property, plant and
equipment...................................... 5,604 8,228
Changes in operating assets and liabilities:
Accounts receivable............................ (205,361) (73,472)
Unbilled receivables........................... (4,006) (50,970)
Prepaid expenses and other current assets...... 1,410 (14,606)
Income taxes................................... 1,840 57,295
Accounts payable............................... (25,403) 56,098
Accrued expenses............................... (33,465) 64,385
Deferred revenue............................... 116,516 1,892
-------- --------
Net cash used in operating activities........ 94,993 252,633
-------- --------
Cash flows used in investing activities--purchases
of property, plant
and equipment..................................... (334,324) (119,433)
-------- --------
Cash flows from financing activities:
Proceeds from line of credit..................... 909,749 859,000
Repayment of line of credit...................... (654,807) (934,404)
-------- --------
Net cash provided by financing activities...... 254,942 (75,404)
-------- --------
Net increase in cash and cash equivalents.......... 15,611 57,796
Cash and cash equivalents, beginning of
year/period........................................ 23,346 38,957
-------- --------
Cash and cash equivalents, end of year/period...... $ 38,957 $ 96,753
======== ========
Cash paid during the year:
Interest......................................... $ 20,799 $ 22,986
======== ========
Income taxes..................................... $ 15,687 $ 13,474
======== ========
</TABLE>

See accompanying notes to financial statements.

F-46
<PAGE>

COMMUNICATION STRATEGIES, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 1996 and September 30, 1997

(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) The Company

Communication Strategies, Inc. ("CSI" or the "Company") was incorporated
under the laws of the State of Texas on September 19, 1983. The Company
provides consulting and paper-based documentation services related to
instructional design. The Company also provides multi-media based deliverables
and placement services, on a temporary or permanent basis. Its principal
operations are located in Fort Worth, Texas.

(b) Revenue Recognition

The Company provides services under time and materials and fixed-price
contracts. Fixed price contracts for consulting services typically span a
period of three to five months. Revenue related to fixed price contracts is
recognized on the percentage-of-completion method measured by the percentage
of labor hours incurred to date to estimated total labor hours for each
contract. Changes in estimates, if any, are made in the period they are
determined. Provisions for estimated losses on uncompleted contracts, if any,
are made on a contract by contract basis and are recognized in the period in
which the losses are determined. Unbilled receivables represent revenue
recognized based on services performed in excess of billings in accordance
with the terms of the contracts. Billings in excess of recognized revenue are
classified as deferred revenues. Revenue is recognized on time and material
contracts based upon agreed upon billing amounts as services are rendered.
Revenues related to placement services are recognized on a time and materials
basis for temporary placements and after completion of a contractually
determined probation period for permanent placements.

Cash equivalents consist of investments in money market accounts with
original maturities of 90 days or less.

(d) Fair Value of Financial Instruments

Most of the Company's financial instruments, including cash, trade
receivables and payables and accruals, are short-term in nature. Accordingly,
the carrying amount of the Company's financial instruments approximates its
fair value.

(e) Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Depreciation of
property, plant and equipment, other than leasehold improvements, is provided
over the estimated useful lives of the respective assets (ranging from 5 to 7
years) using the double-declining method. Leasehold improvements are amortized
on a straight-line basis over the shorter of the respective lease term or
estimated useful life of the asset.

(f) Income Taxes

The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized with respect to tax
consequences attributable to the differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to be in effect when such amounts are realized or settled. The
resulting deferred tax assets and liabilities are adjusted to reflect changes
in tax laws or rates in the period of enactment.

F-47
<PAGE>

COMMUNICATION STRATEGIES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(g) 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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.

(2) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Furniture and fixtures............................... $288,140 $170,064
Computer equipment and accessories................... 484,698 588,929
Autos................................................ 45,509 45,509
Leasehold improvements............................... 12,453 14,342
-------- --------
830,800 818,844
Less accumulated depreciation and amortization....... (450,590) (402,929)
-------- --------
Property, plant and equipment, net................. $380,210 $415,915
======== ========
</TABLE>

(3) CREDIT AGREEMENT WITH BANK

The Company entered into a letter agreement with Camp Bowie National Bank
("Bank") on April 1, 1997. Under this letter agreement, the Bank has agreed to
loan the Company $500,000 in the form of a revolving line of credit note and
due in full on April 1, 1998. Interest on the principal amount accrues from
the date of each advance at the Bank's stated base rate plus one percent
(9.75% and 10% on December 31, 1996 and September 30, 1997, respectively) and
is payable on the first day of every month. The note is guaranteed in full by
officers of the Company. The Company has certain financial and non-financial
covenants related to the credit agreement. The Company was in compliance with
those covenants as of December 31, 1996 and September 30, 1997.

(4) INCOME TAXES

Income tax expense for the year ended December 31, 1996 and the nine month
period ended September 30, 1997 includes deferred tax expense of $30,385 and
$297, respectively.

Total income tax expense differs from the amount computed by applying the
federal corporate income tax rate of 35% to income before taxes as follows:

<TABLE>
<CAPTION>
NINE-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Computed ("expected") income tax expense............. $ 46,048 $69,668
Meals and entertainment.............................. 1,864 1,398
-------- -------
$ 47,912 $71,066
======== =======
</TABLE>

F-48
<PAGE>

COMMUNICATION STRATEGIES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The tax effected temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996 and
September 30, 1997 are as follows:

<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Accrued liabilities (cash to accrual adjustment)............ $ 34,062 $ 63,920
Deferred revenue............................................ 57,719 76,231
-------- --------
Total deferred tax assets.................................. 91,781 140,151
Deferred tax liabilities:
Accrued receivables (cash to accrual adjustment)............ 247,454 291,009
Prepaid expenses(cash to accrual adjustment)................ 2,588 7,700
-------- --------
Total deferred tax liabilities............................. 250,042 298,709
-------- --------
Net deferred tax liabilities............................... $158,261 $158,558
======== ========
</TABLE>

The temporary differences between the book and tax bases of assets and
liabilities principally result from the use of the cash method for tax
purposes and the accrual method for financial reporting purposes.

(5) EMPLOYEE RETIREMENT PLAN

Employees of the Company may participate in a salary deferral 401(k) plan.

The 401(k) plan allows eligible employees to defer part of their income on a
tax-favored basis. All employees are eligible and may participate in the plan
after six months of service during the twelve month period that begins with
the employee's hiring date. The Company may make matching contributions to the
Plan, non-elective or discretionary contributions and required minimum
contributions, pursuant to legal and statutory requirements. For the year
ended December 31, 1996 and the nine month period ended September 30, 1997,
the Company matched 25% of up to the first 6% of the participant's
contribution. Contributions by the Company totaled $18,000 and $13,615 for the
year ended December 31, 1996 and the nine month period ended September 30,
1997, respectively. Matching and discretionary employer contributions vest 20%
per year after four years of service.

(6) CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of trade accounts receivable. Concentration
of credit risk is reduced due to the large number of customers comprising the
customer base. One customer accounted for approximately twenty percent of the
Company's sales for the year ended December 31, 1996 and the nine month period
ended September 30, 1997 and $80,238 and $96,501 of accounts receivable as of
December 31, 1996 and September 30, 1997, respectively. No other single
customer accounted for more than ten percent of the Company's sales for the
year ended December 31, 1996 or the nine month period ended September 30, 1997
or the Company's accounts receivable as of December 31, 1996 or September 30,
1997.

F-49
<PAGE>

COMMUNICATION STRATEGIES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(7) COMMITMENTS

As of September 30, 1997, the Company was obligated under several
noncancelable operating lease agreements for office space. A summary of future
minimum lease payments follows:

<TABLE>
<S> <C>
1998.......................................... $105,567
1999.......................................... 64,419
2000.......................................... 23,271
2001.......................................... 11,635
--------
Total....................................... $204,892
========
</TABLE>

Rental expense under noncancelable operating leases for facilities and
equipment approximated $ 93,931 and $ 79,175 for the year ended December 31,
1996 and for the nine-month period ended September 30, 1997, respectively.

(8) SUBSEQUENT EVENTS

On December 23, 1997, Asymetrix Learning Systems, Inc. ("Asymetrix")
acquired all of the outstanding shares of CSI in exchange for Asymetrix
preferred stock and options valued at approximately $4.8 million.

F-50
<PAGE>

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

No dealer, salesperson or other person has been authorized to give
information or make any representations other than those contained in this
Prospectus in connection with this offering and, if given or made, such
information or representations must not be relied upon as having been
authorized by the Company or any Underwriter. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
offered hereby in any jurisdiction to any person to whom it is unlawful to make
such offer in such jurisdiction. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that the information contained herein is correct as of any time subsequent to
the date hereof or that there has been no change in the affairs of the Company
since the date hereof.

--------------------------
TABLE OF CONTENTS
--------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 19
Dividend Policy........................................................... 19
Capitalization............................................................ 20
Dilution.................................................................. 21
Selected Historical Consolidated Financial Data........................... 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 24
Business.................................................................. 38
Management................................................................ 52
Certain Transactions...................................................... 60
Principal Stockholders.................................................... 64
Description of Capital Stock.............................................. 65
Shares Eligible for Future Sale........................................... 68
Underwriting.............................................................. 70
Legal Matters............................................................. 71
Changes in Accountants.................................................... 71
Experts................................................................... 71
Additional Information.................................................... 72
Financial Statements...................................................... F-1
</TABLE>

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

Until , 1998 (25 days after the date of this Prospectus), all dealers
effecting transaction in the Common Stock offered hereby, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.

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

3,000,000 SHARES

[LOGO OF ASYMENTRIX LEARNING SYSTEMS, INC. APPEARS HERE]

COMMON STOCK

---------------
PROSPECTUS
---------------

NationsBanc Montgomery
Securities LLC

BancAmerica
Robertson Stephens

Hambrecht & Quist

, 1998

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The expenses to be paid by the Registrant in connection with this offering
are as follows. All amounts other than the SEC registration fee, NASD filing
fee and Nasdaq National Market application fee are estimates.

<TABLE>
<S> <C>
SEC Registration Fee............................................... $ 11,800
NASD Filing Fee.................................................... 4,500
Nasdaq National Market Application Fee............................. 82,000
Printing........................................................... 150,000
Legal Fees and Expenses............................................ 350,000
Accounting Fees and Expenses....................................... 200,000
Road Show Expenses................................................. 50,000
Blue Sky Fees and Expenses......................................... 5,000
Transfer Agent and Registrar Fees.................................. 10,000
Miscellaneous...................................................... 36,700
--------
Total............................................................ $900,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the
"Securities Act").

As permitted by the Delaware General Corporation Law, the Registrant's
Amended and Restated Certificate of Incorporation includes a provision that
eliminates the personal liability of its directors for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Registrant or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) under section 174
of the Delaware General Corporation Law (regarding unlawful dividends and
stock purchases) or (iv) for any transaction from which the director derived
an improper personal benefit.

As permitted by the Delaware General Corporation Law, the Bylaws of the
Registrant provide that (i) the Registrant is required to indemnify its
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law, subject to certain very limited exceptions, (ii) the
Registrant may indemnify its other employees and agents as set forth in the
Delaware General Corporation Law, (iii) the Registrant is required to advance
expenses, as incurred, to its directors and executive officers in connection
with a legal proceeding to the fullest extent permitted by the Delaware
General Corporation Law, subject to certain very limited exceptions and (iv)
the rights conferred in the Bylaws are not exclusive.

The Registrant intends to enter into Indemnification Agreements with each of
its current directors and executive officers to give such directors and
officers additional contractual assurances regarding the scope of the
indemnification set forth in the Registrant's Amended and Restated Certificate
of Incorporation and to provide additional procedural protections. At present,
there is no pending litigation or proceeding involving a director, officer or
employee of the Registrant regarding which indemnification is sought, nor is
the Registrant aware of any threatened litigation that may result in claims
for indemnification.

II-1
<PAGE>

Reference is also made to Section 8 of the Underwriting Agreement, which
provides for the indemnification of officers, directors and controlling
persons of the Registrant against certain liabilities. The indemnification
provision in the Registrant's Amended and Restated Certificate of
Incorporation, Bylaws and the Indemnification Agreements entered into between
the Registrant and each of its directors and executive officers may be
sufficiently broad to permit indemnification of the Registrant's directors and
executive officers for liabilities arising under the Securities Act.

The Registrant, with approval by the Registrant's Board of Directors,
expects to obtain directors' and officers' liability insurance.

Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:

<TABLE>
<CAPTION>
DOCUMENT EXHIBIT NUMBER
-------- --------------
<S> <C>
Underwriting Agreement (draft dated March 31, 1998).......... 1.01
Form of Amended and Restated Certificate of Incorporation of
Registrant.................................................. 3.04
Form of Bylaws of Registrant................................. 3.06
Form of Indemnification Agreement............................ 10.02
</TABLE>

II-2
<PAGE>

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The following table sets forth information regarding all securities sold by
the Registrant since January 1, 1995.

<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PURCHASE FORM OF
CLASS OF PURCHASER DATE OF SALE TITLE OF SECURITIES SHARES(A) PRICE CONSIDERATION
------------------ ------------ ------------------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Principal Stockholder 1/2/95 Common Stock 225,000 $ 150,000 Cash
Principal Stockholder 2/14/95 Common Stock 11,250 7,500 All of the issued
and out-standing
shares of ASX R&D
Corporation
Principal Stockholder 7/14/95 Common Stock 5,550,000 133,012,000 Assumption of
indebtedness and
issuance of
promissory note
1 entity 9/27/96 Series 1 Class B Stock(b) 37,500(b) 300,000 Services
1 entity 10/21/96 Series A Preferred Stock(b) 388,395(b) 5,002,528 Cash
1 entity 12/20/96 Series B Preferred Stock 388,395(c) 5,002,528 Cash/Notes
1 shareholder of Socha 07/17/97 Series 4 Class B Stock(b) 200,000(b) 284,000 Issued and
Computing, Inc. outstanding
("Socha") capital stock of
Socha
91 stockholders of 09/11/97 Series 4 Class B Stock(b) 2,111,795(b)(d) 2,998,749 All of the issued
Aimtech Corporation and out-standing
("Aimtech") capital stock of
Aimtech
1 entity 09/11/97 Series 4 Class B Stock(b) 44,171(b) 62,723 Financial advisory
fee
20 employees of Aimtech 09/11/97 Series 4 Class B Stock(b) 27,928(b) (e) (e)
3 shareholders of Oakes 09/30/97 Series 5 Class B Stock(b) 1,512,500(b) 2,147,750 All of the issued
Interactive and outstanding
Incorporated, Top capital stock of
Shelf Multimedia, Inc. the Oakes
and Acorn Associates Companies
Incorporated
(collectively, the
"Oakes Companies")
2 shareholders of 12/22/97 Common Stock 550,193 4,218,000 All of the issued
Communications and out-standing
Strategies, capital stock of
Incorporated ("CSI") CSI
4 shareholders of 12/22/97 Common Stock 9,372 72,000 All of the issued
Graham-Wright and out-standing
Interactive, Inc. capital stock of
("Graham Wright") Graham Wright
3 consultants 6/26/96-9/5/96 Common Stock 6,075 38,250 Services
120 employees 8/13/95-4/20/98 Common Stock 519,306(f) 731,257 Cash and redemption
(option exercises) of shares
1 individual 3/17/98 Common Stock 13,215 145,000 All of the issued
and outstanding
capital stock of
Adams Consulting
Group, Inc.
1 individual 4/16/98 Common Stock 2,250 17,500 Services
</TABLE>
- -------

(a) The Company intends to effect a 3-for-4 reverse stock split of its Common
Stock immediately prior to the consummation of this offering. Therefore,
all share numbers for Common Stock have been restated to give effect to
such reverse stock split. Outstanding shares of the Company's Series B
Stock (which includes the Series of Class B Stock known as Series A
Preferred Stock and Series B Preferred Stock) will not be affected by the
reverse stock split. Rather, pursuant to the terms of the Company's
Certificate of Incorporation the conversion rate for such shares of Class
B Stock will be adjusted to take into account such stock split.

(b) The shares of Series 1 Class B Stock are convertible into an aggregate of
28,128 shares of Common Stock, the shares of Series A Preferred Stock are
convertible into an aggregate of 291,294 shares of Common Stock, the
shares of Series 4 Class B Stock are convertible into an aggregate of
1,787,853 shares of Common Stock and the shares of Series 5 Class B Stock
are convertible into an aggregate of 1,134,371 shares of Common Stock.

(c) All of these shares were redeemed or canceled in connection with the
cancellation of a promissory note and other indebtedness to the
Registrant.

(d) Of these shares of Series 4 Class B Stock, 441,705 are held in escrow to
secure certain indemnification obligations.

(e) These securities were distributed to employees of Aimtech pursuant to
Aimtech's "change of control," severance and retention policy. No
consideration was paid for such shares.

(f) Of these shares, 43,762 shares were redeemed by the Company in payment for
certain of the shares issued upon exercise of such options.

II-3
<PAGE>

All sales of Common Stock to employees made pursuant to the exercise of
stock options granted under the Registrant's stock option plans or pursuant to
restricted stock purchase agreements, and all sales to consultants for
services, were made pursuant to the exemption from the registration
requirements of the Securities Act afforded by Rule 701, Section 4(2) of the
Securities Act and/or Regulation D promulgated under the Securities Act.

All other sales were made in reliance on Section 4(2) of the Securities Act
and/or Regulation D promulgated under the Securities Act. These sales were
made without general solicitation or advertising. Each purchaser was an
"accredited investor" or a sophisticated investor with access to all relevant
information necessary to evaluate the investment who represented to the
Registrant that the shares were being acquired for investment.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.

(a) The following exhibits are filed herewith:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
1.01 Underwriting Agreement (draft dated March 31, 1998).+
2.01 Amended and Restated Agreement and Plan of Reorganization, dated as of
June 24, 1997, by and among the Registrant, ASX Merger Corporation
and Aimtech Corporation.+
2.02 Agreement and Plan of Reorganization, dated as of September 30, 1997,
by and among the Registrant, Oakes Acquisition Corp., TopShelf
Acquisition Corp., Acorn Acquisition corp., Oakes Interactive
Incorporated, TopShelf Multimedia, Inc., Acorn Associates,
Incorporated, and Gordon Oakes and Kevin Oakes.+
2.03 Agreement and Plan of Reorganization, dated as of December 22, 1997,
by and among the Registrant, Asymetrix Acquisition Corp.,
Communication Strategies, Incorporated, and Cynthia Boyd and James
Boyd.+
2.04 Plan of Merger, dated as of February 14, 1995, by and between ASX R&D
Corporation and the Registrant.+
3.01 Amended and Restated Articles of Incorporation of the Registrant, as
amended.+
3.02 Form of Certificate of Incorporation of the Registrant to be effective
upon the Reincorporation of the Registrant in Delaware (amended from
previous filing).+
3.03 Form of Certificate of Amendment of Certificate of Incorporation of
the Registrant to become effective upon the effectiveness of this
Registration Statement.+
3.04 Form of Amended and Restated Certificate of Incorporation of the
Registrant to be effective upon the closing of this offering (amended
from previous filing).
3.05 Amended and Restated Bylaws of the Registrant, as amended to date.+
3.06 Form of Bylaws of the Registrant, to be adopted prior to the closing
of this offering (amended from previous filing).+
4.01 Restated and Amended Investors' Rights Agreement, dated as of December
20, 1996, between the Registrant and the persons and entities listed
therein.+
4.02 Form of Specimen Stock Certificate for the Registrant's Common Stock.+
4.03 Registration Rights Agreement dated, as of September 11, 1997, between
the Registrant and the persons and entities listed therein.+
4.04 Registration Rights Agreement, dated as of September 30, 1997, among
the Registrant, Gordon Oakes, Kevin Oakes and Doug Foster.+
4.05 Registration Rights Agreement, dated as of December 22, 1997, among
the Registrant, Cynthia Boyd and James Boyd.+
5.01 Opinion of Fenwick & West LLP regarding legality of the securities
being registered.
10.01 Series A Preferred Stock Purchase Agreement, dated October 21, 1996,
between the Registrant and SOFTBANK Holdings, Inc.+
</TABLE>

II-4
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
10.02 Form of Indemnification Agreement entered into by the Registrant with
each of its directors and executive officers.+
10.03 Registrant's 1995 Combined Incentive and Nonqualified Stock Option
Plan and related documents.+
10.04 Credit Agreement, dated as of November 4, 1992, between Paul Allen and
Asymetrix Corporation, as Borrowers, Seattle-First National Bank,
Bank of America National Trust and Savings Association, First
Interstate Bank of Washington, N.A. and First Interstate Bank of
Oregon, N.A. as Lenders, and Seattle-First National Bank as Agent for
the Lenders.+
10.05 Registrant's 1998 Directors Stock Option Plan and related documents.+
10.06 Registrant's 1998 Equity Incentive Plan and related documents.+
10.07 Sublease, dated as of October 30, 1995, between Registrant and Vulcan
Northwest Inc.+
10.08 Series B Preferred Stock Exchange Agreement, dated as of September 30,
1997, between the Registrant and SuperCede, Inc.+
10.09 Asset Transfer, License and Stock Issuance Agreement, dated as of June
24, 1997, between the Registrant and SuperCede, Inc.+
10.10 Sublease, dated as of June 24, 1997, between the Registrant and
SuperCede, Inc.+
10.11 Promissory Note, dated as of March 14, 1995, between the Registrant
and Paul Allen.+
10.12 Infomodeler Technology Transfer and License Agreement, dated as of
October 7, 1996, between the Registrant and ASX Corporation, as
amended January 14, 1998.+
10.13 Sublease, dated as of October 7, 1995, between the Registrant and ASX
Corporation.+
10.14 Asset Purchase and Loan Agreement, dated as of October 7, 1996,
between the Registrant and ASX Corporation.+
10.15 Lease Agreement, dated as of May 24, 1991, by and between the
Registrant and Dean Witter Realty Income Partnership II, L.P., and
amendments thereto.+
10.16 Employment Agreement, dated as of September 30, 1997, between the
Registrant and Kevin Oakes.+
10.17 Stock Purchase and Sale Agreement, dated as of March 27, 1998 between
the Registrant and Vulcan Ventures Inc.+
10.18 Directed Engineering Agreement, dated as of March 27, 1998, between
the registrant and Vulcan Northwest, Inc.+
21.01 Subsidiaries of the Registrant.+
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 Consent of Ernst & Young LLP.
23.03 Consent of Arthur Andersen LLP.
23.04 Consent of KPMG Peat Marwick LLP.
23.05 Consent of KPMG Peat Marwick LLP.
24.01 Power of Attorney.+
27.01 Financial Data Schedule (EDGAR Version Only)+
</TABLE>
- --------

+ Previously filed.

(b) The following financial statement schedule is filed herewith:

Schedule II--Valuation and Qualifying Accounts (see page S-3).

Other financial statement schedules are omitted because the information
called for is not required or is shown either in the financial statements or
the notes thereto.

II-5
<PAGE>

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, 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 Securities 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 Securities Act and will be governed by the final
adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus 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.

II-6
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF BELLEVUE, STATE OF WASHINGTON, ON THE 18TH DAY
OF MAY, 1998.

ASYMETRIX LEARNING SYSTEMS, INC.

By: /s/ James A. Billmaier
---------------------------------
James A. Billmaier
Chief Executive Officer

IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT, THIS AMENDMENT
WAS SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES
INDICATED.

NAME TITLE DATE
---- ----- ----

PRINCIPAL EXECUTIVE OFFICER:
<S> <C> <C>

/s/ James A. Billmaier Chief Executive Officer May 18, 1998
- --------------------------------- and Director
James A. Billmaier

PRINCIPAL FINANCIAL AND PRINCIPAL ACCOUNTING OFFICER:

/s/ John D. Atherly Vice President, Finance May 18, 1998
- --------------------------------- and Administration and
John D. Atherly Chief Financial Officer

DIRECTORS:

* Chairman of the Board May 18, 1998
- ---------------------------------
Bert Kolde

* Director May 18, 1998
- ---------------------------------
Paul G. Allen

* Director May 18, 1998
- ---------------------------------
Shelley Harrison, Ph.D.

* President and Director May 18, 1998
- ---------------------------------
Kevin Oakes

* Director May 18, 1998
- ---------------------------------
Gary Rieschel

* By /s/ John D. Atherly Attorney-in-fact May 18, 1998
-----------------------------
John D. Atherly

</TABLE>

II-7
<PAGE>

WHEN THE TRANSACTION REFERRED TO IN NOTE 12 OF THE NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS HAS BEEN CONSUMMATED, WE
WILL BE IN A POSITION TO RENDER THE FOLLOWING REPORT.

/s/ KPMG PEAT MARWICK LLP

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Asymetrix Learning Systems, Inc.:

Under date of March 27, 1997, except as to note 12 which is as of May , 1998,
we reported on the consolidated balance sheets of Asymetrix Learning Systems,
Inc. and subsidiaries as of December 31, 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year
then ended, which are included in the registration statement on Form S-1. In
connection with our audit of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule in the registration statement. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audit.

In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects. the information set forth
therein.

Seattle, Washington
March 27, 1998

S-1
<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Asymetrix Learning Systems, Inc.

We have audited the consolidated financial statements of Asymetrix Learning
Systems, Inc. as of December 31, 1996, and for each of the two years in the
period ended December 31, 1996, and have issued our report thereon dated April
23, 1997 (included elsewhere in this Registration Statement). Our audits also
included the financial statement schedule listed in Item 16(b) of this
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

/s/ Ernst & Young LLP
Seattle, Washington
April 23, 1997

S-2

<PAGE>

Asymetrix Learning Systems, Inc.

VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- --------- ------------ ---------- --------
BALANCE
AT CHARGED TO BALANCE
BEGINNING OTHER COSTS (1) AT END
OF YEAR AND EXPENSES DEDUCTIONS OF YEAR
--------- ------------ ---------- --------
<S> <C> <C> <C> <C>
Year ended December 31, 1997:
Valuation accounts deducted from
assets:
Allowance for doubtful receivables
and sales returns................ $3,346 $1,121 $3,319 $1,148
Reserve for inventory
obsolescence..................... 385 357 691 51
Year ended December 31, 1996:
Valuation accounts deducted from
assets:
Allowance for doubtful receivables
and sales returns................ $2,951 $2,890 $2,495 $3,346
Reserve for inventory
obsolescence..................... 541 556 712 385
Year ended December 31, 1995:
Valuation accounts deducted from
assets:
Allowance for doubtful receivables
and sales returns................ $3,406 $1,089 $1,544 $2,951
Reserve for inventory
obsolescence..................... 425 581 465 541
</TABLE>

S-3
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
5.01 Opinion of Fenwick & West LLP regarding legality of the securities
being registered.
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 Consent of Ernst & Young LLP.
23.03 Consent of Arthur Andersen LLP.
23.04 Consent of KPMG Peat Marwick LLP.
23.05 Consent of KPMG Peat Marwick LLP.
</TABLE>

<PAGE>

EXHIBIT 5.01
------------

[Letterhead of Fenwick & West LLP]

May 18, 1998

Asymetrix Learning Systems, Inc.
110-110th Avenue NE
Bellevue, Washington 98004

Gentlemen/Ladies:

At your request, we have examined the Registration Statement on Form S-1
(File No. 333-49037) (the "Registration Statement") filed by you with the
Securities and Exchange Commission (the "Commission") on April 1, 1998, as
subsequently amended, in connection with the registration under the Securities
Act of 1933, as amended, of an aggregate of 3,450,000 shares of your Common
Stock (the "Stock"), all of which shares are expected to be sold by you. The
Stock is to be sold to the underwriters named in the Registration Statement for
resale to the public.

In rendering this opinion, we have examined the following:

(1) the Registration Statement, together with the Exhibits filed as a part
thereof;

(2) your registration statement on Form 8-A filed with the Commission on
May 18, 1998;

(3) the Prospectus prepared in connection with the Registration Statement;

(4) the minutes of meetings and actions by written consent of the
stockholders and Board of Directors that are contained in your minute
books that are in our possession;

(5) the stock records that you have provided to us; and

(6) a Management Certificate addressed to us and dated of even date
herewith executed by the Company containing certain factual and other
representations.

In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to, the genuineness of all signatures on
original documents, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies, the legal capacity of all natural persons executing the same,
<PAGE>

Asymetrix Learning Systems, Inc.
May 18, 1998
Page 2

the lack of any undisclosed terminations, modifications, waivers or amendments
to any documents reviewed by us and the due execution and delivery of all
documents where due execution and delivery are prerequisites to the
effectiveness thereof.

As to matters of fact relevant to this opinion, we have relied solely upon
our examination of the documents referred to above and have assumed the current
accuracy and completeness of the information included in the documents referred
to above. We have made no independent investigation or other attempt to verify
the accuracy of any of such information or to determine the existence or non-
existence of any other factual matters; however, we are not aware of any facts
-------
that would lead us to believe that the opinion expressed herein is not accurate.

We are admitted to practice law in the State of California, and we express
no opinion herein with respect to the application or effect of the laws of any
jurisdiction other than the existing laws of the United States of America and
the State of California and (without reference to case law or secondary sources)
the existing Delaware General Corporation Law.

Based upon the foregoing, it is our opinion that the up to 3,450,000 shares
of Stock to be issued and sold by you, when issued and sold in accordance in the
manner referred to in the Prospectus associated with the Registration Statement,
will be validly issued, fully paid and nonassessable.

We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us, if any, in the
Registration Statement, the Prospectus constituting a part thereof and any
amendments thereto.

This opinion speaks only as of its date and is intended solely for the your
use as an exhibit to the Registration Statement for the purpose of the above
sale of the Stock and is not to be relied upon for any other purpose.

Very truly yours,

FENWICK & WEST LLP

By: /s/ Fenwick & West LLP
----------------------

<PAGE>

EXHIBIT 23.02

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Selected
Historical Consolidated Financial Data", "Changes in Accountants", and
"Experts" and to the use of our reports dated April 23, 1997, in Pre-Effective
Amendment No. 2 to the Registration Statement (Form S-1 No. 333-49037) and
related Prospectus of Asymetrix Learning Systems, Inc. for the registration of
3,000,000 shares of its common stock.

/s/ Ernst & Young LLP
Seattle, Washington

May 15, 1998

<PAGE>

EXHIBIT 23.03

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
report, dated May 9, 1997; covering the audited financial statements of
Aimtech Corporation as of December 31, 1996 and for the year then ended, and
to all references to our Firm included in or made a part of this registration
statement.

Arthur Andersen LLP
Boston, Massachusetts

May 15, 1998

<PAGE>

EXHIBIT 23.04

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
Asymetrix Learning Systems, Inc.:

We consent to the inclusion of our report dated December 19, 1997, with
respect to the balance sheets of Communication Strategies, Inc. as of December
31, 1996 and September 30, 1997, and the related statements of income and
retained earnings and cash flows for the year ended December 31, 1996 and the
nine-month period ended September 30, 1997, which report appears in the
registration statement (No. 333-49037) of Asymetrix Learning Systems, Inc.,
and to the reference to our firm under the heading "Experts" in the
prospectus.

KPMG Peat Marwick LLP

Dallas, Texas

May 15, 1998

<PAGE>

EXHIBIT 23.05

WHEN THE TRANSACTION REFERRED TO IN NOTE 12 OF THE NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS HAS BEEN CONSUMMATED, WE WILL BE IN A POSITION TO RENDER
THE FOLLOWING CONSENT.

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
Asymetrix Learning Systems, Inc.:

We consent to the use of our reports included herein and to the reference to
our firm under the headings "Selected Historical Consolidated Financial Data",
"Changes in Accountants", and "Experts" in the prospectus.

KPMG Peat Marwick LLP

Seattle, Washington

May 15, 1998