SumTotal Systems Reports Revenue Growth and Positive Cash Flow from Operations for the Second Quarter

Announces Acquisition of Pathlore

MOUNTAIN VIEW, CA (August 3, 2005) -- SumTotal™ Systems, Inc. (Nasdaq: SUMTE), the largest provider of learning and business performance technologies and services, today announced its financial results for the period ended June 30, 2005.

Second Quarter 2005 Results

On a Generally Accepted Accounting Principles (“GAAP”) basis, total revenue for the second quarter of 2005 was $15.9 million, an increase of 13% from $14.1 million in the second quarter of 2004. Net loss for the second quarter of 2005 was $3.4 million, or $0.16 per share on both a basic and diluted basis, an improvement from a loss of $4.1 million or $0.20 per share, in the same quarter one year ago. The net loss for the second quarter of 2005 included approximately $1.2 million of additional expenses related to compliance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”) and related matters. Deferred revenue at the end of the quarter increased to $19.7 million, from $12.4 million at the end of the second quarter of 2004, and from $15.1 million at the end of 2004.

First Six Month 2005 Results

On a GAAP basis, total revenue for the six months ended June 30, 2005 was $32.6 million, an increase of 54% from $21.2 million in the first six months of 2004. Net loss for the six months ended June 30, 2005 was $6.0 million, or $0.29 per share on both a basic and diluted basis, an improvement from a loss of $11.9 million or $0.74 per share, in the same period one year ago. The net loss for the first six months of 2005 included approximately $2.0 million of additional expenses related to compliance with Section 404 and related matters. The 2004 numbers include the results for Click2learn, Inc. from January 1, 2004 until March 18, 2004 and for SumTotal Systems for the remainder of the periods.

Cash and Cash Flow

SumTotal Systems generated cash flow from operating activities of $0.4 million for the second quarter of 2005 and $1.9 million for the first six months of the year. Cash, cash equivalents and short-term investments increased from $34.7 million as of December 31, 2004 to $36.7 million as of June 30, 2005.

In announcing the company’s results, Andy Eckert, chief executive officer, said, “We continued to expand our leadership position in learning technology in the second quarter. We believe our increasing scale is key to long-term success in this industry, as evidenced by the fact that we were also cash flow positive. With the continued growth in our deferred revenue balance and the strength of our pipeline, I am confident that we will see strong revenue growth in the second half of 2005.”

Acquisition of Pathlore

In a separate announcement today, SumTotal Systems announced the signing of a definitive merger agreement for SumTotal to acquire Pathlore® Software Corporation for approximately $48 million. At the closing of the acquisition, Pathlore shareholders will receive approximately $29 million in cash and 4 million shares of SumTotal Systems common stock. The company will also incur additional cash obligations due to deal-related and severance expenses. The company plans to fund the cash element of the transaction, in part, by establishing a new $22.5 million credit facility.

“After surveying our industry’s landscape, it became evident that Pathlore has a tremendous amount of momentum in complementary markets,” said Andy Eckert, CEO of SumTotal. “We believe that its growth, significant revenue base, and profitability profile could help us reach a critical threshold of revenue scale and profitability for our customers, partners and investors. With similar philosophies and cultures, complementary technology and offerings, and an unmatched footprint, we believe the combined company will be a true enterprise-class player in our industry with the scale to drive innovation and customer satisfaction in a profitable manner.”

Recent Operating Highlights

• Signed a new distribution agreement with ExcellerateHRO (http://www.excelleratehro.com) as its premier learning and business performance solution for outsourced human resources applications, further extending SumTotal’s position as the application of choice among leading HRO providers
  
• Solidified its product leadership with the release of the SumTotal Enterprise Suite 7.1, enhancing standards support, broadening offline access, expanding localization and enriching embedded reporting capabilities
  
• Earned continued industry recognition for product leadership by being awarded four stars – the highest rating – by Training Media Review
  
• Expanded North American market share with new customer wins at A.T. Kearney, Analog Devices, Ahern Rentals, CTX Mortgage, Nabors Industries, Sedgewick Claims, Sonnenschein, Carlson Restaurants, and American Academy of Otolaryngology, among others
  
• Extended its international footprint in all geographies with new customer wins at Grupo Modelo, Computerised Training Systems, Linde AG, Banco Poplare di Vicenza, Repsol YPF and Star City Casino, among others
  
• Increased access to federal government markets with the award of two key procurement vehicles by the US Office of Personnel Management (OPM) to support its GoLearn program
  
• Added new licenses with existing customers at BellSouth, Johnson and Johnson, New Century Mortgage, Fremont Investments, Singapore Health Systems, Trustmark National Bank, Maxis Communications, Telecom New Zealand, Buckman Labs, Wyeth and EADS, among others
  
• Conducted keynote global sessions at Human Capital 2005 Tokyo and e-Learning Brasil 2005
  

SEC Filings

On August 1, the company filed its Form 10-K for Fiscal Year 2004 ended December 31 and Form 10-Q for the first quarter of Fiscal Year 2005 ended March 31, 2005, and the company believes it is now compliant with Nasdaq’s listing requirements.

Guidance

Not including the impact of the Pathlore acquisition, for the third quarter of 2005, SumTotal Systems estimates it will achieve revenue between $16.5 million and $18.5 million on a GAAP basis. The net loss, also on a GAAP basis, is estimated at between $3.0 million or 14 cents per share and $1.5 million or 8 cents per share.

Conference Call

SumTotal Systems will host an investor conference call today, Wednesday, August 3, 2005 at 2:00 p.m. (PDT), 5:00 p.m. (EDT) to discuss the financial results for the second quarter ended June 30, 2005.

A live audio webcast will be available to investors and the public from SumTotal’s website at www.sumtotalsystems.com/company/investors. In addition to the webcast, a telephone replay will be available on Wednesday, August 3, 2005, beginning at approximately 5:00 P.M. (Pacific) through the close of business on Wednesday, August 10. The replay can be accessed by dialing the U.S. toll-free number: 1-800-207-7077, access code: 4153. The international dial-in number is +1-913-383-5767, access code: 4153.

You are cautioned that the time and/or manner of the webcast may change for technical and or administrative reasons outside of SumTotal Systems’ control.

About SumTotal Systems

SumTotal Systems Inc. (NASDAQ: SUMTE) is the largest provider of learning and business performance technologies and services. SumTotal deploys mission-critical solutions that align learning with organizational and business goals to generate significant bottom-line results. With more than 12 million users worldwide, SumTotal has helped accelerate performance and profit for nearly 700 of the world’s best-known companies and government agencies, including US Army, Air Force, Navy and Coast Guard, Microsoft, United Airlines, Vodafone, Aetna, Accenture, Cendant, Harley-Davidson, Wyeth, Wachovia and D&B. SumTotal has offices throughout the US, in London, Paris, Heidelberg, Sydney, Tokyo and Hyderabad, India. For more information about SumTotal's products and services, visit www.sumtotalsystems.com.

SAFE HARBOR STATEMENT/ FORWARD-LOOKING STATEMENTS
Information in this press release and the accompanying conference call contains forward-looking statements. These statements represent SumTotal Systems’ expectations or beliefs concerning future events and include statements, among others, regarding SumTotal Systems’ new products; financial guidance regarding revenue, profitability, cash balance, bookings, projections, operating expenses, and growth of the Company; and the ability of the Company to remediate deficiencies and weaknesses identified in its Form 10-K for Fiscal Year 2005. These statements are not historical facts or guarantees of future performance or events, and are based on current expectations, estimates, beliefs, assumptions, goals and objectives, and involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from the results expressed or implied by these statements. Readers of this press release and listeners to the accompanying conference call are cautioned not to place undue reliance on any forward-looking statements. Additional factors that could cause actual results to differ include, but are not limited to (i) the Company may not be able to successfully achieve having NASDAQ remove the “E” from its ticker symbol in a timely fashion or at all; (ii) even though the Company was successful in filing its Forms 10-K and 10-Q by the NASDAQ extension date of August 1, the Company still may not be able to comply with the NASDAQ listing requirements and may by subject to delisting; (iii) failure to comply with Section 404; (iv) SumTotal Systems’ limited operating history, and its, along with its predecessor companies, history of losses; (v) customers or partners delaying purchasing or upgrade decisions until there is widespread market acceptance its new product line; (v) inability to fix in a timely fashion unanticipated bugs, errors or defects that materially impact the functionality or usability of SumTotal’s new product line, or unanticipated problems in customer upgrades to the new product line; (vi) long sales cycles for closing software contracts and seasonality in purchasing decisions; (vii) an emerging and rapidly evolving market; (viii) adverse changes in general economic or market conditions; (ix) dependence on the growth of SumTotal Systems’ market and fluctuation in customer spending; (x) delays or reductions in information technology spending; (xi) the ability to attract and retain highly qualified employees, and the risk of losing employees; (xii) intense competition in the marketplace causing, among other things, pricing pressure; (xiii) increase in litigation related costs, as well as the cost of potential settlements; (xiv) other market conditions that include risks and uncertainties such as risks associated with financial, economic, political, terrorist activity and other uncertainties; and (xv ) other events and other important factors disclosed previously and from time to time in SumTotal Systems’ filings with the Securities and Exchange Commission, including the Annual Report filed on Form 10-K and quarterly report filed on Form 10-Q on August 1, 2005, and Form 8-Ks, including without limitation the Company’s Form 8-K filed today regarding the proposed acquisition of Pathlore, Inc. SumTotal Systems assumes no obligation to update the information in this press release or in the accompanying conference call.