##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549




---

FORM 10-QSB


(MARK ONE)

|                                             |  |                                                                                   
|-------------------------------------------- |  | ----------------------------------------------------------------------------------
|                                            
|                                            
|                                            
|                                            
|[X]                                          |  | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
	THE SECURITIES EXCHANGE ACT OF 1934
|For the quarterly period ended June 30, 2000
|                                            
|[   ]                                        |  | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF EXCHANGE ACT                       
|                                             |  | For the transition period from    to                                              
|Commission File Number 0-13741              

ITC LEARNING CORPORATION



|                                                                                                                                        |  |                                             
|--------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|Maryland(State or other jurisdiction of
	incorporation or organization)                                                                 |  | 52-1078263(IRS Employer
	Identification No.)
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|                                                                                                                                       
|13515 Dulles Technology Drive
	Herndon, Virginia 20171(Address of principal executive offices)(703) 713-3335(Issuers telephone number)



---

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

As of June 30, 2000, 3,964,078 shares of Common Stock were
outstanding.

Transitional Small Business Disclosure Format (check
one):  [   ] 
Yes       [X]  No



---






---

TABLE OF CONTENTS



|                                                                                              |                                                             |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- | ----------------------------------------------------------- |  |  |  |  |  |  | 
|PART I -- FINANCIAL INFORMATION                                                              
|                                                                                              | ITEM 1. Financial Statements                               
|ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|PART II -- OTHER INFORMATION                                                                 
|                                                                                              | ITEM 1. Legal Proceedings                                  
|                                                                                              | ITEM 2. Changes in Securities and Use of Proceeds          
|                                                                                              | ITEM 3. Defaults Upon Senior Securities                    
|                                                                                              | ITEM 4. Submission of Matters to a Vote of Security Holders
|                                                                                              | ITEM 5. Other Information                                  
|                                                                                              | ITEM 6. Exhibits and Reports on Form 8-K                   
|SIGNATURES                                                                                   
|FINANCIAL DATA SCHEDULE                                                                      



---



ITC LEARNING CORPORATION

FORM 10-QSB

INDEX

| |          |  |  |                        |  |                                                                                                                   |  |  |     | 
| | -------- |  |  | ---------------------- |  | ----------------------------------------------------------------------------------------------------------------- |  |  | --- | 
| |          |  |  |                        |  | Page                                                                                                             
| |          |  |  |                        |  |                                                                                                                  
| | Part I   |  |  | Financial Information.
| |          |  |  | Item 1.                |  | Financial Statements (Unaudited)                                                                                  |  |  |     | 
|
|
|
|
| |          |  |  |                        |  | Condensed Consolidated Statements of Operations for the Three
	Months and Six Months Ended June 30, 2000 and 1999 |  |  | 1   | 
|
|
|
|
| |          |  |  |                        |  | Condensed Consolidated Balance Sheets as of June 30, 2000 and
	December 31, 1999                                  |  |  | 2-3 | 
|
|
|
|
| |          |  |  |                        |  | Condensed Consolidated Statements of Cash Flows for the Six
	Months Ended June 30, 2000 and 1999                  |  |  | 4   | 
|
|
|
|
| |          |  |  |                        |  | Notes to Condensed Consolidated Financial Statements                                                              |  |  | 5   | 
|
|
|
|
| |          |  |  | Item 2.                |  | Managements Discussion and Analysis of Financial Condition
	and
	Results of Operations                           |  |  | 11  | 
|
|
|
|
| | Part  II |  |  | Other Information.    
|
|
|
|
| |          |  |  | Item 1.                |  | Legal Proceedings                                                                                                 |  |  | 16  | 
|
|
|
|
| |          |  |  | Item 2.                |  | Changes in Securities and Use of Proceeds                                                                         |  |  | 16  | 
|
|
|
|
| |          |  |  | Item 3.                |  | Defaults Upon Senior Securities                                                                                   |  |  | 16  | 
|
|
|
|
| |          |  |  | Item 4.                |  | Submission of Matters to a Vote of Security Holders                                                               |  |  | 16  | 
|
|
|
|
| |          |  |  | Item 5.                |  | Other Information                                                                                                 |  |  | 16  | 
|
|
|
|
| |          |  |  | Item 6.                |  | Exhibits and Reports on Form 8-K                                                                                  |  |  | 17  | 



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##### Table of Contents






PART I  FINANCIAL INFORMATION




ITEM 1.  Financial Statements

ITC LEARNING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

|                                               |                   |                    |            |                  |   |      |           |      |  |   |            |       |   |   |            |      | 
|---------------------------------------------- | ----------------- | ------------------ | ---------- | ---------------- | - | ---- | --------- | ---- |  | - | ---------- | ----- | - | - | ---------- | ---- | 
|                                               |                   |                    |            |                 
|                                               |                   | For the            |            | For the         
|                                               |                   | Three Months Ended |            | Six Months Ended
|                                               |                   | June 30,           |            | June 30,        
|                                               |                   |                    |            |                 
|                                               |                   | 2000               |            | 1999             |   | 2000 |           | 1999
|                                               |                   |                    |            |                  |   |      |           |     
|Net revenues                                   |                   | $                  | 1,507,618  |                  |   | $    | 5,469,195 |      |  | $ | 3,330,003  |       |   | $ | 11,171,579 |     
|                                              
|                                              
|                                              
|                                              
|Cost of sales                                  |                   |                    | 1,199,935  |                  |   |      | 1,955,446 |      |  |   | 2,326,710  |       |   |   | 4,512,674  |     
|                                               |                   |                    |            |                  |   |      |           |      |  |   |            |       |   |   |            |     
|Gross margin                                   |                   |                    | 307,683    |                  |   |      | 3,513,749 |      |  |   | 1,003,293  |       |   |   | 6,658,905  |     
|                                              
|                                              
|                                              
|                                              
|Selling, general and administrative expense    |                   |                    | 2,193,320  |                  |   |      | 3,130,975 |      |  |   | 4,389,306  |       |   |   | 6,006,364  |     
|                                              
|                                              
|                                              
|                                              
|Equity in earnings of affiliates               |                   |                    | (24,410    | )                |   |      | (47,160   | )    |  |   | (86,666    | )     |   |   | (112,307   | )   
|                                               |                   |                    |            |                  |   |      |           |      |  |   |            |       |   |   |            |     
|Income (loss) before interest and income taxes |                   |                    | (1,861,227 | )                |   |      | 429,934   |      |  |   | (3,299,347 | )     |   |   | 764,848    |     
|                                              
|                                              
|                                              
|                                              
|Interest income                                |                   |                    | 4,600      |                  |   |      | 41,462    |      |  |   | 8,150      |       |   |   | 46,967     |     
|                                              
|                                              
|                                              
|                                              
|Interest expense                               |                   |                    | (202,310   | )                |   |      | (97,334   | )    |  |   | (402,926   | )     |   |   | (160,906   | )   
|                                               |                   |                    |            |                  |   |      |           |      |  |   |            |       |   |   |            |     
|Income (loss) before income taxes              |                   |                    | (2,058,937 | )                |   |      | 374,062   |      |  |   | (3,694,123 | )     |   |   | 650,909    |     
|                                              
|                                              
|                                              
|                                              
|Income tax expense (benefit)                   |                   |                    |           |                  |   |      |          |      |  |   |           |       |   |   |           |     
|                                               |                   |                    |            |                  |   |      |           |      |  |   |            |       |   |   |            |     
|Net income (loss)                              |                   | $                  | (2,058,937 | )                |   | $    | 374,062   |      |  | $ | (3,694,123 | )     |   | $ | 650,909    |     
|                                               |                   |                    |            |                  |   |      |           |      |  |   |            |       |   |   |            |     
|Net income (loss) per common share:            |                   |                    |            |                  |   |      |           |      |  |   |            |       |   |   |            |     
|                                              
|                                              
|                                              
|                                              
|                                               | Basic and diluted |                    | $          | (0.53            | ) |      | $         | 0.10 |  |   | $          | (0.94 | ) |   | $          | 0.17 | 
|                                               |                   |                    |            |                  |   |      |           |      |  |   |            |       |   |   |            |     

See accompanying notes to condensed consolidated financial
statements.

1



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##### Table of Contents



ITC LEARNING CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

|                                                                                                                                                           |                                                                                |                            |           |              |            |  |           |            |            | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | -------------------------- | --------- | ------------ | ---------- |  | --------- | ---------- | ---------- | 
|                                                                                                                                                           |                                                                                | June 30,                   |           | December 31,
|                                                                                                                                                           |                                                                                | 2000                       |           | 1999        
|                                                                                                                                                           |                                                                                |                            |           |             
|                                                                                                                                                           |                                                                                | (Unaudited)                |           |             
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|Current assets:                                                                                                                                            |                                                                                |                            |           |              |            |  |           |           
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                           | Cash and cash equivalents                                                      |                            | $         | 308,563      |            |  | $         | 535,178    |           
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                           | Accounts receivable, net (note 2)                                              |                            |           | 1,898,841    |            |  |           | 4,482,511  |           
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                           | Due from affiliates                                                            |                            |           | 91,388       |            |  |           | 175,533    |           
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                           | Inventories, net of reserve of $22,500 at June 30, 2000 and
	December 31, 1999 |                            |           | 176,340      |            |  |           | 338,900    |           
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                           | Prepaid expenses                                                               |                            |           | 152,257      |            |  |           | 153,724    |           
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                           | Income taxes receivable                                                        |                            |           | 69,246       |            |  |           | 70,258     |           
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                           | Deferred financing costs, net                                                  |                            |           | 47,273       |            |  |           | 65,000     |           
|                                                                                                                                                           |                                                                                |                            |           |              |            |  |           |           
|                                                                                                                                                           |                                                                                | Total current assets       |           |              | 2,743,908  |  |           |            | 5,821,104  | 
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|Note receivable (note 3)                                                                                                                                   |                                                                                |                            | 447,447   |              |            |  | 537,628   |           
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|Property and equipment:                                                                                                                                    |                                                                                |                            |           |              |            |  |           |           
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                           | Video and computer equipment                                                   |                            |           | 2,658,501    |            |  |           | 2,666,316  |           
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                           | Furniture and fixtures                                                         |                            |           | 210,786      |            |  |           | 210,994    |           
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                           | Leasehold improvements                                                         |                            |           | 61,146       |            |  |           | 61,340     |           
|                                                                                                                                                           |                                                                                |                            |           |              |            |  |           |           
|                                                                                                                                                           |                                                                                |                            | 2,930,433 |              |            |  | 2,938,650 |           
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                           | Less accumulated depreciation and amortization                                 |                            |           | (2,304,853   | )          |  |           | (2,020,237 | )         
|                                                                                                                                                           |                                                                                |                            |           |              |            |  |           |           
|                                                                                                                                                           |                                                                                | Net property and equipment |           |              | 625,580    |  |           |            | 918,413    | 
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|Capitalized program development costs, net of accumulated
	amortization of $7,583,544 and $6,282,102 at June 30, 2000
	and December 31, 1999, respectively |                                                                                |                            | 4,119,804 |              |            |  | 5,097,679 |           
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|Intangible assets, net of accumulated amortization of $1,913,834
	and $1,617,499 at June 30, 2000 and December  31, 1999,
	 respectively                   |                                                                                |                            | 3,208,309 |              |            |  | 3,504,645 |           
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|                                                                                                                                                          
|Other                                                                                                                                                      |                                                                                |                            | 10,351    |              |            |  | 10,927    |           
|                                                                                                                                                           |                                                                                |                            |           |              |            |  |           |           
|                                                                                                                                                           |                                                                                | Total assets               |           | $            | 11,155,399 |  |           | $          | 15,890,396 | 
|                                                                                                                                                           |                                                                                |                            |           |              |            |  |           |           

See accompanying notes to condensed consolidated financial
statements.

2



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##### Table of Contents



ITC LEARNING CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS EQUITY

|                                           |                                                                                                                                                             |                            |            |              |           |   |            |            |           | 
|------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ---------- | ------------ | --------- | - | ---------- | ---------- | --------- | 
|                                           |                                                                                                                                                             | June 30,                   |            | December 31,
|                                           |                                                                                                                                                             | 2000                       |            | 1999        
|                                           |                                                                                                                                                             |                            |            |             
|                                           |                                                                                                                                                             | (Unaudited)                |            |             
|                                          
|                                          
|                                          
|                                          
|Current liabilities:                       |                                                                                                                                                             |                            |            |              |           |   |            |           
|                                          
|                                          
|                                          
|                                          
|                                           | Line of credit (note 4)                                                                                                                                     |                            | $          |             |           |   | $          | 663,838    |          
|                                          
|                                          
|                                          
|                                          
|                                           | Current installments of long-term debt (note 5)                                                                                                             |                            |            | 2,240,153    |           |   |            | 277,160    |          
|                                          
|                                          
|                                          
|                                          
|                                           | Accounts payable                                                                                                                                            |                            |            | 1,947,648    |           |   |            | 2,193,676  |          
|                                          
|                                          
|                                          
|                                          
|                                           | Due to affiliates                                                                                                                                           |                            |            | 91,762       |           |   |            | 187,070    |          
|                                          
|                                          
|                                          
|                                          
|                                           | Accrued compensation and benefits                                                                                                                           |                            |            | 224,792      |           |   |            | 167,218    |          
|                                          
|                                          
|                                          
|                                          
|                                           | Deferred revenues                                                                                                                                           |                            |            | 221,167      |           |   |            | 373,144    |          
|                                          
|                                          
|                                          
|                                          
|                                           | Other accrued expenses                                                                                                                                      |                            |            | 1,316,336    |           |   |            | 2,260,240  |          
|                                          
|                                          
|                                          
|                                          
|                                           | Income taxes payable                                                                                                                                        |                            |            | 4,569        |           |   |            | 6,128      |          
|                                           |                                                                                                                                                             |                            |            |              |           |   |            |           
|                                           |                                                                                                                                                             | Total current liabilities  |            |              | 6,046,427 |   |            |            | 6,128,474 | 
|                                          
|                                          
|                                          
|                                          
|Deferred lease obligations                 |                                                                                                                                                             |                            | 18,718     |              |           |   | 12,119     |           
|                                          
|                                          
|                                          
|                                          
|Long-term debt (note 5)                    |                                                                                                                                                             |                            | 1,143,218  |              |           |   | 2,313,604  |           
|                                           |                                                                                                                                                             |                            |            |              |           |   |            |           
|                                           |                                                                                                                                                             | Total liabilities          |            |              | 7,208,363 |   |            |            | 8,454,197 | 
|                                          
|                                          
|                                          
|                                          
|Stockholders equity:                      |                                                                                                                                                             |                            |            |              |           |   |            |           
|                                          
|                                          
|                                          
|                                          
|                                           | Common stock, $0.10 par value, 12,000,000 shares authorized;
	3,964,078 and 3,964,078 shares issued and outstanding at
	June 30, 2000 and December 31, 1999 |                            |            | 396,408      |           |   |            | 396,408    |          
|                                          
|                                          
|                                          
|                                          
|                                           | Additional capital                                                                                                                                          |                            |            | 17,083,716   |           |   |            | 16,975,959 |          
|                                          
|                                          
|                                          
|                                          
|                                           | Note receivable from ESOP                                                                                                                                   |                            |            | (313,127     | )         |   |            | (359,377   | )        
|                                          
|                                          
|                                          
|                                          
|                                           | Retained deficit                                                                                                                                            |                            |            | (13,257,832  | )         |   |            | (9,563,709 | )        
|                                          
|                                          
|                                          
|                                          
|                                           | Accumulated other comprehensive gain (loss) (note 7)                                                                                                        |                            |            | 37,871       |           |   |            | (13,082    | )        
|                                           |                                                                                                                                                             |                            |            |              |           |   |            |           
|                                           |                                                                                                                                                             | Total stockholders equity |            |              | 3,947,036 |   |            |            | 7,436,199 | 
|                                           |                                                                                                                                                             |                            |            |              |           |   |            |           
|Total liabilities and stockholders equity |                                                                                                                                                             | $                          | 11,155,399 |              |           | $ | 15,890,396 |           
|                                           |                                                                                                                                                             |                            |            |              |           |   |            |           

See accompanying notes to condensed consolidated financial
statements.

3



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##### Table of Contents



ITC LEARNING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

|                                               |                                                |                                                   |            |           |           |   |            |            |          |  
|---------------------------------------------- | ---------------------------------------------- | ------------------------------------------------- | ---------- | --------- | --------- | - | ---------- | ---------- | -------- | -
|                                               |                                                |                                                  
|                                               |                                                | For the Six Months                               
|                                               |                                                | Ended June 30,                                   
|                                               |                                                |                                                  
|                                               |                                                | 2000                                              |            | 1999     
|                                               |                                                |                                                   |            |          
|Cash flows from operating activities:          |                                                |                                                   |            |           |           |   |            |           
|                                              
|                                              
|                                              
|                                              
|Net income (loss)                              |                                                | $                                                 | (3,694,123 | )         |           | $ | 650,909    |           
|                                              
|                                              
|                                              
|                                              
|Reconciling items:                             |                                                |                                                   |            |           |           |   |            |           
|                                              
|                                              
|                                              
|                                              
|                                               | Provision for doubtful accounts                |                                                   |            | 165,000   |           |   |            | 200,000    |         
|                                              
|                                              
|                                              
|                                              
|                                               | Depreciation and amortization                  |                                                   |            | 2,101,555 |           |   |            | 1,948,688  |         
|                                              
|                                              
|                                              
|                                              
|                                               | Foreign currency translation adjustment        |                                                   |            | 50,953    |           |   |            | 23,813     |         
|                                              
|                                              
|                                              
|                                              
|                                               | Changes in operating assets and liabilities:   |                                                   |            |           |           |   |            |            |         
|                                              
|                                              
|                                              
|                                              
|                                               |                                                | Decrease (increase) in accounts receivable        |            |           | 2,418,670 |   |            |            | (955,613 | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                                | Decrease in notes receivable                      |            |           | 90,181    |   |            |            |         |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                                | Decrease (increase) in inventories                |            |           | 162,560   |   |            |            | (249,839 | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                                | Decrease (increase) in prepaid expenses           |            |           | 1,467     |   |            |            | (107,683 | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                                | Decrease in income taxes receivable               |            |           | 1,012     |   |            |            | 209,276  |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                                | Increase in due from affiliates, net              |            |           | (11,163   | ) |            |            | (204,812 | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                                | Decrease in other assets                          |            |           | 576       |   |            |            | 7,659    |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                                | Decrease in accounts payable                      |            |           | (246,028  | ) |            |            | (625,663 | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                                | Decrease in accrued expenses                      |            |           | (878,114  | ) |            |            | (735,922 | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                                | Increase (decrease) in deferred revenues          |            |           | (151,977  | ) |            |            | 43,945   |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                                | Increase (decrease) in deferred lease obligations |            |           | 6,599     |   |            |            | (20,781  | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                                | Increase (decrease) in income tax payable         |            |           | (1,559    | ) |            |            | 30,204   |  
|                                               |                                                |                                                   |            |           |           |   |            |           
|Net cash provided by operating activities      |                                                |                                                   | 15,609     |           |           |   | 214,181    |           
|                                              
|                                              
|                                              
|                                              
|Cash flows from investing activities:          |                                                |                                                   |            |           |           |   |            |           
|                                              
|                                              
|                                              
|                                              
|                                               | Capitalized program development costs          |                                                   |            | (323,568  | )         |   |            | (1,238,713 | )       
|                                              
|                                              
|                                              
|                                              
|                                               | Capital expenditures                           |                                                   |            |          |           |   |            | (252,379   | )       
|                                               |                                                |                                                   |            |           |           |   |            |           
|Net cash used for investing activities         |                                                |                                                   | (323,568   | )         |           |   | (1,491,092 | )         
|                                              
|                                              
|                                              
|                                              
|Cash flows from financing activities:          |                                                |                                                   |            |           |           |   |            |           
|                                              
|                                              
|                                              
|                                              
|                                               | Borrowings under line of credit                |                                                   |            |          |           |   |            | 6,861,000  |         
|                                              
|                                              
|                                              
|                                              
|                                               | Repayments under line of credit                |                                                   |            | (663,838  | )         |   |            | (5,459,000 | )       
|                                              
|                                              
|                                              
|                                              
|                                               | Proceeds from issuance of long-term debt       |                                                   |            | 862,712   |           |   |            |           |         
|                                              
|                                              
|                                              
|                                              
|                                               | Principal payments on long-term debt           |                                                   |            | (163,780  | )         |   |            | (124,566   | )       
|                                              
|                                              
|                                              
|                                              
|                                               | Employee stock ownership plan note collections |                                                   |            | 46,250    |           |   |            | 46,250     |         
|                                               |                                                |                                                   |            |           |           |   |            |           
|Net cash provided by financing activities      |                                                |                                                   | 81,344     |           |           |   | 1,323,684  |           
|                                               |                                                |                                                   |            |           |           |   |            |           
|Net increase (decrease) in cash                |                                                |                                                   | (226,615   | )         |           |   | 46,773     |           
|                                              
|                                              
|                                              
|                                              
|Cash and cash equivalents, beginning of period |                                                |                                                   | 535,178    |           |           |   | 267,045    |           
|                                               |                                                |                                                   |            |           |           |   |            |           
|Cash and cash equivalents, end of period       |                                                | $                                                 | 308,563    |           |           | $ | 313,818    |           
|                                               |                                                |                                                   |            |           |           |   |            |           

See accompanying notes to condensed consolidated financial
statements.

4



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##### Table of Contents



ITC LEARNING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2000

(Unaudited)

NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

Basis of Presentation

The consolidated financial statements of ITC Learning Corporation
 (ITC or the Company) include the
accounts of its wholly owned subsidiaries Activ Training, Ltd.
(Activ), ITC Australasia Pty. Ltd.
(ITCA), Turn-Key Training Technologies, Inc.
(Turn-Key), ITC Canada Limited, and ComSkill Learning
 Centers, Inc. (ComSkill).

ITC is a worldwide provider of education and training software to
 professionals in business, education and government
organizations. Incorporated under the laws of the state of
Maryland in 1977 the Company develops, markets and delivers
specific libraries of interactive multimedia computer-based
training (CBT) courseware designed for CD-ROM,
intranet and Internet delivery, thus enabling organizations to
effectively and efficiently deliver training to improve
individual and organizational performance. The Company operates
in four reportable segments: U.S., Canada, Australia and the
United Kingdom.

Significant intercompany accounts and transactions have been
eliminated in consolidation. In the opinion of the Companys
 management, the interim condensed consolidated financial
statements include all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the
results for the interim periods. Certain information and footnote
 disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have
been condensed or omitted. Certain prior year amounts have been
reclassified to improve comparability to current year
presentations. The interim condensed consolidated financial
statements should be read in conjunction with the Companys
December 31, 1999 audited financial statements included with
 the Companys filing on Form 10-KSB. The interim
operating results are not necessarily indicative of the operating
 results for the full fiscal year.

The Companys financial statements have been presented on a
going concern basis, which contemplates the realization of assets
 and settlement of liabilities and commitments in the normal
course of business. The Company experienced a net loss in the six
 months ended June 30, 2000, and the years ended 1999 and
1998. Although the Company expects operating results to improve,
there can be no assurances that the Company will not experience
adverse results of operation in the future. The Company believes
that its existing cash, anticipated cash flows from 2000
operations, proceeds from sale of non-core Company assets, and
planned capital fund raising activities should provide sufficient
 resources to fund its activities in 2000. However, the timing of
 aforementioned capital infusion is critical, as the Company is
currently receiving pressure from some of its larger suppliers.
Anticipated cash flows from 2000 operations are largely dependent
 upon the Companys ability to achieve its sales and gross
profit objectives for its currently existing products and new
products to be launched in 2000. Achievement of these objectives
is subject to various risk factors related to, among other
things: incremental sales resulting from expansion of
distribution capabilities; the Companys ability to deploy
its courseware over the Internet and corporate intranets; the
Companys ability to control costs in relation to future
revenues, the acceptance of the Companys new CBT courseware
 management system and the Companys ability to raise
capital. If the Company is unable to meet these objectives, it
will consider expansion of existing or development of alternative
 sources of bank financing; the curtailment of certain capital
expenditures and discretionary expenditures (such as travel,
consulting and salaries); and various other courses of action,
including the possible sale of the Company. These are
forward-looking statements. See Forward-Looking Statements and
 Risk Factors for Further Discussion.

5



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##### Table of Contents



ITC LEARNING CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

June 30, 2000

(Unaudited)



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES  (Continued)


Revenues and Costs

Revenues include both off-the-shelf and custom courseware sales,
courseware licenses, consulting service revenues and hardware
revenues. The Company recognizes revenues from off-the-shelf
product and hardware sales as units are shipped. The Company
permits the customer the right to return the courseware within
30 days of purchase. Revenues from sales of custom training
programs that are developed and produced under specific contracts
 with customers, including contracts with affiliated joint
ventures and limited partnerships, are recognized on a percentage
 of completion basis as related costs are incurred during the
production period. Gross revenues from sales of affiliated joint
venture and limited partnership copyrighted courseware are
included in the Companys financial statements, as are
related production, selling and distribution costs. Amounts due
to co-owners of the affiliated venture/partnerships related to
such courseware sales are reflected as royalties and included in
cost of sales in the financial statements. Revenues from
courseware licenses are recognized upon the delivery of the
initial copy of each product licensed, and related duplication
costs are accrued based on estimates. Revenues from consulting
services are recognized as services are performed.

Net Income (Loss) Per Common Share

Basic earnings per common share is computed based on the weighted
 average number of common shares outstanding during the year.
Diluted earnings per common share is computed based on the
weighted average number of common shares outstanding plus the
effect of stock options and other potentially dilutive common
stock equivalents. The dilutive effect of stock options and other
 potentially dilutive common stock equivalents is determined
using the treasury stock method based on the Companys
average stock price.

6



---



##### Table of Contents



ITC LEARNING CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

June 30, 2000

(Unaudited)



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES  (Continued)


The details of the earnings per share calculation for the three
and six months ended June 30, 2000 and 1999 follow:

|                                 |                                              |               |   |            |   |           |  |           |        |  |   |       |   | 
|-------------------------------- | -------------------------------------------- | ------------- | - | ---------- | - | --------- |  | --------- | ------ |  | - | ----- | - | 
|                                 |                                              | Income        |   |            |   | Per Share
|                                 |                                              | (Loss)        |   | Shares     |   | Amount   
|                                 |                                              |               |   |            |   |          
|Three months ended June 30, 2000 |                                              |               |   |            |   |           |  |           |        |  |   |      
|                                
|                                
|                                
|                                
|                                 | Loss per share of common stock  basic       |               | $ | (2,058,937 | ) |           |  | 3,910,756 |        |  | $ | (0.53 | )
|                                
|                                
|                                
|                                
|                                 | Dilutive securities:                         |               |   |            |   |           |  |           |        |  |   |       |  
|                                
|                                
|                                
|                                
|                                 |                                              | Stock options |   |            |  |           |  |           |       |  |   |       |  | 
|                                 |                                              |               |   |            |   |           |  |           |        |  |   |      
|                                 | Loss per share of common stock  diluted     |               | $ | (2,058,937 | ) |           |  | 3,910,756 |        |  | $ | (0.53 | )
|                                 |                                              |               |   |            |   |           |  |           |        |  |   |      
|Three months ended June 30, 1999 |                                              |               |   |            |   |           |  |           |        |  |   |      
|                                
|                                
|                                
|                                
|                                 | Earnings per share of common stock  basic   |               | $ | 374,062    |   |           |  | 3,879,923 |        |  | $ | 0.10  |  
|                                
|                                
|                                
|                                
|                                 | Dilutive securities:                         |               |   |            |   |           |  |           |        |  |   |       |  
|                                
|                                
|                                
|                                
|                                 |                                              | Stock options |   |            |  |           |  |           | 48,982 |  |   |       |  | 
|                                 |                                              |               |   |            |   |           |  |           |        |  |   |      
|                                 | Earnings per share of common stock  diluted |               | $ | 374,062    |   |           |  | 3,928,905 |        |  | $ | 0.10  |  
|                                 |                                              |               |   |            |   |           |  |           |        |  |   |      

|                               |                                              |               |   |            |   |           |  |           |        |  |   |       |   | 
|------------------------------ | -------------------------------------------- | ------------- | - | ---------- | - | --------- |  | --------- | ------ |  | - | ----- | - | 
|                               |                                              | Income        |   |            |   | Per Share
|                               |                                              | (Loss)        |   | Shares     |   | Amount   
|                               |                                              |               |   |            |   |          
|Six months ended June 30, 2000 |                                              |               |   |            |   |           |  |           |        |  |   |      
|                              
|                              
|                              
|                              
|                               | Loss per share of common stock  basic       |               | $ | (3,694,123 | ) |           |  | 3,910,756 |        |  | $ | (0.94 | )
|                              
|                              
|                              
|                              
|                               | Dilutive securities:                         |               |   |            |   |           |  |           |        |  |   |       |  
|                              
|                              
|                              
|                              
|                               |                                              | Stock options |   |            |  |           |  |           |       |  |   |       |  | 
|                               |                                              |               |   |            |   |           |  |           |        |  |   |      
|                               | Loss per share of common stock  diluted     |               | $ | (3,694,123 | ) |           |  | 3,910,756 |        |  | $ | (0.94 | )
|                               |                                              |               |   |            |   |           |  |           |        |  |   |      
|Six months ended June 30, 1999 |                                              |               |   |            |   |           |  |           |        |  |   |      
|                              
|                              
|                              
|                              
|                               | Earnings per share of common stock  basic   |               | $ | 650,909    |   |           |  | 3,884,923 |        |  | $ | 0.17  |  
|                              
|                              
|                              
|                              
|                               | Dilutive securities:                         |               |   |            |   |           |  |           |        |  |   |       |  
|                              
|                              
|                              
|                              
|                               |                                              | Stock options |   |            |  |           |  |           | 49,014 |  |   |       |  | 
|                               |                                              |               |   |            |   |           |  |           |        |  |   |      
|                               | Earnings per share of common stock  diluted |               | $ | 650,909    |   |           |  | 3,933,937 |        |  | $ | 0.17  |  
|                               |                                              |               |   |            |   |           |  |           |        |  |   |      

NOTE 2  ACCOUNTS RECEIVABLE

Accounts receivable include the following:

|                                     |                                |          |           |              |  |   |           |           | 
|------------------------------------ | ------------------------------ | -------- | --------- | ------------ |  | - | --------- | --------- | 
|                                     |                                | June 30, |           | December 31,
|                                     |                                | 2000     |           | 1999        
|                                     |                                |          |           |             
|Trade accounts receivable            |                                | $        | 2,551,970 |              |  | $ | 4,717,097 |          
|                                    
|                                    
|                                    
|                                    
|Unbilled contract receivables        |                                |          |          |              |  |   | 200,000   |          
|                                    
|                                    
|                                    
|                                    
|Less allowance for doubtful accounts |                                |          | (667,644  | )            |  |   | (502,644  | )        
|                                     |                                |          |           |              |  |   |           |          
|                                     | Trade accounts receivable, net |          |           | 1,884,326    |  |   |           | 4,414,453 | 
|                                    
|                                    
|                                    
|                                    
|Other receivables                    |                                |          | 14,515    |              |  |   | 68,058    |          
|                                     |                                |          |           |              |  |   |           |          
|                                     |                                | $        | 1,898,841 |              |  | $ | 4,482,511 |          
|                                     |                                |          |           |              |  |   |           |          

7



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##### Table of Contents



ITC LEARNING CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

June 30, 2000

(Unaudited)

NOTE 3  NOTE RECEIVABLE

On November 20, 1997, the Company entered into a stock
purchase agreement with Anderson Holdings Inc., to sell all of
the Companys stock in its wholly owned subsidiary Anderson
Soft-Teach (AST). Pursuant to the transaction, ITC
accepted an 8% promissory note in the amount of $950,000. Under
the terms of the note, interest payments are due quarterly, with
the remaining principal balance due in 2001.

Under the terms of the stock purchase agreement, ITC and AST
entered into a reciprocal agreement to sell each others
products. Royalties earned by AST for sales of their products
under this agreement will be applied to the principal value of
the note.

NOTE 4  LINE OF CREDIT

On January 21, 2000, the Company satisfied its outstanding
debt, and all associated fees and expenses under its line of
credit agreement. The Company is currently operating without a
short-term credit facility.

NOTE 5  LONG-TERM DEBT

Long-term debt at June 30, 2000 and December 31, 1999
consists of the following:

|                                                            |  |          |            |              |  |   |           |  
|----------------------------------------------------------- |  | -------- | ---------- | ------------ |  | - | --------- | -
|                                                            |  | June 30, |            | December 31,
|                                                            |  | 2000     |            | 1999        
|                                                            |  |          |            |             
|Non-related party debt:                                     |  |          |            |              |  |   |           |  
|                                                           
|                                                           
|                                                           
|                                                           
|8.0% senior note due 2003                                   |  | $        | 1,014,151  |              |  | $ | 1,177,930 |  
|                                                           
|                                                           
|                                                           
|                                                           
|5.5% note due 2001, net of unamortized discount of $148,485 |  |          | 851,515    |              |  |   | 795,834   |  
|                                                           
|                                                           
|                                                           
|                                                           
|9.5% note due 2001, net of unamortized discount of $392,545 |  |          | 807,455    |              |  |   | 617,000   |  
|                                                            |  |          |            |              |  |   |           |  
|Subtotal  non-related party debt                           |  |          | 2,673,121  |              |  |   | 2,590,764 |  
|                                                           
|                                                           
|                                                           
|                                                           
|Related party debt:                                         |  |          |            |              |  |   |           |  
|                                                           
|                                                           
|                                                           
|                                                           
|7.0% notes due 2002, net of unamortized discount of $62,885 |  |          | 399,507    |              |  |   |          |  
|                                                           
|                                                           
|                                                           
|                                                           
|8.0% notes due 2000, net of unamortized discount of $14,575 |  |          | 310,743    |              |  |   |          |  
|                                                            |  |          |            |              |  |   |           |  
|Subtotal  related party debt                               |  |          | 710,250    |              |  |   |          |  
|                                                            |  |          |            |              |  |   |           |  
|Total debt                                                  |  |          | 3,383,371  |              |  |   | 2,590,764 |  
|                                                           
|                                                           
|                                                           
|                                                           
|Less current maturities                                     |  |          | (2,240,153 | )            |  |   | (277,160  | )
|                                                            |  |          |            |              |  |   |           |  
|Long-term debt, net                                         |  | $        | 1,143,218  |              |  | $ | 2,313,604 |  
|                                                            |  |          |            |              |  |   |           |  

The 8.0% note payable is due in monthly interest installments and
 quarterly principal installments, and matures in June 2003.
 The note has a subordinated interest position to the
Companys principal lender, in the receivables and inventory
 of ITC Canada Limited. Additionally, the note carries a security
 interest in the fixed assets and intellectual property of ITC
Canada Limited, which ranks pari passu with the Companys
principal lender.

The 5.5% convertible subordinated note payable is due on
April 2, 2001. The note is secured by the assets of the
Company and is subordinated to existing and future indebtedness
of the Company. Interest and principal are due in full at
maturity. The note is convertible into shares of common stock of
the Company, up to the maturity date, at a price of $2.00 per
share. The note was issued with warrants which grant the holders
the right to acquire 291,500 shares of the Companys common
stock at a per share price of $2.00. The warrants

8



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##### Table of Contents



ITC LEARNING CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

June 30, 2000

(Unaudited)



NOTE 5  LONG-TERM DEBT  (Continued)


expire on April 2, 2001. The warrants were determined to
have a value of $245,000, which was recorded as additional
capital. The resulting debt discount is being amortized over the
holding period of the note.

The 9.5% convertible subordinated note payable is due on
April 2, 2001. The note is secured by the assets of the
Company and is subordinated to existing and future indebtedness
of the Company. Interest and principal are due in full at
maturity. The note may be converted into shares of common stock
of the Company at any time up to maturity date, at a price of
$1.75 per share. The note was issued with warrants, which grant
the holders the right to acquire 349,800 shares of the
Companys common stock at a price of $1.75 per share. The
warrants expire on April 1, 2002. The warrants were
determined to have a value of $508,000, which was recorded as
additional capital. The resulting debt discount is being
amortized over the holding period of the note.

During the first quarter of 2000, the Company issued 7.0%
convertible subordinated notes payable to certain Officers and
Directors of the Company, and various other related parties, in
the amount of $462,392, due on June 30, 2002. Interest is
payable semi-annually and principal is due in full at maturity.
The notes may be converted into shares of common stock of the
Company at any time up to maturity date, at a price of $2.75 per
share. The notes were issued with warrants that grant the holders
 the right to acquire 46,239 shares of the Companys common
stock, at a price of $2.75 per share. The warrants expire on
June 30, 2001. The warrants were determined to have a value
of $78,607, which was recorded as additional capital. The
resulting debt discount is being amortized over the holding
period of the notes.

On January 20, 2000 the Company issued 8.0% notes payable to
 certain Officers and Directors of the Company, and various other
 related parties, in the amount of $325,318, due upon the Company
 closing a line of credit of at least $1,000,000. As of
June 30, 2000, the Company has not secured a line of credit,
 and has extended the due date of the notes until the repayment
of the notes will not materially and adversely affect the
Companys business operations. Interest and principal are
due in full at maturity. The notes were issued with warrants that
 grant the holders the right to acquire 15,900 shares of the
Companys common stock, at a price of $2.63 per share. The
warrants expire January 31, 2002. The warrants were
determined to have a value of $29,150, which was recorded as
additional capital. The resulting debt discount is being
amortized over the holding period of the notes.

NOTE 6  SEGMENT INFORMATION

The following tables identify revenues and profit or loss by
reportable segment for the three and six months ended
June 30, 2000 and 1999 (amounts in thousands):

|                                   |  |        |        |        |  |         |      |           |  |       |      |   |  |   |     |  |  |   |        |  
|---------------------------------- |  | ------ | ------ | ------ |  | ------- | ---- | --------- |  | ----- | ---- | - |  | - | --- |  |  | - | ------ | -
|                                   |  | United |        |        |  | United  |      |           |  |      
|Three months ended June 30, 2000   |  | States |        | Canada |  | Kingdom |      | Australia |  | Total
|                                   |  |        |        |        |  |         |      |           |  |      
|Revenues from external customers   |  | $      | 692    |        |  | $       | 108  |           |  | $     | 460  |   |  | $ | 248 |  |  | $ | 1,508  |  
|                                  
|                                  
|                                  
|                                  
|Intersegment revenues              |  |        | 369    |        |  |         | 24   |           |  |       |     |   |  |   |    |  |  |   | 393    |  
|                                  
|                                  
|                                  
|                                  
|Segment income (loss) before taxes |  |        | (1,472 | )      |  |         | (506 | )         |  |       | (121 | ) |  |   | 40  |  |  |   | (2,059 | )

|                                   |  |        |       |        |  |         |      |           |  |       |     |   |  |   |     |  |  |   |       | 
|---------------------------------- |  | ------ | ----- | ------ |  | ------- | ---- | --------- |  | ----- | --- | - |  | - | --- |  |  | - | ----- | 
|                                   |  | United |       |        |  | United  |      |           |  |      
|Three months ended June 30, 1999   |  | States |       | Canada |  | Kingdom |      | Australia |  | Total
|                                   |  |        |       |        |  |         |      |           |  |      
|Revenues from external customers   |  | $      | 3,998 |        |  | $       | 566  |           |  | $     | 587 |   |  | $ | 318 |  |  | $ | 5,469 | 
|                                  
|                                  
|                                  
|                                  
|Intersegment revenues              |  |        | 707   |        |  |         | 249  |           |  |       |    |   |  |   |    |  |  |   | 956   | 
|                                  
|                                  
|                                  
|                                  
|Segment income (loss) before taxes |  |        | 576   |        |  |         | (181 | )         |  |       | (51 | ) |  |   | 30  |  |  |   | 374   | 

9



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##### Table of Contents



ITC LEARNING CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

June 30, 2000

(Unaudited)



NOTE 6  SEGMENT
INFORMATION  (Continued)


|                                   |  |        |        |        |  |         |        |           |  |       |       |   |  |   |     |  |  |   |        |  
|---------------------------------- |  | ------ | ------ | ------ |  | ------- | ------ | --------- |  | ----- | ----- | - |  | - | --- |  |  | - | ------ | -
|                                   |  | United |        |        |  | United  |        |           |  |      
|Six months ended June 30, 2000     |  | States |        | Canada |  | Kingdom |        | Australia |  | Total
|                                   |  |        |        |        |  |         |        |           |  |      
|Revenues from external customers   |  | $      | 1,460  |        |  | $       | 146    |           |  | $     | 1,226 |   |  | $ | 498 |  |  | $ | 3,330  |  
|                                  
|                                  
|                                  
|                                  
|Intersegment revenues              |  |        | 882    |        |  |         | 40     |           |  |       |      |   |  |   |    |  |  |   | 922    |  
|                                  
|                                  
|                                  
|                                  
|Segment income (loss) before taxes |  |        | (2,394 | )      |  |         | (1,158 | )         |  |       | (149  | ) |  |   | 7   |  |  |   | (3,694 | )

|                                   |  |        |       |        |  |         |       |           |  |       |       |   |  |   |     |  |  |   |        | 
|---------------------------------- |  | ------ | ----- | ------ |  | ------- | ----- | --------- |  | ----- | ----- | - |  | - | --- |  |  | - | ------ | 
|                                   |  | United |       |        |  | United  |       |           |  |      
|Six months ended June 30, 1999     |  | States |       | Canada |  | Kingdom |       | Australia |  | Total
|                                   |  |        |       |        |  |         |       |           |  |      
|Revenues from external customers   |  | $      | 8,202 |        |  | $       | 1,182 |           |  | $     | 1,253 |   |  | $ | 535 |  |  | $ | 11,172 | 
|                                  
|                                  
|                                  
|                                  
|Intersegment revenues              |  |        | 1,207 |        |  |         | 249   |           |  |       |      |   |  |   |    |  |  |   | 1,456  | 
|                                  
|                                  
|                                  
|                                  
|Segment income (loss) before taxes |  |        | 1,134 |        |  |         | (409  | )         |  |       | (98   | ) |  |   | 24  |  |  |   | 651    | 

NOTE 7  COMPREHENSIVE INCOME (LOSS)

The components of comprehensive income (loss), net of related
tax, for the six months ended June 30, 2000 and 1999 are as
follows:

|                                        |  |          |            |          |  |   |         | 
|--------------------------------------- |  | -------- | ---------- | -------- |  | - | ------- | 
|                                        |  | June 30, |            | June 30,
|                                        |  | 2000     |            | 1999    
|                                        |  |          |            |         
|Net income (loss)                       |  | $        | (3,694,123 | )        |  | $ | 650,909 | 
|                                       
|                                       
|                                       
|                                       
|Foreign currency translation adjustment |  |          | 50,953     |          |  |   | 23,813  | 
|                                        |  |          |            |          |  |   |         | 
|Comprehensive income (loss)             |  |          | (3,643,170 | )        |  | $ | 674,722 | 
|                                        |  |          |            |          |  |   |         | 

The components of accumulated other comprehensive income, net of
related tax, at June 30, 2000 and December 31, 1999 are
 as follows:

|                                                   |  |          |        |              |  |   |         |  
|-------------------------------------------------- |  | -------- | ------ | ------------ |  | - | ------- | -
|                                                   |  | June 30, |        | December 31,
|                                                   |  | 2000     |        | 1999        
|                                                   |  |          |        |             
|Cumulative foreign currency translation adjustment |  | $        | 37,871 |              |  | $ | (13,082 | )
|                                                   |  |          |        |              |  |   |         |  

NOTE 8  SUBSEQUENT EVENT

Effective July 31, 2000, the Company completed the sale of
its AdminSTAR enterprise learning management system product
 line, to Learnframe, Inc., a provider of e-Learning technologies
 and services. The transaction, valued at $4,000,000, consists of
 a cash payment of $250,000, paid in 5 equal monthly installments
 beginning on the closing date, and $3,750,000 of prepaid
royalties on the sale of Learnframe products over the next four
years.

This sale follows the execution of an Original Equipment
Manufacturer (OEM) and distribution agreement between
 ITC and Learnframe, dated May 22, 2000, giving ITC the
right to private label and distribute Learnframes
proprietary learning management system  Pinnacle Learning Manager.

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##### Table of Contents



ITC LEARNING CORPORATION


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

June 30, 2000

(Unaudited)






|        |                                                                                
|------- | -------------------------------------------------------------------------------
|ITEM 2. | Managements Discussion and Analysis of Financial
        Condition and Results

of Operations


Overview of Business

ITC Learning Corporation is a worldwide provider of education and
 training software to professionals in business, education and
government organizations. Incorporated under the laws of the
state of Maryland in 1977 the Company develops, markets and
delivers specific libraries of interactive multimedia CBT
training courseware designed for CD-ROM, intranet and Internet
delivery, thus enabling organizations to effectively and
efficiently deliver training to improve individual and
organizational performance.

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

Forward-looking Statements

Certain statements made by the Companys management may be
considered to be forward-looking statements within
the meaning of the Private Securities Litigation Act of 1995.
Forward-looking statements are based on various factors and
assumptions that include known and unknown risks and
uncertainties. The words believe, expect,
 anticipate and project, and similar
expressions identify forward-looking statements, which speak only
 as of the date the statement was made. Such statements may
include, but not be limited to, projections of revenues, income
or loss, expenses, availability of capital, plans, as well as
assumptions relating to the foregoing. Forward-looking statements
 are inherently subject to risks and uncertainties, some of which
 cannot be predicted or quantified. Future results could differ
materially from those described in forward-looking statements as
a result of the risks set forth in the following discussion,
among others.

Risk Factors

The Companys financial statements have been presented on a
going concern basis, which contemplates the realization of assets
 and settlement of liabilities and commitments in the normal
course of business. The Company experienced a net loss in the six
 months ended June 30, 2000, and the years ended 1999 and
1998. Although the Company expects operating results to improve,
there can be no assurances that the Company will not experience
adverse results of operation in the future. The Company believes
that its existing cash, anticipated cash flows from 2000
operations, proceeds from sale of non-core Company assets, and
planned capital fund raising activities should provide sufficient
 resources to fund its activities in 2000. However, the timing of
 aforementioned capital infusion is critical, as the Company is
currently receiving pressure from some of its larger suppliers.
Anticipated cash flows from 2000 operations are largely dependent
 upon the Companys ability to achieve its sales and gross
profit objectives for its currently existing products and new
products to be launched in 2000. Achievement of these objectives
is subject to various risk factors related to, among other
things: incremental sales resulting from expansion of
distribution capabilities; the Companys ability to deploy
its courseware over the Internet and corporate intranets; the
Companys ability to control costs in relation to future
revenues, the acceptance of the Companys new CBT courseware
 management system and the Companys ability to raise
capital. If the Company is unable to meet these objectives, it
will consider expansion of existing or development of alternative
 sources of bank financing; the curtailment of certain capital
expenditures and discretionary expenditures (such as travel,
consulting and salaries); and various other courses of action,
including the possible sale of the Company. These are
forward-looking statements. See Forward-Looking Statements and
 Risk Factors for Further Discussion.

A number of factors could also contribute to significant
fluctuations in operating results, which may result in volatility
 in the price of the Companys common stock. These include,
but are not limited to, the size and timing of orders and
shipments, the mix of ITC-developed products and third party
products, the mix of sales from the Companys direct and
indirect distribution channels, the introduction and acceptance
of new products, and the degree to which the market understands
and accepts the Companys role as a provider of training
solutions.

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In addition, the Company faces certain general business risks,
which could materially and adversely impact future operating
results. These include, but are not limited to, changes in
economic conditions, the cost of labor and raw materials, changes
 in technology and general competitive factors.

RESULTS OF OPERATIONS

Three months ended June 30, 2000 (Second Quarter
 of 2000) compared to the three months ended June 30,
1999 (Second Quarter of 1999)

Revenues

Total revenues for the second quarter of 2000 totaled $1,508,000,
 as compared to $5,469,000 for the second quarter of 1999,
representing a decrease of $3,961,000 or 72%. Courseware
revenues, which include sales of off-the-shelf CBT products,
custom CBT products, learning management system sales, consulting
 services, fees, royalties and videotape training products,
totaled $1,502,000 during the second quarter of 2000, as compared
 to $5,205,000 for the second quarter of 1999. The decrease in
revenues was primarily attributable to decreased sales of the
Companys learning management system 
AdminSTAR, and decreased courseware product sales within
the Companys U.S. and Canadian markets.

Revenues generated from the sale of the Companys
AdminSTAR product were $18,000 in the second quarter of
2000 as compared to $2,218,000 in the second quarter of 1999. The
 decline in sales of the Companys AdminSTAR product
was the result of the Companys decision during the first
quarter of 2000 to cease supporting the development and sales
efforts related to this product line. The Companys
subsequent decision to divest this product line was based on
several factors, primarily relating to the depth and breadth of
features AdminSTAR provides to its customers.
AdminSTAR is an Enterprise-Level, non-scalable, software
product designed to manage the intellectual capital (employee
skills and development) throughout an organization. As an
off-the-shelf CBT training company, ITC made the decision to seek
 a strategic buyer for AdminSTAR that could better support
the development and sale of this enterprise-level software
product. See Note 8 to the condensed consolidated financial
statements  Subsequent Eventrelating to the sale
of the AdminSTAR product line.

Courseware product revenues generated from the Companys
U.S. operation during the second quarter of 2000 were $621,000 as
 compared to $1,199,000 for the second quarter of 1999,
representing a decrease of $578,000 or 48%. Courseware product
revenues generated from the Companys Canadian operation
during the second quarter of 2000 were $108,000 as compared to
$629,000 for the second quarter of 1999, representing a decrease
of $521,000 or 83%. The decline in Courseware product revenues
from the Companys North American operations was the result
of working capital constraints faced by the Company during the
first six months of 2000, which hindered the Companys
ability to aggressively recruit, train and support both direct
and indirect sales and marketing resources. The Company believes
its sales and marketing organization can perform at a level
sufficient to generate positive cash flow for the Company, and
will continue to leverage its existing, and new sales and
marketing resources to increase revenues. This is a
forward-looking statement. See Forward-Looking Statements and
Risk Factors for Further Discussion.

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Cost of Sales and Gross Margin

Cost of sales consists of the amortized costs of developing new
course titles and updating the Companys existing libraries,
 product material costs, fulfillment costs, reseller discount
fees, sales commissions, third party product royalties and
hardware costs. Cost of sales for the second quarter 2000 totaled
 $1,200,000 resulting in a gross margin of $308,000 or 20% of
total revenues, as compared to cost of sales of $1,955,000 and
gross margin of $3,514,000 or 64% of total revenues for the
second quarter of 1999. The decrease in cost of sales of $755,000
 in 2000 as compared to 1999 was the result of decreased sales
volume. The decrease in gross margin of $3,206,000 and gross
margin percentage of 44% was primarily attributable to decreased
revenue in relation to fixed product development amortization
costs, as well as changes in the mix of sales from the
Companys direct and indirect sales channels.

Selling, General and Administrative Expenses

Selling, general and administrative expenses totaled $2,193,000
for the second quarter of 2000, as compared to $3,131,000 for the
 second quarter of 1999, representing a decrease of $938,000 or
30%.

Selling expenses consist primarily of salaries of sales
personnel, travel, advertising, marketing and promotional
expenses. Selling expenses for the second quarter of 2000 totaled
 $850,000, as compared to $1,609,000 for the second quarter of
1999, representing a decrease of $759,000 or 47%. The decrease in
 selling expenses in the second quarter of 2000 as compared to
the second quarter of 1999 was primarily due to the
Companys reduction of North American sales and marketing
personnel during the last half of 1999.

General and administrative expenses consist of the costs of
developing new products and the costs of the Companys
executive management and support functions such as customer
assurance, product fulfillment, human resources, and finance and
administration. General and administrative expense for the second
 quarter of 2000 totaled $1,343,000, as compared to $1,522,000
for the second quarter of 1999, representing a decrease of
$179,000 or 12%. The decrease in general and administrative
expenses in the second quarter of 2000 as compared to the second
quarter of 1999 was primarily due to the effect of a reduction in
 North American administrative personnel during the fourth
quarter of 1999.

Income Before Income Taxes and Net Income

Operations for the second quarter of 2000 resulted in a pre-tax
and net loss of $2,059,000, or $0.53 per share, as compared to
pre-tax and net income of $374,000, or $0.10 per share, for the
second quarter of 1999. The higher pre-tax and net loss for the
second quarter of 2000 was primarily due to decreased revenues
and resulting gross margin as compared to the first quarter of
1999.

Six months ended June 30, 2000 (first half of
2000) compared to the six months ended June 30, 1999
(first half of 1999)

Revenues

Revenues for the first half of 2000 totaled $3,330,000 as
compared to $11,172,000 for the first half of 1999, representing
a decrease of $7,842,000 or 70%. The decrease in revenues was
primarily attributable to decreased sales of the Companys
learning management system  AdminSTARTM,
and decreased courseware product sales within the Companys
U.S. and Canadian markets.

Revenues generated from sales of the Companys AdminSTAR
TM product were $41,000 in the first half of 2000 as
compared to $2,520,000 in the first half of 1999. The decline in
sales of the Companys AdminSTARTM product was
the result of the Companys decision during the first
quarter of 2000 to cease supporting the development and sales
efforts related to this product line. The Companys
subsequent decision to divest this product line was based on
several factors, primarily relating to the depth and breadth of
features AdminSTARTM provides to its customers.
AdminSTARTM is an Enterprise-Level, non-scalable,
software product designed to manage the intellectual capital
(employee skills and development) throughout an organization. As
an off-the-shelf CBT training provider, the Company made the
decision to seek a strategic buyer for AdminSTARTM
that could better support the development and sale of this
enterprise-level software

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Note 8 to the condensed consolidated financial
statements  Subsequent Event


The Company believes the prepaid royalty component of the
consideration received from the sale of the AdminSTAR
product line to be significant revenue generating opportunity
given the current demand from its existing customers to upgrade
from the Companys legacy CBT courseware management system.
Following the execution of the OEM and distribution agreement,
signed on May 22, 2000 between ITC and Learnframe, Inc., the
 Company had immediate access to a more sophisticated CBT
courseware management system, for the purpose of upgrading its
existing customer base. ITC believes there will be substantial
interest from its existing customer base to upgrade from
ITCs legacy CBT courseware management system to the private
 labeled version of Learnframes Pinnacle Learning
Managerproduct, and provide the Company with a substantial
revenue generating opportunity. These are forward-looking
statements. See Forward-Looking Statements and Risk Factors
for Further Discussion.

Courseware product revenues generated from the Companys
U.S. operation during the first half of 2000 were $1,319,000 as
compared to $4,623,000 for the first half of 1999, representing a
 decrease of $3,304,000 or 71%. Courseware product revenues
generated from the Companys Canadian operation during the
first half of 2000 were $147,000 as compared to $1,074,000 for
the first half of 1999, representing a decrease of $927,000 or
86%. The decline in courseware product revenues from the
Companys North American operations was the result of
working capital constraints faced by the Company during the first
 six months of 2000, which hindered the Companys ability to
 aggressively recruit, train and support both direct and indirect
 sales and marketing resources. The Company believes its sales
and marketing organization can perform at a level sufficient to
generate positive cash flow for the Company, and will continue to
 leverage its existing, and new sales and marketing resources to
increase revenues. This is a forward-looking statement. See
Forward-Looking Statements and Risk Factors for Further
Discussion.

Cost of Sales and Gross Margin

Cost of sales for the first half of 2000 totaled $2,327,000
resulting in a gross margin of $1,003,000 or 30% of total
revenues, as compared to cost of sales of $4,513,000 resulting in
 gross margin of $6,659,000 or 60% of total revenues for the
first half of 1999. The decrease in cost of sales of $2,186,000
in 2000 as compared to 1999 was the result of decreased sales
volume. The decrease in gross margin of $5,656,000 and gross
margin percentage of 30% was primarily attributable to decreased
revenue in relation to fixed product development amortization
costs, as well as changes in the mix of sales from the
Companys direct and indirect sales channels.

Effective July 31, 2000, the Company completed a transaction
 for the sale of its AdminSTAR product line to Learnframe,
Inc. See Note 8 to the condensed and consolidated financial
statements  Subsequent Event. The Company believes
 it will realize annual savings of approximately $348,000 in
amortization charges as a result of the divestiture of this
product line. This is a forward-looking statement. See
Forward-Looking Statements and Risk Factors for Further
Discussion.

Selling, General and Administrative Expenses

Selling, general and administrative expenses totaled $4,389,000
for the first half of 2000 as compared to $6,006,000 for the
first half of 1999, representing a decrease of $1,617,000 or 27%.

Selling expenses for the first half of 2000 totaled $1,637,000 as
 compared to $3,195,000 for the first half of 1999, representing
a decrease of $1,558,000 or 49%. The decrease in selling expenses
 during the first half of 2000 as compared to the first half of
1999 was primarily due to the Companys reduction of sales
and marketing personnel during the last half of 1999.

General and administrative expenses for the first half of 2000
totaled $2,752,000 as compared to $2,811,000 for the first half
of 1999, representing a decrease of $59,000 or 2%. The decrease
in general and administrative expenses during the first half of
2000 as compared to the first half of 1999 was primarily due the
effect of a reduction in North American administrative personnel
during the fourth quarter of 1999.

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Effective July 31, 2000, the Company completed a transaction
 for the sale of its AdminSTAR product line to Learnframe,
Inc. See Note 8 to the condensed consolidated financial
statements  Subsequent Event. The Company believes
 it will realize annual cost savings of approximately $267,000 in
 development and sales related expenses and $205,000 in
depreciation and amortization expenses as a result of the
divestiture of this product line. This is a forward-looking
statement. See Forward-Looking Statements and Risk Factors for
 Further Discussion.

Income Before Income Taxes and Net Income

Operations for the first half of 2000 resulted in pre-tax and net
 loss of $3,694,000 or $0.94 per share, as compared to a pre-tax
and net income of $651,000 or $0.17 per share for the first half
of 1999. The higher pre-tax and net loss for the second half of
2000 was primarily due to decreased revenues and resulting gross
margin as compared to the first half of 1999.

CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES

Working capital deficit at June 30, 2000 was $3,303,000 as
compared to a deficit of $307,000 at December 31, 1999,
representing a decrease in working capital of $2,996,000,
primarily due to the April 2, 2001 maturity date of
$2,200,000 in convertible debt payable, as well as the
Companys negative operating performance for the first six
months of 2000.

Cash provided by operating activities totaled $15,000 for the
first half of 2000, as compared to $214,000 for the first half of
 1999, representing a decrease of $199,000. The decrease was
primarily due to increased turnover of operating assets in
relation to operating liabilities during the second quarter of
2000, offset by lower net income as compared to the first half of
 1999. Effective July 31, 2000, the Company completed a
transaction for the sale of its AdminSTAR product line to
Learnframe, Inc. See Note 8 to the condensed consolidated
financial statements  Subsequent Event. The
Company believes it will realize annual cash cost savings of
approximately $267,000 in development and sales related expenses
as a result of the divestiture of this product line. This is a
forward-looking statement. See Forward-Looking Statements and
Risk Factors for Further Discussion.

Cash used for investing activities totaled $323,000 for the first
 half of 2000, as compared to cash used for investing activities
of $1,491,000 for the first half of 1999, representing a decrease
 of $1,168,000. The decrease was primarily due to decreased
capital and product development expenditures during the first
half of 2000 as compared to the first half of 1999.

Cash provided by financing activities totaled $81,000 for the
first half of 2000, as compared to cash provided by financing
activities of $1,324,000 for the first half of 1999, representing
 a decrease of $1,243,000. The decrease was primarily due to the
Companys decreased utilization and subsequent payoff of its
 line of credit, offset by the issuance of long-term notes
payable during the first quarter of 2000.

The Company believes that its existing cash, anticipated cash
flows from 2000 operations, proceeds from sale of non-core
Company assets, and planned capital fund raising activities
should provide sufficient resources to fund its activities in
2000. However, the timing of aforementioned capital infusion is
critical, as the Company is currently receiving pressure from
some of its larger suppliers. Anticipated cash flows from 2000
operations are largely dependent upon the Companys ability
to achieve its sales and gross profit objectives for its
currently existing products and new products to be launched in
2000. Achievement of these objectives is subject to various risk
factors related to, among other things: incremental sales
resulting from expansion of distribution capabilities; the
Companys ability to deploy its courseware over the Internet
 and corporate intranets; the Companys ability to control
costs in relation to future revenues, the acceptance of the
Companys new CBT courseware management system and the
Companys ability to raise capital. If the Company is unable
 to meet these objectives, it will consider expansion of existing
 or development of alternative sources of bank financing; the
curtailment of certain capital expenditures and discretionary
expenditures (such as travel, consulting and salaries); and
various other courses of action, including the possible sale of
the Company. These are forward-looking statements. See
Forward-Looking Statements and Risk Factors for Further
Discussion.

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##### Table of Contents






PART II  OTHER INFORMATION




ITEM 1.  Legal Proceedings

None.




ITEM 2.  Changes in Securities and Use of Proceeds

None.




ITEM 3.  Defaults Upon Senior Securities

None.




ITEM 4.  Submission of Matters to a Vote of Security
 Holders

The Company held its annual meeting of shareholders on
June 28, 2000. There were two agenda items submitted to a
vote of security holders, the election of two directors to the
Companys Board of Directors, and to consent to New River
Capital Partners, L.P. obtaining the right to receive shares of
common stock under debentures and warrants exceeding 20% of the
Companys outstanding common stock, at an effective price
per share below the greater of book value or market value at the
time the debentures and warrants were issued. The number of votes
 cast in favor of Christopher E. Macks election was
3,232,324, with 6,129 votes against and 217,922 abstaining. The
number of votes cast in favor of Thomas C. Byrnes election
was 3,226,759, with 11,874 votes against and 217,922 abstaining.
The number of votes cast in favor of Charles L. Freds
election was 3,236,675, with 1,778 votes against and 217,922
abstaining. John D. Sanders, Richard E. Thomas, Daniel R.
Bannister, and Robert R. Spillane each continued in office as
directors after the annual meeting.

The number of votes cast in favor of New River Capital Partners
L.P. obtaining the right to receive shares of common stock under
debentures and warrants exceeding 20% of the Companys
outstanding common stock, at an effective price per share below
the greater of book value or market value at the time the
debentures and warrants were issued was 1,343,990, with 259,904
votes against and 580 abstaining.




ITEM 5.  Other Information

On May 23, 2000, the Company received notification from the
Nasdaq National Stock Market, Inc. that based on its
Form 10-QSB filed for the period ended March 31, 2000,
the Company no longer met the minimum $4 million net
tangible asset requirement for continued listing on the Nasdaq
National Market under Maintenance Standard 1 as set forth in
Marketplace Rule 4450(a)(3). In accordance with the
requirements of the May 23, 2000 notification from Nasdaq,
the Company submitted on June 7, 2000, its specific plan to
achieve and sustain compliance with all Nasdaq National Market
listing requirements.

On July 27, 2000, the Company received notification from the
 Nasdaq National Stock Market, Inc. that its plan of compliance
had been accepted, contingent on the Company demonstrating, based
 on its Form 10-QSB filing for the period ended
June 30, 2000 due to be filed with the Securities and
Exchange Commission by August 14, 2000, compliance with all
Nasdaq National Market listing requirements including an
increased net tangible assets base of $5 million.

Based on the Companys Form 10-QSB filing for the
period ended June 30, 2000, the Company has not met the
minimum $5 million net tangible asset requirement in
accordance with the extension granted by Nasdaq on July 27,
2000. As a result of its noncompliance and to avoid immediate
delisting, the Company has filed an appeal to the Nasdaq Listing
Qualifications Panel pursuant to procedures set forth in the
Nasdaq Marketplace Rule 4800 Series. Pending the outcome of
the Nasdaq Listing Qualifications Panel hearing, the
Companys securities will continue to be listed on the
Nasdaq National Market. In the event of an unfavorable decision
from the Nasdaq Listing Qualifications Panel, the Company may
apply to list its securities on the Nasdaq SmallCap Market.

16



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##### Table of Contents



Under the terms of the July 27, 2000 extension granted by
Nasdaq, the Company was required to maintain a net tangible asset
 base of $5,000,000 as of the filing of its Form 10-QSB for
the period ended June 30, 2000. Based on the Companys
Form 10-QSB filing for the period ended June 30, 2000,
the Companys net tangible assets were $1,503,000, resulting
 in a shortfall of $3,497,000. Although the Company intended to
comply with the requirements of the extension, it was unable to
meet those requirements for the following reasons: (i) the
Company was unable to close a sale transaction by June 30,
2000 on the sale of its AdminSTAR product line;
(ii) the Companys negative operating performance for
the three months ended June 30, 2000 further deteriorated
its net tangible asset base; (iii) the Company was unable to
 solicit favorable response from its convertible debt holders to
convert their debt into equity; (iv) the Company was unable
to raise additional equity capital. As such, the Company will
pursue, through the Nasdaq Listing Qualifications Panel, an
additional extension of time to meet the minimum net tangible
asset requirement for continued listing on the Nasdaq National
Market, however there are no assurances that the Company will be
successful.




ITEM 6.  Exhibits and Reports on Form 8-K

A.  Exhibits

|        |  |                                          
|------- |  | -----------------------------------------
|Exhibit |  |                                          
|Number  |  | Description                              
|        |  |                                          
|27.1    |  | Financial Data Schedule (filed herewith).

B.  Reports on Form 8-K:

On May 5, 2000, the Company filed an 8-K with the Securities
 and Exchange Commission to report a change in the Companys
 certifying accountants.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the
registrant has duly caused this report to be signed on its behalf
 by the undersigned, thereunto duly authorized.

ITC LEARNING CORPORATION




|                                                                                                       |  |                     
|------------------------------------------------------------------------------------------------------ |  | --------------------
|By: /s/ CHRISTOPHER E. MACKChristopher E. Mack, President
	Treasurer, and Chief Financial Officer      |  | DATE August 14, 2000
|                                                                                                      
|By: /s/ MATTHEW C. SYSAKMatthew C. Sysak, Vice President of Finance
	and Administration, and Secretary |  | DATE August 14, 2000

18