<PAGE>   1
                                  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, 1999

         [ ]      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
                            ------------------------
           (Name of small business issuer as specified in its charter)

           MARYLAND                                              52-1078263
           --------                                              ----------
(State or other jurisdiction of                                (IRS Employer
incorporation or organization)                              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, 1999, 3,958,245 shares of Common Stock were outstanding.

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


<PAGE>   2


                            ITC LEARNING CORPORATION

                                   FORM 10-QSB

                                      INDEX


<TABLE>
<CAPTION>
                                        PART I - FINANCIAL INFORMATION                                                        PAGE
                                                                                                                              ----

<S>         <C>                                                                                                                <C>
Item 1.     Financial Statements (Unaudited)

            Condensed Consolidated Statements of Operations for the
            Three Months and Six Months Ended June 30, 1999 and 1998............................................................1

            Condensed Consolidated Balance Sheets as of
            June 30, 1999 and December 31, 1998...............................................................................2-3

            Condensed Consolidated Statements of Cash Flows for the
            Six Months Ended June 30, 1999 and 1998.............................................................................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...................................................................................16
</TABLE>




<PAGE>   3
                         PART I - FINANCIAL INFORMATION



ITEM 1.           FINANCIAL STATEMENTS



                            ITC LEARNING CORPORATION

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                              For the 3 Months Ended June 30,          For the 6 Months Ended June 30,
                                           1999                 1998                    1999                      1998
                                           ----                 ----                    ----                      ----
<S>                                   <C>                <C>                      <C>                     <C>
Net revenues.......................   $   5,469,195      $        4,040,257       $       11,171,579      $        6,874,955
Cost of sales......................       1,955,446               2,403,292                4,512,674               3,728,289
                                      -------------      ------------------       ------------------      ------------------
Gross margin.......................       3,513,749               1,636,965                6,658,905               3,146,666


Sales and marketing expense........       1,608,863               1,687,852                3,195,061               2,724,732
General and
   administrative expense..........       1,522,112               1,593,713                2,811,303               2,970,249
Equity in earnings of affiliates...         (47,160)                (94,153)                (112,307)               (156,953)
                                      -------------      ------------------       ------------------      ------------------

Income (loss) before interest
    and income taxes...............         429,934              (1,550,447)                 764,848              (2,391,362)

Interest income....................          41,462                  80,958                   46,967                 186,670
Interest expense...................         (97,334)                (18,062)                (160,906)                (36,035)
                                      -------------      ------------------       ------------------      ------------------

Income (loss) before income taxes..         374,062              (1,487,551)                 650,909              (2,240,727)

Income tax expense (benefit).......          --                    (222,515)                  --                    (222,515)
                                      -------------      ------------------       ------------------      ------------------

Net income (loss)..................   $     374,062      $       (1,265,036)      $          650,909      $       (2,018,212)
                                      =============      ==================       ==================      ==================

Net income (loss) per common share:
    Basic..........................   $       0.10       $           (0.33)       $            0.17       $           (0.52)
                                      ==============     ==================       ===================     ==================

    Diluted........................   $       0.10       $           (0.33)       $            0.17       $           (0.52)
                                      ==============     ==================       ===================     ==================
</TABLE>



     See accompanying notes to condensed consolidated financial statements.


                                       1
<PAGE>   4


                            ITC LEARNING CORPORATION

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                     ASSETS


<TABLE>
<CAPTION>
                                                                                    June 30,                 December 31,
                                                                                      1999                       1998
                                                                                      ----                       ----
                                                                                   (Unaudited)

Current assets:
<S>                                                                          <C>                        <C>
      Cash and cash equivalents........................................      $          313,818         $          267,045
      Accounts receivable, net (notes 2, 4 and 5)......................               6,748,515                  5,992,902
      Due from affiliates..............................................                 176,844                    117,023
      Inventories, net (notes 4 and 5).................................                 838,810                    588,971
      Prepaid expenses.................................................                 244,413                    136,730
      Income taxes receivable..........................................                  70,471                    279,747
                                                                             ------------------         ------------------
            Total current assets.......................................               8,392,871                  7,382,418



Note receivable (note 3)...............................................                 747,628                    753,420


Property and equipment (note 5):
      Video and computer equipment.....................................               2,403,447                  2,162,078
      Furniture and fixtures...........................................                 212,037                    206,313
      Leasehold improvements...........................................                  40,380                     35,092
                                                                             ------------------         ------------------
                                                                                      2,655,864                  2,403,483
      Less accumulated depreciation and amortization...................              (1,665,468)                (1,354,854)
                                                                             ------------------         ------------------
            Net property and equipment.................................                 990,396                  1,048,629



Capitalized program development costs, net.............................               5,263,125                  5,393,182
Intangible assets, net.................................................               3,790,845                  4,060,150
Other .................................................................                   7,099                      8,966
                                                                             ------------------         ------------------





Total assets      .....................................................      $       19,191,964         $       18,646,765
                                                                             ==================         ==================
</TABLE>






     See accompanying notes to condensed consolidated financial statements.


                                       2
<PAGE>   5


                            ITC LEARNING CORPORATION

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                      LIABILITIES AND STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                                    June 30,                 December 31,
                                                                                      1999                       1998
                                                                                      ----                       ----
                                                                                   (Unaudited)
Current liabilities:
<S>                                                                          <C>                        <C>
      Line of credit (note 4)..........................................      $        2,049,000         $          647,000
      Current installments of long-term debt (note 5)..................                 305,170                    287,283
      Accounts payable.................................................               1,347,341                  1,973,004
      Due to affiliates................................................                 169,256                    314,247
      Accrued compensation and benefits................................                 512,018                    281,234
      Deferred revenues................................................                 463,950                    420,005
      Other accrued expenses...........................................                 684,275                  1,650,980
      Income taxes payable.............................................                  40,365                     10,161
                                                                             ------------------         ------------------
            Total current liabilities..................................               5,571,375                  5,583,914



Deferred lease obligations.............................................                   4,730                     25,511
Long-term debt (note 5)................................................               1,296,763                  1,439,216
                                                                             ------------------         ------------------
            Total liabilities..........................................               6,872,868                  7,048,641



Stockholders' equity (note 5):
      Common stock, $0.10 par value, 12,000,000 shares
            authorized; 3,958,245 shares issued
            and outstanding in 1999 and 1998...........................                 395,826                    395,826
      Additional capital...............................................              16,502,127                 16,502,127
      Note receivable from ESOP........................................                (393,427)                  (439,677)
      Retained earnings (deficit)......................................              (4,198,716)                (4,849,625)
      Accumulated other comprehensive income (note 7)..................                  13,286                    (10,527)
                                                                             ------------------         ------------------
            Total stockholders' equity.................................              12,319,096                 11,598,124
                                                                             ------------------         ------------------




Total liabilities and stockholders' equity.............................      $       19,191,964         $       18,646,765
                                                                             ==================         ==================
</TABLE>










     See accompanying notes to condensed consolidated financial statements.


                                       3
<PAGE>   6


                            ITC LEARNING CORPORATION

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                              For the Six Months
                                                                                                Ended June 30,
                                                                                        1999                       1998
                                                                                        ----                       ----
<S>                                                                            <C>                        <C>
Cash flows from operating activities:
Net income (loss)..........................................................    $          650,909         $       (2,018,212)
Reconciling items:
      Provision for doubtful accounts......................................               200,000                     82,500
      Depreciation and amortization........................................             1,948,688                  1,123,422
      Common stock issued to employees.....................................                --                          4,119
      Foreign currency translation adjustment..............................                23,813                    (47,811)
      Changes in operating assets and liabilities:
            Decrease (increase) in accounts receivable.....................              (955,613)                 2,262,002
            Decrease (increase) in inventories.............................              (249,839)                    36,191
            Increase in prepaid expenses...................................              (107,683)                  (368,613)
            Decrease in income taxes receivable............................               209,276                     21,492
            Increase in due from affiliates, net...........................              (204,812)                  (124,686)
            Decrease in other assets.......................................                 7,659                     63,460
            Increase (decrease) in accounts payable........................              (625,663)                   684,295
            Decrease in accrued expenses...................................              (735,922)                  (185,001)
            Increase (decrease) in deferred revenues.......................                43,945                   (138,698)
            Decrease in deferred lease obligations.........................               (20,781)                    (9,822)
            Increase (decrease) in income tax payable......................                30,204                   (222,982)
            Net effect of acquired operating assets and liabilities........                --                        (39,866)
                                                                               ------------------         ------------------
Net cash provided by operating activities..................................               214,181                  1,121,790

Cash flows from investing activities:
      Capitalized program development costs................................            (1,238,713)                  (221,704)
      Capital expenditures.................................................              (252,379)                  (425,423)
      Acquisitions, net of cash acquired and notes payable.................                --                     (2,654,621)
                                                                               ------------------         ------------------
Net cash used for investing activities.....................................            (1,491,092)                (3,301,748)

Cash flows from financing activities:
      Borrowings under line of credit......................................             6,861,000                    212,000
      Repayments under line of credit......................................            (5,459,000)                  (174,000)
      Principal payments on long-term debt.................................              (124,566)                   (41,785)
      Issuance of common stock.............................................                --                          3,800
      Repurchase of common stock...........................................                --                       (535,848)
      Employee stock ownership plan note collections.......................                46,250                     51,000
                                                                               ------------------         ------------------
Net cash provided by (used for) financing activities.......................             1,323,684                   (484,833)
                                                                               ------------------         ------------------

Net increase (decrease) in cash............................................                46,773                 (2,664,791)

Cash and cash equivalents, beginning of period.............................               267,045                  4,885,672
                                                                               ------------------         ------------------
Cash and cash equivalents, end of period...................................    $          313,818         $        2,220,881
                                                                               ==================         ==================
</TABLE>


     See accompanying notes to condensed consolidated financial statements.


                                       4
<PAGE>   7


                            ITC LEARNING CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                  JUNE 30, 1999

                                   (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").

      The Company is a full-service training company specializing in the
development, production, marketing and sale of multimedia and
technology-delivered training solutions designed to improve employee skills in
business, industry, education and government. 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, 1998 and 1997 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.

Revenues and Costs

      In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 97-2, Software Revenue
Recognition, which supercedes SOP 91-1. The provisions of SOP 97-2 took effect
in fiscal years beginning after December 15, 1997 and clarify rules of revenue
recognition related to customer acceptance, product upgrades and post-contract
customer support. In March 1998, the AICPA issued SOP 98-4, which defers for one
year the implementation of certain provisions of SOP 97-2. The Company
implemented SOP 97-2 as amended by SOP 98-4 for transactions entered into
beginning January 1, 1998. In December 1998, the AICPA issued SOP 98-9, which
extends the deferral date of implementation of certain provisions of SOP 97-2 to
2000 for the Company and amends the method of revenue recognition in some
circumstances. The Company does not anticipate that the adoption of this SOP
will have a significant impact on its results of operations or financial
position.

      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. In the event that sales returns are
material, the Company adjusts revenue accordingly. 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



                                       5
<PAGE>   8
                           ITC LEARNING CORPORATION

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  JUNE 30, 1999

                                   (UNAUDITED)


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.

      The details of the earnings per share calculation for the quarters and the
six months ended June 30, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                                                       Income                                         Per Share
                                                                       (Loss)                  Shares                  Amount
                                                                       ------                  ------                  ------
QUARTER ENDED JUNE 30, 1999
<S>                                                              <C>                            <C>              <C>
      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
                                                                 ----------------        ----------------        ----------------

QUARTER ENDED JUNE 30, 1998
      Loss per share of common stock - basic.................    $     (1,265,036)              3,890,339        $          (0.33)
      Dilutive securities:
            Stock options....................................              --                      --                      --
                                                                 ----------------        ----------------        -----------------
      Loss per share of common stock - diluted...............    $     (1,265,036)              3,890,339        $          (0.33)
                                                                 ----------------        ----------------        -----------------

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

SIX MONTHS ENDED JUNE 30, 1998
      Loss per share of common stock - basic.................    $     (2,018,212)              3,890,389        $          (0.52)
      Dilutive securities:
            Stock options....................................              --                      --                      --
                                                                 ----------------        ----------------        -----------------
      Loss per share of common stock - diluted...............    $     (2,018,212)              3,890,389        $          (0.52)
                                                                 ----------------        ----------------        -----------------
</TABLE>


                                       6
<PAGE>   9
                           ITC LEARNING CORPORATION

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  JUNE 30, 1999

                                   (UNAUDITED)


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Use of Estimates

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


NOTE 2 - ACCOUNTS RECEIVABLE

      Accounts receivable include the following:
<TABLE>
<CAPTION>
                                                                                 June 30,                    December 31,
                                                                                   1999                          1998
                                                                                   ----                          ----
                                                                                (Unaudited)

<S>                                                                         <C>                           <C>
      Trade accounts receivable.....................................        $      6,870,398              $      6,014,595
      Unbilled contract receivables.................................                 161,941                        37,728
      Less allowance for doubtful accounts..........................                (289,806)                      (89,421)
                                                                            ----------------              ----------------
          Trade accounts receivable, net............................               6,742,533                     5,962,902
      Other receivables.............................................                   5,982                        30,000
                                                                            ----------------              ----------------
                                                                            $      6,748,515              $      5,992,902
                                                                            ================              ================
</TABLE>


NOTE 3 - NOTE RECEIVABLE

      On November 20, 1997 the Company entered into a stock purchase agreement
with Anderson Holdings Inc., an investor group headed by a former employee of
the Company, to sell all of the Company's stock in its Anderson Soft-Teach
subsidiary ("AST") in exchange for $4,000,000 cash, a promissory note in the
amount of $950,000, and forgiveness of AST's outstanding intercompany
obligations to ITC. Under the terms of the note, AST makes quarterly interest
payments to ITC at an interest rate of 8%, and will repay the principal balance
in 2001.


NOTE 4 - LINE OF CREDIT

     On August 11, 1999, the Company entered into a new line of credit agreement
with its principal lender for a two-year term. Under the provisions of the
new agreement, the Company increased its borrowing capacity by $1,000,000 to
$4,000,000. The Company collateralized the credit facility by granting the bank
a security interest in the assets of the Company. The agreement requires
maintenance of certain financial ratios (minimum working capital and tangible
net worth) and contains certain restrictive covenants which limit borrowings and
the ability to merge or dispose of assets.

      At June 30, 1999 and December 31, 1998, the balances outstanding on the
line of credit were $2,049,000 and $647,000, respectively. Interest on the
facility is calculated at the U.S. prime rate plus 1% and is payable monthly on
any outstanding balance.


                                       7
<PAGE>   10
                           ITC LEARNING CORPORATION

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  JUNE 30, 1999

                                   (UNAUDITED)

NOTE 5 - LONG-TERM DEBT

<TABLE>
<CAPTION>
Long-term debt consists of the following:                                                          June 30,           December 31,
                                                                                                     1999                 1998
                                                                                                     ----                 ----
                                                                                                  (Unaudited)

<S>                                                                                              <C>                <C>
8.5% note payable to the Company's principal lender due in                                       $    370,914       $      415,549
monthly principal and interest installments of $10,258 through December 2002,
collateralized by the assignment of interest in the Company's accounts
receivable, inventory and property and equipment.

8.0% note payable to Nova Scotia Business Development                                               1,231,019            1,310,950
Corporation ("NSBDC") due in monthly interest installments (beginning October 31, 1998)
and quarterly principal installments (beginning March 31, 1999), maturing in December
2003.  The NSBDC has a subordinated interest position to the Company's principal lender,
in the receivables and inventory of ITC Canada Limited.  Additionally, the NSBDC's
interest in the fixed assets and intellectual property of ITC Canada Limited ranks pari
passu with the Company's principal lender.
                                                                                              ---------------     ----------------
                                                                                                    1,601,933            1,726,499

Less amount classified as current                                                                    (305,170)            (287,283)
                                                                                              ---------------     ----------------
                                                                                                 $  1,296,763       $    1,439,216
                                                                                              ---------------     ----------------
</TABLE>


                                       8
<PAGE>   11
                           ITC LEARNING CORPORATION

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  JUNE 30, 1999

                                   (UNAUDITED)


NOTE 6 - SEGMENT INFORMATION

      The following tables identify revenues and profit or loss by reportable
segment for the quarters and the six months ended June 30, 1999 and 1998
(amounts in thousands):

QUARTER ENDED JUNE 30, 1999

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                                               United                               United
                                               States             Canada            Kingdom          Australia          Total
--------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                 <C>               <C>               <C>             <C>
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
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

QUARTER ENDED JUNE 30, 1998

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                                               United                               United
                                               States            Canada(1)          Kingdom          Australia          Total
--------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                <C>                <C>               <C>             <C>
Revenues from external customers.......         $2,937             $--                $695              $408            $4,040
Intersegment revenues..................            809              --                 --                --                809
Segment loss before taxes..............         (1,104)             --                (302)              (82)           (1,488)
--------------------------------------------------------------------------------------------------------------------------------
                                                    (1) Canadian subsidiary commenced operations September 25, 1998.
</TABLE>

SIX MONTHS ENDED JUNE 30, 1999

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                                               United                               United
                                               States             Canada            Kingdom          Australia          Total
--------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>               <C>               <C>                 <C>            <C>
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
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>


SIX MONTHS ENDED JUNE 30, 1998

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                                               United                               United
                                               States            Canada(1)          Kingdom          Australia          Total
--------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                <C>              <C>                 <C>             <C>
Revenues from external customers.......         $4,685             $--              $1,502              $688            $6,875
Intersegment revenues..................            809              --                 --                --                809
Segment income (loss) before taxes.....         (2,465)             --                 171                53            (2,241)
--------------------------------------------------------------------------------------------------------------------------------
                                                     (1) Canadian subsidiary commenced operations September 25, 1998.
</TABLE>



                                       9
<PAGE>   12
                           ITC LEARNING CORPORATION

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  JUNE 30, 1999

                                   (UNAUDITED)


NOTE 7 - COMPREHENSIVE INCOME (LOSS)

      The components of comprehensive income (loss), net of related tax, for the
six months ended June 30, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                                                                       June 30,                      June 30,
                                                                                         1999                          1998
                                                                                         ----                          ----
<S>                                                                               <C>                           <C>
      Net income (loss)...................................................        $        650,909                   $(2,018,212)
      Foreign currency translation adjustment.............................                  23,813                       (47,811)
                                                                                  ----------------                   -----------
      Comprehensive income (loss)                                                 $        674,722                   $(2,066,023)
                                                                                  ----------------                   -----------
</TABLE>

      The components of accumulated other comprehensive income, net of related
tax, at June 30, 1999 and December 31, 1998 are as follows:

<TABLE>
<CAPTION>
                                                                                         June 30,                    December 31,
                                                                                           1999                          1998
                                                                                           ----                          ----
                                                                                        (Unaudited)
<S>                                                                                 <C>                           <C>
      Cumulative foreign currency translation adjustment....................        $         13,286              $        (10,527)
                                                                                    ================              ================
</TABLE>

NOTE 8 - SUBSEQUENT EVENT

      On August 10, 1999 the Company executed a letter of intent with Thoma
Cressey Fund VI, LP ("TCEP"), a private equity fund managed by Thoma Cressey
Equity Partners, Inc., to invest $20 million in ITC. The investment by TCEP is
expected to be in the form of convertible preferred stock, which will be
convertible into the Company's common stock at $5.00 per share, resulting in
approximately 50% of the Company's common stock. The preferred stock will also
carry a 6% per annum paid-in-kind stock dividend. TCEP will have the ability to
elect a majority of the Company's board of directors, appoint a majority to the
Company's finance and compensation committees and be entitled to certain
contractual commitments by the Company including redemption and registration
rights. Prior to obtaining shareholder approval, TCEP may elect to invest
approximately $5 million through a convertible note, which would carry similar
terms to the preferred stock and be convertible into preferred stock upon
receipt of shareholder approval.

      Subject to shareholder approval, the Company anticipates completing this
transaction during the fourth quarter of 1999. This is a forward-looking
statement. See Forward-Looking Statements and Risk Factors for Further
Discussion.



                                       10
<PAGE>   13



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

Overview of Business

      ITC Learning Corporation ("ITC" or the "Company") develops, markets and
sells multimedia and technology-delivered training solutions designed to improve
employee skills in business, industry, education and government. ITC was
incorporated under the laws of the State of Maryland on January 28, 1977. The
Company's training solutions include a state-of-the-art training management
system, approximately 600 training titles, CD-ROM, Internet, intranet and
videotape delivery capabilities and customer support and implementation
services. The Company's portfolio of products is one of the largest libraries of
interactive CD-ROM and technology-delivered training programs available today,
having improved productivity in major corporations, government agencies and
school systems across the United States. ITC's training programs combine
full-motion video, audio, animation, graphics, and text into a single learning
presentation. The Company has a worldwide customer base of approximately 5,000
organizations.


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, 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

      A number of factors could contribute to significant fluctuations in
operating results, which may result in volatility in the price of the Company's
common stock. These include 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, the Company's ability to renew or replace its
existing line of credit under favorable terms and conditions, and the degree to
which the market understands and accepts the Company's role as a provider of
training solutions.

      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, 1999 ("SECOND QUARTER OF 1999") COMPARED WITH THE
THREE MONTHS ENDED JUNE 30, 1998 ("SECOND QUARTER OF 1998")

Revenues

      Revenues for the second quarter of 1999 totaled $5,469,000, as compared to
$4,040,000 for the second quarter of 1998, representing an increase of
$1,429,000 or 35%. The increase in revenues was attributable to increased sales
of the Company's Enterprise Training Management Software - AdminSTAR(TM), as
well as the inclusion of revenues generated from the Company's Canadian
subsidiary which commenced operations on September 25, 1998. Revenues generated
from products and businesses acquired during 1998, including



                                       11
<PAGE>   14

AdminSTAR(TM), increased from $156,000 to $2,950,000, or 54% of total revenues
for the quarter ended June 30, 1999. Revenues generated from the Company's
Enterprise Training Management Software - AdminSTAR(TM) were $2,218,000 for the
second quarter of 1999, of which $2,000,000 was from one customer.

      During the second quarter of 1999, ITC recorded $264,000 in hardware
revenue, as compared to $318,000 recorded during the second quarter of 1998,
representing a decrease of $54,000, primarily due to decreased customer demand
for the hardware component of ITC's training solutions. While the Company will
continue to fulfill customers' hardware requirements as a component of its
training solutions, the Company does not anticipate significant revenue growth
from hardware sales. 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 second quarter of 1999, which include courseware and
hardware costs, totaled $1,955,000, resulting in gross margin of $3,514,000 or
64% of total revenues, as compared to cost of sales of $2,403,000 resulting in
gross margin of $1,637,000 or 41% of total revenues for the second quarter of
1998, an increase in gross margin of $1,877,000 and an increase in gross margin
percentage of 23%. The increase in total gross margin was primarily due to
increased revenues during the second quarter of 1999 as compared to the second
quarter of 1998. The increase in gross margin percentage was due to an increased
volume of transactions generated by the Company's direct sales force, resulting
in decreased reseller or third party costs, and significantly higher gross
margin per sale.

Selling, General and Administrative Expenses

      Selling, general and administrative expenses totaled $3,131,000 for the
second quarter of 1999, as compared to $3,282,000 for the second quarter of
1998, representing a decrease of $151,000 or 5%.

      Selling expenses consist primarily of salaries of sales personnel, travel,
advertising, marketing and promotional expenses. Selling expenses for the second
quarter of 1999 totaled $1,609,000, as compared to $1,688,000 for the second
quarter of 1998. The decrease in selling expenses of $79,000 or 5% was due to an
overall reduction in marketing expenditures, offset by slightly higher direct
sales costs as a result of business acquired during 1998. Selling expenses as a
percentage of revenues decreased to 29% in the second quarter of 1999 from 42%
in the second quarter of 1998 primarily due to higher revenues in relation to
static sales and marketing costs.

      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 expenses for the second
quarter of 1999 totaled $1,522,000, as compared to $1,594,000 for the second
quarter of 1998. The decrease in general and administrative expenses of $72,000
or 5% was primarily due to decreased personnel related costs, offset by general
and administrative expenses associated with the Company's Canadian subsidiary
which commenced operations on September 25, 1998. General and administrative
expenses as a percentage of revenue decreased to 28% in the second quarter of
1999 from 39% in the second quarter of 1998, primarily due to higher revenues in
relation to a static cost structure.

Income Before Income Taxes and Net Income

      Operations for the second quarter of 1999 resulted in pre-tax income of
$374,000, as compared to a pre-tax loss of $1,488,000 for the second quarter of
1998. The resulting net income of $374,000 or $0.10 per diluted share compares
with a net loss of $1,265,000 or $0.33 per share in the second quarter of 1998.
The higher pre-tax and net income for the second quarter of 1999 is primarily
due to increased sales revenues and resulting gross margin as compared to the
second quarter of 1998.



                                       12
<PAGE>   15

SIX MONTHS ENDED JUNE 30, 1999 ("FIRST HALF OF 1999") COMPARED WITH THE SIX
MONTHS ENDED JUNE 30, 1998 ("FIRST HALF OF 1998")

Revenues

      Revenues for the first half of 1999 totaled $11,172,000 as compared to
$6,875,000 for the first half of 1998, representing an increase of $4,297,000 or
63%. The increase in revenues was attributable to an overall increase in sales
of the Company's core technology-delivered multimedia courseware products, as
well as revenues associated with products and businesses acquired in 1998.
Revenues from sales of the Company's Enterprise Training Management Software -
AdminSTAR(TM) (acquired in March of 1998) totaled $2,520,000 during the first
half of 1999 as compared to $182,000 during the first half of 1998, representing
an increase of $2,338,000. Total revenues from products and businesses acquired
during 1998 amounted to $3,843,000 during the first half of 1999, accounting for
the majority of the revenue increase as compared to the first half of 1998.

      During the first half of 1999, ITC recorded $439,000 in hardware revenue,
as compared to $382,000 recorded during the first half of 1998, representing in
increase of $57,000.

Cost of Sales and Gross Margin

      Cost of sales for the first half of 1999 totaled $4,513,000 resulting in a
gross margin of $6,659,000 or 60% of total revenues, as compared to cost of
sales of $3,728,000 resulting in gross margin of $3,147,000 or 46% of total
revenues for the first half of 1998. The increase in total gross margin was
primarily due to increased revenues during the first half of 1999 as compared to
the first half of 1998. The increase in gross margin percentage was due to a
normal fluctuation in sales channel mix from resellers or third party agents to
direct sales.

Selling, General and Administrative Expenses

      Selling, general and administrative expenses totaled $6,006,000 for the
first half of 1999 as compared to $5,695,000 for the first half of 1998,
representing an increase of $311,000 or 5%.

      Selling expenses for the first half of 1999 totaled $3,195,000 as compared
to $2,725,000 for the first half of 1998, representing an increase of $470,000
or 17%. The increase was due to the expansion of sales and marketing efforts
focused on products and businesses acquired during 1998 and the Company's
expansion into new sales territories during the fourth quarter of 1998. For the
first half of 1999, selling expenses as a percentage of revenues decreased to
29% as compared to 40% for the first half of 1998. The decrease of 11% was the
result of achieving higher revenues while maintaining a static cost structure.

      General and administrative expenses for the first half of 1999 totaled
$2,811,000 as compared to $2,970,000 for the first half of 1998, representing a
decrease of $159,000 or 5%. The decrease was due to lower personnel related
costs, offset by higher general and administrative expenses associated with the
Company's Canadian subsidiary which commenced operations on September 25, 1998.
General and administrative expenses as a percentage of revenues decreased to 25%
in the first half of 1999 from 43% in the first half of 1998. The decrease of
18% was the result of achieving higher revenues while maintaining a static cost
structure.

Income Before Income Taxes and Net Income

      Operations for the first half of 1999 resulted in pre-tax income of
$651,000, as compared to a pre-tax loss of $2,241,000 for the first half of
1998. The resulting net income of $651,000 or $0.17 per diluted share compares
with a net loss of $2,018,000 or $0.52 per share in the first half of 1998. The
increase in net income of $2,669,000 is due to increased sales revenue and
resulting gross margin as compared to the first half of 1998.




                                       13
<PAGE>   16


CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES

      Working capital at June 30, 1999 was $2,821,000 as compared to $1,799,000
at December 31, 1998, an increase of $1,022,000 or 57%, primarily due to
accounts receivable growth as a result of increased sales, lower accounts
payable balances, offset by increased utilization of the Company's line of
credit during the second quarter of 1999.

      Cash provided by operating activities totaled $214,000 for the first half
of 1999, as compared to cash provided by operating activities of $1,122,000 for
the first half of 1998, a decrease of $908,000. The decrease is due to slower
turnover of operating assets in relation to operating liabilities during the
first half of 1999 as compared to the first half of 1998.

      Cash used for investing activities totaled $1,491,000 for the first half
of 1999, as compared to cash used for investing activities of $3,302,000 for the
first half of 1998, a decrease of $1,811,000. The decrease is primarily
attributable to the absence of acquisition activity in 1999 as compared to 1998,
partially offset by higher product development costs.

     Cash provided by financing activities totaled $1,324,000 for the first half
of 1999, as compared to cash used for financing activities of $485,000 for the
first half of 1998, an increase of $1,809,000. The increase is principally
attributable to the Company's increased utilization of its line of credit as
compared to 1998, and the absence of a stock repurchase transaction, which
occurred during the first half of 1998. On August 11, 1999, the Company entered
into a new line of credit agreement with its principal lender for a two-year
term. Under the provisions of the new agreement, the Company increased its
borrowing capacity by $1,000,000 to $4,000,000. The Company collateralized the
credit facility by granting the bank a security interest in the assets of the
Company.

      The Company believes that cash on hand, anticipated cash flows from 1999
operations and its existing line of credit will be sufficient to meet the
Company's cash requirements for at least the next twelve months. Anticipated
cash flows from 1999 operations are largely dependent upon the Company's ability
to achieve its sales and gross profit objectives for its currently existing
products, new products launched in 1999 and products resulting from its 1998
acquisitions. However, the Company will continue to evaluate alternative sources
of liquidity available to it, including expansion of existing or development of
alternative sources of bank financing and equity or debt securities offerings,
to satisfy ongoing working capital and capital expenditure requirements, as well
as provide additional funding to execute its long-term strategic plans. These
are forward-looking statements. See Forward-Looking Statements and Risk Factors
for Further Discussion.



SOFTWARE REVENUE RECOGNITION

      In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 97-2, Software Revenue
Recognition, which supercedes SOP 91-1. The provisions of SOP 97-2 took effect
in fiscal years beginning after December 15, 1997 and clarify rules of revenue
recognition related to customer acceptance, product upgrades and post-contract
customer support. In March 1998, the AICPA issued SOP 98-4, which defers for one
year the implementation of certain provisions of SOP 97-2. The Company
implemented SOP 97-2 as amended by SOP 98-4 for transactions entered into
beginning January 1, 1998.

      In December 1998, the AICPA issued SOP 98-9, which extends the deferral
date of implementation of certain provisions of SOP 97-2 to 2000 for the
Company, and amends the method of revenue recognition in some circumstances. The
Company does not anticipate that the adoption of the SOP will have a significant
effect in its results of operations or financial position.




                                       14
<PAGE>   17
IMPLICATIONS OF YEAR 2000

      The Year 2000 ("Y2K") issue is the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
the Company's internal or external hardware or software packages that have
time-sensitive programs may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities. Similar failures in the Company's courseware could result
in an impairment of revenue recognition due to significant future obligations,
impairment of future sales of the Company's products, or potential product
liability. In addition, disruptions in the economy generally resulting from Year
2000 issues could have a material adverse affect on the Company.

      The Company began an assessment of the implications of the Year 2000 issue
during late 1997. Since then, the Company has made substantial progress towards
eliminating its exposure to Y2K related issues. The Company's plan to resolve
the Year 2000 issue has involved the following four phases: assessment,
remediation, testing, and implementation. Through June 30, 1999, the Company has
substantially completed the assessment, remediation and testing of its
courseware products and its operating infrastructure, and believes its products
and mission critical operating functions to be year 2000 compliant. The Company
plans on completing the final phase of its Y2K plan by September 30, 1999.
Management estimates the total costs to mitigate the Company's Y2K exposure
will total $400,000, of which $325,000 has been incurred to date. Versions of
the Company's legacy products, which are analog-laserdisc delivered products,
are not Year 2000 compliant. This is primarily due to the authoring language
that the products were developed in as well as the operating systems and
computer equipment that delivered the laserdisc training programs. The Company
does not plan to modify the analog-laserdisc product to become Year 2000
compliant. The Company ceased sales and marketing efforts of the
analog-laserdisc products in 1996; therefore, any impact on results of
operations or financial position is not expected to be material. Commercially
viable courseware products and operating applications that were found to be
non-compliant will be reprogrammed or replaced by September 30, 1999. In
addition, the Company has gathered information about the Year 2000 compliance
status of its significant suppliers, vendors, and subcontractors and continues
to monitor their compliance, however the Company believes non-compliance of
its suppliers and vendors will not represent a significant threat due to the
nature of its raw materials and existing alternatives in the marketplace. These
are forward-looking statements. See Forward-Looking Statements and Risk Factors
for Further Discussion.


      The most reasonably likely worst case scenario, relating to Y2K
compliance, would be failure of the Company's courseware products and its
internal operating infrastructure. Failure of the Company's courseware products
as a result of the Y2K bug, would require the Company to incur significant
remediation costs and could potentially result in significant litigation costs,
both which would have a material negative impact on the Company's results of
operations and financial position. Failure of the Company's operating
infrastructure would cause a significant disruption in the Company's ability to
process transactions, fulfill orders, support customers and administer its
business.

      The Company has contingency plans for all mission critical applications.
These contingency plans involve, among other actions, manual workarounds,
increasing inventories, and adjusting staffing strategies.

SUBSEQUENT EVENT

     On August 10, 1999 the Company executed a letter of intent with Thoma
Cressey Fund VI, LP ("TCEP"), a private equity fund managed by Thoma Cressey
Equity Partners, Inc., to invest $20 million in ITC. The investment by TCEP is
expected to be in the form of convertible preferred stock, which will be
convertible into the Company's common stock at $5.00 per share, resulting in
approximately 50% of the Company's common stock. The preferred stock will also
carry a 6% per annum paid-in-kind stock dividend. TCEP will have the ability to
elect a majority of the Company's board of directors, appoint a majority to the
Company's finance and compensation committees and be entitled to certain
contractual commitments by the Company including redemption and registration
rights. Prior to obtaining shareholder approval, TCEP may elect to invest
approximately $5 million through a convertible note, which would carry similar
terms to the preferred stock and be convertible into preferred stock upon
receipt of shareholder approval.

      Subject to shareholder approval, the Company anticipates completing this
transaction during the fourth quarter of 1999. This is a forward-looking
statement. See Forward-Looking Statements and Risk Factors for Further
Discussion.




                                       15
<PAGE>   18



                           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 May 5, 1999. There
was one agenda item submitted to a vote of security holders, the election of two
directors to the Company's Board of Directors. The shareholders elected Robert
Spillane and re-elected Daniel R. Bannister, the nominees recommended by the
Board of Directors, to serve on the Board, each for a term of three years. The
number of votes cast in favor of Dr. Spillane's election was 2,536,720, with
390,140 votes against and 1,031,345 abstaining. The number of votes cast in
favor of Mr. Bannister's re-election was 2,328,609, with 598,251 votes against
and 1,031,345 abstaining. John D. Sanders, Richard E. Thomas, Carl D. Stevens
and Peter Li each continued in office as directors after the annual meeting.

ITEM 5.           OTHER INFORMATION

None.

ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

A.       Exhibits

     EXHIBIT
       NO.                                            DESCRIPTION
-----------------------------------------------------------------------------

        3.1          Amended Articles of Incorporation of the Company,
                     incorporated by reference to the Company's Form 10-QSB for
                     the quarter ended June 30, 1996 filed with the Securities
                     and Exchange Commission ("SEC") (Commission File No.
                     0-13741).

        3.2          Amended By-Laws of the Company, incorporated by reference
                     to the Company's Form 10-KSB for the fiscal year ended
                     December 31, 1997, filed March 13, 1998 with the SEC
                     (Commission File No. 0-13741).

        4.1          Specimen Certificate for ITC Common Stock, incorporated by
                     reference to the Company's 10-QSB for the quarter ended
                     March 31, 1998, filed May 1, 1998 with the SEC (Commission
                     File No. 0-13741).

       10.1          Employment Agreement with Christopher E. Mack dated
                     January 7, 1998 (filed herewith).

       10.2          Employment Agreement with Carl D. Stevens dated January 7,
                     1998 (filed herewith).

       27.1          Financial Data Schedule (filed herewith).


B.       Reports on Form 8-K:

None.




                                       16
<PAGE>   19




                                   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
     (Registrant)


<TABLE>
<S>                                                                                <C>
By:                     /s/Carl D. Stevens                                          DATE                    August 13, 1999
            ---------------------------------------------------------------                  ------------------------------
            Carl D. Stevens, President,
            Chief Executive Officer and Director


By:                     /s/Christopher E. Mack                                      DATE                    August 13, 1999
            ---------------------------------------------------------------                  ------------------------------
            Christopher E. Mack, Vice President,
            Treasurer, and Chief Financial Officer


By:                     /s/Matthew C. Sysak                                         DATE                    August 13, 1999
            ---------------------------------------------------------------                  ------------------------------
            Matthew C. Sysak, Corporate Controller
</TABLE>