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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-Q

(Mark One)

|/x/                                                  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|---------------------------------------------------- | ----------------------------------------------------------------------------------------
|For the quarterly period ended September 30, 2000
OR
|/ /                                                  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  to

Commission File Number 0-24936

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LEARN2.COM, INC.

(Exact name of registrant as specified in its charter)

DELAWARE(State or other jurisdiction
of incorporation or organization)

75-2480669(I.R.S. Employer
Identification No.)1311 Mamaroneck Avenue,
Suite 210
White Plains, New York(Address of principal executive offices)

10605(Zip Code)


Registrant's Telephone Number, Including Area Code: (914) 682-4300

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

The
number of shares of the registrant's common stock outstanding as of November 9, 2000 was approximately 52,932,231.

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## 

Learn2.com, Inc.  Form 10-Q  For the Quarterly Period Ended September 30, 2000       INDEX

|                              |  |                                                                                                                              |  | Page No.
|----------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------- |  | --------
|PART I. FINANCIAL INFORMATION |  |                                                                                                                             
|Item 1.                       |  | Condensed Consolidated Financial Statements                                                                                  |  |         
|                              |  | Condensed Consolidated Balance Sheets as of September 30, 2000 (unaudited) and December 31, 1999                             |  | 1       
|                              |  | Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2000 and 1999 (unaudited)  |  | 2       
|                              |  | Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2000 and 1999 (unaudited)            |  | 3       
|                              |  | Condensed Consolidated Statement of Changes in Stockholders' Equity for the nine months ended September 30, 2000 (unaudited) |  | 4       
|                              |  | Notes to Condensed Consolidated Financial Statements                                                                         |  | 5-7     
|Item 2.                       |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                        |  | 8-13    
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                                   |  | 13      
|PART II. OTHER INFORMATION    |  |                                                                                                                             
|Item 4.                       |  | Submission of Matters to a Vote of Securities Holders                                                                        |  | 14      
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                                             |  | 14      
|                              |  |                                                                                                                              |  |         

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## 

Part I. FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements.

Learn2.com, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

|                                     |                                                                                                                                                                    | September 30, 2000                         |   | December 31, 1999 |       
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | - | ----------------- | ------
|
|ASSETS                               |                                                                                                                                                                    |                                            |   |                   |       
|Current assets:                      |                                                                                                                                                                    |                                            |   |                   |       
|                                     | Cash and cash equivalents                                                                                                                                          |                                            | $ | 9,080             |       
|                                     | Short-term investments                                                                                                                                             |                                            |   |                  |       
|                                     | Accounts receivable, net of allowances of $585 and $1,662, respectively                                                                                            |                                            |   | 3,324             |       
|                                     | Inventories                                                                                                                                                        |                                            |   | 981               |       
|                                     | Other current assets                                                                                                                                               |                                            |   | 1,626             |       
|                                     |                                                                                                                                                                    |                                            |   |                   |       
|                                     |                                                                                                                                                                    | Total current assets                       |   |                   | 15,011
|                                     | Fixed assets, net of accumulated depreciation of $2,236 and $1,605, respectively                                                                                   |                                            |   | 5,206             |       
|                                     | Capitalized software, net of accumulated amortization of $3,326 and $1,909, respectively                                                                           |                                            |   | 15,775            |       
|                                     | Intangible assets, net of accumulated amortization of $2,189 and $923, respectively                                                                                |                                            |   | 14,007            |       
|                                     | Goodwill, net of accumulated amortization of $1,758 and $796, respectively                                                                                         |                                            |   | 23,716            |       
|                                     | Other assets                                                                                                                                                       |                                            |   | 436               |       
|                                     |                                                                                                                                                                    |                                            |   |                   |       
|                                     |                                                                                                                                                                    | Total assets                               |   | $                 | 74,151
|                                     |                                                                                                                                                                    |                                            |   |                   |       
|LIABILITIES AND STOCKHOLDERS' EQUITY |                                                                                                                                                                    |                                            |   |                   |       
|Current liabilities:                 |                                                                                                                                                                    |                                            |   |                   |       
|                                     | Accounts payable                                                                                                                                                   |                                            | $ | 4,452             |       
|                                     | Accrued expenses and other current liabilities                                                                                                                     |                                            |   | 4,602             |       
|                                     |                                                                                                                                                                    |                                            |   |                   |       
|                                     |                                                                                                                                                                    | Total current liabilities                  |   |                   | 9,054 
|                                     | Other liabilities                                                                                                                                                  |                                            |   | 286               |       
|                                     | Convertible debenture, net of unamortized debt discount of $812                                                                                                    |                                            |   | 9,188             |       
|                                     |                                                                                                                                                                    |                                            |   |                   |       
|                                     |                                                                                                                                                                    | Total liabilities                          |   |                   | 18,528
|                                     |                                                                                                                                                                    |                                            |   |                   |       
|Stockholders' equity:                |                                                                                                                                                                    |                                            |   |                   |       
|                                     | Common stock, par value $0.01 per share, 100,000,000 shares authorized; 52,881,618 and 51,715,739 shares issued and outstanding in    2000 and 1999, respectively. |                                            |   | 529               |       
|                                     | Additional paid-in capital                                                                                                                                         |                                            |   | 197,573           |       
|                                     | Notes and accounts receivable from directors                                                                                                                       |                                            |   | (1,687            | )     
|                                     | Accumulated deficit                                                                                                                                                |                                            |   | (140,792          | )     
|                                     |                                                                                                                                                                    |                                            |   |                   |       
|                                     | Total stockholders' equity                                                                                                                                         |                                            |   | 55,623            |       
|                                     |                                                                                                                                                                    |                                            |   |                   |       
|                                     |                                                                                                                                                                    | Total liabilities and stockholders' equity |   | $                 | 74,151
|                                     |                                                                                                                                                                    |                                            |   |                   |       

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

1

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Learn2.com, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

|                                                      |                                  | Nine Months Ended September 30, |            | Three Months Ended September 30, |        
|----------------------------------------------------- | -------------------------------- | ------------------------------- | ---------- | -------------------------------- | -------
|
|Net revenues                                          |                                  | $                               | 20,583     |                                  | $      
|Cost of revenues                                      |                                  |                                 | 5,135      |                                  |        
|                                                      |                                  |                                 |            |                                  |        
|Gross profit                                          |                                  |                                 | 15,448     |                                  |        
|Operating expenses:                                   |                                  |                                 |            |                                  |        
|                                                      | Research and product development |                                 |            | 5,553                            |        
|                                                      | Sales and marketing              |                                 |            | 12,492                           |        
|                                                      | General and administrative       |                                 |            | 7,100                            |        
|                                                      | Depreciation and amortization    |                                 |            | 4,332                            |        
|                                                      | Non-recurring costs              |                                 |            | 641                              |        
|                                                      | Restructuring charges            |                                 |            |                                 |        
|                                                      | Acquired in-process technology   |                                 |            |                                 |        
|                                                      |                                  |                                 |            |                                  |        
|                                                      |                                  | Total operating expenses        |            |                                  | 30,118 
|                                                      |                                  |                                 |            |                                  |        
|Operating loss                                        |                                  |                                 | (14,670    | )                                |        
|Interest and other, net                               |                                  |                                 | 106        |                                  |        
|                                                      |                                  |                                 |            |                                  |        
|                                                      |                                  | Net loss                        |            | $                                | (14,776
|                                                      |                                  |                                 |            |                                  |        
|Basic and diluted loss per common share               |                                  | $                               | (0.28      | )                                | $      
|                                                      |                                  |                                 |            |                                  |        
|Weighted average basic and diluted shares outstanding |                                  |                                 | 52,642,240 |                                  |        
|                                                      |                                  |                                 |            |                                  |        

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

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Learn2.com, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

|                                                                            |                                                                                    | Nine months Ended September 30,                     |      
|--------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | --------------------------------------------------- | -----
|
|Cash flows from operating activities:                                       |                                                                                    |                                                     |      
|                                                                            | Net loss                                                                           |                                                     | $    
|Adjustments to reconcile net loss to net cash used in operating activities: |                                                                                    |                                                     |      
|                                                                            | Depreciation and amortization                                                      |                                                     |      
|                                                                            | Non-cash warrant expense and interest expense                                      |                                                     |      
|                                                                            | Minority interest in loss of subsidiary                                            |                                                     |      
|                                                                            | Bad debt expense                                                                   |                                                     |      
|                                                                            | Restructuring charges                                                              |                                                     |      
|                                                                            | Write-off of acquired in-process technology                                        |                                                     |      
|                                                                            | Changes in operating assets and liabilities                                        |                                                     |      
|                                                                            |                                                                                    |                                                     |      
|                                                                            |                                                                                    | Net cash used in operating activities               |      
|Cash flows from investing activities:                                       |                                                                                    |                                                     |      
|                                                                            | Proceeds from sale of assets                                                       |                                                     |      
|                                                                            | Cash acquired from acquisition of businesses, net of acquisition costs             |                                                     |      
|                                                                            | Capitalized software costs                                                         |                                                     |      
|                                                                            | Proceeds from sale of short-term investments                                       |                                                     |      
|                                                                            | Capital expenditures, net                                                          |                                                     |      
|                                                                            |                                                                                    |                                                     |      
|                                                                            |                                                                                    | Net cash (used in) provided by investing activities |      
|Cash flows from financing activities:                                       |                                                                                    |                                                     |      
|                                                                            | Proceeds from issuance of convertible debenture and warrant                        |                                                     |      
|                                                                            | Deferred financing costs                                                           |                                                     |      
|                                                                            | Proceeds from issuance of notes payable                                            |                                                     |      
|                                                                            | Proceeds from issuance of common stock under stock option and stock purchase plans |                                                     |      
|                                                                            | Other                                                                              |                                                     |      
|                                                                            |                                                                                    |                                                     |      
|                                                                            |                                                                                    | Net cash provided by financing activities           |      
|                                                                            |                                                                                    |                                                     |      
|Net increase in cash and cash equivalents                                   |                                                                                    |                                                     | 1,852
|Cash and cash equivalents, beginning of period                              |                                                                                    |                                                     | 7,228
|                                                                            |                                                                                    |                                                     |      
|Cash and cash equivalents, end of period                                    |                                                                                    | $                                                   | 9,080
|                                                                            |                                                                                    |                                                     |      
|Supplemental disclosures of cash flow information:                          |                                                                                    |                                                     |      
|                                                                            | Cash paid for interest                                                             |                                                     | $    
|Schedule of noncash financing activities:                                   |                                                                                    |                                                     |      
|                                                                            | Conversion of notes payable into common stock                                      |                                                     | $    
|                                                                            | Notes and account receivable received upon exercise of stock options               |                                                     |      
|                                                                            | Warrant issued as a result of financing                                            |                                                     |      
|                                                                            | Debt discount                                                                      |                                                     |      
|Detail of Street Technologies, Inc. acquisition:                            |                                                                                    |                                                     |      
|                                                                            | Common and preferred stock issued                                                  |                                                     | $    
|                                                                            | Assumed liabilities                                                                |                                                     |      
|                                                                            | Acquisition costs                                                                  |                                                     |      
|                                                                            |                                                                                    |                                                     |      
|                                                                            |                                                                                    | Total                                               |      
|                                                                            |                                                                                    |                                                     |      
|                                                                            | Cash acquired                                                                      |                                                     |      
|                                                                            | Less: acquisition costs                                                            |                                                     |      
|                                                                            |                                                                                    |                                                     |      
|                                                                            | Net cash utilized in acquisition, net of acquisition costs                         |                                                     | $    
|                                                                            |                                                                                    |                                                     |      
|Detail of ViaGrafix Corporation acquisition:                                |                                                                                    |                                                     |      
|                                                                            | Common stock issued                                                                |                                                     | $    
|                                                                            | Assumed liabilities                                                                |                                                     |      
|                                                                            | Acquisition costs                                                                  |                                                     |      
|                                                                            |                                                                                    |                                                     |      
|                                                                            |                                                                                    | Total                                               |      
|                                                                            |                                                                                    |                                                     |      
|                                                                            | Cash acquired                                                                      |                                                     |      
|                                                                            | Less: acquisition costs                                                            |                                                     |      
|                                                                            |                                                                                    |                                                     |      
|                                                                            | Net cash acquired in acquisition, net of acquisition costs                         |                                                     | $    
|                                                                            |                                                                                    |                                                     |      

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

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Learn2.com, Inc.

Condensed Consolidated Statement of Changes in Stockholders' Equity
(in thousands, except share data)
(unaudited)

|                              |                                              | Common Stock
Total Shares |           | Common Stock
Total Amount |     | Additional
Capital |   | Notes
And
Accounts
Receivable
From
Directors |       | Accumulated
Deficit |        | Total
Stockholders'
Equity |  
|----------------------------- | -------------------------------------------- | ------------------------- | --------- | ------------------------- | --- | ------------------ | - | -------------------------------------------- | ----- | ------------------- | ------ | -------------------------- | -
|Balance at December 31, 1999  |                                              | 51,715,739                |           | $                         | 517 |                    | $ | 193,700                                      |       | $                   | (1,687 | )                          | $
|                              | Warrants issued                              |                           |          |                           |     |                   |   |                                              | 1,383 |                     |        |                           |  
|                              | Common stock issued under stock option plans |                           | 1,165,879 |                           |     | 12                 |   |                                              | 2,267 |                     |        |                           |  
|                              | Other                                        |                           |           |                           |     |                    |   |                                              | 223   |                     |        |                            |  
|                              | Net loss                                     |                           |          |                           |     |                   |   |                                              |      |                     |        |                           |  
|                              |                                              |                           |           |                           |     |                    |   |                                              |       |                     |        |                            |  
|Balance at September 30, 2000 |                                              | 52,881,618                |           | $                         | 529 |                    | $ | 197,573                                      |       | $                   | (1,687 | )                          | $
|                              |                                              |                           |           |                           |     |                    |   |                                              |       |                     |        |                            |  

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

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Learn2.com, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Learn2.com, Inc. together with its subsidiaries ("Learn2.com") is a Learning Service Provider ("LSP") for corporate, government and individual clients.
Our offerings include engaging learning and training products delivered on physical media and online and comprehensive services designed to solve our customers' problems. We also provide permission
e-mail marketing and tracking services to companies that engage in commerce and advertising on the Internet as well as other companies that have a need
for these services. During the third quarter, as a result of the realignment of the responsibilities of certain senior executives, management began to manage the business in two operating segments:
Learning Services and Broadcast Messaging Services.

Basis of Presentation

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (normal and recurring in nature)
necessary to present fairly the financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States
applicable to interim periods. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full fiscal year or for any future period.

The
accompanying financial statements should be read in conjunction with the consolidated financial statements and related notes included in Learn2.com's Annual Report on
Form 10-K for the year ended December 31, 1999. Certain reclassifications have been made to the prior year's financial statements to conform to the current period
presentation.

Use of Estimates

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

Recent Accounting Pronouncements

In June 1999, The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 137, which
amended the effective date of SFAS No. 133Accounting for Derivative Instruments and Hedging Activities. Learn2.com is required to adopt SFAS No. 133 by January 1,
2001. SFAS No. 133 establishes accounting and reporting standards requiring that all derivative instruments be recorded on the balance sheet at fair value. SFAS No. 133 requires that
changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met and such hedge accounting treatment are elected. Management does not expect
adoption of SFAS No. 133 to have a material impact on Learn2.com's financial position or results of operations.

In
December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." SAB
No. 101 expresses the views of the SEC staff in applying generally accepted accounting principles to certain revenue

5

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recognition issues. In June 2000, the SEC issued SAB No. 101B to defer the effective date of SAB No. 101 until the fourth quarter of fiscal year 2000. Management is currently
evaluating the impact of adopting SAB No. 101 but management does not believe that it will have a material impact on Learn2.com's financial position or results of operations.

In
March 2000, the FASB issued Interpretation No. ("FIN") 44, "Accounting for Certain Transactions Involving Stock Compensationan Interpretation of APB 25." FIN 44
specifically answers questions on the implementation of APB 25 that were derived from a survey of members of the Emerging Issues Task Force and the task force on stock compensation. FIN 44 became
effective on July 1, 2000, but certain conclusions in FIN 44 cover specific events that occur after December 15, 1998. To the extent that FIN 44 covers events occurring during the period
after December 15, 1998, but before the effective date of July 1, 2000, the effects of applying FIN 44 are recognized on a prospective basis from July 1, 2000. Management is
currently evaluating the impact, if any, FIN 44 will have on Learn2.com's financial position or results of operations.

NOTE 2CONVERTIBLE DEBENTURE

On March 10, 2000, Learn2.com sold a three year $10.0 million 6% convertible debenture and a warrant to purchase 337,268 shares of common stock
to an investor.

The
debenture is convertible into 1,666,667 shares of common stock and is convertible, in whole or in part, at the option of the holder at a conversion price of $6.00 per share (which
approximated the market value of Learn2.com's common stock on March 10, 2000) and is subject to anti-dilution provisions. Under certain conditions, the debenture automatically
converts after one year. The conversion price of the debenture may be reset to the market value of Learn2.com's common stock on each of the first and second anniversaries of the issuance of the
convertible debenture if the price of Learn2.com's common stock declines below the initial or adjusted conversion price on such anniversaries. In the event that a reduction in the conversion price
does occur, Learn2.com will be required to record additional interest expense as a result of this beneficial conversion feature.

The
warrant to purchase 337,268 shares of Learn2.com's common stock is exercisable for a five-year period at $7.41 per share. The fair value of the warrant of
$1.0 million has been recorded as a debt discount to be amortized over the life of the related debt.

NOTE 3SEGMENT INFORMATION

Based on the criteria established by SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," Learn2.com operates in two
principal business segments: Learning Services and Broadcast Messaging Services. SFAS No. 131 establishes standards for the way public business enterprises report information about operating
segments. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. Management evaluates the performance of each segment on their
respective revenues and gross profits. Learn2.com does not allocate corporate overhead costs between the two segments. Management does not believe that allocating these expenses is material in
evaluating each segment's performance.

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Revenue and gross profit by segment are as follows (in thousands):

|                                 |  | For the Nine Months Ended September 30,
(unaudited) |       
|-------------------------------- |  | --------------------------------------------------- | ------
|
|
|Revenues                         |  | $                                                   | 17,196
|Intersegment eliminations        |  |                                                     |      
|                                 |  |                                                     |       
|Revenues from external customers |  | $                                                   | 17,196
|                                 |  |                                                     |       
|Gross profit                     |  | $                                                   | 13,756
|                                 |  |                                                     |       

|                                 |  | For the Three Months Ended September 30,
(unaudited) |      
|-------------------------------- |  | ---------------------------------------------------- | -----
|
|
|Revenues                         |  | $                                                    | 6,063
|Intersegment eliminations        |  |                                                      |     
|                                 |  |                                                      |      
|Revenues from external customers |  | $                                                    | 6,063
|                                 |  |                                                      |      
|Gross profit                     |  | $                                                    | 5,075
|                                 |  |                                                      |      

NOTE 4SALE OF DESIGN CAD SOFTWARE PRODUCT LINE

On March 8, 2000, Learn2.com sold the DesignCAD(TM) software product line for $800,000 in cash to Websoft, Inc., a privately held company, the
president of which is a former employee of Learn2.com. Learn2.com recognized a loss on this transaction of approximately $14,000 that is included in interest and other, net in the condensed
consolidated statement of operations for the nine months ended September 30, 2000.

NOTE 5LEGAL

On May 22, 1998, a lawsuit was filed as a putative class action against Learn2.com's subsidiary ViaGrafix Corporation and certain of its officers and
directors claiming violations of the Securities Act
of 1933 for alleged misrepresentations and omissions in the prospectus issued in connection with ViaGrafix's initial public offering made in March 1998. Learn2.com believes the lawsuit is
without merit.

Learn2.com
is involved in other claims and lawsuits that are generally incidental to its business. Learn2.com is vigorously contesting and pursuing all such matters and believes that
their ultimate resolution will not have a material adverse effect on Learn2.com's consolidated financial position, results of operations or cash flows.

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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following information should be read in conjunction with the financial statements and the notes thereto and in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations in Learn2.com's Annual Report on Form 10-K for the year ended December 31, 1999.

In
order to keep our stockholders informed of Learn2.com's future plans and objectives, this Quarterly Report on Form 10-Q and other reports and statements issued
by Learn2.com from time-to-time contain, among other things, certain statements concerning Learn2.com's future plans, objectives, performance, intentions and expectations that
are or may be deemed to be "forward-looking statements." The words "believe," "expect," "anticipate," "project" and similar expressions should alert you that it is a forward-looking statement.
Forward-looking statements speak only as of the date the statement is made. Learn2.com's ability to do this has been fostered by the Private Securities Litigation Reform Act of 1995, which provides a
"safe harbor" for forward-looking statements to encourage companies to provide prospective information so long as those statements are accompanied by meaningful cautionary statements identifying
important factors that could cause actual results to differ materially from those discussed in the statement.

Although
Learn2.com believes that its expectations are based on reasonable assumptions, these forward-looking statements are subject to a number of known and unknown risks and
uncertainties that could cause Learn2.com's actual results, performance and achievements to differ materially from those described or implied in the forward-looking statements. These factors include
among others,Learn2.com's ability to complete new products at planned costs and on planned schedules, Learn2.com's ability to attract and retain strategic partners and consummate acquisitions,
Learn2.com's ability to leverage intangible assets in its technology and Learn2.com's ability to maintain a sufficient level of financing for its business strategy. Additional factors that are beyond
Learn2.com's control and could influence results include market acceptance of Learn2.com's products and services and adoption of the Internet as a medium of commerce and communication. See the
discussion of Learn2.com's business and a description of the various factors that could materially affect the ability of Learn2.com to achieve the anticipated results described in the forward-looking
statements that are included in Item 1 of Learn2.com's Annual Report on Form 10-K for the year ended December 31, 1999.

Overview

Learn2.com is a LSP for corporate, government and individual clients. Our offerings include engaging learning and training products delivered on physical media
and online and custom development services. This provides us with a competitive advantage toward becoming the LSP of choice to our customers. Our offerings provide an engaging learning experience to
corporate and individual customers through interactive multimedia and animated tutorials and courseware. Our corporate and government customers have access to these high quality tutorials and
additional features such as reporting and administration throughwww.Learn2University.com. Additionally, through www.Learn2.com, visitors can access our
Internet e-learning community that offers tips and step-by-step instructions
on a broad spectrum of skills, activities and tasks, as well as our multimedia tutorials. Our e-learning products are also available on CD-ROM and video and can be purchased
from major retailers nationwide. We provide permission e-mail marketing and tracking services and engage in e-commerce. During the third quarter, as a result of the realignment
of the responsibilities of certain senior executives, management began to manage the business in two operating segments: Learning Services and Broadcast Messaging Services.

Our
goal is to become the world's leading LSP. We intend to attain that goal by focusing on four primary objectives: creating a trusted brand, developing and owning creative and
engaging content, enhancing our patented state-of-the-art technologies and offering custom services to meet the needs of our clients. In 1999, we changed our
company's name from 7th Level, Inc. to Learn2.com, Inc. in order

8

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to create a single recognized brand which more closely aligned our corporate identity with our new product and service offerings.

Results of Operations

Revenue and gross profit by segment are as follows (in thousands):

|                                 |  | For the Nine Months Ended September 30,
(unaudited) |       
|-------------------------------- |  | --------------------------------------------------- | ------
|
|
|Revenues                         |  | $                                                   | 17,196
|Intersegment eliminations        |  |                                                     |      
|                                 |  |                                                     |       
|Revenues from external customers |  | $                                                   | 17,196
|                                 |  |                                                     |       
|Gross profit                     |  | $                                                   | 13,756
|                                 |  |                                                     |       

|                                 |  | For the Three Months Ended September 30,
(unaudited) |      
|-------------------------------- |  | ---------------------------------------------------- | -----
|
|
|Revenues                         |  | $                                                    | 6,063
|Intersegment eliminations        |  |                                                      |     
|                                 |  |                                                      |      
|Revenues from external customers |  | $                                                    | 6,063
|                                 |  |                                                      |      
|Gross profit                     |  | $                                                    | 5,075
|                                 |  |                                                      |      

Learning Services

Learning Services revenues consist primarily of learning products and services sold or distributed through the Internet and of physical products sold through
traditional retail channels. Cost of revenues consists of the expenses associated with the production and shipment of our physical products. In addition, it includes related costs to develop custom
courses for specific customers.

Revenues
for Learning Services increased 98% to $6.1 million for the quarter ended September 30, 2000 from $3.1 million for the quarter ended September 30,
1999. Learning Services gross profit was approximately 84% of revenues for the quarter ended September 30, 2000 and approximately 88% of revenues for the quarter ended September 30,
1999. For the quarter ended September 30, 2000, revenues consisted of learning products, technologies and services sold, licensed or distributed through the Internet of $3.9 million,
physical learning products sold through traditional retail channels of $2.1 million and other revenue of $75,000. Revenues for the quarter ended September 30, 1999, consisted of
approximately $1.1 million of learning products and services sold or distributed through the Internet, physical learning products sold through traditional retail channels of
$1.5 million, and $419,000 related to our legacy businesses. The 1999 revenues include revenue from the operations acquired in the ViaGrafix acquisition that relate to our Learning Services
segment from August 23, 1999. Gross profit fluctuated from year to year as a result of differences in the composition of revenues.

Revenues
for Learning Services increased 192% to $17.2 million for the nine months ended September 30, 2000 from $5.9 million for the nine months ended
September 30, 1999. The gross profit for Learning Services was approximately 80% of revenues for the nine months ended September 30,

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2000 and approximately 83% of revenues for the nine months ended September 30, 1999. These revenues consisted of learning products, technologies and services sold, licensed or distributed
through the Internet of $10.4 million, physical learning products sold through traditional retail channels of $6.2 million, software sales related to our CAD product line (sold in
March 2000) of $400,000 and other revenue of $171,000. For the nine months ended September 30, 1999, Learning Services revenues were $5.9 million. These revenues consisted of
$2.8 million of learning products and services sold or distributed through the Internet, $1.5 million of physical learning products sold through traditional retail channels and
$1.6 million of software sales related to our CAD product line. The 1999 revenues include revenue from the operations acquired in the ViaGrafix acquisition that relate to our Learning Services
segment from August 23, 1999. Gross profit fluctuated from year to year as a result of differences in the composition of revenues.

Broadcast Messaging Services

Broadcast Messaging Services consists primarily of permission e-mail marketing and tracking services and e-commerce. Cost of revenues
consists of the expenses associated with the delivery of permission e-mail and tracking services, including Internet access and personnel related costs incurred to operate our marketing
and tracking services and cost of merchandise sold through our e-commerce operations.

Revenues
for the Broadcast Messaging Services increased $656,000 or 191% to $1.0 million for the quarter ended September 30, 2000, compared to $344,000 for the quarter
ended September 30, 1999. Broadcast Messaging Services gross profit was 54% of revenues for the quarters ended September 30, 2000 and September 30, 1999. The 1999 revenues include
revenue from the operations acquired in the ViaGrafix acquisition that relate to our Broadcast Messaging Services segment from August 23, 1999.

Revenues
for the Broadcast Messaging Services increased $3.0 million or 872% to $3.4 million for the nine months ended September 30, 2000, compared to $344,000
for the nine months ended September 30, 1999. Broadcast Messaging Services gross profit was 50% of revenues for the nine months ended September 30, 2000 compared to 54% of revenues for
the nine months ended September 30, 1999. The 1999 revenues include revenues from the operations acquired in the ViaGrafix acquisition that relate to our Broadcast Messaging Services segment
from August 23, 1999.

Operating Expenses

Research and Product Development

Research and product development expenses were $1.5 million for the quarter ended September 30, 2000 compared to $926,000 for the quarter ended
September 30, 1999. For the nine months ended September 30, 2000, research and product development expenses were $5.6 million compared to $2.5 million for the nine months
ended September 30, 1999. Research and product development expenses relate to the development and enhancement of our technologies, content, Website and product design. The 2000 amount includes
the research and product development expenses of ViaGrafix and Street Technologies, Inc. for the nine months ended September 30, 2000, whereas the 1999 amounts include the results of
ViaGrafix from August 23, 1999 and the results of Street Technologies, Inc. from February 16,
1999. The overall increase is attributable primarily to costs associated with the production and development of multimedia content.

We
believe that significant investment in research and product development is required to remain competitive. Therefore, we anticipate continued spending for research and product
development in future periods.

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Sales and Marketing

Sales and marketing expenses were $4.0 million for the quarter ended September 30, 2000, compared to $3.5 million for the quarter ended
September 30, 1999. For the nine months ended September 30, 2000, sales and marketing expenses were $12.5 million compared to $5.2 million for the nine months ended
September 30, 1999. Sales and marketing expenses consist primarily of salaries, commissions, advertising, trade show expenses and costs of marketing materials. The 2000 amount includes the
sales and marketing expenses of ViaGrafix and Street Technologies for the nine months ended September 30, 2000, whereas the 1999 amounts include the results of ViaGrafix from August 23,
1999 and the results of Street Technologies, Inc. from February 16, 1999. The overall increase is attributable primarily to increased sales and marketing personnel, costs for
cooperative, print media and other product related advertising.

We
anticipate sales and marketing expenses to increase in future periods in our continued effort to achieve growth in sales and brand awareness and as we introduce new products.

General and Administrative

For the quarter ended September 30, 2000, general and administrative expenses were $2.4 million compared to $595,000 for the quarter ended
September 30, 1999. For the nine months ended September 30, 2000, general and administrative expenses were $7.1 million compared to $2.3 million for the nine months ended
September 30, 1999. General and administrative expenses consist primarily of personnel related costs, occupancy costs and professional service fees. The 2000 amount includes the general and
administrative expenses of ViaGrafix and Street Technologies for the nine months ended September 30, 2000, whereas the 1999 amounts include the results of ViaGrafix from August 23, 1999
and the results of Street Technologies, Inc. from February 16, 1999. The overall increase is attributable primarily to increased personnel costs and professional fees associated with a
larger organization.

Depreciation and Amortization

Depreciation and amortization expenses were $1.5 million for the quarter ended September 30, 2000 compared to $833,000 for the quarter ended
September 30, 1999. The 2000 expenses included approximately $278,000 of depreciation of fixed assets, $482,000 of amortization of capitalized content development and $746,000 of amortization
of goodwill and intangible assets related to the Street Technologies, Inc. and ViaGrafix acquisitions. The 1999 expenses included approximately $55,000 of depreciation of fixed assets, $155,000
for amortization of computer software and $623,000 related to the amortization of goodwill and intangible assets related to the acquisitions of Street Technologies, Inc. and ViaGrafix
Corporation.

Depreciation
and amortization expenses were $4.3 million for the nine months ended September 30, 2000 compared to $1.8 million for the nine months ended
September 30, 1999. The 2000 expenses included approximately $700,000 of depreciation of fixed assets, $1.4 million of amortization of capitalized content development and
$2.2 million of amortization of goodwill and intangible assets related to the Street Technologies, Inc. and ViaGrafix acquisitions. The 1999 expenses included $111,000 of depreciation of
fixed assets, $422,000 of amortization of computer software and $1.3 million of amortization of goodwill and intangible assets related to the acquisitions of Street Technologies, Inc.
and ViaGrafix Corporation.

Restructuring Charges

Restructuring charges incurred for the nine months ended September 30, 1999 were approximately $3.5 million and related to our business
combinations with Street Technologies, Inc. and ViaGrafix Corporation of $2.5 million and $1.0 million respectively. The charges were comprised of $1.4 million related to
the write-off of redundant assets, $662,000 related to excess office space and other costs and $1.5 million in employee severance costs.

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Non-recurring Costs

During the second quarter of 2000, we recorded a non-recurring charge of $641,000 in additional transition costs associated with the acquisitions
of ViaGrafix and Panmedia. During the second quarter
of 1999, we completed our merger with Panmedia Corporation through the issuance of 1,543,860 shares of our common stock. We recorded a non-recurring charge of $277,000 for transaction
costs associated with the merger.

Acquired In-process Technology

In connection with our acquisitions of Street Technologies, Inc., and ViaGrafix, we allocated $9.7 million and $15.1 million of their
respective purchase prices to acquired in-process technology. Accordingly these costs were expensed as of the acquisition date. Amounts allocated to acquired in-process
technology relate to projects that had not yet reached technological feasibility and that, until completion of development, had no alternative future use. The technologies acquired in these
transactions will continue to require substantial additional development.

Interest and Other Income

Interest and other, net was $125,000 of expense compared to $89,000 of expense for the quarters ended September 30, 2000 and 1999, respectively. The
2000 amount consists of $269,000 of interest expense related to the convertible debenture and associated warrant, offset by interest income of $134,000 and $10,000 of other income. The 1999 amount
consists of $175,000 of expenses for the settlement of a lawsuit, $44,000 of other expense, offset by $130,000 of interest income.

Interest
and other net was $106,000 of expense for the nine months ended September 30, 2000 compared to $13,000 of expense for the nine months ended September 30, 1999.
The 2000 amount consists primarily of interest income of $518,000 offset by $601,000 of interest expense related to the convertible debenture and associated warrant along with a $14,000 loss on the
sale of the Design CAD Software product line and $9,000 of other interest expense. The 1999 expenses consisted primarily of $207,000 of interest income offset by $175,000 of expenses for the
settlement of a lawsuit, and $45,000 of other expense.

Net Loss

The net loss was $3.9 million for the quarter ended September 30, 2000 compared to $19.2 million for the quarter ended
September 30, 1999. In addition to the factors discussed above, the results for the three
months ended September 30, 1999 include costs related to our acquisition of ViaGrafix Corporation, including $15.1 million of acquired in-process technology and
$1.0 million of restructuring charges.

The
net loss was $14.8 million for the nine months ended September 30, 2000 compared to $35.4 million for the nine months ended September 30, 1999. In
addition to the factors discussed above, the results for the nine months ended September 30, 1999 include costs related to our acquisitions of Street Technologies, Inc. and ViaGrafix
Corporation, including $24.8 million of acquired in-process technology and $3.5 million of restructuring charges.

Liquidity and Capital Resources

Since inception we have financed our operations primarily through private placements of equity and debt securities and public offerings of our common stock. To
date, we continue to use cash and operate at a loss. Our ability to achieve positive cash flow depends upon a variety of factors, including the timely introduction and market success of our products,
the costs of developing, producing and marketing these products, adoption of the Internet as a medium of commerce and delivery of services, and various other factors, some of which may be beyond our
control. We are making a substantial investment in our business and may need to raise additional funds. In the event that we need to raise

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additional funds we cannot be certain that we will be successful nor can we predict the terms under which such funds would be available. If additional funds are not available we may not be able to
meet our on-going expenses unless we change our business plan, sell non-strategic assets, curtail expenditures, and/or employ other strategies as are required in these circumstances.

Net
cash used in operating activities was $10.7 million. Cash used in operating activities resulted primarily from our net loss and an overall decrease in operating assets and
liabilities, partially offset by increases from non-cash charges.

Net
cash used in investing activities was $118,000 and consists primarily of proceeds of $1.5 million from the sale of assets and $902,000 from the sale of
short-term investments, offset by capital expenditures of approximately $2.3 million and capitalized development costs of $281,000.

Net
cash provided by financing activities was $12.6 million and consists of proceeds of $10.0 million from the issuance of a convertible debenture (as described below),
$2.3 million from the issuance of common stock under stock option plans and $700,000 from the issuance of notes payable, offset by deferred financing costs related to the convertible debentures
of $347,000. As of September 30, 2000, we had $9.1 million of cash and cash equivalents. As of September 30, 2000, our commitments consisted primarily of obligations under
operating leases. Although we have no material commitments for capital expenditures, we anticipate that we will experience a substantial increase in our capital expenditures consistent with our
anticipated growth in operations, infrastructure and personnel. Additionally, we will continue to evaluate possible acquisitions of products and technologies that are complementary to ours, which may
require the use of cash. Further, we currently anticipate that we will continue to experience significant growth in our operating expenses for the foreseeable future and that our operating expenses
will continue to utilize our cash resources.

On
March 10, 2000, Learn2.com sold a three year $10.0 million 6% convertible debenture and a warrant to purchase 337,268 shares of common stock to an investor.

The
debenture is convertible into 1,666,667 shares of common stock and is convertible, in whole or in part, at the option of the holder at a conversion price of $6.00 per share (which
approximated the market value of our common stock on March 10, 2000) and is subject to anti-dilution provisions. Under certain conditions, the debenture automatically converts after
one year. The conversion price of the debenture may be reset to the market value of our common stock on each of the first and second anniversaries of the issuance of the convertible debenture if the
price of our common stock declines below the initial or adjusted conversion price on such anniversaries. In the event that a reduction in the conversion price does occur, Learn2.com will be required
to record additional interest expense as a result of this beneficial conversion feature.

The
warrant to purchase 337,268 shares of our common stock is exercisable for a five-year period at $7.41 per share. The fair value of the warrant of $1.0 million
has been recorded as a debt discount to be amortized over the life of the related debt.

New Accounting Pronouncements

We continually assess the effects of recently issued accounting standards. The impact of all recently adopted and issued accounting standards has been
disclosed in the notes to the condensed consolidated financial statements included herein.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

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## 

PART II. OTHER INFORMATION

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

Proposal 1: Election of Directors of Learn2.com

On
August 8, 2000, Learn2.com held its Annual Meeting of Stockholders. The results of the voting were as follows:

Nominee

Votes For

Votes WithheldDonald Schupak

48,338,902

1,088,397Robert Alan Ezrin

48,338,902

1,088,397Stephen P. Gott

48,338,902

1,088,397James A. Cannavino

48,338,902

1,088,397S. Lee Kling

48,338,402

1,088,897


Proposal
2: Approval of the 2000 Non-Employee Directors' Stock Option Plan

Votes For

Votes Withheld

Abstain2000 Stock Option Plan

46,096,104

3,013,335

317,860


ITEM 6. Exhibits and Reports on Form 8-K.



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