TABLE OF CONTENTS




|                                                                                      |                                                             |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------- | ----------------------------------------------------------- |  |  |  |  |  |  | 
|                                                                                      | PART I. FINANCIAL INFORMATION                              
|CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME                           
|CONSOLIDATED BALANCE SHEETS                                                          
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                
|                                                                                      | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
|PART II. OTHER INFORMATION                                                           
|                                                                                      | Item 1. Legal Proceedings                                  
|                                                                                      | Item 2. Changes in Securities                              
|                                                                                      | Item 3. Defaults Upon Senior Securities                    
|                                                                                      | Item 4. Submission of Matters to a Vote of Security Holders
|                                                                                      | Item 5. Other Information                                  
|                                                                                      | Item 6. Exhibits and Reports on Form 8-K                   
|SIGNATURES                                                                           



---



SECURITIES AND EXCHANGE
COMMISSION
Washington, DC 20549
FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 31, 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 0-20842

TRO LEARNING, INC.
(Exact name of Registrant as specified in its charter)

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 36-3660532                          
|                                                               |  |                                     
|(State or other jurisdiction
of incorporation or organization) |  | (IRS Employer
Identification Number)
|                                                              
|                                                              
|                                                              
|                                                              
|1721 Moon Lake Boulevard,
Suite 555, Hoffman Estates, IL       |  | 60194                               
|                                                               |  |                                     
|(Address of principal executive offices)                       |  | (Zip Code)                          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |  |                                     
|                                                               |  |                                     
|Registrants telephone number, including area code:            |  | (847)781-7800                       
|                                                               |  |                                     

Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)

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

Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date:

|                             |  |                                
|---------------------------- |  | -------------------------------
|Common stock, $.01 par
value |  | 7,232,889 shares               
|                             |  |                                
|Class                        |  | Outstanding as of March 1, 2000

(This document contains 16 pages)

1



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##### Table of Contents



TRO Learning, Inc. and Subsidiaries

INDEX

|           |  |                                                                                                                 |  |        |    | 
|---------- |  | --------------------------------------------------------------------------------------------------------------- |  | ------ | -- | 
|           |  |                                                                                                                 |  | Page  
|           |  |                                                                                                                 |  | Number
|PART I     |  | FINANCIAL INFORMATION                                                                                          
|          
|          
|          
|          
|Item 1.    |  | Consolidated Financial Statements (Unaudited):                                                                 
|          
|          
|          
|          
|           |  | Consolidated Statements of Income and Comprehensive Income for the
Three Months Ended January 31, 2000 and 1999 |  |        | 3  | 
|          
|          
|          
|          
|           |  | Consolidated Balance Sheets as of
January 31, 2000 and October 31, 1999                                         |  |        | 4  | 
|          
|          
|          
|          
|           |  | Consolidated Statements of Cash Flows for the
Three Months Ended January 31, 2000 and 1999                      |  |        | 5  | 
|          
|          
|          
|          
|           |  | Notes to Consolidated Financial Statements                                                                      |  |        | 6  | 
|          
|          
|          
|          
|Item 2.    |  | Managements Discussion and Analysis of
Financial Condition and Results of Operations                           |  |        | 10 | 
|          
|          
|          
|          
|PART II    |  | OTHER INFORMATION                                                                                              
|          
|          
|          
|          
|Item 1.    |  | Legal Proceedings                                                                                               |  |        | 15 | 
|          
|          
|          
|          
|Item 2.    |  | Changes in Securities                                                                                           |  |        | 15 | 
|          
|          
|          
|          
|Item 3.    |  | Defaults Upon Senior Securities                                                                                 |  |        | 15 | 
|          
|          
|          
|          
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                             |  |        | 15 | 
|          
|          
|          
|          
|Item 5.    |  | Other Information                                                                                               |  |        | 15 | 
|          
|          
|          
|          
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                                                |  |        | 15 | 
|          
|          
|          
|          
|SIGNATURES |  |                                                                                                                 |  |        | 16 | 

2



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##### Table of Contents









PART I. FINANCIAL INFORMATION

TRO LEARNING, INC. AND SUBSIDIARIES







CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited, in thousands, except per share data)

|                                            |                                           |                          |       |                    |        |      |       |        |        |  
|------------------------------------------- | ----------------------------------------- | ------------------------ | ----- | ------------------ | ------ | ---- | ----- | ------ | ------ | -
|                                            |                                           |                          |       | Three Months Ended
|                                            |                                           |                          |       | January 31,       
|                                            |                                           |                          |       |                   
|                                            |                                           |                          |       | 2000               |        | 1999
|                                            |                                           |                          |       |                    |        |     
|Revenues                                    |                                           | $                        | 7,525 |                    |        | $    | 5,661 |       
|                                           
|                                           
|                                           
|                                           
|Cost of revenues                            |                                           |                          | 1,357 |                    |        |      | 961   |       
|                                            |                                           |                          |       |                    |        |      |       |       
|                                            | Gross profit                              |                          |       | 6,168              |        |      |       | 4,700  |       
|                                            |                                           |                          |       |                    |        |      |       |       
|Operating expenses:                        
|                                           
|                                           
|                                           
|                                           
|                                            | Selling, general and administrative       |                          |       | 6,744              |        |      |       | 5,546  |       
|                                           
|                                           
|                                           
|                                           
|                                            | Product development and customer support  |                          |       | 1,549              |        |      |       | 1,336  |       
|                                            |                                           |                          |       |                    |        |      |       |       
|                                            |                                           | Total operating expenses |       |                    | 8,293  |      |       |        | 6,882  |  
|                                            |                                           |                          |       |                    |        |      |       |       
|                                            | Operating loss                            |                          |       | (2,125             | )      |      |       | (2,182 | )     
|                                           
|                                           
|                                           
|                                           
|Interest expense                            |                                           |                          | 232   |                    |        |      | 615   |       
|                                            |                                           |                          |       |                    |        |     
|Other expense, net                          |                                           |                          | 34    |                    |        |      | 49    |       
|                                            |                                           |                          |       |                    |        |      |       |       
|                                            | Loss before income taxes                  |                          |       | (2,391             | )      |      |       | (2,846 | )     
|                                           
|                                           
|                                           
|                                           
|Income tax benefit                          |                                           |                          | (897  | )                  |        |      |      |       
|                                            |                                           |                          |       |                    |        |      |       |       
|                                            | Net loss                                  |                          |       | (1,494             | )      |      |       | (2,846 | )     
|                                           
|                                           
|                                           
|                                           
|Preferred stock accretion                   |                                           |                          | (129  | )                  |        |      |      |       
|                                            |                                           |                          |       |                    |        |      |       |       
|                                            | Net loss available to common
stockholders |                          | $     | (1,623             | )      |      | $     | (2,846 | )     
|                                            |                                           |                          |       |                    |        |      |       |       
|Earnings per share:                        
|                                           
|                                           
|                                           
|                                           
|                                            | Basic and diluted                         |                          | $     | (0.23              | )      |      | $     | (0.44  | )     
|                                            |                                           |                          |       |                    |        |      |       |       
|Weighted average common shares outstanding:
|                                           
|                                           
|                                           
|                                           
|                                            | Basic and diluted                         |                          |       | 6,933              |        |      |       | 6,415  |       
|                                            |                                           |                          |       |                    |        |      |       |       
|Comprehensive income (loss):               
|                                           
|                                           
|                                           
|                                           
|                                            | Net loss                                  |                          | $     | (1,494             | )      |      | $     | (2,846 | )     
|                                           
|                                           
|                                           
|                                           
|                                            | Foreign currency translation adjustments  |                          |       | (21                | )      |      |       | 44     |       
|                                            |                                           |                          |       |                    |        |      |       |       
|                                            |                                           | Total comprehensive loss |       | $                  | (1,515 | )    |       | $      | (2,802 | )
|                                            |                                           |                          |       |                    |        |      |       |       

See Notes to Consolidated Financial Statements

3



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##### Table of Contents



TRO LEARNING, INC. AND SUBSIDIARIES







CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except share and per share data)

|                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                              |                            |                                      |        |             |        |             |        |        |        | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------ | ------ | ----------- | ------ | ----------- | ------ | ------ | ------ | 
|                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                              |                            |                                      |        | January 31, |        | October 31,
|                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                              |                            |                                      |        | 2000        |        | 1999       
|                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                              |                            |                                      |        |             |        |            
|                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                              |                            | ASSETS                              
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|Current assets:                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                      | Cash and cash equivalents                                                                                                                                                                                                                    |                            | $                                    | 273    |             |        | $           | 63     |       
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                      | Accounts receivable, less allowances of $1,288 and
      $1,005, respectively                                                                                                                                                                |                            |                                      | 15,497 |             |        |             | 19,814 |       
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                      | Inventories                                                                                                                                                                                                                                  |                            |                                      | 704    |             |        |             | 646    |       
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                      | Prepaid expenses and other current assets                                                                                                                                                                                                    |                            |                                      | 793    |             |        |             | 720    |       
|                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                              |                            |                                      |        |             |        |             |        |       
|                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                              | Total current assets       |                                      |        | 17,267      |        |             |        | 21,243 |       
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|Equipment and leasehold
improvements, less accumulated
      depreciation of $3,823 and $3,700, respectively                                                                                                                                                                                          |                                                                                                                                                                                                                                              |                            | 1,306                                |        |             |        | 1,269       |       
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|Product development costs, less accumulated amortization of
      
$7,550 and $7,037, respectively                                                                                                                                                                                                    |                                                                                                                                                                                                                                              |                            | 7,003                                |        |             |        | 6,843       |       
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|Deferred tax asset, net                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                              |                            | 11,254                               |        |             |        | 10,357      |       
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|Other assets                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                              |                            | 1,345                                |        |             |        | 1,476       |       
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                              |                            |                                      |        |             |        |             |        |       
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                              |                            |                                      |        | $           | 38,175 |             |        | $      | 41,188 | 
|                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                              |                            |                                      |        |             |        |             |        |       
|                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                              |                            | LIABILITIES AND STOCKHOLDERS EQUITY
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|Current liabilities:                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                      | Revolving loan                                                                                                                                                                                                                               |                            | $                                    | 4,385  |             |        | $           | 4,587  |       
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                      | Accounts payable                                                                                                                                                                                                                             |                            |                                      | 1,329  |             |        |             | 1,285  |       
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                      | Accrued employee salaries and benefits                                                                                                                                                                                                       |                            |                                      | 1,796  |             |        |             | 2,677  |       
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                      | Accrued liabilities                                                                                                                                                                                                                          |                            |                                      | 1,112  |             |        |             | 1,482  |       
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                      | Deferred revenue                                                                                                                                                                                                                             |                            |                                      | 4,128  |             |        |             | 4,173  |       
|                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                              |                            |                                      |        |             |        |             |        |       
|                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                              | Total current liabilities  |                                      |        | 12,750      |        |             |        | 14,204 |       
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|Long-term debt                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                              |                            | 3,050                                |        |             |        | 3,050       |       
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|Deferred revenue, less current portion                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                              |                            | 327                                  |        |             |        | 420         |       
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|Other liabilities                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                              |                            | 130                                  |        |             |        | 133         |       
|                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                              |                            |                                      |        |             |        |             |        |       
|                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                              | Total liabilities          |                                      |        | 16,257      |        |             |        | 17,807 |       
|                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                              |                            |                                      |        |             |        |             |        |       
|Convertible redeemable preferred stock, net of unamortized
      
discounts and issuance costs; $10,000 stated value per share;
      
540 shares authorized; 280 and 285 shares issued and outstanding,
      
respectively; involuntary liquidation value of $4,384 and $3,280,
      
respectively |                                                                                                                                                                                                                                              |                            | 2,098                                |        |             |        | 2,006       |       
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|Redeemable common stock, $.01 par value; 501,000 and 490,000
      
shares outstanding, respectively                                                                                                                                                                                                  |                                                                                                                                                                                                                                              |                            | 1,836                                |        |             |        | 1,799       |       
|                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                              |                            |                                      |        |             |        |             |        |       
|Stockholders equity:                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                      | Common stock, $.01 par value, 25,000,000 shares authorized;
      
6,558,000 shares issued and 6,436,000 shares outstanding
      
at January 31, 2000; 6,560,000 shares issued and 6,438,000
      
shares outstanding at October 31, 1999. |                            |                                      | 64     |             |        |             | 64     |       
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                      | Paid-in capital                                                                                                                                                                                                                              |                            |                                      | 23,762 |             |        |             | 23,839 |       
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                      | Treasury stock at cost, 122,000 shares                                                                                                                                                                                                       |                            |                                      | (1,186 | )           |        |             | (1,186 | )     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                      | Accumulated deficit                                                                                                                                                                                                                          |                            |                                      | (4,055 | )           |        |             | (2,561 | )     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                      | Accumulated other comprehensive loss                                                                                                                                                                                                         |                            |                                      | (601   | )           |        |             | (580   | )     
|                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                              |                            |                                      |        |             |        |             |        |       
|                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                              | Total stockholders equity |                                      |        | 17,984      |        |             |        | 19,576 |       
|                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                              |                            |                                      |        |             |        |             |        |       
|                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                              |                            |                                      |        | $           | 38,175 |             |        | $      | 41,188 | 
|                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                              |                            |                                      |        |             |        |             |        |       

See Notes to Consolidated Financial Statements

4



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##### Table of Contents



TRO LEARNING, INC. AND SUBSIDIARIES







CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

|                                                     |                                                                                           |                                                                                   |                   |                                                     |        |                    |       |        |        |     |        |  
|---------------------------------------------------- | ----------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | ----------------- | --------------------------------------------------- | ------ | ------------------ | ----- | ------ | ------ | --- | ------ | -
|                                                     |                                                                                           |                                                                                   |                   |                                                     |        | Three Months Ended
|                                                     |                                                                                           |                                                                                   |                   |                                                     |        | January 31,       
|                                                     |                                                                                           |                                                                                   |                   |                                                     |        |                   
|                                                     |                                                                                           |                                                                                   |                   |                                                     |        | 2000               |       | 1999  
|                                                     |                                                                                           |                                                                                   |                   |                                                     |        |                    |       |       
|Cash flows from operating activities:               
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net loss                                                                                  |                                                                                   | $                 | (1,494                                              | )      |                    | $     | (2,846 | )     
|                                                     |                                                                                           |                                                                                   |                   |                                                     |        |                    |       |        |       
|                                                     | Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Deferred income taxes                                                                     |                                                                                   |                   | (897                                                | )      |                    |       |       |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Depreciation and amortization                                                             |                                                                                   |                   | 700                                                 |        |                    |       | 681    |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Provision for doubtful accounts                                                           |                                                                                   |                   | 300                                                 |        |                    |       | 312    |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Loss on disposal of equipment                                                             |                                                                                   |                   | 2                                                   |        |                    |       | 2      |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | (Increase) decrease in assets:                                                           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                           | Accounts receivable                                                               |                   |                                                     | 4,017  |                    |       |        | 2,911  |    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                           | Inventories                                                                       |                   |                                                     | (58    | )                  |       |        | (8     | )  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                           | Prepaid expenses and other current and noncurrent assets                          |                   |                                                     | 58     |                    |       |        | 456    |    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Increase (decrease) in liabilities:                                                      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                           | Accounts payable                                                                  |                   |                                                     | 44     |                    |       |        | (1,312 | )  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                           | Accrued liabilities, accrued employee salaries and benefits
and other liabilities |                   |                                                     | (1,254 | )                  |       |        | (1,540 | )  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                           | Deferred revenue                                                                  |                   |                                                     | (138   | )                  |       |        | (504   | )  
|                                                     |                                                                                           |                                                                                   |                   |                                                     |        |                    |       |        |       
|                                                     |                                                                                           |                                                                                   | Total adjustments |                                                     |        | 2,774              |       |        |        | 998 |       
|                                                     |                                                                                           |                                                                                   |                   |                                                     |        |                    |       |        |       
|                                                     |                                                                                           |                                                                                   |                   | Net cash provided by (used in) operating activities |        |                    | 1,280 |        |        |     | (1,848 | )
|                                                     |                                                                                           |                                                                                   |                   |                                                     |        |                    |       |        |       
|Cash flows from investing activities:               
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital expenditures                                                                      |                                                                                   |                   | (229                                                | )      |                    |       | (277   | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capitalization of product development costs                                               |                                                                                   |                   | (673                                                | )      |                    |       | (709   | )     
|                                                     |                                                                                           |                                                                                   |                   |                                                     |        |                    |       |        |       
|                                                     |                                                                                           | Net cash used in investing activities                                             |                   |                                                     | (902   | )                  |       |        | (986   | )  
|                                                     |                                                                                           |                                                                                   |                   |                                                     |        |                    |       |        |       
|Cash flows from financing activities:               
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net (repayments of) proceeds from short-term borrowings                                   |                                                                                   |                   | (202                                                | )      |                    |       | 558    |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Repayment of long-term debt                                                               |                                                                                   |                   |                                                    |        |                    |       | (2,441 | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net proceeds from issuance of convertible redeemable preferred stock                      |                                                                                   |                   |                                                    |        |                    |       | 4,578  |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net proceeds from issuance of common stock                                                |                                                                                   |                   | 51                                                  |        |                    |       | 20     |       
|                                                     |                                                                                           |                                                                                   |                   |                                                     |        |                    |       |        |       
|                                                     |                                                                                           | Net cash (used in) provided by financing activities                               |                   |                                                     | (151   | )                  |       |        | 2,715  |    
|                                                     |                                                                                           |                                                                                   |                   |                                                     |        |                    |       |        |       
|Effect of foreign currency on cash                   |                                                                                           |                                                                                   | (17               | )                                                   |        |                    | 52    |       
|                                                     |                                                                                           |                                                                                   |                   |                                                     |        |                    |       |        |       
|Net increase (decrease) in cash and cash equivalents |                                                                                           |                                                                                   | 210               |                                                     |        |                    | (67   | )     
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and cash equivalents at beginning of period     |                                                                                           |                                                                                   | 63                |                                                     |        |                    | 466   |       
|                                                     |                                                                                           |                                                                                   |                   |                                                     |        |                    |       |        |       
|Cash and cash equivalents at end of period           |                                                                                           | $                                                                                 | 273               |                                                     |        | $                  | 399   |       
|                                                     |                                                                                           |                                                                                   |                   |                                                     |        |                    |       |        |       
|Supplemental cash flow information:                 
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cash paid for interest                                                                    |                                                                                   | $                 | 279                                                 |        |                    | $     | 447    |       
|                                                     |                                                                                           |                                                                                   |                   |                                                     |        |                    |       |        |       

See Notes to Consolidated Financial Statements

5



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##### Table of Contents



TRO LEARNING, INC. AND SUBSIDIARIES







NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.      NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES

Nature of Business:

TRO Learning, Inc. and its subsidiaries (the Company) develop and market
computer-based, interactive, self-paced instructional systems and related
services. Offering more than 2,000 hours and 10,000 learning objectives of
comprehensive academic and applied skills courseware designed for adolescents
and adults, the Companys PLATO® Learning Systems are marketed to
middle and high schools, colleges, job training programs, correctional
institutions, military education programs, corporations and consumers. PLATO
is delivered via networks, CD-ROM, the Internet, and private intranets. In
addition, single topic PLATO courseware is available through the Companys
e-commerce Web site.

Basis of Presentation:

The accompanying unaudited consolidated financial statements have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Accordingly, these
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Companys Form 10-K
for the fiscal year ended October 31, 1999.

The financial information furnished reflects, in the opinion of the Company,
all adjustments of a normal, recurring nature necessary for a fair statement of
the results for the interim periods presented. Because of cyclical and other
factors, the results for the interim periods presented are not necessarily
indicative of the results to be expected for the full fiscal year.

Revenue Recognition:

Revenue from the sale of courseware licenses, computer hardware and related
services is recognized upon meeting the following criteria: (i) execution of a
written customer order, (ii) delivery of the courseware, hardware and related
services, (iii) the license fee is fixed and determinable, and (iv)
collectibility of the proceeds is probable. For software arrangements that
include more than one element, the Company allocates the total arrangement fee
among each deliverable based on the relative fair value of each deliverable
determined on vendor-specific objective evidence. Upon delivery, future
service costs, if any, are accrued. Future service costs represent the
Companys problem resolution and support hotline service for a one-year
period. Service revenue includes software support, which is deferred and
recognized ratably over the support period, and revenue from installation and
training services, which is recognized as services are performed. Installation
and training services are customarily billed at a fixed daily rate. Deferred
revenue represents the portion of billings made or payments received in advance
of services being performed or products being delivered.

6



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##### Table of Contents



TRO LEARNING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.      NATURE OF
BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
         Continued

Product Development, Enhancement, and Maintenance Costs:

Costs incurred in the development, enhancement and routine maintenance of the
Companys current generation courseware products are expensed as incurred.
Costs incurred in establishing the technological feasibility of new courseware
products are expensed as incurred. Once technological feasibility has been
established, costs incurred in the development of new generation courseware
products are capitalized.

Capitalized costs are amortized using the straight-line method over the
estimated useful life of the new courseware products, which is generally three
years. Amortization begins when the product is available for general release
to customers. Unamortized costs determined to be in excess of the net
realizable value of the product, if any, are expensed at the date of such
determination.

Earnings Per Share:

Basic earnings per share is calculated based only upon the weighted average
number of common shares outstanding during the period. Diluted earnings per
share is calculated based upon the weighted average number of common and, where
dilutive, potential common shares outstanding during the period. Potential
common shares include options, warrants and convertible securities.

2.      ACCOUNTS RECEIVABLE

Accounts receivable include installment receivables of $9,454,000 and
$12,784,000 at January 31, 2000 and October 31, 1999, respectively.
Installment receivables to be billed beyond one year from the balance sheet
date were $853,000 and $978,000 at January 31, 2000 and October 31, 1999,
respectively, and are included in other assets on the consolidated balance
sheets.

3.      DEBT

At January 31, 2000, borrowings of $4,385,000 were outstanding under the
Companys revolving loan agreement at an interest rate of 9.25% and the unused
borrowing capacity was $6,654,000.

4.      CONVERTIBLE REDEEMABLE PREFERRED STOCK

In January 1999, the Company issued 540 shares of its Series C Convertible
Redeemable Preferred Stock (the Series C Preferred) and warrants to purchase
125,000 shares of the Companys common stock at $9.51 per share for an
aggregate purchase price of $5 million.

7



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##### Table of Contents



TRO LEARNING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.      CONVERTIBLE REDEEMABLE PREFERRED STOCK, Continued

Additionally, in July 1999, the Company issued warrants to purchase
approximately 63,000
shares of the Companys common stock at $8.72 per share related to the issuance
of the Series C
Preferred. The Company received proceeds of $5,000,000 and paid offering costs
of $501,000, resulting in net proceeds of $4,499,000 for the Series C Preferred
and warrants. The warrants were assigned a value of $541,000 resulting in an
increase to paid in capital and a reduction to the carrying value of the Series
C Preferred.

Each share of the Series C Preferred has a par value of $0.01 and a stated
value of $10,000. The Series C Preferred ranks senior to the Companys common
stock, has no voting rights, and is not entitled to any dividends.

The Series C Preferred, as amended, is convertible after 90 days into shares of
the Companys common stock, at the option of the holder, and may be converted
up to ten years from the issue date. Conversion is mandatory for all such
securities still outstanding on January 13, 2009. The number of common shares
to be issued is determined by dividing the stated value of the Series C
Preferred being converted by the conversion price.

The conversion price of the Series C Preferred is equal to the lower of (a)
$9.51 per share or (b) the applicable percentage of the average of the three
lowest closing prices of the Companys common stock during the 30 trading days
immediately prior to the date of conversion. The applicable percentage
decreases over time from 90% (after 90 days) to 82% (after 631 days from
issuance). The aggregate maximum number of shares of the Companys common
stock that can be issued for all conversions is 1,151,525. Additionally,
certain conversion restrictions exist in the event such conversion would result
in (a) the holders beneficial ownership being more than 4.99% of the Companys
outstanding common stock or (b) the issuance of more than 20% of the Companys
outstanding common stock.

The conversion terms of the Series C Preferred include a beneficial conversion
feature at the issue date. The most beneficial conversion price was determined
to be 82% of the average of the three lowest closing prices of the Companys
common stock during the 30 trading days prior to the issue date. As of the
issue date, the Company allocated approximately $826,000 to the beneficial
conversion feature resulting in an increase to paid in capital and a reduction
to the carrying value of the Series C Preferred. The beneficial conversion
feature is being recognized as a deemed dividend to the preferred stockholders
over the 631 day period from the issue date to the date of the most beneficial
conversion percentage using the greater of the effective interest method or the
amount the holder can realize at each reporting date. Amortization of the
beneficial conversion feature was $129,000 and $0 for the three months ended
January 31, 2000 and 1999, respectively.

The Company may redeem the Series C Preferred in cash at any time, provided the
average closing price of the Companys common stock during the defined period
prior to such redemption is greater than $15.85 per share. The redemption
price is equal to the applicable

8



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##### Table of Contents



TRO LEARNING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.      CONVERTIBLE REDEEMABLE PREFERRED STOCK, Continued

percentage of the average closing price of the Companys common stock during
the defined period prior to redemption. The applicable percentage is adjusted
over time from 125% to 156%.

The Series C Preferred, and shares of the Companys common stock obtained
through conversions of the Series C Preferred and currently held by the holder,
are subject to redemption in cash, at the option of the holder, upon certain
events, as defined, including a change in control of the Company and a trading
suspension of the Companys common stock on NASDAQ or another market. The
redemption price is equal to the greater of (a) 115% of the stated value or (b)
the number of common shares that would be received upon conversion at such time
multiplied by the closing price of the Companys common stock prior to
redemption, as defined. As these events are outside of the Companys control
and redemption would be in cash, the Series C Preferred , and shares of the
Companys common stock obtained through conversions of the Series C Preferred
and currently held by the holder, are presented between total liabilities and
stockholders equity on the consolidated balance sheets, as required by the
Securities and Exchange Commission.

During the quarter ended January 31, 2000, approximately five shares of the
Series C Preferred were converted by the holders into approximately 11,000
shares of the Companys common stock. The carrying value of the converted
Series C Preferred was approximately $37,000 and this amount was transferred to
redeemable common stock on the consolidated balance sheets.

5.      EARNINGS PER SHARE

Since the Company incurred a net loss for all periods presented, potential
common shares are antidilutive and excluded from the calculation of diluted
earnings per share, and basic and diluted earnings per share are the same.

9



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##### Table of Contents









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

OVERVIEW

The Company is a leading developer and marketer of computer-based, interactive,
self-paced instructional systems and related services. Offering more than
2,000 hours and 10,000 learning objectives of comprehensive academic and
applied skills courseware designed for adolescents and adults, the Companys
PLATO® Learning Systems are marketed to middle and high schools,
colleges, job training programs, correctional institutions, military education
programs, corporations and consumers. PLATO is delivered via networks, CD-ROM,
the Internet and private intranets. In addition, single topic PLATO courseware
is available through the Companys e-commerce Web site.

RESULTS OF OPERATIONS

First Quarter Fiscal 2000 Compared to First
Quarter Fiscal 1999

The following table presents income statement amounts as a percentage of
revenue:

|                                                 |                          |  |       |       |      |  |       |       |   
|------------------------------------------------ | ------------------------ |  | ----- | ----- | ---- |  | ----- | ----- | --
|                                                 |                          |  | 2000  |       | 1999
|                                                 |                          |  |       |       |     
|Revenues                                         |                          |  | 100.0 | %     |      |  | 100.0 | %    
|                                                
|                                                
|                                                
|                                                
|Cost of revenues                                 |                          |  | 18.0  |       |      |  | 17.0  |      
|                                                 |                          |  |       |       |      |  |       |      
|                                                 | Gross profit             |  |       | 82.0  |      |  |       | 83.0  |   
|                                                 |                          |  |       |       |      |  |       |      
|Selling, general and administrative expense      |                          |  | 89.6  |       |      |  | 98.0  |      
|                                                
|                                                
|                                                
|                                                
|Product development and customer support expense |                          |  | 20.6  |       |      |  | 23.6  |      
|                                                 |                          |  |       |       |      |  |       |      
|                                                 | Total operating expenses |  |       | 110.2 |      |  |       | 121.6 |   
|                                                 |                          |  |       |       |      |  |       |      
|Operating loss                                   |                          |  | (28.2 | )     |      |  | (38.6 | )    
|                                                
|                                                
|                                                
|                                                
|Interest expense                                 |                          |  | 3.1   |       |      |  | 10.9  |      
|                                                
|                                                
|                                                
|                                                
|Other expense, net                               |                          |  | 0.5   |       |      |  | 0.9   |      
|                                                 |                          |  |       |       |      |  |       |      
|                                                 | Loss before income taxes |  |       | (31.8 | )    |  |       | (50.4 | ) 
|                                                
|                                                
|                                                
|                                                
|Income tax benefit                               |                          |  | (11.9 | )     |      |  |      |      
|                                                 |                          |  |       |       |      |  |       |      
|                                                 | Net loss                 |  |       | (19.9 | )%   |  |       | (50.4 | )%
|                                                 |                          |  |       |       |      |  |       |      

Revenues:

The following table highlights revenues by product line (in 000s):

|                                           |                |   |         |       |            |  |         |       |            |   |       |       |  |  |      |       |  
|------------------------------------------ | -------------- | - | ------- | ----- | ---------- |  | ------- | ----- | ---------- | - | ----- | ----- |  |  | ---- | ----- | -
|                                           |                |   | 2000    |       | 1999      
|                                           |                |   |         |       |           
|                                           |                |   | Revenue |       | % of Total |  | Revenue |       | % of Total
|                                           |                |   |         |       |            |  |         |       |           
|Courseware and professional services       |                | $ | 6,495   |       |            |  | 86.3    | %     |            | $ | 5,070 |       |  |  | 89.6 | %    
|                                          
|                                          
|                                          
|                                          
|Hardware, third-party courseware and other |                |   | 1,030   |       |            |  | 13.7    |       |            |   | 591   |       |  |  | 10.4 |      
|                                           |                |   |         |       |            |  |         |       |            |   |       |       |  |  |      |      
|                                           | Total revenues |   | $       | 7,525 |            |  |         | 100.0 | %          |   | $     | 5,661 |  |  |      | 100.0 | %
|                                           |                |   |         |       |            |  |         |       |            |   |       |       |  |  |      |      

Courseware and professional services revenue, the driver of the Companys
operations, increased $1,425,000 or 28% as compared to 1999. The Company
continues to experience increased acceptance of its products and services in
its various markets. This revenue growth was achieved

10



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##### Table of Contents



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

RESULTS OF OPERATIONS, Continued

First Quarter Fiscal 2000 Compared to First
Quarter Fiscal 1999, Continued

Revenues, Continued

primarily through increased sales volume to both new and existing customers.
Low margin revenues, including hardware, third-party courseware and other
services increased $439,000. Total revenues were $7,525,000, an increase of
$1,864,000 from 1999.

Gross Profit:

Gross profit for 2000 increased $1,468,000 or 31% to $6,168,000 as compared to
$4,700,000 for 1999. This increase was due to the increase in courseware and
professional services revenue. Gross margin was 82% for 2000 as compared to
83% for 1999.

Selling, General, and Administrative
Expense:

Selling, general, and administrative expense for 2000 increased $1,198,000 or
22% to $6,744,000 as compared to $5,546,000 for 1999. Sales and marketing
expenses increased $461,000 and general and administrative expenses increased
$325,000 due primarily to the planned expansion of the sales organization in
both North America and the United Kingdom. The remaining increase was due to
increased commissions resulting from the growth in revenue. As a percentage of
revenue, total selling, general and administrative expense decreased from 98%
in 1999 to 90% in 2000.

Product Development and Customer Support:

Product development and customer support expense for 2000 increased $213,000 or
16% to $1,549,000 as compared to $1,336,000 for 1999. Product development
expense increased $79,000, due primarily to decreased capitalization of costs,
as compared to 1999. Product development spending and amortization of
previously capitalized costs were comparable to 1999. Customer support expense
increased $134,000 as a result of the Companys expanding customer base. As a
percentage of revenue, total product development and customer support expense
decreased from 24% in 1999 to 21% in 2000.

Operating Loss:

The operating loss for 2000 was $2,125,000 as compared to $2,182,000 for 1999.
This improvement in operating results is due principally to the increase in
courseware and professional services revenue, offset by the increased selling,
general and administrative expenses in 2000.

11



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##### Table of Contents



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

RESULTS OF OPERATIONS, Continued

First Quarter Fiscal 2000 Compared to First
Quarter Fiscal 1999, Continued

Interest Expense:

Interest expense decreased to $232,000 for 2000 from $615,000 for 1999
primarily as a result of the decreased level of bank borrowings at lower
interest rates in 2000 and the accelerated amortization of fees related to the
Companys previous revolving loan agreement in 1999.

Income Taxes:

In the fourth quarter of 1999, the Company reversed approximately $10.2 million
of valuation allowance placed on the Companys deferred tax asset. This
reversal was based on updated expectations about future years taxable income
to reflect continuing improvements in operating results influenced by the
Companys continued revenue growth, and other indications that certain concerns
that had previously limited managements expectations about future taxable
income no longer were applicable. Accordingly, an income tax benefit of
$897,000 was recorded using the Companys estimated fiscal year 2000 effective
rate of 37.5%.

LIQUIDITY AND CAPITAL RESOURCES

At January 31, 2000, the Companys principal sources of liquidity included cash
and cash equivalents of $273,000, net accounts receivable of $15,497,000, and
its line of credit. The Company had installment receivables of $10,307,000 at
January 31, 2000, of which $9,454,000 are to be billed within one year and are
included in net accounts receivable. Working capital was $4,517,000 at January
31, 2000, a decrease of $2,522,000 from October 31, 1999, due primarily to the
collection of accounts receivable offset by the payment of year end accruals.

Net cash provided by the Companys operating activities was $1,280,000 in the
first quarter of fiscal 2000 as compared to net cash used of $1,848,000 in the
first quarter of fiscal 1999. Cash flows from operations were used principally
to fund the Companys working capital requirements. In addition to cash flows
from operations, the Company has resources available under its revolving loan
agreement to provide up to a maximum $15 million line of credit. At January
31, 2000, borrowings of $4,385,000 were outstanding at an interest rate of
9.25% and the unused borrowing capacity was $6,654,000.

Net cash used in the Companys investing activities was $902,000 in the first
quarter of fiscal 2000 for capital expenditures and capitalized product
development costs.

Net cash used in financing activities was $151,000 in the first quarter of
fiscal 2000, primarily for repayments of short-term borrowings.

12



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##### Table of Contents



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

LIQUIDITY AND CAPITAL RESOURCES, Continued

The Company maintains adequate cash reserves and credit facilities to meet its
anticipated working capital, capital expenditure, and business investment
requirements.

FACTORS AFFECTING QUARTERLY OPERATING RESULTS

The Companys quarterly operating results fluctuate as a result of a number of
factors including the business and sales cycle, the amount and timing of new
product introductions by the Company, product shipments, client funding issues,
marketing expenditures, product development expenditures and promotional
programs. The Company historically has experienced higher levels of revenues
in the fourth fiscal quarter. Because of these factors, the results for
interim periods presented are not necessarily indicative of the results to be
expected for the full fiscal year.

YEAR 2000

The Company began addressing the Year 2000 (Y2K) issue in early 1998 and
developed and implemented a comprehensive Y2K readiness plan for the Companys
products and operations. As of March 1, 2000 the Company has not, nor to its
knowledge have any of the Companys key business partners, experienced any
material Y2K complications. However, there can be no absolute assurance that
the Company and its business partners will not experience some complications
resulting from the Y2K issue in the future. The Companys Y2K costs have not
been material to its financial condition or results of operations.

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT
MARKET RISK

Interest Rate Risk:

At January 31, 2000, the fair value of the Companys debt approximates market.
Market risk is estimated as the potential increase in fair value resulting from
a hypothetical one-half percent change in interest rates. The Companys
long-term debt is held at a fixed rate. As a result, risk relating to interest
fluctuation is considered minimal.

Foreign Currency Exchange Rate Risk:

The Company markets its products worldwide and has operations in Canada and the
United Kingdom. As a result, financial results could be affected by changes in
foreign currency exchange rates or weak economic conditions in foreign markets.
Working funds necessary to facilitate the short-term operations of foreign
subsidiaries are kept in local currencies in which they do business.
Approximately 3% of total revenues were denominated in currencies other than
the U.S. dollar for the three months ended January 31, 2000.

13



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##### Table of Contents



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

NOTE REGARDING FORWARD LOOKING INFORMATION

This Form 10-Q contains forward-looking statements identified by the use of
believes, expects, anticipates, and similar expressions. Such statements
are subject to risk and uncertainties that could cause actual results to differ
from those contemplated by the forward-looking statement. Such risks and
uncertainties include any change in the market acceptance of the Companys
products and services, the risk of failure of the Companys technology to
remain at market standards, the risk of the Company being able to finance its
business operations, and other similar business and market risks. Readers are
cautioned not to place undue reliance on such forward-looking statements.

14



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##### Table of Contents









PART II. OTHER INFORMATION







Item 1.   Legal Proceedings



| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | The Company is not a party to any litigation that is expected to
have a material adverse effect on the Company or its business.







Item 2.   Changes in Securities



| |                
| | ---------------
| | Not Applicable.







Item 3.   Defaults Upon Senior Securities



| |                
| | ---------------
| | Not Applicable.







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



| |                
| | ---------------
| | Not Applicable.







Item 5.   Other Information



| |                
| | ---------------
| | Not Applicable.







Item 6.   Exhibits and Reports on Form 8-K



| |  |  | (a) Exhibits
| |  |  | ------------

|       |  |                        
|------ |  | -----------------------
|Number |  | Description            
|       |  |                        
|27     |  | Financial Data Schedule



| |  |  | (b) Reports on Form 8-K:
| |  |  | ------------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On January 28, 2000, the Company filed a Current Report on
Form 8-K to announce (i) the filing of its Form 10-K for
fiscal 1999, (ii) that basic earnings per share for fiscal
1999 had been revised as a result of the final accounting
treatment for the January 1999 convertible preferred stock
transaction, and (iii) that its previously filed Forms 10-Q
for fiscal 1999 will be amended to reflect necessary changes
in previously reported earnings per share and balance sheet
amounts for convertible preferred stock and stockholders
equity at interim periods in fiscal 1999.

15



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on March 10, 2000.

|   |  |                                                                                                                                                             
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  | TRO LEARNING, INC.                                                                                                                                          
|  
|By |  | /s/ William R. Roach
________________________________________
Chairman of the Board and
Chief Executive Officer
(principal executive officer)               
|  
|   |  | /s/ John Murray
________________________________________
President, Chief Operating Officer
and Acting Chief Financial Officer
(principal financial officer)
|  
|   |  | /s/ Mary Jo Murphy
________________________________________
Vice President, Corporate Controller and
Chief Accounting Officer
(principal accounting officer)

16