##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended January 31, 2003

Commission File Number 0-20842

PLATO LEARNING,
INC.

|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                       |  | 36-3660532                             
|                                                               |  |                                        
|(State or other
jurisdiction
of incorporation or organization) |  | (I.R.S. Employer
Identification Number)
|                                                               |  |                                        
|10801 Nesbitt Avenue South, Bloomington, MN                    |  | 55437                                  
|                                                               |  |                                        
|(Address of principal executive offices)                       |  | (Zip Code)                             
|                                                               |  |                                        
|Registrants telephone number, including area code:            |  | (952) 832-1000                         
|                                                               |  |                                        

Not Applicable

---

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 by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act:

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 |  | 16,694,715 shares                  
|                             |  |                                    
|Class                        |  | Outstanding as of February 28, 2003

(This document contains 28 pages)

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TABLE OF CONTENTS



|                                                   |                                                                                               |                                            |  |  |  |  |  | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                     
|                                                   | Item 1. Consolidated Financial Statements (Unaudited):                                       
|                                                   |                                                                                               | CONSOLIDATED STATEMENTS OF OPERATIONS     
|                                                   |                                                                                               | CONSOLIDATED BALANCE SHEETS               
|                                                   |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                                                   |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                                   | Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
|                                                   | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                                   | Item 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION                        
|                                                   | Item 1. Legal Proceedings                                                                    
|                                                   | Item 2. Changes in Securities and Use of Proceeds                                            
|                                                   | Item 3. Defaults Upon Senior Securities                                                      
|                                                   | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                                                   | Item 5. Other Information                                                                    
|                                                   | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                        
|CERTIFICATIONS                                    
|EX-10.02 First Amendment to Credit Agreement      
|EX-99.01 Certification Pursuant to 18 USC Sec 1350



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##### Table of Contents



PLATO Learning, Inc.
Form 10-Q

INDEX

|               |  |                                                            |  |  |    |        |    | 
|-------------- |  | ---------------------------------------------------------- |  |  | -- | ------ | -- | 
|               |  |                                                            |  |  |    | Page   |   
|               |  |                                                            |  |  |    | Number |   
|               |  |                                                            |  |  |    |        |   
|PART I.        |  | FINANCIAL INFORMATION                                      |  |  |    |       
|Item 1.        |  | Consolidated Financial Statements (Unaudited):             |  |  |    |       
|               |  | Consolidated Statements of Operations for the              |  |  |    |       
|               |  | Three Months Ended January 31, 2003 and 2002               |  |  | 3  |       
|               |  | Consolidated Balance Sheets as of                          |  |  |    |       
|               |  | January 31, 2003 and October 31, 2002                      |  |  | 4  |       
|               |  | Consolidated Statements of Cash Flows for the              |  |  |    |       
|               |  | Three Months Ended January 31, 2003 and 2002               |  |  | 5  |       
|               |  | Notes to Consolidated Financial Statements                 |  |  | 6  |       
|Item 2.        |  | Management's Discussion and Analysis of                    |  |  |    |       
|               |  | Results of Operations and Financial Condition              |  |  | 14 |       
|Item 3.        |  | Quantitative and Qualitative Disclosures About Market Risk |  |  | 24 |       
|Item 4.        |  | Controls and Procedures                                    |  |  | 24 |       
|PART II.       |  | OTHER INFORMATION                                          |  |  |    |       
|Item 1.        |  | Legal Proceedings                                          |  |  | 25 |       
|Item 2.        |  | Changes in Securities and Use of Proceeds                  |  |  | 25 |       
|Item 3.        |  | Defaults Upon Senior Securities                            |  |  | 25 |       
|Item 4.        |  | Submission of Matters to a Vote of Security Holders        |  |  | 25 |       
|Item 5.        |  | Other Information                                          |  |  | 25 |       
|Item 6.        |  | Exhibits and Reports on Form 8-K                           |  |  | 25 |       
|SIGNATURES     |  |                                                            |  |  |    |        | 26 | 
|CERTIFICATIONS |  |                                                            |  |  |    |        | 27 | 

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PLATO LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)

|                                            |                                          |                          |                          |        |                    |        |      |        |        |        |  
|------------------------------------------- | ---------------------------------------- | ------------------------ | ------------------------ | ------ | ------------------ | ------ | ---- | ------ | ------ | ------ | -
|                                            |                                          |                          |                          |        | Three Months Ended |       
|                                            |                                          |                          |                          |        | January 31,        |       
|                                            |                                          |                          |                          |        |                    |       
|                                            |                                          |                          |                          |        | 2003               |        |      | 2002   |       
|                                            |                                          |                          |                          |        |                    |        |      |        |       
|Revenues:                                   |                                          |                          |                          |        |                    |        |      |       
|                                            | License fees                             |                          | $                        | 9,069  |                    |        | $    | 10,620 |       
|                                            | Services                                 |                          |                          | 3,383  |                    |        |      | 2,315  |       
|                                            | Other                                    |                          |                          | 1,005  |                    |        |      | 1,112  |       
|                                            |                                          |                          |                          |        |                    |        |      |        |       
|                                            |                                          | Total revenues           |                          |        | 13,457             |        |      |        | 14,047 |       
|                                            |                                          |                          |                          |        |                    |       
|Cost of revenues:                           |                                          |                          |                          |        |                    |        |      |       
|                                            | License fees                             |                          |                          | 541    |                    |        |      | 733    |       
|                                            | Services                                 |                          |                          | 396    |                    |        |      | 271    |       
|                                            | Other                                    |                          |                          | 991    |                    |        |      | 1,051  |       
|                                            |                                          |                          |                          |        |                    |        |      |        |       
|                                            |                                          | Total cost of revenues   |                          |        | 1,928              |        |      |        | 2,055  |       
|                                            |                                          |                          |                          |        |                    |       
|                                            |                                          | Gross profit             |                          |        | 11,529             |        |      |        | 11,992 |       
|                                            |                                          |                          |                          |        |                    |       
|Operating expenses:                         |                                          |                          |                          |        |                    |        |      |       
|                                            | Sales and marketing                      |                          |                          | 10,446 |                    |        |      | 9,095  |       
|                                            | General and administrative               |                          |                          | 3,000  |                    |        |      | 2,421  |       
|                                            | Product development and customer support |                          |                          | 3,134  |                    |        |      | 2,781  |       
|                                            | Amortization of intangibles              |                          |                          | 401    |                    |        |      | 194    |       
|                                            | Restructuring charge                     |                          |                          | 380    |                    |        |      |       |       
|                                            |                                          |                          |                          |        |                    |        |      |        |       
|                                            |                                          | Total operating expenses |                          |        | 17,361             |        |      |        | 14,491 |       
|                                            |                                          |                          |                          |        |                    |       
|                                            |                                          |                          | Operating loss           |        |                    | (5,832 | )    |        |        | (2,499 | )
|Interest income                             |                                          |                          | 120                      |        |                    |        | 368  |       
|Interest expense                            |                                          |                          | (24                      | )      |                    |        | (42  | )     
|Other expense, net                          |                                          |                          | (21                      | )      |                    |        | (84  | )     
|                                            |                                          |                          |                          |        |                    |       
|                                            |                                          |                          | Loss before income taxes |        |                    | (5,757 | )    |        |        | (2,257 | )
|Income tax benefit                          |                                          |                          | (2,350                   | )      |                    |        | (900 | )     
|                                            |                                          |                          |                          |        |                    |       
|                                            |                                          |                          | Net loss                 |        | $                  | (3,407 | )    |        | $      | (1,357 | )
|                                            |                                          |                          |                          |        |                    |       
|Loss per share:                             |                                          |                          |                          |        |                    |        |      |       
|                                            | Basic and diluted                        |                          | $                        | (0.20  | )                  |        | $    | (0.08  | )     
|                                            |                                          |                          |                          |        |                    |       
|Weighted average common shares outstanding: |                                          |                          |                          |        |                    |        |      |       
|                                            | Basic and diluted                        |                          |                          | 16,775 |                    |        |      | 16,406 |       
|                                            |                                          |                          |                          |        |                    |       

See Notes to Consolidated Financial Statements

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PLATO LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)

|                      |                                                                                                                                                                                                        |  |                                            |                                      |   |             |   |         |             |         |  | 
|--------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------ | ------------------------------------ | - | ----------- | - | ------- | ----------- | ------- |  | 
|                      |                                                                                                                                                                                                        |  |                                            |                                      |   | January 31, |   |         | October 31, |        
|                      |                                                                                                                                                                                                        |  |                                            |                                      |   | 2003        |   |         | 2002        |        
|                      |                                                                                                                                                                                                        |  |                                            |                                      |   |             |   |         |             |        
|                      |                                                                                                                                                                                                        |  |                                            |                                      |   | (Unaudited) |   |         | (See Note)  |        
|                      |                                                                                                                                                                                                        |  |                                            | ASSETS                               |   |             |   |         |             |         |  | 
|Current assets:       |                                                                                                                                                                                                        |  |                                            |                                      |   |             |   |        
|                      | Cash and cash equivalents                                                                                                                                                                              |  | $                                          | 28,873                               |   |             | $ | 30,390  |            
|                      | Accounts receivable, net                                                                                                                                                                               |  |                                            | 26,907                               |   |             |   | 33,034  |            
|                      | Prepaid expenses and other current assets                                                                                                                                                              |  |                                            | 5,240                                |   |             |   | 4,870   |            
|                      | Deferred income taxes                                                                                                                                                                                  |  |                                            | 3,338                                |   |             |   | 3,338   |            
|                      |                                                                                                                                                                                                        |  |                                            |                                      |   |            
|                      |                                                                                                                                                                                                        |  | Total current assets                       |                                      |   | 64,358      |   |         |             | 71,632  | 
|                      | Equipment and leasehold improvements, net of accumulated
depreciation and amortization of $6,011 and $5,437, respectively                                                                              |  |                                            | 4,968                                |   |             |   | 5,210   |            
|                      | Product development costs, net of accumulated
amortization of $7,396 and $6,083, respectively                                                                                                          |  |                                            | 13,946                               |   |             |   | 13,545  |            
|                      | Deferred income taxes                                                                                                                                                                                  |  |                                            | 2,361                                |   |             |   | 11      |            
|                      | Goodwill                                                                                                                                                                                               |  |                                            | 39,201                               |   |             |   | 38,331  |            
|                      | Identified intangible assets, net                                                                                                                                                                      |  |                                            | 14,898                               |   |             |   | 15,374  |            
|                      | Other assets                                                                                                                                                                                           |  |                                            | 2,324                                |   |             |   | 1,552   |            
|                      |                                                                                                                                                                                                        |  |                                            |                                      |   |            
|                      |                                                                                                                                                                                                        |  | Total assets                               |                                      | $ | 142,056     |   |         | $           | 145,655 | 
|                      |                                                                                                                                                                                                        |  |                                            |                                      |   |            
|                      |                                                                                                                                                                                                        |  |                                            | LIABILITIES AND STOCKHOLDERS EQUITY |   |             |   |         |             |        
|Current liabilities:  |                                                                                                                                                                                                        |  |                                            |                                      |   |             |   |        
|                      | Accounts payable                                                                                                                                                                                       |  | $                                          | 1,917                                |   |             | $ | 888     |            
|                      | Accrued employee salaries and benefits                                                                                                                                                                 |  |                                            | 5,685                                |   |             |   | 6,979   |            
|                      | Accrued liabilities                                                                                                                                                                                    |  |                                            | 4,039                                |   |             |   | 4,786   |            
|                      | Deferred revenue                                                                                                                                                                                       |  |                                            | 15,988                               |   |             |   | 14,891  |            
|                      |                                                                                                                                                                                                        |  |                                            |                                      |   |            
|                      |                                                                                                                                                                                                        |  | Total current liabilities                  |                                      |   | 27,629      |   |         |             | 27,544  | 
|                      | Deferred revenue                                                                                                                                                                                       |  |                                            | 4,155                                |   |             |   | 3,946   |            
|                      | Other liabilities                                                                                                                                                                                      |  |                                            | 499                                  |   |             |   | 582     |            
|                      |                                                                                                                                                                                                        |  |                                            |                                      |   |            
|                      |                                                                                                                                                                                                        |  | Total liabilities                          |                                      |   | 32,283      |   |         |             | 32,072  | 
|                      |                                                                                                                                                                                                        |  |                                            |                                      |   |            
|Stockholders equity: |                                                                                                                                                                                                        |  |                                            |                                      |   |             |   |        
|                      | Common stock, $.01 par value, 50,000 shares authorized;
18,082 shares issued and 16,724 shares outstanding
at January 31, 2003; 18,078 shares issued and 16,812
shares outstanding at October 31, 2002 |  |                                            | 168                                  |   |             |   | 168     |            
|                      | Paid in capital                                                                                                                                                                                        |  |                                            | 129,818                              |   |             |   | 129,802 |            
|                      | Treasury stock at cost, 1,358 and 1,266 shares, respectively                                                                                                                                           |  |                                            | (16,784                              | ) |             |   | (16,244 | )          
|                      | Retained earnings (accumulated deficit)                                                                                                                                                                |  |                                            | (2,762                               | ) |             |   | 645     |            
|                      | Accumulated other comprehensive loss                                                                                                                                                                   |  |                                            | (667                                 | ) |             |   | (788    | )          
|                      |                                                                                                                                                                                                        |  |                                            |                                      |   |            
|                      |                                                                                                                                                                                                        |  | Total stockholders equity                 |                                      |   | 109,773     |   |         |             | 113,583 | 
|                      |                                                                                                                                                                                                        |  |                                            |                                      |   |            
|                      |                                                                                                                                                                                                        |  | Total liabilities and stockholders equity |                                      | $ | 142,056     |   |         | $           | 145,655 | 
|                      |                                                                                                                                                                                                        |  |                                            |                                      |   |            

Note: The balance sheet at
October 31, 2002 has been derived from our audited financial
statements at that date. See Notes to Consolidated Financial Statements.

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PLATO LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)

|                                                 |                                                                                 |                                                                       |                                                                                   |                                           |        |                    |        |        |        |        |       | 
|------------------------------------------------ | ------------------------------------------------------------------------------- | --------------------------------------------------------------------- | --------------------------------------------------------------------------------- | ----------------------------------------- | ------ | ------------------ | ------ | ------ | ------ | ------ | ----- | 
|                                                 |                                                                                 |                                                                       |                                                                                   |                                           |        | Three Months Ended |       
|                                                 |                                                                                 |                                                                       |                                                                                   |                                           |        | January 31,        |       
|                                                 |                                                                                 |                                                                       |                                                                                   |                                           |        |                    |       
|                                                 |                                                                                 |                                                                       |                                                                                   |                                           |        | 2003               |        |        | 2002   |       
|                                                 |                                                                                 |                                                                       |                                                                                   |                                           |        |                    |        |        |        |       
|Operating activities:                            |                                                                                 |                                                                       |                                                                                   |                                           |        |                    |        |       
|                                                 | Net loss                                                                        |                                                                       | $                                                                                 | (3,407                                    | )      |                    | $      | (1,357 | )     
|                                                 |                                                                                 |                                                                       |                                                                                   |                                           |        |                   
|                                                 | Adjustments to reconcile net loss to net cash
provided by operating activities: |                                                                       |                                                                                   |                                           |        |                    |        |        |       
|                                                 |                                                                                 | Deferred income taxes                                                 |                                                                                   |                                           | (2,350 | )                  |        |        | (900   | )     
|                                                 |                                                                                 | Amortization of capitalized product development costs                 |                                                                                   |                                           | 1,294  |                    |        |        | 939    |       
|                                                 |                                                                                 | Amortization of identified intangible assets                          |                                                                                   |                                           | 476    |                    |        |        | 269    |       
|                                                 |                                                                                 | Depreciation and amortization of equipment
and leasehold improvements |                                                                                   |                                           | 549    |                    |        |        | 308    |       
|                                                 |                                                                                 | Provision for doubtful accounts                                       |                                                                                   |                                           | 525    |                    |        |        | 601    |       
|                                                 |                                                                                 | Stock-based compensation                                              |                                                                                   |                                           |       |                    |        |        | 20     |       
|                                                 |                                                                                 | Loss on disposal of equipment                                         |                                                                                   |                                           | 2      |                    |        |        | 77     |       
|                                                 |                                                                                 | Changes in assets and liabilities, net of effects of acquisitions:    |                                                                                   |                                           |        |                    |        |        |        |       
|                                                 |                                                                                 |                                                                       | Accounts receivable                                                               |                                           |        | 4,830              |        |        |        | 3,727  |      
|                                                 |                                                                                 |                                                                       | Prepaid expenses and other current and noncurrent assets                          |                                           |        | (370               | )      |        |        | (388   | )    
|                                                 |                                                                                 |                                                                       | Accounts payable                                                                  |                                           |        | 1,029              |        |        |        | (780   | )    
|                                                 |                                                                                 |                                                                       | Accrued liabilities, accrued employee salaries and
benefits and other liabilities |                                           |        | (2,048             | )      |        |        | (1,965 | )    
|                                                 |                                                                                 |                                                                       | Deferred revenue                                                                  |                                           |        | 429                |        |        |        | (104   | )    
|                                                 |                                                                                 |                                                                       |                                                                                   |                                           |        |                   
|                                                 |                                                                                 |                                                                       |                                                                                   | Total adjustments                         |        |                    | 4,366  |        |        |        | 1,804 | 
|                                                 |                                                                                 |                                                                       |                                                                                   |                                           |        |                   
|                                                 |                                                                                 |                                                                       |                                                                                   | Net cash provided by operating activities |        |                    | 959    |        |        |        | 447   | 
|                                                 |                                                                                 |                                                                       |                                                                                   |                                           |        |                   
|Investing activities:                            |                                                                                 |                                                                       |                                                                                   |                                           |        |                    |        |       
|                                                 | Capitalization of product development costs                                     |                                                                       |                                                                                   | (1,667                                    | )      |                    |        | (1,345 | )     
|                                                 | Capital expenditures                                                            |                                                                       |                                                                                   | (297                                      | )      |                    |        | (1,369 | )     
|                                                 |                                                                                 |                                                                       |                                                                                   |                                           |        |                   
|                                                 |                                                                                 | Net cash used in investing activities                                 |                                                                                   |                                           | (1,964 | )                  |        |        | (2,714 | )     
|                                                 |                                                                                 |                                                                       |                                                                                   |                                           |        |                   
|Financing activities:                            |                                                                                 |                                                                       |                                                                                   |                                           |        |                    |        |       
|                                                 | Repurchase of common stock                                                      |                                                                       |                                                                                   | (540                                      | )      |                    |        | (72    | )     
|                                                 | Net proceeds from issuance of common stock                                      |                                                                       |                                                                                   | 16                                        |        |                    |        | 706    |       
|                                                 | Repayments of capital lease obligations                                         |                                                                       |                                                                                   | (69                                       | )      |                    |        | (66    | )     
|                                                 |                                                                                 |                                                                       |                                                                                   |                                           |        |                   
|                                                 |                                                                                 | Net cash provided by (used in) financing activities                   |                                                                                   |                                           | (593   | )                  |        |        | 568    |       
|                                                 |                                                                                 |                                                                       |                                                                                   |                                           |        |                   
|Effect of foreign currency on cash               |                                                                                 |                                                                       | 81                                                                                |                                           |        |                    | (129   | )     
|                                                 |                                                                                 |                                                                       |                                                                                   |                                           |        |                   
|Net decrease in cash and cash equivalents        |                                                                                 |                                                                       | (1,517                                                                            | )                                         |        |                    | (1,828 | )     
|Cash and cash equivalents at beginning of period |                                                                                 |                                                                       | 30,390                                                                            |                                           |        |                    | 61,568 |       
|                                                 |                                                                                 |                                                                       |                                                                                   |                                           |        |                   
|Cash and cash equivalents at end of period       |                                                                                 | $                                                                     | 28,873                                                                            |                                           |        | $                  | 59,740 |       
|                                                 |                                                                                 |                                                                       |                                                                                   |                                           |        |                   

See Notes to Consolidated Financial Statements

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PLATO LEARNING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)



|1. |  | BUSINESS
|-- |  | --------

We enhance the learning process by providing computer-based and e-learning
instruction software and related services, offering basic to advanced level
courseware in reading, writing, math, science, social studies and life and job
skills. Our PLATO Learning System and PLATO Web Learning Network provide
more than 4,000 hours of objective-based, problem-solving courseware and
include assessment, alignment and management tools to create standards-based
curricula and facilitate the learning process. PLATO courseware is delivered
via networks, CD-ROM, private intranets and the Internet. In addition, single
topic PLATO courseware is available through our e-commerce web site and
distributors. We market our courseware products and services primarily to K-12
schools. We also sell to colleges, job training programs, correctional
institutions, military education programs, corporations and individuals.

We are subject to risks and uncertainties including, but not limited to,
dependence on information technology spending by our customers,
well-established competitors, customers dependent on government funding,
fluctuations of our quarterly results, a lengthy and variable sales cycle,
dependence on key personnel, dependence on our intellectual property
rights, rapid technological change and our ability to integrate
acquisitions.



|2. |  | BASIS OF PRESENTATION
|-- |  | ---------------------

The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United
States of America for interim financial information and with the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements. We have included all normal recurring adjustments considered
necessary to give a fair presentation of our operating results for the interim
periods shown. Operating results for these interim periods are not necessarily
indicative of the results to be expected for the full fiscal year. For further
information, refer to the consolidated financial statements and accompanying
notes included in our Annual Report on Form 10-K for the fiscal year ended
October 31, 2002.

The accompanying unaudited consolidated financial statements include the
accounts of PLATO Learning, Inc. and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.

Certain reclassifications of previously reported amounts have been made to
conform to the current year presentation. On the consolidated statements of
operations, sales and marketing expenses are now presented separately from
general and administrative expenses. Previously, they were presented together
as selling, general and administrative expenses. On the consolidated statement
of cash flows, depreciation and amortization is now presented as depreciation
and amortization of equipment and leasehold improvements, amortization of

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PLATO LEARNING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)

capitalized product development costs and amortization of identified intangible
assets. For fiscal year 2002, the reclassifications by quarter are summarized
as follows:

|                                                                      |  |                    |        |  |          |   |        |         |  |   |            |  |  |      |        |  |  |   |        | 
|--------------------------------------------------------------------- |  | ------------------ | ------ |  | -------- | - | ------ | ------- |  | - | ---------- |  |  | ---- | ------ |  |  | - | ------ | 
|                                                                      |  | Fiscal 2002        |       
|                                                                      |  |                    |       
|                                                                      |  | Three Months Ended |        |  |          |   |       
|                                                                      |  |                    |        |  |          |   |       
|                                                                      |  | January 31         |        |  | April 30 |   |        | July 31 |  |   | October 31 |  |  | Year |       
|                                                                      |  |                    |        |  |          |   |        |         |  |   |            |  |  |      |       
|Selling, general and administrative expense,
as previously reported   |  | $                  | 11,516 |  |          | $ | 11,960 |         |  | $ | 13,372     |  |  | $    | 15,142 |  |  | $ | 51,990 | 
|                                                                      |  |                    |        |  |          |   |        |         |  |   |            |  |  |      |       
|Sales and marketing expense                                           |  | $                  | 9,095  |  |          | $ | 9,799  |         |  | $ | 10,281     |  |  | $    | 11,180 |  |  | $ | 40,355 | 
|General and administrative expense                                    |  |                    | 2,421  |  |          |   | 2,161  |         |  |   | 3,091      |  |  |      | 3,962  |  |  |   | 11,635 | 
|                                                                      |  |                    |        |  |          |   |        |         |  |   |            |  |  |      |       
|                                                                      |  | $                  | 11,516 |  |          | $ | 11,960 |         |  | $ | 13,372     |  |  | $    | 15,142 |  |  | $ | 51,990 | 
|                                                                      |  |                    |        |  |          |   |        |         |  |   |            |  |  |      |       
|Depreciation and amortization,
as previously reported                 |  | $                  | 1,516  |  |          | $ | 1,586  |         |  | $ | 2,017      |  |  | $    | 2,076  |  |  | $ | 7,195  | 
|                                                                      |  |                    |        |  |          |   |        |         |  |   |            |  |  |      |       
|Amortization of capitalized product development costs                 |  | $                  | 939    |  |          | $ | 1,001  |         |  | $ | 1,066      |  |  | $    | 1,171  |  |  | $ | 4,177  | 
|Amortization of identified intangible assets                          |  |                    | 269    |  |          |   | 243    |         |  |   | 418        |  |  |      | 423    |  |  |   | 1,353  | 
|Depreciation and amortization of equipment
and leasehold improvements |  |                    | 308    |  |          |   | 342    |         |  |   | 533        |  |  |      | 482    |  |  |   | 1,665  | 
|                                                                      |  |                    |        |  |          |   |        |         |  |   |            |  |  |      |       
|                                                                      |  | $                  | 1,516  |  |          | $ | 1,586  |         |  | $ | 2,017      |  |  | $    | 2,076  |  |  | $ | 7,195  | 
|                                                                      |  |                    |        |  |          |   |        |         |  |   |            |  |  |      |       



|3. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- |  | ------------------------------------------

Revenue Recognition

We recognize revenue in accordance with the provisions of Statement of Position
No. 97-2, Software Revenue Recognition, as amended and modified, as well as
Technical Practice Aids issued from time to time by the American Institute of
Certified Public Accountants, and Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements.

Revenue from the sale of courseware licenses and computer hardware is
recognized upon meeting the following criteria: (i) a written customer order is
executed, (ii) courseware and hardware are delivered, (iii) the license fee is
fixed or determinable and (iv) collectibility of the proceeds is probable. For
software arrangements that include more than one element, we allocate the total
arrangement fee among each deliverable based on vendor-specific objective
evidence of the relative fair value of each deliverable. Vendor-specific
objective evidence of fair value is determined using the price charged when
that element is sold separately. Upon delivery, future service costs, if any,
are accrued. Future service costs represent our problem resolution and support
hotline services for a one-year period. Revenue from our subscription-based
products, primarily the PLATO Web Learning Network, is deferred and recognized
ratably over the contract period.

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PLATO LEARNING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)

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 services and products yet to be delivered.



|4. |  | ACQUISITIONS
|-- |  | ------------

Unaudited Pro Forma Data

In May 2002, we acquired NetSchools Corporation (NetSchools). For further
information regarding this acquisition, refer to Note 4 of Notes to
Consolidated Financial Statements included in our Annual Report on Form 10-K
for the fiscal year ended October 31, 2002.

The operating results of NetSchools were included in our consolidated
statements of operations from the date of acquisition. Our unaudited pro forma
consolidated results of operations, as if the NetSchools acquisition had
occurred at the beginning of the period presented, were as follows:

|                                 |  |                    |        |  
|-------------------------------- |  | ------------------ | ------ | -
|                                 |  | Three Months Ended |       
|                                 |  | January 31, 2002   |       
|                                 |  |                    |       
|                                 |  | (Unaudited)        |       
|Revenues                         |  | $                  | 15,826 |  
|Net loss                         |  |                    | (3,649 | )
|Basic and diluted loss per share |  |                    | (0.21  | )

The pro forma data gives effect to actual operating results prior to the
acquisition and adjustments to reflect increased identified intangible asset
amortization and income taxes. No effect has been given to cost reductions or
operating synergies in this presentation. The unaudited pro forma consolidated
results of operations are for comparative purposes only and do not necessarily
reflect the results that would have occurred had the acquisition occurred at
the beginning of the period presented or the results which may occur in the
future.

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PLATO LEARNING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)



|5. |  | ACCOUNTS RECEIVABLE
|-- |  | -------------------

The components of accounts receivable were as follows:

|                                |  |             |        |   |             |   |        |  
|------------------------------- |  | ----------- | ------ | - | ----------- | - | ------ | -
|                                |  | January 31, |        |   | October 31, |  
|                                |  | 2003        |        |   | 2002        |  
|                                |  |             |        |   |             |  
|Trade accounts receivable       |  | $           | 13,024 |   |             | $ | 14,865 |  
|Installment accounts receivable |  |             | 16,872 |   |             |   | 20,936 |  
|Allowance for doubtful accounts |  |             | (2,989 | ) |             |   | (2,767 | )
|                                |  |             |        |   |             |  
|                                |  | $           | 26,907 |   |             | $ | 33,034 |  
|                                |  |             |        |   |             |  

Installment receivables to be billed beyond one year from the balance sheet
date were $1,911 at January 31, 2003 and $1,144 at October 31, 2002, and are
included in other assets on the consolidated balance sheets.

The provision for doubtful accounts, included in general and administrative
expense on the consolidated statements of operations, was $525 and $601 for the
three months ended January 31, 2003 and 2002, respectively.



|6. |  | GOODWILL AND IDENTIFIED INTANGIBLE ASSETS
|-- |  | -----------------------------------------

We account for goodwill and identified intangible assets in accordance with the
provisions of Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets (SFAS 142). Under SFAS 142, goodwill and
intangible assets with indefinite lives are no longer amortized to expense and
must be periodically reviewed for impairment. If such review indicates that
the carrying amount of an intangible asset exceeds its fair value, an
impairment loss would be recognized equal to that excess amount.

Goodwill

SFAS 142 requires that goodwill of a reporting unit be tested for impairment on
an annual basis and between annual tests if an event occurs or circumstances
change that would more likely than not reduce the fair value of a reporting
unit below its carrying value. We operate one reporting unit and, therefore,
we test goodwill impairment on an enterprise wide basis. As of October 31,
2002, our annual impairment test indicated that goodwill was not impaired;
however, as of January 31, 2003, the market value of our common stock had
declined to a point where our market capitalization was below our net book
value. Based on the weight of available evidence, we believe that events and
circumstances do not indicate the need to test goodwill impairment as of
January 31, 2003; however, should events and circumstances change, an interim
goodwill impairment test may be necessary prior to the annual test on October
31, 2003. Such events and circumstances include a prolonged decline in our
stock price and may result in a future impairment loss that could have a
significant impact on our consolidated financial statements.

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PLATO LEARNING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)

Goodwill was increased by $870 during the three months ended January 31, 2003
as a result of the finalization of the purchase price allocation relating to
the NetSchools acquisition in May 2002. As provided by the purchase agreement,
there may be additional consideration of up to approximately $6,000, contingent
on the NetSchools product and services revenues generated through October 2004.
If earned, any additional consideration will be recorded as additional goodwill

Identified Intangible Assets

Identified intangible assets subject to amortization were as follows:

|                     |  |                      |        |  |                  |             |        |                    |  |   |                      |  |  |              |        |  |                    |   |        |   |  |   |        | 
|-------------------- |  | -------------------- | ------ |  | ---------------- | ----------- | ------ | ------------------ |  | - | -------------------- |  |  | ------------ | ------ |  | ------------------ | - | ------ | - |  | - | ------ | 
|                     |  | January 31, 2003     |        |  | October 31, 2002 |            
|                     |  |                      |        |  |                  |            
|                     |  |                      |        |  |                  | Accumulated |        |                    |  |   |                      |  |  |              |        |  | Accumulated        |   |        |   |  |  
|                     |  | Gross Carrying Value |        |  | Amortization     |             |        | Net Carrying Value |  |   | Gross Carrying Value |  |  | Amortization |        |  | Net Carrying Value |  
|                     |  |                      |        |  |                  |             |        |                    |  |   |                      |  |  |              |        |  |                    |  
|Acquired technology  |  | $                    | 14,145 |  |                  | $           | (1,266 | )                  |  | $ | 12,879               |  |  | $            | 14,145 |  |                    | $ | (936   | ) |  | $ | 13,209 | 
|Trademark            |  |                      | 1,380  |  |                  |             | (493   | )                  |  |   | 887                  |  |  |              | 1,380  |  |                    |   | (444   | ) |  |   | 936    | 
|Customer lists       |  |                      | 1,300  |  |                  |             | (403   | )                  |  |   | 897                  |  |  |              | 1,300  |  |                    |   | (339   | ) |  |   | 961    | 
|Employment agreement |  |                      | 413    |  |                  |             | (178   | )                  |  |   | 235                  |  |  |              | 413    |  |                    |   | (145   | ) |  |   | 268    | 
|                     |  |                      |        |  |                  |             |        |                    |  |   |                      |  |  |              |        |  |                    |  
|                     |  | $                    | 17,238 |  |                  | $           | (2,340 | )                  |  | $ | 14,898               |  |  | $            | 17,238 |  |                    | $ | (1,864 | ) |  | $ | 15,374 | 
|                     |  |                      |        |  |                  |             |        |                    |  |   |                      |  |  |              |        |  |                    |  

Amortization expense for identified intangible assets was $476 and $269 for the
three months ended January 31, 2003 and 2002, respectively, of which $75 was
included in product development and customer support expense for each period.

The estimated annual amortization expense for identified intangible assets is
as follows:

|           |      |   |        |       | 
|---------- | ---- | - | ------ | ----- | 
|           | 2003 |   | $      | 2,044 | 
|           | 2004 |   |        | 2,222 | 
|           | 2005 |   |        | 2,325 | 
|           | 2006 |   |        | 2,298 | 
|           | 2007 |   |        | 2,276 | 
|Thereafter |      |   | 4,209  |      
|           |      |   |        |      
|           |      | $ | 15,374 |      
|           |      |   |       



|7. |  | Stockholders Equity
|-- |  | --------------------

Common Stock Repurchased

We repurchased approximately 92,000 shares of our common stock for an aggregate
cost of $540 during the three months ended January 31, 2003. These shares are
presented as treasury stock in the consolidated balance sheet.

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PLATO LEARNING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)



|8. |  | RESTRUCTURING CHARGE
|-- |  | --------------------

The consolidated statement of operations for the three months ended January 31,
2003 included a restructuring charge of $380. In December 2002, we reduced the
size of our workforce by approximately 30 positions and closed approximately 30
open job requisitions, all in the United States, which represented
approximately 10% of our planned workforce. Substantially all of these
severance costs have been paid as of January 31, 2003.



|9. |  | PER SHARE DATA
|-- |  | --------------

Basic earnings (loss) per share is calculated by dividing net earnings (loss)
by the weighted average number of common shares outstanding during the period.
Diluted earnings (loss) per share is calculated by dividing net earnings (loss)
by the weighted average number of common and, where dilutive, potential common
shares outstanding during the period. Potential common shares include options
and warrants.

The calculation of basic and diluted net income (loss) per share was as
follows:

|                                                                                           |                            |   |                    |   |  |      |            |   | 
|------------------------------------------------------------------------------------------ | -------------------------- | - | ------------------ | - |  | ---- | ---------- | - | 
|                                                                                           |                            |   | Three Months Ended |  
|                                                                                           |                            |   | January 31,        |  
|                                                                                           |                            |   |                    |  
|                                                                                           |                            |   | 2003               |   |  | 2002 |           
|                                                                                           |                            |   |                    |   |  |      |           
|Net loss                                                                                   |                            | $ | (3,407             | ) |  | $    | (1,357     | )
|                                                                                           |                            |   |                    |   |  |     
|Basic:                                                                                     |                            |   |                    |   |  |      |            |  
|Weighted average common shares outstanding                                                 |                            |   | 16,775,000         |   |  |      | 16,406,000 |  
|                                                                                           |                            |   |                    |   |  |     
|Basic loss per share                                                                       |                            | $ | (0.20              | ) |  | $    | (0.08      | )
|                                                                                           |                            |   |                    |   |  |     
|Diluted:                                                                                   |                            |   |                    |   |  |      |            |  
|Weighted average common shares outstanding                                                 |                            |   | 16,775,000         |   |  |      | 16,406,000 |  
|Potential common shares:                                                                   |                            |   |                    |   |  |      |            |  
|                                                                                           | Stock options and warrants |   |                    |  |  |      |            |  | 
|                                                                                           |                            |   |                    |   |  |     
|Weighted average common and potential common
shares outstanding for diluted loss per share |                            |   | 16,775,000         |   |  |      | 16,406,000 |  
|                                                                                           |                            |   |                    |   |  |     
|Diluted loss per share                                                                     |                            | $ | (0.20              | ) |  | $    | (0.08      | )
|                                                                                           |                            |   |                    |   |  |     

The calculation of diluted net loss per share for the three months ended
January 31, 2003 and 2002 excluded the effect of approximately 3,101,000 and
2,533,000 potential common shares from the conversion of outstanding options
and warrants, respectively, as they were antidilutive.

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PLATO LEARNING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)



|10. |  | COMPREHENSIVE LOSS
|--- |  | ------------------

Total comprehensive loss was as follows:

|                                         |                          |   |                    |        |   |      |        |        |  
|---------------------------------------- | ------------------------ | - | ------------------ | ------ | - | ---- | ------ | ------ | -
|                                         |                          |   | Three Months Ended |       
|                                         |                          |   | January 31,        |       
|                                         |                          |   |                    |       
|                                         |                          |   | 2003               |        |   | 2002 |       
|                                         |                          |   |                    |        |   |      |       
|Net loss                                 |                          | $ | (3,407             | )      |   | $    | (1,357 | )     
|Foreign currency translation adjustments |                          |   | 120                |        |   |      | (106   | )     
|                                         |                          |   |                    |        |   |     
|                                         | Total comprehensive loss |   | $                  | (3,287 | ) |      | $      | (1,463 | )
|                                         |                          |   |                    |        |   |     



|11. |  | SEGMENT AND GEOGRAPHIC INFORMATION
|--- |  | ----------------------------------

We operate in the single business segment of educational software. Revenues
are attributed to geographic locations based upon the location of the customer.
Revenues from foreign customers, primarily in Canada and the United Kingdom,
were $424 and $877 for the three months ended January 31, 2003 and 2002,
respectively.



|12. |  | NEW ACCOUNTING PRONOUNCEMENTS
|--- |  | -----------------------------

In June 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 146, Accounting for Costs
Associated with Exit or Disposal Activities (SFAS 146). This statement
requires that we recognize costs associated with exit or disposal activities
when they are incurred rather than at the date of commitment to an exit or
disposal plan. SFAS 146 is effective for any exit plans initiated after
December 31, 2002. We do not believe that the adoption of SFAS 146 will have a
material impact on our consolidated financial statements.

In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. This interpretation elaborates on the
disclosures required in financial statements concerning obligations under
certain guarantees. It also clarifies the requirements related to the
recognition of liabilities by a guarantor at the inception of certain
guarantees. We do not expect that the application of this interpretation will
have a material impact on our consolidated financial statements.

In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure,
an amendment of FASB Statement No. 123 (SFAS 148). This statement amends
SFAS 123 to provide alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee
compensation. In addition, this statement amends the
disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and

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PLATO LEARNING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)

the effect of the method used on reported
results. The annual disclosure requirements are effective for fiscal years
ending after December 15, 2002 (our fiscal year 2003). The interim disclosure
requirements are effective for financial reports containing condensed financial
statements for interim periods beginning after December 15, 2002 (our second
quarter in 2003) with earlier application encouraged. We do not anticipate a
voluntary change to the fair value method of accounting for stock-based
compensation and will provide the required disclosures beginning with the
second quarter of 2003.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities. This interpretation addresses the requirements
for business enterprises to consolidate related entities in which they are
determined to be the primary beneficiary as a result of their variable economic
interest. The interpretation is intended to provide guidance in judging
multiple economic interests in an entity and in determining the primary
beneficiary. The interpretation outlines disclosure requirements for variable
interest entities in existence prior to January 31, 2003, and outlines
consolidation requirements for variable interest entities created after January
31, 2003. We do not expect that the application of this interpretation will
have a material impact on our consolidated financial statements.

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PLATO LEARNING, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONSAND FINANCIAL CONDITION
(Dollars in thousands, except per share amounts)

OVERVIEW

We enhance the learning process by providing computer-based and e-learning
instruction software and related services, offering basic to advanced level
courseware in reading, writing, math, science, social studies and life and job
skills. Our PLATO® Learning System and PLATO® Web Learning Network provide more
than 4,000 hours of objective-based, problem solving courseware and include
assessment, alignment and management tools to create standards-based curricula
and facilitate the learning process. PLATO courseware is delivered via
networks, CD-ROM, private intranets and the Internet. In addition, single
topic PLATO courseware is available through our e-commerce web site and
distributors. We market our courseware products and services primarily to K-12
schools. We also sell to colleges, job training programs, correctional
institutions, military education programs, corporations and individuals.

We are subject to risks and uncertainties including, but not limited to,
dependence on information technology spending by our customers,
well-established competitors, customers dependent on government funding,
fluctuations of our quarterly results, a lengthy and variable sales cycle,
dependence on key personnel, dependence on our intellectual property
rights, rapid technological change and our ability to integrate
acquisitions. As provided for in the Private Securities Litigation Reform
Act of 1995, we caution investors that these factors could cause our
future results of operations to vary from those anticipated in previously
made forward-looking statements and any other forward-looking statements
made in this document and elsewhere by or on behalf of us.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of results of operations and financial condition is
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. We continually evaluate our critical
accounting policies and have identified revenue recognition, the valuation of
accounts receivable, the capitalization of product development costs, the
valuation of our deferred tax asset and goodwill and identified intangible
asset impairment testing as the critical accounting policies that are
significant to the financial statement presentation and require difficult,
subjective and complex judgments.

See Notes 2 and 3 to Consolidated Financial Statements for additional
discussion on these and other accounting policies and disclosures required by
accounting principles generally accepted in the United States of America.

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PLATO LEARNING, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
(Dollars in thousands, except per share amounts)

Revenue Recognition

Revenue recognition rules for software companies are very complex. We follow
specific and detailed guidelines in determining the proper amount of revenue to
be recorded; however, certain judgments affect the application of our revenue
recognition policy. Revenue results are difficult to predict, and any shortfall
in revenue or delay in recognizing revenue could cause our operating results to
vary significantly from quarter to quarter.

The most significant judgments for revenue recognition typically involve
whether there are any significant uncertainties regarding customer acceptance
and whether collectibility can be considered probable. In addition, our
transactions often consist of multiple element arrangements which must be
analyzed to determine the relative fair value of each element, the amount of
revenue to be recognized upon shipment, if any, and the period and conditions
under which deferred revenue should be recognized.

Allowance for Doubtful Accounts

We determine an allowance for doubtful accounts based upon an analysis of the
collectibility of specific accounts, historical experience and the aging of the
accounts receivable. Bad debt expense is recorded as an operating expense in
our consolidated statement of operations. The assumptions and estimates used
to determine the allowance are subject to constant revision. The primary
factors that impact these assumptions include the efficiency and effectiveness
of our billing and collection functions, our historical experience and our
credit assessment process. Actual collection results could differ materially
from those estimated and have a significant impact on our consolidated
financial statements.

Capitalization of Product Development Costs

Our product development expense includes costs related to the development,
enhancement and maintenance of our courseware products, and the effect of
product development cost capitalization and amortization. Research and
development costs, relating principally to the design and development of new
products, and the routine enhancement of existing products are expensed as
incurred. We capitalize product development costs when the projects under
development reach technological feasibility, as defined by the accounting
standards. Capitalization ends when a product is available for general release
to our customers, at which time amortization of the capitalized costs begins.
We amortize these costs using the greater of (a) the amount determined by the
ratio of the products current revenue to total expected future revenue, or (b)
the straight-line method over the estimated useful life of the product, which
is generally three years. During all periods presented, we used the
straight-line method to amortize the capitalized costs as this method resulted
in greater amortization.

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PLATO LEARNING, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in thousands, except per share amounts)

The most significant judgments regarding capitalization of product development
costs typically involve the determination of whether development efforts should
be expensed or have reached technological feasibility and can be capitalized,
and the recoverability of capitalized costs. We continually evaluate our
capitalized costs to determine if the unamortized balance related to any given
product exceeds the estimated net realizable value of that product. Estimating
net realizable value requires us to estimate future cash flows to be generated
by the product and to use judgment in quantifying the amount, if any, to be
written off. Actual cash flows and amounts realized from the courseware
products could differ materially from those estimated. In addition, any future
changes to our courseware product offerings could result in write-offs of
previously capitalized costs and have a significant impact on our consolidated
financial statements.

Deferred Income Tax Asset

We account for deferred income taxes based upon differences between the
financial reporting and income tax bases of our assets and liabilities. The
measurement of the deferred tax asset is adjusted by a valuation allowance, if
necessary, to recognize the extent to which the future tax benefits will be
recognized.

At January 31, 2003 we had a net deferred tax asset of $5,699. This deferred
tax asset is net of a valuation allowance related to a foreign net operating
loss carryforward. A substantial portion of the deferred tax asset relates to
our net operating loss carryforward in the United States. We have recorded the
net deferred tax asset as we believe that it is more likely than not that we
will be able to realize the asset through generation of future taxable income
in the United States. We base this belief upon the levels of taxable income
generated historically as well as projections of future taxable income. If
future levels of taxable income in the United States are not consistent with
our expectations by the end of fiscal 2003, we may be required to record a
valuation allowance, which could have a significant impact on our consolidated
financial statements. We also have net operating loss carryforwards related to
our foreign subsidiaries. We have provided a full valuation allowance related
to these deferred income tax assets due to the uncertainty in realization of
future taxable income in these foreign jurisdictions.

Goodwill and Identified Intangible Assets

We record our acquisitions in accordance with Statement of Financial Accounting
Standards No. 141, Business Combinations. We allocate the cost of acquired
companies to the tangible and identified intangible assets and liabilities
acquired, with the remaining amount being recorded as goodwill. Certain
intangible assets, such as acquired technology, are amortized to expense over
their estimated useful lives, while in-process research and development, if
any, is recorded as a one-time charge at the acquisition date.

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PLATO LEARNING, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
(Dollars in thousands, except per share amounts)

Most of the companies we acquire do not have significant tangible assets and,
as a result, the majority of the purchase price is typically allocated to
identified intangible assets or goodwill, which increases future amortization expense of identified intangible assets and
the potential for impairment charges that we may incur. Accordingly, the
allocation of the purchase price to intangible assets may have a significant
impact on our future operating results. In addition, the allocation of the
purchase price requires that we make significant assumptions and estimates,
including estimates of future cash flows expected to be generated by the
acquired assets. Should different conditions prevail, we may have to record
impairment charges, which may have a significant impact on our consolidated
financial statements.

As of October 31, 2002, our annual impairment test indicated that goodwill was
not impaired; however, as of January 31, 2003, the market value of our common
stock had declined to a point where our market capitalization was below our net
book value. Based on the weight of available evidence, we believe that events
and circumstances do not indicate the need to test goodwill impairment as of
January 31, 2003; however, should events and circumstances change, an interim
goodwill impairment test may be necessary prior to the annual test on October
31, 2003. Such events and circumstances include a prolonged decline in our
stock price and may result in a future impairment loss that could have a
significant impact on our consolidated financial statements.

RESULTS OF OPERATIONS

Operating Results as a Percentage of Revenue

|                         |                                                    |                          |       |                    |       |  |       |      |       | 
|------------------------ | -------------------------------------------------- | ------------------------ | ----- | ------------------ | ----- |  | ----- | ---- | ----- | 
|                         |                                                    |                          |       | Three Months Ended |      
|                         |                                                    |                          |       | January 31,        |      
|                         |                                                    |                          |       |                    |      
|                         |                                                    |                          |       | 2003               |       |  | 2002  |     
|                         |                                                    |                          |       |                    |       |  |       |     
|Revenues:                |                                                    |                          |       |                    |       |  |       |     
|                         | License fees                                       |                          |       | 67.4               | %     |  |       | 75.6 | %    
|                         | Services                                           |                          |       | 25.1               |       |  |       | 16.5 |      
|                         | Other                                              |                          |       | 7.5                |       |  |       | 7.9  |      
|                         |                                                    |                          |       |                    |       | 
|                         |                                                    | Total revenues           |       |                    | 100.0 |  |       |      | 100.0 | 
|Cost of revenues         |                                                    |                          | 14.3  |                    |       |  | 14.6  |     
|                         |                                                    |                          |       |                    |       | 
|                         | Gross profit                                       |                          |       | 85.7               |       |  |       | 85.4 |      
|                         |                                                    |                          |       |                    |       | 
|Operating expenses:      |                                                    |                          |       |                    |       |  |       |     
|                         | Sales and marketing                                |                          |       | 77.6               |       |  |       | 64.8 |      
|                         | General and administrative                         |                          |       | 22.3               |       |  |       | 17.2 |      
|                         | Product development and customer support           |                          |       | 23.3               |       |  |       | 19.8 |      
|                         | Amortization of intangibles                        |                          |       | 3.0                |       |  |       | 1.4  |      
|                         | Restructuring charges                              |                          |       | 2.8                |       |  |       |     |      
|                         |                                                    |                          |       |                    |       | 
|                         |                                                    | Total operating expenses |       |                    | 129.0 |  |       |      | 103.2 | 
|                         |                                                    |                          |       |                    |       | 
|Operating loss           |                                                    |                          | (43.3 | )                  |       |  | (17.8 | )   
|                         | Interest income and expense and other expense, net |                          |       | 0.5                |       |  |       | 1.7  |      
|                         |                                                    |                          |       |                    |       | 
|Loss before income taxes |                                                    |                          | (42.8 | )                  |       |  | (16.1 | )   
|                         | Income tax benefit                                 |                          |       | (17.5              | )     |  |       | (6.4 | )    
|                         |                                                    |                          |       |                    |       | 
|Net loss                 |                                                    |                          | (25.3 | )%                 |       |  | (9.7  | )%  
|                         |                                                    |                          |       |                    |       | 

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PLATO LEARNING, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
(Dollars in thousands, except per share amounts)

Revenues

Total Revenues.Total revenues decreased 4.2% to $13,457 for the three months
ended January 31, 2003 from $14,047 for the same period in 2002. The decrease
was due to the $1,551 decrease in license fees revenues slightly offset by the
$1,068 increase in services revenues.

License Fees.Revenues from license fees were $9,069 for the three months
ended January 31, 2003 and $10,620 for the same period in 2002. As a
percentage of total revenues, license fees revenues were 67.4% for the three
months ended January 31, 2003, down from 75.6% for the same period in 2002.
License fees revenues decreased in 2003 compared to 2002 due to federal funding
delays and economic uncertainties, particularly state budget difficulties,
which significantly impacted the level of purchasing done by our customers.
These conditions are expected to continue to impact our revenues into at least
the middle of fiscal 2003.

Sales of our PLATO Web Learning Network (PWLN) product continue to grow. Our
order intake for PWLN for the three months ended January 31, 2003 was
approximately $880 and we recognized approximately $1,400 of ratable revenue.
This compares to approximately $680 of order intake and recognized revenue for
the same period in 2002. The acquisition of NetSchools contributed
approximately $170 of license fees revenues the three months ended January 31,
2003.

Services.Revenues from services increased 46.1% to $3,383 for the three
months ended January 31, 2003 from $2,315 for the same period in 2002. As a
percentage of total revenues, services revenues were 25.1% for the three months
ended January 31, 2003 up from 16.5% for the same period in 2002. This revenue
increase resulted from increased services to correlate curriculum to standards
and to aid in the professional development of teachers, demonstrating the
strategic value of the TeachMaster and NetSchools acquisitions, and from the
continued growth in customer acceptance of our training and technical support
services. We also continue to focus on selling services as an independent
product. The acquisition of NetSchools contributed approximately $135 of
services revenues for the three months ended January 31, 2003.

Other.Other revenues, including hardware and third-party courseware products,
decreased 9.6% to $1,005 for the three months ended January 31, 2003 from
$1,112 for the same period in 2002. As a percentage of total revenues, other
revenues were 7.5% for the three months ended January 31, 2003 and 7.9% for the
same period in 2002.

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PLATO LEARNING, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
(Dollars in thousands, except per share amounts)

Cost of Revenues

Total cost of revenues decreased 6.2% to $1,928 for the three months ended
January 31, 2003 from $2,055 for the same period in 2002. The decrease was
primarily due to changes in revenue discussed above. Gross profit margin was
85.7% for the three months ended January 31, 2003, up from 85.4% for the same
period in 2002. The gross profit margin calculation excludes customer support
costs and the amortization of capitalized product development costs which are
presented in operating expenses. This increase in gross profit margin resulted
primarily from the slightly higher proportion of license fees and services
revenues included in our product sales mix in 2003. Future gross profit margin
will be dependent primarily on the product mix underlying our revenues.

Operating Expenses

Sales and Marketing.Sales and marketing expenses increased 14.9% to $10,446
for the three months ended January 31, 2003 from $9,095 for the same period in
2002. As a percentage of total revenues, sales and marketing expenses were
77.6% for the three months ended January 31, 2003, up from 64.8% for the same
period in 2002. The increased expenses resulted from a number of factors
including increased headcount from the NetSchools acquisition in 2002,
increased marketing costs necessary to generate our planned revenue growth, and
additions to our management team and infrastructure necessary to grow our
business over the long-term. Sales and marketing expenses in 2003 are expected
to increase compared to 2002 given our expectations for revenue growth. We
continue to believe the benefits from this infrastructure investment will
generate increased revenues in the future. Our ability to continue to leverage
our cost structure and improve profitability is primarily dependent on our
ability to generate higher revenues, integrate our acquisitions and realize
sales force productivity improvements.

General and Administrative. General and administrative expenses increased
23.9% to $3,000 for the three months ended January 31, 2003 from $2,421 for the
same period in 2002. As a percentage of total revenues, general and
administrative expenses were 22.3% for the three months ended January 31, 2003,
up from 17.2% for the same period in 2002. The increased expenses resulted
from a number of factors including increased headcount from the NetSchools
acquisition in 2002 and additions to our management team and infrastructure,
including the installation of a new enterprise resource planning system,
necessary to grow our business over the long-term. We continue to believe the
benefits from this infrastructure investment will generate increased revenues
in the future. Our ability to continue to leverage our cost structure and
improve profitability is primarily dependent on our ability to generate higher
revenues, integrate our acquisitions and realize sales force productivity
improvements.

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PLATO LEARNING, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
(Dollars in thousands, except per share amounts)

Product Development and Customer Support. Product development and customer
support expenses increased 12.7% to $3,134 for the three months ended January
31, 2003 from $2,781 for the same period in 2002. As a percentage of total
revenues, product development and customer support expenses were 23.3% for the
three months ended January 31, 2003, up from 19.8% for the same period in 2002.
The increase reflects our increased spending to enhance and replace certain
existing courseware products and to develop a new standards-based reference
network. As part of our growth strategy, we intend to continually introduce
new products and product improvements. The extent of our future product
development spending and the amount of our future capitalized product
development costs and related amortization are dependent on our ability to
develop and introduce new products and product improvements on a cost-effective
and timely basis.

Capitalized development costs were $1,667 for the three months ended January
31, 2003 compared to $1,345 for the same period in 2002. Amortization of
previously capitalized development costs was $1,294 for the three months ended
January 31, 2003, up from $939 for the same period in 2002, as projects
completed during prior periods are now being amortized to expense. We expect
amortization to increase throughout 2003 as additional products are completed.
As a result, product development expense is expected to increase throughout the
remainder of fiscal 2003.

Amortization of Intangibles. Amortization expense increased for the three
months ended January 31, 2003, as compared to 2002, as a result of the
NetSchools and Learning Elements acquisitions in 2002.

Restructuring Charge. The restructuring charge in 2003 represented primarily
severance costs associated with the December 2002 reduction of our workforce.
We reduced the size of our workforce by approximately 30 positions and closed
approximately 30 open job requisitions, all in the United States, which
represented approximately 10% of our planned workforce. Substantially all of
these severance costs have been paid as of January 31, 2003.

Interest Income

Interest income was $120 for the three months ended January 31, 2003 and $368
for the same period in 2002. The decrease is due to lower invested balances at
lower interest rates as compared to 2002. Invested balances decreased due to
cash being used for acquisitions and stock repurchases.

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PLATO LEARNING, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
(Dollars in thousands, except per share amounts)

Income Taxes

Our effective income tax rate for the three months ended January 31, 2003 was
40.8%, compared to 39.9% for the same period in 2002. Our 2003 annual
effective tax rate is expected to be in the 41% to 46% range. However, as was
the case for fiscal year 2002, it will be highly dependent upon the taxable
income in each of our taxable jurisdictions.

FINANCIAL CONDITION

Liquidity and Capital Resources

At January 31, 2003, our principal sources of liquidity included cash and cash
equivalents of $28,873, net accounts receivable of $26,907, and our unused line
of credit.

Working capital was $36,729 at January 31, 2003 and $44,088 at October 31,
2002. Cash and cash equivalents decreased $1,517 as cash was used for product
development, capital expenditures and stock repurchases. Accounts receivable
decreased $6,127 as year end balances were collected, typical for the
seasonality of our business. Accrued payables and liabilities decreased $1,012
as year end balances were paid. Current deferred revenue increased $1,097 as a
result of increased sales of our services and PWLN product.

Cash flows from operations were used principally to fund our working capital
requirements. Net cash provided by operating activities was $959 and $447 for
the three months ended January 31, 2003 and 2002, respectively.

Net cash used in our investing activities was $1,964 and $2,714 for the three
months ended January 31, 2003 and 2002, respectively. In 2003, our increased
investment in capitalized product development costs of $322 was offset by a
$1,072 decrease in capital expenditures, primarily because we installed a new
enterprise resource planning system in 2002. At January 31, 2003, we had no
material commitments for capital expenditures

Net cash used in our financing activities was $593 for the three months ended
January 31, 2003, compared to net cash provided of $568 for the same period in
2002. In 2003, we repurchased 92,000 shares of our common stock for an
aggregate cost of $540. A stock repurchase plan was approved by our Board of
Directors in December 2001 and authorizes us to repurchase up to $15,000 of our
common stock in the open market and in privately negotiated transactions. The
plan has no set termination date and the timing of any repurchases will be
dependent on prevailing market conditions and alternative uses of capital.
Cumulatively, we have repurchased approximately 1,080,000 shares for an
aggregate cost of approximately $11,880 under the repurchase plan and
approximately $3,000 remains available for future repurchases, if any. In
2002, we received approximately $706 from the exercise of stock options and
warrants.

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PLATO LEARNING, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
(Dollars in thousands, except per share amounts)

We have resources available under our revolving loan agreement to provide
borrowings up to $12,500, as determined by the available borrowing base. At
January 31, 2003, there were no borrowings outstanding and our unused borrowing
capacity was $12,500. The agreement contains restrictive financial covenants
(including Minimum Tangible Net Worth, Minimum Debt Service Coverage, Maximum
Leverage, Maximum Cash Flow Leverage, Minimum Current Ratio, and Maximum Annual
Capital Expenditures) and restrictions on additional borrowings, asset sales
and dividends, as defined. All covenants were satisfied for the period ended
January 31, 2003.

From time to time, we evaluate potential acquisitions of products or businesses
that complement our core business. We may consider and acquire other
complementary businesses, products, or technologies in the future.

We maintain adequate cash balances and credit facilities to meet our
anticipated working capital, capital expenditure and business investment
requirements.

Disclosures about Contractual Obligations and Commercial Commitments

Our contractual obligations and commercial commitments consist of future
payments due under capital lease obligations and operating leases, and our line
of credit.

|                          |  |                             |       |  |      |   |       |      |  |         |       |  |         |      |       |       |  |   |       | 
|------------------------- |  | --------------------------- | ----- |  | ---- | - | ----- | ---- |  | ------- | ----- |  | ------- | ---- | ----- | ----- |  | - | ----- | 
|                          |  | Payments Due by Fiscal Year |      
|                          |  |                             |      
|                          |  |                             |       |  |      |   |       |      |  | 2004 to |       |  | 2007 to |      |       | After | 
|Contractual Obligations   |  | Total                       |       |  | 2003 |   |       | 2006 |  |         | 2008  |  |         | 2008 |      
|                          |  |                             |       |  |      |   |       |      |  |         |       |  |         |      |      
|Capital lease obligations |  | $                           | 892   |  |      | $ | 325   |      |  | $       | 502   |  |         | $    | 65    |       |  | $ |      | 
|Operating leases          |  |                             | 7,499 |  |      |   | 2,372 |      |  |         | 2,194 |  |         |      | 1,272 |       |  |   | 1,661 | 
|                          |  |                             |       |  |      |   |       |      |  |         |       |  |         |      |      
|Total                     |  | $                           | 8,391 |  |      | $ | 2,697 |      |  | $       | 2,696 |  |         | $    | 1,337 |       |  | $ | 1,661 | 
|                          |  |                             |       |  |      |   |       |      |  |         |       |  |         |      |      

Our revolving loan agreement provides for a maximum $12,500 line of credit. In
January 2003, we amended this agreement to extend the term through July 1,
2004. For further information regarding our revolving loan agreement, refer to
Note 9 of Notes to Consolidated Financial Statements included in our Annual
Report on Form 10-K for the fiscal year ended October 31, 2002.

Factors Affecting Quarterly Operating Results

Our 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, client spending patterns, budget cycles and fiscal year ends and
promotional programs. We historically have experienced our lowest revenues in
the first quarter and increasingly higher levels of revenues in each of the
next three quarters. Because of these factors, the results for the interim
periods presented are not necessarily indicative of the results to be expected
for the full fiscal year.

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PLATO LEARNING, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
(Dollars in thousands, except per share amounts)

Interest Rate Risk

Our borrowing capacity primarily consists of a revolving credit facility with
interest rates that fluctuate based upon market indexes. At January 31, 2003,
we did not have any outstanding borrowings under this revolving credit
facility. Our only debt consisted of capital lease obligations at fixed
interest rates. As a result, risk relating to interest fluctuation is
considered minimal.

Foreign Currency Exchange Rate Risk

We market our products and services worldwide and have operations in Canada and
the United Kingdom. As a result, financial results and cash flows 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 our foreign subsidiaries are kept in local currencies
in which they do business. Approximately 3% and 6% of our total revenues were
denominated in currencies other than the U.S. dollar for the three months ended
January 31, 2003 and 2002, respectively.

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PART I

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See the information set forth under the captions, Interest Rate Risk and
Foreign Currency Exchange Rate Risk in Managements Discussion and Analysis
of Results of Operations and Financial Condition.

Item 4. CONTROLS AND PROCEDURES

Within 90 days of the filing of this quarterly report on Form 10-Q, our Chief
Executive Officer and Chief Financial Officer have conducted an evaluation of
the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14 and 15d-14. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective to make known to them
in a timely fashion material information related to us required to be filed in
this report.

From the date of that evaluation to the date of this quarterly report, there
have been no significant changes in our disclosure controls or in other factors
that could significantly affect our disclosure controls after the date of that
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.

Our management, including the Chief Executive Officer and Chief Financial
Officer, does not expect that our disclosure controls and procedures will
prevent all error and all fraud. A control system, no matter how well designed
and operated, can provide only reasonable, not absolute, assurance that the
control systems objectives will be met. Because of the inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within the company have
been detected. These inherent limitations include the realities that judgments
in decision-making can be faulty, that breakdowns can occur because of simple
error or mistake, and that controls can be circumvented by the individual acts
of some persons or by collusion of two or more people. Because of the inherent
limitations in a control system, misstatements due to error or fraud may occur
and not be detected.

While we believe the present design of our disclosure controls and procedures
is effective to make known to our senior management in a timely fashion all
material information concerning our business, over time, controls may become
inadequate because of changes in conditions or deterioration in the degree of
compliance with its policies or procedures. We will continue to improve the
design and effectiveness of our disclosure controls and procedures to the
extent necessary in the future to provide our senior management with timely
access to such material information, and to correct any deficiencies that we
may discover in the future.

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##### Table of Contents






PART II. OTHER INFORMATION



















Item 1. Legal Proceedings



| |  | We are not a party to any litigation that is expected to have a
material adverse effect on our business or our consolidated
financial statements.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------

Item 2. Changes in Securities and Use of Proceeds



| |  | 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                                                                                                                 
| |  | -----------------------------------------------------------------------------------------------------------------------------
|
| |  | Exhibit Number and Description                                                                                               
|
| |  | 10.02 First Amendment to Credit Agreement, dated January 8, 2003.                                                            
|
| |  | 99.01 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
| |  | (b) Reports on Form 8-K:                                                                                                     
|
| |  | No reports on Form 8-K were filed for the quarter ended January 31, 2003.                                                    

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##### Table of Contents






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 17, 2003.

| |  |  |  |                                                                                                                  
| |  |  |  | -----------------------------------------------------------------------------------------------------------------
| |  |  |  | PLATO LEARNING, INC.                                                                                             
|
| |  |  |  | By /s/John MurrayPresident and
Chief Executive Officer
(principal executive officer)                             
|
| |  |  |  | /s/Gregory J. MelsenVice President Finance and
Chief Financial Officer
(principal financial officer)             
|
| |  |  |  | /s/Mary Jo MurphyVice President, Corporate
Controller and
Chief Accounting Officer
(principal accounting officer)

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##### Table of Contents






CERTIFICATIONS

The undersigned, in his capacity as an officer of PLATO Learning, Inc.,
provides the following certifications required by 18 U.S.C. Section 1350, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, and 17
C.F.R.ss.240.13a-14.

I, John Murray, certify that:



|1. |  | I have reviewed this Quarterly Report on Form 10-Q of PLATO Learning,
Inc.;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have: (a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared; (b) evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the Evaluation Date); and (c)
presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
|  
|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors: (a) all significant
deficiencies in the design or operations of internal controls which could
adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and (b) any fraud,
whether or not material, that involves management or other employees who
have a significant role in the registrants internal controls; and                                                                                                                                                                                                                                          
|  
|6. |  | The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

|                     |  |                                                      | 
|-------------------- |  | ---------------------------------------------------- | 
|Date: March 17, 2003 |  | /s/ John MurrayPresident and Chief Executive Officer | 

27



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##### Table of Contents



CERTIFICATIONS

The undersigned, in his capacity as an officer of PLATO Learning, Inc.,
provides the following certifications required by 18 U.S.C. Section 1350, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, and 17
C.F.R.ss.240.13a-14.

I, Gregory J. Melsen, certify that:



|1. |  | I have reviewed this Quarterly Report on Form 10-Q of PLATO Learning,
Inc.;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have: (a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared; (b) evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the Evaluation Date); and (c)
presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
|  
|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors: (a) all significant
deficiencies in the design or operation of internal controls which could
adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and (b) any fraud,
whether or not material, that involves management or other employees who
have a significant role in the registrants internal controls; and                                                                                                                                                                                                                                           
|  
|6. |  | The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

|                     |  |                                                                         | 
|-------------------- |  | ----------------------------------------------------------------------- | 
|Date: March 17, 2003 |  | /s/ Gregory J. MelsenVice President Finance and Chief Financial Officer | 

28