LEARNING TREE INTERNATIONAL INC, 10-K405, 1999-12-23

LEARNING TREE INTERNATIONAL INC
10-K405, 1999-12-23
EDUCATIONAL SERVICES

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<PAGE>

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

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

Washington, D.C. 20549

FORM 10-K

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

For the Fiscal Year Ended September 30, 1999

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the Transition Period from to

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

Commission File Number: 0-27248

LEARNING TREE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 95-3133814
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)

6053 West Century Boulevard
Los Angeles, CA 90045-0028
(310) 417-9700
(address, Including Zip Code
and telephone number, including area
code, of Registrant's Principal Executive Offices)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:
common stock

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 if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K: [X]

The aggregate market value of the common stock, $.0001 par value, held by
non-affiliates of the registrant, as of December 13, 1999, was $247,392,000.
(Excludes 11,542,971 shares held by directors and officers of the Registrant
since such persons may be deemed to be affiliates.)

The number of shares of common stock, $.0001 par value, outstanding as of
December 13, 1999, was 21,640,607 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement of the registrant to be delivered
to shareholders in connection with the 2000 Annual Meeting of Shareholders are
incorporated by reference into Part III, Items 10, 11, 12 and 13 of this Form
10-K.
<PAGE>

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
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<C> <S> <C>
Part I

Item 1. Business................................................... 3
Item 2. Properties................................................. 16
Item 3. Legal Proceedings.......................................... 16
Item 4. Submission of Matters to a Vote of Security Holders........ 17

Part II

Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters........................................ 17
Item 6. Selected Consolidated Financial Data....................... 19
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 20
Item 8. Financial Statements and Supplementary Data................ F-1
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures.................................. F-19

Part III

Item 10. Directors and Executive Officers of the Registrant......... F-19
Item 11. Executive Compensation..................................... F-21
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................. F-21
Item 13. Certain Relationships and Related Transactions............. F-21

Part IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K........................................................ F-21
Signatures........................................................... F-23
</TABLE>

Learning Tree, the Learning Tree and Professional Certification logos,
EDUCATION IS OUR BUSINESS, EDUCATION YOU CAN TRUST, WE BRING EDUCATION TO
LIFE, PRODUCTIVITY THROUGH EDUCATION, FROM THE LEARNING TREE, LearnTrack,
Training Passport, Training Advantage, Alumni Gold, TRAINING YOU CAN TRUST,
SkillsTree, ENHANCING PRODUCTIVITY Through Skills Development, TestTree, WE
BRING LEARNING TO LIFE, learningtree.com, 800-THE-TREE and 800-LRN-TREE are
trademarks and service marks of the Company.

In addition to the trademarks and service marks of the Company, this Annual
Report on Form 10-K also contains trademarks and trade names of other
companies.

2
<PAGE>

PART I

Item 1. Business

Except for historical information contained herein, the matters discussed in
this Annual Report on Form 10-K are forward-looking statements that are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those set forth in such forward-looking statements.
Such risks and uncertainties include, without limitation, the Company's
dependence on the timely development, introduction and customer acceptance of
courses and products, the impact of competition and downward pricing
pressures, the effect of changing economic conditions, the Company's ability
to attract and retain key management and other personnel, risks in technology
development and introduction, the risks involved in currency fluctuations, and
the other risks and uncertainties discussed herein and in "Risk Factors,"
filed as Exhibit 99 which is incorporated by reference.

Overview

Learning Tree International, Inc. ("Learning Tree" or the "Company") is a
leading worldwide provider of education and training to information technology
("IT") professionals in business and government organizations. The Company
develops, markets and delivers a broad, proprietary library of instructor-led
course titles focused on client/server systems, intranet/Internet
technologies, computer networks, operating systems, databases, programming
languages, object-oriented technology and IT management. In addition, the
Company provides custom developed training for larger clients who need to
train large numbers of their IT professionals and end-users, and tests and
certifies IT professionals in 31 IT job functions. The Company's instructor-
led courses are recommended for college credit by the American Council on
Education. The Company also provides its customers with a skills assessment
service through its SkillsTree program.

The Company is paid directly by the employers of its course participants and
does not receive funding from any government aid or loan programs. As a
result, the Company does not depend on government appropriations for those
programs and is not subject to certain governmental regulations.

The Company has also delivered certain of its courses by using a computer-
based training method ("multimedia CBT.") The multimedia CBT courses were
designed for both stand-alone CD-ROM and network-based delivery. On July 13,
1999, the Company announced that it intended to shift its focus in technology-
based training from CD-ROM based courses to other distance learning
methodologies using the Internet. As a result, the Company has discontinued
further development of its computer-based training ("CBT") courses, and has
substantially reduced its CBT sales efforts during the first quarter of fiscal
2000.

The decision to discontinue further development of CD-ROM based courses was
made after an evaluation of the market viability and methodologies for the
potential Internet delivery of its current generation of CBT courses. The
migration of the Company's current CBT courses to an Internet delivery
platform would have required a significant investment. However, the Company
believes that the content from its instructor-led courses can be delivered to
customers through a variety of other technology-based training methods. In
view of the rapid changes in available technologies, the Company is exploring
other Internet distance learning approaches and technologies and may implement
them based on its assessment of customer reaction and market viability.
However, there can be no assurance that the Company will be able to
successfully develop or profitably implement distance learning strategies.

The Company has only one material operating segment, which is the design and
delivery of advanced technology training courses and related services.

The Information Technology Education And Training Market

The market for IT training is driven by technological change as applications
evolve and the applications of technology expand. During periods of rapid
technological change, organizations may find themselves hampered in their
ability to exploit the latest information technologies because their IT
professionals lack up-to-date

3
<PAGE>

knowledge and skills. Most organizations address this challenge by retraining
their existing IT professionals and training new IT professionals as they are
hired. An International Data Corporation ("IDC") study estimates that the 1998
worldwide market for all IT training was $16.5 billion. The training of IT
professionals, such as programmers, analysts, and engineers, represents the
majority of the market for IT training. See Exhibit 99, "Risk Factors."

The market for training IT professionals is further influenced by several
factors. These factors include: (i) the introduction and evolution of new
client/server hardware, software and networking technologies; (ii) the
proliferation of Internet and intranet applications; (iii) the proliferation
of computers and networks throughout all levels of organizations; (iv) the
shift from legacy mainframe systems to new client/server technologies; and (v)
periodic corporate downsizing, resulting in increased training requirements
for employees who must perform new job functions or multiple job tasks that
require knowledge of varied software applications and technologies.
Furthermore, since many businesses use hardware and software products provided
by a variety of vendors, their IT professionals require training on an
increasing number of products and technologies which apply across vendors,
platforms and operating systems.

While much of the training for IT professionals continues to be provided by
internal training departments, many organizations have expanded their use of
external training providers due to the lack of internal trainers experienced
in the latest technologies, the cost of developing and maintaining internal
training courses in rapidly evolving technologies or corporate downsizing and
reorganizing and reallocation of resources. The choice of training delivery
formats and providers generally is made by individual IT professionals or
their immediate managers, even in large organizations. When choosing an IT
training provider, IT professionals and their managers seek a provider who can
respond to demanding requirements, including, without limitation: (i) high
quality training; (ii) course titles that cover a broad range of topics and
skill levels; (iii) the ability to deliver an integrated training program
through multiple delivery formats; (iv) the willingness and ability to tailor
the training to the customer's particular needs; (v) timeliness of the
delivery of course events; (vi) qualified, technically current instructors;
(vii) the willingness to deliver training at convenient locations, including
the customer's business site; (viii) course titles covering areas undergoing
rapid technological change; (ix) an effective training methodology, which
delivers the maximum amount of practical information in the minimum amount of
time; (x) training which is vendor-independent; (xi) the ability to provide
testing and certification of technical competency; (xii) the ability to
deliver training on a global basis; and (xiii) the ability to assist customers
in assessing their IT skills and formulating training plans to bridge skills
gaps.

IT training is primarily delivered by classroom instructors, video,
computer-based training and printed means. According to IDC, instructor-led
classroom training continues to dominate the worldwide IT training market
comprising approximately 75% of the market. The Company believes that
instructor-led training will continue to dominate the market because course
participants value the personalized interaction and problem-solving with their
instructor and fellow participants concerning their specific projects and
applications, as well as the insulation from workplace interruptions afforded
by classroom instruction. However, the use of technology-based IT education
and training formats, such as Internet-based distance learning, appear to be
gaining acceptance in the IT training market.

The Learning Tree Approach

The Company develops, markets and delivers proprietary course titles
covering a broad range of topics that it believes are designed to meet the
continually evolving training needs of IT professionals worldwide.

The Company's instructor-led course events take place at the Company's
Education Centers, in hotel and conference facilities, and at customer sites.
As of September 30, 1999, Learning Tree had 143 multi-day instructor-led
course titles. These course titles are regularly presented worldwide and cover
IT topics such as client/server systems, intranet/Internet technologies,
computer networks, operating systems, databases, programming languages,
object-oriented technology, IT management and related topics.

4
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The Company's training services provide participants with skills and
knowledge that they can immediately apply in their jobs. The instructor-led
course events include extensive hands-on, interactive exercises using
networked classroom computers. Learning Tree's multi-day course events
typically deliver the equivalent of two semester hours of college credit in an
intensive four-day format, thus minimizing participants' time away from the
job.

As of September 30, 1999, the Company had 834 course instructors. These
instructors are IT professionals possessing expert knowledge and practical
experience. They work in a variety of industries applying the IT skills and
knowledge that are the subjects of the courses they teach. On average, they
teach approximately eight to nine Learning Tree course events each year on an
"as needed" basis.

Learning Tree places particular emphasis on the quality of its course
offerings. The Company employs a course development process which is designed
to ensure that each course title represents multiple points of view concerning
the application of the technology, provides information on different uses of
the technology throughout the world, and provides training that is relevant to
course participants working in diverse applications in a broad range of
industries. Learning Tree also maintains a centralized and ongoing program of
updating its proprietary course titles to maintain the quality and relevance
of its courses. The Company tailors its instructor-led courses for customer-
site presentation as appropriate, and the Company's instructors further adapt
the course material to participants' needs based on feedback received in the
classroom.

Learning Tree meets customer demands for scheduling flexibility by holding
course events frequently at multiple locations around the world and by
delivering customer-site course events as required on short notice. The
Company believes that it has the resources to provide a rapid and flexible
response to its customers' needs by utilizing its large team of instructors,
its course development and customization processes, its team of customer
support specialists, its logistics team and its hundreds of classroom computer
workstations. In fiscal 1999, Learning Tree presented over 7,100 multi-day
course events worldwide.

The Company tests and certifies IT professionals in 31 IT job functions.
Since this program's inception in 1993, over 150,000 participants have
completed one or more certification examinations. In addition, the American
Council on Education recommends Learning Tree course events for college credit
to more than 1,500 North American universities and colleges. See "Business--
Learning Tree's Products." In the United Kingdom, participation in some
Learning Tree course events may be applied toward post-graduate level
university credit.

During fiscal 1998, the Company began to provide its customers with a skills
assessment service through its SkillsTree program. SkillsTree is a software
package that identifies the skills necessary to perform IT functions and
provides an organized, computer-based process for companies to assess the
technical proficiency of their staff to perform current and future functions.
Further, SkillsTree identifies areas where technical proficiency is lacking
and specifies which Learning Tree courses could best provide the training
necessary to meet the customers' training needs at individual, departmental
and enterprise levels.

In addition to its instructor-led business, the Company introduced a line of
multi-media CBT course titles in fiscal 1996. On July 13, 1999, the Company
announced that it intended to shift its focus in technology-based training
from CD-ROM based courses to other distance learning methodologies using the
Internet.

The Company markets its courses through a sophisticated direct mail
marketing and telemarketing program, supplemented by direct sales to
corporations and government organizations. The Company's direct mail marketing
utilizes its proprietary list of over 1,600,000 IT professionals and managers,
as well as rented lists. This capability enables the Company to reach
individual professionals and managers in larger organizations and provides a
cost-effective channel to reach IT personnel in smaller organizations as well.
The Company also uses its Internet Web site (http://www.learningtree.com) to
market and communicate with prospective participants. (Note: Information
contained in the Company's web site shall not be deemed to be part of this
Annual Report on Form 10-K.)

5
<PAGE>

Learning Tree's Strategy

The Company's objective is to strengthen its position as one of the leading
providers of IT training worldwide. To achieve this goal, the Company employs
the following key long-term strategies:

Continue Development of its Library of Proprietary Instructor-led Course
Titles. The Company intends to continue developing additional course titles
and certification programs in order to increase sales to its existing customer
base and to attract new customers. The Company expanded its multi-day course
library from 72 titles at September 30, 1994 to 143 titles as of September 30,
1999. The increase in the size of the multi-day course library reflects the
net effect of the introduction of new titles and the retirement of old titles.
Old titles are retired when the profits they generate are not sufficient to
justify the ongoing cost of marketing them and maintaining their technological
content. The actual number of instructor-led course titles which the Company
will produce and their delivery dates are subject to a number of factors, such
as; the hiring and training of staff, perceived customer demand, and the
availability of subject matter experts who are also responsible for teaching
the Company's instructor-led courses. There can be no assurance that the
Company will develop more titles than it retires in any period. In fiscal
1999, the Company developed 21 new titles and retired 27 titles.

Provide Flexible Training Solutions. The Company intends to continue its
strategy of providing training when, where and in the manner desired by the
customer. Participants can attend any of Learning Tree's 143 multi-day courses
which, on average, are presented approximately once per week around the world.
The Company also presents standard or customized courses on demand at its
customers' facilities whenever and wherever they desire. The Company believes
that the content from its instructor-led courses can also be delivered to
customers through a variety of technology-based training methods. The Company
is exploring Internet distance learning approaches and technologies and may
implement them based on its assessment of customer reaction and market
viability of this delivery method. However, there can be no assurance that the
Company will be able to successfully develop or profitably implement distance
learning strategies.

Integrated Marketing and Sales Programs. The Company uses an integrated
strategy of marketing both to individual IT professionals through its
extensive direct mail marketing and Internet capability and to their employers
through its direct sales force. These efforts are supplemented by its
telemarketing sales force. In response to the changes in the current and
expected rate of growth in course participants, the Company has and plans to
continue to adjust the size of the direct mailing campaigns. Generally, the
Company intends to increase its marketing and development activities more
rapidly when it expects rapid growth of the market and reduce the rate of
increase in such activities when it expects slower market growth. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of changes in sales and marketing expenses during
fiscal 1999.

6
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Build Continuing Relationships. The Company seeks to build continuing
relationships both with its individual course participants and its corporate
customers. The Company stimulates demand for its course events by motivating
individual IT professionals to purchase a series of course events through its
Training Passport, Professional Certification and College Credit Programs. In
addition to increasing revenues directly, the long-term relationships built by
these programs encourage participants to recommend the Company's course events
to their colleagues. The Company also seeks to create ongoing relationships
with its largest U.S. and international customers through the provision of its
new SkillsTree skills assessment services and through the Training Advantage
Program. The annually renewable Training Advantage agreements allow all the
employees of Training Advantage customers to receive training and special
services at negotiated prices.

Leverage International Operations. The Company maintains offices and
education centers in six countries outside the United States, and in fiscal
1999 presented course events at its education centers and third-party and
customer sites in a total of 27 countries. In fiscal 1999, international
revenues represented approximately 49% of the Company's revenues. Learning
Tree intends, on an ongoing basis, to seek ways to expand its international
operations and expects that revenues derived from international sources will
continue to account for a significant portion of its revenues. The Company's
centrally-developed course titles currently are translated into French,
Swedish and Japanese and sold through its operations in the United States,
Great Britain, France, Canada, Sweden, Japan and Hong Kong to customers in
those and other countries. The Company intends to open Education Centers in
additional territories as justified by local demand. Inherent risks
represented by the Company's international operations include currency
fluctuations, potential difficulties in translating course subject matter into
foreign languages, varying political and economic conditions, unanticipated
changes in regulation, trade barriers, staffing problems, adverse tax
consequences and potential costs associated with expansion into new
territories. There can be no assurance that such factors will not have a
material adverse effect on the Company in the future. See Exhibit 99, "Risk
Factors."

Learning Tree's Products

Learning Tree courses are designed to be highly interactive. Most of its
instructor-led classroom courses involve "hands-on" training, on networked
Pentium-based workstations, which allow participants to practice and better
assimilate the skills being taught. Participants spend a significant portion
of each course working on computer-based exercises and participating in group
workshops. Each participant typically receives extensive course materials that
facilitate learning and serve as a post-course reference.

Course Offerings. Learning Tree strives to build job-related training paths
by developing a sequence of course titles that create cohesive programs which
impart the skills and knowledge required to perform key IT job functions. Each
job-related training path is comprised of course titles that proceed from
introductory to advanced, and cover the breadth and depth of skills and
knowledge required for a particular job. At September 30, 1999, Learning
Tree's multi-day course library included 143 proprietary course titles
comprising over 3,500 hours of classroom instruction. This course library is
recommended for nearly 260 semester hours of undergraduate and graduate level
college credit in information systems by the American Council on Education. In
the Company's experience, the final decision of each college or university to
grant or deny credit for the Company's courses as recommended by the American
Council on Education is made on a case-by-case basis, taking into account a
variety of factors such as the academic standing of the student making the
request, the requirements of the particular degree program and limits on the
number of credits that may be obtained outside of the college or university.
Subject to these rules generally applicable to transfer credits, the Company
believes that its course participants have generally been granted credit upon
application.

7
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The following chart presents the Company's 143 proprietary multi-day course
titles and the number of training days for each title as of September 30,
1999:

<TABLE>
<CAPTION>
Curriculum Days Courses
- ---------- ---- -------
<S> <C> <C>
Client/Server 4 Introduction to Client/Server Computing
4 Client/Server Systems: Analysis and Design
- ------------------------------------------------------------------------------------------------
Intranet/Internet Tech-
nologies 4 Internet and System Security
4 Deploying Internet and Intranet Firewalls--Hands-On
4 Internet for Business Applications--Hands-On
4 Developing a Web Site--Hands-On
4 Java Programming--Hands-On
4 Advanced Java Programming--Hands-On
4 Java for Multimedia Applications Development--Hands-On
4 Developing an Intranet Site--Hands-On
4 Designing and Building Great Web Content--Hands-On
4 Implementing Web Security--Hands-On
4 Developing Electronic Commerce Applications with Java--Hands-On
4 Java for C++ Programmers--Hands-On
4 JavaScript: Building Interactive Web Sites--Hands-On
4 Building an E-Commerce Web Site--Hands-On
4 Apache Web Server--Hands-On
- ------------------------------------------------------------------------------------------------
Windows 5 Windows 95 Support and Networking--Hands-On
5 Windows NT 4.0 Workstation and Server--Hands-On
5 Windows NT Optimization and Troubleshooting--Hands-On
4 Integrating Microsoft Office 97--Hands-On
4 TCP/IP Internetworking on Windows NT--Hands-On
4 Microsoft System Management Server--Hands-On
4 Microsoft Exchange--Hands-On
4 UNIX and Windows NT Integration--Hands-On
5 Implementing Windows NT Security--Hands-On
4 Microsoft Exchange 5 Server Administration--Hands-On
4 Microsoft Internet Information Server--Hands-On
4 Microsoft SQL Server Introduction--Hands-On
5 Microsoft SQL Server System Administration--Hands-On
4 Developing SQL Server Applications with Visual Basic 5--Hands-On
4 Optimizing SQL Server Database and Application Performance--Hands-
On
5 Windows NT4 Technologies for the Enterprise--Hands-On
4 Microsoft SQL Server 7 Comprehensive Introduction--Hands-On
5 Microsoft SQL Server 7: Database Administration--Hands-On
4 Microsoft SQL Server 7 Transact-SQL Programming--Hands-On
4 Microsoft SQL Server 7 Data Warehousing--Hands-On
5 Managing Windows 98 Systems & Networks--Hands-On
5 Windows 2000--Hands-On
4 Windows 2000 Planning and Deployment--Hands-On
- ------------------------------------------------------------------------------------------------
Local Area
Networks 4 Local Area Networks
4 PC Networking--Hands-On
4 LAN Troubleshooting--Hands-On
4 High-Performance Ethernet--Hands-On
4 Fast LAN Technologies
- ------------------------------------------------------------------------------------------------
NetWare 5 NetWare 4.x Administration--Hands-On
5 NetWare 5 System Administration--Hands-On
</TABLE>

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<TABLE>
<CAPTION>
Curriculum Days Courses
- ---------- ---- -------
<S> <C> <C>
Wide Area
Networks 4 Introduction to Datacomm and Networks
4 Computer Network Architectures and Protocols
4 SNMP--Hands-On
- -----------------------------------------------------------------------------------
Internetworking 4 Internetworking: Bridges and Routers
4 Data Network Design and Optimization
4 Routers--Hands-On
4 Cisco Routers: A Comprehensive Introduction--Hands-On
4 Configuring Cisco Routers: Advanced Workshop--Hands-On
4 Introduction to TCP/IP--Hands-On
4 Building Virtual Private Networks--Hands-On
4 Internetworking with TCP/IP--Hands-On
4 Troubleshooting Cisco Router Internetworks--Hands-On
- -----------------------------------------------------------------------------------
Operating Systems 4 TCP/IP Programming--Hands-On
4 UNIX Programming--Hands-On
4 UNIX--Hands-On
4 UNIX Tools and Utilities--Hands-On
4 UNIX System and Network Security--Hands-On
4 UNIX Workstation Administration--Hands-On
4 UNIX Server Administration--Hands-On
4 KornShell Programming--Hands-On
4 Implementing Linux--Hands-On
- -----------------------------------------------------------------------------------
Telecommunications 4 Telecommunications and Wide Area Networking
4 Introduction to ISDN
4 Wireless Networks
4 High-Speed Wide Area Networks
4 Defense Message System (DMS): A Comprehensive Introduction
3 Implementing ATM
4 Fiber-Optic Systems--Hands-On
- -----------------------------------------------------------------------------------
Database Systems 4 Relational Databases
5 Building a Data Warehouse--Hands-On
5 Oracle7--Hands-On
5 Oracle7 for Database Administrators--Hands-On
3 Oracle7 for Application Developers--Hands-On
2 Tuning Oracle7 Applications--Hands-On
3 Complex SQL Queries--Hands-On
5 Oracle Developer/2000--Hands-On
4 Building Oracle WebServer Applications--Hands-On
4 Lotus Notes Application Development--Hands-On
4 Lotus Notes System Administration--Hands-On
4 Lotus Notes R4.5 A Comprehensive Introduction--Hands-On
4 Lotus Domino Website Development--Hands-On
5 Oracle Designer/2000--Hands-On
5 Exploiting the New Features of Oracle 8--Hands-On
5 Oracle 8 Applications Development and Tuning--Hands-On
5 Oracle 8 Database Administration--Hands-On
5 Oracle 8 A Comprehensive Introduction--Hands-On
4 Notes and Domino R5: A Comprehensive Hands-On Introduction
4 Notes and Domino R5 Application Development--Hands-On
- -----------------------------------------------------------------------------------
PC Support 4 PC Configuration and Troubleshooting--Hands-On
4 Advanced PC Configuration--Hands-On
</TABLE>

9
<PAGE>

<TABLE>
<CAPTION>
Curriculum Days Courses
- ---------- ---- -------
<S> <C> <C>
Programming 4 Windows Programming--Hands-On
5 Visual C++--Hands-On
4 Introduction to Programming--Hands-On
4 Advanced Windows Programming With MFC--Hands-On
4 Porting Applications from UNIX to Windows NT--Hands-On
4 Visual Basic--Hands-On
4 Microsoft Access--Hands-On
4 Microsoft Access Programming--Hands-On
4 PowerBuilder--Hands-On
4 Perl Programming--Hands-On
5 Visual Basic 4 for Enterprise Applications--Hands-On
4 C Programming--Hands-On
4 C Advanced Programming--Hands-On
4 C++ Object-Oriented Programming--Hands-On
4 Advanced C++ Programming--Hands-On
4 C++ for Non-C Programmers--Hands-On
4 Cobol Programming--Hands-On
4 Programming Office 97 Applications--Hands-On
4 Win32 Systems and Network Programming--Hands-On
4 FrontPage 98 Web Site Development--Hands-On
4 Programming Microsoft Access--Hands-On
4 Enterprise Web Development with Active Server Pages--Hands-On
4 COM and ActiveX Programming with C++--Hands-On
4 Microsoft Transaction Server--Hands-On
4 Introduction to Visual InterDev--Hands-On
4 Exploiting the Advanced Features of MFC--Hands-On
4 Visual C++ and MFC for C++ Programmers--Hands-On
5 Visual Basic Web Development--Hands-On
- ----------------------------------------------------------------------------------------
Software
Development Methods 5 Object-Oriented Analysis and Design
4 Introduction to Software Engineering
4 UML: A Comprehensive Introduction
4 Introduction to Object Technology
3 Implementing the Year 2000 Conversion--Hands-On
4 Software Quality Assurance
4 Identifying User Requirements
4 Practical Software Testing Methods
4 Software Systems Analysis and Design
4 Software Project Planning and Management
4 Software Configuration Management
- ----------------------------------------------------------------------------------------
IT Soft Skills 4 Business Process Re-engineering
4 Project Risk Management
4 Effective Skills for Technical Managers
4 Project Management--Hands-On
4 Influence Skills
3 Microsoft Project--Hands-On
2 Advanced Microsoft Project--Hands-On
</TABLE>

The Company also tailors the content of the foregoing courses for
presentation at customer sites to cover particular topics and applications
requested by the customer. Learning Tree typically provides all of the
software, hardware and networking systems required for use in customer-site
courses.

10
<PAGE>

The Company has also delivered certain of its courses by using a computer-
based training method. The multimedia CBT courses were designed for both
stand-alone CD-ROM and network-based delivery. On July 13, 1999, the Company
announced that it intended to shift its focus in technology-based training
from CD-ROM based courses to other distance learning methodologies using the
Internet. As a result, the Company has discontinued further development of its
CBT courses.

The Company presents its classroom courses at Learning Tree Education
Centers in Boston, Los Angeles, New York, Washington D.C., Toronto, Ottawa,
London, Paris and Stockholm, as well as in rented hotel or conference centers
in other cities worldwide. The Company's Education Centers include 138
classrooms, as of September 30, 1999, that have been custom-designed to
accommodate the technical demands of Learning Tree's computer-based courses,
including electronic projection of computer screens, local area networks
within the classroom and multimedia presentation capability.

Skills Assessment Services. During fiscal 1998, the Company began to provide
its customers with a skills assessment service through its SkillsTree program.
SkillsTree is a software package that identifies the skills necessary to
perform IT functions and provides an organized, computer-based process for
companies to assess the technical proficiency of their staff to perform
current and future functions. Further, SkillsTree identifies areas where
technical proficiency is lacking and specifies which Learning Tree courses
could best provide the training necessary to meet the customers' training
needs at the individual, departmental and enterprise levels.

Development Of Courses

Learning Tree endeavors to identify and develop course titles that satisfy
market demand. Learning Tree seeks to accomplish this by (i) building close
working relationships with the development groups of leading IT vendors in
order to obtain information on upcoming products, (ii) canvassing its expert
instructors to identify general market trends and specific topics within
existing course titles that can be expanded to serve as new courses, (iii)
holding discussions with its customers to determine their upcoming project
plans and training requirements, and (iv) conducting market surveys of the
Company's course participants. Moreover, the members of executive management
of the Company have strong IT educational and professional backgrounds and
stay closely involved with the course selection and development process. See
"Management--Executive Officers and Directors."

Each Learning Tree course title is developed by a team comprised of a
product manager who manages the project and instructional design process, a
product marketing manager, and several subject matter experts who generally
are selected from the Learning Tree instructor team. Learning Tree endeavors
to select a group of experts from different countries and industries and with
complementary applications backgrounds. The Company believes that its use of a
team of experts provides multiple points of view concerning the application of
the subject technology, information on different uses of that technology
throughout the world and training that is relevant to course participants
working in diverse applications in a broad range of industries worldwide. The
result is a set of proprietary course materials and several hundred pages of
presentation graphics for each course. To ensure its courses meet the needs of
the marketplace and provide a high quality of instruction, the Company
requests that each course participant complete an evaluation of the course
content and the instructor. Learning Tree course titles are updated regularly
to incorporate new technology and to improve their educational effectiveness.
Learning Tree courses currently are translated into French, Japanese and
Swedish and are taught by nationals in the local language in the Company's
United States, Canadian, United Kingdom, French, Swedish, Japanese and Hong
Kong subsidiaries.

The Company's development of new course titles, or enhancements to existing
course titles, must anticipate and keep pace with the introduction in the
marketplace of new hardware, software and networking technologies. The need to
respond to technological changes may require the Company to make substantial,
unanticipated expenditures in order to develop new course titles and acquire
additional equipment in order to deliver such new course titles. There can be
no assurance that the Company will be able to respond successfully to
technological

11
<PAGE>

change. If, because of financial, technological or other constraints, the
Company could not adequately anticipate or respond to changes in computer
platforms, customer preferences and/or software technology, the Company's
business and results of operations would be materially adversely affected.

Learning Tree Instructors

The Company believes that its instructors are vital to its success. Learning
Tree instructors work either full-time for other companies or as independent
consultants in a variety of industries applying the IT skills and knowledge
that are the subjects of the courses they teach. On average, the Company's
instructors teach eight to nine Learning Tree courses each year as needed. At
September 30, 1999, the Company had 834 instructors.

The Company's future success will also depend on its ability to attract and
retain highly-skilled instructors. Each Learning Tree subsidiary has an
Instructor Relations Department to recruit, train, coach and manage its
instructor team. The Company identifies new instructor candidates primarily
through referrals from its existing instructors. Instructor candidates undergo
a technical evaluation prior to participating in Learning Tree's proprietary
instructor training program. The Company believes that its instructor force is
relatively stable, and its recruitment and training program focuses primarily
on expanding the Company's instructor staff during periods of growing market
demand and to accommodate new technologies. There can be no assurance that the
Company will be successful in these recruitment and training efforts.

Customers

Learning Tree has developed a broad customer base focusing on Fortune 1000-
level companies and their international equivalents and government
organizations worldwide. In fiscal 1999, the Company trained over 113,000
multi-day course participants who were employed by over 15,000 organizations.
In fiscal 1999, the Company derived approximately 51% of its revenues in the
United States and 49% of its revenues internationally. See Note 7 of Notes to
Consolidated Financial Statements.

The Company's customers generally operate in the computer, communications,
electronics, systems integration, finance, aerospace, military, manufacturing
and energy sectors, and a number of the customers are government
organizations. The Company had over 200 customers worldwide that purchased
over $100,000 of Learning Tree training in fiscal 1999. Generally, each
customer purchased this training throughout the year in individual purchase
decisions ranging from $2,000 to $20,000 rather than through a single
contract. No customer accounted for 10% or more of the Company's fiscal 1999
revenues.

Marketing and Sales

Direct Mail Marketing and Advertising. Learning Tree markets its courses
primarily through direct mail marketing to its proprietary mail list of over
1,600,000 individuals (including course participants, their immediate
supervisors, department managers, training managers and other people who have
inquired about the Company's courses), as well as to rented mailing lists of
IT professionals. The Company also advertises in industry trade magazines and
periodicals.

The Company believes that it achieves economies of scale by producing its
marketing materials centrally. Its centralized marketing department develops
the Company's catalogs, brochures and advertisements using color desktop
publishing and electronic pre-press technology. This in-house capability
enables the Company to make quick improvements to its marketing materials in
order to feature the latest technological developments and address market
opportunities in a timely manner.

The Company has built a strong brand image through the frequent and
prominent use of its trademarks in its marketing materials and course
materials. These trademarks include the Learning Tree and Professional
Certification logos, its name, and its trademarks, including EDUCATION IS OUR
BUSINESS, EDUCATION YOU CAN TRUST, WE BRING EDUCATION TO LIFE, PRODUCTIVITY
THROUGH EDUCATION,

12
<PAGE>

FROM THE LEARNING TREE, LearnTrack, Training Passport, Training Advantage,
Alumni Gold, TRAINING YOU CAN TRUST, SkillsTree, ENHANCING PRODUCTIVITY
Through Skills Development, TestTree, WE BRING LEARNING TO LIFE,
learningtree.com, 800-THE-TREE and 800-LRN-TREE.

Internet Marketing. The Company maintains a web site for marketing its
products and services over the Internet (http://www.learningtree.com).
Information contained in the Company's web site shall not be deemed to be part
of this Annual Report on Form 10-K. The Company believes that the Internet
will become an increasingly significant marketing channel to prospective IT
course participants in the future.

Telemarketing Sales Force. At September 30, 1999, Learning Tree's
telemarketing sales force consisted of over 100 people who were responsible
for responding to phone, e-mail, web site and facsimile orders and inquiries
received by the Company and pursuing sales opportunities. These telemarketers
sell both to individual prospective course participants and to line managers
and training directors in assigned accounts. The Company has developed a
proprietary automated system which is integrated with its customer and course
operations databases and provides its telemarketers with on-line information
that facilitates rapid response to inbound callers, provides targeted lists
for outbound calling, records the results of calls and automates the sales
follow-up process.

Field Sales Force. The Learning Tree field sales force, which consisted of
over 45 sales people at September 30, 1999, generates a significant portion of
the Company's revenues. The field sales force concentrates its attention on
the Company's larger customers to sell multiple course customer-site training
programs, Learning Solutions programs, SkillsTree services, and to sign
Training Advantage Agreements covering all formats of Learning Tree training.
The Company's Training Advantage Agreements provide its nationwide and
international customers with negotiated pricing and special services.

The field sales force is assisted by the Company's Customer Support Group
which provides the administration and logistics support necessary to ensure
the successful presentation, at the customer's site, of Learning Tree's hands-
on, computer-based classroom courses. For large contracts requiring
customization, the customer support staff serve as team leaders to coordinate
the instructor(s) who modify and teach the courses, the internal development
team who implements the changes, the Company's technical support group which
modifies the course hardware and software as needed, and the logistics staff
which assembles and ships course equipment and materials for each course
event.

Multiple Enrollment Programs. The Company markets its Training Passport
programs to encourage course participants to enroll in multiple courses, and
thereby increase the average attendance in its Learning Tree-site courses.
Generally, the holder of a Learning Tree Training Passport may attend up to 8
courses (10 in the United Kingdom and France) during a 12-month period. The
list price for such Training Passports is approximately three times the list
price for an individual four-day course. The Company also offers a second
Training Passport program consisting of a 4-course Passport which is priced at
approximately twice the list price for an individual four-day course. The 4-
course Passport program was introduced by the Company's European subsidiaries
in fiscal 1997 and its domestic and Canadian subsidiaries during fiscal 1998.

The Company has also developed the Learning Tree Professional Certification
Programs for certifying IT professionals in 31 job functions in the areas of
the Company's focus. Professional certification is important to many
participants in Learning Tree courses as it provides documentation of their
qualifications. Each professional certification program requires completion of
a series of five Learning Tree courses and an examination associated with each
course. Since this program's inception in fiscal 1993, over 150,000
participants have completed one or more certification examinations.

Competition

The IT education and training market is highly fragmented, with low barriers
to entry and no single competitor accounting for a dominant market share. The
Company's competitors are primarily company internal

13
<PAGE>

training departments, independent education and training companies, computer
hardware and software vendors, systems integrators and others. Some of these
competitors offer course titles and programs similar to those of the Company
at lower prices. In addition, some competitors have greater financial and
other resources than the Company.

Internal Training Departments. Internal IT training departments generally
provide companies with the most control over the method and content of
training, enabling them to tailor the training to their specific needs.
However, the Company believes that industry trends toward downsizing and
outsourcing continue to reduce the size of IT training departments and
increase the percentage of IT training delivered by external providers.
Because internal trainers find it increasingly difficult to keep pace with new
technologies, lack the hands-on experience needed to teach the latest
technological developments and lack the capacity to meet demand, organizations
supplement their internal training resources with externally supplied training
in order to meet their requirements.

Other Independent Education and Training Providers. The Company believes
that the majority of independent training providers are smaller organizations,
which often provide training as one of several services or product lines. In
addition, many are "Authorized Training and Education Centers" which present
courses utilizing materials prepared by computer hardware and software vendors
such as Novell and Microsoft. In recent months, some of these "Authorized
Training and Education Centers" have been growing in size and expanding the
scope of their operations. The Company differentiates itself from these
providers based on its size; scope and quality of its proprietary course
offerings; worldwide delivery capability; number, quality and experience of
its instructors; and vendor independence.

Computer Hardware and Software Vendors. Many hardware and software vendors
supply training bundled in the prices of their product. In addition, their
knowledge of upcoming developments in their products is likely to be better
than that of other training providers. Learning Tree differentiates itself
from computer systems manufacturers and software vendors by maintaining a
vendor-independent posture and providing cross-platform training solutions.

CBT and Distance Learning. The market for IT education and training has
historically consisted primarily of instructor-led training. Multimedia and
computer-based IT training currently account for a smaller portion of the
overall IT training market. Beginning in fiscal 1996, the Company developed,
produced and marketed a line of interactive computer-based training courses
incorporating audio and graphical elements designed for both stand-alone CD-
ROM and network-based delivery. On July 13, 1999, the Company announced that
it intended to shift its focus in technology-based training from CD-ROM based
courses to other distance learning methodologies using the Internet. The
Company's shift in focus for technology-based training was influenced by
several factors, including competition in the CBT market which has continued
to intensify, placing significant pressure on both pricing and margins.
Additionally, the Company believes that, as new technologies and instructional
approaches continue to be introduced, technology-based training methods are
likely to shift over time from delivery on CD-ROM to delivery over the
Internet, which could be more effective and compatible with the Company's
instructor-led training expertise. The Distance Learning market is a
relatively new market that is in the development stage. The future impact of
this market on instructor-led training is uncertain at this time. Currently,
the Distance Learning market is fragmented with no dominant market leader. See
Exhibit 99, "Risk Factors."

Intellectual Property and Licenses

The Company regards its course development process and its course titles as
proprietary and relies primarily on a combination of statutory and common law
copyright, trademark and trade secret laws, customer licensing agreements,
employee and third-party nondisclosure agreements and other methods to protect
its proprietary rights. Notwithstanding the foregoing, a third party or
parties could copy or otherwise obtain and use the Company's course materials
in an unauthorized manner or use these materials to develop course titles
which are substantially similar to those of the Company. In addition, the
Company operates in countries that do not provide

14
<PAGE>

protection of proprietary rights to the same extent as the United States. The
Company's course materials generally do not include any mechanisms to prohibit
or prevent unauthorized use. If substantial unauthorized use of the Company's
products were to occur, the Company's business and results of operations could
be materially adversely affected. There can be no assurance that the Company's
means of protecting its proprietary rights will be adequate or that the
Company's competitors will not independently develop similar course titles or
delivery methods. Additionally, there can be no assurance that third parties
will not claim that the Company's current or future courses infringe on the
proprietary rights of others. The Company expects that it will be increasingly
subject to such claims as the number of products and competitors increases in
the future. Any such claim could result in a material adverse effect on the
Company's business. See Exhibit 99, "Risk Factors."

Regulatory Environment

Many federal, state and international governmental authorities assert
authority to regulate providers of educational programs. Generally, the
Company is exempt from such regulation because the Company contracts with the
employer of the course participants and does not participate in any federal or
state student aid/loan programs. However, state laws and regulations affect
the Company's operations and may limit the ability of the Company to obtain
authorization to operate in certain states. If the Company were required to
comply with, or found to be in violation of, a state's current or future
licensing or regulatory requirements, it could be subject to civil or criminal
sanctions, including monetary penalties, and could be barred from providing
educational services in that state.

Employees

As of September 30, 1999, the Company had a total of 534 full-time
equivalent employees, of whom 248 were employed outside the United States. The
Company also utilized the services of 834 instructors to teach its courses on
an as-needed basis. The Company considers its relations with its employees and
its instructors to be good.

15
<PAGE>

Item 2. Properties

As of September 30, 1999, all of Learning Tree's education center classroom
facilities were leased by the Company. The leases expire at various dates over
the next 19 years. The Company's headquarters is located at 6053 West Century
Boulevard, Los Angeles, California 90045. The Company owns a 38,500 square
foot office facility which is used to house the sales, administrative and
operations groups of its U.S subsidiary. The Company intends to lease
additional facilities for a number of its subsidiaries in the foreseeable
future. The Company has and expects to continue to supplement its education
center classroom facilities through the use of rented hotel and conference
facilities as needed. The table below sets forth certain information regarding
Learning Tree's facilities, comprised of classroom sites and offices as of
September 30, 1999:

<TABLE>
<CAPTION>
Location No. of Area in
(Metropolitan Area) Classrooms Square Feet
- ------------------- ---------- -----------
<S> <C> <C>
Boston, MA.............................................. 6 13,717
Los Angeles, CA......................................... 3 57,229
New York, NY (2 sites).................................. 15 33,790
Washington, DC metropolitan area (5 sites).............. 36 135,813
Miscellaneous other U.S................................. N/A 1,200
Paris, France........................................... 15 36,814
London, England (2 sites)............................... 39 106,394(a)
Ottawa, Canada.......................................... 6 19,804
Toronto, Canada......................................... 5 10,830
Stockholm, Sweden....................................... 13 22,605
Tokyo, Japan............................................ N/A 1,311
Hong Kong............................................... N/A 574
</TABLE>
- --------
(a) Excludes 36,117 square feet which the Company subleases to other tenants.

Item 3. Legal Proceedings

On April 16, 1998, a class action lawsuit was filed against certain officers
and directors of the Company in the Superior Court of the State of California,
County of Los Angeles, (Sarah v. Collins et al., Case No. BC189499),
purportedly on behalf of persons who purchased the Company's Common Stock
between May 8, 1997 and November 3, 1997. On June 29, 1998, a second class
action lawsuit was filed by the same law firms against the same officers and
directors of the Company in the Superior Court of the State of California,
County of Los Angeles (Guthrie v. Collins et al., Case No. BO193465), also
purportedly on behalf of persons who purchased the Company's Common Stock
between May 8, 1997 and November 3, 1997. On August 6, 1998, a third class
action lawsuit was filed by the same law firms against the Company and certain
officers and directors of the Company in the United States District Court for
the Central District of California (Schlagal v. Learning Tree International et
al., Case No. 95-6384ABC), purportedly on behalf of persons who purchased the
Company's Common Stock between May 8, 1997 and May 13, 1998. On August 10,
1998, the Superior Court dismissed the Sarah case. On April 15, 1999, the
Court of Appeals reversed the dismissal of Sarah.

On August 27, 1998, plaintiffs amended the Guthrie action to add the Company
and two additional officers as defendants and to expand the proposed class
period to include persons who purchased the Company's Common Stock between May
8, 1997 and May 13, 1998.

Each of the complaints makes similar allegations of misrepresentations in
certain public disclosures made by the Company at various times during the
class period. Each complaint also alleges that the Company and the defendant
officers and directors concealed an alleged deterioration of business early in
1997 and that several of the officers and directors realized profits by
trading their shares of Company Stock while in possession of allegedly
concealed material adverse information. Each complaint seeks an unspecified
amount of compensatory damages and, additionally, seeks attorneys' fees and
other costs, interest, and other relief.

16
<PAGE>

The Company has agreements with officers and directors under which it is
indemnifying them in each of these proceedings. The Company is unable to
estimate the outcome of these matters or any potential liabilities it may
incur. The Company may incur legal and other defense costs as a result of such
proceedings in an amount which it can not currently estimate. These
proceedings could involve a substantial diversion of the time of some of the
members of management, and an adverse determination in, or settlement of, such
litigation could involve the payment of significant amounts or could include
terms in addition to such payments, which could have an adverse impact on the
Company's business, financial condition, results of operations and cash flows.

Item 4. Submission of Matters To A Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1999, through the solicitation of proxies or otherwise.

PART II

Item 5. Market for Registrant's Common Stock and Related Stockholder Matters

Price Range Of Common Stock

The Company's Common Stock began trading publicly on the Nasdaq National
Market under the symbol LTRE effective December 6, 1995. The following table
sets forth, for the periods indicated, the range of high and low sales prices
for the Common Stock on the Nasdaq National Market:

<TABLE>
<CAPTION>
High Low
---- ----
<S> <C> <C>
Fiscal 1998
First Quarter $35 7/8 $21 5/8
Second Quarter............................................ 29 3/4 19
Third Quarter............................................. 25 1/4 15
Fourth Quarter............................................ 20 5/8 8

Fiscal 1999
First Quarter............................................. 12 1/2 7 9/16
Second Quarter............................................ 10 6
Third Quarter............................................. 11 1/8 8 7/8
Fourth Quarter............................................ 16 3/4 10 3/4
</TABLE>

As of December 13, 1999 there were approximately 1,400 holders of record of
the Common Stock.

Volatility of Stock Price

The Company's initial public offering was completed in December 1995 and a
secondary public offering was completed in September 1996. There can be no
assurance that a viable public market for the Common Stock will be sustained.
The market price of the Common Stock has fluctuated significantly since the
initial public offering. The Company believes that factors such as
announcements of developments related to the Company's business, announcements
of new products or enhancements by the Company or its competitors, sales of
the Common Stock into the public market, developments in the Company's
relationships with its customers, shortfalls or changes in revenues, gross
margins, earnings or losses or other financial results which differ from
public market analysts' expectations, fluctuations in results of operations
and general conditions in the Company's market or the markets served by the
Company's customers or the economy could cause the price of the Common Stock
to fluctuate, perhaps substantially. In addition, in recent years the stock
market in general, and the market for shares of technology-related stocks in
particular, have experienced extreme price fluctuations, which have often been
unrelated to the operating performance of affected companies. There can be no
assurance that the market price of the Common Stock will not continue to
experience significant fluctuations in the future, including fluctuations that
are unrelated to the Company's performance.

17
<PAGE>

Dividends

To date, the Company has not paid any cash dividends on its Common Stock and
the Company anticipates that it will not pay cash dividends on the Common
Stock for the foreseeable future and that it will retain any earnings for use
in the operation of its business. The declaration and payment of dividends by
the Company are subject to the discretion of its Board of Directors and to
compliance with applicable laws. Any determination as to the payment of
dividends in the future will depend upon, among other things, general business
conditions, the effect of such payment on the Company's financial condition
and other factors the Company's Board of Directors may in the future consider
to be relevant.

18
<PAGE>

Item 6. Selected Consolidated Financial Data

The following selected consolidated financial data of the Company is
qualified by reference to and should be read in conjunction with the
consolidated financial statements and notes thereto and other financial data
included elsewhere in this Annual Report on Form 10-K. The statement of
operations data set forth below for each of the three years in the period
ended September 30, 1999 and the balance sheet data as of September 30, 1998
and 1999, are derived from the Company's consolidated financial statements for
those years which have been audited by Arthur Andersen LLP, independent public
accountants, whose report thereon is included elsewhere herein. The statement
of operations data for each of the two years in the period ended September 30,
1996 and the balance sheet data at September 30, 1995, 1996 and 1997 are
derived from audited financial statements of the Company not included herein.
These historical results are not necessarily indicative of the results to be
expected in the future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------
1995 1996 1997 1998 1999
------- -------- -------- -------- --------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues......................... $78,818 $103,575 $164,483 $187,174 $189,321
Cost of revenues................. 30,731 40,879 70,439 80,016 76,598
------- -------- -------- -------- --------
Gross profit................... 48,087 62,696 94,044 107,158 112,723
------- -------- -------- -------- --------
Operating expenses:
Course development............... 4,954 6,248 11,048 11,942 19,267
Sales and marketing.............. 22,883 31,245 51,284 59,422 54,996
General and administrative....... 12,176 12,850 19,228 22,509 23,720
------- -------- -------- -------- --------
Total operating expenses....... 40,013 50,343 81,560 93,873 97,983
------- -------- -------- -------- --------
Income from operations........... 8,074 12,353 12,484 13,285 14,740
Other income (expense), net...... 272 1,798 3,066 2,676 4,285
------- -------- -------- -------- --------
Income before provision for
income taxes.................... 8,346 14,151 15,550 15,961 19,025
Provision for income taxes....... 1,866 4,033 5,058 5,427 6,611
------- -------- -------- -------- --------
Net income..................... $ 6,480 $ 10,118 $ 10,492 $ 10,534 $ 12,414
======= ======== ======== ======== ========
Net earnings per common share
assuming dilution............... $ 0.38 $ 0.49 $ 0.47 $ 0.48 $ 0.57
======= ======== ======== ======== ========
Diluted shares outstanding....... 17,046 20,609 22,099 22,015 21,898
======= ======== ======== ======== ========
<CAPTION>
At September 30,
-------------------------------------------
1995 1996 1997 1998 1999
------- -------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........ $10,029 $ 24,541 $ 32,441 $ 36,055 $ 33,059
Short-term interest-bearing
investments..................... -- 37,000 24,330 31,136 58,357
Total current assets............. 21,336 77,610 86,146 90,301 114,338
Total assets..................... 28,427 91,529 122,351 137,390 150,781
Total current liabilities........ 22,843 34,247 55,033 59,280 62,247
Long-term debt and capital
leases, net of current portion.. 272 134 -- -- --
Total stockholders' equity....... 3,305 55,506 65,895 76,828 85,640
</TABLE>

19
<PAGE>

Item 7. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations

Except for historical information contained herein, the matters discussed in
this Annual Report on Form 10-K are forward-looking statements that are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those set forth in such forward-looking statements.
Such risks and uncertainties include, without limitation, the Company's
dependence on the timely development, introduction and customer acceptance of
courses and products, the impact of competition and downward pricing
pressures, the effect of changing economic conditions, the Company's ability
to attract and retain key management and other personnel, risks in technology
development and introduction, the risks involved in currency fluctuations, and
the other risks and uncertainties discussed below, and in "Risk Factors,"
filed as Exhibit 99 which is incorporated by reference.

Overview

Learning Tree International, Inc. is a leading worldwide provider of
education and training to IT professionals in business and government
organizations. The Company develops, markets and delivers a broad, proprietary
library of instructor-led course titles focused on client/server systems,
intranet/Internet technologies, computer networks, operating systems,
databases, programming languages, object-oriented technology and IT
management. In addition, the Company provides custom developed training for
larger clients who need to train large numbers of their IT professionals and
end-users, and tests and certifies IT professionals in 31 IT job functions.
The Company's instructor-led courses are recommended for college credit by the
American Council on Education. The Company also provides its customers with a
skills assessment service through its SkillsTree program.

The Company has also delivered certain of its courses by using a computer-
based training method ("multimedia CBT.") The multimedia CBT courses were
designed for both stand-alone CD-ROM and network-based delivery. On July 13,
1999, the Company announced that it intended to shift its focus in technology-
based training from CD-ROM based courses to other distance learning
methodologies using the Internet. As a result, the Company has discontinued
further development of its CBT courses, and has substantially reduced its CBT
sales efforts during the first quarter of fiscal 2000. The decision is
expected to reduce future costs and revenues associated with the Company's CD-
ROM based CBT courses. The Company intends to continue providing technical
support to its CBT customers.

The Company's shift in focus for technology-based training was influenced by
several factors. In developing and marketing its products, including its CD-
ROM based CBT courses, the Company has emphasized educational quality and
features. That philosophy notwithstanding, many purchasers of CD-ROM based CBT
courses, particularly those making larger library purchases, have continued to
place more emphasis on pricing and the total number of CBT titles available
than on quality. Furthermore, competition in the CBT market has continued to
intensify, with significant pressure on both pricing and margins. Finally, the
Company believes that,

20
<PAGE>

as new technologies and instructional approaches continue to be introduced,
technology-based training methods are likely to shift over time from delivery
on CD-ROM to delivery over the Internet, which could be more effective and
compatible with the Company's instructor-led training expertise.

As a result of this decision, the Company wrote-off approximately $6.0
million dollars related to capitalized development costs and equipment in the
quarter ending June 30, 1999. Earlier in the fiscal year, the Company wrote-
off multimedia CBT product development costs of approximately $1.2 million
which were estimated to be non-realizable, as well as for costs for certain
CBT courses which were terminated while still under development.

In fiscal 1997, the Company introduced the "Power Seminars" product line
which were multi-day conferences consisting of a number of 1-day, multimedia
lecture-style seminars in key information technologies. In November 1997, the
Company announced that it was retiring its Power Seminars product line as of
the end of the first quarter of fiscal 1998.

For the fiscal years ended 1997, 1998 and 1999, revenues increased over the
preceding years by 59%, 14% and 1%, respectively. In response to the changes
in the current and expected rate of growth in course participants, the Company
adjusts its rate of development of new course titles, adjusts the size of the
direct mailing campaigns and takes steps to expand the number of classrooms in
its education centers. Generally, the Company intends to increase its
marketing and development activities more rapidly when it expects rapid growth
of the market and reduce the rate of increase in such activities when it
expects slower market growth. However, there can be no assurance that the
Company will be able to accurately predict its future growth rate to optimize
these measures or that the Company will achieve an increase in market share
after making such adjustments or expenditures or will maintain growth in
revenues, profitability or market share in the future. The Company's revenues
and profitability are subject to general economic conditions and a significant
portion of the Company's revenues are derived from Fortune 1000-level
companies and their international equivalents. Such companies have
historically adjusted their expenditures for external IT training during
economic downturns. Should the economy weaken in any future period, these
companies may not increase or may reduce their expenditures on external IT
training, which would have an adverse impact on the Company. The Company plans
to increase its sales and marketing expenditures in fiscal 2000. However,
there can be no assurance that the Company's revenues will grow in fiscal
2000.

The Company's instructor-led course events are taught in classrooms and
include extensive, hands-on exercises under the guidance of expert
instructors. The Company has structured its business so that the majority of
its instructor-led course costs depend upon the number of course events it
conducts. The Company schedules its multi-day course events throughout the
year based on its assessment of demand. Since the Company's instructors
typically work full-time in the IT industry and teach an average of eight to
nine Learning Tree course events each year, as needed, the Company's
instructor-related costs are largely variable. In addition, although the
expenses associated with its own Education Centers are fixed, the Company can
impact its overall facility expenses by varying its use of rented hotel and
conference facilities. Because the cost for each course event does not
increase significantly as additional participants are included, the Company
utilizes a variety of techniques to maximize the number of participants per
course event, up to limits designed to preserve the quality of each course
event. These techniques include adding additional events for a popular course
title, combining two or more undersubscribed events into one course event and
adding an assistant instructor to increase the maximum number of students that
can be effectively taught in a course event. The extent to which these
techniques are used is subject to a number of factors within a particular
market segment.

Backlog

At September 30, 1999, the Company had a backlog of orders for instructor-
led courses of $30.2 million, which represented a 1% decline compared to the
backlog of $30.5 million at September 30, 1998. However, at October 31, 1999,
the backlog of orders for instructor-led courses had grown to $31.2 million,
which represented a 9% increase compared to the backlog of $28.7 million at
October 31, 1998. Only a portion of the Company's backlog is funded. There can
be no assurance that the recent growth in the backlog compared to the prior
year

21
<PAGE>

will continue or that orders comprising the backlog will be realized as
revenue. Specifically, the Company remains cautious about the potential
effects of Year 2000 ("Y2K") Compliance programs on its customers. While the
exact impact of the Y2K issues on IT training cannot be predicted, the Company
believes that the potential Y2K impacts on its customers may adversely affect
enrollments during at least the second quarter of fiscal 2000.

Results Of Operations

The following table sets forth, for the periods indicated, certain items
from the Company's consolidated statements of operations as a percentage of
revenues:

<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenues....................................... 100% 100% 100%
Cost of revenues............................... 43 43 40
-------- -------- --------
Gross profit................................. 57 57 60
Operating expenses:
Course development............................. 7 6 10
Sales and marketing............................ 31 32 29
General and administrative..................... 12 12 13
-------- -------- --------
Total operating expenses..................... 50 50 52
-------- -------- --------
Income from operations....................... 7 7 8
Other income (expense), net.................... 2 2 2
-------- -------- --------
Income before provision for income taxes....... 9 9 10
Provision for income taxes..................... 3 3 3
-------- -------- --------
Net income................................... 6% 6% 7%
======== ======== ========
</TABLE>

Fiscal 1999 Compared With Fiscal 1998

For the fiscal year ended September 30, 1999, revenues increased by $2.1
million or 1% to $189.3 million from $187.2 million for the fiscal year ended
September 30, 1998.

The decision announced July 13, 1999 to discontinue development of CBT
courses and to write-off approximately $6.0 million in capitalized development
and equipment costs in the third quarter of fiscal 1999 had an adverse effect
on income from operations and net income for the year ended September 30,
1999. Despite the write-off of the deferred CBT development costs, income from
operations increased $1.4 million or 11% to $14.7 million versus $13.3 million
for fiscal 1998. Net income for fiscal 1999 increased $1.9 million or 18% to
$12.4 million from $10.5 million last year. Excluding the effect of this
write-off, when comparing fiscal 1999 with fiscal 1998, income from operations
increased by $7.3 million or 55% to $20.6 million from $13.3 million and net
income increased $5.8 million or 55% to $16.4 million ($0.75 per share) from
$10.5 million ($0.48 per share).

The modest growth in revenues for fiscal 1999 reflects a 2% increase in
average revenue per multi-day course participant. The increase is attributable
to an increase in the average course duration, increases in prices, and the
introduction and expansion of the 4-course Passport program.

The number of multi-day instructor-led course participants was virtually
unchanged at 113,114 in fiscal 1999 as compared to 113,108 in the prior year.
The rate of growth in the number of course participants has declined from
earlier periods. The Company believes that the declining growth rate of course
participants may be due to a number of causes, including the pace of
introduction of major new software technologies, the effect of our clients'
Y2K Compliance programs, and other possible factors. Certain independent, as
well as internal

22
<PAGE>

market surveys have and continue to indicate that companies have reduced their
spending on IT training and on new software and hardware investments while
working to overcome their Y2K problems. There can be no assurance that the
Company's revenues will increase as more companies complete their Y2K
Compliance projects.

A significant portion of the Company's revenues is denominated in foreign
currencies which have been translated into US dollars based upon the exchange
rates prevailing when the revenues were earned. Accordingly, exchange rate
fluctuations may impact the US dollar value of reported revenues. Exchange
rate changes during the year reduced revenues by approximately $1.5 million in
fiscal 1999 compared to the exchange rates prevailing during fiscal 1998.

The Company's cost of revenues for its instructor-led courses primarily
includes the costs associated with course instructors, course materials,
course equipment, freight, classroom facilities and refreshments. For
multimedia CBT courses, cost of revenues primarily includes the costs of
amortized development, manufacturing, distribution and support. For fiscal
1999, the cost of revenues decreased to 40.5% of revenues compared to 42.7% in
fiscal 1998. The improvement in the cost of revenues primarily reflects higher
margins in the Company's multi-day instructor-led courses and, to a much
lesser extent, the write-off of deferred CBT development costs.

For the fiscal year ended September 30, 1999, the cost of revenues decreased
$3.4 million or 4% to $76.6 million from $80.0 million for the previous fiscal
year. The decrease in the cost of revenues is primarily the result of lower
costs per multi-day instructor-led course event. These savings were partially
offset by a 1% increase in the number of multi-day instructor-led course
events. The number of course events was 7,126 in fiscal 1999 as compared to
7,066 in fiscal 1998.

Costs per multi-day instructor-led course event decreased by 3% in fiscal
1999 as compared to fiscal 1998. The change in the average cost per course
event primarily reflects decreases in costs for classroom facilities, course
materials and freight. In order to control the costs of classroom facilities,
the Company has replaced its use of more expensive hotel facilities with
increased education center capacity in several locations. In April 1998, the
Company opened a new larger education center in Boston and in October 1998,
the Company opened new education centers in London and New York. In addition,
the Company moved to a new education center facility in Ottawa in July 1999.

Course development expense includes the costs of developing new course
titles and updating the Company's existing course library. The principal costs
are for internal product development staff and independent consultants who
serve as subject matter experts. For fiscal 1999, course development expense
was 10.2% of revenue compared to 6.4% in fiscal 1998. For the fiscal year
ended September 30, 1999, course development expenses increased by $7.4
million or 61% to $19.3 million from $11.9 million for fiscal 1998. The
increased costs reflect the write-offs of deferred CBT product development
costs of $5.9 million in the third quarter and $1.2 million earlier in the
fiscal year. The $5.9 million write-off occurred as a result of the Company's
decision to shift its focus in technology-based training from CD-ROM based
courses to other distance learning methodologies using the Internet. The $1.2
million write-off reflects deferred CBT product development costs estimated to
be non-realizable, as well as costs for certain CBT courses which were
terminated while still under development.

The number of multi-day instructor-led course titles decreased to 143 as of
September 30, 1999 compared to 149 a year earlier. The change in the size of
the multi-day instructor-led course library reflects the net effect of the
introduction of new titles and the retirement of old titles. Old titles are
retired when the profits they generate are not sufficient to justify the
ongoing cost of marketing them and maintaining their technological content.
The actual number of instructor-led course titles which the Company will
produce and their delivery dates are subject to a number of factors, such as
the hiring and training of staff, perceived customer demand, and the
availability of subject matter experts who are also responsible for teaching
the Company's instructor-led courses. There can be no assurance that the
Company will develop more titles than it retires in any period.

23
<PAGE>

Sales and marketing expenses include salaries, commissions and travel-
related costs for sales and marketing personnel, the costs of designing,
producing and distributing direct mail marketing and media advertisements, and
the costs of information systems to support these activities. Sales and
marketing expenses decreased $4.4 million or 7% to $55.0 million in fiscal
1999 from $59.4 million in fiscal 1998. The decrease in sales and marketing
expenses, for the 1999 fiscal year, occurred primarily as a result of a
decrease in direct mail marketing costs per piece and reductions in other
marketing costs and sales personnel costs.

The Company seeks to adjust its marketing activities based on its expected
growth rate in course participants. The rate of growth in the number of course
participants has declined from earlier periods. Accordingly, the Company
reduced its marketing expenditures for fiscal 1999 compared to fiscal 1998.
Sales and marketing expenses for fiscal 1999 decreased as a percentage of
revenues to 29.0% as compared to 31.7% in fiscal 1998. The Company expects to
increase its marketing expenditures in fiscal 2000.

In fiscal 1999, general and administrative expenses increased $1.2 million
or 5% to $23.7 million from $22.5 million for fiscal 1998. The increase in
general and administrative expenses reflects increases in information systems
and other administrative staff and related costs, and increases in facilities
related costs over the prior year. As a percentage of revenue, general and
administrative expenses were 12.5% for fiscal 1999 compared to 12.0% in fiscal
1998.

Other income (expense) is primarily comprised of interest income, interest
expense and foreign currency transaction gains and losses. Foreign currency
transaction gains and losses arise from receivables and payables denominated
in currencies other than the functional currencies of the Company's foreign
subsidiaries. For fiscal 1999, other income increased $1.6 million to $4.3
million from $2.7 million for fiscal 1998. This increase was primarily
attributable to additional interest income and foreign exchange gains. The
Company recorded foreign exchange gains of $285,000 in fiscal 1999, compared
to foreign exchange losses of $288,000 in fiscal 1998.

Although the Company's consolidated financial statements are stated in U.S.
dollars, several of the Company's subsidiaries have functional currencies
other than the U.S. dollar. Gains and losses arising from the translation of
the balance sheets of the Company's subsidiaries from the functional
currencies to U.S. dollars are reported as an adjustment to stockholders'
equity. However, fluctuations in exchange rates may have an effect on the
Company's results of operations, particularly its revenues and operating
income, when translating the income statements to dollars. The impact of
future exchange rates on the Company's results of operations cannot be
accurately predicted. To date, the Company has not sought to hedge the risks
associated with fluctuations in exchange rates and therefore continues to be
subject to such risks. In the future, the Company may undertake such
transactions. There can be no assurance that any hedging techniques
implemented by the Company would be successful in eliminating or reducing the
effects of currency fluctuations.

In fiscal 1999, the income tax provision increased $1.2 million to $6.6
million from $5.4 million in fiscal 1998. This increase primarily reflects an
increase in income before taxes in fiscal 1999 compared to fiscal 1998 and a
slight increase in the effective tax rate in fiscal 1999 compared to 1998.
Learning Tree International, Inc. operates as a holding company with operating
subsidiaries in several countries. Each subsidiary is taxed based on the laws
of the jurisdiction in which it operates. Since taxes are incurred at the
subsidiary level, and tax rates vary from country to country and one
subsidiary's tax losses cannot offset the taxable income of subsidiaries in
other tax jurisdictions, the Company's consolidated effective tax rate may
vary. Accordingly, the Company's consolidated effective tax rate may increase
in the future. See Note 2 of the Notes to Consolidated Financial Statements.

The increase in revenues in fiscal 1999 compared to fiscal 1998 primarily
reflects increases in Europe, partially offset by a decrease in the United
States. Europe recorded revenues of $80.7 million in fiscal 1999 compared to
revenues of $75.3 million in fiscal 1998, primarily due to growth in France
and Sweden. The United States recorded revenues of $95.7 million in fiscal
1999 as compared to $98.8 million in fiscal 1998. See Note 7 of Notes to
Consolidated Financial Statements.

24
<PAGE>

In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities" and the American Institute of Certified
Public Accountants issued Statement of Position ("SOP") 98-5 "Reporting on the
Costs of Start-up Activities" and SOP 98-9 "Modification of 97-2, Software
Revenue Recognition." The Company believes that these statements will not have
a material effect on its reported financial position or results of operations.

Fiscal 1998 Compared With Fiscal 1997

For the fiscal year ended September 30, 1998, revenues increased by $22.7
million or 14% to $187.2 million from $164.5 million for the fiscal year ended
September 30, 1997. The growth of revenues was due, in part, to an increase in
the number of multi-day course participants to 113,108 compared to 101,141 in
the corresponding prior year. The additional course participants were
primarily attributable to increased sales and marketing activities and an
increase in the number of multi-day course titles. The number of multi-day
course titles increased to 149 as of September 30, 1998 compared to 139 a year
earlier. The rate of growth in the number of course participants was less than
the growth in the prior year. The Company believes that the lower growth rate
of course participants was due to a number of causes, including the pace of
introduction of major new software technologies, the effect of Y2K Compliance
programs, and other possible factors.

Revenues for fiscal 1998 also reflected a 3% increase in average revenue
per multi-day course participant, which in turn was attributable to an
increase in the average course duration, increases in prices, the introduction
and expansion of the 4-course Passport program, and a change in the mix of
course events from customer-site course events toward Learning Tree-site
course events. The increase in revenues also reflected increased revenues from
the multimedia CBT product line.

The increases in revenues were partially offset by a decrease in revenues
produced by the Company's Learning Solutions program under its contracts with
General Motors to train General Motors' personnel and dealers on the use and
support of a new proprietary information system, GM ACCESS, and by the
elimination of revenues from the Power Seminars product line. The initial
contract with General Motors, which ran from June 1997 to November 1997, was
much larger than the follow-on contract which began in February 1998 and was
completed in August 1998. Further, a significant portion of the Company's
revenues is denominated in foreign currencies which have been translated into
dollars based upon the exchange rates prevailing when the revenues were
earned. Exchange rate changes during the year reduced revenues by
approximately $2.0 million in fiscal 1998 compared to the exchange rates
prevailing during fiscal 1997.

The cost of revenues was 42.7% of revenues in fiscal 1998 compared to 42.8%
in fiscal 1997. This reflected the reduced impact of the lower margin Learning
solutions courses for General Motors, an improvement in margins in multi-day
instructor-led course events, and the elimination of the low margin Power
Seminars business. These improvements were partially offset by a decline in
margins on certain multimedia CBT courses due to the amortization of
development costs.

For the fiscal year ended September 30, 1998, the cost of revenues increased
$9.6 million or 14% to $80.0 million from $70.4 million for the previous
fiscal year. The increase in the cost of revenues was primarily the result of
the increased number of course events as well as costs associated with the
increased sales in the multimedia CBT product line. The number of multi-day
course events increased 13% in fiscal 1998 to 7,066 from 6,278 course events
in fiscal 1997.

Costs per multi-day course event increased by approximately 2% in fiscal
1998 compared to fiscal 1997. The change in the average cost per course event
primarily reflected a 2% increase in the average course duration. Further, the
higher costs per course event in fiscal 1998 compared to fiscal 1997 reflected
higher costs per event for classroom facilities, course equipment, and
recruiting and training instructors. To control the costs of classroom
facilities, the Company increased its education center capacity in several
locations. In January 1998, the Company opened a new, larger education center
in Sweden and signed an agreement to lease a new education center in the
United Kingdom. In April 1998, the Company opened a new larger education
center in Boston and in July 1998, the Company signed a lease for a larger
education center in New York.

25
<PAGE>

For fiscal 1998, course development expense was 6.4% of revenue compared to
6.7% in fiscal 1997. For the fiscal year ended September 30, 1998, course
development expenses increased by $894,000 or 8% to $11.9 million from $11.0
million for fiscal 1997. This increase reflected the costs associated with the
expansion of the multimedia CBT and multi-day instructor-led course libraries
and updating and maintaining the growing course title libraries. These
increases in costs were partially offset by the elimination of development
costs for the Power Seminars product line.

The number of multi-day course titles increased to 149 as of September 30,
1998 compared to 139 a year earlier. The increase in the size of the multi-day
course library reflected the net effect of the introduction of new titles and
the retirement of old titles.

The number of multimedia CBT course titles increased to 114 as of September
30, 1998 compared to 72 the year before. During the first quarter of fiscal
1998, the Company introduced an HTML-based engine for its multimedia CBT
product line. New multimedia CBT titles developed during the latter half of
fiscal 1998 were developed using this engine and resources were allocated to
adapt existing courses based on prior engines to the new HTML-based engine.

Sales and marketing expenses increased $8.1 million or 16% to $59.4 million
in fiscal 1998 from $51.3 million in fiscal 1997. The increase in sales and
marketing expenses, for the 1998 fiscal year, occurred as a result of an
increase in telemarketing and field sales staff and increased direct mail
marketing. The net increase in sales and marketing expenses in fiscal 1998
over 1997 reflected the higher level of sales and marketing expenditures
during the first half of the fiscal year than during the prior year. As
discussed above, the Company adjusts its marketing activities to correspond
with its expected growth rate in course participants. Accordingly, the Company
reduced its marketing expenditures during the second half of the 1998 fiscal
year. Sales and marketing expenses for fiscal 1998 increased as a percentage
of revenues to 31.7% compared to 31.2% in fiscal 1997.

In fiscal 1998, general and administrative expenses increased $3.3 million
or 17% to $22.5 million from $19.2 million for fiscal 1997. The increase in
general and administrative expenses reflected increases in information systems
and other administrative staff and increases in facility related costs over
the prior year. As a percentage of revenue, general and administrative
expenses were 12.0% for fiscal 1998 compared to 11.7% in fiscal 1997.

For fiscal 1998, other income decreased $0.4 million to $2.7 million from
$3.1 million for fiscal 1997. This decrease was primarily attributable to
foreign exchange losses recorded during the year and the write-offs of certain
course equipment in the United States and the leasehold improvements in the
education center facility in the United Kingdom which was being replaced by a
new facility. The Company recorded foreign exchange losses of $288,000 in
fiscal 1998, compared to $9,000 of foreign exchange losses in fiscal 1997.

In fiscal 1998, the income tax provision increased $369,000 to $5.4 million
from $5.1 million in fiscal 1997. This reflected the elimination of the
valuation allowance on deferred tax assets in fiscal 1997 and the different
effective tax rates in the international subsidiaries.

The increase in revenues in fiscal 1998 compared to fiscal 1997 was greatest
in the Company's largest geographic segments, Europe and the United States.
Europe recorded revenues of $75.3 million in fiscal 1998 compared to revenues
of $61.2 million in fiscal 1997. The growth in European revenues was primarily
due to revenue increases in Sweden and the United Kingdom. The United States
recorded revenues of $98.8 million in fiscal 1998 as compared to revenues of
$90.4 million in fiscal 1997. See Note 7 of Notes to Consolidated Financial
Statements.

Quarterly Results of Operations

The following tables set forth unaudited quarterly financial data for each
of the eight consecutive fiscal quarters ended September 30, 1999, including
such data expressed as a percentage of the Company's revenues.

26
<PAGE>

The Company believes that this information includes all adjustments (which
consisted solely of normal recurring adjustments) necessary for a fair
presentation of such quarterly information when read in conjunction with the
consolidated financial statements included elsewhere herein. The operating
results for any quarter are not necessarily indicative of the results for any
future period.

<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------------------------
Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30,
1997 1998 1998 1998 1998 1999 1999 1999
-------- --------- -------- --------- -------- --------- -------- ---------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $45,179 $45,005 $47,946 $49,044 $45,152 $46,520 $49,129 $48,520
Cost of revenues........ 20,340 18,677 20,287 20,712 19,840 19,460 19,418 17,880
------- ------- ------- ------- ------- ------- ------- -------
Gross profit........... 24,839 26,328 27,659 28,332 25,312 27,060 29,711 30,640
Operating expenses
Course development..... 3,165 2,721 3,024 3,032 3,377 3,721 9,139* 3,030
Sales and marketing.... 14,838 15,574 14,716 14,294 13,298 14,016 13,503 14,179
General and
administrative........ 5,445 5,562 5,586 5,916 5,796 5,897 5,902 6,125
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 23,448 23,857 23,326 23,242 22,471 23,634 28,544 23,334
------- ------- ------- ------- ------- ------- ------- -------
Income from
operations............ 1,391 2,471 4,333 5,090 2,841 3,426 1,167 7,306
Other income (expense).. 567 730 535 844 1,104 835 830 1,516
------- ------- ------- ------- ------- ------- ------- -------
Income before provision
for income taxes...... 1,958 3,201 4,868 5,934 3,945 4,261 1,997 8,822
Provision for income
taxes.................. 666 1,088 1,655 2,018 1,341 1,449 679 3,142
------- ------- ------- ------- ------- ------- ------- -------
Net income.............. $ 1,292 $ 2,113 $ 3,213 $ 3,916 $ 2,604 $ 2,812 $ 1,318 $ 5,680
======= ======= ======= ======= ======= ======= ======= =======
As A Percentage of
Revenues:
Revenues................ 100% 100% 100% 100% 100% 100% 100% 100%
Cost of revenues........ 45 42 42 42 44 42 40 37
------- ------- ------- ------- ------- ------- ------- -------
Gross profit........... 55 58 58 58 56 58 60 63
Operating Expenses
Course development..... 7 6 6 7 7 8 19* 6
Sales and marketing.... 33 35 31 29 30 30 27 29
General and
administrative........ 12 12 12 12 13 13 12 13
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 52 53 49 48 50 51 58 48
------- ------- ------- ------- ------- ------- ------- -------
Income from operations.. 3 5 9 10 6 7 2 15
Other income (expense).. 1 2 1 2 3 2 2 3
------- ------- ------- ------- ------- ------- ------- -------
Income before provision
for income taxes....... 4 7 10 12 9 9 4 18
Provision for income
taxes.................. 1 2 3 4 3 3 1 6
------- ------- ------- ------- ------- ------- ------- -------
Net income............. 3% 5% 7% 8% 6% 6% 3% 12%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- --------
* Includes $5.9 million write-off of deferred CBT development costs.

The Company has historically experienced fluctuations in its quarterly
operating results and expects such fluctuations to continue in the future. The
Company's course development and sales and marketing expenses are incurred
based on its expectations regarding future market conditions and there can be
no assurance that the attendant revenues will occur. Specifically, the Company
intends to increase the amount of its expenditures for sales and marketing in
the future. The Company may be unable to adjust its expenditures in a timely
manner to compensate for any unexpected revenue shortfall. Any significant
revenue shortfall would therefore have a material adverse effect on the
Company's results of operations. In addition, the Company's operating results
may fluctuate based on other factors including: the frequency and availability
of course events; the number of weeks in a quarter during which courses can be
conducted; the timing, frequency, size of and response to the Company's direct
mail marketing and advertising campaigns; the timing of the introduction of
new course titles and alternate delivery methods; the mix between customer-
site course events and Learning Tree-site course events; competitive forces
within the current and anticipated future markets served by the Company; the
spending patterns of its customers; currency fluctuations; inclement weather;
and general economic conditions.

27
<PAGE>

Fluctuations in quarter-to-quarter results may also occur as a result of
differences in the timing of, and the time period between, the Company's
expenditures on the development and marketing of its courses and the receipt
of revenues.

The Company's revenues and income have historically varied significantly
from quarter to quarter due to seasonality and other factors. The Company
generally has greater revenue and operating income in the second half of its
fiscal year (April through September) than in the first half of its fiscal
year (October through March). This seasonality is due in part to seasonal
spending patterns of the Company's customers arising from budgetary and other
business factors, as well as weather, holiday and vacation considerations. In
addition, the seasonality of the Company's operating results reflects the
quarterly differences in the frequency and size of the Company's direct mail
marketing campaigns. There can be no assurance that these seasonal factors or
their effects will remain the same in the future.

Liquidity and Capital Resources

Cash and cash equivalents declined to $33.1 million at September 30, 1999
from $36.1 million at September 30, 1998. However, cash and cash equivalents
combined with short-term interest-bearing investments increased to $91.4
million at September 30, 1999 from $67.2 million at September 30, 1998. The
change in the combined total of cash and cash equivalents and short-term
interest-bearing investments in fiscal 1999 primarily reflects the cash
provided by operations partially offset by cash used for additions to course
equipment, computer equipment and leasehold improvements, and for common stock
repurchases.

For fiscal 1999, cash provided by operations was approximately $37.5 million
compared to $35.2 million during fiscal 1998. The increase in cash provided by
operations primarily reflects the increase in profitability, excluding the
non-cash write-off of the deferred CBT development costs and collections of
accounts receivable. At September 30, 1999, the Company had a net working
capital balance of $52.1 million.

In March 1999, the Board of Directors of the Company authorized the
repurchase of up to 1,000,000 shares of Common Stock of the Company. Through
September 30, 1999, the Company had repurchased approximately 358,800 shares
of Common Stock for approximately $3,106,000. The Company may make additional
purchases through open-market transactions based upon market conditions and
pursuant to the requirements of Rule 10b-18 of the Securities Exchange Act of
1934. There can be no assurance that the Company will acquire all of the
shares that it has been authorized to repurchase. The Board of Directors may
authorize additional repurchases of Common Stock in the future, but there can
be no assurance that the Board of Directors will do so.

During fiscal 1999, the Company invested $8.2 million in equipment and
facilities compared to $10.4 million in fiscal 1998. The level of investment
during the current year reflects the build-out of education center facilities
in New York, London and Ottawa, and the continuing upgrade of course
equipment. The rate of investment in equipment and facilities reflects the
rate of revenue growth in fiscal 1999 as compared to fiscal 1998. Although the
Company expects to continue to invest in additional equipment and facilities
in fiscal 2000, as of September 30, 1999, the Company had no material future
purchase obligations, capital commitments or debt. Accordingly, management
believes that its cash and cash equivalents and short-term interest-bearing
investments and the cash provided by its operations will be sufficient to meet
the Company's cash requirements for the foreseeable future.

It is contemplated that part of the Company's cash and cash equivalents and
short-term interest-bearing investments may be used for acquisitions. While
the Company has no current agreements in place or negotiations underway with
respect to any acquisition, the Company plans to regularly evaluate
acquisition opportunities that fit within its business plan. Acquisitions
involve numerous risks, including potential difficulties in the assimilation
of acquired operations, diversion of management's attention away from normal
operating activities, negative financial impacts based on the amortization of
acquired intangible assets, the dilutive effects of the issuance of Common
Stock in connection with an acquisition, and potential loss of key employees
of the acquired

28
<PAGE>

operation. The Company has had no significant experience in executing and
implementing acquisitions and no assurance can be given as to the success of
the Company in executing and implementing acquisitions in the future.

The Company has not paid any cash dividends since its inception and does not
anticipate paying cash dividends in the foreseeable future.

Year 2000 Compliance

The Year 2000 Problem. The Y2K problem arose because many existing computer
programs use only the last two digits to recognize a year. Therefore, when the
year 2000 arrives, these programs may not properly recognize a year beginning
with "20" instead of the familiar "19". The Y2K problem may result in the
improper processing of dates and date-sensitive calculations by computers and
other microprocessor-controlled equipment as the year 2000 is approached and
reached.

State of Readiness. The Company has divided its review of Y2K problems into
three major areas: (1) internal information systems, (2) Company products,
including components supplied by outside vendors, and (3) potential Y2K
problems associated with outside vendors.

The Company has focused most of its efforts on internal systems because it
believes this area could be its primary source of Y2K problems. The Company's
internal computer systems are the foundation for its business operations and
include such critical functions as order entry, shipping, purchasing,
inventory control, manufacturing, accounts receivable, accounts payable and
general ledger. The Company has completed the installation and testing of the
upgrades it believes are necessary to make its internal systems Y2K compliant.
However, there can be no assurance that Y2K problems do not still exist and
have gone undetected by the Company's testing procedures.

The Company has reviewed its products and believes that they are Y2K
compliant.

The Company also completed a review to identify any potential Y2K problems
from outside vendors whose systems interface with the Company's internal
systems. The Company did not undertake a general review of other outside
vendors, such as banks, utilities, telephone companies, airlines and shipping
companies, and is relying on general industry pressure to ensure Y2K
compliance by these vendors. Based on the review of the Y2K problems
associated with outside vendors, the Company does not expect this issue to
have a material adverse effect on its operations. However, since third-party
Y2K compliance is not within the Company's control, the Company cannot be sure
that Y2K problems affecting the systems of other companies on which the
Company's systems rely will not have a material adverse effect on the
Company's operations. For example, any significant disruption in the banking
system, public utilities, local or long distance telephone service, airplane
travel, mail and other common carriers, or other external systems could
severely impact the Company.

Costs to Address the Y2K Issue. Costs to address the Y2K problem include
hardware, software and implementation costs paid to outside consultants. These
costs to date have totaled less than $100,000, the majority of which has been
expensed.

Risks Presented by the Year 2000 Issue. To date, the Company has not
identified any Y2K problem that it believes could materially adversely affect
the Company. However, even though the Company has completed its review of
interfaces with other outside vendors, it is possible that Y2K problems may be
identified that could result in a material adverse effect on its operations.
Furthermore, no assessment program can guarantee identification of all
potential issues.

Contingency Plans. Based upon the preceding discussion and the Company's
current assessment of the risks involved, the Company has not developed any
formal contingency plans to address unforeseen Y2K problems.

29
<PAGE>

Possible Impact on Revenues. The Company's marketing and promotion programs
rely heavily on direct mail programs and telephone solicitation. An
interruption in mail delivery or telephone service could significantly reduce
the Company's marketing efforts with a possible material adverse impact on
revenues. Further, the services rendered by the Company are heavily reliant on
the ability of its customers to travel to the locations where the Company
offers its courses. An interruption in travel services could significantly
reduce the ability of the Company's customers to attend courses with a
possible adverse impact on revenues. The Y2K problem is also expected to
result in some degree of general economic dislocation, which could decrease
demand for the Company's products and services resulting in a possible
material adverse impact on revenues. Certain independent as well as internal
market surveys have indicated that companies have reduced their spending on IT
training and on new software and hardware investments while working to
overcome their Y2K problems. In particular, the Company cannot predict at this
time the exact impact of the Y2K problem on IT training, particularly in the
early part of calendar 2000. The potential Y2K impacts on the Company's
customers may adversely affect enrollments during at least the second quarter
of the Company's 2000 fiscal year. There can be no assurance that the
Company's revenue will increase as more companies complete their Y2K
Compliance projects.

Quantitative and Qualitative Disclosures About Market Risk

The Company's cash equivalents and short-term investment portfolio is
diversified and consists primarily of investment grade securities. Investments
are held with high-quality financial institutions, government and government
agencies, and corporations, thereby reducing credit risk concentrations. The
fair value of the Company's portfolio of marketable securities would not be
significantly impacted by either a 10 percent (55 basis point) increase or
decrease in the rates of interest due primarily to the short-term nature of
the portfolio. The Company does not hold or issue derivative financial
instruments.

Foreign exchange rates affect the translated results of operations of the
Company's foreign subsidiaries. To date, the Company has not sought to hedge
the risks associated with fluctuations in exchange rates and therefore
continues to be subject to such risks. In the future, the Company may
undertake such transactions. There can be no assurance that any hedging
techniques implemented by the Company would be successful in eliminating or
reducing the effects of currency fluctuations.

30
<PAGE>

Item 8. Financial Statements and Supplementary Data

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants................................. F-2

Consolidated Balance Sheets at September 30, 1998 and 1999............... F-3

Consolidated Statements of Operations for the fiscal years ended
September 30, 1997, 1998 and 1999....................................... F-4

Consolidated Statements of Stockholders' Equity for the fiscal years
ended September 30, 1997, 1998 and 1999................................. F-5

Consolidated Statements of Cash Flows for the fiscal years ended
September 30, 1997, 1998 and 1999....................................... F-6

Notes to Consolidated Financial Statements............................... F-7
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Learning Tree International, Inc.:

We have audited the accompanying consolidated balance sheets of Learning
Tree International, Inc. (a Delaware corporation) and subsidiaries as of
September 30, 1998 and 1999, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended September 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Learning
Tree International, Inc. and subsidiaries as of September 30, 1998 and 1999,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended September 30, 1999, in conformity with
generally accepted accounting principles.

Arthur Andersen LLP

Los Angeles, California
November 5, 1999

F-2
<PAGE>

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
September 30,
--------------------------
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 36,055,000 $ 33,059,000
Short-term interest-bearing investments.......... 31,136,000 58,357,000
Trade accounts receivable, less allowances of
$408,000 and $743,000, respectively............. 18,265,000 17,227,000
Prepaid marketing expenses....................... 1,154,000 1,620,000
Prepaid expenses and other....................... 3,691,000 4,075,000
------------ ------------
Total current assets........................... 90,301,000 114,338,000
------------ ------------
Equipment, property and leasehold improvements:
Education and office equipment................... 37,960,000 38,050,000
Transportation equipment......................... 191,000 204,000
Property and leasehold improvements.............. 12,943,000 14,810,000
------------ ------------
51,094,000 53,064,000
Less: accumulated depreciation and amortization.. (23,859,000) (27,829,000)
------------ ------------
27,235,000 25,235,000
Long-term interest-bearing investments............. 10,169,000 9,959,000
Other assets....................................... 9,685,000 1,249,000
------------ ------------
Total assets................................... $137,390,000 $150,781,000
============ ============
LIABILITIES
Current liabilities:
Trade accounts payable........................... $ 14,618,000 $ 13,383,000
Deferred revenue................................. 33,357,000 37,618,000
Accrued payroll, benefits and related taxes...... 2,925,000 4,096,000
Other accrued liabilities........................ 4,309,000 3,223,000
Income taxes payable............................. 4,071,000 3,927,000
------------ ------------
Total current liabilities...................... 59,280,000 62,247,000
Deferred income taxes.............................. 17,000 154,000
Deferred facilities rent........................... 1,265,000 2,740,000
------------ ------------
Total liabilities.............................. 60,562,000 65,141,000
------------ ------------
Commitments and Contingencies

STOCKHOLDERS' EQUITY
Common Stock, $.0001 par value, 75,000,000 shares
authorized, 21,995,000 and 21,636,000 shares
issued and outstanding, respectively.............. 2,000 2,000
Preferred Stock, $.0001 par value, 10,000,000
shares authorized, 0 and 0 shares issued and
outstanding, respectively......................... -- --
Additional paid-in capital......................... 42,992,000 39,888,000
Notes receivable from stockholders................. (9,000) (6,000)
Deferred compensation--stockholders................ (47,000) --
Cumulative foreign currency translation............ (752,000) (1,300,000)
Retained earnings.................................. 34,642,000 47,056,000
------------ ------------
Total stockholders' equity..................... 76,828,000 85,640,000
------------ ------------
Total liabilities and stockholders' equity..... $137,390,000 $150,781,000
============ ============
</TABLE>

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

F-3
<PAGE>

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Fiscal Year Ended September 30,
----------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenues............................ $164,483,000 $187,174,000 $189,321,000
Cost of revenues.................... 70,439,000 80,016,000 76,598,000
------------ ------------ ------------
Gross profit........................ 94,044,000 107,158,000 112,723,000
------------ ------------ ------------
Operating expenses:
Course development................ 11,048,000 11,942,000 19,267,000
Sales and marketing............... 51,284,000 59,422,000 54,996,000
General and administrative........ 19,228,000 22,509,000 23,720,000
------------ ------------ ------------
81,560,000 93,873,000 97,983,000
------------ ------------ ------------
Income from operations.............. 12,484,000 13,285,000 14,740,000
------------ ------------ ------------
Other income (expense):
Interest expense.................. (27,000) (18,000) (9,000)
Interest income................... 3,477,000 3,528,000 4,180,000
Foreign exchange.................. (9,000) (288,000) 285,000
Other............................. (375,000) (546,000) (171,000)
------------ ------------ ------------
3,066,000 2,676,000 4,285,000
------------ ------------ ------------
Income before provision for income
taxes.............................. 15,550,000 15,961,000 19,025,000
Provision for income taxes.......... 5,058,000 5,427,000 6,611,000
------------ ------------ ------------
Net income.......................... $ 10,492,000 $ 10,534,000 $ 12,414,000
============ ============ ============
Earnings per common share........... $ 0.48 $ 0.48 $ 0.57
============ ============ ============
Earnings per common share assuming
dilution........................... $ 0.47 $ 0.48 $ 0.57
============ ============ ============
Weighted average number of shares
outstanding........................ 21,995,000 21,995,000 21,833,000
============ ============ ============
Diluted shares outstanding.......... 22,099,000 22,015,000 21,898,000
============ ============ ============
</TABLE>

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

F-4
<PAGE>

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
Notes Foreign
Additional Receivable Currency Total
Common Paid-in From Deferred Translation Retained Stockholders'
Stock Capital Stockholders Compensation Adjustment Earnings Equity
------ ----------- ------------ ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30,
1996................... $2,000 $42,992,000 $(144,000) $(207,000) $ (753,000) $13,616,000 $55,506,000
Comprehensive income:
Net income.............. -- -- -- -- -- 10,492,000 10,492,000
Foreign currency
translation............ -- -- -- -- (313,000) -- (313,000)
-----------
Comprehensive income.... 10,179,000
Amortization of deferred
compensation........... -- -- -- 80,000 -- -- 80,000
Collections on notes
receivable from
stockholders........... -- -- 130,000 -- -- -- 130,000
------ ----------- --------- --------- ----------- ----------- -----------
Balance, September 30,
1997................... 2,000 42,992,000 (14,000) (127,000) (1,066,000) 24,108,000 65,895,000
Comprehensive income:
Net income.............. -- -- -- -- -- 10,534,000 10,534,000
Foreign currency
translation............ -- -- -- -- 314,000 -- 314,000
-----------
Comprehensive income.... 10,848,000
Amortization of deferred
compensation........... -- -- -- 80,000 -- -- 80,000
Collections on notes
receivable from
stockholders........... -- -- 5,000 -- -- -- 5,000
------ ----------- --------- --------- ----------- ----------- -----------
Balance, September 30,
1998................... 2,000 42,992,000 (9,000) (47,000) (752,000) 34,642,000 76,828,000
Comprehensive income:
Net income.............. -- -- -- -- -- 12,414,000 12,414,000
Foreign currency
translation............ -- -- -- -- (548,000) -- (548,000)
-----------
Comprehensive income.... 11,866,000
Amortization of deferred
compensation........... -- -- -- 47,000 -- -- 47,000
Stock repurchases....... (3,106,000) (3,106,000)
Stock option exercises.. 2,000 2,000
Collections on notes
receivable from
stockholders........... -- -- 3,000 -- -- -- 3,000
------ ----------- --------- --------- ----------- ----------- -----------
Balance, September 30,
1999................... $2,000 $39,888,000 $ (6,000) $ -- $(1,300,000) $47,056,000 $85,640,000
====== =========== ========= ========= =========== =========== ===========
</TABLE>

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

F-5
<PAGE>

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Fiscal Year Ended September 30,
----------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows--operating activities:
Net income.......................... $ 10,492,000 $ 10,534,000 $ 12,414,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization...... 7,446,000 13,019,000 12,841,000
Write-off of deferred CBT
development costs................. -- 92,000 7,104,000
Deferred facilities rent charges... (227,000) (159,000) 1,469,000
Losses on disposals of equipment
and leasehold improvements........ 345,000 601,000 307,000
Amortization of deferred
compensation...................... 80,000 80,000 47,000
Unrealized foreign exchange (gains)
losses............................ (53,000) 88,000 (418,000)
Change in net assets and
liabilities:
Trade accounts receivable......... (10,834,000) 5,126,000 696,000
Prepaid marketing expenses........ (291,000) 208,000 (477,000)
Prepaid expenses and other........ (2,438,000) 1,181,000 (463,000)
Income taxes...................... 1,128,000 886,000 210,000
Trade accounts payable............ 7,432,000 (3,548,000) (1,032,000)
Deferred revenue.................. 12,079,000 5,718,000 4,606,000
Accrued payroll, benefits and
related taxes.................... 1,287,000 (347,000) 975,000
Other accrued liabilities......... (1,108,000) 1,762,000 (767,000)
------------ ------------ ------------
Net cash provided by operating
activities.......................... 25,338,000 35,241,000 37,512,000
------------ ------------ ------------
Cash flows--investing activities:
Purchases of equipment, property and
leasehold improvements............. (22,248,000) (10,358,000) (8,154,000)
Retirements of equipment and
leasehold improvements............. 23,000 630,000 75,000
Proceeds from short-term interest-
bearing investments:
Investments held to maturity....... 36,001,000 27,889,000 48,319,000
Investments held for sale.......... -- 5,100,000 4,500,000
Purchases of short-term interest-
bearing investments:
Investments held to maturity....... (22,132,000) (30,195,000) (74,390,000)
Investments held for sale.......... (1,200,000) (9,600,000) (5,650,000)
Purchases of long-term interest-
bearing investments held to
maturity........................... -- (9,934,000) (122,000)
Other, net.......................... (7,557,000) (5,289,000) (1,839,000)
------------ ------------ ------------
Net cash used in investing
activities.......................... (17,113,000) (31,757,000) (37,261,000)
------------ ------------ ------------
Cash flows--financing activities:
Principal payments of debt and
capital leases..................... (240,000) (19,000) --
Repurchases of Common Stock......... -- -- (3,106,000)
Collections of stockholder notes
receivable......................... 130,000 5,000 3,000
Exercise of stock options........... -- -- 2,000
------------ ------------ ------------
Net cash used in financing
activities.......................... (110,000) (14,000) (3,101,000)
------------ ------------ ------------
Effects of exchange rates on cash.... (215,000) 144,000 (146,000)
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents.................... 7,900,000 3,614,000 (2,996,000)
Cash and cash equivalents at the
beginning of the period............. 24,541,000 32,441,000 36,055,000
------------ ------------ ------------
Cash and cash equivalents at the end
of the period....................... $ 32,441,000 $ 36,055,000 $ 33,059,000
============ ============ ============
Supplemental disclosures:
Income taxes paid................... $ 3,558,000 $ 5,214,000 $ 5,937,000
============ ============ ============
Interest paid....................... $ 23,000 $ 2,000 $ 2,000
============ ============ ============
</TABLE>

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

F-6
<PAGE>

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

a. Nature of the Business:

Learning Tree International, Inc. and subsidiaries (the "Company") develop,
publish and deliver advanced technology training courses covering a broad
range of topics which are designed to meet the training needs of information
technology ("IT") professionals worldwide. These courses are delivered
primarily at the Company's leased Education Centers located in the United
States, England, Canada, France and Sweden. Such course events are also
conducted in hotel and conference facilities, and at customer sites throughout
the world. The Company provides courses that are regularly presented worldwide
and cover such IT topics as client/server systems, intranet/Internet
technologies, computer networks, operating systems, databases, programming
languages, object-oriented technology, IT management and related topics. In
addition to its instructor-led courses, the Company has a line of multimedia
CBT versions of its courses designed for both stand-alone CD-ROM and network-
based delivery. In fiscal 1999 the Company announced that it intended to shift
its focus in technology-based training from CD-ROM based courses to other
distance learning methodologies using the Internet (See Note 10.)

b. Principles of Consolidation:

The accompanying consolidated financial statements include the accounts of
Learning Tree International, Inc. and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated. Minority
interests in certain subsidiaries are not significant. Following is a summary
of the subsidiaries of the Company:

Learning Tree International USA, Inc. (U.S.)
Learning Tree International, K.K. (Japan)
Learning Tree International Ltd. (United Kingdom)
Learning Tree International S.A. (France)
Learning Tree International AB (Sweden)
Learning Tree Publishing AB (Sweden)
Learning Tree International Inc. (Canada)
Learning Tree International Ltd. (Hong Kong)
Advanced Technology Marketing, Inc. (U.S.)
Technology for Business and Industry, Inc. (U.S. Virgin Islands)

c. Financial Statement Classifications:

Certain prior period balances have been reclassified to conform with the
current period presentation.

d. Capital Stock:

In March 1997, the Company increased the authorized number of shares of
Common Stock, $.0001 par value ("Common Stock,") from 25,000,000 to 75,000,000
shares. In addition, the Company's authorized capital stock includes
10,000,000 shares of preferred stock, $.0001 par value ("Preferred Stock.") No
shares of Preferred Stock have been issued nor have the terms, conditions or
preferences for such Preferred Stock been established.

e. Stock Dividend:

In December 1996, the Company declared a stock split which was effected in
the form of a 50% stock dividend to all holders of its Common Stock. This
dividend was accounted for as a large stock dividend and, accordingly, all
share and per share amounts in the accompanying financial statements and
footnotes have been retroactively restated to reflect the stock dividend.

F-7
<PAGE>

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

f. Revenue Recognition--Instructor-Led Courses:

The Company's revenues are received from corporate and governmental agencies
for the training of their employees. Course events range from two to five days
with an average of approximately four days. For individual course enrollments,
the Company recognizes revenues and the related direct costs of course events
upon commencement of each course event which, for each period presented,
approximates the amount recognized on a straight-line basis over the duration
of the course.

The Company offers a sales discount program referred to as the Passport
Program. The Passport Program allows an individual passport holder to attend
up to a specified number of courses held by the Company over a one year period
for a fixed price. Under the Passport Program, the amount of revenue
recognized for each attendance in one of the Company's courses is based upon
the selling price of the Passport and the estimated average number of courses
passport holders will actually attend. Upon expiration of a Passport, the
Company records the difference, if any, between the revenues previously
recognized and the Passport selling price. The estimated attendance rate is
based upon the historical experience of the average actual number of course
events Passport holders have been attending. The average of the actual
attendance rate for all expired Passports has closely approximated the
estimated rate utilized by the Company. If the Passport attendance rate
changes, based upon this historical data, the Company adjusts the revenue
recognition rate for all active Passports and for all Passports sold
thereafter. Although the Company has seen no material changes in the
historical rates as its number of course titles has increased, it monitors
such potential effects. In general, determining the estimated average number
of course events that will be attended by a Passport holder is based on
historical trends that may not continue in the future. These estimates could
differ in the near term from amounts used in arriving at the reported revenue.

g. Revenue Recognition--Multimedia CBT Courses:

The Company derives its revenues from its multimedia computer based training
courses under license agreements under which customers license the usage of
products. Many of these agreements run for periods of one, two or three years.
On each anniversary date during the term of multi-year license agreements,
customers are allowed to exchange any or all of the licensed course titles for
an equal number of new course titles. The first year license fee is generally
recognized as revenue at the time of delivery, provided there are no
significant vendor obligations remaining. Subsequent annual license fees are
recognized on each anniversary date, provided there are no significant vendor
obligations remaining. If significant vendor obligations exist at the time of
delivery, revenue is deferred and recognized ratably over the term of the
license agreement. The cost of satisfying any insignificant vendor obligations
is accrued at the time revenue is recognized. Unearned license revenues are
recorded as deferred revenues.

h. Deferred Revenues:

Deferred revenues primarily relate to unearned revenues associated with the
Passport Program, refundable advance payments received from customers for
course events to be held in the future and unearned revenues associated with
multi-year license agreements for multimedia CBT courses.

i. Prepaid Marketing Expenses:

Prepaid marketing expenses primarily include the external costs associated
with the design, printing, postage and handling of direct mail advertising
materials to be mailed in the future. These costs are expensed in the month in
which the advertising materials are mailed since the benefit period for such
costs is short and the amount of such future benefit is not practically
measurable. Marketing expenses for the fiscal years ended September 30, 1997,
1998 and 1999 were $33,852,000, $38,812,000 and $35,849,000, respectively.

F-8
<PAGE>

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

j. Course Development Costs:

Instructor-led IT training course development costs are charged to
operations in the period incurred. Multimedia CBT development costs were
historically accounted for in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 86 "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed." SFAS No. 86 requires
capitalization of certain software development costs upon the establishment of
technological feasibility. Based on the Company's multimedia CBT product
development process, technological feasibility was established upon the
completion of a working model or a detail course design. In fiscal 1998,
capitalized multimedia CBT development costs of $8,298,000 were recorded as
other assets in the consolidated balance sheets. All capitalized multimedia
CBT development costs were written off during fiscal 1999 (see Note 10.)
Capitalized multimedia CBT product development costs were amortized on a
product-by-product basis at the greater of the amount computed using (a) the
ratio of current revenues for a product to the total of current and
anticipated future revenues or (b) the straight-line method over the estimated
economic life of the product which is 24 months.

k. Foreign Currency:

The Company translates the financial statements of its foreign subsidiaries
from the local (functional) currencies to United States dollars in accordance
with SFAS No. 52 "Foreign Currency Translation." The rates of exchange at each
fiscal year end are used for translating the balance sheets and the average
monthly rates of exchange for each year are used for the statements of
operations. Gains or losses arising from the translation of the foreign
subsidiaries' financial statements are included in the accompanying
consolidated balance sheets as a separate component of stockholders' equity.
Gains or losses resulting from foreign currency transactions are included in
the consolidated statements of operations.

To date, the Company has not sought to hedge the risk associated with
fluctuations in currency exchange rates, and therefore continues to be subject
to such risk.

l. Equipment, Property and Leasehold Improvements:

Equipment, property and leasehold improvements are recorded at cost and
depreciated or amortized using the straight-line method over the following
useful lives:

<TABLE>
<S> <C>
Education and office
equipment................ 3 to 5 years
Transportation equipment.. 4 years
Leasehold improvements.... 10 years or the life of the lease, if shorter
Property.................. 30 years
</TABLE>

Costs of normal maintenance and repairs and minor replacements are charged
to expense as incurred. The costs of assets sold or retired are eliminated
from the accounts along with the related accumulated depreciation or
amortization and any resulting gain or loss is included in income.

m. Intangible and Long-Lived Assets:

The Company periodically reviews the carrying value of its intangible and
long-lived assets to identify and assess any impairment by evaluating the
operating performance and future undiscounted cash flows of the underlying
assets.

F-9
<PAGE>

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

n. Facilities Leases:

The Company leases its facilities under various operating lease agreements.
Certain provisions of these leases provide for cash incentives, graduated rent
payments and other inducements. The Company recognizes rent expense on a
straight-line basis which more closely reflects the benefits received. The
value of any lease incentives or inducements, along with the excess of rent
expense recognized over rentals paid is recorded as deferred facilities rent
charges in the accompanying consolidated financial statements.

o. Computation of Earnings per Common Share and Assuming Dilution:

In 1997, SFAS No. 128 "Earnings per Share" was issued. SFAS No. 128
established new standards for computing and presenting earnings per share and
was adopted by the Company in fiscal 1998. The adoption of SFAS No. 128 did
not have a material effect on the reported earnings per common share and
earnings per common share assuming dilution.

Earnings per common share and earnings per common share assuming dilution
are computed using the weighted average number of shares of Common Stock
outstanding during the period after giving retroactive effect to the 50% stock
dividend paid in December 1996. Earnings per common share assuming dilution
are computed by including the dilutive effect, if any, of all outstanding
options to purchase Common Stock using the treasury stock method. To calculate
the number of diluted shares outstanding, 104,000 shares, 20,000 shares and
65,000 shares were added to the weighted average number of shares outstanding
for the fiscal years ended September 30, 1997, 1998 and 1999, respectively.

p. Comprehensive Income:

The Company adopted SFAS No. 130, "Reporting Comprehensive Income" as of
October 1, 1998. SFAS No. 130 requires disclosure of total non-stockholder
changes in equity in interim periods and additional disclosures of the
components of non-stockholder changes in equity on an annual basis. Total non-
stockholder changes in equity include all changes in equity during a period
except those resulting from investments by and distributions to stockholders.
For each of the fiscal years ended September 30, 1997, 1998 and 1999, the only
non-stockholder changes in equity were related to the translation of balance
sheets which were denominated in foreign currencies. The Company has restated
the information for the fiscal years ended September 30, 1997 and 1998 in the
accompanying Statements of Stockholders' Equity to reflect the retroactive
adoption of SFAS No. 130.

q. Use of Estimates:

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

2. INCOME TAXES:

The Company files a consolidated U.S. Federal income tax return which
includes substantially all of its domestic operations. The Company files
separate tax returns for each of its foreign subsidiaries in the countries in
which they reside.

F-10
<PAGE>

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Income before provision for income taxes consists of the following:

<TABLE>
<CAPTION>
September 30,
-----------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Domestic............................... $ 2,441,000 $ 1,757,000 $ 4,524,000
Foreign................................ 13,109,000 14,204,000 14,501,000
----------- ----------- -----------
Total................................ $15,550,000 $15,961,000 $19,025,000
=========== =========== ===========
</TABLE>

For the years ended September 30, 1997, 1998 and 1999, the provision for
income taxes was comprised of the following:

<TABLE>
<CAPTION>
September 30,
---------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Current tax provision:
U.S. Federal.......................... $ 498,000 $ 120,000 $1,175,000
State................................. 254,000 190,000 383,000
Foreign............................... 4,746,000 4,389,000 4,917,000
---------- ---------- ----------
5,498,000 4,699,000 6,475,000
---------- ---------- ----------
Deferred tax provision:
U.S. Federal.......................... (404,000) 374,000 14,000
State................................. (35,000) 40,000 1,000
Foreign............................... (1,000) 314,000 121,000
---------- ---------- ----------
(440,000) 728,000 136,000
---------- ---------- ----------
Total provision for income taxes.... $5,058,000 $5,427,000 $6,611,000
========== ========== ==========
</TABLE>

The following is a reconciliation of the provision for income taxes computed
by applying the U.S. Federal statutory rate to the income before taxes, to the
reported provision for income taxes:

<TABLE>
<CAPTION>
September 30,
----------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Income taxes at the statutory rate... $5,342,000 $5,587,000 $6,468,000
Permanent differences................ (283,000) (214,000) 39,000
Change in valuation allowance........ (429,000) -- --
Effect of foreign taxes and tax
credits............................. 260,000 (71,000) (149,000)
State income taxes................... 168,000 125,000 253,000
---------- ---------- ----------
Total provision for income taxes... $5,058,000 $5,427,000 $6,611,000
========== ========== ==========
</TABLE>

Under SFAS No. 109 "Accounting for Income Taxes," deferred income tax assets
and liabilities arise from carryforwards and from temporary differences
between the tax basis of assets and liabilities and the book basis of such
assets and liabilities as reported in the financial statements. A valuation
allowance may be provided with respect to certain deferred tax assets to
reduce the deferred tax asset to a level which, more likely than not, would be
realized. The net deferred tax asset reflects management's estimates of the
amount which will be realized from the future profitability which can be
predicted with reasonable certainty.

F-11
<PAGE>

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following is a summary of the tax effect of carryforwards and temporary
differences which give rise to deferred tax assets and liabilities:

<TABLE>
<CAPTION>
September 30,
---------------------
1998 1999
--------- ----------
<S> <C> <C>
Domestic operations:
Deferred tax assets:
Deferred facilities rent charges............... $ 392,000 $ 497,000
Foreign tax credit carryforwards............... 77,000 --
Other.......................................... 365,000 324,000
Deferred tax liabilities:
Depreciation and amortization.................. (561,000) (563,000)
Other.......................................... (17,000) (17,000)
--------- ----------
Net domestic deferred tax assets............... 256,000 241,000
--------- ----------
Foreign operations:
Deferred tax assets:
Depreciation and other......................... (273,000) (395,000)
--------- ----------
Net foreign deferred tax assets................ (273,000) (395,000)
--------- ----------
Net deferred tax asset (liability)................. $ (17,000) $ (154,000)
========= ==========
</TABLE>

At September 30, 1999, the Company had approximately $30,000 of foreign tax
credit carryforwards available to offset U.S. Federal income taxes in future
years. The foreign tax credit carryforwards expire in 2004.

3. COMMITMENTS:

The Company leases its facilities and certain equipment under various
operating lease agreements which expire at various dates through 2019. The
minimum future rental payments for all operating leases are as follows:

<TABLE>
<S> <C>
2000.......................................................... $ 10,063,000
2001.......................................................... 9,531,000
2002.......................................................... 8,852,000
2003.......................................................... 8,919,000
2004.......................................................... 9,029,000
Thereafter.................................................... 81,354,000
------------
$127,748,000
============
</TABLE>

The minimum future rental payments have not been reduced by future minimum
sublease rentals of $5,974,000 due in the future under noncancelable
subleases. For the years ended September 30, 1997, 1998 and 1999, rent expense
was $4,573,000, $5,296,000 and $9,680,000, respectively. The agreements
generally require the payment of property taxes, insurance and maintenance in
addition to the minimum base rent.

F-12
<PAGE>

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

4. STOCKHOLDERS' EQUITY:

Common Stock Sold to Employees--

During fiscal 1995, the Company recorded deferred compensation of $321,000,
which represented the excess of the appraised value (as determined by an
independent appraisal) over the initial issue price of common stock sold to
certain employees during fiscal 1995. The deferred compensation was reflected
as a reduction of stockholders' equity in the accompanying financial
statements and was amortized as additional compensation expense over the
related service period which ended during fiscal 1999. During the fiscal years
ended September 30, 1997, 1998 and 1999, the Company recorded $80,000, $80,000
and $47,000 of additional compensation expense relating to the amortization of
the deferred compensation, respectively.

Repurchase of Company Stock--

On March 8, 1999, the Board of Directors of the Company authorized the
repurchase of up to 1,000,000 shares of the Common Stock of the Company. As of
September 30, 1999, the Company had repurchased approximately 358,800 shares
of its Common Stock on the open market at a total cost of approximately
$3,106,000. The Company may repurchase additional shares in the future
depending upon market conditions and pursuant to the requirements of Rule 10b-
18 of the Securities Exchange Act of 1934.

5. EMPLOYEE STOCK OPTION PLAN

In March 1999, the Company and its shareholders adopted the Learning Tree
International, Inc. 1999 Stock Option Plan (the "1999 Plan") and in October
1995 they adopted the 1995 Stock Option Plan (the "1995 Plan.") The 1999 Plan
and the 1995 Plan provide for the issuance of incentive stock options within
the meaning of Section 422 of the Internal Revenue Code and non-qualified
stock options to purchase an aggregate of up to 1,500,000 shares and 2,250,000
shares of Common Stock, respectively. Both plans permit the grant of options
to officers, employees and directors of the Company.

Under the plans, the exercise price of incentive stock options granted will
be greater than or equal to their fair market value at the date of grant, and
the maximum term of all options may not exceed ten years. The vesting schedule
and the period required for full exercisability of the stock options is at the
discretion of the Board of Directors, but in no event can it be less than six
months.

During the year ended September 30, 1997, non-qualified options were granted
under the 1995 Option Plan to substantially all employees with at least one
year of service with the Company and during the year ended September 30, 1998
additional options were granted to certain employees. In 1999, options were
granted to certain employees under both of the plans. The exercise price of
all options granted was equal to their fair market

F-13
<PAGE>

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

value at the dates of the grants and the terms of the options are five years.
The options are generally subject to a four-year vesting schedule at 25% per
year on each anniversary date. Following is a summary of the options granted
under the plans:

<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
--------- ----------------
<S> <C> <C>
Outstanding at September 30, 1996.............. -- $ --
Options Granted................................ 901,000 25.66
Exercised during the year...................... -- --
Forfeited during the year...................... (65,000) 26.51
--------- ------
Outstanding at September 30, 1997............ 836,000 25.60
Options Granted................................ 412,000 23.50
Exercised during the year...................... -- --
Forfeited during the year...................... (181,000) 25.20
--------- ------
Outstanding at September 30, 1998............ 1,067,000 24.86
Options Granted................................ 1,411,000 9.82
Exercised during the year...................... -- --
Forfeited during the year...................... (334,000) 15.82
--------- ------
Outstanding at September 30, 1999............ 2,144,000 $16.37
========= ======
</TABLE>

The following table summarizes stock options outstanding and exercisable at
September 30, 1999:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- ----------------------
Weighted Weighted
Exercise Average Remaining Average
Price Ranges Shares Exercise Price Life (Years) Shares Exercise Price
------------- --------- -------------- ------------ ------- --------------
<S> <C> <C> <C> <C> <C>
$ 6.63--11.00 1,214,000 $ 9.85 4.1 36,000 $11.00
23.50--29.50 930,000 24.87 2.4 395,000 25.12
------------- --------- ------ --- ------- ------
$ 6.63--29.50 2,144,000 $16.37 3.4 431,000 $23.95
============= ========= ====== === ======= ======
</TABLE>

The Company applies APB Opinion No. 25 "Accounting for Stock Issued to
Employees" in accounting for the stock option plans. Accordingly, no
compensation cost has been recognized for options granted during fiscal 1997,
1998 and 1999. Had compensation cost for the options granted been determined
based upon the estimated fair value at the grant dates in accordance with SFAS
No. 123 "Accounting for Stock-Based Compensation," the Company's net income
and earnings per common share assuming dilution would have been reduced to the
pro forma amounts below:

<TABLE>
<CAPTION>
1997 1998 1999
------------ ----------- ------------
<S> <C> <C> <C>
Pro forma Net Income............... $ 10,014,000 $ 9,762,000 $ 11,400,000
Pro forma earnings per common
share............................. $ 0.46 $ 0.44 $ 0.52
Pro forma earnings per common share
assuming dilution................. 0.45 0.44 0.52
</TABLE>

The preceding pro forma amounts have been calculated using the Black-Scholes
option-pricing model to estimate the fair value of the options granted during
the years ended September 30, 1997, 1998 and 1999 with the following
assumptions: risk-free interest rates of 6.2%, 5.8% and 4.7%; a dividend yield
of zero; an expected life of two and one-half years; and a volatility of 38%,
41% and 58%. Based upon these assumptions, the pro forma weighted average fair
value of the options granted during fiscal 1997 was $7.62, during fiscal 1998
was $7.27 and during fiscal 1999 was $3.27.

F-14
<PAGE>

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

6. EMPLOYEE BENEFIT PLANS:

The Company has adopted a defined contribution plan for the benefit of its
domestic employees who have met the eligibility requirements. The Learning
Tree International 401(k) Plan (the "Plan") is a profit-sharing plan
qualifying under Section 401(k) of the Internal Revenue Code.

Qualified employees may elect to contribute up to 15% of their compensation
to the Plan on a pre-tax basis, subject to statutory limitations. The Company
makes contributions at a rate of 75% of elective contributions up to 4.5% of
the compensation of such contributors. The Company contributed $540,000,
$697,000 and $738,000 to the Plan for the fiscal years ended September 30,
1997, 1998 and 1999, respectively.

The Company has adopted similar plans for the benefit of its employees in
certain of its foreign subsidiaries. Contributions to these plans are subject
to various age, length of service and compensation level criteria, as well as
certain limitations. For the fiscal years ended September 30, 1997, 1998 and
1999, the cost to the Company of these plans was approximately $195,000,
$194,000 and $264,000, respectively.

7. OPERATING SEGMENT INFORMATION:

In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Previously reported
geographic information has been restated to conform with SFAS No. 131
requirements.

The Company has only one material operating segment which is the design and
delivery of advanced technology training courses and related services, which
is managed on a geographic basis. There were no sales to any individual
customers that accounted for 10% or more of revenue in fiscal 1997, 1998 or
1999.

The table below presents information by geographic location for the years
ended September 30, 1997, 1998 and 1999:

<TABLE>
<CAPTION>
Fiscal Years Ended September 30,
--------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
United States...................... $ 90,371,000 $ 98,776,000 $ 95,685,000
Canada............................. 10,936,000 11,059,000 11,202,000
Europe............................. 61,214,000 75,310,000 80,738,000
Asia............................... 1,962,000 2,029,000 1,696,000
------------ ------------ ------------
Consolidated revenues............ $164,483,000 $187,174,000 $189,321,000
============ ============ ============
Long-lived assets:
United States...................... $ 29,733,000 $ 17,538,000
Canada............................. 496,000 767,000
Europe............................. 6,549,000 7,970,000
Asia............................... 142,000 209,000
------------ ------------
Consolidated long-lived assets... $ 36,920,000 $ 26,484,000
============ ============
</TABLE>

Revenues are attributed to countries based on the location in which the sale
originated. Long-lived assets principally consist of net equipment, property
and leasehold improvements.

F-15
<PAGE>

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

8. VALUATION AND QUALIFYING ACCOUNTS:

For the years ended September 30, 1997, 1998 and 1999, activity with respect
to the Company's allowance for doubtful accounts receivable is summarized as
follows:

<TABLE>
<CAPTION>
September 30,
-------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Beginning balance......................... $ 254,000 $ 312,000 $ 408,000
Charged to expense........................ 280,000 408,000 610,000
Amounts written off....................... (222,000) (312,000) (275,000)
--------- --------- ---------
Ending balance............................ $ 312,000 $ 408,000 $ 743,000
========= ========= =========
</TABLE>

9. CASH, CASH EQUIVALENTS AND INTEREST-BEARING INVESTMENTS:

Cash Equivalents--

The Company considers highly liquid investments with original maturities of
90 days or less to be cash equivalents.

Short-Term Interest-Bearing Investments--

Investments held to maturity mature between one and twelve months.
Investments held for sale mature after ten years but are subject to put
options, at par value, every 28 days. Cost approximates market value for all
classifications of cash and short-term interest-bearing investments. There
were no material realized or unrealized gains or losses on such investments.

Following is a summary of the Company's short-term interest-bearing
investments as of September 30, 1998 and 1999:

<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Investments held to maturity:
Commercial paper................................. $22,713,000 $37,207,000
Less investments included in cash equivalents.... 11,577,000 --
----------- -----------
Total held to maturity.......................... 11,136,000 37,207,000
Investments held for sale:
State and local government debt.................. 20,000,000 21,150,000
----------- -----------
Total interest-bearing investments.............. $31,136,000 $58,357,000
=========== ===========
</TABLE>

Long-Term Interest-Bearing Investments--

Included in the balance of long-term interest-bearing investments is
$9,836,000 (6,000,000 British Pounds) which has been pledged to secure the
Company's obligation under a lease for certain education center facilities in
the United Kingdom. The terms of the lease require the Company to pledge a
cash deposit or provide a letter of credit for the same amount as collateral
for its obligations thereunder. The investment is carried at cost, which
approximates market value. Interest earned by the cash deposit is received by
the Company. The required level of the cash deposit or letter of credit will
decline if certain financial ratios have been met.

F-16
<PAGE>

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

10. WRITE-OFF OF DEFERRED CBT PRODUCT DEVELOPMENT COSTS:

On July 13, 1999, the Company announced that it intended to shift its focus
in technology-based training from CD-ROM based courses to other distance
learning methodologies using the Internet. As a result, the Company
discontinued further development of its CBT courses, and expects to
substantially reduce its CBT sales efforts during the first quarter of fiscal
2000, depending on customer demand.

As a result of this decision, the Company wrote-off all capitalized
multimedia CBT product development costs, approximating $5,893,000, on June
30, 1999. Earlier in the fiscal year, the Company wrote-off multimedia CBT
product development costs in the amount of $1,211,000 which were estimated to
be non-realizable, as well as for costs for certain CBT courses which were
terminated while still under development. In addition, in fiscal 1999, the
Company recognized $2,337,000 of multimedia CBT product development costs.
These costs are included in course development expense in the accompanying
consolidated statements of operations.

For the fiscal years ended September 30, 1997 and 1998, $1,993,000 and
$2,621,000 of multimedia CBT product development costs, respectively, were
charged to course development expense in the accompanying consolidated
statements of operations.

11. RELATED PARTY TRANSACTIONS:

In October 1995, the Company entered into employment agreements with the
Chief Executive Officer and President of the Company, each for a period of
three years. These agreements were amended and extended for one year from
September 30, 1998. In September 1999, the Chief Executive Officer and
President of the Company's employment agreements were amended and extended for
an additional three years and one year, respectively.

During fiscal 1999, the Company paid $129,000 for legal services performed
by Guth Rothman & Chrisopher LLP, a law firm in which one of the Company's
Directors is a partner.

12. LITIGATION:

F-17
<PAGE>

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

defendant officers and directors concealed an alleged deterioration of
business early in 1997 and that several of the officers and directors realized
profits by trading their shares of Company Stock while in possession of
allegedly concealed material adverse information. Each complaint seeks an
unspecified amount of compensatory damages and, additionally, seeks attorneys'
fees and other costs, interest, and other relief.

F-18
<PAGE>

Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosures

None

PART III

Item 10. Directors and Executive Officers of the Registrant

The following table provides biographical information regarding the
directors and executive officers of the Company as of September 30, 1999. All
other information regarding directors and executive officers of the Company
required by this item is incorporated by reference to the section entitled
"Executive Officers of the Registrant" of the Company's definitive Proxy
Statement to be delivered to shareholders in connection with the 2000 Annual
Meeting of Shareholders.

<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<S> <C> <C>
David C. Collins(1)..... 58 Chairman of the Board of Directors and Chief
Executive Officer
Eric R. Garen........... 52 President and Director
James E. Furlan......... 48 Chief Operating Officer and Director
Gary R. Wright(2)....... 42 Chief Financial Officer and Secretary
Mary C. Adams(2)........ 43 Vice President, Administration, Investor Relations
and Assistant Secretary
W. Mathew Juechter(1)... 66 Director
Michael W. Kane(1)...... 48 Director
Alan B. Salisbury....... 62 Director
Theodore E. Guth........ 45 Director
</TABLE>
- --------
(1) Member of the Audit Committee and the Compensation Committee.
(2) Mr. Wright and Ms. Adams became Directors of the Company in December 1999.

Dr. Collins, a co-founder of the Company, has been Chairman of the Board and
Chief Executive Officer since the Company's business began in 1974 (under the
name Integrated Computer Systems Publishing Co., Inc.). Dr. Collins has a
Bachelor of Science degree (with distinction) in Electrical Engineering from
Stanford University, and Masters and Ph.D. degrees in Electrical Engineering
from the University of Southern California.

Mr. Garen, a co-founder of the Company, has served first as Executive Vice
President and then as President of the Company since the Company's business
began in 1974. Mr. Garen holds a Bachelor of Science degree in Electrical
Engineering from the California Institute of Technology and a Masters degree
in Computer Science from the University of Southern California, earning both
degrees with honors.

Mr. Furlan joined the Company in February 1999 as Chief Operating Officer.
Prior to joining the Company, Mr. Furlan was employed by the Xerox Corporation
from July 1974 to February 1999. From 1991 to 1999, Mr. Furlan was Vice
President, General Manager of various Xerox business units, the most recent
being Distributed Printing and Publishing Systems. Prior to these positions,
he held a series of senior management positions in sales, marketing, finance
and strategic planning in Xerox's printer and copier divisions. Mr. Furlan
holds a Bachelor of Science degree in engineering and a Master of Business
Administration from the University of Illinois. Mr. Furlan became a Director
of the Company in August 1999.

Mr. Wright has been Vice President, Finance and Chief Financial Officer of
the Company since January 1995, and from January 1990 to that time he was
Corporate Controller of the Company. From April 1983 to January 1990, Mr.
Wright was employed by The Flying Tiger Line Inc. and its parent company,
Tiger International, Inc., a publicly-held transportation company, where he
held a variety of financial executive positions, including Assistant
Controller and Director of Financial Reporting. Prior to April 1983, Mr.
Wright

F-19
<PAGE>

worked at the public accounting firm of Arthur Andersen LLP. Mr. Wright is a
certified public accountant. Mr. Wright became a Director of the Company in
December 1999.

Ms. Adams has served as Vice President, Administration and Investor
Relations since September 1995. She began her association with the Company in
September 1975 and has held a variety of key positions in the Company. Ms.
Adams is also the President of Advanced Technology Marketing, Inc., a wholly
owned subsidiary of the Company. Ms. Adams became a Director of the Company in
December 1999.

Mr. Juechter has been a director of the Company since June 1987. He is
President and Chief Executive Officer of IRA, Inc., a management consulting
company that works primarily in the areas of strategy, structure and executive
development. From 1991 to 1999, he was Chief Executive Officer of ARC
International Ltd., a management consulting and training company. From 1986 to
1991, Mr. Juechter was Managing Director of IRA, Inc. in St. Paul, Minnesota.
Mr. Juechter served as President and Chief Executive Officer of Wilson
Learning Corp., a multi-national training organization, from 1977 to 1986.
From 1989 to 1997, he was President of the Board of Governors of the American
Society for Training and Development (ASTD). Mr. Juechter is a graduate of
Boston University and Harvard Business School.

Dr. Kane has served as a director of the Company since February 1995. Since
1991, he has been President and Chief Executive Officer of M. Kane & Company,
Inc., an investment banking firm focusing primarily on technology companies.
From 1987 to 1988, he was an investment banker with L.F. Rothschild & Co.,
Inc. and from 1988 to 1991 he was an investment banker with Oppenheimer & Co.,
Inc. From 1984 to 1987, Dr. Kane practiced primarily corporate and securities
law with the law firm of Irell & Manella LLP and, prior to that, he was a
Project Leader in the Systems Sciences Department of The Rand Corporation and
an independent consultant to the satellite telecommunications industry. Dr.
Kane has a Bachelor of Arts degree in Political Science from the University of
Wisconsin-Madison and a Master's degree in International Relations, a Ph.D.
degree in Political Science and a J.D. degree from the University of
California, Los Angeles.

Dr. Salisbury is an independent management consultant in the information
technology field. He retired from Learning Tree in 1999, where he had served
as President and General Manager, and later Chairman, of Learning Tree
International USA, Inc., the Company's operating subsidiary in the United
States, since April 1993. From 1991 until he joined the Company, Dr. Salisbury
was Chief Operating Officer of Microelectronics and Computer Technology
Corporation (MCC), an organization involved in the research and development of
IT products located in Austin, Texas. From 1987 to 1991, he was President of
the Contel Technology Center, the research and development group of Contel
Corp, an independent telephone company located in Chantilly, Virginia.
Dr. Salisbury is a director of Sybase, Inc., a database software developer,
and Template Software, an enterprise applications integration software
provider. The author of numerous books and articles related to information
technology and education, Dr. Salisbury served in the United States Army from
1958 to 1987, when he retired as Commanding General of the U.S. Army
Information Systems Engineering Command. He holds a Bachelor of Science
degree, with distinction, from the U.S. Military Academy, and Masters and
Ph.D. degrees in Electrical Engineering and Computer Science from Stanford
University.

Mr. Guth has served as a director of the Company since March 1999. He is a
partner at Guth Rothman & Christopher LLP, a law firm he co-founded in 1997.
Mr. Guth was previously a partner at the law firm of Irell & Manella LLP from
1985 to 1993 and from 1995 to 1997. From 1993 to 1995, he was the President of
Dabney/Resnick, Inc., a 100-person investment banking and brokerage firm. Mr.
Guth was a full-time professor at the UCLA School of Law from 1981 to 1983. He
holds a JD from Yale Law School and a Bachelor of Science degree from the
University of Notre Dame (summa cum laude, Phi Beta Kappa).

David C. Collins and Mary C. Adams are married. There are no other family
relationships among any of the directors or executive officers of the Company.

F-20
<PAGE>

Item 11. Executive Compensation

The information regarding compensation of executive officers of the Company
required by this item is incorporated by reference to the section entitled
"Executive Compensation" of the Company's definitive Proxy Statement to be
delivered to shareholders in connection with the 2000 Annual Meeting of
Shareholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information regarding the security ownership of certain beneficial
owners and management required by this item is incorporated by reference to
the section entitled "Security Ownership of Certain Beneficial Owners and
Management" of the Company's definitive Proxy Statement to be delivered to
shareholders in connection with the 2000 Annual Meeting of Shareholders.

Item 13. Certain Relationships and Related Transactions

The information regarding certain relationships and related transactions
required by this item is incorporated by reference to the section entitled
"Certain Transactions" of the Company's definitive Proxy Statement to be
delivered to shareholders in connection with the 2000 Annual Meeting of
Shareholders.

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) Financial Statements and Schedules

The financial statements of Learning Tree International, Inc. as set forth
under item 8 are filed as part of this report.

All Schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are omitted because such
schedules are not required under the related instructions, are not applicable
or the required information is given in the financial statements.

(b) Reports on Form 8-K

There were no reports on Form 8-K during the three month period ended
September 30, 1999.

F-21
<PAGE>

<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of the Registrant*

3.2 By-Laws of the Registrant*

4.1 Specimen of Common Stock Certificate**

10.1 Employment Agreement dated as of October 1, 1995 as amended, between
Learning Tree International, Inc. and Dr. David C. Collins

10.2 Employment Agreement dated as of October 1, 1995 as amended, between
Learning Tree International, Inc. and Eric R. Garen

10.4 Employment Agreement dated as of February 1978, as amended, between
Learning Tree International, Inc. and Mary C. Adams**

10.6 Employment Agreement dated as of January 8, 1990, as amended,
between Learning Tree International, Inc. and Gary R. Wright**

10.7 Form of Training Advantage Agreement*

10.8 1995 Stock Option Plan dated as of September 29, 1995**

10.9 Employment Agreement dated as of February 25, 1999, between Learning
Tree International, Inc. and James E. Furlan***

10.10 1999 Stock Option Plan dated as of January 29, 1999****

21.1 Subsidiaries of the Registrant

23.1 Consent of Arthur Andersen LLP

27.1 Financial Data Schedule

99 Risk Factors
</TABLE>
- --------
* Previously filed on October 6, 1995.
** Previously filed on November 13, 1995.
*** Previously filed on May 13, 1999
**** Previously filed on January 29, 1999

F-22
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant, Learning Tree International,
Inc., a corporation organized and existing under the laws of the State of
Delaware, has duly caused this annual report on form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on the 22nd day of December, 1999.

Learning Tree International, Inc.

/s/ David C. Collins, Ph.D.
By: _________________________________
Name: David C. Collins, Ph.D.
Title: Chairman of the Board of
Directors and Chief
Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Annual Report on Form 10-K has been signed by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ David C. Collins, Ph.D. Chairman of the Board and December 22, 1999
______________________________________ Chief Executive Officer
David C. Collins, Ph.D. (principal executive
officer)

/s/ Eric R. Garen President and Director December 22, 1999
______________________________________
Eric R. Garen

/s/ Gary R. Wright Chief Financial Officer and December 22, 1999
______________________________________ Secretary (principal
Gary R. Wright financial officer and
principal accounting
officer) and Director

/s/ James E. Furlan Chief Operating Officer and December 22, 1999
______________________________________ Director
James E. Furlan

/s/ Mary C. Adams Vice President, December 22, 1999
______________________________________ Administration, Investor
Mary C. Adams Relations and Assistant
Secretary and Director

/s/ W. Mathew Juechter Director December 22, 1999
______________________________________
W. Mathew Juechter

/s/ Alan B. Salisbury, Ph.D. Director December 22, 1999
______________________________________
Alan B. Salisbury, Ph.D.

/s/ Michael W. Kane, Ph.D. Director December 22, 1999
______________________________________
Michael W. Kane, Ph.D.

/s/ Theodore E. Guth Director December 22, 1999
______________________________________
Theodore E. Guth
</TABLE>

F-23

<PAGE>

EXHIBIT 10.1

September 14, 1999

Dr. David C. Collins
Learning Tree International, Inc.

Dear Dr. Collins:

This will confirm our agreement to extend, until September 30, 2002 the
term of your Employment Agreement dated as of October 1, 1995. All of the other
terms of the Employment Agreement will remain as they have been.

Very truly yours,

Learning Tree International, Inc.

By /s/ Mary C. Adams
---------------------------------------------
Mary C. Adams, Vice President, Administration

Accepted and agreed:

By /s/ David C. Collins
---------------------------
David C. Collins

Dated September 16, 1999
------------------------

<PAGE>

EXHIBIT 10.2

September 14, 1999

Eric R. Garen
Learning Tree International, Inc.

Dear Mr. Garen:

This will confirm our agreement to extend until September 30, 2000 the term
of your Employment Agreement dated as of October 1, 1995. All of the other
terms of the Employment Agreement will remain as they have been.

Very truly yours,

Learning Tree International, Inc.

By /s/ Mary C. Adams
----------------------------------------------
Mary C. Adams, Vice President, Administration

Accepted and Agreed:

By /s/ Eric R. Garen
---------------------------
Eric R. Garen

Dated September 14, 1999
-------------------------

<PAGE>

EXHIBIT 21.1

SUBSIDIARIES OF THE REGISTRANT

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statement on Form S-8 (No. 333-41325), pertaining to the Company's
1995 Stock Option Plan, filed on December 1, 1997 with the Securities and
Exchange Commission under the Securities Act of 1933.

ARTHUR ANDERSEN LLP
Los Angeles, California
November 5, 1999

<PAGE>

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 33,059,000
<SECURITIES> 58,357,000
<RECEIVABLES> 17,970,000
<ALLOWANCES> 743,000
<INVENTORY> 0
<CURRENT-ASSETS> 114,338,000
<PP&E> 53,064,000
<DEPRECIATION> 27,829,000
<TOTAL-ASSETS> 150,781,000
<CURRENT-LIABILITIES> 62,247,000
<BONDS> 0
0
0
<COMMON> 2,000
<OTHER-SE> 85,638,000
<TOTAL-LIABILITY-AND-EQUITY> 150,781,000
<SALES> 189,321,000
<TOTAL-REVENUES> 189,321,000
<CGS> 76,598,000
<TOTAL-COSTS> 76,598,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 610,000
<INTEREST-EXPENSE> 9,000
<INCOME-PRETAX> 19,025,000
<INCOME-TAX> 6,611,000
<INCOME-CONTINUING> 12,414,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,414,000
<EPS-BASIC> 0.57
<EPS-DILUTED> 0.57

</TABLE>

<PAGE>

EXHIBIT 99

RISK FACTORS

This exhibit contains a discussion of various risk factors and other
information that you should carefully consider. The discussion below is not a
complete list of all the risks and uncertainties that impact Learning Tree
International, Inc. ("Learning Tree.") There may be additional risks and
uncertainties that Learning Tree is not aware of or that it currently deems
immaterial that may have a material adverse impact in the future. If any of the
following risks occur, it may have an adverse impact on Learning Tree's
business, financial condition and/or operating results and may cause its stock
price to decrease. This exhibit also contains forward-looking statements that
are based on certain assumptions about future risks and uncertainties. Learning
Tree believes that these assumptions are reasonable. Nonetheless, it is likely
that at least some of these assumptions will not come true. Accordingly,
Learning Tree's actual results will probably differ from the outcomes contained
in any forward-looking statements. These differences could be material. Factors
that could cause or contribute to such differences include, among other things,
those discussed below, as well as those discussed elsewhere in Learning Tree's
Annual Report on Form 10-K for the fiscal year ended September 30, 1999, of
which this exhibit forms a part.

Common Stock Price Fluctuations

Learning Tree's common stock has experienced significant fluctuations since its
initial public offering and may continue to do so in the future.

General Factors. The market price of Learning Tree's common stock has
----------------
fluctuated significantly since its initial public offering in December 1995 due
to many factors. Learning Tree believes some of these include:

. announcements of developments related to Learning Tree's business;
. announcements concerning new products or enhancements by Learning Tree
or its competitors;
. developments in Learning Tree's relationships with its customers;
. shortfalls or changes in Learning Tree's revenues, gross margins,
earnings or losses or other financial results which differ from public
market analysts' expectations; and
. fluctuations in results of operations and general conditions in Learning
Tree's market or the markets served by its customers or the economy.

A viable public market for Learning Tree's common stock may not be
sustained. In addition, in recent years the stock market in general, and the
market for shares of technology-related stocks in particular, have experienced
extreme price fluctuations which have often been unrelated to the operating
performance of affected companies. The market price of Learning Tree's common
stock may continue to experience significant fluctuations in the future,
including fluctuations that are unrelated to its performance.

Future Sales of Learning Tree Common Stock. Sales of substantial amounts
------------------------------------------
of Learning Tree's common stock, or the perception that such sales could occur,
could adversely impact the prevailing market prices for its shares of common
stock. Learning Tree cannot predict the effect, if any, that future sales of its
common stock or the availability of Learning Tree's common stock for future sale
will have on its market price. In addition to the 21,641,000 shares outstanding
as of December 13, 1999; 2,250,000 shares of Learning Tree's common stock were
previously registered for issuance under Learning Tree's 1995 Stock Option Plan.
Learning Tree intends to register an additional 1,500,000 shares of common stock
for issuance under its 1999 Stock Option Plan.

Fluctuations in Quarterly Operating Results

Historically, Learning Tree has experienced fluctuations in its quarterly
operating results and it expects fluctuations to continue in the future.

Many factors, some of which are beyond Learning Tree's control, have
contributed to quarterly fluctuations in the past and may continue to cause
fluctuations in the future. Changes in any one of these factors could have a
material adverse impact on Learning Tree's operating results and may cause its
stock price to decrease. For example:

Timing of Course Development, and Sales and Marketing Expenditures.
-------------------------------------------------------------------
Learning Tree incurs course development, and sales and marketing expenditures
based on its expectations regarding future market conditions.
<PAGE>

However, expected revenues may not occur and Learning Tree may be unable to
adjust its expenditures in a timely manner to compensate for any unexpected
revenue shortfall. If Learning Tree experiences any significant revenue
shortfall it would have a material adverse impact on Learning Tree's operating
results and may cause its stock price to decrease.

Course Scheduling and Marketing Activities. Course attendance varies
------------------------------------------
depending upon the timing and content of Learning Tree's courses and the
marketing activities it undertakes. Accordingly, operating results may vary
based upon, among other factors:

. frequency and availability of course events;
. the number of weeks in a quarter during which courses can be conducted;
. timing, frequency and size of, and response to Learning Tree's direct
mail marketing and advertising campaigns;
. timing of the introduction of new course titles and alternate delivery
methods; and
. the mix between customer-site course events and Learning Tree-site
course events.

Seasonal Factors. Learning Tree's revenues and income have historically
----------------
varied significantly from quarter to quarter due, in part, to seasonal factors.
Generally, revenue and operating income are greater in the second half of the
fiscal year (April through September) than in the first half of the fiscal year
(October through March). This seasonality is due, in part, to the seasonal
spending patterns of Learning Tree's customers which are impacted by many
factors, including:

. their budgetary considerations;
. factors specific to their business or industry; and
. weather, holiday and vacation considerations.

These seasonal factors or their effects may change in the future.

Passport Program Revenue. Learning Tree currently offers a sales discount
------------------------
program referred to as the Passport Program. After purchasing a Passport, a
customer may attend up to a specified number of courses over a one-year period
at a discounted price. Under the Passport Program, Learning Tree recognizes
revenue for each attendance in one of its courses based upon the selling price
of the Passport and its estimate of the average number of courses a Passport
holder will actually attend. When a Passport expires, Learning Tree records the
difference, if any, between the revenue previously recognized and the Passport
selling price. For example, if a Passport holder attends more courses than
Learning Tree had estimated, it makes a negative adjustment to revenues. The
estimated average number of course events that will be attended by a Passport
holder is based on historical trends that may change in the future. Accordingly,
an increase in actual average attendance rates as compared to historical trends
could result in potentially significant negative adjustments to revenue, as the
increase becomes known.

Introduction of New Technology. Learning Tree's customers tend to increase
------------------------------
their training at times when new technology is being introduced. Consequently,
during times when no important new technologies are being introduced, demand for
Learning Tree's training courses may also be reduced. This in turn could have a
material adverse impact on Learning Tree's operating results and may cause its
stock price to decrease.

Other Factors. In addition to the factors discussed above, there are other
--------------
factors that may impact Learning Tree's quarterly operating results, such as:

. competitive forces within Learning Tree's current and anticipated future
markets;
. Learning Tree's ability to attract customers and meet their
expectations;
. currency fluctuations;
. general economic conditions; and
. differences in the timing of, and the time period between, expenditures
on the development and marketing of Learning Tree's courses and the
receipt of revenues.

Due to these and other factors, it is possible that in some future quarters
Learning Tree's operating results

2
<PAGE>

will be below the expectations of public market analysts and investors, which
could have a material adverse impact on its stock price.

Risks Associated with Changing Economic Conditions

General domestic and international economic conditions could have an adverse
impact on Learning Tree's operating results.

Domestic and/or International Economic Downturns. A significant portion of
------------------------------------------------
Learning Tree's revenues is derived from Fortune 1000-level companies and their
international equivalents, and government organizations. Historically, these
entities have reduced their expenditures for external IT training during
economic downturns. As a result, if the domestic and/or international economy
weakens in the future, some or all of Learning Tree's customers may reduce their
expenditures on external IT training or may not increase their expenditures at
the rate Learning Tree anticipates. If this occurs, Learning Tree would likely
experience diminished revenues, which could have a material adverse impact on
Learning Tree's operating results and may cause its stock price to decrease.

Industry-Specific Slowdowns. Learning Tree's customers generally operate
---------------------------
in the computer, communications, electronics, systems integration, finance,
aerospace, military, manufacturing and energy sectors. If one or more of these
industries experiences a slowdown, Learning Tree may experience reduced
operating results that might cause its stock price to decrease.

Risks Associated with Changes in Technology

If Learning Tree does not adequately anticipate or respond to changes in
technology, it could have a material adverse impact on its operating results.

Learning Tree's success depends, in part, on its ability to anticipate and
keep pace with the introduction in the marketplace of new hardware, software and
networking technologies. The need to respond to technological changes may
require Learning Tree to make substantial, unanticipated expenditures in order
to develop new course titles and acquire equipment to deliver them. Learning
Tree may be unable to anticipate or respond successfully to technological change
due to financial, technological or other constraints. If Learning Tree does not
adequately anticipate or respond to changes in computer platforms, customer
preferences and/or software technology, it could have a material adverse impact
on Learning Tree's operating results and may cause its stock price to decrease.

Risks Associated with the Introduction of Distance Learning Methodologies

If Learning Tree is unsuccessful in developing and implementing a distance
learning strategy, it could have a material adverse impact on its operating
results.

Although the worldwide market for IT education and training continues to be
dominated by instructor-led classroom training, technology-based training
continues to grow. In addition to its instructor-led training courses, Learning
Tree has been delivering certain of its courses using interactive computer-based
training methods. These courses were designed for both stand-alone CD-ROM and
network-based delivery. However, on July 13, 1999, Learning Tree announced that
it intended to shift its focus in technology-based training from CD-ROM based
courses to other distance learning methodologies using the Internet.
Accordingly, Learning Tree's future results of operations will depend upon,
among other factors:

. the extent to which the market accepts the Internet as a method of
delivery for IT training;
. Learning Tree's ability to successfully develop or acquire Internet
distance learning technologies and Internet enabled courses for
delivery to customers; and
. Learning Tree's ability to market and profitably implement distance
learning training and education that compete effectively against
technology-based training offered by its competitors.

Learning Tree believes that the content from its instructor-led courses can
also be delivered to customers through a variety of technology-based training
methods, including distance learning methodologies using the Internet. The
future success of any technology-based learning approach will depend upon
customer acceptance and

3
<PAGE>

market viability. Learning Tree may be unable to successfully develop or to
profitably implement technology-based training methods, including distance
learning strategies using the Internet. If Learning Tree is unsuccessful in
developing and implementing a distance learning strategy, it could have a
material adverse impact on Learning Tree's operating results and may cause its
stock price to decrease.

Competition

If a competitor successfully introduces and markets courses that compete with
those of Learning Tree it could have a material adverse impact on Learning
Tree's operating results.

The IT education and training market is highly fragmented, with low
barriers to entry and no single competitor accounting for a dominant market
share. Competition from both established entities and new entries in the market
is intensifying. Learning Tree's primary competitors include:

. internal training departments within its current and potential corporate
clients;
. computer hardware and software vendors and their Authorized Training and
Education Center partners;
. independent education and training companies; and
. software systems integrators.

Some of Learning Tree's competitors offer similar course titles and
programs at lower prices. In addition, some competitors have greater financial
and other resources than Learning Tree. Recently, Learning Tree has faced
increased competition from companies which are Authorized Training and Education
Centers. These competitors present courses utilizing materials that are prepared
by computer hardware and software vendors. In recent periods, some of these
companies have been growing in size and expanding the scope of their operations.
Additionally, hardware and software vendors may combine IT education and
training with sales of their products enabling them, in some cases, to offer
training at lower prices than Learning Tree.

Although instructor-led classroom training continues to dominate the world
wide IT education and training market, the use of technology-based IT education
and training formats, such as Internet-based distance learning, appears to be
gaining acceptance. Accordingly, Learning Tree's future success may also depend
upon the extent to which the market continues to accept instructor-led training
as a method of delivery for IT training and its ability to develop and market
instructor-led courses that compete effectively against technology-based courses
offered by Learning Tree's competitors.

If a competitor successfully introduces and markets courses that compete
with the IT training courses Learning Tree offers, then Learning Tree's course
enrollments may be diminished, which could have a material adverse impact on
Learning Tree's operating results and may cause its stock price to decrease.

Risks Associated with International Operations

If Learning Tree does not anticipate and respond to the inherent risks
associated with international operations it could have a material adverse impact
on Learning Tree's operating results.

A significant portion of Learning Tree's revenues are generated by course
events conducted outside the United States.

Foreign Currency Fluctuations. Learning Tree's consolidated financial
-----------------------------
statements are prepared in U.S. dollars, while the operations of its foreign
subsidiaries are conducted in their respective local currencies. Consequently,
fluctuations in exchange rates may have an adverse impact on Learning Tree's
consolidated operating results and could result in exchange losses. The impact
of future exchange rate fluctuations cannot be predicted. Future exchange rate
fluctuations could have a material adverse impact on Learning Tree's operating
results and may cause its stock price to decrease.

Learning Tree currently does not hedge the risks associated with
fluctuations in exchange rates and therefore, continues to be subject to such
risks. In the future, Learning Tree may implement hedging techniques.

4
<PAGE>

However, such techniques may be unsuccessful in eliminating or reducing the
effects of currency fluctuations.

Other Risks Associated with International Operations. Additionally,
----------------------------------------------------
Learning Tree's financial results may be adversely impacted by, among others,
the following factors:

. difficulties in translating course subject matter into foreign
languages;
. international political and economic conditions;
. changes in government regulation;
. trade barriers;
. difficulty in staffing Learning Tree's foreign offices, and training and
retaining its foreign instructors;
. adverse tax consequences; and
. costs associated with expansion into new territories.

Learning Tree intends, on an ongoing basis, to seek ways to expand its
international operations and expects that revenues derived from international
sources will continue to account for a significant portion of Learning Tree's
total revenues. Failure to anticipate and respond to the inherent risks
associated with international operations could have a material adverse impact on
Learning Tree's operating results and may cause its stock price to decrease.

Dependence on Key Personnel

If Learning Tree is unable to recruit and retain qualified personnel it could
have a material adverse impact on Learning Tree's operating results.

Learning Tree's future success depends in large part on the continued
services of its executive officers, its senior managers and other key personnel.
The loss of the services of its officers, its senior managers or other key
personnel, especially without advance notice, could have a material adverse
impact on Learning Tree's results of operations. Learning Tree's continuing and
future success also depends on its ability to attract and retain highly-skilled
personnel, including course instructors. Competition for qualified personnel is
intense and there are a limited number of people with knowledge of, and
experience in, Learning Tree's industry. Learning Tree's success in recruitment
and training of instructors and employees may not continue. If Learning Tree is
unable to continue to attract and retain qualified personnel it could have a
material adverse impact on Learning Tree's operating results and may cause its
stock price to decrease.

Risks Associated with Intellectual Property

If substantial unauthorized use of Learning Tree's products were to occur or if
it was unsuccessful in defending against an infringement claim, Learning Tree's
business and operating results could be materially adversely impacted.

Learning Tree's commercial success depends in part on its ability to
protect and maintain Learning Tree's proprietary technology and confidential
information. Learning Tree regards its course development process and course
titles as proprietary and relies primarily on a combination of statutory and
common law copyright, trademark and trade secret laws, customer licensing
agreements, employee and third-party nondisclosure agreements and other methods
to protect its proprietary rights. However, a third party or parties could copy
or otherwise obtain and use Learning Tree's course materials in an unauthorized
manner or use these materials to develop course titles which are substantially
similar to those of Learning Tree. In addition, Learning Tree operates in
countries that do not provide protection of proprietary rights to the same
extent as the United States.

Learning Tree's course materials generally do not include any mechanisms to
prohibit or prevent unauthorized use. If substantial unauthorized use of
Learning Tree's products were to occur, its business and results of operations
could be materially adversely impacted. Although Learning Tree has taken steps
to protect its courses from unauthorized use or infringement, they may not be
adequate. Additionally, Learning Tree's competitors may independently develop
similar course titles or delivery methods.

Third parties may claim that Learning Tree's current or future courses
infringe on the proprietary rights of

5
<PAGE>

others. Learning Tree expects that it will be increasingly subject to
infringement claims as the number of products and competitors increases in the
future.

Offensive and defensive litigation regarding intellectual property rights
could be time-consuming and expensive, even if such claims are without merit.
Additionally, if Learning Tree were unsuccessful in defending against an
infringement claim, it could have a material adverse impact on Learning Tree's
operating results and may cause its stock price to decrease.

Risks Associated with Government Authorization and Accreditation

State laws and regulations impact Learning Tree's operations and may limit its
ability to obtain authorization to operate in certain states.

Many federal, state and international governmental agencies assert
authority to regulate providers of educational programs. Generally, Learning
Tree is exempt from such regulation because it contracts with the employer of
the course participants and does not participate in any federal or state student
aid/loan programs. However, state laws and regulations impact Learning Tree's
operations and may limit its ability to obtain authorization to operate in
certain states. If Learning Tree were required to comply with, or found to be in
violation of, a state's current or future licensing or regulatory requirements,
it could be subject to civil or criminal sanctions, including monetary
penalties. Additionally, Learning Tree could be barred from providing
educational services in that state. If any of these things occur, they could
have a material adverse impact on Learning Tree's operating results and may
cause its stock price to decrease.

Control by Management

Senior management has significant influence over Learning Tree's policies and
affairs and may be in a position to determine the outcome of corporate actions.

Senior management collectively owns approximately 52% of Learning Tree's
outstanding shares of common stock. Dr. Collins, Learning Tree's Chairman and
Chief Executive Officer, owns approximately 26% of Learning Tree's outstanding
shares of common stock. Mr. Garen, its President, owns directly and indirectly,
approximately 24% of Learning Tree's outstanding shares of common stock.
Consequently, senior management, and Dr. Collins and Mr. Garen in particular,
have significant influence over Learning Tree's policies and affairs and may be
in a position to determine the outcome of corporate actions requiring
stockholder approval. Such actions may include, among other items, the election
of directors, the adoption of amendments to Learning Tree's corporate documents
and the approval of mergers and sales of company assets.

Risks Associated with Possible Acquisitions and New Business Ventures

If Learning Tree is unsuccessful in implementing future acquisitions and new
business ventures, it could have a material adverse impact on its operating
results.

While Learning Tree has no current agreements in place or negotiations
underway with respect to any acquisition, it is currently in the pilot phase of
a new Internet-based Distance Learning program, and plans to regularly evaluate
other opportunities that fit within Learning Tree's business plan. Acquisitions
and new business ventures involve numerous risks, including:

. difficulties integrating acquired technologies, operations and personnel
with the existing operations;
. difficulties in developing and marketing new products and services;
. diversion of management's attention in connection with evaluating,
negotiating and integrating potential or actual acquisitions or new
business ventures;
. strain on managerial and operational resources as management tries to
oversee new and/or larger operations;
. exposure to unforeseen liabilities of acquired companies; and
. potential loss of key employees of the acquired operation.

In addition, an acquisition or new business venture could adversely impact
cash flows and/or operating results,

6
<PAGE>

as well as dilute shareholder interests, due to the following:

. charges to the income statement to reflect the amortization of acquired
intangible assets;
. interest costs and debt service requirements for debt incurred in
connection with an acquisition or new business venture; and
. issuance of securities in connection with an acquisition or new business
venture which dilute or lessen the rights of current Learning Tree
common stockholders.

Learning Tree has had no significant experience in executing and
implementing acquisitions, and although it has implemented new business
ventures, those ventures have not always been a financial success. Learning Tree
may not be successful in implementing acquisitions and new business ventures in
the future. Many of the risks listed above could have a material adverse impact
on Learning Tree's operating results and all of the risks may cause its stock
price to decrease.

Anti-Takeover Provisions

Certain provisions of Learning Tree's Restated Certificate of Incorporation, its
Bylaws and Delaware law could adversely impact the interests of Learning Tree's
stockholders.

Certain provisions of Learning Tree's Restated Certificate of
Incorporation, its Bylaws and Delaware law could, together or separately,
discourage, delay or prevent a third party from acquiring Learning Tree, even if
doing so might be beneficial to its stockholders. These provisions may also
impact the price that investors would be willing to pay for shares of Learning
Tree's common stock. Examples of such provisions included in Learning Tree's
Restated Certificate of Incorporation and Bylaws are as follows:

. authorization to divide the board of directors into three classes;
. authorization to issue preferred stock with rights and privileges which
could be senior to the common stock, without prior stockholder approval;
. limitation of the rights of stockholders to call a special meeting of
stockholders; and
. prohibition of stockholder actions by written consent.

Year 2000 Risks

If Learning Tree's procedures to identify and correct its Y2K problems are not
effective, it could negatively impact its operating results. In addition,
attendance in Learning Tree's courses may be adversely impacted if mail,
telephone or travel services experience Y2K problems or if Learning Tree's
customers have Y2K problems of their own.

The Year 2000 ("Y2K") Problem. The Y2K problem arose because many existing
-----------------------------
computer programs use only the last two digits to recognize a year. Therefore,
when the year 2000 arrives, these programs may not properly recognize a year
beginning with "20" instead of the familiar "19". The Y2K problem may result in
the improper processing of dates and date-sensitive calculations by computers
and other microprocessor-controlled equipment as the year 2000 is approached and
reached.

Learning Tree's Response to the Y2K Problem. In response to the potential
--------------------------------------------
risks of the Y2K problem, Learning Tree conducted a review of the following:

. its internal information systems;
. its products, including components supplied by outside vendors; and
. potential Y2K problems associated with outside vendors.

Based upon the results of this review, Learning Tree installed and tested
the software upgrades it believes were necessary to make its internal systems
Y2K compliant. However, Y2K problems may still exist but remain undetected by
its testing procedures.

Based upon Learning Tree's review of its products, Learning Tree believes
that they are Y2K compliant.

7
<PAGE>

However, there may be Y2K problems that were undetected by its review.

Learning Tree also completed a review to identify any potential Y2K
problems from outside vendors whose systems interface with Learning Tree's
internal systems. Learning Tree did not undertake a general review of other
outside vendors, such as banks, utilities, telephone companies, airlines and
shipping companies, and is relying on general industry pressure to ensure Y2K
compliance by these vendors. Based on the review of the Y2K problems associated
with outside vendors, Learning Tree does not expect this issue to have a
material adverse effect on its operations. However, since third-party Y2K
compliance is not within Learning Tree's control, it cannot be sure that Y2K
problems affecting the systems of other companies on which Learning Tree's
systems rely will not have a material adverse impact on Learning Tree's
operations.

To date, Learning Tree has not identified any Y2K problem that it believes
could have a material adverse impact on its operating results. However, even
though it has completed a review of interfaces with other outside vendors, it is
possible that Y2K problems may be identified that could result in a material
adverse impact on Learning Tree's operating results. In addition, no assessment
program can guarantee identification of all potential issues.

Possible Impact on Revenues. Learning Tree's marketing and promotion
---------------------------
programs rely heavily on direct mail programs and telephone solicitation. An
interruption in mail delivery or telephone service could significantly reduce
Learning Tree's marketing efforts and could have a material adverse impact on
its operating results and may cause its stock price to decrease. In addition,
attendance in Learning Tree's courses is heavily reliant on the ability of its
customers to travel to the locations where Learning Tree courses are offered. An
interruption in travel services could significantly reduce the ability of
Learning Tree's customers to attend courses and could have a material adverse
impact on its operating results.

The Y2K problem is also expected to result in some degree of general
economic dislocation, which could decrease demand for Learning Tree's products
and services and have a material adverse impact on its operating results.
Certain independent as well as internal market surveys have indicated that
companies have reduced their spending on IT training and on new software and
hardware investments while working to overcome their Y2K problems. In
particular, Learning Tree cannot predict at this time the exact impact of the
Y2K problem on IT training, particularly in the early part of calendar 2000. It
is likely that the potential Y2K impacts on Learning Tree's customers will
adversely affect enrollments in fiscal 2000, particularly during the second
fiscal quarter. Learning Tree's revenues may not increase as more companies
complete their Y2K compliance projects. This could have a material adverse
impact on Learning Tree's operating results and may cause its stock price to
decrease.

Natural Disasters, Strikes, and Other Unpredictable Events

Over the past 25 years, Learning Tree has experienced various natural disasters,
external labor disruptions, and other adverse events that have affected its
ability to conduct its business, resulting in loss of revenue. Should these or
similar events occur in the future, they could have a material adverse impact on
Learning Tree's business and operating results.

Natural Disasters. In the past, Learning Tree has been adversely affected
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by severe blizzards that in some cases reduced the ability of its course
participants to travel to Learning Tree courses, and in one case forced the
closure of one of its Education Centers for a week. In another case, a water
main broke outside an Education Center, flooding the electrical systems and
basement of the building and forcing a one-week closure of that location. In
these past situations, Learning Tree took steps to transfer the course
participants to later courses. However, such disasters are likely to result in
loss of revenue and adversely affect business results. Learning Tree has also
experienced disruptions due to both blizzards and floods in the printing and
transportation of the printed catalogs used in its direct mail campaigns. Such
disruptions can delay its mailings, resulting in reduced revenue in upcoming
courses.

Strikes. Postal Strikes have occurred in several of the countries where
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Learning Tree operates. These postal strikes delayed and/or reduced the delivery
of its direct mail marketing. When these situations occurred, Learning Tree
employed alternative means to deliver as much of its mail as possible. However,
in these cases, only some of its direct mail could be handled by such alternate
means. As a result,

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enrollments in upcoming course events were reduced, and Learning Tree's revenues
and operating results were adversely impacted. Transportation strikes also
occurred in several of the countries where Learning Tree operates. These
transportation strikes made it difficult for Learning Tree course participants
to travel to the courses. In such cases, Learning Tree employed private
transportation services, whenever possible, to bring local participants to the
courses. However, transportation strikes have inevitably resulted in loss or
delay in course participation, and loss of revenues and reduced operating
income.

Other Unpredictable Events. Periodic outages of the Toll-Free telephone
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network have in the past adversely impacted enrollments for hours, or days,
thereby resulting in loss of revenues.

The future occurrence of any of these events could reduce the attendance at
Learning Tree's courses, and could result in reduced revenue. This could have a
material adverse impact on Learning Tree's operating results and may cause its
stock price to decrease.