LEARNING CARE GROUP, INC - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED OCTOBER 15, 2004

|_| 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: 0-27656

LEARNING CARE GROUP, INC.

(Exact Name Of Registrant As Specified In Its Charter)

MICHIGAN	38-3261854
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification No.)

21333 Haggerty Road, Suite 300

Novi, Michigan 48375

(Address of principal executive offices)

(248) 697-9000

(Registrant’s telephone number, including area code)

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 required for the past 90 days. Yes |X| No |_|

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|

The number of shares of Registrant’s Common Stock, no par value per share, outstanding at November 10, 2004, was 19,816,510.

LEARNING CARE GROUP, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

For the Quarterly Period Ended October 15, 2004

				Page Number
PART I. FINANCIAL INFORMATION
	ITEM 1.	Condensed Consolidated Financial Statements
		A.	Condensed Consolidated Balance Sheets October 15, 2004 and April 2, 2004	3
		B.	Condensed Consolidated Statements of Operations 12 and 28 weeks ended October 15, 2004 and October 10, 2003	4
		C.	Condensed Consolidated Statements of Cash Flows 28 weeks ended October 15, 2004 and October 10, 2003	5
		D.	Notes to Condensed Consolidated Financial Statements	6-12
	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12-18
	ITEM 3.	Quantitative and Qualitative Disclosures about Market Risks		18
	ITEM 4.	Controls and Procedures		19
PART II. OTHER INFORMATION
	ITEM 1.	Legal Proceedings		20
	ITEM 5.	Other Information		20
	ITEM 6.	Exhibits, Reports on Form 8-K		20
SIGNATURES				21
EXHIBIT INDEX				22

PART I – FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements

LEARNING CARE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	October 15, 2004			April 2, 2004
	(Unaudited)
	(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	203		$	1,377
Accounts receivable, net		9,937			9,379
Prepaid expenses and other current assets		4,646			5,435

Total current assets		14,786			16,191

LAND, BUILDINGS AND EQUIPMENT:
Land		9,347			9,347
Buildings		20,520			20,443
Leasehold improvements		14,420			12,462
Vehicles, furniture and equipment		13,991			13,599

		58,278			55,851
Less: accumulated depreciation and amortization		(20,688	)		(19,128	)

		37,590			36,723

OTHER NONCURRENT ASSETS:
Intangible assets, net		30,910			30,064
Refundable deposits and other		2,667			2,641

		33,577			32,705

TOTAL ASSETS	$	85,953		$	85,619

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts and drafts payable	$	5,858		$	6,810
Accrued wages and benefits		6,962			7,531
Current portion of long-term debt		9,405			3,328
Exit and closure expense accrual		214			448
Other current liabilities		9,830			10,016

Total current liabilities		32,269			28,133

LONG-TERM DEBT, NET OF CURRENT PORTION		3,637			8,397
DEFERRED RENT LIABILITY & MINORITY INTEREST		2,445			1,945
OBLIGATIONS UNDER SALE LEASEBACK TRANSACTIONS		10,503			10,138

Total liabilities		48,854			48,613

SHAREHOLDERS’ EQUITY
Common Stock, 40,000,000 shares authorized, no par value; 19,809,010
issued and outstanding at October 15, 2004 and April 2, 2004		43,841			43,781
Preferred Stock, 100,000 shares authorized, no par value;
no shares issued or outstanding		—			—
Retained earnings (accumulated deficit)		(6,742	)		(6,775	)

Total shareholders’ equity		37,099			37,006

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	85,953		$	85,619

The accompanying footnotes are an integral part of the condensed consolidated financial statements.

LEARNING CARE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	12 Weeks Ended						28 Weeks Ended
	October 15, 2004			October 10, 2003			October 15, 2004			October 10, 2003
	(In thousands, except per share data)

Revenue from Learning Center Operations	$	46,663		$	43,405		$	110,853		$	103,842
Revenue from Franchise Operations		1,540			1,376			3,874			3,236

Revenue, net		48,203			44,781			114,727			107,078
Operating expenses of Learning Centers		42,992			40,597			100,114			94,882

Gross profit		5,211			4,184			14,613			12,196
General and administrative expenses		4,239			4,094			10,636			9,938
Depreciation and amortization expenses		946			858			2,270			2,095
Gain on sale of centers and vacant land		(135	)		—			(684	)		—
Provision for doubtful accounts		559			244			838			534
Exit and closure expenses		21			—			61			—

OPERATING INCOME (LOSS)		(419	)		(1,012	)		1,492			(371	)
Interest expense, net		521			374			1,165			1,087

INCOME (LOSS) BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS		(940	)		(1,386	)		327			(1,458	)

Income tax provision		(50	)		—			54			—

INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS		(890	)		(1,386	)		273			(1,458	)

Discontinued operations, net of taxes		(34	)		(167	)		(240	)		(365	)

NET INCOME (LOSS)	$	(924	)	$	(1,553	)	$	33		$	(1,823	)

INCOME (LOSS) PER SHARE - BASIC:
Income (loss) before discontinued operations	$	(0.05	)	$	(0.07	)	$	0.01		$	(0.09	)
Discontinued operations, net of taxes		(0.00	)		(0.01	)		(0.01	)		(0.02	)

Net income (loss)	$	(0.05	)	$	(0.08	)	$	0.00		$	(0.11	)

INCOME (LOSS) PER SHARE - DILUTED:
Income (loss) before discontinued operations	$	(0.05	)	$	(0.07	)	$	0.01		$	(0.09	)
Discontinued operations, net of taxes		(0.00	)		(0.01	)		(0.01	)		(0.02	)

Net income (loss)	$	(0.05	)	$	(0.08	)	$	0.00		$	(0.11	)

Weighted average shares outstanding		19,812			19,708			19,810			16,074

The accompanying footnotes are an integral part of the condensed consolidated financial statements.

LEARNING CARE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	28 Weeks Ended
	October 15, 2004			October 10, 2003
	(In thousands)
OPERATING ACTIVITIES:
Net income (loss)	$	33		$	(1,823	)
Adjustments to reconcile net income (loss) to cash
provided (used) by operating activities:
Depreciation and amortization		2,233			2,136
Provision for doubtful accounts		838			583
Stock option compensation expense		44			—
Deferred rent liability		533			138
Minority interest in variable interest entities		(33	)		—
(Gain) loss on sale of assets		(593	)		58
Changes in operating assets and liabilities:
Accounts receivable		(1,614	)		(2,670	)
Prepaid expenses and other current assets		151			(1,445	)
Accounts payable, accruals and other current liabilities		640			1,595
Exit and closure expense accrual		(234	)		(662	)

Net cash provided (used) by operating activities		1,998			(2,090	)

INVESTING ACTIVITIES:
Acquisiton of centers, net of cash		(314	)		—
Capital spending		(2,845	)		(2,327	)
Proceeds from sale of assets		761			1,054
Payments for refundable deposits and other assets		(26	)		(43	)

Net cash used in investing activities		(2,424	)		(1,316	)

FINANCING ACTIVITIES:
Net borrowings on revolving line of credit		3,785			1,614
Repayments under long-term debt		(2,507	)		(15,067	)
Issuance of long-term debt		—			3,500
Changes in drafts payable		(2,042	)		641
Issuance of common shares (net of issuance costs)		16			12,094

Net cash provided (used) by financing activities		(748	)		2,782

Net decrease in cash and cash equivalents		(1,174	)		(624	)
Cash and cash equivalents, beginning of year		1,377			2,499

Cash and cash equivalents, end of period	$	203		$	1,875

The accompanying footnotes are an integral part of the condensed consolidated financial statements.

LEARNING CARE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – DESCRIPTION OF BUSINESS

Learning Care Group, Inc. conducts business through its wholly-owned subsidiary Childtime Childcare, Inc. and its other wholly-owned subsidiaries (collectively, the “Company”). The Company and its predecessors began operations in 1967. The Company operates in three business segments: Childtime Learning Centers, Tutor Time Learning Centers and Franchise Operations. The Company provides center-based educational services and child care to children between the ages of six weeks and 12 years under two distinct brand identities: Childtime Learning Centers (“Childtime”) and Tutor Time Childcare Learning Centers (“Tutor Time”). As of October 15, 2004, the Company operated or franchised a total of 466 centers system-wide under three major lines of business and had system-wide licensed capacity capable of serving over 70,000 children. The Company’s three lines of business are:

•	Childtime Learning Centers: 267 centers operated by the Company, consisting of:
	—	258 Childtime centers and
	—	9 Childtime-branded centers operated for third parties;
•	Tutor Time Learning Centers: 69 Tutor Time centers operated by the Company; and
•	Tutor Time Franchise: royalties and other fees received from 130 franchised Tutor Time centers.

Childtime and Tutor Time corporate centers are located throughout the United States (in 26 states) and Canada (one location). The vast majority of these centers are operated on leased premises, with typical lease terms ranging from 1 to 25 years. Thirty-eight of the Childtime centers are operated on Company-owned premises.

The Company operates nine Childtime centers under management contracts. Located throughout the U.S., these centers serve hospitals, corporations and the federal government. Under these contracts, the Company receives an annual operating fee and, in some cases, is eligible to receive incentives for improving revenues and/or managing costs. These contracts are typically up for renewal on an annual basis.

Tutor Time franchise centers are also predominantly located in the U.S., with 118 centers operating in 17 states. An additional 12 centers are operated in Canada, Hong Kong, Indonesia, and the Philippines, mostly under master franchise agreements. The Company is currently the primary obligor or guarantor on leases for 51 of its franchise centers.

An amendment to the Company’s Restated Articles of Incorporation was approved by shareholders on August 17, 2004, which resulted in a change in the Company’s name from Childtime Learning Centers, Inc. to Learning Care Group, Inc.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Learning Care Group, Inc. and its wholly owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation.

The accompanying financial statements have been prepared by the Company in accordance with the accounting policies described in the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended April 2, 2004, and should be read in conjunction with the notes thereto.

In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments which are necessary to present fairly its financial position as of October 15, 2004, and the results of its operations and cash flows for the periods ended October 15, 2004 and October 10, 2003, respectively, and are of a normal and recurring nature. The results of operations for interim periods are not necessarily indicative of the operating results to be expected for the full year.

Use of Estimates

The preparation of condensed consolidated financial statements in accordance with generally accepted accounting principles requires management to render estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

Fiscal Year

The Company utilizes a 52-53 week fiscal year ending on the Friday closest to March 31. For fiscal year 2005, the second quarter contained 12 weeks, and the fiscal year contains 52 weeks. For fiscal year 2004, the second quarter contained 12 weeks, and the fiscal year contained 53 weeks.

Stock-Based Compensation

The Company has adopted the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation, and continues to measure compensation cost using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Had stock option compensation cost for these plans been determined based on the fair value at the grant dates for awards under those plans consistent with the methodology of SFAS No. 123, the Company’s net income (loss) and net income (loss) per share would have been reduced or increased, as applicable, to the pro forma amounts indicated below (in thousands):

		12 Weeks Ended						28 Weeks Ended
		October 15, 2004			October 10, 2003			October 15, 2004			October 10, 2003
Net income (loss)	As reported	$	(924	)	$	(1,553	)	$	33		$	(1,823	)
	Pro forma	$	(976	)	$	(2,291	)	$	(185	)	$	(2,719	)
Net income (loss) per share - Basic
	As reported	$	(0.05	)	$	(0.08	)	$	0.00		$	(0.11	)
	Pro forma	$	(0.05	)	$	(0.12	)	$	(0.01	)	$	(0.17	)
Net income (loss) per share - Diluted
	As reported	$	(0.05	)	$	(0.08	)	$	0.00		$	(0.11	)
	Pro forma	$	(0.05	)	$	(0.12	)	$	(0.01	)	$	(0.17	)
Weighted average fair value of options granted during the year		$	1.73		$	1.09		$	1.59		$	0.89

The fair value of the options used to compute pro forma net income (loss) and net income (loss) per share is the estimated present value at grant date using the “Black-Scholes” option-pricing model with the following weighted average assumptions for the 12 and 28 weeks ended October 15, 2004 and October 10, 2003, respectively: no dividend yield; expected volatility of 76.0 and 56.4 percent; risk free interest rate of 3.6 and 2.0 percent; and expected holding periods of 5.0 and 5.0 years.

Franchise Lease Liabilities

A subsidiary of the Company is primarily or contingently liable for many of the leases of Tutor Time’s franchisees (see Note 5 below). The Company would be required to pay the related lease obligations in the case of default by the franchisee. Should the Company be required to make payments under these leases, it may assume obligations for operating the center. Should the center not be economically viable, the Company will make provision for the lease termination at that time. The Company does not record any liabilities for any known default if the value of the existing franchise operation is greater than the potential liability or if the known net worth of the franchisee (or the owner of the franchisee, who personally guarantees the related franchise liabilities) is greater than the potential liability.

NOTE 3 – ACCOUNTS RECEIVABLE

Accounts receivable is presented net of an allowance for doubtful accounts. At October 15, 2004 and April 2, 2004, the allowance for doubtful accounts was $1.0 million and $2.0 million, respectively.

NOTE 4 – DRAFTS PAYABLE

Drafts payable represent unfunded checks drawn on zero balance accounts that have not been presented for funding to the Company’s banks. The drafts are funded, without finance charges, as soon as they are presented. At October 15, 2004 and April 2, 2004, the aggregate drafts payable were $2.4 million and $4.5 million, respectively.

NOTE 5 – COMMITMENTS and CONTINGENCIES

A subsidiary of the Company is primarily or contingently liable for many of the leases of Tutor Time’s franchisees. In an effort to build its franchisee network, Tutor Time either leased the prospective site for a franchisee, with a subsequent sublease of the site to the franchisee, or provided a lease guarantee to the landlord for the benefit of the franchisee in exchange for a monthly lease guarantee fee payable by the franchisee that is based upon the monthly rent expense of the guaranteed lease. The payments the Company could be required to pay related to leases and guarantees aggregate $74.7 million and $9.1 million, respectively, in case of default by the franchisee. Should the Company be required to make payments under these leases, it may assume obligations for operating the center. Should the center not be economically viable, the Company will make provision for the lease termination at that time. The Company does not anticipate that it will be required to make payments under any of these leases or guarantees, does not believe that any payments are likely and has not recorded any related liability.

Various legal actions and other claims are pending or could be asserted against the Company including pending claims relating to exposure to mold and other contaminants resulting from the condition of one of the Company’s centers. In addition, the Company has and will continue to vigorously protect its rights against parties that violate franchise agreements or infringe on its intellectual property rights. Litigation is subject to many uncertainties; the outcome of individual litigated matters is not predictable with assurance, and it is reasonably possible that some of these matters may be decided unfavorably to the Company. It is the opinion of management that the ultimate liability, if any, with respect to these matters will not materially affect the financial position, results of operations or cash flows of the Company beyond amounts already accrued.

NOTE 6 – PAYMENTS FOR CONSULTING SERVICES

In July 2000, the Company retained Jacobson Partners, of which Benjamin R. Jacobson, the Company’s Chairman of the Board, is the managing general partner, to provide management and financial consulting services. Total consulting fees incurred for Jacobson Partners were $135,000 and $135,000 for the 28 weeks ended October 15, 2004 and October 10, 2003, respectively, and are included in General and administrative expenses in the accompanying Condensed Consolidated Statements of Operations.

NOTE 7 – INCOME TAXES

During the 28 weeks ended October 15, 2004, an income tax provision of $0.1 million (all related to state income taxes) was recorded on income before income taxes and discontinued operations of $0.3 million, compared to an income tax provision of $0.0 million on loss before discontinued operations of ($1.5 million) for the same period last year. During the 12 weeks ended October 15, 2004, an income tax benefit of ($0.1 million) was recorded on loss before discontinued operations of ($0.9 million), compared to an income tax provision of $0.0 million on loss before discontinued operations of ($1.4 million) for the same period last year. Income tax expense for the 12 and 28 weeks ended October 15, 2004 varied from the U.S. statutory rate of 34% due primarily to the utilization of net operating loss carryforwards for which a valuation allowance has been recorded.

NOTE 8 – NET INCOME (LOSS) PER SHARE

For the 12 and 28 weeks ended October 15, 2004 and October 10, 2003, basic income (loss) per share has been calculated by dividing earnings available to common shareholders by the weighted average number of common shares outstanding for the period. The calculation of basic and diluted shares is as follows (in thousands):

	Calculation on Incremental Shares
	12 Weeks Ended				28 Weeks Ended
	October 15, 2004		October 10, 2003		October 15, 2004		October 10, 2003
Basic Shares (based on weighted average)		19,812		19,708		19,810		16,074
Stock Options (1)		—		—		1,012		—

Diluted Shares		19,812		19,708		20,822		16,074

(1) For the 12 weeks ended October 15, 2004, the above calculation does not include 2,032,124 shares issuable from stock options that have the potential to dilute earnings per share in the future. These shares were not included in the above calculation of diluted shares because to do so would have been antidilutive. For the 28 weeks ended October 15, 2004, the above calculation does not include 961,769 shares issuable from stock options that have the potential to dilute earnings per share in the future. For the 12 and 28 weeks ended October 10, 2003, the above calculation does not include 1,772,459 and 1,441,463 shares, respectively, issuable from stock options that have the potential to dilute earnings per share in the future. These shares were not included in the above calculation of diluted shares because to do so would have been antidilutive.

NOTE 9 – EXIT AND CLOSURE EXPENSES AND DISCONTINUED OPERATIONS

The Company has made provisions for closed center lease obligations and discontinued operations in connection with the closing of under-performing centers. During the 12 and 28 weeks ended October 15, 2004, the Company incurred charges of $0.2 million and $0.7 million, respectively, to increase the reserves and to provide for other closed centers. The Company made payments related to its restructuring reserve of $0.4 million for the 28 weeks ended October 15, 2004. A summary of the accrual is as follows (in thousands):

	Exit and Closure Expenses and Discontinued Operations Accrual Analysis
	Beginning Accrual April 2, 2004		Expenses		Cash Payments		Ending Accrual October 15, 2004

Closed center lease obligations	$	241	$	61	$	160	$	142

Discontinued operations lease obligations		207		75		210		72

Total	$	448	$	136	$	370	$	214

The lease liability for the centers closed during the 28 weeks ended October 15, 2004 and October 10, 2003 has been recorded at management’s estimate of the amounts of expected payments.

A summary of discontinued operations is as follows (in thousands):

	12 Weeks Ended						28 Weeks Ended
	October 15, 2004			October 10, 2003			October 15, 2004			October 10, 2003

Revenues, net	$	9		$	326		$	75		$	1,079
Operating expenses of Learning Centers		26			456			205			1,263

Loss from operations		(17	)		(130	)		(130	)		(184	)
Provision for doubtful accounts		—			4			1			51
Depreciation and amortization expenses		10			6			34			12
Exit and closure expenses		11			27			75			118

Loss from discontinued operations before income tax		(38	)		(167	)		(240	)		(365	)

Income tax provision		(4	)		—			—			—

Loss from discontinued operations, net of tax	$	(34	)	$	(167	)	$	(240	)	$	(365	)

NOTE 10 – INTANGIBLE ASSETS AND GOODWILL

The changes in the carrying amounts of goodwill and other intangible assets for the 28 weeks ended October 15, 2004 were as follows (in thousands):

	Balance April 2, 2004		Additions		Amortization		Balance October 15, 2004
Goodwill	$	17,866	$	1,245	$	—	$	19,111	Indefinite
Franchise Agreements		8,320		—		245		8,075	20
Trade Name and Trademarks		3,574		—		105		3,469	20
Curriculum		304		—		49		255	5

Total intangible assets, net	$	30,064	$	1,245	$	399	$	30,910

During the period ended October 15, 2004, the Company acquired eight Tutor Time centers from a franchisee for $1.3 million, adjusted for certain assets and liabilities, which resulted in an addition to goodwill. Estimated amortization of intangible assets is expected to be $0.7 million for fiscal 2005 and approximately $0.7 million annually for the next four years.

NOTE 11 – SEGMENT INFORMATION

The Company has three reportable segments: Childtime, Tutor Time and Franchise Operations. Childtime operates childcare centers primarily under the Childtime Learning Centers brand name, Tutor Time operates childcare centers under the Tutor Time brand name and Franchise Operations licenses and provides developmental and administrative support to franchisees operating under the Tutor Time brand name. The accounting polices of the segments are the same as those described in the summary of significant accounting policies. The Company’s reportable segments are reported separately because the Company’s chief operating decision maker uses the segment information in determining the allocation of resources among segments and appraising the performance of the segments.

Information about the Company’s operating segments is presented below (in thousands):

	12 Weeks Ended						28 Weeks Ended
	October 15, 2004			October 10, 2003			October 15, 2004			October 10, 2003
Revenues:
Childtime	$	32,963		$	31,501		$	78,947		$	75,451
Tutor Time		13,700			11,904			31,460			28,391
Franchise Operations		1,540			1,376			3,874			3,236
Revenue associated with the consolidation of VIEs		—			—			446			—

Total	$	48,203		$	44,781		$	114,727		$	107,078

Operating income (loss):
Childtime	$	2,420		$	2,247		$	8,049		$	7,606
Tutor Time		692			317			1,853			820
Franchise Operations		1,540			1,376			3,874			3,236
Depreciation and amortization		(946	)		(858	)		(2,270	)		(2,095	)
Corporate and other		(4,125	)		(4,094	)		(10,014	)		(9,938	)

Total	$	(419	)	$	(1,012	)	$	1,492		$	(371	)

Goodwill:
Childtime	$	7,215		$	7,215		$	7,215		$	7,215
Tutor Time		6,823			5,578			6,823			5,578
Franchise Operations		5,073			5,073			5,073			5,073

Total	$	19,111		$	17,866		$	19,111		$	17,866

All other assets:
Childtime	$	46,748		$	46,513		$	46,748		$	46,513
Tutor Time		10,328			10,643			10,328			10,643
Franchise Operations		9,659			10,951			9,659			10,951
Assets associated with the consolidation of VIEs		107			—			107			—

Total	$	66,842		$	68,107		$	66,842		$	68,107

NOTE 12 – FINANCIAL INSTRUMENT

The Company has entered into interest rate swap contracts to manage its exposure to fluctuations in interest rates relating to the revolving line of credit. Swap contracts fix the interest payments of floating rate debt instruments. As of October 15, 2004 and October 10, 2003, contracts representing $5.0 million of notional amount were outstanding with maturity dates of November 2005 and January 2006. These contracts provide for the Company to pay interest at an average fixed rate of 2.98% in return for receiving interest at a floating rate of three month LIBOR, which is reset in three month intervals. The fair value of interest rate swap agreements is subject to changes in value due to changes in interest rates, and the fair value of $0.0 million and ($0.1) million is included in other current liabilities as of October 15, 2004 and October 10, 2003, respectively.

NOTE 13 – CONSOLIDATION OF VARIABLE INTEREST ENTITIES

During the fourth quarter of 2004, the Company implemented FIN 46R. The Company has concluded that some of its franchise arrangements represent variable interest entities (“VIEs”) which are subject to the provisions of FIN 46R. The Company’s variable interest in these entities include royalty fees and in some cases lease guarantees and debt due to the Company from the franchisee. The Company has analyzed these franchise agreements and has determined that two franchises are entities in which the Company is the primary beneficiary. As a result, these entities were consolidated as of April 2, 2004. During the period ended October 15, 2004, the Company aquired the two franchise entities that had previously been consolidated as VIEs. As a result, these entities are not considered VIEs as of October 15, 2004. The following is a summary of the effect of consolidating these entities for 12 and 28 weeks ending October 15, 2004 (in thousands).

	12 Weeks Ended October 15, 2004		28 Weeks Ended October 15, 2004

Revenue, net of elimination of fees of $23,000	$	—	$	423
Cost and minority interest, net of elimination of fees of $23,000		—		423

Net income	$	—	$	—

The Company has not restated prior periods for the above consolidation and there was no cumulative effect on the prior years related to the consolidation during first quarter 2005.

NOTE 14 – ACQUISITION OF FRANCHISE CENTERS

On July 30, 2004, the Company acquired the entire equity interests of eight entities that each owned a Tutor Time franchise center in the Minneapolis, Minnesota area. These entities were delinquent in the payment of amounts due to the Company and, in certain instances, under leases guaranteed by the Company. The Company decided to purchase these entities in order to cure these delinquencies and to allow the Company to take advantage of operating and expansion opportunities in the Minnesota market. The Company made a cash payment of $0.3 million and assumed liabilities in excess of assets of $1.1 million, resulting in recorded goodwill of $1.2 million. Included in the liability of the purchased entities was a payable to the Company of $0.8 million, for which the Company had established an allowance for doubtful accounts of $0.2 million. The Company is in the process of gathering information to finalize the purchase price allocation. The results of operations have been included in the Company’s operating results since the date of acquisition.

NOTE 15 – SUBSEQUENT EVENT

On November 22, 2004, the Company entered into a Second Amended and Restated Credit Agreement, which increases the revolving line of credit from $13.7 million to $17.5 million and extends the maturity date to July 31, 2006.

ITEM 2. Management’s Discussion and Analysis

GENERAL

The information presented herein refers to the 12 weeks (second quarter 2005) and the 28 weeks (year to date 2005) ended October 15, 2004, compared to the 12 weeks (second quarter 2004) and 28 weeks (year to date 2004) ended October 10, 2003.

The results of Learning Centers opened, acquired or disposed of are included in the Company’s condensed consolidated financial statements from the date of opening or acquisition and through the date of disposition, except for those centers treated as discontinued operations in accordance with SFAS 144. The timing of such new openings, acquisitions or dispositions could influence comparisons of year over year results.

During second quarter 2005, the Company acquired eight Learning Centers from a franchisee and a franchisee opened one franchise center. During second quarter 2004, the Company closed one Learning Center and franchised one center previously operated as a corporate center.

During year to date 2005, the Company acquired eight Learning Centers from a franchisee, opened one franchise center, closed three Learning Centers and sold two additional Learning Centers to franchisees. During year to date 2004, the Company closed four Learning Centers, franchised one center previously operated as a corporate center and opened one corporate center.

The Company is subject to certain risks common to the providers of child care and early education, including dependence on key personnel, dependence on client relationships, competition from alternate sources or providers of the Company’s services, market acceptance of work and family services, the ability to hire and retain qualified personnel, the Company’s ability to manage its overall cost structure and general economic conditions.

The Company’s enrollments change over the course of a year, with the highest enrollments occurring during the traditional fall “back to school”, and after a calendar year and holidays. Enrollments generally decrease during summer months and calendar year-end holidays. As a result, operating results change during the quarters and individual quarterly results are not indicative of annual operating results.

RESULTS OF OPERATIONS

Second Quarter 2005 Compared to Second Quarter 2004

	12 Weeks Ended October 15, 2004					12 Weeks Ended October 10, 2003					Change Amount (in Dollars)

Revenue from Learning Center Operations	$	46,663		96.8	%	$	43,405		96.9	%	$	3,258
Revenue from Franchise Operations		1,540		3.2	%		1,376		3.1	%		164

Revenue, net		48,203		100.0	%		44,781		100.0	%		3,422
Operating expenses of Learning Centers		42,992		89.2	%		40,597		90.7	%		2,395

Gross profit		5,211		10.8	%		4,184		9.3	%		1,027
General and administrative expenses		4,239		8.8	%		4,094		9.1	%		145
Depreciation and amortization expenses		946		2.0	%		858		1.9	%		88
Gain on sale of centers and vacant land		(135	)	-0.3	%		—		0.0	%		(135	)
Provision for doubtful accounts		559		1.2	%		244		0.5	%		315
Exit and closure expenses		21		0.0	%		—		—			21

OPERATING INCOME	$	(419	)	-0.9	%	$	(1,012	)	-2.3	%	$	593

Revenue, net. Net revenue for second quarter 2005 increased $3.4 million, or 7.6%, from the same period last year to $48.2 million. Learning Center revenues increased $3.3 million. Revenue increases were achieved through a combination of increased tuition rates and enrollments. Childtime Learning Centers revenues increased $1.2 million, with comparable Childtime center revenues (centers opened 18 months or longer) increasing 5.0%. Tutor Time Learning Centers revenues increased $2.1 million, with comparable Tutor Time center revenues increasing 6.7%. Franchise Operations revenues, which consisted primarily of royalties, increased $0.2 million, or 11.9%, from the same period last year to $1.5 million.

Operating expenses of Learning Centers. Operating expenses for second quarter 2005 increased $2.4 million, or 5.9%, from the same period last year to $43.0 million. The increase was a result of an increase in personnel expense ($0.9 million), which increased with higher enrollments and general wage increases; an increase in occupancy expense ($0.7 million), which was primarily a result of rent on new center openings and acquired centers, and increased insurance and other occupancy costs for existing centers; and an increase in center operating expenses ($0.8 million), which increased with higher enrollments and higher food, transportation and utility expenses. Operating expenses as a percentage of net revenue decreased to 89.2% for second quarter 2005, from 90.7% in the same period last year. This decrease is primarily a result of a decrease in personnel expenses as a percentage of net revenues, resulting from improved labor efficiencies.

Gross profit. Gross profit for second quarter 2005 increased $1.0 million, or 24.5%, from the same period last year to $5.2 million. This increase consisted of a $0.8 million increase in Learning Center Operations gross profit and a $0.2 million increase in Franchise Operations gross profit. Gross profit percentages for second quarter 2005 by segment were 8.8% for Childtime centers (as compared to 7.4% for 2004), 5.7% for Tutor Time centers (as compared to 3.3% for 2004) and 100% for Franchise Operations. The second quarter gross profit and gross profit percentage changes were a result of the revenue increases and changes in operating expenses described above.

General and administrative expenses. General and administrative expenses for second quarter 2005 increased $0.1 million from the same period last year to $4.2 million. The increase was primarily a result of general wage increases. General and administrative expenses as a percentage of net revenue decreased to 8.8% for second quarter 2005 from 9.1% in the same period last year. The decrease was a result of revenues increasing by a greater percentage than general and administrative expenses.

Depreciation and amortization expense. Depreciation and amortization expense for second quarter 2005 remained unchanged from the same period last year at $0.9 million. Depreciation and amortization expense as a percentage of net revenue increased to 2.0% for second quarter 2005 from 1.9% in the same period last year, primarily as a result of depreciation expense attributable to capital expenditures.

Gain on sale of centers and vacant land. Gain on sale of centers and vacant land was a result of the sale of vacant land during the second quarter 2005. There was not a similar transaction in the same period last year.

Provision for doubtful accounts. Provision for doubtful accounts for second quarter 2005 increased $0.3 million, or 129%, from the same period last year to $0.6 million. This increase was a result of a decline in collection experience during the quarter

Interest expense. Interest expense for second quarter 2005 was $0.5 million, compared to $0.4 million for the same period last year. This increase was a result of sale leaseback transactions completed in fourth quarter 2004.

Income tax provision. An income tax benefit for second quarter 2005 of ($0.1 million), all related to state income taxes, was recorded on a loss before income taxes and discontinued operations of ($0.9 million), compared to an income tax provision of $0.0 million on loss before discontinued operations of ($1.4 million) for the same period last year. Income tax expense for first quarter 2005 varied from the U.S. statutory rate of 34% due primarily to the utilization of net operating loss carryforwards for which a valuation allowance has been recorded.

Discontinued operations, net of taxes. Discontinued operations, net of taxes, for second quarter 2005 was ($0.0 million) compared to a loss of ($0.2 million) for the same period last year. This loss includes operating and lease termination costs associated with closed centers.

Net (loss). As a result of the foregoing changes, net loss decreased to ($0.9 million) for second quarter 2005, compared to a net loss of ($1.6 million) for the same period last year.

Year to Date 2005 Compared to Year to Date 2004

	28 Weeks Ended October 15, 2004					28 Weeks Ended October 10, 2003					Change Amount (in Dollars)

Revenue from Learning Center Operations	$	110,853		96.6	%	$	103,842		97.0	%	$	7,011
Revenue from Franchise Operations		3,874		3.4	%		3,236		3.0	%		638

Revenue, net		114,727		100.0	%		107,078		100.0	%		7,649
Operating expenses of Learning Centers		100,114		87.3	%		94,882		88.6	%		5,232

Gross profit		14,613		12.7	%		12,196		11.4	%		2,417
General and administrative expenses		10,636		9.3	%		9,938		9.3	%		698
Depreciation and amortization expenses		2,270		2.0	%		2,095		2.0	%		175
Gain on sale of centers		(684	)	-0.6	%		—		—			(684	)
Provision for doubtful accounts		838		0.7	%		534		0.5	%		304
Exit and closure expenses		61		0.1	%		—		—			61

OPERATING INCOME	$	1,492		1.3	%	$	(371	)	-0.3	%	$	1,863

Revenue, net. Net revenue for year to date 2005 increased $7.6 million, or 7.1%, from the same period last year to $114.7 million. Learning Center revenues increased $7.0 million. Revenue increases were achieved through a combination of increased tuition rates and enrollments. Childtime Learning Centers revenues increased $2.7 million, with comparable Childtime center revenues (centers opened 18 months or longer) increasing 4.8%. Tutor Time Learning Centers revenues increased $4.3 million, with comparable Tutor Time center revenues increasing 6.7%. Revenue attributable to the consolidation of two franchise arrangements considered variable interest entities (VIEs as discussed in Note 13 of the Notes to Condensed Consolidated Financial Statements (unaudited) included in this Report under Item 1) accounted for $0.4 million of the year to date 2005 Tutor Time Learning Centers increase. Franchise Operations revenues, which consisted primarily of royalties, increased $0.6 million, or 19.7%, from the same period last year to $3.9 million.

Operating expenses of Learning Centers. Operating expenses year to date 2005 increased $5.2 million, or 5.5%, from the same period last year to $100.1 million. The increase was a result of an increase in personnel expense ($2.3 million), which increased with higher enrollments and general wage increases; an increase in occupancy expense ($1.7 million), which was primarily a result of rent on new center openings and acquired centers, and increased insurance and other occupancy costs for existing centers; an increase in center operating expenses ($1.2 million), which increased with higher enrollments and higher food, transportation and utility expenses; and operating expenses associated with the VIEs ($0.4 million). Operating expenses as a percentage of net revenue decreased to 87.3% for year to date 2005, from 88.6% in the same period last year. This decrease is a result of a decrease in personnel expenses as a percentage of net revenues, resulting from improved labor efficiencies, and the increased portion of revenues derived from Franchise Operations, which have no associated costs in Operating expenses of Learning Centers.

Gross profit. Gross profit for year to date 2005 increased $2.4 million, or 19.8%, from the same period last year to $14.6 million. This increase consisted of a $1.8 million increase in Learning Center Operations gross profit and a $0.6 million increase in Franchise Operations gross profit. Gross profit percentages for year to date 2005 by segment were 11.0% for Childtime centers (as compared to 10.4% for 2004), 6.4% for Tutor Time centers (as compared to 3.3% for 2004) and 100% for Franchise Operations. The second quarter gross profit and gross profit percentage changes were a result of the revenue increases and changes in operating expenses described above.

General and administrative expenses. General and administrative expenses for year to date 2005 increased $0.7 million, or 7.0%, from the same period last year to $10.6 million. The increase was a result of increased center staff training expenses, general wage increases and increased employee bonuses due to operating improvements. General and administrative expenses as a percentage of net revenue remained unchanged at 9.3%.

Depreciation and amortization expense. Depreciation and amortization expense for year to date 2005 increased $0.2 million, or 8.4%, from the same period last year to $2.3 million. The increase was primarily a result of depreciation expense attributable to capital expenditures. Depreciation and amortization expense as a percentage of net revenue remained unchanged at 2.0%.

Gain on sale of center and vacant lands. Gain on sale of centers was a result of the sale under a franchise agreement of two Tutor Time centers to an existing franchisee in first quarter 2005 and the sale of vacant land in second quarter 2005. There were not similar transactions in the same period last year.

Provision for doubtful accounts. Provision for doubtful accounts for year to date 2005 increased $0.3 million, or 60%, from the same period last year to $0.8 million. This increase was a result of a decline in collection experience during the quarter.

Interest expense. Interest expense for year to date 2005 was $1.2 million, compared to $1.1 million for the same period last year. This increase was a result of interest on sale leaseback transactions completed in fourth quarter 2004.

Income tax provision. Income tax provision for year to date 2005 of $0.1 million (all related to state income taxes) was recorded on income before income taxes and discontinued operations of $0.3 million, compared to an income tax provision of $0.0 million on a loss before discontinued operations of ($1.5 million) for the same period last year. Income tax expense for year to date 2005 varied from the U.S. statutory rate of 34% due primarily to the utilization of net operating loss carryforwards for which a valuation allowance has been recorded.

Discontinued operations, net of taxes. Discontinued operations, net of taxes, for year to date 2005 was a loss of ($0.2 million), compared to a loss of ($0.4 million) for the same period last year. This loss includes operating and lease termination costs associated with closed centers.

Net income (loss). As a result of the foregoing changes, net income increased to $0.0 million for year to date 2005, compared to a net loss of ($1.8 million) for the same period last year.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s primary cash requirements currently consist of payment of operating expenses, repayment of debt and capital expenditures. The Company expects to fund cash needs through the revolving credit facility, described below, and cash generated from operations. The Company has also funded cash needs through sale leaseback transactions. The Company may evaluate alternative forms of funding and new arrangements may be entered into in the future. The Company experiences decreased liquidity during the calendar year-end holidays due to decreased attendance. While new enrollments are generally highest during the traditional fall “back to school” period and after the calendar year-end holidays, enrollment generally decreases during the summer months and calendar year-end holidays. Should cash flow generated from operations and borrowings available under the revolving credit facility not be adequate to provide for its working capital and debt service needs, the Company will attempt to make other arrangements to provide needed liquidity. No assurance can be given that such sources of capital will be sufficient.

On January 31, 2002, the Company entered into an Amended and Restated Credit Agreement. This agreement, as further amended, provides a $13.7 million revolving line of credit that will mature on June 30, 2005. It is collateralized by the Company’s receivables, equipment and real estate, with interest payable at a variable rate, at the Company’s option, based on either the prime rate or the Eurodollar rate. There were outstanding borrowings of $9.2 million at October 15, 2004, and $5.4 million at April 2, 2004. Outstanding letters of credit reduced the availability under the line of credit in the amount of $4.1 million at October 15, 2004 and $2.1 million at April 2, 2004. As of October 15, 2004 and April 2, 2004, unused amounts available for borrowing under this line of credit were $.4 million and $6.2 million, respectively. Subsequent to the end of the second quarter 2005, the Company entered into a Second Amended and Restated Credit Agreement, which increases the revolving line of credit from $13.7 million to $17.5 million and extends the maturity date to July 31, 2006.

Under this agreement, as amended, the Company is required to maintain certain financial ratios and other financial conditions. In addition, there are restrictions on the incurrence of additional indebtedness, disposition of assets and transactions with affiliates. The Company was in compliance with the agreement as of October 15, 2004.

Net cash provided (used) by operating activities was $2.0 million for year to date 2005, compared to ($2.1 million) for the same period last year. During year to date 2005, financing activities totaled ($0.7 million) and consisted primarily of repayments under long-term debt and changes in drafts payable offset by net borrowings on the line of credit. During year to date 2004, financing activities totaled $2.8 million and consisted primarily of the issuance of shares net of issuance costs of $12.1 million, the issuance of subordinated notes of $3.5 million, and net borrowings on the revolving line of credit of $1.6 million, offset by repayments of long-term debt of $15.1 million. Investing activities were ($2.4 million) for the year to date 2005. Of this $2.8 million was used for capital spending and $0.3 was used to acquire centers from a franchisee. This was partially offset by $0.8 million of proceeds from asset sales. Investing activities were ($1.3 million) for year to date 2004, of which $2.3 million was used for capital spending which was partially offset by $1.1 million of proceeds from asset sales.

On May 16, 2003, the Company completed a rights offering. Total proceeds from the offering were $15.9 million, of which $12.4 million ($11.6 million net of expenses) was for the issuance of 14.1 million shares of common stock and $3.5 million was Subordinated Debt. The proceeds of the offering were used to pay off the balance, which included accrued interest, on the Subordinated Debt issued to a group of lenders organized by Jacobson Partners (see Related Party Transactions below).

The Company has entered into interest rate swap contracts to manage its exposure to fluctuations in interest rates relating to the revolving line of credit. Swap contracts fix the interest payments of floating rate debt instruments. As of October 15, 2004, contracts representing $5.0 million of notional amount were outstanding with maturity dates of November 2005 and January 2006. These contracts provide for the Company to pay interest at an average fixed rate of 2.98% in return for receiving interest at a floating rate of three month LIBOR, which is reset in three month intervals. The fair value of interest rate swap agreements is subject to changes in value due to changes in interest rates. During year to date 2005, the market value of the outstanding interest rate contracts increased $0.1 million.

Contractual Obligations and Commitments

At October 15, 2004, aggregate potential payments on leases and guarantees over the next five fiscal years and thereafter are as follows:

	Total		Less Than 1 Year		1 to 3 Years		4 to 5 Years		After 5 Years
	(In thousands)

Franchise Lease Guarantees	$	9,146	$	617	$	2,300	$	1,397	$	4,832
Franchise Lease Commitments		74,703		2,813		19,900		12,030		39,960

Total	$	83,849	$	3,430	$	22,200	$	13,427	$	44,792

Related Party Transactions

For information regarding related party transactions, see the Company’s Annual Report on Form 10-K for the fiscal year ended April 2, 2004 (see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Related Party Transactions”).

Contingencies

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires that management make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Predicting future events is inherently an imprecise activity and as such requires the use of judgment. Actual results may vary from estimates in amounts that may be material to the financial statements.

For a description of the Company’s significant accounting policies, see Note 3, “Summary of Significant Accounting Policies”, of the Notes to Condensed Consolidated Financial Statements (unaudited) included in this Report under Item 1. For a more complete description, please refer to the Company’s Annual Report on Form 10-K for the fiscal year ended April 2, 2004.

Wage and Benefit Increases

Expenses for center-level salaries, wages and benefits represented approximately 50.1% of net revenues for second quarter 2005, as compared to approximately 52.2% of net revenues in second quarter 2004. Management believes that, through increases in tuition rates, the Company can offset any future center-level wage increases caused by adjustments to the federal, state or county minimum wage rates or other market adjustments. However, no assurance can be given that rates can be increased sufficiently to cover such increased costs. The Company continually evaluates its wage structure and may implement changes at targeted local levels.

“SAFE HARBOR” STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Form 10-Q Report contains certain forward-looking statements regarding, among other things, the anticipated financial and operating results of the Company. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release any modifications or revisions to these forward-looking statements to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company cautions investors that future financial and operating results may differ materially from those projected in forward-looking statements made by, or on behalf of, the Company. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Forward-looking statements involve a number of risks and uncertainties, including, but not limited to, ability to hire, train and retain qualified personnel, continuation of federal and state assistance programs, projected exit and closure expenses, pricing, competition, insurability, demand for childcare and general economic conditions. Accordingly, actual results could differ materially from those projected in such forward-looking statements.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risks

Market risk represents the risk of loss that may impact the Company’s consolidated financial position, results of operations or cash flow. The Company is exposed to market risk due to changes in interest rates and foreign currency exchange rates.

Interest Rates. The Company has exposure to market risk for changes in interest rates related to its debt obligations. The Company does not have cash flow exposure due to rate changes on its 15% Subordinated Notes in the amount of $3.5 million as of October 15, 2004. The Company has cash flow exposure on the revolving line of credit, with an outstanding balance of $9.2 million, and its notes payable, with an outstanding balance of $0.1 million, each as of October 15, 2004. These exposures have been partially offset by the Company entering into $5.0 million notional amount of interest rate swap contracts. Accordingly, a 2% (200 basis points) change in the LIBOR rate or the prime rate would have resulted in interest expense changing by approximately $0.1 million for fiscal year 2005.

Foreign Currency Exchange Rates. The Company’s exposure to foreign currency exchange rates is limited to revenues for one company-owned center and royalties for 12 international franchised centers. Based upon the relative size of its foreign operations, the Company does not believe that the reasonably possible near-term change in the related exchange rate would have a material effect on its financial position, results of operations and cash flows.

ITEM 4. Controls and Procedures

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report, and, based on their evaluation, our chief executive officer and chief financial officer have concluded that these controls and procedures are effective. There were no significant changes in our internal control over financial reporting during the fiscal quarter ended October 15, 2004, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Disclosure controls and procedures are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

PART II – OTHER INFORMATION

ITEM 1. Legal Proceedings

Information regarding this Item is set forth in Note 5 to the Notes of Condensed Consolidated Financial Statements (unaudited) included in Part I, Item 1 of this Report.

ITEMS 2 through 4 are not applicable.

ITEM 5. OTHER INFORMATION

On November 29, 2004, the Company issued the press release attached hereto as Exhibit 99.1, announcing its results for the fiscal quarter and 28 weeks ended October 15, 2004, which press release is incorporated in this Item 5 by reference. The information in this Item 5 and the attached Exhibit 99.1 shall not be deemed filed for purposed of Section 18 of the Securities Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly stated by specific reference in such filing.

ITEM 6. Exhibits and Reports on Form 8-K

(a)	Exhibits
			4.1	Second Amended and Restated Credit Agreement dated as of November 22, 2004, between Childtime Childcare Inc. and JPMorgan Chase Bank, N.A.

			31.1	Rule 13a-14(a) Certification by William D. Davis, President and Chief Executive Officer

			31.2	Rule 13a-14(a) Certification by Frank M. Jerneycic, Treasurer and Chief Financial Officer

			32.1	Certification pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002

			32.2	Certification pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002

			99.1	Press release on November 29, 2004 announcing the Company’s results for the fiscal quarter and 28 weeks ended October 15, 2004
(b)	Reports on Form 8-K
	1)	The Company filed a Current Report on Form 8-K on August 18, 2004, announcing the results of its Annual Meeting of Shareholders, including the election of directors, the approval of amendments to its Restated Articles of Incorporation (to change the Company’s legal name and to increase the number of directors) and the approval of an amendment of the Company’s 2003 Equity Compensation Plan.
	2)	The Company filed a Current Report on Form 8-K on August 26, 2004, announcing the resignation of a member of the Company’s board of directors.
	3)	The Company filed a Current Report on Form 8-K on September 7, 2004, announcing the results for the fiscal quarter ended July 23, 2004

SIGNATURES

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

	LEARNING CARE GROUP, INC.

	(REGISTRANT)


Date: November 24, 2004	By: /s/ Frank M. Jerneycic
	Frank M. Jerneycic Chief Financial Officer and Treasurer (Duly Authorized Officer and Principal Financial Officer)

EXHIBIT INDEX

Exhibit Number	Description

4.1	Second Amended and Restated Credit Agreement dated as of November 22, 2004, between Childtime Childcare Inc. and JPMorgan Chase Bank, N.A.

31.1	Rule 13a-14(a) Certification by William D. Davis, President and Chief Executive Officer

31.2	Rule 13a-14(a) Certification by Frank M. Jerneycic, Treasurer and Chief Financial Officer

32.1	Certification pursuant to 18 U.S.C. § 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002

32.2	Certification pursuant to 18 U.S.C. § 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002

99.1	Press release on November 29, 2004 announcing the Company’s results for the fiscal quarter and 28 weeks ended October 15, 2004