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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended July 2, 2004

or

For the transition period from            to            

Commission file number 0-27248

Learning Tree International, Inc.

(Exact name of registrant as specified in its charter)

6053 West Century Boulevard, Los Angeles, CA 90045

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code. (310) 417-9700

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

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

The number of shares of common stock, $.0001 par value, outstanding as of August 5, 2004, is 16,988,885 shares.

Total number of pages 23

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LEARNING TREE INTERNATIONAL, INC.

FORM 10-Q

July 2, 2004

TABLE OF CONTENTS

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PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

See accompanying notes to condensed consolidated financial statements.

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LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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LEARNING TREE INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 Operations and Significant Accounting Policies:

The accompanying condensed consolidated financial statements have been prepared by Learning Tree International, Inc. (“Learning Tree”) pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such regulations. The condensed consolidated financial statements reflect all adjustments and disclosures which are, in the opinion of management, necessary for a fair presentation. All such adjustments are of a normal recurring nature. The condensed consolidated financial statements in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended September 30, 2003 that are contained in Learning Tree’s 2003 Annual Report on Form 10-K. Learning Tree’s business is subject to substantial risk and fluctuations in earnings. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

In the second quarter of fiscal 2004, Learning Tree adopted a 52- or 53-week fiscal year, by changing its year-end date from September 30 to the Friday nearest the end of September, which for fiscal year 2004 will be October 1, 2004. Thus, these unaudited condensed consolidated financial statements report Learning Tree’s financial position as of July 2, 2004 and September 30, 2003, its results of operations for the three and nine months ended July 2, 2004 and June 30, 2003 and its cash flows for the nine months ended July 2, 2004 and June 30, 2003.

Note 2 Computation of 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. 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. As a result, 9,000 shares and 32,000 shares were added to the weighted average number of shares outstanding to calculate the number of diluted shares outstanding for the three and nine-month periods ended July 2, 2004, respectively. Approximately 55,000 shares and 56,000 shares were added to the weighted average number of shares outstanding to calculate the number of diluted shares outstanding for the three and nine-month periods ended June 30, 2003, respectively. Approximately 1,629,000 and 1,672,000 stock options were excluded from the calculation of earnings per common share assuming dilution for the third quarters of fiscal 2004 and 2003, respectively, because they were antidilutive.

Note 3 Repurchase of Company Stock:

During the third quarter of fiscal 2004, Learning Tree repurchased approximately 39,000 shares of its Common Stock on the open market at a total cost of $549,000. During the nine months ended July 2, 2004, Learning Tree repurchased approximately 158,000 shares of its Common Stock on the open market at a total cost of $2,582,000. Learning Tree may make additional purchases through open-market transactions, but has no commitments to do so.

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Note 4 Employee Stock Options:

Learning Tree uses the intrinsic value method under APB Opinion No. 25 “Accounting for Stock Issued to Employees,” in accounting for its stock option plans. The exercise price of all stock options granted under Learning Tree’s stock option plans was equal to their fair market value at the dates of the grants. Accordingly, during the first nine months of fiscal 2004 and 2003, no compensation cost was recognized for stock options granted to employees. Had compensation cost for employee stock options 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 would have been reduced to the pro forma amounts below:

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 quarter and nine months ended July 2, 2004, respectively, the pro forma amounts were calculated using the following assumptions: risk-free interest rates of 2.6% and 2.2%; a dividend yield of zero; an expected life of two and one-half years; and a volatility of 41%. Based upon these assumptions, the pro forma weighted average fair value of the options granted during the quarter and nine months ended July 2, 2004 was $4.69 and $4.65, respectively. For options granted during the quarter and nine months ended June 30, 2003, respectively, the pro forma amounts were calculated using the following assumptions: risk-free interest rates of 1.7% and 1.9%; a dividend yield of zero; an expected life of two and one-half years; and a volatility of 41%. Based upon these assumptions, the pro forma weighted average fair value of the options granted during the quarter and nine months ended June 30, 2003 was $3.84 and $3.81, respectively.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Except for historical statements, the matters addressed in the discussion which follows are forward-looking statements. Please do not put undue reliance on these forward-looking statements, since they are based on key assumptions about future risks and uncertainties. Although Learning Tree International, Inc. (“Learning Tree”) believes that its assumptions are reasonable, inevitably some will prove to be incorrect. As a result, Learning Tree’s actual future results can be expected to differ from those in the discussion that follows, and those differences may be material. Learning Tree is not undertaking any obligation to update forward-looking statements.

In order to help the reader assess the major risks in Learning Tree’s business, Learning Tree has identified many, but not all, of these risks in Exhibit 99.1, “Risk Factors” to Learning Tree’s Annual Report on Form 10-K (“Exhibit 99.1”). Please read that exhibit carefully. Some of the factors discussed in Exhibit 99.1 that could affect Learning Tree include risks associated with:

OVERVIEW

Nature of the Business. Learning Tree is a leading worldwide vendor-independent provider of training to technology professionals and managers working in business and government organizations. Approximately two-thirds of Learning Tree participants come from Fortune 1000-level companies, their international equivalents and government organizations, and approximately one-third come from small and medium-size companies.

Learning Tree offers a broad, proprietary library of intensive instructor-led courses ranging from two days to five days in duration. At July 2, 2004, this library was comprised of 149 different course titles representing over 3,700 hours of training. Learning Tree courses focus on web development, operating systems, programming languages, databases, computer networks, computer and network security, object-oriented technology, management and key business skills.

As a leading vendor-independent provider of technology and management training, Learning Tree designs its own courses with an absolute adherence to vendor independence. Learning Tree technology courses provide participants an unbiased perspective of software and hardware products and the ability to compare and integrate multiple platforms and technologies from various vendors in a single course. Management courses address contemporary themes and requirements, but hold true to the Learning Tree premise that participants will leave their course with new knowledge and skills that can be applied on the job immediately. Learning Tree uses a well-defined, systematic approach in developing and updating its course library to provide training that is immediately relevant to course participants working in a broad range of applications and industries. Learning Tree’s proprietary course development process also allows it to customize its courses for delivery at its customers’ sites.

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Learning Tree’s courses are recommended for one to two semester hours of college credit by the American Council on Education. In addition, Learning Tree is on the National Association of State Boards of Accountancy National Registry of CPE sponsors and is a Registered Education Provider of the Project Management Institute (PMI).

The actual number of course titles that Learning Tree will execute, and their delivery dates, are subject to the rate of new technological developments and perceived customer demand. In general, titles are retired when the profits they generate are not sufficient to justify the ongoing cost of marketing them and maintaining their content. Thus, Learning Tree may or may not develop more titles than it retires in any period. Course development costs may increase in the future if Learning Tree expands its course library.

Learning Tree has structured its business so that the majority of its course costs are variable and depend primarily upon the number of course events conducted. Learning Tree schedules its course events throughout the year based on its assessment of demand. Since Learning Tree’s instructors typically work full-time in business and industry- or, in the case of management instructors, as industry consultants and facilitators- and teach Learning Tree course events as needed, Learning Tree’s instructor-related costs are largely variable. However, Learning Tree’s expenses associated with its own education centers are largely fixed.

Learning Tree adjusts its expenditures for sales and marketing depending on its strategic objectives, which generally include an assessment of Learning Tree’s expectations for influencing future customer demand, market conditions and other factors. However, if Learning Tree’s expectations regarding the results of its marketing efforts prove to be wrong, any significant revenue shortfall would have a material adverse effect on Learning Tree’s results of operations.

Recent Trends. Learning Tree believes that its business continues to be influenced by certain world events and spending trends in the corporate marketplace. Learning Tree attendee levels in each of the first three quarters of fiscal 2004 were lower than the comparable periods in fiscal 2003, and future quarterly attendee levels could continue at depressed levels.

During the second quarter of fiscal 2004, Learning Tree decided to begin increasing its mail quantities and to begin experiments with some other marketing activities. Consistent with this decision, in January Learning Tree began to significantly increase the mailing quantities of its regular catalogs, and in February it began testing a separate catalog focused exclusively on Learning Tree’s management course offerings. During the third quarter of fiscal 2004, Learning Tree concluded that its new management catalog mailings had shown some promising results and thus decided to continue that experiment. However, Learning Tree concluded that the response to the increased quantity of its regular catalogs did not appear to justify continuing the additional expenditures required for that initiative, at least for the present. Therefore, Learning Tree reduced its regular catalog quantities over the course of its May and July mailings to levels similar to those of fiscal 2003. Because those reductions began midway through Learning Tree’s third fiscal quarter, its third quarter sales and marketing expenses are higher than they had been in the same period of the prior fiscal year.

Beginning with the second quarter of fiscal 2004, Learning Tree adopted a 52- or 53-week fiscal year, changing its year-end and quarter-end dates to the Friday nearest the end of the calendar period.

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Accordingly, Learning Tree’s 2004 third fiscal quarter ended on July 2, 2004. Learning Tree made this change in order to better align its external financial reporting with the way Learning Tree operates its business. Learning Tree does not expect this change to have a significant effect on its fiscal 2004 reported results or their comparability to prior periods.

RESULTS OF OPERATIONS

The following table summarizes Learning Tree’s consolidated statements of operations for the periods indicated expressed as percentages of revenues:

In the third quarter of fiscal 2004, Learning Tree’s revenues of $39.1 million were approximately the same as the third quarter of fiscal 2003. Income (loss) from operations for the third quarter of fiscal 2004 was a loss from operations of $157,000 compared to income from operations of $1.1 million for the same quarter of fiscal 2003. Net income for the third quarter of fiscal 2004 was $66,000 compared to $1.0 million in the third quarter of fiscal 2003.

For the first nine months of fiscal 2004, Learning Tree’s revenues decreased by 1% to $114.7 million from $115.9 million for the corresponding period in fiscal 2003. Income (loss) from operations for the first nine months of fiscal 2004 was a loss from operations of $1.2 million compared to income from operations of $4.1 million for the same period in fiscal 2003. Net income for the first nine months of fiscal 2004 was $356,000 compared to $3.8 million in the corresponding period in fiscal 2003.

Revenues. Learning Tree’s revenues in the third quarter of fiscal 2004 compared to the same period in fiscal 2003 primarily reflect the net effect of increased revenues per attendee due to the effect of changes in exchange rates, offset by a decline in the number of course participants. The decline in revenues for the first nine months of fiscal 2004 is primarily due to a decline in the number of course participants, partially offset by an increase in revenues per attendee due to the effect of changes in exchange rates.

During the third quarter of fiscal 2004, Learning Tree trained 22,471 course participants, a 4% decrease from the prior year’s 23,425 course participants. For the first nine months of fiscal 2004, Learning Tree trained 65,769 effective course participants, a 6% decrease from the prior year’s 70,170 course participants.

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Average revenues per attendee increased by 4% and 5%, respectively, in the third quarter and first nine months of fiscal 2004 compared to the comparable periods in the prior year. These increases reflect a 5% and 7% increase, respectively, due to the effect of changes in foreign exchange rates in the third quarter and first nine months of fiscal 2004. These increases were partially offset by a change in course mix to a greater proportion of courses conducted at customer sites and a lower proportion conducted at Learning Tree education centers. Courses held at customer sites generally have lower revenues per attendee compared to those conducted at Learning Tree education centers.

Cost of Revenues. Learning Tree’s cost of revenues primarily includes the costs of course instructors and their travel and living expenses, course materials and equipment, freight, classroom facilities and refreshments.

The cost of revenues for the third quarter of fiscal 2004 was $18.5 million compared to $19.0 million for the third quarter of fiscal 2003. For the first nine months of fiscal 2004, the cost of revenues was $55.4 million compared to $55.3 million for the corresponding period of fiscal 2003.

The decrease in cost of revenues in the third quarter of fiscal 2004 primarily reflects a 6% decrease in the number of course events compared to the third quarter of fiscal 2003, partially offset by the effect of changes in foreign exchange rates. In the first nine months of fiscal 2004, the slight increase in cost of revenues primarily reflects the net effect of changes in foreign exchange rates, partially offset by the effect of a 5% decrease in the number of course events. Learning Tree’s cost of revenues in the third quarter and first nine months of fiscal 2004 also reflect the effects of its continuing cost reduction and control measures. During the third quarter of fiscal 2004, Learning Tree presented 1,722 course events compared to 1,828 course events during the same period in fiscal 2003. For the first nine months of fiscal 2004, Learning Tree presented 5,156 events compared to 5,412 during the corresponding period of fiscal 2003.

During the third quarter of fiscal 2004, Learning Tree’s cost of revenues decreased to 47.3% of revenues compared to 48.5% in the third quarter of fiscal 2003. For the first nine months of fiscal 2004, the cost of revenues increased to 48.3% of revenues compared to 47.7% for the same period in the prior year. Changes in foreign exchange rates did not materially affect Learning Tree’s gross profit percentage, since they increased Learning Tree’s cost of revenues by approximately the same percentage as they increased Learning Tree’s revenues in the third quarter and the first nine months of fiscal 2004.

In the third quarter of fiscal 2004, excluding the effect of exchange rates, the improvement in cost of revenues as a percentage of revenues reflects a 2% decrease in the average cost per event and a slight increase in average revenue per event compared to the third quarter of fiscal 2003. For the first nine months of fiscal 2004, also excluding the effect of exchange rates, the cost of revenues as a percentage of revenues reflects a 3% decrease in average revenue per event, partially offset by the effect of a 1% decrease in the average cost per event compared to the same period in fiscal 2003.

The improvements in the average cost per event, excluding the effect of exchange rates, primarily reflect the results of Learning Tree’s cost reduction and control measures, including reductions in instructor-related costs and decreased staffing levels. These decreases in cost per event were partially offset by the effect of increased allocated fixed cost per event, stemming from reduced utilization of Learning Tree’s education centers and course equipment, as well as other fixed costs which were spread over fewer events.

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In the third quarter of fiscal 2004, excluding the effect of exchange rates, the slight improvement in average revenue per event reflects a higher average number of attendees per event for those courses conducted in Learning Tree’s education centers. This effect was almost entirely offset by a lower average number of attendees per event for those courses conducted at customer sites, as well as the change in course mix to a greater proportion of courses conducted at customer sites. The decrease in average revenue per event in the first nine months of fiscal 2004, excluding the effect of exchange rates, primarily reflects the change in mix to a greater proportion of courses conducted at customer sites.

Course Development Expenses. Learning Tree maintains a disciplined process to develop new courses and update its existing courses. The costs incurred in that process, principally for internal product development staff and for subject matter experts, are expensed when incurred and are included in course development expenses. In fiscal 2003, course development expenses also included all costs of Learning Tree’s e-learning research and development activities, which were terminated in the third quarter of that year because Learning Tree was unable to find what it believed could be a profitable and sustainable e-learning business model.

In the third quarter of fiscal 2004, course development expenses were 5.3% of revenues compared to 4.7% for the same quarter of fiscal 2003. For the first nine months of fiscal 2004, course development expenses were 5.4% of revenues compared to 5.2% for the corresponding period in the prior year. These increases primarily reflect higher author-related expenses and the effects of changes in foreign exchange rates.

At the end of the third quarter of fiscal 2004, Learning Tree offered 149 course titles compared to 150 course titles in the prior year. During the third quarter of fiscal 2004, Learning Tree retired six old titles and introduced five new titles: “Integrating Microsoft Access with SQL Server,” “Microsoft Project Server 2003 for the Enterprise,” “Systems Management Server 2003,” “Leading Virtual and Remote Teams” and “Preparing for the Project Management Professional (PMP) Exam.”

Sales and Marketing Expenses. 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.

For the third quarter of fiscal 2004, sales and marketing expenses were 32.7% of revenues compared to 29.5% in the third quarter of fiscal 2003. For the first nine months of fiscal 2004, sales and marketing expenses were 32.0% of revenues compared to 28.1% in the corresponding period of fiscal 2003. The increases in sales and marketing expenses as a percentage of revenues primarily reflect an increase in expenditures on sales and marketing compared to the comparable periods in the prior year. During the third quarter of fiscal 2004, sales and marketing expenditures were $12.8 million compared to $11.5 million in the third quarter of the prior year. For the first nine months of fiscal 2004, sales and marketing expenses increased to $36.7 million from $32.6 million for the corresponding period of fiscal 2003.

The increases in sales and marketing expenses primarily reflect an increase in the number of regular catalogs mailed compared to the same periods in the prior year, as well as Learning Tree’s new Management Curriculum catalog which was introduced for the first time during the second quarter of fiscal 2004. In addition, these increases reflect the effect of changes in foreign exchange rates. These increases were partially offset by the effect of reduced sales and marketing staffing levels and other related expenses.

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General and Administrative Expenses. As a percentage of revenues, general and administrative expenses increased to 15.1% in the third quarter of fiscal 2004 from 14.5% in the corresponding period of fiscal 2003. For the first nine months of fiscal 2004 general and administrative expenses increased slightly to 15.5% from 15.4% as a percentage of revenues compared to the first nine months of fiscal 2003. General and administrative expenses increased to $5.9 million in the third quarter of fiscal 2004 from $5.7 million in the comparable period in fiscal 2003. This increase primarily reflects the effect of changes in foreign exchange rates. For the first nine months of fiscal 2004, general and administrative expenses decreased to $17.7 million from $17.9 million for the corresponding period in fiscal 2003. This decrease reflects the effect of Learning Tree’s cost reduction and control measures, which were nearly offset by the effect of changes in foreign exchange rates.

Other Income (Expense). Other income (expense) is primarily comprised of interest income and foreign currency transaction gains and losses. In the third quarter of fiscal 2004, other income (expense) decreased to income of $260,000 from $475,000 in the comparable period in the prior year. For the first nine months of fiscal 2004, other income (expense) of $1.8 million was slightly less than the corresponding period of fiscal 2003. These decreases primarily reflect decreases in interest income due to lower interest rates compared to a year ago. In the first nine months of fiscal 2004, these decreases were partially offset by the effect of changes in exchange rates and a $202,000 gain from the liquidation of a $1.0 million minority interest equity investment in Collegis, Inc. (formerly eduprise.com) that Learning Tree had purchased in January 2000.

Learning Tree recorded foreign exchange losses of $58,000 in the third quarter of fiscal 2004 compared to foreign exchange losses of $21,000 in the third quarter of fiscal 2003. For the first nine months of fiscal 2004, Learning Tree recorded foreign exchange gains of $524,000 compared to foreign exchange gains of $194,000 in the corresponding period of fiscal 2003. These transaction gains and losses arose from cash balances, receivables and payables denominated in currencies other than the functional currencies of Learning Tree’s foreign subsidiaries.

Income Taxes. The change in income taxes in the third quarter and first nine months of fiscal 2004 compared to the same periods in fiscal 2003 reflects the decrease in taxable income. Learning Tree’s marginal tax rate was 35.5% for all periods presented.

FLUCTUATIONS IN QUARTERLY RESULTS

Historically, Learning Tree’s quarterly operating results have fluctuated, and that is expected to continue in the future. The fluctuations may be caused by many factors such as: (i) the frequency of course events; (ii) the number of weeks during which courses can be conducted in a quarter; (iii) the timing, timely delivery, frequency and size of, and response to Learning Tree’s direct mail marketing and advertising campaigns; (iv) the timing of the introduction of new course titles; (v) the mix between course events held at customer sites and course events held in Learning Tree’s education centers and hotels due to differing gross profit margins; (vi) competitive forces within markets served by Learning Tree; (vii) Learning Tree’s ability to attract customers and meet their expectations; (viii) currency fluctuations and other risks inherent in international operations; (ix) natural disasters, external strikes, acts of war or terrorism and other external factors; and (x) general economic conditions and industry-specific slowdowns. Fluctuations in quarter-to-quarter results also occur as a result of differences in the timing of Learning Tree’s spending on the marketing of its courses. In addition, the timing of Learning Tree’s spending on the development of its courses and other areas may also result, to a lesser extent, in quarter-to-quarter fluctuations. See Exhibit 99.1, “Risk Factors” to Learning Tree’s Annual Report on Form 10-K.

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Learning Tree’s quarterly revenues and income also typically reflect seasonal patterns. Generally, Learning Tree’s revenue and operating income are greater in the second half of its fiscal year (April through September) than in the first half (October through March). This is due in large part to seasonal spending patterns of Learning Tree’s customers, which are affected by, among other things, matters such as their budgetary considerations; factors specific to their business or industry; and weather, holiday and vacation considerations. However, the effects of periods of rapid acceleration or deceleration of revenues can offset these seasonal effects. There can be no assurance that these seasonal factors or their effects will remain the same in the future.

LIQUIDITY AND CAPITAL RESOURCES

Learning Tree’s cash and cash equivalents decreased to $81.3 million at July 2, 2004 from $86.7 million at September 30, 2003. This decrease primarily reflects investments in course equipment, repurchases of Learning Tree’s Common Stock and cash used in operations during the first nine months of fiscal 2004. These decreases were partially offset by the favorable effect of exchange rates on cash and proceeds from the liquidation of a minority interest equity investment in Collegis, Inc. (formerly eduprise.com).

During the third quarter of fiscal 2004, Learning Tree repurchased approximately 39,000 shares of its Common Stock for approximately $549,000. During the first nine months of fiscal 2004, Learning Tree paid approximately $2.6 million to repurchase approximately 158,000 shares of its Common Stock. Learning Tree may make additional purchases through open-market transactions, but has no commitments to do so. See Part II, Item 2 “Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.”

Cash used in operations for the first nine months of fiscal 2004 was $1.3 million compared to cash provided by operations of $3.7 million in the first nine months of fiscal 2003. This decrease primarily reflects lower profitability and the timing of cash receipts. At July 2, 2004, Learning Tree had a net working capital balance of $38.8 million.

During the first nine months of fiscal 2004, Learning Tree invested $5.0 million in equipment and facilities compared to $2.1 million in the first nine months of fiscal 2003. The investments in the first nine months of fiscal 2004 primarily relate to purchases of course equipment. Although Learning Tree expects to continue to invest in additional equipment in fiscal 2004, as of July 2, 2004, Learning Tree had no material future purchase obligations, capital commitments or debt. In addition, while Learning Tree has no current agreements in place or negotiations underway with respect to any acquisition, in the future, Learning Tree may use cash for acquisitions or other strategic transactions. Accordingly, Learning Tree believes its cash and cash equivalents and the cash provided by its operations will be sufficient to meet its cash requirements for the foreseeable future.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

Management’s discussion and analysis of Learning Tree’s financial condition and results of operations is based upon Learning Tree’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make judgments, estimates and assumptions that affect the

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amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The following list of critical accounting estimates and policies is not intended to be a comprehensive list of all of Learning Tree’s accounting policies. Learning Tree’s significant accounting policies are more fully described in Learning Tree’s Annual Report on Form 10-K in Note 1 of “Notes to Consolidated Financial Statements.” The following represents a summary of Learning Tree’s critical accounting estimates and policies, defined as those policies that Learning Tree believes are the most important to the portrayal of Learning Tree’s financial condition and results of operations, and/or require management’s significant judgments and estimates.

Critical Accounting Estimates

Revenue Recognition. Learning Tree offers its customers a multiple-course sales discount referred to as a Training Passport. A Training Passport allows an individual passport holder to attend up to a specified number of Learning Tree courses over a one-year period for a fixed price. For a Training Passport, the amount of revenue recognized for each attendance in one of Learning Tree’s courses is based upon the selling price of the Training Passport, the list price of the course taken and the estimated average number of courses passport holders will actually attend. Upon expiration of a Training Passport, Learning Tree records the difference, if any, between the revenues previously recognized and the Training Passport selling price. The estimated attendance rate is based upon the historical experience of the average actual number of course events that Training Passport holders have been attending. If the Training Passport attendance rates change, the revenue recognition rate for all active Training Passports and for all Training Passports sold thereafter is adjusted.

Learning Tree believes it is appropriate to recognize revenues on this basis in order to most closely match revenue and related costs, as the substantial majority of its Passport holders do not attend the maximum number of course events permitted under their Training Passport. Learning Tree believes that the use of historical data is reasonable and appropriate because of the relative stability of the average actual number of course events attended by the tens of thousands of Passport holders since the inception of the program in fiscal 1993.

The average actual attendance rate for all expired Training Passports has closely approximated the estimated rate utilized by Learning Tree. Although Learning Tree has seen no material changes in the historical rates as the number of course titles has changed, it monitors such potential effects. In general, determining the estimated average number of course events that will be attended by a Training 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. If the estimates are wrong, Learning Tree would record the difference between the revenues previously recognized for that Training Passport and the Training Passport selling price upon expiration of that Training Passport. Thus, the timing of revenue recognition may be affected by an error in estimation, but the error would have no effect on the aggregate revenue recognized over the 12-month life of each Training Passport.

Critical Accounting Policies

Revenue Recognition. Course events range from two to five days, with an average of approximately four days. For individual course enrollments, it is Learning Tree’s policy to recognize revenues and the related direct costs of course events as courses are delivered on a straight-line basis. However, for administrative purposes, the revenues and the related costs of course events are recorded upon commencement of each course event, unless the difference between Learning Tree’s revenue recognition policy and recording revenues and related course costs on a straight-line basis is more than inconsequential.

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In addition to its Training Passports, Learning Tree also offers a multiple-course sales discount referred to as Training Vouchers. Under Learning Tree’s Training Vouchers, a customer buys the right to send a specified number of attendees to Learning Tree courses over a one-year period for a fixed price. Revenue is recognized on a pro rata basis for each attendance. If a Training Voucher expires unused, Learning Tree records the selling price of the expired Training Voucher as revenue.

Prepaid Marketing Expenses. Prepaid marketing expenses are charged to income 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.

Course Development Costs. Course development costs are charged to operations in the period incurred.

Stock Based Compensation. Learning Tree uses the intrinsic value method under APB Opinion No. 25 “Accounting for Stock Issued to Employees,” in accounting for its stock option plans. The exercise price of all stock options granted under Learning Tree’s stock option plans was equal to their fair market value at the dates of the grants. Accordingly, no compensation cost was recognized during fiscal 2003 and fiscal 2004 for stock options granted to employees.

Facilities, Intangible and Other Long-Lived Assets. Learning Tree periodically reviews the carrying value of its facilities, intangible and other long-lived assets to identify and assess any impairment of the carrying value.

Income Taxes. Learning Tree applies SFAS No. 109 “Accounting for Income Taxes,” in accounting for income taxes. Under SFAS No. 109, 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. Deferred income tax assets arise from expected reductions in taxes payable in future periods. Deferred tax assets reflect management’s estimate of the amounts that will be realized from future profitability and can be predicted with reasonable certainty. Deferred income tax liabilities represent taxes that Learning Tree expects to pay in future periods.

OUTLOOK FOR FISCAL 2004

Throughout this document, there have been various forward-looking statements. However, all of the statements in this section are forward-looking and are subject to various risks and uncertainties, including those detailed from time to time in Learning Tree’s filings with the Securities and Exchange Commission, including Learning Tree’s Annual Report on Form 10-K and in Exhibit 99.1, “Risk Factors.” Since economic and market conditions may change at any time, Learning Tree’s future revenues, plans and expenditures will vary from the observations below, and these differences may be material.

Recent Trends. In August 2004, Learning Tree achieved a significant milestone in completing its 30^th year in providing quality educational services to corporate and government customers around the world. Learning Tree believes that quality remains the underlying driving force for its long-term success. During its third quarter of fiscal 2004, Learning Tree’s participants’ evaluations of the quality of its instructors and courses maintained fiscal 2004’s record high level of customer satisfaction ratings.

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Learning Tree’s customers have responded positively to its recent increase in the breadth and depth of its management course offerings. As the technology marketplace has become more competitive for companies and for individuals, Learning Tree believes that it is becoming increasingly important that technology professionals and their managers have the requisite knowledge and skill sets to effectively manage projects and internal processes. Accordingly, based on input from its customers, Learning Tree intends to continue growing its management program.

Effect of Exchange Rates. Approximately half of Learning Tree’s business is conducted in currencies other than U.S. dollars and fluctuations in exchange rates will affect future revenues and expenses when translated into dollars. If the exchange rates of July 30, 2004 remain stable through the remainder of fiscal 2004, Learning Tree’s revenues would be favorably affected by approximately 5% in the fourth quarter and approximately 6% for its full fiscal year compared to the corresponding periods in fiscal 2003. Conversely, Learning Tree’s expenses would be unfavorably affected by similar percentages in these periods.

Fourth Quarter 2004 Revenues. A number of factors may influence Learning Tree’s revenues in the fourth fiscal quarter ending October 1, 2004. These include the following:

Based upon the above and other factors, Learning Tree believes that its revenues in the fourth quarter of fiscal 2004 will be approximately $37.0 million to $39.0 million.

Fourth Quarter Gross Profit. During the fourth quarter of fiscal 2004, Learning Tree expects to have fewer attendees and thus expects to conduct fewer course events than it did during its third quarter of fiscal 2004. Since Learning Tree has excess capacity in its education centers, the related fixed costs of these facilities will be absorbed by fewer events. As a result, Learning Tree expects its gross profit percentage to be approximately one-half percentage point lower than in its third quarter of fiscal 2004.

Fourth Quarter Operating Expenses. Learning Tree expects its fourth quarter operating expenses to be approximately $1.0 million higher than in its fourth quarter of fiscal 2003. Approximately $700,000 of that increase is expected to result from year-over-year changes in foreign exchange rates. The remainder of that increase is expected to result primarily from higher general and administrative expenses due to a one-time reduction of certain accruals in its fourth quarter of fiscal 2003, partially offset by lower selling and marketing expenses in fiscal 2004. Learning Tree expects its regular catalog quantities in the fourth quarter of fiscal 2004 to be somewhat less than in the fourth quarter of fiscal 2003, primarily as a result of continued refinement of the market segments to which it mails. Learning Tree also will continue to mail Learning Tree’s newly introduced management catalogs in its fourth quarter of fiscal 2004.

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Fourth Quarter Interest Income. Interest income reflects changes in interest rates, as well as changes in Learning Tree’s cash balances. Learning Tree expects its fourth quarter interest income to be approximately the same as it was in its third quarter of fiscal 2004.

2004 Tax Rate. Learning Tree estimates that its tax rate in fiscal 2004 will be approximately 35.5%.

Future Outlook. Learning Tree remains confident in the long-term outlook for the technology industry and the need for technology and management training. Learning Tree believes that technology provides mission-critical resources that can be used by organizations to gain a competitive advantage, provided that their technical personnel are adequately trained in the technologies they are using. Learning Tree believes that the acquisition and application of professional management skills are, if anything, even more essential for their success. Learning Tree believes that its strong global brand, operational strengths and financial resources position it to respond both to the current business environment and to future opportunities that may develop. Learning Tree will continue to apply its considerable resources to provide the best possible service to its customers with the expectation of maintaining their continuing loyalty and capturing additional market share.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Learning Tree’s cash equivalents are diversified and consist primarily of investment grade securities of high-quality financial institutions and corporations. The fair value of Learning Tree’s portfolio of marketable securities would not be significantly impacted by either a 10 percent (approximately 10 basis points) increase or decrease in the rates of interest due primarily to the short-term nature of the portfolio. Learning Tree does not hold or issue derivative financial instruments.

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, changes in exchange rates can result in exchange gains or losses. The impact of future exchange rates on Learning Tree’s results of operations cannot be accurately predicted. To date, Learning Tree 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, Learning Tree may undertake such transactions. However, any hedging techniques implemented by Learning Tree might not be successful in eliminating or reducing the effects of currency fluctuations. See Exhibit 99.1, “Risk Factors” to Learning Tree’s Annual Report on Form 10-K.

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Item 4. CONTROLS AND PROCEDURES

Learning Tree maintains disclosure controls and procedures designed to ensure that information required to be disclosed by Learning Tree in the reports that it files or submits under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Learning Tree’s disclosure controls and procedures are designed to provide reasonable, not absolute, assurance of achieving their objectives. As of the end of the period covered by this report, Learning Tree carried out an evaluation of the effectiveness of the design and operation of Learning Tree’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-14 and 15d-14. The evaluation was conducted under the supervision of, and with the participation of, Learning Tree’s management, including Learning Tree’s Chief Executive Officer (“CEO”) and Principal Financial Officer (“PFO”). Based upon that evaluation, and subject to the limitations noted below, Learning Tree’s CEO and PFO concluded that Learning Tree’s disclosure controls and procedures are effective at the “reasonable assurance” level in alerting them, on a timely basis, to material information relating to Learning Tree (including its consolidated subsidiaries) that is required to be included in its periodic filings with the Securities and Exchange Commission.

Since the most recent evaluation of Learning Tree’s internal control over financial reporting by Learning Tree’s CEO and PFO, there have been no significant changes in its internal control over financial reporting or in other factors that could materially affect, or is reasonably likely to materially affect, Learning Tree’s internal control over financial reporting.

Learning Tree’s management, including its CEO and PFO, does not expect that its disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Learning Tree have been detected. These inherent limitations include the reality that judgments and decisions can be wrong, although made in good faith in light of the information available at the time, and that breakdowns can result from inadvertent errors or mistakes or by management override of the controls. Additionally, controls can be disrupted and circumvented by the bad faith acts of one or more persons. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future circumstances. To maintain adequate and efficient controls, over time, Learning Tree’s CEO and PFO periodically review Learning Tree’s internal and disclosure controls with other members of Learning Tree’s management and update controls and systems as needed.

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PART II – OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

None

Item 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES

LEARNING TREE PURCHASES OF EQUITY SECURITIES

(a) None of the Learning Tree Common Stock repurchases were made pursuant to a publicly announced plan. All Learning Tree Common Stock repurchases were made in open-market transactions.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

Item 5. OTHER INFORMATION

Not Applicable

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Item 6. EXHIBITS AND REPORTS ON FORM 8-K

31.1 Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer

31.2 Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer

32.1 Section 1350 Certification of Chief Executive Officer and President (Principal Financial Officer)

On May 5, 2004, Learning Tree International, Inc. filed a “Regulation FD Disclosure” on Form 8-K, which included a copy of a press release issued by Learning Tree setting forth its results of operations for the quarter and six-months ended April 2, 2004.

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SIGNATURES

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

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